Judge Erred in Not Continuing Matter So Plaintiffs Could Gain Discovery Showing That Reasonable Consumer Would Suppose That ‘Kohl’s Cash’ Program Operates Differently From What’s Stated on Coupons—Opinion
By a MetNews Staff Writer
A Los Angeles Superior Court judge erred in terminating a putative class action based on evidence that Kohl’s Department Stores, Inc. applies its “Kohl’s Cash” program precisely in conformity with the rules stated on rewards certificates it issues, the Court of Appeal for this district held yesterday, declaring that discovery should have been allowed to show that the average consumer would make assumptions contrary to what is stated.
The unpublished opinion for Div. Seven was authored by Orange Superior Court Judge Melissa R. McCormick, sitting on assignment. It reverses a judgment by Judge Elihu M. Berle in favor of Kohl’s.
Berle on Jan. 10, 2019 granted Kohl’s motion pursuant to Civil Code §1781(c)(3) that the cause of action stated by plaintiffs Crystal Waters and Tony Valenti under the Consumer Legal Remedies Act (“CLRA”) has “no merit.”
“Based upon the evidence presented and the specific plain language of the coupons in evidence, the court finds that no reasonable consumer would be misled regarding the use of the Kohl’s Cash coupons.”
Predicated on that determination, Berle on July 2, 2019, granted judgment on the pleadings in favor of the defendant on causes of action under the Unfair Competition Law (“UCL”) and the False Advertising Law (“FAL”).
Yesterday’s opinion reinstates the causes of action under the CLRA, UCL, and FAL, while noting that Berle correctly granted judgment on the pleadings in favor of a purported cause of action for restitution, noting that no such independent cause of action exists in California.
Basis of Lawsuit
The action is centered on Kohl’s practice in applying Kohl’s Cash—$10 coupons earned for every $50 in purchases—to purchases of items that are offered for sale at a discounted price. The complaint provides the example of a consumer buying a $300 blender, thus earning $60 in Kohl’s Cash which can be applied to subsequent purchases, and buying a $100 toaster being sold for 20 percent off.
The pleading sets forth:
“If Defendants treated Kohl’s Cash as actual cash. Defendants would first apply the 20% discount to the $100, and then deduct the $60 in Kohl’s Cash, leaving the customer with an out-of-pocket expense of $20 ($80- $60). However, Defendants first deduct the $60 in Kohl’s Cash from the $100 toaster, and then apply the 20% discount to the remaining $40, leaving the customer with an out-of- pocket expense of $32. Instead of paying $20 for the toaster, the customer has paid $32. The customer has lost $12.”
It provides the chart shown below:
The complaint goes on to say that “consumers wishing to return items are left at greater disadvantage than if they had never used Kohl’s Cash in the first place,” explaining:
“In the example above, even though the customer receives the benefit of only $48 in Kohl’s Cash from the $60 certificate, when he or she subsequently returns the $300 blender, Kohl’s will deduct the full $60 from the $300 purchase price, and refund him only $240. The customer has now paid $92 for a toaster that would have cost him or her no more than $80 if he or she had never used Kohl’s Cash. Defendants have retained $12 in ‘Overpayment Charges’ from this customer.”
While not refuting the plaintiffs’ arithmetic, Kohl’s argued that the transactions are handled strictly in accordance with rules plainly stated on the backs of coupon, citing this language:
“The Kohl’s Cash certificate cited by Kohl’s states: “Kohl’s Cash coupons and other dollar-off discounts will be applied prior to percent-off total purchase discounts/coupons....If merchandise purchased earning a Kohl’s Cash coupon is subsequently returned or price adjusted, the value of the Kohl’s Cash coupon previously earned and/or the amount of the merchandise refund will be reduced to reflect any unearned value. Return value of merchandise purchased with a Kohl’s Cash coupon may be subject to adjustment.”
Kohl’s argued that the plaintiffs “cannot claim to have mistaken the coupons for cash, any more than Froot Loops cereal could be mistaken for actual fruit.”
Reversal came because Berle did not honor the request by the plaintiff’s West Los Angeles lawyer, Jordan S. Esensten, to put off ruling on the “no-merit” motion until he could gain discovery, which Kohl’s had resisted. In particular, he wanted any “consumer correspondence or complaints concerning Kohl’s Cash” to fortify the position that the average consumer would expect the rewards to be applied after discounts were applied.
Appeals Court Opinion
McCormick agreed, saying:
“Waters should have been permitted a reasonable opportunity to take discovery on the likelihood that Kohl’s Cash certificates mislead a reasonable consumer before the trial court adjudicated the CLRA cause of action against her on the ground that the certificates do not mislead a reasonable consumer. Because she was not, the order granting Kohl’s’ no-merit motion must be reversed, as must the order granting Kohl’s’ motion for judgment on the pleadings on Waters’s UCL and FAL causes of action, which rests on the order granting the no-merit motion.”
The case is Waters v. Kohl’s Department Stores, B300638.
Counsel on appeal were Robert L. Esensten and Jordan S. Esensten of Esensten Law for Waters and Valenti and Lauri A. Mazzuchetti, Tahir L. Boykins and Rebecca J. Wahlquist of Kelley Drye & Warren for Kohl’s.
In Ohio, the Lake County Court of Common Pleas in 2018 granted summary judgment in favor of Kohl’s, finding that the plaintiff “and no other consumer had a reasonable belief that Kohl’s Cash would not be applied” before applying discounts. The judge found:
“The Kohl’s Cash explicitly states that it is applied first when/if the consumer also uses a percentage off coupon for one transaction. The evidence indicates that Plaintiff did not read her Kohl’s Cash coupon and merely believed that a percentage off coupon should be applied before the Kohl’s Cash.”
The Court of Appeals affirmed that decision on May 28, 2019 in Henry v. Kohl’s Dept. Stores, Inc.
In 2015, Kohl’s agreed to pay $958,686.27 in civil penalties in an action brought by four California counties over the Kohl’s Cash program.
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