People v. Kohl’s Department Stores Inc.

Unfair Competition, False Advertising

Los Angeles County

Superior Court Judge Ann I. Jones

Defense Attorneys: Arnold & Porter Kaye Scholer Llp, James F. Speyer, E. Alex Beroukhim, Hannah R. Coleman, Stesha N. Ryu, Oscar D. Ramallo, Lauren S. Lee

Plaintiffs Attorneys: Lieff Cabraser Heimann & Bernstein, Llp, Michael W. Sobol, Katherine L. Benson; Hattis & Lukacs, Daniel M. Hattis

James F. Speyer

After five years of litigation, the city of Los Angeles' $50 billion lawsuit accusing Kohl's Department Stores of using misleading price tags ended in September, with Arnold & Porter Kaye Scholer LLP defense attorneys saying this "decisive victory may stem the flow of these lawsuits."

Los Angeles sued Kohl's in 2016, accusing it of committing a series of violations of California's Unfair Competition Law and False Advertising Law.

The lawsuit dealt with Kohl's reference price advertising, in which a sale price is listed accompanied by a higher reference price in the form of an "original" or "regular" price. The city stated the reference prices were deceptive as Kohl's had never offered the merchandise at the "regular" or "original" price.

James F. Speyer, who led the Arnold & Porter Kaye Scholer LLP team that represented Kohl's, said there are several reasons why the defense verdict is important.

Plaintiff's firm Lieff Cabraser Heimann & Bernstein LLP represented the city in the bench trial.

"This is a lawsuit by the city of Los Angeles and some of its most prominent plaintiffs [attorneys], and they went down in flames. If they can't win, it's a warning sign that cases like this are not worth it," Speyer said.

Los Angeles City Attorney Michael N. Feuer voluntarily dismissed the case with prejudice on Sept. 30. People v. Kohl's, BC643037 (Los Angeles Co. Sup. Ct., filed Dec. 8, 2016).

The city was seeking $5,000 in civil penalties for each violation.

As Speyer put it, "They claimed there were millions of violations, for over $50 billion."

The Arnold & Porter Kaye Scholer attorneys argued that the premise was flawed. If consumers believed "regular" or "original" referred to the average market price of the item, then the city's theory of deception would collapse, Speyer's team said.

To prove whether the ads were deceptive, the city had to first show that consumers interpreted or understood the ads to refer to Kohl's own former prices.

Speyer said that what most convinced the judge was the experts. Defense expert witness Ran Kivetz, a Columbia University Business School professor, "was extremely well qualified and highly credible, which made all the difference," he added.

Los Angeles County Superior Court Judge Ann I. Jones was critical of the plaintiff's expert, Clarkson University professor emeritus Larry Compeau. She said he failed to conduct a consumer survey to determine how customers interpreted the advertisement.

"He performed no interviews, nor did he convene any consumer focus groups," Jones wrote, adding that Compeau "lacked competent scientific support for his opinions."

The city brought similar lawsuits against Macy's, Sears, and J.C. Penney. Kohl's was selected as the lead case, but the cases against Sears and J.C. Penney have been stayed due to their respective companies' bankruptcies.

Michael W. Sobol of Lieff Cabraser referred questions to the city attorney's office, where spokesman Rob Wilcox declined to respond to multiple requests for comment.

- Federico Lo Guidice