YORAM KAHN, individually and on behalf of all others similarly situated, Plaintiff-Appellant, v. WALMART INC., Defendant-Appellee.
No. 23-1751
United States Court of Appeals, Seventh Circuit
Argued January 10, 2024 — Decided July 3, 2024
In the
United States Court of Appeals
For the Seventh Circuit ____________________
No. 23-1751
YORAM KAHN, individually and
on behalf of all others similarly situated,
Plaintiff-Appellant,
v.
WALMART INC.,
Defendant-Appellee.
____________________
Northern District of Illinois, Eastern Division.
No. 1:22-cv-04177 — Sara L. Ellis, Judge.
____________________
ARGUED JANUARY 10, 2024 — DECIDED JULY 3, 2024
____________________
Before SYKES, Chief Judge, and HAMILTON and LEE, Circuit
Judges.
HAMILTON, Circuit Judge. This appeal turns on what constitutes reasonable consumer behavior for purposes of state
consumer protection law. Plaintiff Yoram Kahn alleges that
the nation’s largest retailer—defendant Walmart Inc.—takes
advantage of consumers in Illinois and nationwide with deceptive and unfair pricing practices. At the heart of the case,
Kahn alleges, are numerous small discrepancies between the
prices advertised on Walmart’s shelves and the prices actually
charged at the cash register. The individual discrepancies are
small but according to plaintiff add up to hundreds of millions of dollars each year. Kahn alleges that Walmart is aware
of these discrepancies between shelf prices and register prices
and that its unfair and deceptive pricing practices are pervasive and continuous.
More specifically, Kahn alleges that the discrepancies between shelf prices and register prices violate the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”),
Practices Act (“UDTPA”),
states’ consumer protection statutes. Kahn also brings a claim
for unjust
of similarly situated consumers.
The district court dismissed the case on the pleadings and
denied leave to amend the complaint. We reverse because the
complaint states some viable claims. We reject the theory that
providing a customer with a receipt after payment stating the
actual price charged is sufficient, at least as a matter of law, to
dispel any potential deception or unfairness caused by an inaccurate shelf price. We reverse the dismissal of Kahn’s ICFA
and UDTPA claims for failure to allege a deceptive or unfair
practice or the required intent. We agree with defendant that
plaintiff has not alleged a plausible likelihood of future injury
needed for injunctive relief under the UDTPA, though we
modify dismissal of that claim to give plaintiff an opportunity
to amend his complaint if he believes he can cure that problem. We reverse the judgment dismissing plaintiff’s other
individual and class claims. We remand the case for further
proceedings.
I. Factual Background & Procedural History
A. Factual Background
Defendant Walmart moved to dismiss this case on the
pleadings, so we focus on the facts alleged in plaintiff’s complaint. Walmart’s tactical choice requires us to treat Kahn’s
factual allegations as true. E.g., Goldberg v. United States, 881
F.3d 529, 531 (7th Cir. 2018).
Walmart uses shelf pricing to advertise merchandise
prices, to let consumers compare prices, and to induce them
to buy the advertised merchandise. Walmart’s shelf pricing
does not always reflect the price it charges consumers at the
point of sale, causing consumers to pay higher prices at checkout. State agencies have imposed fines on Walmart for this
practice. For example, in 2012, California assessed a $2 million
fine against Walmart for violating a 2008 ruling requiring it to
resolve pricing errors at checkout. In November 2021, North
Carolina fined two Walmart stores after an investigation
found repeated and excessive scanning errors that caused
overcharges on three to seven percent of items purchased
each month. In February 2022, five additional Walmart stores
had to pay North Carolina over $15,000 in fines for overcharging consumers due to price scanning errors.
Plaintiff Kahn is a citizen of Ohio. He shopped at a
Walmart store in Niles, Illinois, on August 2, 2022. Kahn alleges that he read and relied on the shelf pricing in deciding
what to purchase. Ultimately, he bought fifteen items for a
pretax total of $27.69. After paying, Kahn reviewed his receipt. He determined that Walmart charged him more than
the listed shelf price on six of the items he purchased. The advertised shelf prices of these six items ranged from $1.64 for a
candy bar to $3.94 for muffins. When Kahn checked out, the
actual prices of these six items scanned at ten to fifteen percent
markups above the shelf prices. In total, Kahn paid Walmart
$1.89 in overcharges on these six items, nearly seven percent
of the pretax total of his bill. Small change for Kahn as an individual, no doubt, but keep in mind the volume of Walmart’s
business.
Kahn’s counsel investigated Walmart’s shelf pricing at
other stores in Illinois and in Florida, Indiana, Maryland, New
Jersey, and New York. They found similar examples of
overcharges. Counsel also found that, despite being fined by
state regulators in February 2022 for overcharges, two
Walmart stores in North Carolina continued to have
overcharges in August 2022.
After his visit to the Walmart in Niles, Kahn filed this lawsuit in federal court alleging that Walmart’s pricing discrepancies violate the ICFA,
UDTPA,
unjust enrichment. The number of potential class members
and the financial stakes are sufficient to support federal jurisdiction under the Class Action Fairness Act,
§ 1332(d), with minimal diversity of citizenship. Walmart
moved to dismiss the entire case for failure to state a claim.
The district court granted Walmart’s motion to dismiss,
finding that plaintiff had failed to allege a plausible claim under the ICFA or the UDTPA, and accordingly, that his unjust
enrichment and class claims also failed. Kahn v. Walmart, Inc.,
No. 1:22-cv-04177, 2023 WL 2599858, at *1 (N.D. Ill. Mar. 21,
2023). The district court noted that plaintiff tried to allege both
unfair and deceptive practices under the ICFA. In federal
court, unfair practice claims are usually subject to only the
standard pleading requirements of Federal Rule of Civil Procedure 8. But the district court found that all of plaintiff’s
ICFA allegations were premised on “Walmart’s alleged concealment of the actual prices of its items,” even though unfairness and deception are distinct theories under the ICFA. Id. at
*2. The court treated plaintiff’s allegations “solely as a deceptive practices claim” and applied Rule 9(b)’s heightened
pleading requirements. Id., citing
The district court granted the motion to dismiss, reasoning
that “where Walmart provides its customers with a receipt to
compare the scanned price with the shelf price,” there is “no
possibility for deception.” Id. at *3, quoting Killeen v.
McDonald’s Corp., 317 F. Supp. 3d 1012, 1013 (N.D. Ill. 2018).
Here, “Kahn could, and indeed did, use this receipt to
compare the prices Walmart charged him with the advertised
shelf pricing. This comparison revealed the discrepancy and
dispelled any potential deception.” Id. The district court also
held that plaintiff failed to allege that Walmart intended for
him to rely on the inaccurate shelf pricing. The court held that
providing plaintiff a receipt so he could “compare the shelf
price to the scanned price” rendered it implausible that
Walmart intended for customers to rely on incorrect shelf
prices. Id. at *4.
The district court then considered Kahn’s remaining
claims, finding that they failed “for the same reasons as his
ICFA claim.” Id. His UDTPA claim required the same two
elements he failed to plead adequately under the ICFA, “a
deceptive representation, made with the intention that the
consumer rely on the misrepresentation.” Id., citing
510/2. The court dismissed the claim for unjust enrichment
because it could not stand on its own without a viable
statutory claim. Because all of Kahn’s individual claims had
been dismissed, the district court also dismissed his class
claims. Finally, the district court denied plaintiff leave to
amend his individual claims on the ground that any
amendment would be futile. Id. at *5. Plaintiff has appealed.
II. Analysis
A. Legal Standard
We review de novo a district court’s dismissal of a case
under
Raoul, 944 F.3d 686, 690 (7th Cir. 2019). We treat the complaint’s factual allegations as true and draw every factual inference in the plaintiff’s favor. Boogaard v. Nat’l Hockey League,
891 F.3d 289, 290–91
show only that the claim is “plausible on its face” and that, if
the allegations are true, the plaintiff is entitled to relief. Roldan
v. Stroud, 52 F.4th 335, 339 (7th Cir. 2022), citing Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 570 (2007).
This pleading standard requires plaintiffs to allege only
enough facts to “nudge[] their claims across the line from conceivable to plausible.” Twombly, 550 U.S. at 570. To be plausible rather than merely conceivable means that the complaint’s
“factual content … allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Firestone Financial Corp. v. Meyer, 796 F.3d 822, 826 (7th
Cir. 2015), quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
The factual allegations must present “more than a sheer possibility” that the defendant’s conduct is unlawful, Iqbal, 556
U.S. at 678, but a complaint survives a motion to dismiss
“even if it strikes a savvy judge that actual proof of those facts
is improbable, and that a recovery is very remote and unlikely.” Alam v. Miller Brewing Co., 709 F.3d 662, 666 (7th Cir.
2013), quoting Twombly, 550 U.S. at 556.
We agree with the district court that some of Kahn’s claims
sound in fraud and are thus subject to a higher pleading
standard under
Group, Inc., 477 F.3d 502, 507 (7th Cir. 2007) (
to any claim that “sounds in fraud”); Camasta v. Jos. A. Bank
Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014) (applying
9(b) pleading standard to ICFA claim).
pleading to “state with particularity the circumstances constituting fraud.” It is designed “to force the plaintiff to do more
than the usual investigation before filing his complaint.”
Ackerman v. Northwestern Mutual Life Ins. Co., 172 F.3d 467, 469
(7th Cir. 1999). The precise level of particularity required under
“ordinarily requires describing the who, what, when, where,
and how of the fraud.” AnchorBank, FSB v. Hofer, 649 F.3d 610,
615 (7th Cir. 2011) (internal quotations omitted). Still, even
We focus in Part B on the reasonable consumer standard
as it applies to this case. We explain then in Part C how Kahn
has alleged viable claims for deceptive and unfair practices
under the ICFA, addressing Walmart’s counterarguments as
we go. We explain in Part D why we reverse the district court’s
dismissal with prejudice of Kahn’s other individual claims
under the UDTPA and for unjust enrichment, as well as its
dismissal without prejudice of his class claims.
B. Reasonable Consumer Behavior
The state consumer protection laws at issue here all require plaintiffs to prove that the relevant acts or practices are
“likely to deceive reasonable consumers.” Bell v. Publix Super
Markets, Inc., 982 F.3d 468, 474 (7th Cir. 2020), quoting
Beardsall v. CVS Pharmacy, Inc., 953 F.3d 969, 972 (7th Cir.
2020). This standard “requires a probability that a significant
portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled.” Id., quoting Beardsall, 953 F.3d at 973; see also Moore v.
Mars Petcare
(adopting same “reasonable consumer” test for California
consumer protection statute). The qualifier “in the circumstances” is significant. Courts considering whether consumers are “acting reasonably” must “take into account all the information available to consumers and the context in which
that information is provided and used.” Bell, 982 F.3d at 475,
477.
Reasonable consumer behavior is not a matter of pure
economic theory. Rather, reasonable consumer behaviors are
“matters of fact, subject to proof that can be tested at trial,
even if as judges we might be tempted to debate and speculate
further about them.” Id. at 481. In establishing reasonable
consumer behavior, what matters is “how consumers actually
behave—how they perceive advertising and how they make
decisions.” Id.
In applying consumer protection laws, we do not typically
hold consumers to the standard of Adam Smith’s homo economicus, a perfectly rational being who gathers and evaluates
the optimal amount of information about options in the marketplace to maximize utility preferences. See Honorable v. Easy
Life Real Estate System, 100 F. Supp. 2d 885, 888 (N.D. Ill. 2000)
(“[T]he economic theories that imply that market prices are
efficient, thus beneficial for consumers, presuppose that consumers are informed, markets are competitive, and the costs
of making transactions are not excessively burdensome. …
[N]eoclassical economics in fact assumes perfect information.”). It is well known that human cognitive abilities are
not perfect or infinite. We have limited time, computational
skills, and memories, and we rationally use mental shortcuts
to deal with those limits.1 The classical economic model often
fails to predict accurately how real humans will behave in
real-life marketplaces. See Carmody v. Board of Trustees of University of Illinois, 747 F.3d 470, 475 (7th Cir. 2014) (noting “decades of behavioral research” demonstrating predictable cognitive biases, citing Daniel Kahneman, Thinking Fast and
Slow (2011)).
Predictable tendencies in consumer behavior mean that
retail settings can be engineered to influence consumers in
ways they (meaning we) do not fully anticipate or appreciate.
“‘[M]arket outcomes frequently will be heavily influenced, if
not determined, by the ability of one actor to control the
format of information, the presentation of choices, and, in
general, the setting within which market transactions occur,’
allowing some to ‘exploit those tendencies for gain.’”
Honorable, 100 F. Supp. 2d at 888, quoting Jon D. Hanson &
Douglas A. Kysar, Taking Behavioralism Seriously: The Problem
of Market Manipulation, 74 N.Y.U. L. Rev. 630, 635 (1999). The
market itself usually cannot correct for these problems.
Instead, consumer protection regulations are often responses
to inefficiencies enabled by market manipulation.2
“We doubt it would surprise retailers and marketers if evidence showed that many grocery shoppers make quick decisions that do not involve careful consideration
advertising is aimed at creating positive impressions in buyers’ minds … subtly by implication and indirection.” Id. at
477. Only by interpreting the reasonable consumer standard
Id. at 1444. Retailers know “that blue color schemes impart calm sensations
and that shoppers walk more slowly and spend more time when the music
is slow in tempo.” Id. at 1445 (internal quotations omitted). They know
“that piped aromas (fake, of course) can increase bakery sales[,] … that
deli selections can be used to create the illusion of choice and that spraying
water on waxed produce can cause visceral improvements in customer
perception.” Id. Store, aisle, and shelf layouts are designed with scientific
exactitude to maximize sales. “Because the best viewing angle is 15 degrees below the horizontal, the choicest elevation on any aisle has been
measured at 51 to 53 inches off the floor.” Id. at 1448 (cleaned up). “[S]taples such as milk, bread, and eggs are placed at opposite extremes of the
supermarket to force shoppers to cover as much store real estate as possible.” Id. at 1447. “[S]tocking soup cans out of alphabetical order can greatly
increase sales by forcing customers to search through a variety of cans.”
Id. at 1449. And “the way a price label is designed, such as whether a dollar
sign is included, can influence how consumers view the actual price.”
Rory Van Loo, Helping Buyers Beware: The Need for Supervision of Big Retail,
163 U. Pa. L. Rev. 1311, 1333 (2015).
“The aim of atmospherics, like all supermarket sleights-of-hand, is to
maximize unplanned purchases.” Hanson & Kysar, Some Evidence of Market Manipulation, 112 Harv. L. Rev. at 1446. “[T]he average time to make
buying decisions in a supermarket is a matter of seconds,” and “two out
of every three supermarket purchases are not planned.” Id. “One study
determined that forty percent of supermarket shoppers did not check the
price of goods they chose, and less than half could identify the price of
goods that they had just put in their shopping cart.” Id. at 1450. Advances
in gathering and analyzing data have enabled further engineering of supermarkets and other retail settings. See Van Loo, Helping Buyers Beware,
163 U. Pa. L. Rev. at 1322 (“Mass retailers continually fine-tune their pricing algorithms through advanced behavioral data-mining operations”
and “film customers’ in-store movements, compile loyalty card data, and
conduct many randomized controlled trials that easily provide statistical
significance across thousands of stores and millions of transactions.”).
in line with actual consumer behavior can consumer protection laws help address problems posed by unfair or deceptive
market manipulation. Id. (“[T]he reasonable consumer standard” must “stay[] in touch with real consumer behavior.”).
Our focus in applying the reasonable consumer standard
must include “how real consumers understand the carefully
crafted messages aimed at them.” Id. at 480.
In considering inferences that can, and at this stage must,
be drawn in Kahn’s favor, we reject Walmart’s arguments that
courts should overlook the realities of attempts to influence
consumer behavior. This case concerns the nation’s largest retailer, which allegedly stands to profit by hundreds of millions each year from shelf pricing discrepancies. It is reasonable to assume that Walmart can afford to and does hire leading consumer researchers and experts.4
behavior of real consumers, it cannot defeat claims of unfair
and deceptive business practices with arguments that assume
consumer behavior in idealized markets with “perfect
information, perfect competition, and no transactions costs.”
Honorable, 100 F. Supp. 2d at 888. “[W]e have often stressed
that consumers are likely to exhibit a low degree of care when
purchasing low-priced, everyday items.” Bell, 982 F.3d at 479.
This low degree of care does not make consumers
unreasonable—it makes them human, and even economically
rational when search costs and transaction costs are included
in the utility calculus. But it also makes them vulnerable to
exploitation by unfair and deceptive practices. When
determining reasonable consumer behavior for purposes of
consumer protection law, we should consider the behavior of
real consumers instead of Adam Smith’s homo economicus with
perfect information.5
C. Plausibly Alleging a Claim Under the ICFA
Against this background, we apply the reasonable consumer standard to assess the plausibility of plaintiff’s allegations. He seeks relief under the ICFA, which is “a regulatory
and remedial statute intended to protect consumers …
against fraud, unfair methods of competition, and other unfair and deceptive business practices.” Benson v. Fannie May
Confections Brands, Inc., 944 F.3d 639, 646 (7th Cir. 2019), quoting Robinson v. Toyota Motor Credit Corp., 201 Ill. 2d 403, 416–
17, 775 N.E.2d 951, 960 (2002). The ICFA prohibits the following:
unfair or deceptive acts or practices, including
but not limited to the use or employment of any
deception[,] fraud, false pretense, false promise,
misrepresentation or the concealment, suppression or omission of any material fact, with intent
that others rely upon the concealment, suppression or omission of such material fact, or the use
or employment of any practice described in Section 2 of the [UDTPA].
business practices to be deceptive, among others: “advertis[ing] goods or services with intent not to sell them as advertised; … mak[ing] false or misleading statements of fact
concerning the reasons for, existence of, or amounts of price
reductions; [or] … engag[ing] in any other conduct which
similarly creates a likelihood of confusion or misunderstanding.”
deceptive or unfair practice; (2) with the intent that the plaintiff (or others) rely on the deception; (3) that the act occurred
in the course of trade or commerce; and (4) that the deception
caused actual damages. Robinson, 201 Ill. 2d at 417; see also
Vanzant v. Hill’s Pet Nutrition, Inc., 934 F.3d 730, 739 (7th Cir.
2019) (applying
Benson, 944 F.3d at 646 (same).
In the district court and on appeal, Walmart challenged the
first two elements at the pleadings stage. We first explain why
plaintiff has plausibly alleged a deceptive practice under the
ICFA with the particularity required by
has plausibly alleged that Walmart intended for him and
other customers to rely on its misleading shelf prices.
1. Deceptive Act or Practice
Courts apply a “reasonable consumer” standard in evaluating the likelihood of deception and look at this question in
view of the “totality of the information” available to the consumer at the point of deception. Benson, 944 F.3d at 646; accord, Davis v. G.N. Mortgage Corp., 396 F.3d 869, 884 (7th Cir.
2005). Where, as here, the alleged deceptive practice involves
misleading labels, the ICFA requires plaintiff to allege plausibly “‘that the relevant labels are likely to deceive reasonable
consumers,’ which ‘requires a probability that a significant
portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled.’” Bell, 982 F.3d at 474–75, quoting Beardsall, 953 F.3d at
972−73.
Plaintiff plausibly alleges that Walmart’s inaccurate shelf
pricing is a deceptive act or practice within the meaning of the
ICFA. There is nothing implausible about his allegations that
Walmart’s inaccurate shelf prices are likely to deceive a significant portion of reasonable consumers. It is neither “unreasonable” nor “fanciful” for consumers to believe Walmart will
sell them its merchandise at the prices advertised on its
shelves. See Bell, 982 F.3d at 477. Illinois consumer protection
law assumes that consumers will rely on advertised prices.
Both the ICFA and the UDTPA declare “misleading statements of fact concerning the … existence of … price reductions” to be deceptive acts.
advertised shelf prices are not alleged to have been accompanied by any statements warning they might not be reliable or
saying they were provisional. If shelf prices are not accurate,
they are likely to mislead reasonable consumers.6
The remainder of this subsection proceeds in two parts.
First, we explain why the district court erred in concluding
that providing a receipt after the transaction dispels as a
matter of law any deception created by Walmart’s facially
misleading shelf prices. Second, we explain how plaintiff
alleges what amounts to a form of “bait-and-switch”
deception, a theory that survives dismissal on the pleadings
even when a consumer discovers the price discrepancy
completing a transaction, let alone after.
The district court agreed that reasonable consumers
would be misled by Walmart’s inaccurate shelf prices but held
that once those consumers were given receipts with the actual
prices charged, no reasonable consumer would remain deceived. Kahn, 2023 WL 2599858, at *3 (“[W]here Walmart provides its customers with a receipt to compare the scanned
price with the shelf price,” it leaves “no possibility for deception.” (quoting Killeen, 317 F. Supp. 3d at 1013)). Here, “Kahn
could, and indeed did, use this receipt to compare the prices
Walmart charged him with the advertised shelf pricing. This
comparison revealed the discrepancy and dispelled any potential deception.” Id.
We understand the court’s point but respectfully disagree
with the conclusion, especially when we focus on reasonable
. Price is obviously a mate-consumer behavior under the totality of the circumstances.
For two reasons, merely providing a receipt is insufficient to
dispel the deception created by Walmart’s inaccurate shelf
prices, at least as a matter of law on the pleadings. First,
Walmart provides receipts to its customers only after their
transactions have concluded. Corrective information provided to the consumer after the transaction will not necessarily affect the reasonable consumer analysis. “A sales receipt
provided to a consumer after a purchase cannot show what
was supposedly advertised,” here, the shelf price. See Camasta
v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 737–38 (7th Cir.
2014). Rather, to be relevant for our analysis, any correction
“must have been made to [the consumer] before the purchase
of the merchandise.” Id. at 738 (emphasis in original); accord,
Benson, 944 F.3d at 646–47 (reversing dismissal on pleadings;
receipt listing net weight of candy did not necessarily dispel
alleged deception created by oversized packaging); Gansberg
v. Kroger, No. 2022-CH-08071, slip op. at 2–3 (Ill. Cir. Ct., Cook
Cnty. Apr. 7, 2023) (denying motion to dismiss; receipt provided by grocery store did not dispel deception created by inaccurate shelf pricing). Because Walmart does not provide a
receipt to its customers until after they pay and close the
transaction, the receipt does not necessarily dispel the deception created by inaccurate shelf pricing.
Second, Walmart’s and the district court’s reasoning
would require unreasonable efforts by consumers to protect
themselves from the deception. As the district court acknowledged, a receipt by itself will not dispel deception created by
inaccurate shelf prices. Rather, only plaintiff’s comparison of
the prices actually charged at the register against the advertised shelf pricing dispelled the potential deception. Kahn,
2023 WL 2599858, at *3. Under Walmart’s approach to these
pricing inaccuracies, consumers must keep track of the advertised shelf prices for all the items they intend to purchase, either by memory or by documenting shelf prices while shopping. Next, after paying and obtaining a receipt, consumers
would need to compare the scanned prices with the shelf
prices for all the items. Only then would the “comparison reveal[ ] the discrepancy and dispel[ ] any potential deception.”
Who does that? For obvious reasons, many reasonable
consumers will not undertake such audits. Some consumers
lack smartphones to photograph the shelf prices as they shop,
requiring them to write down or remember dozens of distinct
shelf prices. Others lack the time to retrace their steps through
the store, comparing their receipts against all the shelf prices.
Even if shoppers somehow retain records of each shelf price,
at checkout, many are trying to corral young children,
are skimming the tabloid headlines displayed to entice them,
and still others are lending a hand to the baggers or pulling
out their wallets. Shoppers can easily miss the split-second
display of a price or two at checkout. Even if consumers do
notice a price discrepancy on a point-of-sale display or on a
receipt, they must then raise the issue to the store’s attention
to resolve it. It is reasonable to infer that many consumers in
that situation would be concerned about holding up the six
shoppers in line behind them, reluctant to trouble a busy store
manager over a few pennies per item, or unable to spare the
time to track that manager down.
Reasonable consumer behavior does not require shoppers
to audit their transactions and to overcome those additional
hurdles just to ensure that they receive merchandise at the advertised shelf prices. “What matters most is how real
consumers understand and react to the advertising.” Bell, 982
F.3d at 476. These consumer protection laws do not expect or
require real consumers to undertake such measures over a
few pennies per item. Nor, as plaintiff plausibly alleges, does
Walmart expect them to. That is precisely why these alleged
price discrepancies may be highly profitable on a large scale
and over the long run. “Consumer-protection laws do not impose on average consumers an obligation to question the labels they see and to parse them as a lawyer might for ambiguities” or inaccuracies, “especially in the seconds usually
spent picking a low-cost product.” Id. at 476.
Walmart’s defense theory tries to impose “a one-size-fits-all use of economic theory” in circumstances “where the applicability of [that theory’s] fundamental assumptions to the
facts at hand” is put in question by plaintiff’s allegations
about how real consumers react to Walmart’s shelf pricing.
See Honorable, 100 F. Supp. 2d at 892. In the circumstances alleged here, consumers’ failure to audit their transactions and
to seek refunds does not, at least as a matter of law, excuse
Walmart from honoring its advertised shelf prices. See Kroger,
No. 2022-CH-08071, slip op. at 3 (Ill. Cir. Ct., Cook Cnty. Apr.
7, 2023) (denying motion to dismiss and rejecting as defense
to deceptive practices claim retailer’s argument that consumers must audit transactions to ensure that shelf prices are honored). These questions cannot be resolved as a matter of law
based on only attorney arguments that reasonable consumers
should audit their receipts. “An undefended assumption,
even if it is part of an economic theory,” cannot prevail on a
motion to dismiss. Honorable, 100 F. Supp. 2d. at 889. Instead,
plaintiffs “are entitled to present evidence on how consumers
actually understand these labels” and respond to Walmart’s
advertising. Bell, 982 F.3d at 480. Plaintiff has alleged
plausibly that many reasonable consumers will remain unaware of price discrepancies even after a receipt is provided.
The district court erred in finding on the pleadings that
providing a receipt dispelled any possibility for deception.7
Plaintiff has also adequately pled that Walmart’s price
discrepancies constitute a deceptive act or practice even
where the consumer discovers the price discrepancy
completing a transaction. Plaintiff alleges that Walmart’s
inaccurate shelf prices constitute a form of “bait-and-switch”
pricing scheme in which a retailer “advertised goods with an
intent not to sell them as advertised.” Chandler v. American
General Finance, Inc., 329 Ill. App. 3d 729, 739–40, 768 N.E.2d
60, 69 (2002). Both courts applying Illinois law and federal
regulators have recognized “bait-and-switch” pricing as a
deceptive practice. Id.; see also Trade Regulation Rule on
Unfair or Deceptive Fees, 88 Fed. Reg. 77420, 77432 (proposed
Nov. 9, 2023) (to be codified at
structures that do not initially disclose the total cost of a good
or service are deceptive even if the total cost is disclosed at
some point during the transaction. It has long been the FTC‘s
position that misleading door openers are deceptive.”).8
Plaintiff alleges that Walmart’s shelf prices do not disclose the total price for goods or services, but instead advertise a lower cost to consumers that is ultimately inflated by mandatory charges at the register. Bait-and-switch pricing schemes like the one alleged here lead to injuries that consumers “cannot reasonably avoid,” which come “in the form of higher prices and search costs.” Id. at 77433. In a “bait-and-switch” pricing scheme, “either the consumer must spend additional time searching for full pricing information to engage in comparison shopping, or must make an uninformed decision.” Id. at 77433–34 (internal citation omitted). “[C]onsumers may find it too costly to search for total price information for some or all goods under consideration” for any of a variety of the real-life reasons noted above. Id. at 77445. “This leads consumer demand to become less elastic, and consumers will accept higher prices relative to an efficient equilibrium.” Id. at 77445. Because of the unavoidable harms to consumers, “when the initial contact with a consumer shows a lower or partial price without disclosing the total cost,” it remains deceptive “even if the total cost is later disclosed.” Id. at 77432. In this case, plaintiff has adequately pled that Walmart’s price discrepancies may operate as a deceptive “bait-and-switch” scheme even where the consumer discovers the price discrepancy before completing a transaction. Whether he can prove that effect is a question for a later stage of the case.
2024 WL 1833855, at *3–5 (D.D.C. April 26, 2024) (Boasberg, C.J.) (collecting cases and holding plaintiff plausibly alleged that drip-pricing scheme would mislead reasonable consumers), citing David Adam Friedman, Regulating Drip Pricing, 31 Stan. L. & Pol’y Rev. 51, 53–54 (2020).
2. Unfair Act or Practice
For many of the same reasons, Kahn has adequately alleged that Walmart’s inaccurate shelf pricing also constitutes an “unfair” practice under the ICFA. The district court started on the wrong foot by assessing Kahn’s unfairness claims under
The district court reasoned that all of plaintiff’s claims sound in fraud since they are premised on “Walmart’s alleged concealment of the actual prices of its items.” Kahn, 2023 WL 2599858, at *2, citing Haywood v. Massage Envy Franchising, LLC, 887 F.3d 329, 333 (7th Cir. 2018). But Haywood involved common underlying factual allegations that the defendant “intentionally misled consumers by hiding information.” 887 F.3d at 333. In other words, the Haywood plaintiff premised all of her claims on the defendant’s alleged intent to deceive, meaning that all of her claims sounded in fraud.
Here, separate from his allegations of deceptive practices, Kahn alleges that Walmart’s pricing practices “offend an established public policy, and are immoral, unethical, oppressive, and unscrupulous,” in ways that have been “substantially injurious to consumers.” Kahn’s unfairness claim is not
necessarily premised on intentional deception, as were the claims in Haywood. Even if all potential for deception were deemed to have been dispelled by a receipt (a proposition we reject), Walmart’s inaccurate shelf prices could still constitute an “unfair” business practice by creating a situation that is “oppressive” and substantially injures consumers. Batson v. Live Nation Entertainment, Inc., 746 F.3d 827, 830 (7th Cir. 2014) (Illinois recognizes federal Sperry test for determining whether conduct is unfair under ICFA), citing Federal Trade Comm’n v. Sperry & Hutchinson Co., 405 U.S. 233 (1972). The district court should have assessed this separate unfairness claim under the less demanding standard of
Under the proper standard, Kahn adequately alleged that Walmart’s inaccurate shelf prices constitute an “unfair” practice within the meaning of the ICFA. To determine whether a practice is unfair within the meaning of the ICFA, courts look to three factors: “(1) whether the practice offends public policy; (2) whether it is immoral, unethical, oppressive, or unscrupulous; [and/or] (3) whether it causes substantial injury to consumers.” Benson, 944 F.3d at 647, quoting Robinson, 201 Ill. 2d at 417–18. “A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three.” Robinson, 201 Ill.2d at 418, quoting Cheshire Mortgage Service, Inc. v. Montes, 223 Conn. 80, 106, 612 A.2d 1130, 1143–44 (1992).
As for public policy, both the ICFA and the UDTPA expressly prohibit “misleading statements of fact concerning the … existence of … price reductions.”
Goldberg v. 401 N. Wabash Venture LLC, 755 F.3d 456, 464 (7th Cir. 2014).
On the second factor, “[w]hether a practice is immoral, unethical, oppressive, or unscrupulous depends on whether it has left the consumer with little choice but to submit to it.” Newman v. Metropolitan Life Ins. Co., 885 F.3d 992, 1002–03 (7th Cir. 2018). We have recognized that under certain circumstances, the existence of sunk costs may create a situation in which consumers are oppressed. See id. at 1003 (increase in insurance premiums left consumer little choice but to submit when alternative was forfeiting eight years of sunk costs). Here, for the reasons already explained, even consumers who spot a price discrepancy at checkout are left with
On the third factor, explaining how Illinois courts would determine whether substantial injury existed, this court has said that “the injury must: (1) be substantial; (2) not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and (3) be an injury that consumers themselves could not reasonably have avoided.” Siegel v. Shell Oil Co., 612 F.3d 932, 935 (7th Cir. 2010). Small injuries to many consumers may be substantial for these purposes. See People ex rel. Hartigan v. Stianos, 131 Ill. App. 3d 575, 581, 475 N.E.2d 1024, 1029 (1985) (“While the three sales upon which this case is premised reflect only a few cents in overcharges, it is apparent that similar overcharges, if permitted to continue, could aggregate very substantial losses and injury to the consuming public.”).
The FTC agrees: “Charging consumers under [these] false pretenses causes substantial injury, including where the
injury is a small harm to a large number of people.” Trade Regulation Rule on Unfair or Deceptive Fees, 88 Fed. Reg. at 77435. See also Saccameno v. Ocwen Loan Servicing, LLC, 372 F. Supp. 3d 609, 632 (N.D. Ill. 2019) (whether defendant’s “conduct carries the potential to harm a large number of other consumers” is factor in unfairness inquiry (emphasis in original)), remanded in part on other grounds, Saccameno v. U.S. Bank N.A., 943 F.3d 1071 (7th Cir. 2019). On the second prong, the FTC reasons that the substantial injury to consumers “is not outweighed by benefits to consumers or competition” because “[t]he practice of advertising prices that are not the full price does not benefit consumers or competition.” Trade Regulation Rule on Unfair or Deceptive Fees, 88 Fed. Reg. at 77434. And on the third, we have already explained why the resulting overcharges are not necessarily avoidable by reasonable consumers.
Kahn plausibly alleges that Walmart’s inaccurate shelf prices create an oppressive situation in which a reasonable consumer is often forced by the circumstances and design of Walmart’s large retail stores to submit to unexpectedly higher prices charged at the register. On these allegations, Walmart’s pricing practices carry the potential to cause substantial injury to consumers by causing small harms to large numbers of them. Kahn alleges that Walmart profits on the order of hundreds of millions of dollars from the aggregation of these small overcharges. We have no trouble seeing how Kahn plausibly alleges facts showing that Walmart’s inaccurate shelf prices and the resulting overcharges constitute an unfair practice under the ICFA, satisfying the usual pleading standards of
3. Intent to Rely
The district court held that plaintiff failed to allege sufficiently that Walmart intended for him to rely on its inaccurate shelf prices. Kahn, 2023 WL 2599858, at *4. Again, we respectfully disagree. First, the ICFA “eliminated the requirement of scienter,” so that “innocent misrepresentations are actionable as statutory fraud.” Duran v. Leslie Oldsmobile, Inc., 229 Ill. App. 3d 1032, 1039, 594 N.E.2d 1355, 1361 (1992); accord, Capiccioni v. Brennan Naperville, Inc., 339 Ill. App. 3d 927, 933, 791 N.E.2d 553, 558 (2003). To survive a motion to dismiss, plaintiff needed to allege only that Walmart intended that he rely on its shelf prices, not that it intended to deceive him. In this case, he does both, alleging sufficiently that (1) Walmart intended
Even under the heightened standards of
such practices even after being fined for such practices by local agencies.”
There is nothing implausible about these allegations that Walmart intends consumers to rely on shelf pricing. The contrary proposition seems absurd. Walmart uses shelf pricing to inform consumers of its prices so they can compare items and decide what to buy. On the record here, there is no indication that Walmart alerts consumers with any clear and prominent disclaimers about inaccurate shelf prices, either on the shopping floor or at checkout. Even if Walmart did provide disclaimers regarding its shelf pricing, whether such disclaimers can actually dispel the deception might be a question of fact that cannot be resolved on a motion to dismiss or for summary judgment. See Dumont v. Reily Foods Co., 934 F.3d 35, 40 (1st Cir. 2019) (reversing dismissal on pleadings: “As with any question of fact, our role is limited to defining the outer boundaries of its answer—i.e., the point at which a juror could reasonably find only one way.”).
Plaintiff also alleges plausibly that Walmart affirmatively intends to deceive its customers. Several allegations help render this inference plausible, including Walmart’s size, the hundreds of millions of dollars in profits allegedly available from the pricing discrepancies, and the company’s heavy focus on sales from brick-and-mortar stores. Given the importance of in-store sales for Walmart, as noted above, it is reasonable to infer that Walmart has available the latest research on how best to design and manage a retail store to maximize profits and is aware of the obstacles that would deter real consumers from trying to hold it to its advertised shelf prices. Kahn also alleges plausibly that Walmart, having been fined repeatedly for these price discrepancies, is aware of
them but chooses not to take more effective preventive measures to avoid more fines that plaintiff calls a drop in the bucket for Walmart.
We recognize that Walmart sells and must therefore maintain current prices for hundreds of thousands of products. Big, complicated human systems are prone to some errors. We agree with Walmart and its amici, the Retail Litigation Center, Inc. and others, that in designing and operating any real-world system, perfection is impossible. Error rates, on the other hand, can be managed. See Fueger v. Case Corp., 886 N.E.2d 102, 106 n.1 (Ind. App. 2008). We assume that neither courts nor regulators can insist on perfection in retail pricing. They can, however, address how a retailer tries to prevent and remedy discrepancies like those alleged here. Even if some low level of price discrepancies is unavoidable,
4. Distinguishing Tudor
When deciding an issue of state law in a diversity action, “our task is to predict how the Illinois Supreme Court would decide the issues presented here.” Nationwide Agribusiness Ins. Co. v. Dugan, 810 F.3d 446, 450 (7th Cir. 2015). “Where the Illinois Supreme Court has not ruled on the issue, decisions of the Illinois Appellate Courts control, unless there are persuasive indications that the Illinois Supreme Court would decide the issue differently.” Id.
Walmart and the district court have relied on Tudor v. Jewel Food Stores, Inc., 288 Ill. App. 3d 207, 681 N.E.2d 6 (1997). The case calls for close attention. In Tudor, a consumer plaintiff alleged that a defendant grocery store violated the ICFA because the prices scanned at the cash register differed from the advertised or shelf prices. The Illinois appellate court affirmed the trial court’s grant of the grocer’s motion to dismiss. The appellate court found that the plaintiff had failed to plead a viable ICFA claim because she had not adequately pled the same two elements the district court found lacking here: an unfair or deceptive act or practice, and the defendant’s intent that plaintiff rely on the misrepresentation. The Tudor plaintiff had alleged that the store’s internal audits showed the scanned prices were accurate 96% of the time. Significantly, the Tudor complaint itself acknowledged that the store had a “policy providing ‘[i]f the scanned price on any unmarked item is different from the price on the shelf, you will get the item free.’” Id. at 210. The store also provided a receipt enabling a customer to audit the accuracy of the charge for each item. The court found that the “combination” of these three factors, “the high accuracy rate …, along with the issuance of a receipt and defendant’s policy of providing a money-back guarantee …, indicates there was no deception by defendant.” Id. at 210. Nor was defendant’s conduct “unfair,” since the provision of a receipt and the money-back guarantee meant that “oppressiveness and lack of meaningful choice necessary to establish unfairness” were lacking. Id. at 210. These same two factors also indicated that the “defendant did not intend that plaintiff rely on an incorrectly scanned price.” Id. at 210.
The district court here took the reasoning of Tudor two steps farther, finding that Walmart, by providing an accurate receipt alone, dispelled any possibility of deception. In this
case, plaintiff Kahn and the State of Illinois as amicus curiae argue that Tudor is distinguishable and that plaintiff Kahn has alleged sufficiently that Walmart’s inaccurate shelf pricing is an unfair and deceptive practice within the meaning of the ICFA. We agree, and we predict that the Illinois Supreme Court, if faced with the allegations in this case, would also agree.
Tudor held that the plaintiff had failed to allege deceptive conduct based on the totality of the circumstances. 288 Ill. App. 3d at 211 (“[T]he case turns on whether the 96% accuracy rate of the scanners, in conjunction with the receipt and the money-back guarantee, shows a violation” of the ICFA.). We have twice recognized that Tudor relied on that totality of information available to consumers rather than on any
D. Dismissal of Kahn’s Remaining Claims with Prejudice
The district court dismissed Kahn’s remaining claims for the same reasons it dismissed his ICFA claim. For the same
reasons that we reversed the district court’s holdings with respect to Kahn’s ICFA claim, we also disagree with the district court’s conclusions that he failed to allege plausible claims under the UDTPA.
The UDTPA, however, unlike the ICFA, does not authorize actual damages.
Kahn has not adequately pled a likelihood of future injury to him sufficient to support Article III standing for his UDTPA claim. He alleges that Walmart is persisting in its deceptive and unfair practices. He does not allege, however, that he intends to continue shopping at Walmart in the future or that he would be unable to avoid future injury after having discovered Walmart’s alleged practices. It may be possible for plaintiff to plead a likelihood of future harm, particularly in light of the injuries to consumers routinely caused by bait-and-switch pricing schemes explained above, such as the time and mental energy reasonable consumers must expend to protect themselves from the alleged unfair and deceptive practices. Plaintiff has not done so in his operative complaint, but because leave to amend would not necessarily be futile on the issue of future injury, we also reverse the district court’s decision to deny Kahn leave to amend.
The district court dismissed plaintiff’s unjust enrichment claim, reasoning that he failed to allege deception plausibly and the claim could not stand on its own, without a viable statutory claim. Because plaintiff adequately pled the elements of a deceptive and unfair practice and intent to deceive under both the ICFA and the UDTPA, we also reinstate Kahn’s unjust enrichment claim. At this preliminary stage of the case, we see little daylight between the remedies available under his statutory consumer protection claims and his unjust enrichment claim. But at least for now, Kahn may plead and pursue his unjust enrichment claim in the alternative, such that if he cannot prove some of his statutory claims later in litigation, he might still be able to prevail on his claim for unjust enrichment. See
Finally, the district court concluded that because it had dismissed all of Kahn’s individual claims, he could not pursue claims on behalf of a class. The district court dismissed his class claims without prejudice. Because the district court erred in dismissing Kahn’s individual ICFA, UDTPA, and unjust enrichment claims with prejudice, we also reverse the dismissal of his class claims.
The judgment of the district court is REVERSED, and this case is REMANDED for further proceedings consistent with this opinion.