CHICAGO (CN) — A Seventh Circuit panel ruled on Wednesday in favor of a Walmart shopper who says the retail giant defrauds its customers, sending his consumer class action against the $485 billion company back to federal court in northern Illinois.
The appellate court found the shopper, an Ohio man named Yoram Kahn, had produced "viable claims" of Walmart engaging in "deceptive and unfair practices" against consumers — specifically, charging its shoppers a higher price at checkout for items than the price listed for the items on store shelves.
"Plaintiff plausibly alleges that Walmart’s inaccurate shelf pricing is a deceptive act or practice within the meaning of the Illinois Consumer Fraud and Deceptive Business Practices Act," U.S. Circuit Judge David Hamilton, a Barack Obama appointee, wrote in the appellate panel's unanimous decision Wednesday. "There is nothing implausible about his allegations that
Walmart’s inaccurate shelf prices are likely to deceive a significant portion of reasonable consumers."
The 32-page decision overrules the lower court's dismissal of the case in March 2023, and remands the case back to the U.S. District Court for the Northern District of Illinois for further proceedings.
Kahn initially filed a federal class action against Walmart in August 2022, a week after he bought snacks from a Walmart location in Niles, Illinois. He noticed that his receipt showed marked-up prices for the goods compared to the prices listed on the display racks.
According to Kahn, he paid $2.28 for a jar of salsa, for example, that was advertised on the store shelf as only costing $2.00. Similarly, he paid $1.88 for a Kit-Kat bar that was listed at $1.64. Though not bank-breaking discrepancies, the increased costs represented 9% to 15% markups.
In his subsequent class action, Kahn argued this was a characteristic of Walmart stores nationwide, and cited instances of other state authorities issuing five- to seven-figure fines against Walmart over similar checkout price discrepancies.
"For example, in 2012, the state of California, led by then-Attorney General Kamala Harris, assessed Walmart a $2 million fine for violating a 2008 ruling requiring it to resolve pricing errors at checkout," Kahn wrote.
Walmart could be making hundreds of millions in illicit profits if consumers across the country are paying for similar markups, he argued, calling the supposed overcharges a "classic bait and switch" scheme.
The federal court, however, tossed Kahn's complaint on the grounds that he — and by extension other customers — received a receipt that displayed the overpayments. Kahn was able to contest the price discrepancy using the receipt, U.S. District Judge Sara Ellis reasoned, meaning Walmart had not carried out any intentionally deceptive practice as defined by the relevant state statutes.
"Kahn could, and indeed did, use [his] receipt to compare the prices Walmart charged him with the advertised shelf pricing. This comparison revealed the discrepancy and dispelled any potential deception," the Barack Obama appointee wrote in her dismissal order, which Kahn appealed a month later.
Walmart, when it argued in its defense on the matter, made similar points. The retailer wrote in its appellee brief filing that it is "virtually impossible" to keep item prices consistent between shelf and checkout at all times, and provided Kahn with the opportunity to correct the oversight.
"Neither the law nor industry standard require perfection; any contrary position would in effect hold retailers strictly liable any time a shelf price fails to match a purchase price, no matter the reason," Walmart wrote.
During oral appellate arguments this past January, the retailer's attorney Daniel Blouin deemed Kahn and other customers' overcharges "honest mistakes."
"That's the underlying point that they're trying to make throughout this entire lawsuit, is even in a simple situation where an honest mistake is made, my client should be held liable," Blouin said.
The Seventh Circuit panel on Wednesday rejected both Ellis' and Walmart's logic. Hamilton, joined by U.S. Circuit Judges Diane Sykes and John Lee — George W. Bush and Joe Biden appointees respectively — gave two primary reasons why a receipt doesn't excuse any potential pricing deception by Walmart as a matter of law.
"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," Hamilton wrote.
"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," the judge continued.
Hamilton likened Walmart's apparent standard for consumer behavior to the concept of Homo economicus, an idealized economic actor who analyzes all possible information and weighs all factors before making rational decisions in their own self-interest.
The idea is associated with neoclassical economics and some of the founding thinkers of modern capitalism like Adam Smith, but has been criticized for failing to grasp the complexity of factors affecting people's actions.
"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," Hamilton wrote.
The judge concluded that if Walmart is potentially allowing customers to pay more at the till than they reasonably expected to based on shelf prices, it warranted a closer look by the courts. Genuine consumer behavior is not perfectly rational, he wrote, and would reflect large corporations' efforts to direct it in their favor.
Follow @djbyrnes1
Subscribe to Closing Arguments
Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.
