The lawsuit alleges JC Penney, Sears, Kohl's and Macy's engage in deceptive advertising by putting out a high "list price" or "regular price" on items that were never actually for sale at that original price.
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The litigation states the practice makes customers believe they're getting a better deal than they actually are.
"If they're doing this, then I think that's very wrong, especially taking advantage of people around Christmas time," shopper Robert Rolfe said.
Under California law, businesses can't publicize a higher original price unless a product was actually for sale at that price within three months of the advertisement.
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The city attorney said customers have the right to know if a bargain is truly a bargain. He added that he and his team have been investigating the stores for months.
"Customers have the right to know the truth about the prices they are paying," he said.
The lawsuit is seeking civil penalties and injunctions to prohibit such practices. JC Penney and Macy's said they cannot comment on pending litigation, while Sears officials said they have not been served and declined to comment.