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January 2011

California Supreme Court Clarifies Standing Requirements for UCL Claims Alleging Misleading Product Labels

The California Supreme Court's January 27, 2011 decision in Kwikset Corp. v. Superior Court (Benson) (Jan. 27, 2011, S171845) ___ Cal.4th ___, upholds the importance of consumer product labeling and clarifies the standing requirements under California's Unfair Competition and False Advertising laws in the wake of Proposition 64's enactment in 2004.  In reversing the Fourth District Court of Appeal, the California Supreme Court held that plaintiffs who allege facts showing that a product's label deceived them into purchasing that product, which they otherwise would not have bought, have effectively alleged that they "lost money or property" within the meaning of Proposition 64 and thus have standing to sue.

This case arises from Kwikset Corporation's ("Kwikset") manufacturing and sale of locksets that it labeled as "Made in U.S.A."  Plaintiff Benson filed a representative class action lawsuit against Kwikset under California's Unfair Competition ("UCL") and False Advertising laws (Cal. Bus. & Prof. Code Sections 17200 and 17500) to challenge the labels' veracity.  After the trial, the court entered judgment for Benson.  While the case was pending on appeal, the voters enacted Proposition 64, which called into question Benson's standing to challenge Kwikset's country of origin representations.  The Court of Appeal remanded with instructions to permit Benson to add additional plaintiffs (collectively "Plaintiffs") to the complaint.  These new Plaintiffs alleged they each purchased Kwikset's locksets and would not have done so but for the "Made in U.S.A." labeling. 1

In response to the amended complaint, Kwikset demurred on the ground of Plaintiffs' lack of standing, but the trial court overruled holding that Plaintiffs had adequately alleged their standing in accord with Proposition 64.  Kwikset obtained a writ from the Court of Appeal which directed the trial court to sustain the demurrer and held that "while plaintiffs had adequately alleged injury in fact, they had not alleged any loss of money or property," as the amended statutes now require.  In so reasoning, the Court of Appeal observed that Plaintiffs "had spent money but also received [a product] in return" which they did not allege was "overpriced or defective."  Thus, while their "patriotic desire to buy fully American-made products was frustrated, that injury was insufficient to satisfy the standing requirements of sections 17204 and 17535."

The Supreme Court granted review to further explicate the UCL and False Advertising law's standing requirements under Proposition 64, specifically focusing on the added "lost money or property" requirement.  The Court began its analysis by stating the effect of Proposition 64, i.e., to permit "private standing ? to any 'person who has suffered injury in fact and has lost money or property' as a result of unfair competition."  It next observed that, because "economic injury is itself a form of injury in fact, proof of lost money or property will largely overlap with proof of injury in fact.  If a party has alleged or proven a personal, individualized loss of money or property in any nontrivial amount, he or she has also alleged or proven injury in fact."  The Court further held that "a plaintiff must show that the misrepresentation was an immediate cause of the injury-producing conduct ?;" however, a "plaintiff is not required to allege that [the challenged] misrepresentations were the sole or even the decisive cause of the injury-producing conduct."  

Applying these principles to the amended complaint, the Court held that Plaintiffs' allegations satisfied the UCL standing requirement.  In reaching this conclusion, the Court opined that the marketing industry is based on the premise that "labels matter" and that consumers will chose one product over another product "based on its label and various tangible and intangible qualities they may come to associate with a particular source."  It provided examples of subtle differences in wine, conflict-free diamonds, and food harvested by union workers which matter to consumers when making product choices.  The Court further observed that for each consumer who relies on the truth and accuracy of a label and is deceived, the "economic harm is the same — the consumer has purchased a product that he or she paid more for?"    Altogether, the Court opined that a consumer who challenges a misrepresentation contained in a product label can satisfy the standing requirement by "alleging they would not have bought the product but for the misrepresentation."  Applying this rationale to the pleadings, the Court reasoned Plaintiffs valued the product more because it was labeled as "Made in the U.S.A.," and because they paid more for the product than they would have, that incremental extra money paid was deemed the "economic injury" and afforded them standing to sue.   

Under the Kwikset decision, a plaintiff who sufficiently alleges that he was deceived by a product's label into spending money he otherwise would not have spent to purchase the product – without more – has standing to bring action under California's UCL and False Advertising laws.  This is a less stringent standing requirement than had been previously enforced following the enactment of Proposition 64.  The inherent result is that more plaintiffs, and more class action representatives, will be able to pursue their UCL/False Advertising lawsuits without having to detail their individual damages in order to establish standing.

[1]The amended complaint alleged each of Plaintiffs "saw and read Defendants' misrepresentations ? and relied on such misrepresentations in deciding to purchase ? [the products]. [Each plaintiff] was induced to purchase and did purchase Defendants' locksets due to the false representation that they were 'Made in U.S.A.' and would not have purchased them if they had not been so misrepresented. ? [Each plaintiff] has suffered injury and loss of money as a result of Defendants' conduct ?"

Commercial Litigation

Commercial Litigation