(March 2, 2011) A California Supreme Court ruling has made it slightly easier to sue under the state’s Unfair Competition Law.

The 5-2 ruling in the case of Kwikset Corp. v. Superior Court sided with the plaintiffs who said they were damaged by the company using “Made in U.S.A.” labels when some of the lock parts were manufactured abroad.

 Read the decision

The decision loosens the criteria set by Proposition 64, the 2004 initiative to stop shakedown lawsuits. The California Chamber of Commerce co-chaired the successful campaign in support of the measure, which requires an individual to have suffered an injury and lost money or property in order to file a lawsuit under the state’s Unfair Competition Law.

Background

James Benson sued Kwikset under the unfair competition and false advertising laws to challenge the labeling of the Kwikset locks. The trial court found in favor of Benson.

While the case was pending on appeal, voters approved Proposition 64, which called into question Benson’s standing to challenge Kwikset’s “Made in U.S.A.” label. Benson then filed an amended complaint in which he alleged that he and several others purchased Kwikset’s locks and would not have done so but for the “Made in U.S.A.” labeling.

The Court of Appeal concluded this allegation was insufficient to establish Benson’s standing to sue because it did not satisfy Proposition 64’s requirement that a plaintiff have lost money or property.

The Court of Appeal and Kwikset argued that the plaintiffs failed to allege an overcharge or defects in the locksets, received the benefit of their bargain (a functioning product) and were ineligible for restitution.

Supreme Court Ruling

The Supreme Court majority disagreed with the Court of Appeal, saying “plaintiffs who can truthfully allege they were deceived by a product’s label” into spending money to buy the product and would not have purchased it otherwise, have lost money or property within the meaning of Proposition 64 and have standing to sue.

For each consumer who is deceived into making a purchase by misrepresentations on a label, the economic harm, “the loss of real dollars from a consumer’s pocket,” is the same regardless of whether a court might objectively view the products as “functionally equivalent,” the Supreme Court said.

To deny standing to sue to consumers deceived by label misrepresentations, the Supreme Court said. “would impair the ability of consumers to rely on labels, place those businesses that do not engage in misrepresentations at a competitive disadvantage, and encourage the marketplace to dispense with accuracy in favor of deceit.”

The Supreme Court also found fault with the argument that the plaintiffs received the benefit of their bargain because they received locksets. That argument falsely assumes the plaintiffs could easily turn around and sell the locksets to someone else for the same price, the court said.

The Supreme Court also ruled that ineligibility for restitution is not a basis for denying standing to sue. It cited a previous ruling in which it had explained “That a party may ultimately be unable to prove a right to damages (or, here, restitution) does not demonstrate that it lacks standing to argue for its entitlement to them.”(Clayworth v. Pfizer, Inc.).

Dissent

The two justices dissenting from the majority opinion cited a previous appellate court decision pointing out that the voters’ intent in passing Proposition 64 “was unequivocally to narrow the category of persons who could sue businesses” under the Unfair Competition Law.

A mere allegation that the plaintiffs would not have bought the mislabeled product “cannot be what the electorate intended,” the dissenting justices wrote.

Read the full decision on the Supreme Court website.

Staff Contact: Erika Frank