Friday, July 2, 2004
Court of Appeal Upholds Huge Judgment in Suit Over Manufacturer’s Misuse of ‘Made in U.S.A.’ Label
By a MetNews Staff Writer
A judgment requiring the world’s largest residential lockset manufacturer to make restitution and pay $3 million in attorney fees for having mislabeled its products as “Made in U.S.A.” has been affirmed by the Fourth District Court of Appeal.
A divided panel in Div. Three rejected arguments by Kwikset Corporation and its parent company, Black & Decker Corporation, that a 43-year-old California law setting strict standards for “Made in U.S.A.” labeling is unconstitutional, along with the contention that the law was substantially complied with.
Many of the locksets made by Kwikset did not qualify as American-made, Justice William Rylaarsdam wrote for the court, because they included pins and screws made in Taiwan and/or were partially assembled in Mexico.
Justice William Bedsworth concurred in the opinion. Presiding Justice David Sills authored a vigorous dissent in which he called the result “absurd,” compared the prominent law firms representing the plaintiff to the infamous Trevor Law Group, and predicted the ruling would hurt, rather than help, American workers.
The plaintiff, James Benson, brought suit on behalf of the general public, saying he and others had been deceived into buying Kwikset products in the belief that they were entirely American made. He sought equitable relief under Business and Professions Code Sec. 17200, the Unfair Competition Law.
While the litigation was pending, Kwikset removed all country-of-origin labels from its products distributed in California. It later entered into an agreement with the Federal Trade Commission that it would not label products as American-made unless “all, or virtually all, of the component parts of such product are made in the United States and all, or virtually all, of the labor in manufacturing such product is performed in the United States.”
Following trial, Orange Superior Court Judge Raymond Ikola—since elevated to the Court of Appeal—ruled that Kwikset violated the “extremely strict” 1961 statute on “Made in U.S.A.” labeling. Business and Professions Code Sec. 17533.7 makes it unlawful “for any person, firm, corporation or association to sell or offer for sale in this State any merchandise on which merchandise or on its container there appears the words ‘Made in U.S.A.,’ ‘Made in America,’ ‘U.S.A.,’ or similar words when the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States.”
Ikola rejected the defense argument that the statute has a chilling effect on speech. He also interpreted the act as precluding the labeling of a product as American-made if an “article, unit, or part” had been substantially or entirely made in a foreign country.
The screws and pins, and the sub-latch assembly, constituted foreign-made parts and precluded the use of the “Made in U.S.A.” label, he said.
The judge ordered Kwikset to make restitution by allowing its distributors and retailers to return their unsold inventory for refund, or by providing them with correctly labeled replacement products. But he declined to order restitution to consumers.
Rylaarsdam, writing for the appellate panel, rejected the free-speech argument. The state, he said, has the right to regulate deceptive commercial speech.
In rejecting the attack on the attorney fee award—the plaintiff was represented by lawyers from San Diego’s Milberg Weiss Bershad Hynes & Lerach, The Cuneo Law Group of Washington, D.C., and Soltan and Associates of Costa Mesa—the justice noted that the defendants had only attacked the plaintiff’s entitlement to fees, not the amount.
Since the defendants were liable under the UCL, he said, the plaintiffs’ lawyers were entitled to fees. And while “the award seems unnecessarily high,” it had to stand because the defendant’s opening brief did not argue that the amount was excessive, Rylaarsdam wrote.
Sills argued that his colleagues had misinterpreted the law.
“Today’s majority decision only confirms the critics’ worst caricature of California’s unfair competition law...that it has degenerated into nothing but a feeding frenzy for attorneys who use the law to shake down California businesses and chase jobs out of California,” the presiding justice wrote.
Under the majority’s interpretation, he declared, virtually nothing would qualify as American-made. It is inconceivable, he suggested, that lawmakers “really meant to say that every last part, down to the last screw, had to be at least substantially made in the United States.”
He went on to say:
“...I would hold that the most reasonable way to interpret the statute is to recognize that if the merchandise is substantially made in the United States and it is substantially made up of parts made in the United States, then it can still be advertised as made in the United States even though not every part was (wholly or substantially) made in the United States.”
As for the fee award, Sills acknowledged that the defendants had not briefed the issue. But given the “grossly disproportionate” award, he said, the court should have exercised its discretion and asked the parties for supplemental briefs.
Sills suggested that a “double standard” was at work. “What is the difference between the $3 million attorney fees award here and the petty shakedowns which made the Trevor Law Group”—whose attorneys resigned from the State Bar rather than face discipline for abusive UCL litigation—“infamous in Southern California?,” Sills wrote. “Nothing but the size of the law firm and its target.”
The result of the large award, he said, was “to bless the same kind of abuse in which the Trevor Law Group engaged—looking for a hypertechnical violation of some law by a California business and then going after that business under section 17200 as a profit-making venture—with appellate holy water.”
The case is Benson v. Kwikset Corporation, 04 S.O.S. 3375.
Copyright 2004, Metropolitan News Company