Friday, January 28, 2011
S.C. Takes Liberal View of Standing Under Proposition 64
By a MetNews Staff Writer
A consumer who relies on a misrepresentation in purchasing a product, which the person would not otherwise have bought, has suffered sufficient injury to bring an action for violation of the unfair competition or false advertising laws, the state Supreme Court ruled yesterday.
In a 5-2 decision, the court revived a 10-year-old lawsuit in which Kwikset Corporation, which makes lock sets, stands accused of deceptively representing certain products as “Made in U.S.A,” even though they are made in a foreign country or assembled in the United States using foreign-made components.
The decision reverses the Fourth District Court of Appeal, Div. Three, which held that because the Kwikset products were not defective or overpriced, the plaintiffs suffered no loss of money or property and were barred by Proposition 64. from suing.
The original plaintiff, James Benson, filed suit in 2000, alleging that the false marketing and sale of Kwikset’s foreign-made or made-from-foreign-components products as American-made violated Business and Professions Code provisions prohibiting unlawful, unfair, and fraudulent business practices and false advertising.
At the time, the provisions under which he sued permitted any California resident to sue as a representative of the public, and no showing of actual injury was required. Following a bench trial, an Orange Superior Court judge ruled for the plaintiff, holding that Kwikset had unlawfully advertised, as American-made, more than two dozen products containing screws or pins made in Taiwan or that contained latches that were reassembled in Mexico.
The court enjoined further labeling of such products within California as American-made, and ordered the company to notify its California retailers and distributors of the ruling and offer to accept returns of the products. The judge denied restitution to consumers, however, on the grounds that the expense of administration outweighed the minimal damage.
Both parties appealed, and while the appeal was pending, the voters approved Proposition 64, an initiative that appeared on the November 2004 ballot. The measure provides, among other things, that only a person who “lost money or property” as a result of the complained-of practice may sue under the statutes cited by Benson.
In 2006, the Supreme Court, which had placed Benson’s and Kwikset’s appeals on grant-and-hold status, ruled in another case that Proposition 64 applied to cases not yet final when the initiative was approved. But it also ruled that plaintiffs in pending cases who had not pled the requisite injury should be allowed to amend their complaints in order to do so.
In an amended complaint, Benson and others alleged that they bought Kwikset products, that they “saw and read” the company’s descriptions of its products as made in this country, and that they “relied on such misrepresentations in deciding to purchase” those items and were thus inducted “to spend and lose they money” they paid for them.
The plaintiffs sought only injunctive relief, not restitution. Orange Superior Court Judge David Velasquez overruled the company’s demurrer, but the Court of Appeal granted a writ of mandate directing that the case be dismissed for lack of standing.
Justice Kathryn M. Werdegar, however, in her opinion yesterday for the high court, said allowing the plaintiffs to sue would not violate Proposition 64.
“We conclude Proposition 64 should be read in light of its apparent purposes, i.e., to eliminate standing for those who have not engaged in any business dealings with would-be defendants and thereby strip such unaffected parties of the ability to file ‘shakedown lawsuits,’ while preserving for actual victims of deception and other acts of unfair competition the ability to sue and enjoin such practices.”
A consumer who relies on mislabeling or false advertising in deciding to purchase a product, Werdegar elaborated, loses money because “labels matter” to those purchasers.
The justice wrote:
“Whether a particular food is kosher or halal may be of enormous consequence to an observant Jew or Muslim. Whether a wine is from a particular locale may matter to the oenophile who values subtle regional differences. Whether a diamond is conflict free may matter to the fiancée who wishes not to think of supporting bloodshed and human rights violations each time she looks at the ring on her finger. And whether food was harvested or a product manufactured by union workers may matter to still others. “
In each of those instances, and in the plaintiffs’ case, the justice emphasized, the consumer to whom the label matters has suffered economic loss because he or she “has purchased a product that he or she paid more for than he or she otherwise might have been willing to pay if the product had been labeled accurately.”
Werdegar was joined by Justices Joyce L. Kennard, Marvin Baxter, and Carlos Moreno, and by retired Chief Justice Ronald M. George, who is sitting on assignment in cases submitted for decision prior to his leaving the court.
Justice Ming Chin, joined by Justice Carol Corrigan, dissented, arguing that the majority was “giving the language of [Proposition 64] short shrift.” The meaning of “lost money or property,” he said, should not be dependent on the subjective motivation of the purchaser.
He also noted that Proposition 64 supporters had identified the case on their campaign website as an example of the type of “shakedown” lawsuit that the amendment would prevent.
The case is Kwikset Corporation v. Superior Court (Benson), 11 S.O.S. 533.
Copyright 2011, Metropolitan News Company