February 2, 2011.

On January 27, 2011, the California Supreme Court issued its opinion in Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (2011), strengthening California’s unfair competition law, Cal. Bus. & Prof. Code § 17200, and clarifying the elements required for standing under Proposition 64.

In Kwikset, the plaintiff accused the company of improperly advertising locksets as “Made in USA” when, in fact, some parts were manufactured abroad. The plaintiff brought claims for unfair competition pursuant to § 17200 and for false advertising. The trial court in Kwikset issued injunctive relief, finding that the company’s labeling was indeed false, but held the plaintiff was not entitled to restitution for equitable reasons. While the case was pending on appeal, California voters passed Proposition 64, which limited a plaintiff’s standing to sue in unfair competition and false advertising cases. Proposition 64 required that a plaintiff show “injury in fact” and that he “lost money or property” as a result of the alleged unfair competition. Prior to Proposition 64, a plaintiff could sue “on behalf of the general public” even if he had not been harmed. When Proposition 64 passed, several courts of appeal interpreted “lost money or property” to require a loss entitling the plaintiff to “restitution”. See Silvaco Data Systems. v. Intel Corp., 184 Cal. App. 4th 210, 245 (2010); Citizens of Humanity, LLC v. Costco Wholesale Corp., 171 Cal. App. 4th 1, 22 (2009); Buckland v. Threshold Enterprises, Ltd., 155 Cal. App. 4th 798, 817 (2007). As a result, the Court of Appeal in Kwikset reversed the trial court’s judgment because the plaintiff lacked standing to sue under the new rules. After an amended complaint with a new plaintiff and further litigation regarding standing issues, the Court of Appeal again held that even the new plaintiff lacked standing because he had not alleged a cognizable loss of money or property.

The Supreme Court reversed, holding that consumers who were deceived by a product’s false label have “lost money or property” as required by Proposition 64. Kwikset, 51 Cal. 4th at 316. The Supreme Court held that “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 . . . while preserving for actual victims of deception and other acts of unfair competition the ability to sue and enjoin such practices.” Id. The Court held that plaintiffs who can truthfully allege they were deceived by a product’s label into spending money to purchase a product, and would not have purchased it otherwise, have “lost money or property” within the meaning of Proposition 64 and have standing to sue. Id.

The Court reasoned that “[t]here are innumerable ways in which economic injury from unfair competition may be shown. A plaintiff may (1) surrender in a transaction more, or acquire in a transaction less, than he or she otherwise would have, (2) have a present or future property interest diminished, (3) be deprived of money or property to which he or she has a cognizable claim, or (4) be required to enter into a transaction, costing money or property, that otherwise would have been unnecessary.” Kwikset, 51 Cal. 4th at 323-24. The “quantum of lost money or property necessary to show standing is only so much as would suffice to establish injury in fact.” Id. at 324.

The import of Kwikset is that plaintiffs will have an easier time establishing standing and also obtaining relief, not just in cases involving “Made in USA” mislabeling but in all false labeling claims, including false claims related to purported health benefits of products, purported organic qualities of products, or other product attributes.

Companies should take care in their product labeling to ensure accuracy, as puffery previously thought innocuous may now create significant liability exposure. As a customer, if you discover a product you purchased was falsely labeled, consider: Would you have bought it absent the false representation? Would you have still purchased the product, but only been willing to pay less? If you would not have bought the product, or would not have been willing to pay as much for it, you may have a claim for unfair competition and/or false advertising. Class action treatment in large scale consumer fraud cases may often be appropriate.

To find out more on any of these issues, please contact our offices: Wucetich & Korovilas LLP; (310) 335-2001; dimitri@wukolaw.com. This article is for educational use only, should not be considered legal advice, and in no way creates an attorney-client relationship between the firm and the reader.