Wednesday 26 July 2017

Labels Matter – Kwikset Corporation v. Superior Court (Ct.App. 4/3 G040675)

The California Supreme Court declared today that “labels matter,” and that under California’s Unfair Competition Law, a consumer’s subjective sense of feeling mislead translates to a cognizable economic injury.

The Court’s majority opinion in Kwikset Corporation v. Superior Court held that plaintiffs “who can truthfully allege they were deceived by a product’s label into spending money to purchase the product, and would not have purchased it otherwise, have ‘lost money or property,’” and therefore have standing to sue under California’s Unfair Competition Law and False Advertising Law.  The Court reversed a decision of the Fourth District Court of Appeal, potentially opening the door to class action litigation brought by plaintiffs whose only complaint lies in the truthfulness of the advertisement, not actual performance or function.

The plaintiffs brought a class action lawsuit alleging that they purchased locksets manufactured by Kwikset in reliance upon representations that the locks were “Made in U.S.A.” or similarly designated.  The locks, however, contained components made in Taiwan or involved latch sub-assembly performed in Mexico.  The plaintiffs’ complaint alleged violations of California’s Unfair Competition Law (Cal. Bus. & Prof. Code § 17200 “UCL”) for unlawful, unfair, and fraudulent business practices and violation of California’s False Advertising Law (Cal. Bus. & Prof. Code § 17500 “FAL”). The plaintiffs stated that in purchasing Kwikset’s locksets: “saw and read Defendants‟ misrepresentations . . . and relied on such misrepresentations in deciding to purchase . . . them.  [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…” (Slip Opinion pg. 5).

Kwikset contended that the plaintiffs lacked standing to sue. Kwikset demurred to plaintiffs’ complaint, arguing that the allegations failed to satisfy Proposition 64’s requirements for standing (Prop 64 amended the UCL and FAL to provide that only a “person who has suffered injury in fact and has lost money or property as a result of . . . unfair competition” or false advertising may file suit.  (See Cal. Bus. & Prof. Code §§ 17204, 17535.)).  The trial court overruled the demurrer and Kwikset sought and obtained writ relief from the Court of Appeal. The Court of Appeal held that while the plaintiffs spent money, they received locksets in return – locksets they did not allege were overpriced or defective.  Thus, while their “patriotic desire to buy fully American-made products was frustrated,” that injury was insufficient to satisfy the UCL’s and FAL’s standing requirements.

The California Supreme Court declared that labels matter. It found that consumers will choose one product over another based on its label (pg. 18). Such things as processes and places of origin matter, as consumers may choose one product over another based on “various tangible and intangible qualities they may come to associate with a particular source,” such as a desire to support domestic jobs, a belief about quality, concerns about overseas environmental or labor conditions, or simple patriotism (Id.).  The Court cited as examples kosher foods, conflict-free diamonds, counterfeit Rolexes, and products harvested or manufactured by union workers (Id.).  For a consumer who relies on such labeling representations, the Court reasoned that they have suffered economic harm by paying more for the mislabeled product than they otherwise might have been willing to pay – whether or not the product the consumer purchased is the “functional equivalent” of a product actually made in the U.S.A. (Id. At 20). The court provided the example of a fake Rolex, which tells time accurately but its value is significantly lower (Id.).

The Court held that a consumer who relies on a product label and challenges a misrepresentation contained therein can satisfy the standing requirement of the UCL by alleging that they would not have bought the product but for the misrepresentation.  The allegations in the present complaint revealed that the plaintiffs valued the lockset as labeled more than the money they paid, that they valued the money paid more than the lockset as it actually is, and that the plaintiffs allegedly paid more than they otherwise would have.  That increment – the extra money paid – is economic injury that establishes plaintiffs’ standing to sue.

A recent post discussed the Taco Bell suit. That suit was also brought in California under the UCL and FLA. The impact this decision will have remains to be seen. What it says for label lawsuits in the food industry, at least in California, is that courts can dismiss the claims quickly. As long as plaintiffs can show more than trivial harm (perhaps the problem in the Taco Bell suit), then they have standing to sue because “labels matter.”

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