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SAN FRANCISCO -- (Mealey's) Saying "labels matter," a divided California Supreme Court held Jan. 27 that consumers who purchase a product because of its deceptive labeling have "lost money or property" within the meaning of Proposition 64 and have standing to sue (Kwikset Corp., et al. v. The Superior Court of Orange County, James Benson, et al., No. S171845, Calif. Sup.).
The court concluded that Prop 64's purpose was to eliminate standing for those who had not engaged in any business dealings with defendant companies, thus preventing "shakedown lawsuits." This purpose preserved the rights of actual victims of deception and other unfair conduct to sue to enjoin such practices, the court held.
James Benson filed a putative class action in 2000 against Kwikset Corp., its parent, Black & Decker Corp., and Technolok S.A. de C.V., alleging that Kwikset illegally sold items labeled as "made in the U.S.A." that were manufactured or contained parts manufactured elsewhere. Benson sought restitution and injunctive relief under the unfair competition law (UCL), Business and Professions Code Sections 17200 and 17500.
After a trial in the Orange County Superior Court, Kwikset was found to have marketed products with misleading "made in the U.S.A." labels. The judge enjoined it from using such labels but denied restitution to consumers. The Fourth District Court of Appeal, Division Three, affirmed the ruling on the merits, but vacated the judgment. The court concluded that Benson could not satisfy the "lost money or property" requirement. Benson appealed.
But the Supreme Court reversed that ruling, saying "simply stated: labels matter. The marketing industry is based on the premise that labels matter, that consumers will choose one product over another similar product based on its label and various tangible and intangible qualities they may come to associate with a particular source," the California Supreme Court concluded.
The court noted that trademark law exists to source designation labeling precisely because consumers rely on such in making buying decisions. The court said that whether 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." And though a range of motivations come into play, the "Made in U.S.A." label matters to some consumers enough that laws specifically bar such misrepresentations, the court held.
"This economic harm -- the loss of real dollars from a consumer's pocket -- is the same whether or not a court might objectively view the products as functionally equivalent," the court said. "Nonkosher meat might taste and in every respect be nutritionally identical to kosher meat, but to an observant Jew who keeps kosher, the former would be worthless," the court said.
Finding otherwise would end private enforcement of many label misrepresentation bans, the court concluded.
Addressing the lack of available restitution, the court said that to "make standing under section 17204 dependent on eligibility for restitution under section 17203 would turn the remedial scheme of the UCL on its head." The lack of available restitution is not a basis for denying standing, the court said.
Justice Kathryn Mickle Werdegar wrote for the court and was joined by Justices Joyce L. Kennard, Marvin R. Baxter, Carlos R. Moreno and retired Justice Ronald M. George, sitting by designation.
[Editor's Note: Full coverage will be in the February issue of Mealey's California Section 17200 Report. In the meantime, the opinion is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844. Document #58-110223-001Z. For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]
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