Consumer Who Purchased Product Because of Manufacturer's Misrepresentations Has Standing To Sue Under Unfair Competition Law

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In Kwikset Corp. v. Superior Court (2011) 51 C.4th 310, 120 C.R.3d 741, 246 P.3d 877, plaintiff brought a representative action under the Unfair Competition Law (UCL) alleging that defendant manufacturer falsely marketed and sold locksets labeled as "Made in U.S.A.," which in fact contained foreign-made parts or involved foreign manufacture, in violation of federal and state statutes regulating country-of-origin labeling. The trial judge entered judgment for plaintiff, granting him injunctive relief, but denying his request for restitution. Plaintiff and defendant appealed. While the appeal was pending, Proposition 64 amended B. & P.C. 17204, eliminating plaintiff's standing to sue. The Court of Appeal affirmed the judgment in part, vacated in part, and remanded to allow plaintiff to plead and prove necessary facts under the new standing requirements of Proposition 64. Plaintiff amended the complaint and added consumers as named plaintiffs. However, the Court of Appeal ruled that the allegations in plaintiffs' amended complaint were insufficient to establish standing under Proposition 64. Held, judgment of Court of Appeal reversed and case remanded for further consideration.

(a) Governing principles. To satisfy the narrower standing requirements of the UCL imposed by Proposition 64, a party must (1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that economic injury was the result of, i.e., caused by, the unfair business practice that is the gravamen of the claim. (51 C.4th 322.)

(1) Injury in fact. The text of Proposition 64 establishes expressly that, in selecting the phrase "injury in fact," the drafters and voters intended to incorporate the established federal meaning. Injury in fact, as required for federal standing, is an invasion of a legally protected interest that is (a) concrete and particularized, and (b) actual or imminent, not “conjectural” or “hypothetical,” where “particularized” means simply that the injury must affect the plaintiff in a personal and individual way. (51 C.4th 322, 323.)

(2) Lost money or property. Proposition 64 requires that a plaintiff have “lost money or property” to have standing to sue. The plain import of this requirement is that a plaintiff now must demonstrate some form of economic injury. There are innumerable ways to make this showing, and although not exhaustive, they include establishing that the plaintiff (a) surrenders in a transaction more, or acquires in a transaction less, than he or she otherwise would have; (b) has a present or future property interest diminished; (c) is deprived of money or property to which he or she has a cognizable claim; or (d) is required to enter into a transaction, costing money or property, that would otherwise have been unnecessary. (51 C.4th 323.)

(3) Causation or reliance. Proposition 64 requires that a plaintiff's economic injury come “as a result of” the unfair competition. This term in its plain and ordinary sense means "caused by," and requires a showing of a causal connection or reliance on the alleged misrepresentation. For purposes of a UCL action such as this one, based on a fraud theory involving false advertising and misrepresentations to consumers, the plaintiff is required to demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions, even though the plaintiff also alleged that the defendant's acts violated statutory prohibitions against certain specific types of misrepresentations. (51 C.4th 326.) However, the plaintiff is not required to allege that the challenged misrepresentations were the sole or even the decisive cause of the injury-producing conduct. (51 C.4th 327.)

(b) Current case. Plaintiffs alleged that (1) defendant labeled certain locksets with “Made in U.S.A.” or a similar designation, (2) these representations were false, (3) plaintiffs saw and relied on the labels for their truth in purchasing defendant's locksets, and (4) plaintiffs would not have bought the locksets otherwise. (51 C.4th 327.) "On their face, these allegations satisfy all parts" of the standing requirements of Proposition 64. (51 C.4th 328.)

(1) Plaintiffs' alleged purchases of locksets mislabeled as “Made in U.S.A.,” which plaintiffs would not have bought if they had known the label was false, established injury in fact and loss of money or property as required for standing under UCL. Because of the misrepresentation, plaintiffs were made to part with more money than they otherwise would have been willing to expend for the locksets. (51 C.4th 329.) "Were we to conclude otherwise, we would bring to an end private consumer enforcement of bans on many label misrepresentations, contrary to the apparent intent of Proposition 64. . . . That public prosecutors can still sue is of limited solace, given the significant role we have recognized private consumer enforcement plays for many categories of unfair business practices." (51 C.4th 330.)

(2) Plaintiffs were not required to allege that the locksets were defective, overpriced, or of inferior quality in order to establish sufficient economic harm for standing purposes. Cognizable economic harm is not confined to these sorts of objective, functional defects. (51 C.4th 331.)

(3) The claim that plaintiffs, who had received a fully functional product, could not be afforded standing because they had received the benefit of their bargain, was without merit. The claim rests on two erroneous predicates: (a) that the misrepresentations at issue were not a material part of the bargain; and (b) that, even if plaintiffs did not value what they received as much as what they paid, the marketplace would. (51 C.4th 332.)

(4) That plaintiffs were ineligible for restitution was of no import. The standards for establishing standing under the UCL and eligibility for restitution under the UCL are wholly distinct. (51 C.4th 334, 335.) To make standing under the UCL dependent on eligibility for restitution under the UCL "would turn the remedial scheme of the UCL on its head." Injunctions are the primary form of relief available under the UCL to protect consumers from unfair business practices, while restitution is a type of ancillary relief. Buckland v. Threshold Enterprises, Ltd. (2007) 155 C.A.4th 798, 813, 66 C.R.3d 543, Citizens of Humanity, LLC v. Costco Wholesale Corp. (2009) 171 C.A.4th 1, 89 C.R.3d 455, and Silvaco Data Systems v. Intel Corp. (2010) 184 C.A.4th 210, 109 C.R.3d 27, are disapproved to the extent that they are inconsistent with this view. (51 C.4th 337.)

Two dissenting justices argued that the voters' intent in passing Proposition 64 was unequivocally to narrow the category of persons who could sue businesses under the UCL, and that in direct contravention of the electorate's intent, the majority opinion now makes it easier for a plaintiff to achieve standing under the UCL. (51 C.4th 337.)

Witkin References

On equitable relief against unfair competition generally, see 13 Summary (10th), Equity, §97 et seq.

On the Unfair Competition Law generally, see 13 Summary (10th), Equity, §105 et seq.

On the parties to an action under Unfair Competition Law, see 13 Summary (10th), Equity, §124.

On Proposition 64, see 13 Summary (10th), Equity, §124.

On injunctive relief and restitution under the Unfair Competition Law, see 13 Summary (10th), Equity, §125.