Proposition 64 Alert: Labels Matter! Consumers Can Sue Manufacturers Over Misleading Claims

Date: Feb 02, 2011

Californians who purchase a product as a result of false advertising can sue the manufacturer of that product, even if the product is not defective or overpriced, said the California Supreme Court. (Kwikset Corporation v. Superior Court of Orange County, No. S171845, (Cal. Sup. Ct. Jan. 27, 2011.)

The suit arose out of claims that defendant Kwikset, falsely marketed and sold locksets labeled "Made in U.S.A." The suit alleged that the locksets actually contained parts from Taiwan or were partially assembled in Mexico. After a bench trial, the trial court entered judgment for plaintiff Benson. The Fourth District Court of Appeal ruled that Proposition 64 (Prop. 64) barred Benson's claims because the locksets were not defective, overpriced, or inferior in quality. Thus, "while [plaintiff's] 'patriotic desire to buy fully American-made products was frustrated,' that injury was insufficient to satisfy the standing requirements of section 17204 and 17535."

The Supreme Court disagreed, noting that labels matter: "[t]he 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." "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."

The high court held that a consumer who relies on a product label and challenges a misrepresentation contained therein can satisfy the Prop. 64 standing requirement by alleging that he would not have bought the product but for the misrepresentation. That assertion is sufficient to allege causation, i.e., the purchase would not have been made but for the misrepresentation, as well as economic injury. Here, the extra value Benson put in the lockset because he believed it to be "Made in U.S.A." was proof of economic injury, which triggered standing under unfair competition laws.

According to the high court, merely buying a product as a result of a false claim is enough to sue under Prop. 64. The Court noted that "if we were to deny standing to consumers who have been deceived by label misrepresentations into making purchases, we would impair the ability of consumers to rely on labels, place those business that do not engage in misrepresentations at a competitive disadvantage, and encourage the marketplace to dispense with accuracy in favor of deceit."

Justice Ming Chin and Carol Corrigan dissented, noting that the majority's findings relied heavily on Benson's subjective motivations in buying the lockset. Writing for the pair, Justice Chin stated that plaintiffs should not be able to sue over a lockset that was functional and not overpriced.

The opinion is criticized as opening doors to more lawsuits at a time when courts are overcrowded and face budget cuts.