Monday, January 31, 2011

More on the California Supreme Court’s Decision in Kwikset Corp. et al. v. Superior Court

Having had some time to digest the Court’s opinion (located here), it is evident that Prop 64 “injury in fact” standing requirement may be satisfied simply by allegations that the named plaintiff purchased a product as the direct result of reliance upon a material promotional misrepresentation. In making this determination, the Court reviewed the requisite elements of Prop 64 standing, as follows:

As an initial point, the Court reasoned that separate analysis of Prop 64’s “injury in fact” requirement was largely redundant of the “lost money or property” requirement, as the later (which the Court termed “economic injury”) was essentially a “type” or “subset” of “injury in fact”:
We offer a further observation concerning the order in which the elements of standing are best considered. Because, as noted, economic injury is itself a form of injury in fact, proof of lost money or property will largely overlap with proof of injury in fact. [] (See Troyk v. Farmers Group, Inc., supra, 171 Cal.App.4th at p. 1348 [where the alleged harm is economic injury, injury in fact and lost money or property are “one and the same”].) If a party has alleged or proven a personal, individualized loss of money or property in any nontrivial amount, he or she has also alleged or proven injury in fact. Because the lost money or property requirement is more difficult to satisfy than that of injury in fact, for courts to first consider whether lost money or property has been sufficiently alleged or proven will often make sense. If it has not been, standing is absent and the inquiry is complete. If it has been, the same allegations or proof that suffice to establish economic injury will generally show injury in fact as well (ibid.), and thus it will again often be the case that no further inquiry is needed.
Slip Opinion, at 9-14.

According to the Court, the degree of “economic injury” required by Prop 64 is minimal, as Prop 64’s “lost money or property” requirement only imposes a “qualitative” difference in the type of injuries required, not a “quantitative” difference in the degree of harm sustained. Slip Opinion, at 12-13. Thus, as applicable precedent only requires “a trifle” amount of injury to establish injury in fact, Prop 64’s “lost money or property” element necessarily must be read as requiring only a nominal amount of economic harm. Slip Opinion, at 13. The Court went on  to identify numerous forms which economic injury could take, which the Court was careful to note was not an “an exhaustive list”:
There 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 would otherwise have been unnecessary. (See, e.g., Hall v. Time Inc., supra, 158 Cal.App.4th at pp. 854–855 [cataloguing some of the various forms of economic injury].) Neither the text of Proposition 64 nor the ballot arguments in support of it purport to define or limit the concept of “lost money or property,” nor can or need we supply an exhaustive list of the ways in which unfair competition may cause economic harm. It suffices to say that, in sharp contrast to the state of the law before passage of Proposition 64, a private plaintiff filing suit now must establish that he or she has personally suffered such harm.
Slip Opinion, at 11.

With regard to Prop 64’s “as a result of” requirement -- which the Court termed “causation or reliance” -- the Court referred to its ruling in Tobacco II, which the Court explained had previously resolved issues concerning the construction of this phrase in the context of the UCL’s fraud prong.  Slip Opinion, at 15-16.

Applying these standards, the Court concluded that “[a] consumer who relies on a product label and challenges a misrepresentation contained therein can satisfy the standing requirement of section 17204 by alleging, as plaintiffs have here, that he or she would not have bought the product but for the misrepresentation.” Slip Opinion, at 21. Stated differently, the Court concluded that the mere purchase of a fully functioning product based on an alleged misrepresentation is, standing alone, sufficient to establish the requisite “economic injury” necessary for UCL standing.

As reasoned by the Court, for “each consumer who relies on the truth and accuracy of a label and is deceived by misrepresentations into making a purchase, the economic harm is the same: the consumer has purchased a product that he or she paid more for than he or she otherwise might have been willing to pay if the product had been labeled accurately.” Slip Opinion, at 20. According to the Court, “[t]his 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.” See id.

In rendering this conclusion, the Court gave due regard to the fact that in the advertising world, “labels matter.” As the Court explained, “[t]he marketing industry is based on the premise … 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.” Slip Opinion, at 18-21. In this regard, the Court directly linked the policy objectives underpinning the UCL’s fraud prong as being contingent on the Court's liberal construction of economic injury. As the Court explained, “if we were to deny standing to consumers who have been deceived by label misrepresentations in making purchases, we would impair the ability of consumers to rely on labels, place those businesses that do not engage in misrepresentations at a competitive disadvantage, and encourage the marketplace to dispense with accuracy in favor of deceit.” Slip Opinion, at 22-23.

Moreover, the Court’s conclusion that “labels matter” also exposed the flaw in the CAP’s conclusion that the named plaintiff had received the “benefit of the bargain” notwithstanding the alleged misrepresentations, as Kwikset’s use of the alleged deceptive promotions was itself evidence that Kwikset likely viewed the representations to be material to the consumer's decision to purchase the product. Slip Opinion, at 25-26 (“Kwikset packaged its products with labels like ‘All American Made & Proud Of It’ and ‘Made in U.S.A.’ because it determined such marketing might sway reasonable people in their purchasing decisions.”).

Finally, the Court concluded that the CAP erred in equating standing and the remedy of restitution under the UCL, as standing and the right to recover restitution are not only distinct concepts, but permitting such a construction would eliminate completely any ability to pursue a UCL claim for purely injunctive relief. Slip Opinion, at 29-32. Based thereon, the Court expressly disapproved several cases which reached a contrary finding:
Accordingly, we hold ineligibility for restitution is not a basis for denying standing under section 17204 and disapprove those cases that have concluded otherwise. (See Silvaco Data Systems v. Intel Corp., supra, 184 Cal.App.4th 210, 245; Citizens of Humanity, LLC v. Costco Wholesale Corp., supra, 171 Cal.App.4th 1, 22; Buckland v. Threshold Enterprises, Ltd., supra, 155 Cal.App.4th 798, 817.)
Slip Opinion, at 32.

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