Interpreting a ballot initiative intended to limit false advertising suits, the California Supreme Court held that consumers who buy a product based on misleading advertising can sue the manufacturer simply by alleging that they would not have bought the mislabeled product.

In Kwikset Corp. v. Benson, a consumer sued a California-based company that made locksets labeled “Made in U.S.A.” even though many of its components were made in Taiwan and assembled in Mexico.

After a bench trial, a judge ruled for the plaintiff. But while an appeal was pending, California citizens passed Proposition 64, a ballot initiative which limited standing in false advertising suits to plaintiffs who have “lost money or property.”

Kwikset argued that the ballot measure limited suits to plaintiffs who suffered an actual injury and lost money as a result of the allegedly false advertising. The court disagreed, saying that merely buying a product as a result of a false claim was enough to support a suit.

“[P]laintiffs 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’ within the meaning of Proposition 64 and have standing to sue,” the court held.

Recognizing that the intent of Proposition 64 was to curtail the number of false advertising suits and limit standing, the court said voters “plainly preserved standing for those who had had business dealings with a defendant.”

“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 court said.

Processes and places of origin matter to some consumers, the court said, citing examples of kosher or halal products, conflict-free diamonds, organic foods, and Rolex watches.

“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. 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.”

To read the decision in Kwikset Corp. v. Superior Court of Orange County, click here.

Why it matters: The dissent took issue with the court’s interpretation of Proposition 64, arguing that the plaintiff did not suffer “an actual measurable loss in the transaction.” While the decision is a blow to tort reform, defendants in a California false advertising suit can take some solace in the majority opinion’s discussion of remedies. The court said the standard for restitution is “wholly distinct” from the standing issue, and that injunctions are “the primary form of relief available” under the law to protect consumers.