On January 27, 2011, the California Supreme Court issued a long-awaited decision clarifying the reach of California's Unfair Competition Law (UCL), holding that plaintiffs who allege they were deceived by product labels or advertising and bought a product they would not have otherwise purchased have standing to sue. (Kwikset Corp. v. Superior Court, Case No. S171845, opinion available here.) In doing so, the Court adopted an expansive interpretation of the UCL's "lost money or property" requirement for standing.
California's Unfair Competition Law (California Business and Professions Code §§ 17200, et seq.) permits plaintiffs to challenge unlawful, unfair or fraudulent business acts or practices. In 2004, disturbed by a plethora of "private attorney general" suits brought by unaffected plaintiffs who suffered no losses or injuries themselves, California voters passed Proposition 64, which amended the UCL's standing provision. As amended, to have standing under the UCL, a plaintiff must have suffered injury in fact and have lost money or property as a result of unfair competition. See Section 17204. Since Proposition 64 passed, courts have disagreed regarding what plaintiffs must allege and prove to satisfy the "injury in fact" and "lost money or property" requirement to have standing to bring a UCL claim.
In Kwikset, the plaintiffs asserted a UCL claim alleging that they bought a lockset labeled as "Made in U.S.A" when in fact it contained foreign-made parts or involved foreign manufacture. Kwikset sought to dismiss the complaint on the ground that the plaintiffs lacked standing because in obtaining the locksets the plaintiffs had not lost money or property. The Supreme Court disagreed, equating the phrase "lost money or property" with the concept of some form of economic injury (even if quite limited), which itself is usually a type of injury in fact.
The Court held that the plaintiffs in Kwikset had lost money or property as a result of an alleged UCL violation, because they had alleged that the defendant deceptively advertised its lockset products as being made in the United States, that the plaintiffs relied on this representation, and that the plaintiffs would not have purchased the products otherwise. It likened this to a situation where a consumer purchases food labeled "organic" that is not actually organic. The Court held: "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." The Court rejected arguments that a hypothetical aftermarket (in which plaintiffs could resell the products they purchased and perhaps recoup their "overpayment") would eliminate plaintiffs' initial standing and injury as a legal matter, relying upon its recent decision in Clayworth v. Pfizer, Inc., 49 Cal. 4th 758 (2010) (for our Client Alert on Clayworth, click here), where the Court rejected a so-called pass-on defense to antitrust claims under California's Cartwright Act.
Analysis of Effects of Kwikset
Kwikset is likely to put the wind back into the sails of UCL claims brought by representative consumer plaintiffs, particularly those challenging product advertising, but perhaps in other areas as well – indeed, wherever plaintiffs have a minimal economic injury as an alleged result of defendants' conduct. The Kwikset opinion does suggest, however, that the concept of restitution (the only monetary remedy available under the UCL in private suits) is distinct from the standing requirement. The Court again relied upon Clayworth, where it held that ineligibility for restitution does not necessarily imply a lack of standing. See Kwikset, at 22 n.15 & pp. 29-32. The Court expressly disapproved the line of cases holding that the "lost money or property" requirement confines standing under Section 17204 to those who suffer losses that are eligible for restitution. Id.
Given the dichotomy between standing and remedies, plaintiffs may have standing to bring UCL claims but be entitled only to injunctive relief, unless the defendant acquired money or property from the plaintiffs through a UCL violation. See Section 17203. In cases where meaningful injunctive relief is available, Kwikset suggests that defendants will need to focus on UCL defenses other than standing – e.g., remedy defenses or more substantive defenses. For example, in a competitor suit alleging a UCL claim under the unfairness prong, the "Cel-Tech" defense can be used to argue that the plaintiff must prove conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law or otherwise significantly threatens or harms competition. See Cel-Tech Communications, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163 (1999).