The Supreme Court of California recently addressed a fundamental issue of standing in connection with California’s unfair competition and false advertising laws, namely the requirement that a plaintiff must have “lost money or property” in order to sue. The court held that a plaintiff that relies on a product label containing misrepresentations has standing to sue for unfair competition or false advertising by alleging that he or she would not have bought the product but for the misrepresentations. Kwikset Corporation v. Superior Court, Case No. S171845 (Cal. Supr. Ct., Jan. 27, 2011) (Werdegar, J.) (Chin, J. dissenting).

Consumer James Benson filed a lawsuit against defendant Kwikset Corporation for unfair competition and false advertising, alleging that Kwikset falsely marketed and sold locksets labeled “Made in the U.S.A.,” despite using foreign parts and/or foreign manufacture. The trial court ruled in favor of Benson and enjoined Kwikset from distributing its products with such labeling. While the case was pending appeal, California approved Proposition 64, which substantially narrowed the ability of a private individual to sue by requiring that a plaintiff prove a “loss of money or property” caused by the unfair business practice or false advertising. Under this new standard, the Court of Appeals found Benson’s—and his fellow consumer co-plaintiffs’—injuries to be insufficient to confer standing and directed the trial court to dismiss the action. The parties appealed.

The California Supreme Court reasoned that to satisfy standing requirements under Prop 64, plaintiffs must allege an economic injury arising from their reliance on Kwikset’s misrepresentations that the products were made in the United States. Recognizing the importance of product labeling on consumer purchasing decisions, the court stated that each consumer who is deceived into making a purchase is economically harmed because he or she may not have paid for that product if accurately labeled—the “economic injury” is “the loss of real dollars from a consumer’s pocket.” The court rejected Kwikset’s theory that the plaintiffs lacked injury because they received the locksets (and thus the benefit of the bargain) because the plaintiffs bargained for locksets made in the United States and the purchased products were not. The court also rejected the Court of Appeals’ reasoning that the plaintiffs lacked standing because they were not entitled to restitution, noting that standards for establishing standing and eligibility for restitution are wholly distinct.

Accordingly, the California Supreme Court reversed and remanded the Court of Appeals decision, holding that if a consumer relies on a product label containing misrepresentations to make a purchase and would not have purchased such product but for the misrepresentations made on the label, that consumer has standing to sue for unfair competition and false advertising under California law.

The dissent disagreed, stating that a consumer allegation that the consumer would not have bought a product but for misrepresentation in advertising should be sufficient for standing. Prop 64, the dissent stated, clearly set forth two requirements for standing, that a consumer plaintiff “has suffered injury in fact and has lost money or property as a result of such unfair competition.” The dissent argued that the majority “makes it easier for a plaintiff to achieve standing” than contemplated by the amendment, in “direct contradiction of the electorate’s intent.”