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Roundtable-Class Action

Getting What You Paid For

Is mislabeling a product “Made in U.S.A.” an unfair business practice? The California Supreme Court will soon weigh in on the issue.

At a time when fewer and fewer products are manufactured in the United States, a case pending before the California Supreme Court seems like a cruel joke. Later this year, the court will decide whether "Made in U.S.A." has inherent monetary value, thereby providing standing for plaintiffs to sue over its misuse under the state's Unfair Competition Law (UCL). (Cal. Bus. & Prof. Code § 17200-17210.) The result won't bring back manufacturing jobs, but it could set off another round of consumer litigation in California.

At issue is whether a plaintiffs class can meet the UCL's "lost money or property" requirement if the only problem with the product is that it is allegedly mislabeled as "Made in U.S.A." (Kwikset Corp. v. Superior Court, 171 Cal. App. 4th 645 (2009) (hearing granted June 10, 2009 as No. S17845).)

The plaintiffs contend a "Made in U.S.A." representation has an inherent monetary value that is lost if the product or its parts are actually made outside of the United States. The defendant contends that irrespective of any alleged misrepresentation, consumers do not suffer any such loss when they receive a fully functioning product.

Many consumer disputes now hinge on whether a seller's products and services meet every representation, even if the products and services are generally consistent with the buyers' expectations. Because of the UCL, California is one of the most popular forums for such filings.

The UCL is unique: Relatively low standing requirements and a broad range of covered conduct make claims under the statute part of almost any complaint. It allows an individual to file suit on behalf of the general public over any business practice believed to be "unlawful, unfair, or fraudulent." But it does not permit an award of damages; the only monetary remedy is restitution.

Historically, the UCL allowed "any person acting for the interests of itself, its members, or the general public" to bring a class action for alleged unfair competition, even if no member of the public had actually been injured. This led to widespread abuses. In 2004 California voters passed Proposition 64, which amended the statute to require a plaintiff asserting claims on behalf of the general public to show that he or she "lost money or property" as a result of the alleged wrongdoing. (Cal. Bus. & Prof. Code § 17204.)

Since 2004, this "lost money or property" requirement has been used to defeat UCL claims. Defendants argue that plaintiffs lack standing because they received a functioning product or service and - regardless of whether some misrepresentations may have been made - no money or property was lost. Essentially, their argument is that the plaintiffs got what they paid for.

In one of the first cases to affirm dismissal under this theory, the court of appeal held that plaintiffs must show some demonstrable injury from the defendant's alleged misrepresentations (Buckland v. Threshold Enterprises, Ltd., 155 Cal. App. 4th 798 (2007)).

According to Buckland, "[b]ecause remedies for individuals under the UCL are restricted to injunctive relief and restitution, the import of the requirement is to limit standing to individuals who suffer losses of money or property that are eligible for restitution." (155 Cal. App. 4th at 817.) Even though the plaintiff in Buckland claimed to be damaged in the amount of her purchase price, the court held that she purchased the relevant products not "due to 'mistake, coercion, or request,' but to establish standing for an action in the public interest," and thus, she had not lost money or property (155 Cal. App. 4th at 818).

In an opinion issued nine months later, the Court of Appeal added that a plaintiff pursuing a UCL claim "must make a twofold showing: he or she must demonstrate injury in fact and a loss of money or property caused by unfair competition." (Peterson v. Cellco Partnership, 164 Cal. App. 4th 1583, 1590 (2008).) In other words, the UCL requires separate showings for each requirement.

And in a third opinion, the court of appeal explained that the showings also must have a monetary component because there is "a clear requirement that injury must be economic, at least in part, for a plaintiff to have standing." (Animal Legal Defense Fund v. Mendes, 160 Cal. App. 4th 136, 147 (2008).) In that case, the court held that a "moral injury" resulting from an alleged "violation of anticruelty laws" did not confer standing because without a showing that plaintiffs purchased "products that were ... of inferior quality," plaintiffs did not have an actionable injury.

With the upcoming Kwikset Corp. case, the state Supreme Court has the potential to change the landscape of the standing requirements for UCL claims. The trial court found that Kwikset locksets represented as "Made in U.S.A." were partially assembled in Mexico and contained screws made in Taiwan (Kwikset Corp. v. Superior Court (Benson), 171 Cal. App. 4th 645, 649 (2009)). Thus, according to the trial court, Kwikset violated the "unlawful" prong of the UCL because the locksets were sold in contravention of state and federal statutes prohibiting sales of products labeled "Made in U.S.A." when they contain foreign-made parts.

However, the court of appeal dismissed the plaintiffs' UCL claims on the ground that they did "not allege the [products] were defective, or not worth the purchase price they paid, or cost more than similar products." (171 Cal. App. 4th at 654.) The court concluded that "[a]bsent a showing of some complaint about the cost, quality, or operation of the mislabeled locksets ... [the plaintiffs' class] received the benefit of their bargain and are not entitled to any restitution." (171 Cal. App. 4th at 655.)

The question the Supreme Court certified for review is whether "a plaintiff's allegation that he purchased a product in reliance on the product label's misrepresentation about a characteristic of the product satisf[ies] the requirement for standing under the Unfair Competition Law that the plaintiff allege a loss of money or property, or is such a plaintiff unable to [meet the requirement] because he obtained the benefit of his bargain by receiving the product in exchange for payment."

The state Supreme Court's decision will come in the wake of last year's landmark In re Tobacco II Cases opinion (46 Cal. App. 4th 298 (2009)), which lowered the standing requirements for UCL class actions. In that ruling, the court held that in a class action brought under the UCL, only the named plaintiff must satisfy Prop. 64's standing requirement.

If the California court upholds the appellate ruling in Kwikset, the decision could mean that consumers have no remedy under the UCL if some representations about a product or service are false. This would likely result in creation of a test to evaluate the materiality of the alleged misrepresentations, and whether they have a monetary value. If they are found immaterial and have an insufficient monetary value, consumers would have no right to assert claims under the UCL.

But the justices, having just lowered the UCL's standing requirements in In re Tobacco II Cases, may instead overturn the court of appeal's decision. Such an outcome, if it is forthcoming, probably would be based on a finding that courts are not in a position to pick and choose which representations must be true, nor can courts determine what monetary value consumers might assign to a given representation.

If plaintiffs allege that they spent money because of a representation that is later found to be false, it's hard to believe that their claims would not be allowed to stand. Class action filings may increase as a result - but defendants still would have the opportunity to test the veracity of such allegations through the discovery process and move to dismiss if necessary.

Mark P. Pifko is an associate in the Los Angeles office of Arnold & Porter.


Kari Santos

Daily Journal Staff Writer

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