KWIKSET CORPORATION v. SUPERIOR COURT OF ORANGE
COUNTY









Filed 1/27/11



IN THE SUPREME COURT OF CALIFORNIA



KWIKSET CORPORATION et al., )
)
Petitioners, )
) S171845
v. )
) Ct.App. 4/3 G040675
THE SUPERIOR COURT OF ORANGE )
COUNTY, ) Orange County
) Super. Ct. No. 00CC01275
Respondent; )
)
JAMES BENSON et al., )
)
Real Parties in Interest. )
_____ )

This case arises from Kwikset Corporation’s (Kwikset) manufacturing of locksets it labeled as “Made in U.S.A.” James Benson brought suit under the unfair competition and false advertising laws to challenge the labels’ veracity. After a bench trial, the trial court entered judgment for Benson.
While the case was pending on appeal, the electorate enacted Proposition 64 (Gen. Elec. (Nov. 2, 2004)), which called into question Benson’s standing to challenge Kwikset’s country of origin representations. Benson then filed an amended complaint in which he alleged he purchased Kwikset’s locksets and would not have done so but for the “Made in U.S.A.” labeling. The Court of Appeal concluded this allegation was insufficient to establish standing because it did not satisfy Proposition 64’s requirement that a plaintiff have “lost money or property.” (See Prop. 64, §§ 3, 5.)
We granted review to address the standing requirements of the unfair competition and false advertising laws in the wake of Proposition 64. We conclude Proposition 64 should be read in light of its apparent purposes, i.e., to eliminate standing for those who have not engaged in any business dealings with would-be defendants and thereby strip such unaffected parties of the ability to file “shakedown lawsuits,” while preserving for actual victims of deception and other acts of unfair competition the ability to sue and enjoin such practices. (Voter Information Guide, Gen. Elec. (Nov. 2, 2004) argument in favor of Prop. 64, p. 40; see also Prop. 64, § 1.) Accordingly, plaintiffs 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. Because plaintiffs here have so alleged, we reverse.
Factual and Procedural Background
In 2000, plaintiff James Benson filed a representative action against defendant Kwikset, alleging Kwikset falsely marketed and sold locksets labeled as “Made in U.S.A.” that in fact contained foreign-made parts or involved foreign manufacture. The original complaint contained four counts, three asserting violations of the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.) for unlawful, unfair, and fraudulent business practices, and a fourth brought under the false advertising law (Bus. & Prof. Code, § 17500 et seq.). The UCL count for unlawful business practices alleged Kwikset’s marketing violated both specific state and federal statutes regulating country of origin labeling (see Bus. & Prof. Code, § 17533.7; Civ. Code, § 1770, subd. (a)(4); 15 U.S.C. § 45a) and general statutes governing false advertising (Bus. & Prof. Code, § 17500 et seq.; Civ. Code, § 1770, subd. (a)(5), (7), (9), (16); 15 U.S.C. § 45). Benson sought both injunctive relief and restitution.
After a bench trial, the trial court entered judgment for Benson. It concluded Kwikset had violated Business and Professions Code section 17533.7[1] and Civil Code section 1770, subdivision (a)(4)[2] between 1996 and 2000 by placing “Made in U.S.A.” or similar labels on more than two dozen products that either contained screws or pins made in Taiwan or involved latch subassembly performed in Mexico. Based on these violations, the trial court concluded Kwikset had engaged in unlawful, unfair, and deceptive business practices under Business and Professions Code section 17200 and false advertising under Business and Professions Code section 17500 and found for Benson on each of his four causes of action.
The trial court’s subsequent judgment enjoined Kwikset “from labeling any lockset intended for sale in the State of California ‘All American Made,’ or ‘Made in USA,’ or similar unqualified language, if such lockset contains any article, unit, or part that is made, manufactured, or produced outside of the United States.” The trial court further ordered Kwikset to notify its California retailers and distributors of the falsely labeled products and afford them the opportunity to return improperly labeled inventory for either a monetary refund or replacement with properly labeled items. However, the trial court denied Benson’s request for restitution to consumers, the end purchasers of the locksets. It concluded restitution “would likely be very expensive to administer, and the balance of equities weighs heavily against such a program” where the violations had ceased[3] and “the misrepresentations, even to those for whom the ‘Made in USA’ designation is an extremely important consideration, were not so deceptive or false as to warrant a return and/or refund program or other restitutionary relief to those who have been using their locksets without other complaint.”
Both sides appealed. In November 2004, while the appeals were pending, the electorate approved Proposition 64, substantially revising the UCL’s and false advertising law’s standing provisions for private individuals. (See Bus. & Prof. Code, §§ 17204, 17535.)[4] We held these amendments applied to pending cases (Californians for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 232-233), but that a party who had filed suit on behalf of the general public before Proposition 64’s enactment should be given the opportunity to allege and prove facts satisfying the new standing requirements (Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 242-243).
Thereafter, the Court of Appeal affirmed the trial court’s decision on the underlying merits (Benson v. Kwikset Corp., supra, 152 Cal.App.4th at pp. 1267-1284) but vacated the judgment in light of questions concerning Benson’s standing. Because Benson filed this action before passage of Proposition 64, he had neither pleaded nor proven standing sufficient to meet the newly enacted requirements. In accordance with Branick v. Downey Savings & Loan Assn., supra, 39 Cal.4th 235, the Court of Appeal remanded the case to the trial court to afford Benson the opportunity to do so, directing the trial court to reenter its original judgment if Benson could demonstrate standing and to dismiss the action if he could not. (Benson, at pp. 1264, 1284.)
Benson sought and obtained leave to add additional plaintiffs (Al Snook, Christina Grecco, and Chris Wilson) and eventually filed what is now the operative complaint, the second amended complaint for equitable relief. The amended complaint alleges each plaintiff “purchased several Kwikset locksets in California that were represented as ‘Made in U.S.A.’ or [contained] similar designations.” When purchasing the locksets each plaintiff “saw and read Defendants’ misrepresentations . . . and relied on such misrepresentations in deciding to purchase . . . them. [Each plaintiff] was induced to purchase and did purchase Defendants’ locksets due to the false representation that they were ‘Made in U.S.A.’ and would not have purchased them if they had not been so misrepresented. In purchasing Defendants’ locksets, [each plaintiff] was provided with products falsely advertised as ‘Made in U.S.A.,’ deceiving [him or her] and causing [him or her] to buy products [he or she] did not want. Defendants’ ‘Made in U.S.A.’ misrepresentations caused [each plaintiff] to spend and lose the money [he or she] paid for the locksets. [Each plaintiff] has suffered injury and loss of money as a result of Defendants’ conduct . . . .” The second amended complaint retains the four UCL and false advertising law claims from the original complaint but, consistent with the terms of the trial court’s 2002 judgment, seeks only injunctive relief, not restitution.
Kwikset demurred, but the trial court overruled the demurrer. It held plaintiffs had adequately alleged standing: “Because the plaintiffs allege they relied upon the alleged misrepresentations on the product packaging and were induced to buy products they did not want and (under the rules of liberal interpretation) suggest[ed] the products were unsatisfactory to them, the demurrer lacks merit.” The complaint’s allegation that Kwikset’s “alleged deception caused the plaintiffs ‘to buy products [they] did not want’ ” was “a sufficient statement the plaintiffs suffered injury in fact and lost money or property as a result of the alleged fraud and deception.”
Kwikset sought and obtained writ relief. In an opinion directing the trial court to sustain Kwikset’s demurrer and enter a judgment dismissing the action, the Court of Appeal explained that while plaintiffs had adequately alleged injury in fact, they had not alleged any loss of money or property. (See §§ 17204 [a private plaintiff must show “lost money or property”], 17535 [same].) Plaintiffs spent money to be sure but, the Court of Appeal reasoned, they received locksets in return, locksets they did not allege were overpriced or defective. Thus, while their “patriotic desire to buy fully American-made products was frustrated,” that injury was insufficient to satisfy the standing requirements of sections 17204 and 17535.
We granted review to further explicate the UCL’s and false advertising law’s standing requirements in light of Proposition 64, in particular, the proposition’s added “lost money or property” requirement. (§§ 17204, 17535; see Prop. 64, §§ 3, 5.)
Discussion
I. The UCL, the False Advertising Law, and Proposition 64
The UCL prohibits, and provides civil remedies for, unfair competition, which it defines as “any unlawful, unfair or fraudulent business act or practice.” (§ 17200.) Its purpose “is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.” (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 949; see Hall v. Time Inc. (2008) 158 Cal.App.4th 847, 852.) In service of that purpose, the Legislature framed the UCL’s substantive provisions in “ ‘broad, sweeping language’ ” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 181; see also Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1266 [“The Legislature intended this ‘sweeping language’ to include ‘ “anything that can properly be called a business practice and that at the same time is forbidden by law.” ’ ”]) and provided “courts with broad equitable powers to remedy violations” (ABC Internat. Traders, Inc. v. Matsushita Electric Corp. (1997) 14 Cal.4th 1247, 1270). The state’s false advertising law (§ 17500 et seq.) is equally comprehensive within the narrower field of false and misleading advertising. (See generally Kasky, at pp. 950-951; Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 210-211.)
While the substantive reach of these statutes remains expansive, the electorate has materially curtailed the universe of those who may enforce their provisions. As we recently explained: “In 2004, the electorate substantially revised the UCL’s standing requirement; where once private suits could be brought by ‘any person acting for the interests of itself, its members or the general public’ (former § 17204, as amended by Stats. 1993, ch. 926, § 2, p. 5198), now private standing is limited to any ‘person who has suffered injury in fact and has lost money or property’ as a result of unfair competition (§ 17204, as amended by Prop. 64, as approved by voters, Gen. Elec. (Nov. 2, 2004) § 3; see Californians for Disability Rights v. Mervyn’s, LLC[, supra,] 39 Cal.4th [at pp.] 227-228.) The intent of this change was to confine standing to those actually injured by a defendant’s business practices and to curtail the prior practice of filing suits on behalf of ‘ “clients who have not used the defendant’s product or service, viewed the defendant’s advertising, or had any other business dealing with the defendant . . . .” ’ (Californians for Disability Rights, at p. 228, quoting Prop. 64, § 1, subd. (b)(3).) [¶] While the voters clearly intended to restrict UCL standing, they just as plainly preserved standing for those who had had business dealings with a defendant and had lost money or property as a result of the defendant’s unfair business practices. (Prop. 64, § 1, subds. (b), (d); see § 17204.)” (Clayworth v. Pfizer, Inc. (2010) 49 Cal.4th 758, 788.) Proposition 64 made identical changes to the standing provision of the false advertising law; where once “any person acting for the interests of itself, its members or the general public” (§ 17535, as amended by Stats. 1972, ch. 711, § 3, p. 1300) could sue, now standing is limited to “any person who has suffered injury in fact and has lost money or property as a result of a violation of this chapter” (§ 17535, as amended by Prop. 64, § 5). The question here is what these changes, and especially the requirement that a party have “lost money or property,” actually mean.
“We interpret voter initiatives using the same principles that govern construction of legislative enactments. (Professional Engineers in California Government v. Kempton (2007) 40 Cal.4th 1016, 1037 [56 Cal.Rptr.3d 814, 155 P.3d 226].) Thus, we begin with the text as the first and best indicator of intent. (Ibid.; Elsner v. Uveges (2004) 34 Cal.4th 915, 927 [22 Cal.Rptr.3d 530, 102 P.3d 915].) If the text is ambiguous and supports multiple interpretations, we may then turn to extrinsic sources such as ballot summaries and arguments for insight into the voters’ intent. (Professional Engineers, at p. 1037; Legislature v. Eu (1991) 54 Cal.3d 492, 504 [286 Cal.Rptr. 283, 816 P.2d 1309]; Legislature v. Deukmejian (1983) 34 Cal.3d 658, 673, fn. 14 [194 Cal.Rptr. 781, 669 P.2d 17].)” (People v. Mentch (2008) 45 Cal.4th 274, 282-283; see also In re Tobacco II Cases (2009) 46 Cal.4th 298, 315-317 [applying these principles to the interpretation of Prop. 64’s standing requirement].)
As we have said, “Proposition 64 accomplishes its goals in relatively few words.” (Californians for Disability Rights v. Mervyn’s, LLC, supra, 39 Cal.4th at p. 228.) Fewer than two dozen are at issue here: under the UCL, standing extends to “a person who has suffered injury in fact and has lost money or property as a result of the unfair competition” (§ 17204), while under the false advertising law, in materially identical language, standing extends to “any person who has suffered injury in fact and has lost money or property as a result of a violation of this chapter” (§ 17535).
As we shall explain, a party who has lost money or property generally has suffered injury in fact. Consequently, the plain language of these clauses suggests a simple test: To satisfy the narrower standing requirements imposed by Proposition 64, a party must now (1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that that economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim. We explore these elements in turn.
II. Standing Under Section 17204
A. Injury in Fact
“Injury in fact” is a legal term of art. A long line of United States Supreme Court cases has identified injury in fact as one of the three “ ‘irreducible minimum’ ” requirements for federal standing under article III, section 2 of the United States Constitution, and has accorded the phrase a well-settled meaning. (Northeastern Fla. Chapter, Associated Gen. Contractors of America v. Jacksonville (1993) 508 U.S. 656, 664; see also, e.g., Friends of Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc. (2000) 528 U.S. 167, 180-181; Lujan v. Defenders of Wildlife (1992) 504 U.S. 555, 560-561.) The text of Proposition 64 establishes expressly that in selecting this phrase the drafters and voters intended to incorporate the established federal meaning. The initiative declares: “It is the intent of the California voters in enacting this act to prohibit private attorneys from filing lawsuits for unfair competition where they have no client who has been injured in fact under the standing requirements of the United States Constitution.” (Prop. 64, § 1, subd. (e), italics added; see also Buckland v. Threshold Enterprises, Ltd. (2007) 155 Cal.App.4th 798, 814.)[5]
Under federal law, injury in fact is “an invasion of a legally protected interest which is (a) concrete and particularized, [citations]; and (b) ‘actual or imminent, not “conjectural” or “hypothetical,” ’ [citations].” (Lujan v. Defenders of Wildlife, supra, 504 U.S. at p. 560, fn. omitted; see also Associated Builders & Contractors, Inc. v. San Francisco Airports Com. (1999) 21 Cal.4th 352, 362.) “Particularized” in this context means simply that “the injury must affect the plaintiff in a personal and individual way.” (Lujan, at p. 560, fn. 1.)
As we shall discuss, proof of injury in fact will in many instances overlap with proof of the next element of standing, to have “lost money or property.” (§§ 17204, 17535.) Accordingly, litigants and courts may profitably consider whether injury in fact has been shown in conjunction with the allegations and proof of having lost money or property, to which we now turn.
B. “Lost Money or Property”: Economic Injury
Proposition 64 requires that a plaintiff have “lost money or property” to have standing to sue. The plain import of this is that a plaintiff now must demonstrate some form of economic injury. (Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1591 [rejecting a claim where the plaintiff failed to allege “ ‘actual economic injury’ ”]; Animal Legal Defense Fund v. Mendes (2008) 160 Cal.App.4th 136, 147 [“This language discloses a clear requirement that injury must be economic, at least in part, for a plaintiff to have standing under” § 17204]; Aron v. U-Haul Co. of California (2006) 143 Cal.App.4th 796, 803 [permitting a claim to proceed where “the allegations set forth a basis for a claim of actual economic injury”].)
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.
Notably, lost money or property—economic injury—is itself a classic form of injury in fact. (See, e.g., Friends of Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., supra, 528 U.S. at pp. 183-184 [economic harm is among the bases for injury in fact]; Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1347 [“ ‘While it is difficult to reduce injury-in-fact to a simple formula, economic injury is one of its paradigmatic forms’ ” (quoting Danvers Motor Co., Inc. v. Ford Motor Co. (3d Cir. 2005) 432 F.3d 286, 291).].) However, because economic injury is but one among many types of injury in fact, the Proposition 64 requirement that injury be economic renders standing under section 17204 substantially narrower than federal standing under article III, section 2 of the United States Constitution, which may be predicated on a broader range of injuries.[6] (See Troyk v. Farmers Group, Inc., supra, 171 Cal.App.4th at p. 1348, fn. 31 [“We note [the] UCL’s standing requirements appear to be more stringent than the federal standing requirements. Whereas a federal plaintiff’s ‘injury in fact’ may be intangible and need not involve lost money or property, Proposition 64, in effect, added a requirement that a UCL plaintiff’s ‘injury in fact’ specifically involve ‘lost money or property.’ ”].)
While the economic injury requirement is qualitatively more restrictive than federal injury in fact, embracing as it does fewer kinds of injuries, nothing in the text of Proposition 64 or its supporting arguments suggests the requirement was intended to be quantitatively more difficult to satisfy. Rather, we may infer from the text of Proposition 64 that the quantum of lost money or property necessary to show standing is only so much as would suffice to establish injury in fact; if more were needed, the drafters could and would have so specified. (Cf. Prop. 64, § 1, subd. (e) [“It is the intent of the California voters in enacting this act to prohibit private attorneys from filing lawsuits for unfair competition where they have no client who has been injured in fact under the standing requirements of the United States Constitution.”].) In turn, federal courts have reiterated that injury in fact is not a substantial or insurmountable hurdle; as then Judge Alito put it: “Injury-in-fact is not Mount Everest.” (Danvers Motor Co., Inc. v. Ford Motor Co., supra, 432 F.3d at p. 294.) Rather, it suffices for federal standing purposes to “ ‘allege[] some specific, “identifiable trifle” of injury.’ ” (Ibid.; accord, Hale v. Sharp Healthcare (2010) 183 Cal.App.4th 1373, 1383; Troyk v. Farmers Group, Inc., supra, 171 Cal.App.4th at p. 1347.)[7]
Thus, in Clayworth v. Pfizer Inc., supra, 49 Cal.4th at pages 788-789, we found standing where the plaintiffs alleged they had paid an overcharge—more than they otherwise would have—because of an alleged price-fixing cartel. In Fireside Bank v. Superior Court (2007) 40 Cal.4th 1069, 1090, we concluded the plaintiff had standing because the unfair business practice allegedly had resulted in repossession of her vehicle (a loss of property) and a monetary payment in response to an unlawful debt collection demand (a loss of money). And in Aron v. U-Haul Co. of California, supra, 143 Cal.App.4th at pages 802-803, the Court of Appeal found standing where the plaintiff alleged he was required to purchase more fuel than he otherwise would have because of the defendants’ business practices. In each instance, the plaintiff could allege or prove an identifiable monetary or property injury.
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.[8] (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.
C. “As a Result of”: Causation or Reliance
Proposition 64 requires that a plaintiff’s economic injury come “as a result of” the unfair competition or a violation of the false advertising law. (§§ 17204, 17535.) “The phrase ‘as a result of’ in its plain and ordinary sense means ‘caused by’ and requires a showing of a causal connection or reliance on the alleged misrepresentation.” (Hall v. Time Inc., supra, 158 Cal.App.4th at p. 855; see also Troyk v. Farmers Group, Inc., supra, 171 Cal.App.4th at p. 1349 [“the phrase ‘as a result of’ connotes an element of causation (i.e., [plaintiff] lost money because of [defendants’] unfair competition)”]; Medina v. Safe-Guard Products, Internat., Inc. (2008) 164 Cal.App.4th 105, 115 [“the ‘as a result’ language imports a reliance or causation element into” § 17204].) This commonsense reading of the language mirrors how we have interpreted the same language in other consumer protection statutes such as the Consumers Legal Remedies Act. (See Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 641 [Civ. Code, § 1780, subd. (a), granting standing to consumers who have suffered damage “as a result of” a violation, imposes a requirement that a violation must “caus[e] or result[] in some sort of damage”]; Massachusetts Mutual Life Ins. Co. v. Superior Court (2002) 97 Cal.App.4th 1282, 1292 [“as a result of” language in Civ. Code, § 1780, subd. (a) imposes a cause requirement].)
This case, like In re Tobacco II Cases, “is based on a fraud theory involving false advertising and misrepresentations to consumers.” (In re Tobacco II Cases, supra, 46 Cal.4th at p. 325, fn. 17.) Our discussion there of the meaning of the “as a result of” causation requirement is controlling here.[9] Recognizing that “reliance is the causal mechanism of fraud” (In re Tobacco II Cases, at p. 326), we held that a plaintiff “proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions” (id. at p. 306).[10] Consequently, “a plaintiff must show that the misrepresentation was an immediate cause of the injury-producing conduct . . . .” (In re Tobacco II Cases, at p. 326.) However, a “plaintiff is not required to allege that [the challenged] misrepresentations were the sole or even the decisive cause of the injury-producing conduct.” (Id. at p. 328.)
Thus, for example, in Hale v. Sharp Healthcare, supra, 183 Cal.App.4th at pages 1385-1386, the Court of Appeal found the complaint adequate where from its allegations one could infer the plaintiff had relied on a defendant’s representation that it would charge its “ ‘ “regular rates.” ’ ” In contrast, in Durell v. Sharp Healthcare, supra, 183 Cal.App.4th at pages 1363-1364, the plaintiff failed to allege any reliance on representations about rates; accordingly, a demurrer to a UCL claim challenging those representations was properly sustained. (See also Hall v. Time Inc., supra, 158 Cal.App.4th at p. 857 [a demurrer was properly sustained where the plaintiff did not allege that misrepresentations caused him to pay money for a book or that he would otherwise have returned the book to avoid payment].)



TO BE CONTINUED AS PART II….



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