Court of Appeal gets out its blue pencil: Kwikset Corp. v. Superior Court (Benson)

Business and Professions Code section 17533.7 (part of the False Advertising Law) prohibits misreprentations about the geographic origin of goods:

It is unlawful for any person, firm, corporation or association to sell or offer for sale in this State any merchandise on which merchandise or on its container there appears the words "Made in U.S.A." "Made in America," "U.S.A.," or similar words when the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States.

Last week, the Court of Appeal (Fourth Appellate District, Division Three) picked up its blue pencil and crossed this provision out of the FAL.  Its opinion in Kwikset Corp. v. Superior Court (Benson), ___ Cal.App.4th ___ (Feb. 25, 2009), reads Prop.  64's standing requirement so narrowly that it is unlikely consumers will ever be able to assert a violation of this provision again.  Companies may as well start mislabeling all of their products as "Made in the U.S.A.," because unless the AG's office steps in, there is nothing anyone can do to stop them.

In Kwikset, plaintiffs alleged that they paid money for defendant's products in reliance on (false) representations that the products were "Made in U.S.A."  Plaintiffs alleged that they read and relied on that misrepresentation in deciding to make the purchase.  They alleged that they would not have bought the products at all if not for the "Made in U.S.A." misrepresentation.   They alleged that they spent good money on products they did not want, solely because of this misrepresentation.  Slip op.  at 5-6. 

Was this enough for the Court of Appeal?  No.  Those allegations established that the plaintiffs suffered "injury in fact," the Court determined, but not that they "lost money or property" as a result.  Id. at 8-13.  Why not?  Because the plaintiffs received functioning products in exchange for their money:

Absent a showing of some complaint about the cost, quality, or operation of the mislabeled [products] they purchased from petitioners, real parties received the benefit of their bargain and are not entitled to any restitution.

Id. at 11.  The benefit of the bargain?  The bargain was for a product Made in the U.S.A.  The plaintiffs were induced to make a purchase and did not get what they paid for, not by any stretch.  That is why misrepresentations about geographic origin are prohibited in the first place. 

The Court of Appeal cited several other recent cases in which courts determined that plaintiffs got the benefit of the bargain despite the defendants' misrepresentations about the products. Id. at 5, 12 (citing , e.g., Hall v. Time, Inc., 158 Cal.App.4th 847 (2008); Animal Legal Defense Fund v. Mendes, 160 Cal.App.4th 136 (2008)).   But those cases did not allege violations of specific, defined statutory prohibitions, such as those proscribing misrepresentations of geographic origin.  In those cases, the courts could, at least arguably, find that the plaintiffs lacked standing without interpreting Prop.64 as repealing entire substantive provisions of the False Advertising Law.  The effect of Kwikset is to substantively amend the FAL, contrary to Mervyn's.

The Kwikset plaintiffs offered to amend their complaint to allege that "there were other alternative ... products available ..., many of which were lower priced" than defendants' mislabeled ones; and that the value of defendants' mislabeled products "was less than what [they] paid" for them and less than "the value of the [products] as represented."  Id. at 14.  In other words, plaintiffs were prepared to amend their complaint to allege that by misrepresenting their products as "Made in U.S.A.," defendants were able to charge more for them than if truthfully labeled as foreign-made.  See id.

Instead of remanding for the trial court to consider permitting this amendment in the first instance (as the Supreme Court did in Branick), the Court of Appeal decided for itself to refuse to permit amendment.  The Court observed that plaintiffs "fail to provide any citation to the record or present any documentation to support the assertion there is evidence in the record supporting these proposed amendments."  Id.  The Court also focused in on the original plaintiff's deposition testimony that he had been reimbursed for his purchases (id.), without considering the fact that three new plaintiffs had joined in the action, and that they might not have been reimbursed (id. at 5).  The Court issued a writ of mandate directing the trial court to sustain the defendants' demurrer to the complaint without leave to amend and dismiss the case.  Id. at 15.

Since when must a plaintiff put "evidence in the record" to obtain leave to amend a complaint?  A demurrer is not an evidentiary hearing, and plaintiffs are supposed to be given leave to amend if there is any reasonable possibility that they can cure the defect in pleading.  Here, at least, they should have been given a chance to try. 

Eventually, the Supreme Court is going to need to decide whether Prop. 64's standing langauge was intended to "blue-pencil" substantive provisions of the False Advertising Law by making them, as a practical matter, unenforceable by private litigants.  This case may or may not be the Supreme Court's vehicle.  Meanwhile, if you see something labeled "Made in the U.S.A.," there's no longer any reason to trust it in California.

Comments

[Amelia Burroughs]

Understand we can expect an opinion tomorrow morning from the Court? Can't wait to read your take on it.