California Supreme Court Rules “Labels Matter” in Recent Product Liability Decision

“Simply stated: labels matter.” This recent statement by the California Supreme Court in Kwikset Corp. v. Superior Court (Benson), 51 Cal. 4th 310 (Jan. 27, 2011) reduces a notion so obviously true and consistent with our everyday experience that it should be hardly worth arguing over.

Yet the truth of that statement was at the heart of the Kwikset case, which arose out of Kwikset Corporation’s manufacturing of locksets labeled “Made in the U.S.A.” Plaintiff James Benson brought suit under California’s unfair competition (“UCL”) and false advertising laws (“FAL”), Cal. Code § 17200, et seq. and § 17500, et seq. respectively, to challenge the labels’ veracity, because those locksets either contained parts made in Taiwan or were assembled in Mexico.

The court below held that, while Benson’s “patriotic desire to buy fully American-made products was frustrated,” that injury was insufficient to confer standing.  In other words, the court below held that the label didn’t matter, at least for the purposes of the California consumer protection laws. The California Supreme Court disagreed and reversed the lower court’s ruling.

The California Supreme Court explained that “[t]he marketing industry is based on the premise that labels matter, that consumers will choose one product over another similar product based on its label and various tangible and intangible qualities they may come to associate with a particular source” and illustrated its point with several examples:

Whether a particular food is kosher or halal may be of enormous consequence to an observant Jew or Muslim. Whether a wine is from a particular locale may matter to the oenophile who values subtle regional differences. Whether a diamond is conflict free may matter to the fiancee who wishes not to think of supporting bloodshed and human rights violations each time she looks at the ring on her finger.  And whether food was harvested or a product manufactured by union workers may matter to still others.

This discussion arose in considering the standing requirements of the UCL and FAL, which are essentially the same.  Both require plaintiff to establish an economic injury and that the injury was caused by the unfair business practice or false advertising at the heart of the claim.

The court below found Benson and the class of purchasers he sought to represent could not show economic injury and therefore could not establish standing because, while they had spent money, they “received locksets in return”. Specifically, they received locksets that were not defective, overpriced or of inferior quality.  The California Supreme Court viewed it very differently: “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.” (emphasis in original).

However seemingly obvious the question may have been, it took the California Supreme Court to settle once and for all that a consumer who relies on a product label and challenges a misrepresentation contained therein can satisfy the standing requirements of the UCL and FAL by alleging, as Benson did in Kwikset, that he or she would not have bought the product but for the misrepresentation.