Briefing Report: California Supreme Court Limits Another Voter Initiative - Proposition 64

Wednesday, February 23, 2011

Proposition 64

The California Unfair Competition (UCL) and Unfair Advertising Laws have long been subject to abuse. In response to the abuses of those laws, California businesses and consumer groups supported Proposition 64 in 2004. The voters overwhelmingly passed that proposition. That ballot measure had five main provisions, which:

  1. Required an attorney who files a lawsuit to have an actual client who has been harmed and suffered financial or property injury;
  2. Protected the right of a consumer to sue someone, if the consumer is harmed or has suffered damages;
  3. Allowed only public officials (the Attorney General, district attorneys and some city attorneys) to file lawsuits on behalf of the "general public";
  4. Dedicated more funding to official public litigation of serious consumer claims; and
  5. Required lawyers who want to represent big groups or the public at large to go to court as they do in every other state and certify a class of plaintiffs for litigation against a defendant.

Kwikset Corporation

There have been six years of litigation about the proposition's effect on lawsuit abuse. On January 27, 2011 the California Supreme Court, in Kwikset Corporation v. The Superior Court, seems to have enabled plaintiffs' attorneys to file and litigate lawsuits which lack merit and do not meet the requirements the voters intended in passing Proposition 64.

The plaintiff in Kwikset had purchased locksets, which the company described as "Made in U.S.A." Some components had been made elsewhere and partially assembled in Mexico but the final assembly of the product occurred in the United States. According to the plaintiffs' second amended complaint, (1) Kwikset labeled certain locksets with "Made in U.S.A.." or a similar designation, (2) these representations were false, (3) plaintiffs saw and relied on the labels for their truth in purchasing Kwikset's locksets, and (4) plaintiffs would not have bought the locksets but for the labels' representations.

The court's majority stated, "[f]or 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. This economic harm—the loss of real dollars from a consumer's pocket—is the same whether or not a court might objectively view the products as functionally equivalent. A counterfeit Rolex might be proven to tell the time as accurately as a genuine Rolex and in other ways is functionally equivalent, but we do not doubt the consumer (as well as the company that was deprived of a sale) has been economically harmed by the substitution in a manner sufficient to create standing to sue."

Kwikset had argued that Proposition 64 required the plaintiff to have suffered harm and that there was an injury in fact and lost money or property. However, the court decided that the voters, in passing Proposition 64, had not intended to require the persons who could sue to also prove both of those contentions. Instead the court stated Proposition 64 was intended to abolish the parts of the unfair practices and false advertising acts that made suing under them easier, but it was not intended to make their standing requirements comparatively more onerous. Indeed, this would likely come as quite the revelation to anyone who read and understood Proposition 64.

Instead, the majority ruled that a consumer may satisfy the UCL's new standing requirements merely by alleging that he or she would not have bought the product but for the misrepresentation, and that assertion is sufficient to allege causation that the purchase would not have been made but for the misrepresentation. They further contend this is sufficient to allege economic injury.

Justice Chin dissented from the majority's opinion. He wrote, "[t]o have standing under the UCL, a plaintiff must have suffered "injury in fact" and have "lost money or property" as a result of an unfair business practice. In direct contravention of the electorate's intent, the majority disregards the express language of the amendment and makes it easier for a plaintiff to achieve standing under the UCL." (Emphasis supplied.)

Justice Chin observed, "[a] consumer who purchases a product based on a defendant's misrepresentation may very well achieve standing under the UCL's new requirements. But the consumer must allege that he or she suffered an injury in fact and lost money or property in the transaction; the loss must be alleged by more than a simple reference to the price the consumer paid for the product. Plaintiffs here have failed to do that. More importantly, the majority relieves them of this burden. All plaintiffs now have to allege is that they would not have bought the mislabeled product. This cannot be what the electorate intended when it sought unequivocally to narrow the category of persons who could sue businesses under the UCL. In the case of a voters' initiative statute … we may not properly interpret the measure in a way that the electorate did not contemplate: the voters should get what they enacted, not more and not less." (Emphasis supplied.)

A longstanding rule of interpreting statutes is that the text is the first point of reference. If - and only if - the text is unclear should another source be considered. In this case, the court seems to have ignored the plain wording and meaning of Proposition 64 and looked to supporting election materials to interpret the proposition as applied to the Kwikset situation. The court ignored the plain meaning of the wording and misapplied the supporting election materials to achieve this odd result.

This opinion is also unfortunate because it misinterprets Proposition 64 to make it easier to litigate unfair competition and unfair advertising laws. The words of the proposition, the intent of its drafters and the voters was to restrict such litigation.

Regrettably, this opinion is another blow to the state's already bleak business climate.


For more information on this report or other Judiciary issues, contact Mike Petersen, Senate Republican Office of Policy at 916/651-1501.