California Supreme Court Broadly Construes Unfair Competition Law

Spring 2011

By John Querio

The principal consumer protection statute in California, known as the Unfair Competition Law (UCL),1 provides remedies against unfair competition, which the statute defines as “any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.”2 In recent decades, courts have construed this language broadly to encompass a host of business practices under the “unlawful, unfair or fraudulent” rubric.3 Counterbalancing this interpretive breadth, the remedies available under the UCL are limited. A plaintiff can seek injunctive relief or restitutionary disgorgement, but may not recover compensatory or punitive damages.4

Prior to November 2004, plaintiffs frequently brought suit under the UCL to take advantage of its extraordinarily generous standing provision, which allowed “any person” to bring a representative action on behalf of the general public as a private attorney general.5 The California electorate narrowed the scope of the UCL by enacting Proposition 64 in the November 2004 election. Proposition 64 amended the standing provision of the UCL to require that a private plaintiff have suffered injury in fact and have lost money or property as a result of the unfair competition that is the subject of the lawsuit.6 It also required UCL plaintiffs wishing to proceed on a representative basis to satisfy the class action requirements of California Code of Civil Procedure section 382, rather than allowing them to act as self-appointed private attorneys general under no constraints at all.7 In 2009, the California Supreme Court, in a 4-3 opinion in In re Tobacco II Cases, held that only the named class representatives in a UCL class action had to satisfy Proposition 64’s standing requirements. The 4-3 majority also narrowly construed the causation element of the standing analysis to require only a watered-down version of actual reliance in UCL cases premised on fraudulent or misleading advertising.8 The three-justice dissent argued that the majority’s opinion disregarded the clear text and purpose behind the enactment of Proposition 64.9 After Tobacco II, Proposition 64 continued to pose substantial limitations on UCL claims because intermediate appellate courts enforced the requirement that a plaintiff show a loss of money or property.10

In Kwikset Corp. v. Superior Court, the California Supreme Court recently returned to the issue of the UCL standing requirements as amended by Proposition 64, and considerably loosened those requirements yet again by broadly construing the definition of “lost money or property” so as to increase the number of claims that fall under the UCL .11 In that case, plaintiffs James Benson, Al Snook, Christina Grecco, and Chris Wilson sued Kwikset Corporation under the UCL, claiming that Kwikset falsely labeled and marketed locksets as “Made in U.S.A.” when in fact they contained foreign-made parts or were partly manufactured abroad, in violation of federal and state false country-of-origin labeling laws.12 The trial court subsequently entered judgment against Kwikset on the plaintiffs’ UCL claim, enjoining it from labeling locksets with false country of origin information but declining to impose restitution.13 Both sides appealed, and Proposition 64 came into effect while the appeals were pending.14 The court of appeal agreed with the trial court’s reasoning on the merits of the plaintiffs’ claims, but remanded to the trial court for a determination whether the plaintiffs could satisfy Proposition 64’s new standing requirements.15 The plaintiffs then amended their complaint to allege that they purchased several Kwikset locksets in reliance on their “Made in U.S.A.” label and would not have done so absent that false designation of origin.16 Overruling Kwikset’s demurrer, the trial court concluded that these allegations satisfied Proposition 64’s “injury in fact” and “lost money or property” requirements.17 Disagreeing, the court of appeal reversed, holding that the plaintiffs had failed to allege that they lost money or property in the transaction because, although they parted with money, they received fully functioning locksets that they did not allege were overpriced or defective.18

In a 5-2 decision, the California Supreme Court reversed the Court of Appeal, and in the process, interpreted Proposition 64’s standing requirement that a plaintiff have “lost money or property” as imposing merely a minimal burden on UCL plaintiffs.19 In doing so, the court largely conflated the separate “injury in fact” and “lost money or property” elements of UCL standing into a single “economic injury” requirement.20 Under that newly created requirement, a UCL plaintiff in a mislabeling case need only allege that he bought a product in reliance on a misrepresentation on its label and that he would not have bought the product but for the misrepresentation.21 The majority explained that such allegations show that “because of the misrepresentation the consumer . . . was made to part with more money than he or she otherwise would have been willing to expend, i.e., that the consumer paid more than he or she actually valued the product. That increment, the extra money paid, is economic injury and affords the consumer standing to sue.”22

The court also overruled a line of lower-court cases that had held that a UCL plaintiff satisfies the “lost money or property” requirement only where he or she is eligible for restitution.23 The court explained that this reasoning incorrectly conflates UCL standing with the remedies available under the UCL, and would also exalt restitution over injunctive relief, contrary to the traditional understanding that injunctive relief is the primary remedy available under the UCL while restitution is merely an ancillary remedy.24 The net result is that UCL plaintiffs can now sue even though they are not entitled to any restoration of lost money or property.

The two dissenting justices objected that the majority’s interpretation effectively rendered the “lost money or property” element of UCL standing a nullity, in contravention of the manifest purpose of Proposition 64 to narrow the category of persons who could sue under the UCL.25 In particular, the dissent argued that the plaintiffs could not have “lost money or property” because the locksets they purchased were not overpriced or defective but rather fully functioning, and thus they received the benefit of their bargain.26 The dissenters also criticized the majority for allowing UCL plaintiffs to rely solely on their subjective motivations for purchasing a product to establish the “lost money or property” element of UCL standing, thereby relieving plaintiffs of the burden of alleging and proving that what they received was worth objectively less (i.e. had a smaller fair market value) than what they paid for it—in other words, their burden to show that they “lost money or property.”27

The Kwikset decision is the latest in an emerging trend in which the California Supreme Court is liberalizing the UCL standing requirements imposed by Proposition 64. But the apparent purpose of the California electorate in enacting that initiative was to make it harder to bring UCL claims because of the perceived abuse of the statute.28 If the people of California wish to reinforce their intent to have Proposition 64 serve as a limit on the UCL, it may take another initiative to accomplish that purpose.



1 Cal. Bus. & Prof. Code §§ 17200-17210 (West 2011).

2 Id. § 17200.

3 See, e.g., Californians for Disability Rights v. Mervyn’s, LLC, 39 Cal. 4th 223, 227 (2006) (A plaintiff sought injunction barring practices that allegedly violated the UCL, including “that pathways between fixtures and shelves in Mervyn’s stores were too close to permit access by persons who use mobility aids such as wheelchairs, scooters, crutches, and walkers.”); Kasky v. Nike, Inc., 27 Cal. 4th 939, 945 (2002) (A plaintiff “alleged that defendant corporation, in response to public criticism, and to induce consumers to continue to buy its products, made false statements of fact about its labor practices and about working conditions in factories that make its products.”).

4 See, e.g., Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1143-52 (2003); Kraus v. Trinity Mgmt. Servs., Inc., 23 Cal. 4th 116, 126-37 (2000).

5 Cal. Bus. & Prof. Code § 17204 (West 2004) (“Actions for any relief pursuant to this chapter shall be prosecuted . . . in the name of the people of the State of California . . . upon the complaint of any board, officer, person, corporation or association or by any person acting for the interests of itself, its members or the general public.”).

6 Cal. Bus. & Prof. Code § 17204 (West 2011) (“Actions for relief pursuant to this chapter shall be prosecuted . . . in the name of the people of the State of California . . . upon the complaint of a board, officer, person, corporation, or association, or by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.”).

7 Cal. Bus. & Prof. Code § 17203 (West 2008) (“Any person may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements of [s]ection 17204 and complies with [s]ection 382 of the Code of Civil Procedure . . . .”); see also Arias v. Superior Court, 46 Cal. 4th 969, 980 (2009).

8 46 Cal. 4th 298, 314-29 (2009).

9 Id. at 332-37; see also Jeremy B. Rosen, Case in Focus—California: Unfair Competition Law, State Court Docket Watch, Summer 2009, at 3, 10.

10 See Citizens of Humanity, LLC v. Costco Wholesale Corp., 171 Cal. App. 4th 1, 22 (2009) (A high-end clothing manufacturer who sued low-end retailer for selling counterfeit or stolen products could not satisfy “lost money or property” requirement of Proposition 64 by showing harm to its goodwill.), overruled by Kwikset Corp. v. Superior Court, 51 Cal. 4th 310, 337 (2011); Peterson v. Cellco P’ship, 164 Cal. App. 4th 1583, 1592 (2008) (construing “lost money or property” under Proposition 64 to exclude situations in which a consumer pays money for a product or service, receives the product or service he paid for, and does not allege the product or service is defective or worth less than the purchase price); Medina v. Safe-Guard Prods., Int’l, Inc., 164 Cal. App. 4th 105, 114-15 (2008) (holding that a plaintiff failed to allege loss of money or property where he purchased vehicle service contract from auto dealership that was not licensed with the Department of Insurance, but did not allege he received substandard service under the service contract or otherwise did not receive his money’s worth); Animal Legal Def. Fund v. Mendes, 160 Cal. App. 4th 136, 145-47 (2008) (holding that plaintiffs who purchased dairy products that were not of inferior quality did not lose money or property within the meaning of Proposition 64 when they discovered defendants allegedly mistreated milk-producing cows in violation of criminal laws); Hall v. Time, Inc., 158 Cal. App. 4th 847, 855, 857-58 (2008) (holding that a plaintiff failed to show he lost money or property as a result of a defendant’s alleged deceptive practice of offering a free trial period before purchasing a book by mail and then sending a bill for the price of the book during the free trial period, because the plaintiff paid the bill only after the free trial period and kept the book, which was not defective or worth less than he paid for it); Buckland v. Threshold Enters., Ltd., 155 Cal. App. 4th 798, 817-19 (2007) (holding that a plaintiff who purchased cosmetic products solely to acquire standing to file UCL lawsuit did not lose money or property), overruled by Kwikset Corp. v. Superior Court, 51 Cal. 4th 310, 337 (2011).

11 51 Cal. 4th 310 (2011).

12 Id. at 317.

13 Id. at 318.

14 Id.

15 Id. at 318-19.

16 Id. at 319.

17 Id.

18 Id. at 319-20.

19 Id. at 322-27.

20 Id. at 323-25.

21 Id. at 327-30.

22 Id. at 330.

23 Id. at 335-37.

24 Id.

25 Id. at 338-39, 342-43.

26 Id. at 339.

27 Id. at 340-42.

28 See, e.g., Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (2011); Clayworth v. Pfizer, Inc., 49 Cal. 4th 758 (2010); In re Tobacco II Cases, 46 Cal. 4th 298 (2009).

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