January 27, 2011

California’s Unfair Competition Law…is still unfair

By California’s Unfair Competition Law…is still unfair

Author: Timothy Sandefur

The California Supreme Court today decided a case involving Proposition 64—the initiative enacted in 2004 to scale back abuses of the state’s Unfair Competition Law (also known as section 17200). That law was so broadly written that it allowed people—or rather, plaintiffs’ lawyers—to sue businesses for virtually anything that they considered “unfair.” In fact, lawyers could sue even where the plaintiff had not actually been injured by whatever “unfair” act was at issue! Although defendants often ended up winning these cases, just showing up in court cost so much money that frivolous UCL lawsuits have become a serious burden on California businesses.

Voters therefore enacted Prop. 64, hoping to limit such lawsuits by requiring that the plaintiff at the very least show that he or she had “lost money or property” as a result of the allegedly unfair act. This very moderate amendment eliminated only some of the  most extreme perversions of the law—but, sadly, today’s decision has managed to reduce the strength of even the tepid language of Prop. 64.

Almost a decade ago, the plaintiff in Kwikset Corp. v. Superior Court sued the Kwikset lock company for labeling its locks as “Made in the U.S.A.,” when some of the tiny screws used to hold the locks together are actually made in Mexico. As Justice Sills noted, this is akin to arguing that the aircraft carrier Ronald Reagan isn’t really “made in America” because a television set on the bridge was made in Taiwan. And, of course, the “made in America” notion is silly, anyway—such protectionist economic thinking actually ends up hurting American consumers and stifling innovation and growth in American industry.

But the question at issue before the California Supreme Court in this latest go-around of this case was more specific: whether a person “loses money or property” by being simply by being misled into buying a product—when that product works just fine and isn’t overpriced or anything. Is the purely subjective dissatisfaction at having bought a product a “loss of money or property”?

In a friend-of-the-court brief, PLF argued no: such subjective dissatisfaction may indeed be a kind of emotional injury, but it does not qualify as a “loss of money property” as far as the language of Prop. 64 is concerned. If that were the meaning of the phrase “loss of money or property,” then Prop. 64 wouldn’t really restrict abuses of the Unfair Competition Law: anyone who claims to have been misled in any way by an advertisement could sue (and could sue not only on his own behalf, but on behalf of the “general public”). Prop. 64 was written in order to allow lawsuits only for economic harms—something similar to what lawyers call the “economic loss rule,” which says that if you buy a product that isn’t up to spec, you can only sue for breach of contract—you can’t sue for both breach of contract and the failure of the product itself. Sadly, the Court disagreed. It held that a plaintiff is suffers a “loss of money or property” simply by being enticed into purchasing the product. So any statement about a product that leaves a customer subjectively feeling like he was misled may serve as the basis for a lawsuit in the future.

Today’s decision is not an unreasonable interpretation of the law. But it has the unfortunate consequence that it allows bounty-hunter lawsuits to continue in California courts. Plaintiff lawyers can use tiny, almost unbelievably trivial injuries as a pretext for haling California’s wealth-creators into court and shaking them by the heels to get their money. That is not the path to a healthy economy—let alone a proper justice system. Sadly, as the dissenting opinion points out, this case was specifically identified as the kind of shakedown lawsuit that Prop. 64 was supposed to eliminate!

More on the case, from a more plaintiff-friendly perspective, at The UCL Practitioner blog.

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