November 4, 2010

Oral argument in Prop. 64 “unfair competition” case

By Oral argument in Prop. 64 “unfair competition” case

Author: Timothy Sandefur

The UCL Practitioner has a summary of the oral argument in Benson v. Kwikset, the California Supreme Court case dealing with the state’s Unfair Competition Law, and how Proposition 64 amended that law a few years ago. PLF filed a friend of the court brief in this case, and it’s actually quite an interesting and complicated question.

California’s Unfair Competition Law is one of the worst written statutes in existence—so vague that it draws unjust and frivolous lawsuits like a magnet. As originally written, you could even file a UCL lawsuit without having suffered any injury in the first place! But Prop. 64 limited that, by only allowing plaintiffs to sue if they had suffered a “loss of money or property” as a result of the allegedly unfair act. Now the question is, if you buy a product labeled as X, when in fact it is non-X, then is your purchase of that product a “loss of money or property”?

The yes argument goes this way: you expected to get X, and you got non-X, and there’s some difference between those two things that, in theory, is measurable in dollars, and you’re entitled to that difference. In the oral argument, a compelling example was used: if an orthodox Jew buys a hot dog that’s falsely labeled as kosher, and discovers afterwards that it’s not kosher, he’s been injured—he wouldn’t have bought the hot dog had he known, and therefore he’s lost money: specifically, the purchase price.

But the no argument goes this way: the man with the hot dog has been injured, certainly, but he’s been injured psychologically or in some non-monetary way. He might sue for fraud, or for negligent infliction of emotion distress, or for some other thing, but he hasn’t lost money or property as a result of the mislabeling. The whole purpose of Prop. 64 was to limit the UCL to purely economic harms, and to say that those who suffer psychological or other types of injuries must look to other statutes if they want to recover. In this sense, Prop. 64 works like the “economic loss rule” in tort law, which says that if someone sells you a product that is supposed to work, and it breaks, you can sue for breach of contract, but you can’t also sue for tort damages, unless the broken product causes some other kind of injury—if it burns your house down or something. This rule prevents tort law and contract law from merging and allowing a plaintiff to recover twice the damages to which he’s entitled. This was the point that Justices Kennard and Chin were making in their questions:

Justice Kennard: What Prop. 64 says is [and she quoted it].  As I listen to your argument in response to questions from the bench, you said your client lost money when your client paid for a particular lock. 

Cuneo:  Yes.

Justice Kennard: But so long as your client received a lock that’s working, where’s the harm? 

Cuneo:  The harm is he did not get the benefit of the bargain—which is a lockset made in America.

Justice Kennard: So your argument is that this was fraud? 

Justice Chin (interjecting):  But the locksets weren’t inferior? 

Cuneo: No.

This is not an easy issue, and both sides have plausible interpretations. In the end, PLF contends that the UCL must be read narrowly, to prevent the incredibly wasteful lawsuit abuse that led to the enactment of Prop. 64 in the first place. But it will definitely be interesting to see how the case comes out.

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