Case: Benson v. Kwikset Corp., No. G030956 (Cal. Ct. App. 6/29/07)

The One Sentence Summary: Judgment for plaintiff enjoining manufacturer’s use of “Made in U.S.A.” labels pursuant to California statutes was affirmed, assuming plaintiff can amend the complaint to meet the “injury in fact” and class action requirements of California’s Proposition 64.

What They Were Fighting About:

Plaintiff sued Kwikset and its parent company Black & Decker for restitution and injunctive relief under California’s unfair competition law (Business & Professions Code section 17200) and false advertising law (section 17500). Plaintiff alleged violations of statutory prohibitions against marketing or sale of merchandise with “Made in U.S.A.” or “All American Made” labels when the goods contained foreign-made parts or involved foreign manufacture. Some of defendants’ locksets included screws and pins made in Taiwan, a latch assembly sub-assembled in a Mexico plant, or both foreign made parts and assembly. Trial court enjoined the use of misleading country of origin labels and ordered defendants to allow retailers to return mislabeled good for refund or replacement.

During pendency of the appeal, California Supreme Court issued its decision in Branick v. Downey Savings & Loan Assn., 39 Cal. 4th 235 (2006), interpreting Proposition 64 enacted by the state’s electorate in November 2004. Proposition 64 requires a private plaintiff under sections 17204 and 17535 who sued for injunctive or restitutionary relief to establish that (1) he “has suffered an injury in fact and has lost money or property” and (2) he also meets the class action requirements of Code of Civil Procedure section 382, in order to maintain a representative action. Branick held that a trial court may consider a plaintiff’s motion to amend a complaint to allege facts meeting these standing and representative claim requirements for unfair competition law and false advertising law actions. California Supreme Court directed the court of appeal to reconsider its earlier decision vacating trial court’s judgment, in light of Branick.

Court Holdings:

  • Court of appeal remanded the case to the trial court with directions to allow plaintiff an opportunity to amend the complaint to satisfy Proposition 64 requirements. If plaintiff succeeds in doing so, the remainder of the appellate court’s opinion will provide the resolution of the other substantive issues raised by the parties’ cross-appeals.
  • On the merits of plaintiff’s unfair competition and false advertising claims, the court of appeal upheld the trial court’s rejection of defendants’ constitutional challenges and its determinations that their conduct violated California statutes regarding misleading country of origin labels.
  • Section 17200 proscribes any “unlawful, unfair or fraudulent business act or practice” and makes violations of other predicate statutes actionable. Here, defendants were found to have violated two predicate statutes: (1) Business & Professions Code section 17533.7 of the false advertising law, and (2) Civil Code section 1770(a)(4).
  • Section 17533.7 makes it unlawful to sell or offer for sale merchandise that is labeled with “Made in U.S.A.,” “Made in America,” “U.S.A.” or similar words when it “or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States.” Court rejected defendants’ freedom of speech and vagueness challenges.
  • Court also held that section 17533.7 prohibits “Made in U.S.A.” or similar labels on merchandise where (1) it is entirely made, manufactured, or produced outside the United States, or (2) it is substantially so, meaning “where the foreign operation, process, or activity employed to create the merchandise is found to be considerable in either amount, value, or worth.” Mere use of foreign raw materials to make a product domestically does not violate section 17533.7.
  • More controversial (and prompting dissenting opinion) is the court’s holding that “when merchandise consists of two or more physical elements or pieces, section 17533.7 also applies to any distinct component of merchandise that is necessary for its proper use or operation.” Thus, section 17533.7 would be violated if a product is labeled “Made in U.S.A.” or similar where any distinct component was entirely or substantially made, manufactured, or produced outside United States.
  • Applying these legal principles to the facts, court of appeal upheld the trial court’s determination that defendants violated section 17533.7 because Kwikset’s “Made in U.S.A.” locksets used screws and pins made in Taiwan, and part of the lockset latch assembly occurred at its Mexico plant.
  • Civil Code section 1770(a)(4), the other predicate statute cited by plaintiff, makes unlawful the use of “deceptive representations or designations of geographic origin in connection with goods or services.” This statute is part of California’s Consumer Legal Remedies Act.
  • Court of appeal held that the trial court properly applied a “reasonable person” standard to section 1770(a)(4) and evaluated the defendants’ labeling from the perspective of consumers for whom geographic designation is important. Trial court’s application of that standard to find defendants’ conduct violated section 1770(a)(4) was upheld.