Shortly after home securities corporation Kwikset packed up its Anaheim, Calif., factory to outsource some of its manufacturing to Mexico in 2000, Anaheim resident James Benson purchased a Kwikset lock and was struck and angered by the "Made in the USA" label on the packaging. In a heated move to call Kwikset on its deception--several of the lock's components were imported from or manufactured elsewhere--Benson filed a class-action lawsuit on behalf of all consumers, stating Kwikset practiced false advertising to appeal to a patriotic public.
A judge eventually found Kwikset--and parent company Black & Decker--in violation of federal law, and the FTC ordered the company to cease mislabeling its locks. Kwikset lawyers appealed.
The plaintiffs didn't seek, nor were they awarded, any money. Benson asserts his only goal was to hold the corporation accountable for its deception.
"I don't want my patriotism taken advantage of and I don't like companies trying to deceive me," he wrote in a 2004 letter to The San Diego Union-Tribune.
Although Benson sought no money, the suit still could cost Kwikset dearly. The court found the company liable for $3 million in fees for Benson's attorneys.
But Kwikset might be able to circumvent this liability and have the case invalidated on appeal.
Since Californians passed a lawsuit reform measure called Proposition 64 on Nov. 3, 2004, Kwikset and dozens of other companies--including Anheuser-Busch, Miller Brewing Co., DaimlerChrysler and Mercury General Corp.--have asked judges to dismiss lawsuits that fall under the state's Unfair Competition Law (Section 17200 of the Business and Professions Code).
Companies say the ballot measure--which requires plaintiffs who are alleging unfair competition to prove they have suffered personal financial loss or injury by deceptive advertising and other fraudulent practices--invalidates Benson's suit as well as many others.
There's no question that Benson's suit would not be permitted to go forward had it been filed after Prop. 64's passage, but courts are still sorting out whether the law should apply retroactively to cases that were filed before the measure went into effect.
Currently, as many as 100 cases are in limbo while the courts debate this issue, which will likely be heard in the state's Supreme Court.
Matter Of Interpretation
Now California courts are at sea, with some judges ruling the law applies retroactively, while others are allowing unfair competition suits filed before Nov. 3 to go forward. Prop. 64's wording doesn't mention whether it applies to pending cases, and retroactivity was not addressed during the campaign for the law's passage. Historically, new laws aren't retroactive unless they contain specific wording that states otherwise.
John Sullivan, director of the Civil Justice Association of California and co-chairman of the Prop. 64 campaign, says the legislative intent was clearly for the law to apply to pending cases.
"Prior to the effective date, the initiative applies to cases filed by private lawyers without clients or with clients who have not lost life or money," Sullivan says. "This is not taking money away from consumers. This is an opportunity to get rid of unnecessary cases."
That doesn't sit well with Prop. 64's biggest detractors: environmental and consumer groups. Carmen Balber, a consumer advocate at the Foundation for Taxpayer and Consumer Rights, says protecting privacy rights, and allowing private citizens to sue over consumer fraud and environmental issues is necessary, whether or not they lost money or incurred injury.
"It's draconian," she says. "This is moneyed corporations reaping the benefits of 64 to get out of damaging lawsuits and their responsibilities."
Indeed, corporations poured more than $10 million into a campaign that spun Prop. 64 as a law that would help small businesses, treating voters to stories of auto mechanics and hair salons bullied by unscrupulous lawyers. Still, Prop. 64's supporters often cite Kwikset as an example of California's apparent pandemic of "shakedown lawsuits," frivolous cases brought by fee-seeking lawyers.
Cases such as Kwikset, Sullivan says, "are all about attorneys' fees."
And now courts will have to sort out whether the pandemic ends now--potentially saving corporations millions of dollars in plaintiffs' attorneys' fees--or if all of the cases filed prior to Election Day will be allowed to go forward.
Robert Fellmeth, a professor of law at the University of San Diego and executive director of the Center for Public Interest Law, admits the Unfair Competition Law had holes that allowed imaginative lawyers to bring dubious lawsuits. He should know. In 1976, Fellmeth drafted Section 17200. "So I'm responsible for the flaw," he quips dryly. As the problems came to light, legislators drafted corrections to the law, but private interest groups wanted a more drastic solution.
"When you see big business, the insurance industry and trial lawyers agreeing on anything, it should raise the hair on the back of your neck," Fellmeth says. "They were not as interested in fixing as they were in giving themselves additional immunities."
The fix came by way of Prop. 64, which passed on Election Day by 59 percent of the vote. While corporations appeal to strike lawsuits and plaintiff lawyers scramble to salvage the dollars and time they've put into cases, courts will argue whether no mention of retroactivity does not presume the absence of it. As Fellmeth puts it, "Evidence of nothing does not support their thesis."
While activists bemoan the lost right to bring these suits--"If I hadn't brought my case," Benson insists, "these companies would have paid no penalty for outsourcing American jobs because they'd still be advertising their products as made in America,"--businesses and attorneys await a ruling.
"There was a serious problem and it should have been solved rationally," Fellmeth says. "Apparently we can't do that. Now we have an over-fix in a very bad public policy that will soon cause it's own harm."