Where No Misrepresentation, Ninth Circuit Does Not Require Labels Disclosing Slave Labor
As this space has addressed before (see here and here), the California Transparency in Supply Chain Act (Civ. Code section 1714.43), enacted in 2010, requires large retailers and manufacturers (those with worldwide sales in excess of $100 million) doing business in California to disclose on their websites their efforts to eradicate slavery and human trafficking from their direct supply chain for tangible goods offered for sale.
In Hodsdon v. Mars, a putative class action, the plaintiff alleged that this California consumer protection law required Mars, Inc. (of Mars Chocolate fame) to disclose on its products’ labels that the products’ supply chains may involve slave labor. The trial judge dismissed the complaint, and on June 4, 2018 the Ninth Circuit affirmed the trial court’s decision, holding that the California consumer protection laws do not obligate Mars to label its goods as possibly being produced by child or slave labor. The court explained that, in the absence of any affirmative misrepresentations by the manufacturer, manufacturers do not have a duty to disclose the labor practices in question, even though they are reprehensible, because they are not physical defects that affect the central function of the chocolate products.
Duty to Disclose
Mars relied on Wilson v. Hewlett-Packard Co., 668 F.3d 1136 (9th Cir. 2012) to argue that the plaintiff had not successfully alleged that Mars had a duty to disclose. The company argued that Wilson stands for the premise that plaintiffs, in pure omissions cases (as here), must plead that undisclosed information created a safety hazard. In contrast, the plaintiff argued that recent California courts of appeals cases had rendered the Ninth Circuit’s interpretation of California law incorrect because Wilson’s safety-hazard requirement does not apply in all circumstances.
Mars, in its argument, recognized that its supply chains might be infected by the worst forms of child labor and also admitted that it does not disclose this information on its product labeling. Mars does comply with the requirements of the Supply Chain Act because it discloses on its website its efforts to combat slavery and labor abuses in its supply chain, and it stressed that under Wilson, a plaintiff must always allege that the undisclosed information “caused an unreasonable safety hazard.”
The Ninth Circuit first analyzed the California appellate decisions relied upon by the plaintiff (Collins v. eMachines, Inc., 202 Cal. App. 4th 249 (2011), and Rutledge v. Hewlett-Packard, Co., 202 Cal. App. 4th 249 (2015)). The court then specifically held that the plaintiff had not sufficiently alleged that the defect in question – the existence of child labor in the supply chain – affects the central functionality of the chocolate products sold by Mars. Thus, the Ninth Circuit panel indicated that it did not have to either rely upon or overrule the Wilson decision in its holding that the plaintiff had not established that Mars had a duty to disclose the labor practices on its product labels. Because there was no duty to disclose, the plaintiff’s claims under the Consumer Legal Remedies Act, Unfair Competition Law, and False Advertising Claims, were foreclosed.
The court also noted that requiring Mars to place labels on its products could arguably impinge on the Supply Chains Act, which addresses the disclosure of labor abuses but does not require labels on the products themselves.
There are still two additional cases pending before the Ninth Circuit arising under the Supply Chains Act: McCoy v. Nestle USA and Dana v. The Hershey Co. Should a panel of judges reach a different decision than that reached this week in the Mars case, there is a good chance the Ninth Circuit may take up the other cases en banc.
Other potential fallouts from the Mars decision may be that these types of cases could be brought in California state court instead, and/or the California legislature may amend the Supply Chain Act to require such label statements in addition to online disclosures.