No duty to disclose child labor production in California, court rules

Hodsdon v. Mars, Inc., 162 F.Supp.3d 1016  (N.D. Cal. 2016)
Mars sells chocolate, some of which comes from cocoa beans
from Côte d’Ivoire, where trafficked children and forced laborers “wield
dangerous tools, transport heavy loads, and face exposure to toxic substances….The
working conditions on the farms are deplorable. Laborers often do not receive
pay, sleep in locked quarters, and fear corporal punishment.”  Despite an agreement with other chocolate
manufacturers in 2001, Mars and other signatories haven’t been able to
implement certification procedures to eradicate the worst forms of child labor
on cocoa farms. “According to the most recent reports, the number of children
working on cocoa farms has increased since 2005. As of 2014, ‘[o]nly 36% of [Mars’s]
cocoa was certified.’”
Most of Mars’ chocolate products don’t say anything about
the supply chain, though the label for Dove chocolates says, “We buy cocoa from
Rainforest Alliance Certified farms, traceable from the farms into our
factory.” Hodsdon alleged that he “would not have purchased” or “paid as much
for” Mars chocolate products had the labels included information about the
labor practices of Mars’s cocoa suppliers.
The court found that these allegations properly alleged
standing by alleging actual reliance and economic injury.  Hodsdon didn’t need to allege that he bought
chocolate containing cocoa beans harvested by children or forced laborers; his
alleged economic injury was sufficient. 
Nor did he need to trace any of Mars’s chocolate to particular farms
that use the objectionable labor practices. 
His allegations clearly permitted the inference that he relied on the
nondisclosure when buying.  “Hodsdon ties
his harm to the lack of certainty about the source of the cocoa beans, not to
consumption of cocoa products actually harvested by child and forced laborers.
In so doing, he has established injury in fact.”
But do California’s consumer protection laws cover
omissions?  The FAL bans “mak[ing] or
disseminat[ing]…any statement…which is untrue or misleading, and which is
known, or by the exercise of reasonable care should be known, to be untrue or
misleading…” “with intent directly or indirectly to dispose of real or
personal property.” Courts are divided on whether omissions can violate the
FAL, but the court here held that the decisions could be harmonized by looking
at whether the defendant made any statement at all about a subject; if it does,
then it is responsible for material omissions made about that subject that
render the affirmative statements misleading. 
If it stays mum, however, there is no FAL liability.  That was the case here.
How about the CLRA and the UCL?  The CLRA bans “unfair methods of competition
and unfair or deceptive acts or practices undertaken by any person in a
transaction intended to result or which results in the sale or lease of goods
or services to any consumer,” and prohibits conduct “likely to mislead a
reasonable consumer,” The UCL prohibits “unfair competition” defined as “any
unlawful, unfair or fraudulent business act or practice and unfair, deceptive,
untrue, or misleading advertising.” In order to prevail, Hodsdon needed to show
that Mars had a duty to disclose the information.  Mars argued that there was no duty to dislose
information unrelated to a safety issue or product defect. Hodsdon argued that
such a duty arises when “the defendant had exclusive knowledge of material
facts not known to the plaintiff.”
“California courts have generally rejected a broad
obligation to disclose,” except for omissions that are “‘contrary to a
representation actually made by the defendant, or…omission[s] of a fact the
defendant was obligated to disclose.’” The California Court of Appeal has held
that a defendant did not have a duty to disclose product defects that did not
pose any risk of physical injury or safety concerns.  Another case said the duty to disclose exists
when “(1) when the defendant is in a fiduciary relationship with the plaintiff;
(2) when the defendant had exclusive knowledge of material facts not known to
the plaintiff; (3) when the defendant actively conceals a material fact from
the plaintiff; and (4) when the defendant makes partial representations but
also suppresses some material fact.” 
However, the overwhelming authority limited the duty to disclose in
situation (2) to product design/safety issues. 
As the court pointed out, “[t]he definition of a material omission has
stunning breadth, and could leave manufacturers (chocolate or otherwise) little
guidance about what information, if any, it must disclose to avoid CLRA or UCL
liability.”  This took care of the UCL
“unlawful” and “fraudulent” claims.
As for “unfair,” the definition of this under the UCL is in
flux.  Many courts have found a business
practice “unfair” when it “offends an established public policy or when the
practice is immoral, unethical, oppressive, unscrupulous or substantially
injurious to consumers.” This approach requires courts to “examine the
practice’s ‘impact on its alleged victim, balanced against the reasons,
justifications and motives of the alleged wrongdoer.’ ” But this may well be
too amorphous; the public policy test requires that the UCL claim be tethered
to some specific constitutional, statutory, or regulatory provisions.”
The court found that Hodsdon couldn’t show that the failure
to disclose was immoral, unethical, oppressive, unscrupulous or substantially
injurious to consumers. Information about Mars’ labor policies and supply chain
is “readily available to consumers on Mars’s website,” so the absence of
information on the packaging is not immoral even though the underlying labor
practices are.  A broader formulation,
which defendants are likely to quote: “Mars’s failure to disclose information
it had no duty to disclose in the first place is not substantially injurious,
immoral, or unethical.”  Likewise,
Hodsdon’s alleged harm wasn’t tethered to any “specific constitutional,
statutory, or regulatory provisions.”
Mars also argued that it was entitled to a safe harbor under
the Supply Chains Act, Cal. Civ. Code § 1714.43. “To forestall an action under
the unfair competition law, another provision must actually ‘bar’ the action or
clearly permit the conduct.”  The court
was dubious.  That law requires retailers
and manufacturers that earn more than $1,000,000 in gross receipts to disclose
their “efforts to eradicate slavery and human trafficking from [their] direct
supply chain for tangible goods offered for sale.”  They must post on their website’s homepage “a
conspicuous and easily understood link to the required information,” or provide
“written disclosure within 30 days of receiving a written request for the
disclosure from a consumer.”
First, the SCA was about and human trafficking, not child
labor. “While the distinction between child labor and forced labor may be thin,
the safe harbor doctrine cautions against creating safe harbors in the absence
of ‘specific legislation.’” Plus, the court wasn’t convinced that the
legislature “considered a situation and concluded no action should lie.” Here,
legislative history was silent about whether the legislature considered
disclosures on labels. Plus, if the court accepted the safe harbor reasoning,
then big businesses would be exempt from a disclosure requirement that smaller
businesses not subject to the SCA would have, which would be “anomalous.”
Ebony Elizabeth Thomas & Amy Stornaiuolo, Restorying the
Self: Bending Toward Textual Justice, 86 Harv. Educ. Rev. 313 (2016)

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