Demands for On-Label Disclosure of Possible Supply-Chain Abuses Fail in Ninth Circuit

GLFoodCourtA little over two years ago on this site, we discussed a new strain of food-labeling class action lawsuits quite unlike the run-of-the-mill “Food Court” litigation. Instead of complaining that consumers had been misled by a food label’s use of a term such as “natural,” these suits claimed harm from a company’s failure to disclose possible human-rights abuses in its supply chain. Products such as animal food and processed chocolate, which include ingredients from foreign locations where forced child labor is prevalent, have been popular targets.

As we noted in the 2016 post, these supply-chain suits found far less success in California federal district courts than have other food-labeling claims. Undeterred by the losses, the plaintiffs’ lawyers appealed to the U.S. Court of Appeals for the Ninth Circuit, forcing the victorious defendants to invest millions more in attorneys’ fees. In a series of opinions issued over the past two months, the appeals court has uniformly affirmed the suits’ dismissals.

The U.S. Department of Labor has reported that forced child labor occurs in the harvesting of cocoa beans in the Ivory Coast and the collection of fish and shrimp in Thailand. Under the California Transparency in Supply Chain Act of 2010, companies such as Mars and Nestlé already acknowledge these abuses occur in countries from which they import ingredients (cocoa for chocolate and fish/shrimp for animal food) and disclose their efforts (or lack thereof) to combat forced child labor. But those disclosures are inadequate, according to the plaintiffs filing the aforementioned class actions.

The companies’ failure to disclose the possibility of human-rights abuses in their supply chains on the product labels or at point of sale, the plaintiffs argue, is a material omission of consumer information. Had they possessed that information, the plaintiffs assert, they would never have made the purchases. The companies’ omissions thus violated various California consumer-protection laws, including the Consumer Legal Remedies Act (CLRA) and the Unfair Competition Law (UCL).

The Ninth Circuit panel—Judges Tashima, Fletcher, and Berzon—began its march through the class-action plaintiffs’ appeals on June 4, 2018, with a published opinion in Hodson v. Mars, Inc.

The panel’s initial task was to determine whether, under California state-law precedents, Mars had a duty to disclose, on its product label, the risk of supply-chain human rights abuses. Mars directed the court to a 2012 Ninth Circuit ruling that required all plaintiffs alleging failure to disclose to establish that the information omission “caused an unreasonable safety hazard.” Hodson countered that post-2012 California state-court decisions set out a different test in failure-to-disclose consumer-fraud cases.

The Hodson panel acknowledged that the state-court rulings “cast doubt” on the safety-hazard requirement, but concluded that even under the supposedly less demanding failure-to-disclose test, Mars was not obliged to make a disclosure. The court explained that the state court decisions required that the omission be material to consumers and involve information that goes to the central function of the product.

The court assumed, without deciding, that the child-labor information was material to Hodson. It agreed with Mars, however, that the information’s omission did not hide a physical defect central to the function of chocolate. The functionality test, the court reasoned, was an objective one, so Hodson’s subjective assertion that the purportedly slave-labor-tainted chocolate was of “no practical use” to him was irrelevant. Based on this conclusion, Hodson upheld the district court’s dismissal of the CLRA and False Advertising Law claims.

The court’s duty-to-disclose determination also doomed Hodson’s claims under the UCL that Mars’s omission was “unlawful” and “fraudulent.” That left only Hodson’s claim that the omission was “unfair,” the definition of which, the court stated, “is currently in flux among California courts.” As it declined to do with the duty-to-disclose test, the Ninth Circuit did not clarify the test for “unfair.” Rather, it reasoned that “it is doubtful” that Mars’s failure to print a “possibly includes ingredients harvested by forced child labor” disclaimer on its product is itself “immoral” (and thus “unfair”).

The court also reasoned that Mars’s omission was not “tethered to some legislatively declared policy” on slave labor. The plaintiffs asserted that the need to disclose was tethered to a United Nations convention. The Hodson panel disagreed, and also noted that the only California law relevant to the case—the Transparency in Supply Chain Act—fails to require labeling.

One month later, on July 10, the same three-judge panel finally got around to affirming the dismissal of four other supply-chain class actions on grounds identical to Hodson in separate, unpublished opinions: Wirth v. Mars; Hughes v. Big Heart Pet Brands; De Rosa v. Tri-Union Seafoods LLC; and Barber v. Nestlé.

Do these decisions mark the end of this particular labeling-regulation-by-litigation campaign? In California perhaps. We’ll keep an eye out for copycat suits. The Food Litigation News blog identified one a few months ago that is pending in Massachusetts. Hopefully that one will meet the same fate as the California cases. As we stated two years ago on this topic:

If consumers wish to meticulously factor information unrelated to product safety or health into their purchasing decisions, they can find it, just as businesses that perceive a market benefit can make it available voluntarily. But businesses shouldn’t be forced to turn their products into messaging vehicles for ideological causes, and consumers who are shopping to feed themselves and their families shouldn’t have to pay for labeling mandates either.

Also published by Forbes.com on WLF’s contributor page.

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