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The Ninth Circuit Finds That Company Has No Duty to Disclose that Child or Slave Labor Might Be Used To Produce Its Products

Jul 31, 2018 | Topic: Business Litigation

In a recent decision, the Ninth Circuit Court of Appeals held that California Consumer Protection laws did not obligate Mars, Inc. to label its goods as possibly being produced by child or slave labor.  Defendant-appellee Mars, Inc. (“Mars”) produces, among other goods, chocolate candies.  The Ivory Coast is the world’s largest producer of coca beans and some cocoa beans from the Ivory Coast are produced using what the International Labor Organization (“ILO”) calls “the worst forms of child labor” including children sold by their parents to traffickers or kidnapped and forced to work in extremely dangerous conditions. 

Plaintiff-appellant Robert Hodsdon (“Plaintiff”) brought an action against Mars under the California Consumer Legal Remedies Act (“CLRA”), California Unfair Competition Law (“UCL”), and California False Advertising Law (“FAL”) alleging that Mars failed to disclose on its labels that the products’ supply chain might involve child or slave labor.  Plaintiff relied solely on an omission theory of consumer fraud.  While omissions may form the basis of claims under California Consumer Protection Laws, to be actionable, the omission must be contrary to a representation actually made by the defendant, or an omission of fact the defendant was obligated to disclose.  See Daugherty v. Am. Honda Motor Co., 51 Cal. Rptr. 3d 118, 126 (Ct. App. 2006).   

Plaintiff argued that California case law required Mars to disclose the existence of child labor in the supply chain of the chocolate.  The Court found that while California cases were somewhat vague about the test for determining whether a defendant has a duty to disclose, they endorse a UCL claim based on omission when: (1) the plaintiff alleges that the omission was material; (2) the plaintiff has plead that the defect was central to the products function; and (3) the plaintiff has alleged one of the four LiMandri factors: (i) the defendant is the plaintiff’s fiduciary; (ii) the defendant has exclusive knowledge of material facts not known or reasonably accessible to the plaintiff; (iii) the defendant actively conceals a material fact from the plaintiff; or (iv) the defendant makes partial representations that are misleading because some other material fact has not been disclosed.

The Court held that the alleged lack of disclosure about the existence of slave labor in the supply chain was not a physical defect at all, much less one related to the chocolate’s function as chocolate.  While Plaintiff alleged he had “no practical use” for products tainted by slave or child labor, the Court argued that the central functionality of a product is not based on a person’s subjective preferences about that product.  While a chip that corrupts the hard drive of a computer renders that product incapable of use by any consumer—as was the case in Collins v. eMachines, Inc., 134 Cal. Rptr. 3d 588 (Ct. App. 2011)—some consumers of chocolate are simply not concerned about the labor practices used to manufacture the product.  Thus, the Court of Appeals held that Plaintiff could not state a claim, as he did not sufficiently allege the defect in question, i.e. the existence of child labor in the supply chain of the chocolate, affects the central functionality of the chocolate products.  Accordingly, Mars had no duty to disclose the labor practices on its labels.