Transparency in Supply

Safe Harbor From Murky Waters in the Supply Chain

seafood

**Nestle Defends Class Action in the Central District of California with Successful Motion to Dismiss and Sets Valuable Precedent With California Transparency in Supply Chains Act Safe Harbor Defense** . . .                                                                                                                                                                                                                                    

The California Transparency in Supply Chains Act of 2010, requires retailers doing business in California to make specific disclosures on its website about efforts it makes to “eradicate slavery and human trafficking from its direct supply chain.” (Cal. Civ. Code § 1714.43).  In our prior post on this topic we noted the Transparency Act applies to large retailers (those with $100 million in worldwide sales).  Id.  And that the Transparency Act’s focus is on information – the retailer must disclose what efforts it takes to: verify the risks of human trafficking and slavery in its supply chain; audit its suppliers; certify its suppliers’ compliance with laws regarding slavery and human trafficking; maintain internal policies and procedures on the subject; and train its management on these policies and procedures.  Id.  Important to note, the Act does not require that a retailer actually do any of these things – the mandate is to inform the public what efforts are made.  The point of the Transparency Act is consumer empowerment – to give consumers who are concerned about the topic a point of reference  – and ultimately give the market the ability to reward or punish retailers who are (or are not) doing enough.  Nestle USA was one of the first companies to be tested by the Plaintiffs’ bar on whether the Transparency Act created more than an obligation to inform the public about its efforts to eradicate the problem – and whether there is an implied legal obligation to inform the public about the actual occurrences or risk in its supply chain of human slavery or trafficking.  See Barber v. Nestle USA, Inc., No. SACV1501364CJCAGRX, (C.D. Cal.).  The case involved Nestle USA’s branded pet food which sources seafood from Thai fisheries.  The court took judicial notice that it has been reported widely the Thai fishing industry is notorious for having widespread forced and other inhumane labor practices.  Plaintiffs alleged that they would not have purchased Nestle USA’s products if they knew of that connection and therefore that the defendant had violated California’s CLRA (Cal. Civ. Code § 1750 et seq.); FAL (Cal. Bus. & Prof. Code § 17500 et seq.; and UCL (Cal. Bus. & Prof. Code § 17200 et seq.).  However, Nestle USA cited to its compliance with the Transparency Act – to the fact that it had informed the public of its efforts – and therefore that it was squarely within a consumer law “safe harbor.”  A “safe harbor” is the concept articulated by the California Supreme Court that a defendant cannot be liable under the UCL for unlawful conduct if it is doing something that “the Legislature has permitted . . .  or considered a situation and concluded no action should lie.” Cel-Tech Comms., Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 182 (Cal. 1999.).  The doctrine has been applied widely to California consumer laws.  Alvarez v. Chevron Corp., 656 F.3d 925, 933–34 (9th Cir. 2011) (applying the safe harbor doctrine to CLRA claims); Pom Wonderful LLC v. Coca Cola Co., No. CV 08-06237 SJO(FMOx), 2013 WL 543361, at *5 (C.D. Cal. Apr. 16, 2013) (applying the safe harbor doctrine to FAL claims).  Nestle USA argued that Plaintiffs could not make an end run around the legislature by making it liable for disclosures that were fully compliant with the Transparency Act.  The district court agreed holding that Plaintiff may not “simply impose their own notions of the day as to what is fair or unfair” – that the “California Legislature considered the situation of regulating disclosure by companies with possible forced labor in their supply lines and determined that only the limited disclosure mandated by § 1714.43 is required.”  Barber v. Nestle USA, Inc., No. SACV1501364CJCAGRX, 2015 WL 9309553, at *4 (C.D. Cal. Dec. 9, 2015).  Accordingly, it granted Nestle USA’s motion to dismiss.  Id.

This dismissal sets an important precedent for the defense bar: Costco has been sued in the Northern District of California under similar circumstances with respect to its sale of seafood sourced from Thailand.  Sud. v. Costco Wholesale Corp., No. 3:15-cv-03783 (N.D. Cal).  Costco’s Motion to Dismiss is currently pending.  Chocolate manufacturers have faced similar lawsuits with respect to slave and child labor in the cocoa supply chain: Mars has been sued in the Central District of California (Wirth v. Mars, Inc., No. 8:15-cv-1470 (C.D. Cal September 10, 2015) and in the Northern District (Hodson v. Mars, Inc., No. 4:15-cv-04450-DMR (N.D. Cal. September 28, 2015).  Hershey’s has also been sued in the Northern District of California (Dana v. The Hershey Company, No. 3:15-cv-04453 (N.D. Cal. September 28, 2015).  Mars’ Motion to Dismiss has been filed in its cases and a decision is currently pending.

 

 

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Update on California Supply Chain Slavery Law

**California Law (Cal. Civ. Code § 1714.43) Requires Disclosure by Large Retailers of Their Efforts Regarding Human Slavery and Trafficking in Their Global Supply Chains** . . .                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Starting in 2012 large retailers (sellers and manufacturers) who do business in California have been required to comply with the California Transparency in Supply Chains Act of 2010, which requires retailers doing business in California to make specific disclosures on its website about efforts it makes to “eradicate slavery and human trafficking from its direct supply chain.” (Cal. Civ. Code § 1714.43).  The Act applies to “retail seller” or “manufacturer” . . . “doing business in California” . . . that has annual worldwide “gross receipts” that exceed $100,000,000.  The Transparency Act requires, at a minimum, disclosure of what actions the company is taking, if any, in five areas: (1) Engaging in verification of product supply chains to evaluate and address risks of human trafficking and slavery, specifying if the verification was not conducted by a third party; (2) Conducting audits of suppliers to evaluate compliance with company standards for trafficking and slavery in supply chains, specifying if the verification was not an independent, unannounced audit; (3) Requiring direct suppliers to certify that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the country or countries in which they are doing business; (4) Maintaining internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking; and (5) Providing company employees and management, who have direct responsibility for supply chain management, training on human trafficking and slavery, particularly with respect to mitigating risks within the supply chains of products.  The disclosures are to be posted on the company’s website with a “conspicuous and easily understood link” to the required information on the website’s homepage (and if the company does not have a website, consumers are to be provided the written disclosures within 30 days of receipt of a written request.  The Transparency Act itself does not have a private right of action provision – it is clear: “[t]he exclusive remedy for a violation of this section shall be an action brought by the Attorney General for injunctive relief” (Cal. Civ. Code § 1714.43(d)).

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