** Ninth Circuit Rules Failure to Disclose Transparency Issues Not Actionable Omission ** 

By: Brent E. Johnson 

As we have blogged about in the past  – the California Transparency in Supply Chains Act of 2010 requires retailers doing business in California to make specific disclosures on their websites about the efforts they make to “eradicate slavery and human trafficking from [their] direct supply chain[s].” (Cal. Civ. Code § 1714.43).  In a prior post on this topic, we noted the Transparency Act applies to large retailers (those with $100 million in worldwide sales)  and the Act’s focus is on providing information.  Specifically, the retailer must disclose what efforts it takes to:  (1) verify the risks of human trafficking and slavery in its supply chain; (2) audit its suppliers; (3) certify its suppliers’ compliance with laws regarding slavery and human trafficking; (4) maintain internal policies and procedures on the subject; and (5) train its management on these policies and procedures.  Recently, a similar law was enacted in the United Kingdom and another will soon become law in Australia).

A series of “test” cases on the Transparency Act were filed in 2015 in California posing this question:  Does the Act do more than obligate companies to inform the public about their efforts to eradicate supply chain problems – or is there an implied legal obligation to go further and affirmatively tell the public about the actual occurrences or risk in supply chains as to human slavery or trafficking?

• One of these test cases Barber v. Nestle USA, Inc., No. SACV1501364CJCAGRX, (C.D. Cal.) involved Nestle’s branded pet food that is sourced from seafood from Thai fisheries – where there is widespread forced labor.
• Other cases filed at the same time were against Hersheys and Mars – dealing with these companies’ cocoa supply chain from West Africa – an area of the world notorious for forced and child labor.

In the Nestle case, Plaintiffs in a putative class action alleged that they would not have purchased Nestle’s products if they knew of the connection between the product and modern slavery.

• Nestle 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 the consumer law’s “safe harbor.”
• The district court agreed holding 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).

On July 10, 2018 the Ninth Circuit Affirmed:

• It did not, however, rely on the Transparency Act’s safe harbor. Rather, it issued a broader ruling – finding that in a consumer case a company has a duty to disclose anything that implicates its product’s “central function” – and that supply chain issues were too removed from the “central function” to create a duty to disclose.  Barber v. Nestle USA, Inc., 730 F. App’x 464, 465 (9th Cir. 2018).
• This is an important ruling which insulates companies from the “omission” law suit. It presents an interesting question, though: Would supply chain issues ever be so central to the function of a product that it would be an actionable omission to not disclose it?
• The Ninth Circuit reached a similar conclusion in Wirth v. Mars, Inc., 730 F. App’x 468 (9th Cir. 2018) and Sud v. Costco Wholesale Corp., 731 F. App’x 719, 720 (9th Cir. 2018), which cases dealt with seafood sourced from Thailand. The appeal court also issued the same ruling with respect to forced labor in cocoa farms in Hodsdon v. Mars, Inc., 891 F.3d 857, 860 (9th Cir. 2018) and Dana v. Hershey Co., 730 F. App’x 460 (9th Cir. 2018).

The same law firm that brought these California cases has recently filed similar lawsuits in Massachusetts – Tomasella v. Nestle USA Inc.,1:18-cv-10269-ADB (D. Mass); Tomasella v. Mars Inc., 1:18-cv-10359-ADB (D. Mass); Tomasella v. The Hershey Company, 1:18-cv-10269-ADB (D. Mass).  Motions to dismiss have been filed by the Defendants and are awaiting a hearing or ruling.