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From Antitrust Law Daily, June 5, 2018

Mars not required to disclose supply chain labor practices

By Nicole D. Prysby, J.D.

The U.S. Court of Appeals in San Francisco has upheld dismissal of consumer claims against candy manufacturer Mars, Inc., under California’s Unfair Competition Law (UCL), Consumers Legal Remedies Act (CLRA), and False Advertising Law (FAL). The court found that Mars had no duty to disclose whether its cocoa suppliers used child or slave labor, because labor practices are not physical defects related to the company’s chocolate products. Because the company had no duty to disclose the labor practices, there could be no violation of the CLRA or FAL. The consumer’s UCL claims also failed for lack of a duty to disclose or failure to tether the claims to a legislatively-declared policy relating to competition. Although the consumer cited a United Nations declaration forbidding slavery and some forms of child labor, the declaration did not require product labeling, so there was not a sufficient nexus between the declaration and the challenged action of not placing disclosures on consumer labels (Hodsdon v. Mars, Inc., June 4, 2018, Tashima, A.).

Background. A consumer brought a class action against the Mars company, alleging violations of the UCL, CLRA, and FAL. The violations were premised on an allegation that there was a probability that child or slave labor practices occurred in the supply chain for the cocoa in the company’s chocolate products. The consumer alleged that he would not have purchased the products or would not have paid as much, had the labels included information about the labor practices of the cocoa suppliers. The district court dismissed the claims, finding that Mars had no duty to disclose the labor practices of the suppliers on its product labels or in advertising. The consumer appealed.

Duty to disclose. Because the consumer alleged only omissions and no affirmative misstatements by Mars, the court focused on whether the company had a duty to disclose the labor practices of its cocoa suppliers. The court concluded that because the alleged defect in question—child or slave labor in the supply chain—does not affect the central functionality of the company’s chocolate products, Mars had no duty to disclose the labor practices. The court rejected arguments from the consumer based on other California consumer protection cases, because all of the cited cases emphasized that the defect in question must relate to the central functionality or the safety of the product. Although the existence of child or slave labor in the supply chain of a product is material to consumers, it is not a physical or safety defect in the chocolate products.

CLRA, UCL, and FAL claims. Because there was no duty to disclose the labor practices of the suppliers, there could be no CLRA violation, no FAL violation, and no violation under the unlawful or fraudulent prongs of the UCL. With respect to the unfair prong of the UCL, the lack of a duty to disclose did not dispose of the claim. The court therefore considered whether the consumer had tethered the claims to a legislatively-declared policy relating to competition. The consumer argued that the claims were tethered to the United Nations’ Universal Declaration of Human Rights and the ILO’s Convention 182, which forbids slavery and the worse forms of child labor. However, the court found that there was not a sufficient nexus between the general policy against child and slave labor and the challenged action of not placing disclosures on consumer labels. Although not labeling the chocolate might indirectly lead to more slave or child labor in the supply chain, the policies do not require supply chain labor practice labeling and therefore the labeling is too far removed from the policies to serve as the basis for a UCL claim. In addition, the failure to disclose was not immoral or substantially injurious, because Mars had no duty to disclose the information on the product labels and what information it did have a duty to disclose was correctly disclosed on its public website per the requirements of the Supply Chains Act.

The case is No. 16-15444.

Attorneys: Steve W. Berman (Hagens Berman Sobol Shapiro LLP) for Robert Hodsdon. Joelle Perry Justus (Williams & Connolly LLP) for Mars, Inc. and Mars Chocolate North America LLC.

Companies: Mars, Inc.; Mars Chocolate North America LLC

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