Hodsdon v. Mars, Inc.

ORDER GRANTING MARS INC.’S MOTION TO DISMISS THE COMPLAINT

RICHARD SEEBORG, United States District Judge

I. INTRODUCTION

That children and forced laborers pick cocoa beans,on a daily basis is indisputably an international tragedy. The debatable question is whether defendants Mars, Inc., and Mars Chocolate North America, LLC, must inform consumers at the point of sale that Mars chocolate products likely contain cocoa beans picked under such conditions. Plaintiff Robert Hodsdon claims that California law obligates Mars to disclose that information on its labels and seeks to mandate such disclosure. To that end, he has filed three claims against Mars for violations of the Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200 et seq. (Claim 1); the Consumers Legal Remedies Act (“CLRA”), Cal. Civ. Code § 1750 et seq. (Claim 2); and the False Advertising Law (“FAL”), Cal. Bus. & Prof. Code § 17500 et seq. (Claim 3).

Mars contends that Hodsdon does not have standing to pursue these claims, and even if he does, that California law does not mandate such disclosures at the point of sale. Mars also argues that Hodsdon has not pleaded facts sufficiently to establish a violation of the UCL. Finally, it insists that, if California law requires disclosure of the labor practices of a manufacturer’s suppliers, then that mandatory disclosure violates the First Amendment of the U.S. Constitution.

The terrible reality of labor practices in the cocoa fields of Cote d’Ivoire notwithstanding, the FAL, UCL, and CLRA do not require the disclosure Hodsdon seeks. While Hodsdon has shown he has standing to bring these claims, the FAL does not provide the relief he requests, the claim accordingly may not proceed. Because Mars has no duty to disclose this information at the point of sale, Hodsdoris claims under the CLRA and the “unlawful” and “fraudulent” prongs of the UCL similarly may not advance. Finally, the business practice to which ’ Hodsdon objects — nondisclosure of information about its supply chain — is not “unfair” within the meaning of the UCL. There appears to be no possible method to cure these deficiencies, and therefore Hodsdon will not have leave to amend the complaint. Because Mars did not have a duty to disclose information about child labor in its supply chain, there is no need to address whether the safe harbor rule protects it from liability or whether Hodsdon’s proposed mandatory disclosure would violate the First Amendment.

II. FACTS AND PROCEDURAL HISTORY¹

Mars markets and distributes chocolate products in the United States and abroad. Some of the cocoa beans used to make Mars’s chocolate come from C6te d’Ivoire, where children and forced laborers wield dangerous tools, transport heavy loads, and face exposure to toxic substances. Children often arrive at these Ivoirian farms having been sold to, or kidnapped by, traffickers. The working conditions on the farms are deplorable. Laborers often do not receive pay, sleep in locked quarters, and fear corporal punishment.

American and international organizations have identified and documented these abuses extensively. Mars and many other chocolate manufacturers have acknowledged that their products may contain cocoa harvested by children. Indeed, in 2001, Mars signed an agreement with other chocolate manufacturers to develop and to implement certification procedures to eradicate the worst forms of child labor on cocoa farms. The group hoped to achieve this goal by 2005, but to date, Mars and . the other signatories have not been able to establish such a system. Mars twice acknowledged its failure to achieve a certification system and asserts that, by 2020, it hopes to purchase all cocoa from certified sources. According to the most recent reports, the number of children working on cocoa farms has increased since 2005. As of 2014, “[o]nly 36% of [Mars’s] cocoa was certified.” Compl. ¶ 29.

No information about the Ivoirian cocoa farms’ labor practices in Mars’s supply chain appears on the labels or advertisements for most of Mars’s chocolate products, such as M&M’s, Snickers, and Milky Way bars. In contrast, the label for Dove chocolates — another Mars chocolate product — states, “We buy cocoa from Rainforest Alliance Certified farms, traceable from the farms into our factory.” Compl. ¶47. Hodsdon avers that he “would not have purchased” or “paid as much for” Mars chocolate products had the labels included information about the labor practices of Mars’s cocoa suppliers. Compl. ¶ 80. He insists that Mars was obligated to include information about the source of its cocoa beans because consumers, like him, are willing to pay more for ethically sourced chocolate. See Compl. ¶¶ 55-58 (citing studies).

III. LEGAL STANDARD

A pleading that states a claim for relief must contain... a short and plain statement of the claim showing that the pleader is entitled to relief....” Fed. R. Civ. P. 8(a)(2). “[Detailed factual allegations are not required,” but a complaint must provide sufficient factual allegations to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). In addition, “in allegations of fraud or mistake, a party must state with particularity the circumstances constituting fraud and mistake.” Fed. R. Civ. P. 9(b). To satisfy this requirement, a plaintiff must plead “the who, what, when, where, and how that would suggest fraud.” Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir.1997) (internal quotation marks omitted). “A plaintiff must set forth more than the neutral facts necessary to identify the transaction. The plaintiff must set forth what is false or misleading about a statement, and why it is false.” Vess v. Ciba-Geigy Carp. USA, 317 F.3d 1097, 1106 (9th Cir.2003) (internal quotation marks and alteration omitted).

Federal Rule of Civil Procedure 12(b)(6) provides a mechanism to test the legal sufficiency of the averments in the complaint. Dismissal is appropriate when the complaint “fail[s] to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). A complaint in whole or in part is subject to dismissal if it lacks a cognizable legal theory or the complaint does not include sufficient facts to support a plausible claim under a cognizable legal theory. Navarro v. Block, 250 F.3d 729, 732 (9th Cir.2001). When evaluating a complaint, the court must accept all its material allegations as true and construe them in the light most favorable to the non-moving party. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. This standard requires “more than a sheer possibility that the defendant has acted unlawfully.” Id. “Where a complaint pleads facts that are merely consistent with a defendant’s liability, it stops short of the line between possibility and plausibility of entitlement to relief.” Id. (internal quotation marks omitted). When plaintiffs have failed to state a claim upon which relief can be granted, leave to amend should be granted unless “the complaint could not be saved by any amendment.” Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir.2002).

IV. DISCUSSION²

A. Standing

To show standing under the UCL and FAL, Hodsdon must aver facts establishing that he “suffered injury in fact and has lost money or property as a result ■of the unfair competition.” Cal. Bus & Prof. Code §§ 17204, 17536. To that end, he must establish that he actually relied on “the allegedly deceptive or misleading statements.” Kwikset Corp. v. Superior Court, 51 Cal.4th 310, 326, 120 Cal.Rptr.3d 741, 246 P.3d 877 (2011) (internal quotation marks omitted). Similarly, the CLRA requires proof of actual reliance and economic injury. Victor v. R.C. Bigelow, Inc., No. 13-CV-02976-WHO, 2014 WL 1028881, at *5 (N.D.Cal. Mar. 14, 2014). Article III of the U.S. Constitution also requires that a plaintiff aver “injury in fact — an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (internal quotation marks and citations omitted). Mars contends that Hodsdon’s complaint does not establish he has standing to sue because he (1) does not claim .that he purchased chocolate containing cocoa beans harvested by children or forced laborers; (2) cannot trace any of Mars’s chocolate to particular farms that use the objectionable labor practices; and (3) did not state that he relied upon the omitted information when deciding to purchase chocolate.

The Ninth Circuit has already rejected Mars’s first two arguments. California law permits litigants to pursue claims under the UCL, CLRA, and FAL if they show that the deceptive practice caused pecuniary loss, i.e., that ‘“the consumer paid more than he or she actually valued the product. That increment, the extra money paid, is economic injury and affords the consumer standing to sue.’” Hinojos v. Kohl’s Corp., 718 F.3d 1098, 1104 (9th Cir.2013) (quoting Kwikset, 51 Cal.4th at 330, 120 Cal.Rptr.3d 741, 246 P.3d 877) (discussing the UCL and FAL); see also id. at 1108 (“The district court’s conclusion that [plaintiff] failed to establish standing under the CLRA because he did not suffer ‘any damage’ is erroneous for the same reasons that its determinations regarding the UCL and FAL standing were wrong.”). Thus, “[a]consumer who relies on a product label and challenges a misrepresentation contained therein can satisfy the standing requirement of section 17204 by alleging.. .that he or she would not have bought the product but for the misrepresentation.” Kwikset, 51 Cal.4th at 330, 120 Cal.Rptr.3d 741, 246 P.3d 877.

That is precisely what Hodsdon has done: “Had Plaintiff and Class Members known the truth, they would not have purchased Mars Chocolate Products or paid as much for them.” Compl. ¶ 10; see also id. ¶¶ 13, 80. Moreover, the problem, according to Hodsdon, is that he was unaware that cocoa harvested by children and forced laborers were in the supply chain, not that he purchased chocolate actually tainted by child labor. Hodsdon ties his harm to the lack of certainty about the source of the cocoa beans, not to consumption of cocoa products actually harvested by child and forced laborers. In so doing, he has established injury in fact.

Mars’s final argument — that Hodsdon has not averred reliance — is also unpersuasive. A plaintiff may prove reliance “by showing that the defendant’s misrepresentation or nondisclosure was an immediate cause of the plaintiffs injury-producing conduct.” In re Tobacco II Cases, 46 Cal.4th 298, 326, 93 Cal.Rptr.3d 559, 207 P.3d 20 (2009) (internal quotation marks omitted). He may accomplish that “by showing that in its absence the plain tiff in all reasonable probability would not have engaged in the injury-producing conduct.” Id. (quotation marks omitted). The UCL does not require, however, that the plaintiff demonstrate the misrepresentation was the only cause of the injury. Id. Hodsdon claims that he “saw the product packaging and labeling as well as the signage in retail stores where he purchased the Chocolate Products” and “would not have purchased [them] or paid as much for them” had he known the truth. Compl. ¶ 18. If Hodsdon saw the labels, there is a reasonable inference that he read them. Accordingly, Hodsdon has at least shown that he saw the products and the labels and has adequately pleaded facts sufficient to find that he has standing.

B. Omissions and the FAL

Hodsdon asserts that Mars’s omission of information about the child and forced labor practices in its supply chain violates the FAL. Mars contends that the FAL applies to only affirmative misrepresentations, not omissions.

The FAL proscribes “mak[ing] or disse-minat[ing]...any statement.. .which is untrue or misleading, and which is known, or by the exercise of reasonable care should be known, to be untrue or misleading. ..” “with intent directly or indirectly to dispose of real or personal property.” Cal. Bus. & Prof. Code § 17500. Many courts have held a plaintiff who asserts that a business omitted a material fact in its advertisements, labels, or literature has not stated a claim under the FAL. See., e.g., Norcia v. Samsung Telecomms. Am., LLC, No. 14-CV-00582-JD, 2015 WL 4967247, at *8 (N.D.Cal. Aug. 20, 2015) (“There can be no FAL claim where there is no ‘statement’ at all.”); Stanwood v. Mary Kay, Inc., 941 F.Supp.2d 1212, 1222 (C.D.Cal.2012) (“Because she has not adequately alleged that Mary Kay made any actual misleading or untrue statements, she cannot make out a claim under the FAL.”). Other courts have reached the opposite conclusion. See In re Sony Gaming Networks & Customer Data Sec. Breach Litig., 996 F.Supp.2d 942, 991 (S.D.Cal.2014) (“[T]he Court finds Plaintiffs’ fraud-based omission claims are sufficiently plead[, and therefore] DENIES Sony’s motion to dismiss Plaintiffs’ claims under the ... FAL.... ”); Tait v. BSH Home Appliances Corp., No. SACY 10-00711 DOC, 2011 WL 3941387, at *2 (C.D.Cal. Aug. 31, 2011) (denying a motion to dismiss FAL claims even though plaintiffs “assert[ed] a theory of misrepresentation by omission”).

These differing results are not necessarily discordant. When the crux of a plaintiffs FAL claim is that the defendant did not make any statement at all about a subject, then a claim under the FAL may not advance. Stated differently, When the defendant has not made any statements at all, a plaintiff cannot assert a claim under the FAL. In contrast, a plaintiff may state a claim under the FAL if the defendant actually made a statement, but omitted information that undercuts the veracity of the statement. See In re Sony, 996 F.Supp.2d at 991 (denying a motion to dismiss a FAL claim where defendant had claimed to take reasonable steps to secure users’ personal information, but omitted information about deficiencies in the product’s security system); Tait, 2011 WL 3941387, at *2 (denying a motion to dismiss FAL claims when plaintiffs claimed defendant’s representations — that its washing machine was “Xxtra Sanitary” and “high efficiency” — were misleading because the machines accumulated mold and bacteria and required extra cleaning).

Here, Hodsdon has asserted the former type of claim, i.e., that Mars violated the FAL by failing to issue any statement at all. Thus, he has not stated a viable claim for relief under the FAL, and Mars’s mo tion to dismiss this claim is granted without leave to amend.³

C. Duty to Disclose Under the CLRA and UCL

The CLRA proscribes “unfair methods of competition and unfair or deceptive acts or practices undertaken by any person in a transaction intended to result or which results in the sale or lease of goods or services to any consumer,” Cal. Civ. Code § 1770(a), and prohibits conduct “likely to mislead a reasonable consumer,” Colgan v. Leatherman Tool Grp., Inc., 135 Cal.App.4th 663, 680, 38 Cal.Rptr.3d 36 (2006) (internal quotation marks omitted). The UCL prohibits “unfair competition” defined as “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising.” Cal. Bus. & Prof. Code § 17200. Hodsdon' claims Mars violated all three prongs of the UCL. The statute’s “unlawful” prong borrows violations from other laws, and Hodsdon has chosen to link Mars’s alleged violation of the UCL to the alleged violation of the CLRA. In addition, he contends that Mars fraudulently omitted material information about its product, i.e., the type of information that would affect a reasonable consumer’s purchasing decisions.

To prevail with his CLRA and UCL claims, Hodsdon must demonstrate that Mars had a duty to disclose this information. Fraudulent omissions may violate the CLRA when the omission is “contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose.” Daugherty, 144 Cal.App.4th at 835, 51 Cal.Rptr.3d 118. Mars contends that neither the UCL nor the CLRA mandate disclosure of information about known child or forced labor in a manufacturer’s supply chain because such information does not pertain to a safety issue or product defect. Hodsdon argues that the duty to disclose is not so limited and insists that such a duty arises when “the defendant had exclusive knowledge of material facts not known to the plaintiff.” Falk v. General Motors Corp., 496 F.Supp.2d 1088, 1095 (N.D.Cal.2007) (quoting LiMandri v. Judkins, 52 Cal.App.4th 326, 337, 60 Cal.Rptr.2d 539 (1997)).

“California courts have generally rejected a broad obligation to disclose,” except for omissions that are “ ‘contrary to a representation actually made by the defendant, or... omission[s] of a fact the defendant was obligated to disclose,’ ” Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1141 (9th Cir.2012) (quoting Daugherty v. Am. Honda Co., 144 Cal.App.4th 824, 835, 51 Cal.Rptr.3d 118 (2006)). In Daugherty, the California Court of Appeal concluded that the defendant did not have a duty to disclose product defects, which did not pose any risk of physical injury or safety concerns. 144 Cal.App.4th at 836, 51 Cal.Rptr.3d 118. Interpreting Daugherty, the Ninth Circuit concluded that a plaintiff cannot state a claim under the CLRA absent averments of a product design defect or a safety hazard. Wilson, 668 F.3d at 1143.

Muddying the waters is Falk, which held that the failure to disclose material information may arise in four circumstances: “(1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material fact.’ ” Id. at 1142 (quoting Falk, 496 F.Supp.2d at 1095). In Wilson, plaintiffs argued Falk established that claims under the CLRA need not involve safety issues. The Ninth Circuit examined Falk, but concluded that safety issues were central to the plaintiffs’ CLRA claim. Id. at 1142.

Hodsdon insists that Wilson does not foreclose his claim and relies on Stanwood v. Mary Kay, Inc., 941 F.Supp.2d 1212, 1221 (C.D.Cal.2012), to support this contention. In Stanwood, the district court concluded that the Ninth Circuit’s holding in Wilson was limited to product liability cases where warranties protect the consumers. Absent a warranty, the Stanwood court reasoned, “common law fraud.. .pro-. tect[s] consumers,” and therefore plaintiffs need establish only that the omission was material. Id.

Stanwood stands alone in this conclusion; Hodsdon has not identified any other instances where district courts examined Wilson and reached the same conclusion. Indeed, the overwhelming majority of courts to consider the issue have found the opposite. See, e.g., Wirth v. Mars, Inc., SA CV 15-1470-DOC, 2016 WL 471234, *4-6 (C.D.Cal. Feb. 5, 2016) (holding that defendant did not have a duty to disclose “information concerning the likelihood of forced labor to consumers” because such information “does not present any safety issues for consumers” or “concern a product defect”); Marcus v. Apple, Inc., No. C 14-03824 WHA, 2015 WL 151489, at *6 (N.D.Cal. Jan. 8, 2015) (dismissing plaintiffs’ CLRA claim because they did not plead that defendant failed to disclose safety issues or product defects); Willis v. Buffalo Pumps Inc., 34 F.Supp.3d 1117, 1132 (S.D.Cal. 2014) (“In Wilson, the Ninth Circuit rejected a broad obligation to disclose all material facts, but accepted that a manufacturer would be ‘bound to disclose’ a defect that posed safety concerns or risk of physical injury.”). Indeed, in an unpublished opinion, the Ninth Circuit recently concluded that the UCL and CLRA do “not recognize a cause of action for publicizing EP fuel economy estimates and omitting further explanation” because no safety issue is present and there were no affirmative misrepresentations. Gray v. Toyota Motor Sales, U.S.A., Inc., 554 Fed.Appx. 608, 609 (9th Cir.2014).

Hodsdon has not convincingly explained why Stanwood should control the outcome here in light of the overwhelming authority to the contrary. To start, the Ninth Circuit did not limit its holding to cases involving product defects. Rather, the court discussed the issue in general terms. See Wilson, 668 F.3d at 1141 (“California courts have generally rejected a broad obligation to disclose.... ”). Moreover, in Wilson, the Ninth Circuit cited with approval a district court opinion rejecting plaintiffs’ contention that the duty to disclose extends to non-safety issues. Id. (citing O’Shea v. Epson Am., Inc., No. CV 09-8063 PSG (CWx), 2011 WL 3299936, at *7-9 (C.D.Cal. July 29, 2011)).⁴ Finally, Mars offers compelling reasons to decline to pick up Stanwood’s torch. The definition of a material omission has stunning breadth, and could leave manufacturers (chocolate or otherwise) little guidance about what information, if any, it must disclose to avoid CLRA or UCL liability. See Def.’s Mem. at 3. In light of Wilson and overwhelming authority, manufacturers are duty-bound to disclose only information about a product’s safety risks and product defects. The duty to disclose does not extend to situations, as here, where information may persuade a consumer to make different purchasing decisions. Wirth, 2016 WL 471234, at *5-6.

Hodsdon does not aver that the admittedly horrific labor practices pose safety risks to chocolate consumers. Nor does the fact that Mars’s cocoa suppliers benefit from such labor practices constitute a product defect. Absent such a claim, the complaint fails to state a claim under the CLRA. Accordingly, Hodsdon’s UCL claim under the “unlawful” prong also fails.

D. Fraudulent Omissions Under the UCL

Because Mars had no duty to disclose the probability that child and forced labor practices arise in its supply chain, Hodsdon’s claim of fraudulent omission under the UCL, fall as well. “A business practice is fraudulent under the UCL if members of the public are likely to be deceived.” Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152, 1169 (9th Cir.2012) (citing Puentes v. Wells Fargo Home Mortg., Inc., 160 Cal.App.4th 638, 72 Cal. Rptr.3d 903 (2008)). Hodsdon does not aver that Mars made any misleading statements about the source of its label; indeed, his chief complaint is that Mars made no statements whatsoever. He cannot show that the failure to disclose information that Mars was not obliged to disclose in the first place would mislead the reasonable consumer. Daugherty, 144 Cal.App.4th at 838, 51 Cal.Rptr.3d 118 (“We cannot agree that a failure to disclose a fact one has no affirmative duty to disclose is ‘likely to be deceived’ by the omission of a fact that was not required to be disclosed in the first place.”); Berryman v. Merit Prop. Mgmt, Inc., 152 Cal.App.4th 1544, 1557, 62 Cal. Rptr.3d 177 (2007) (“Absent a duty to disclose, the failure to do so does not support a claim under the fraudulent prong of the UCL.”). Thus, Hodsdon’s UCL claim under the fraudulent prong is also not viable.

E. “Unfair” Conduct Under the UCL

Hodsdon also asserts a claim for violation of the UCL under the “unfair” prong. The precise contours of an “unfair” business practice under the UCL are currently in flux. See Davis, 691 F.3d at 1169-70. California courts have used two different definitions of an “unfair” business practice. First, many courts have found a business practice “unfair” when it “offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.” S. Bay Chevrolet v. Gen. Motors Acceptance Corp., 72 Cal.App.4th 861, 886-87, 85 Cal.Rptr.2d 301 (1999) (internal quotation marks omitted). This approach requires courts to “examine the practice’s ‘impact on its alleged victim, balanced against the reasons, justifications and motives of the alleged wrongdoer.’ ” Davis, 691 F.3d at 1169 (quoting S. Bay Chevrolet, 72 Cal.App.4th at 887, 85 Cal.Rptr.2d 301). The California Supreme Court has criticized this approach, however, as “too amorphous” to provide meaningful “guidance to courts and businesses.” Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163, 185, 83 Cal.Rptr.2d 548, 973 P.2d 527 (1999).

“The second test — the ‘public policy’ test — requires that the UCL claim be tethered to some specific constitutional, statutory, or regulatory provisions.” McVicar v. Goodman Global, Inc., 1 F.Supp.3d 1044, 1054 (C.D.Cal.2014) (citing Scripps Clinic v. Superior Court, 108 Cal.App.4th 917, 940, 134 Cal.Rptr.2d 101 (2003); Gregory v. Albertson’s, Inc., 104 Cal.App.4th 845, 854, 128 Cal.Rptr.2d 389 (2002)) (internal quotation marks omitted).⁵ Absent guidance from the California courts about the proper definition of an “unfair” business practice, federal courts have applied both tests. See Lozano v. AT & T Wireless Servs., Inc., 504 F.3d 718, 736 (9th Cir.2007) (“The remaining options, then, are to apply Cel-Tech directly to this case and require that the unfairness be tied to a ‘legislatively declared’ policy, or to adhere to the former balancing test under South Bay. These options, however, are not mutually exclusive.” (citations omitted)).

First, Hodsdon cannot show that Mars’s alleged wrongdoing — the failure to state that its chocolate products likely contain cocoa harvested by child and forced labor — “is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.” S. Bay Chevrolet, 72 Cal. App.4th at 887, 85 Cal.Rptr.2d 301. The harm at issue here is that Hodsdon may not have purchased Mars’s chocolate products at all, or would have paid less for them, had he been aware of the prospect for child labor in Mars’s supply chain. Such information is, in fact, readily available to consumers on Mars’s website. Given that Hodsdon, like any other consumer, has access to information about the source of Mars’s cocoa beans, the absence of such information on the packaging is not “substantially injurious to consumers” or necessarily immoral. Granting that the labor practices at issue are immoral, there remains an important distinction between them and the actual harm for which Hods-don seeks to recover, namely his purchase of Mars’s chocolate products absent any disclosure. Mars’s failure to disclose information it had no duty to disclose in the first place is not substantially injurious, immoral, or unethical, and Hodsdon’s UCL claim may therefore not advance.

Under the second test, Hodsdon’s UCL claim also fails. While Hodsdon invokes statements declaring a general public policy against the use of child and forced labor, he does not tether the harm he claims to any “specific constitutional, statutory, or regulatory provisions.” McVicar, 1 F.Supp.3d at 1054. At best, Hodsdon references statements of international non-governmental organizations and U.S. legislators relative to the horrors of child labor. SeeCompl. ¶¶27, 31. Absent, however, is any reference to specific legislative or regulatory acts, which would support his contention that Mars’s non-disclosure violates public policy.⁶ Thus, Hodsdon has not satisfied either test to establish that Mars’s failure to disclose constitutes an “unfair” business practice under the UCL.

F. The Safe Harbor Rule

Mars urges dismissal for the additional reason that the Supply Chains Act, Cal. Civ. Code § 1714.43, created a “safe harbor” for the failure to disclose the existence of child or forced labor in its supply chain. Although the California legislature designed the provisions of the UCL “to permit tribunals to enjoin ongoing wrongful business conduct in whatever context such activity might occur,” plaintiffs may not use the UCL “to invade ‘safe harbors’ provided by other statutes.” Loeffler v. Target Corp., 58 Cal.4th 1081, 1125, 171 Cal.Rptr.3d 189, 324 P.3d 50 (2014) (internal quotation marks omitted). The same is true for the remedies provided under the CLRA. Id. “Safe harbors” come into being when “the Legislature has permitted certain conduct or considered a situation and concluded no action should lie.” Id. “To forestall an action under the unfair competition law, another provision must actually ‘bar’ the action or dearly permit the conduct.” Id. (internal quotation marks omitted) (emphasis in original). For example, statutes defining a privilege render the conduct immune from tort liability and the UCL. Id. No safe harbor exists, “[hjowever, if the Legislature did not consider that activity in those circumstances.” Celr-Tech, 20 Cal.4th at 183, 83 Cal.Rptr.2d 548, 973 P.2d 527. Thus, in the absence of “a specific provision,” courts may find business practices unfair under the UCL. Id.

Section 1714.43(a) of the California Civil Code requires retailers and manufacturers that earn more than $1,000,000 in gross receipts to disclose their “efforts to eradicate -slavery and human trafficking from [their] direct supply chain for tangible goods offered for sale.” Retailers and manufacturers subject to the statute must post on their website’s homepage “a conspicuous and easily understood link to the required information,” or provide “written disclosure within 30 days of receiving a written request for the disclosure from a consumer.” Id § 1714.43(b). “At a minimum,” retailers and manufacturers subject to the Act must disclose (1) whether they or a third party conducts verifications to evaluate and to address risks of human trafficking; (2) whether they or an independent agency audits their suppliers “to evaluate supplier compliance with company standards for trafficking and slavery in supply chains”; (3) whether they require their “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) whether they “maintain[ ]' internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking”; and (5) whether they train employees responsible for the direct supply chain management about mitigating the risks of human trafficking and slavery in the supply chain. Id. § 1714.43(c). Only the Attorney General has authority to enforce the Supply Chains Act, but the Act does not “limit remedies available for a violation of any other state or federal law.” Id. § 1714.43(d).

Mars relies on two district courts orders for the proposition that the Supply Chains Act creates a safe harbor for manufacturers and retailers subject to the Act. See Barber v. Nestle USA, Inc., 154 F.Supp.3d 954, 958-63, No. SACV1501364CJCAGRX, 2015 WL 9309553, at *2-5 (C.D.Cal. Dec. 9, 2015); Wirth, 2016 WL 471234, at *9.'In both Barber and Wirth, plaintiffs asserted claims Under the FAL, UCL, and CLRA based on defendants’ alleged failure to disclose on their packaging that the seafood in their cat food was likely the product of forced labor. See Barber, 154 F.Supp.3d at 956-58, 2015 WL 9309553, at *1; Wirth, 2016 WL 471234, at *1-2.

There are, however, reasons to question whether the safe harbor doctrine is applicable here. As an initial matter, the Supply Chains Act concerns slavery and human trafficking, not child labor. See Cal. Civ. Code § 1714.43. While the distinction between child labor and forced labor may be thin, the safe harbor doctrine cautions against creating safe harbors in the absence of “specific legislation.” Cel-Tech, 20 Cal.4th at 182, 83 Cal.Rptr.2d 548, 973 P.2d 527. Second, ambiguity remains regarding how to determine whether the legislature “considered a situation and concluded no action should lie.” Here, for example, although there is evidence suggesting the legislature considered how to provide consumers with “reasonable access to basic information to aid their purchasing decisions,” Mars’s RJN Ex. M at 1, the legislative history is silent about whether the legislature contemplated disclosures on labels. Finally, if a safe harbor exists here, an anomalous situation arises: businesses earning less than $100,000,000 in gross receipts worldwide may be subject to liability under the UCL and CLRA, while large corporations are not. In light of the absence of a duty to disclose as set forth above, these safe harbor issues need not be reached on this record.

V. CONCLUSION

Because the FAL, UCL, and CLRA do not require Mars to disclose on labels that its chocolate products may contain cocoa beans harvested by child and or forced labor, Mars’s motion to dismiss the complaint is granted. In these circumstances, amendment would be futile, and therefore no leave to amend is granted.

IT IS SO ORDERED.

Notes

1 . Because Defendants have filed a motion to dismiss, all facts alleged in the complaint are taken as true for the purpose of this motion.

2 . Mars and Hodsdon have submitted requests for judicial notice. Federal Rule of Evidence 201(b) permits courts to take judicial notice of facts that are "not subject to reasonable dispute” and that are "capable of accurate and ready determination by resort to sources whose accuracy cannot be reasonably questioned.” In addition, documents to which a complaint refers may be incorporated by reference. United States v. Ritchie, 342 F.3d 903, 908 (9th Cir.2003). Mars requests judicial notice of several government documents, academic studies, and public statements on Mars's website — to which Hodsdon refers in his complaint. Mars also seeks judicial notice of the legislative history of the Supply Chains Act, Cal. Civ. Code § 1714.43, and a report by the U.S. Department of Labor. Hodsdon does not oppose Mars’s requests and makes a few requests for judicial notice of his own. Specifically, he requests judicial notice of a recent U.S. District Court opinion and documents from the International Labour Organization and United Nations. Mars does not oppose Hodsdon’s request. All submitted documents are appropriate for judicial notice either be cause they are publicly available or because Hodsdon has incorporated those documents into the complaint. Accordingly, both parties’ requests for judicial notice are granted.

3 . Although Hodsdon suggests that Mars has made partial representations about the source of its cocoa in corporate statements, see Compl. ¶ 101, the focus of his claim is on the message that does not appear on Mars’s chocolate products, see Compl. ¶ 46 ("[A] consumer reviewing the packaging for Mars Chocolate Products will find no disclosure of the likelihood that child or forced labor was used to produce the cocoa beans in the supply chain for Mars Chocolate Products ...."). Furthermore, in his response in opposition to Mars’s motion to dismiss the complaint, Hodsdon expressly clarified that his "claim for liability under the UCL, CLRA, and FAL is based on Mars’s omission of known child and slave labor in its supply chain, as opposed to affirmative misrepresentations.” PL’s Opp'n to Mot. to Dismiss at 9 n.46.

4 . In O’Shea, the court specifically noted that the case was not a products liability case. 2011 WL 3299936, at *8. Nevertheless, the court rejected the duty to disclose information about a printer’s efficient (or inefficient) use of ink: "California's consumer protection laws, though broad, do not extend so far as to require a company to denigrate its own products or promote those of its competitors just because consumers might be interested in the comparison. The duty Plaintiffs seek to impose upon Epson is properly served by independent consumer reports.” Id.

5 . There is a third test, which “borrows from section 5 of the Federal Trade Commission Act, finding ‘unfair’ business practices where (1) the consumer injury is substantial, (2) any countervailing benefits to consumers or competition do not outweigh the injury, and (3) the consumers could not reasonably avoid the injury.” McVicar, 1 F.Supp.3d at 1054 (citing Camacho v. Auto. Club of S. Cal., 142 Cal. App.4th 1394, 1403, 48 Cal.Rptr.3d 770 (2006); Daugherty, 144 Cal.App.4th at 839, 51 Cal.Rptr.3d 118). This test does not apply in consumer cases, and therefore is inapplicable here. Lozano, 504 F.3d at 736 ("Though the California Supreme Court did reference FTC’s section 5 as a source of ‘guidance,’ that discussion clearly revolves around anti-competitive conduct, rather than anti-consumer conduct.” (internal alteration omitted)).

6 . Hodsdon may not rely on California's public policy against false and misleading advertising because he cannot state a claim for violations of the CLRA or the FAL.

Case Details

Case Name: Hodsdon v. Mars, Inc.

Court Name: District Court, N.D. California

Date Published: Feb 17, 2016

Citation: 162 F. Supp. 3d 1016

Docket Number: Case No. 15-cv-04450-RS

Court Abbreviation: N.D. Cal.