Monday, January 30, 2017

Another "omissions about slave labor" case fails in Cal.

Sud v. Costco Wholesale Corp., No. 15-cv-03783, 2017 WL 345994 (N.D. Cal. Jan. 24, 2017)

Sud brought the usual California claims based on allegations that Costco sold prawns for which the supply chain was tainted by slavery, human trafficking, and other illegal labor practices. Sud alleged that the defendants were aware that the feed for the prawns comes from trash fish caught on boats that use slave labor or other illegal labor practices, including human trafficking. Costco publicly states on its website that it has a “supplier Code of Conduct which prohibits human rights abuses in our supply chain,” but plaintiffs alleged that this was misleading given these facts, and that Costco omitted to tell consumers these important facts.  

To show that an omission was, as required by California law, a substantial factor in a plaintiff’s decision, she must show awareness and a change in behavior. Change in behavior may be presumed if the omitted information is material, “but a plaintiff must still be able to show she would have been aware of the information if it had been disclosed.”  Here, plaintiffs alleged that Costco’s packaging stated only that the prawns were a product of a given country, rather than including information about labor abuses in the supply chain, creating an actionable omission.  The plaintiffs sufficiently pled reliance on the packaging, though not on Costco’s “Disclosure Regarding Human Trafficking and Anti-Slavery” on its website.

Plaintiffs alleged that Costco had a duty to accurately disclose to consumers that slavery, forced labor and human trafficking have been tainting and continue to taint Costco’s supply chain for farmed prawns.  For a UCL or CLRA claim, “to be actionable the omission must be contrary to a representation actually made by the defendant, or an omission of a fact that the defendant was obliged to disclose.” Disclosure obligations include those relating to safety risks, but not all material facts, including supply chain practices.  Given public information available about labor conditions in the fishing industry in Thailand and Southeast, Costco also lacked the superior/exclusive knowledge that might have generated a duty to disclose; nor did plaintiffs properly allege partial representations plus active concealment, which also could have sufficed.

The unfair/unlawful UCL claims also failed.  Plaintiffs alleged that Costco’s conduct “in sourcing and selling farmed prawns actively contributes to the use of slave labor in violation of bans on such human trafficking enacted by the U.S., California and by international conventions, including but not limited to the Tariff Act of 1930 [,] ... [t]he Anti-Trafficking in Persons Act, the UN Declaration on Human Rights, and California Penal Code § 236, § 237, et seq.,” and the Supply Chains Act. The Supply Chains Act didn’t clearly speak to product labels, and, to the extent plaintiffs challenged the website disclosure’s adequacy, they lacked standing.  Nor did they explain how the allegations in the complaint supported alleged violations of the other laws.

On unfairness, assuming that the standard is whether the alleged practice “is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers,” and weighing “the utility of the defendant’s conduct against the gravity of the harm to the alleged victim,” the harm alleged by the plaintiffs (buying a product they wouldn’t otherwise have bought) didn’t state a claim.  Consumers have access to information about supply chains, including Costco’s website statement, so the absence of such information on the packaging is not “substantially injurious to consumers” or necessarily immoral.  Likewise, plaintiffs didn’t identify a particular policy or other statutory or regulatory provision that demonstrate “it is ‘unfair’ within the meaning of the UCL for [a] manufacturer to fail to disclose” such violations on its product packaging.

Pure omissions, when the defendant didn’t make any statement at all about a subject, aren’t covered by the FAL, so those claims also failed. 

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