Doe I v. Wal-Mart Stores, Inc.

• Decision Date: 10 July 2009
• Docket Number: No. 08-55706.,08-55706.
• Citation: Doe I v. Wal-Mart Stores, Inc., 572 F.3d 677 (9th Cir. 2009)
• Parties: Jane DOE I; Jane Doe II; John Doe I; John Doe II individually and on behalf of Wal-Mart workers in Shenzhen China; Jane Doe III; Jane Doe IV, individually and on behalf of Wal-Mart workers in Dhaka, Bangladesh; Jane Doe V; Jane Doe VI; John Doe III, individually and on behalf of Wal-Mart workers in Bogor, Indonesia; Jane Doe VII; Jane Doe VIII individually and on behalf of Wal-Mart workers in Mastaphia Swaziland; Jane Doe IX; Jane Doe X; Jane Doe XI; John Doe IV, individually and on behalf of Wal-Mart workers in Managua and Sebaco, Nicaragua; Kristine Dall; Bruce Reeves; Christine Kaposy; Sharlotte Villacorta, individually and on behalf of similarly situated California workers, c/o 8530 Stanton Avenue, Buena Park, CA 90622, Plaintiffs-Appellants, v. WAL-MART STORES, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

572 F.3d 677

Jane DOE I; Jane Doe II; John Doe I; John Doe II individually and on behalf of Wal-Mart workers in Shenzhen China; Jane Doe III; Jane Doe IV, individually and on behalf of Wal-Mart workers in Dhaka, Bangladesh; Jane Doe V; Jane Doe VI; John Doe III, individually and on behalf of Wal-Mart workers in Bogor, Indonesia; Jane Doe VII; Jane Doe VIII individually and on behalf of Wal-Mart workers in Mastaphia Swaziland; Jane Doe IX; Jane Doe X; Jane Doe XI; John Doe IV, individually and on behalf of Wal-Mart workers in Managua and Sebaco, Nicaragua; Kristine Dall; Bruce Reeves; Christine Kaposy; Sharlotte Villacorta, individually and on behalf of similarly situated California workers, c/o 8530 Stanton Avenue, Buena Park, CA 90622, Plaintiffs-Appellants, v. WAL-MART STORES, INC., Defendant-Appellee.

No. 08-55706.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 8, 2009.

Filed July 10, 2009.

Terrence P. Collingsworth, Natacha Thys, Conrad & Scherer, Washington, D.C.; Dan Stormer, Anne Richardson, Lisa Holder, Hadsell & Stormer, Pasadena, CA, for the plaintiffs-appellants.

James N. Penrod, Thomas M. Peterson, Amy M. Spicer, Morgan, Lewis & Bockius, San Francisco, CA, for the defendant-appellee.

Deborah J. La Fetra, Damien M. Schiff, Pacific Legal Foundation, Sacramento, CA, for the amicus Pacific Legal Foundation.

Daniel J. Popeo, Richard A. Samp, Washington Legal Foundation, Washington, D.C.; Michael A. Carvin, Daniel R. Volkmuth, Jones Day, Washington, D.C., for the amicus Washington Legal Foundation and Allied Educational Foundation.

Appeal from the United States District Court for the Central District of California, Andrew J. Guilford, District Judge, Presiding. D.C. No. 2:05-cv-07307-AG.

Before BETTY B. FLETCHER, RAYMOND C. FISHER, and RONALD M. GOULD, Circuit Judges.

GOULD, Circuit Judge:

The appellants were among the plaintiffs in the district court and are employees of foreign companies that sell goods to Wal-Mart Stores, Inc. ("Wal-Mart"). They brought claims against Wal-Mart based on the working conditions in each of their employers' factories.¹ These claims relied primarily on a code of conduct included in Wal-Mart's supply contracts, specifying basic labor standards that suppliers must meet. The district court dismissed the complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). We have jurisdiction under 28 U.S.C. § 1291, and we affirm.

I

Plaintiffs are employees of Wal-Mart's foreign suppliers in countries including China, Bangladesh, Indonesia, Swaziland, and Nicaragua. Plaintiffs allege the following relevant facts, which we take as true for purposes of this appeal:

In 1992, Wal-Mart developed a code of conduct for its suppliers, entitled "Standards for Suppliers" ("Standards"). These Standards were incorporated into its supply contracts with foreign suppliers. The Standards require foreign suppliers to adhere to local laws and local industry standards regarding working conditions like pay, hours, forced labor, child labor, and discrimination. The Standards also include a paragraph entitled "RIGHT OF INSPECTION":

To further assure proper implementation of and compliance with the standards set forth herein, Wal-Mart or a third party designated by Wal-Mart will undertake affirmative measures, such as on-site inspection of production facilities, to implement and monitor said standards. Any supplier which fails or refuses to comply with these standards or does not allow inspection of production facilities is subject to immediate cancellation of any and all outstanding orders, refuse [sic] or return [sic] any shipment, and otherwise cease doing business [sic] with Wal-Mart.

Thus, each supplier must acknowledge that its failure to comply with the Standards could result in cancellation of orders and termination of its business relationship with Wal-Mart.

Wal-Mart represents to the public that it improves the lives of its suppliers' employees and that it does not condone any violation of the Standards. However, Plaintiffs allege that Wal-Mart does not adequately monitor its suppliers and that Wal-Mart knows its suppliers often violate the Standards. Specifically, Plaintiffs claim that in 2004, only eight percent of audits were unannounced, and that workers are often coached on how to respond to auditors. Additionally, Plaintiffs allege that Wal-Mart's inspectors were pressured to produce positive reports of factories that were not in compliance with the Standards. Finally, Plaintiffs allege that the short deadlines and low prices in Wal-Mart's supply contracts force suppliers to violate the Standards in order to satisfy the terms of the contracts.

Plaintiffs filed a class action lawsuit in California Superior Court in 2005 and Wal-Mart removed the case to federal court based on diversity of citizenship. Plaintiffs then filed an amended complaint in federal court, which is the complaint relevant here. Wal-Mart filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. The district court granted the motion in a written order, and judgment was entered on March 27, 2008.² Plaintiffs timely appealed.

II

We review a dismissal under Rule 12(b)(6) de novo. Witt v. Dep't of the Air Force, 527 F.3d 806, 810 (9th Cir.2008). We take a plaintiff's allegations in the complaint as true, but we are "not required to indulge unwarranted inferences." Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1064 (9th Cir.2008).

III

Plaintiffs present four distinct legal theories, all of which aim to establish that the Standards and California common law provide substantive obligations that can be enforced by the foreign workers against Wal-Mart: (1) Plaintiffs are third-party beneficiaries of the Standards contained in Wal-Mart's supply contracts;³ (2) Wal-Mart is Plaintiffs' joint employer; (3) Wal-Mart negligently breached a duty to monitor the suppliers and protect Plaintiffs from the suppliers' working conditions; (4) Wal-Mart was unjustly enriched by Plaintiffs' mistreatment. Applying California law, we address each claim in turn.

A

We first address Plaintiffs' third-party beneficiary theory. The common law in California and elsewhere establishes that, as recited in the applicable Restatement (Second) of Contracts: "A promise in a contract creates a duty in the promisor to any intended beneficiary to perform the promise, and the intended beneficiary may enforce the duty." Restatement (Second) of Contracts § 304 (1981). However, the Restatement also explains that a beneficiary is only "an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties...." Restatement (Second) of Contracts § 302(1). Contract interpretation is a question of law that we review de novo. See Milenbach v. Comm'r of Internal Revenue, 318 F.3d 924, 930 (9th Cir.2003).

Plaintiffs argue that Wal-Mart promised the suppliers that it would monitor the suppliers' compliance with the Standards, and that Plaintiffs are third-party beneficiaries of that promise to monitor. Plaintiffs rely on this language in the Standards: "Wal-Mart will undertake affirmative measures, such as on-site inspection of production facilities, to implement and monitor said standards." We agree with the district court that this language does not create a duty on the part of Wal-Mart to monitor the suppliers, and does not provide Plaintiffs a right of action against Wal-Mart as third-party beneficiaries.

The language and structure of the agreement show that Wal-Mart reserved the right to inspect the suppliers, but did not adopt a duty to inspect them. The language on which Plaintiffs rely is found in a paragraph entitled "Right of Inspection," contained in a two-page section entitled "Standards for Suppliers." And after stating Wal-Mart's intention to enforce the Standards through monitoring, the paragraph elaborates the potential consequences of a supplier's failure to comply with the Standards—Wal-Mart may cancel orders and cease doing business with that supplier—but contains no comparable adverse consequences for Wal-Mart if Wal-Mart does not monitor that supplier. Because, as we view the supply contracts, Wal-Mart made no promise to monitor the suppliers, no such promise flows to Plaintiffs as third-party beneficiaries. See Marina Tenants Ass'n v. Deauville Marina Dev. Co., 181 Cal.App.3d 122, 226 Cal.Rptr. 321, 327 (1986) ("A third party beneficiary cannot assert greater rights than those of the promisee under the contract.").

Plaintiffs alternatively argue that they are third-party beneficiaries of the suppliers' promises to maintain certain working conditions, and that Plaintiffs may therefore sue Wal-Mart. This theory fails because Wal-Mart was the promisee vis-a-vis the suppliers' promises to follow the Standards, and Plaintiffs have not plausibly alleged a contractual duty on the part of Wal-Mart that would extend to Plaintiffs. See Martinez v. Socoma Cos., 11 Cal.3d 394, 113 Cal.Rptr. 585, 521 P.2d 841, 844-45 (1974) (holding a "donee" third-party beneficiary may recover only against the party that undertook a promise under the contract for the benefit of the beneficiary).⁴

Plaintiffs' allegations are insufficient to support the conclusion that Wal-Mart and the suppliers intended for Plaintiffs to have a right of performance against Wal-Mart under the supply contracts. See Restatement (Second) of Contracts § 302(1). We therefore conclude that Plaintiffs have not stated a claim against Wal-Mart as third-party beneficiaries of any contractual duty owed by Wal-Mart, and we affirm the district court's dismissal of the third-party beneficiary contract claim.

B

We next address Plaintiffs' theory that Wal-Mart was Plaintiffs' joint employer, such that they can "sue Wal-Mart directly for any breach of contract or violation of labor laws." We conclude, to the...