Hodsdon v. Mars, Inc.

• Decision Date: 04 June 2018
• Docket Number: No. 16-15444,16-15444
• Citation: 891 F.3d 857
• Parties: Robert HODSDON, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. MARS, INC., a Delaware corporation; Mars Chocolate North America LLC, a Delaware company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

891 F.3d 857

Robert HODSDON, on behalf of himself and all others similarly situated, Plaintiff-Appellant,

v.MARS, INC., a Delaware corporation; Mars Chocolate North America LLC, a Delaware company, Defendants-Appellees.

No. 16-15444

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 7, 2017 Pasadena, California

Filed June 4, 2018

Steve W. Berman (argued), Hagens Berman Sobol Shapiro LLP, Seattle, Washington; Elaine T. Byszewski, Hagens Berman Sobol Shapiro LLP, Pasadena, California; for Plaintiff-Appellant.

Stephen D. Raber (argued), Richmond T. Moore, and Joelle Perry Justus, Williams & Connolly LLP, Washington, D.C., for Defendants-Appellees.

Tina Charoenpong, Deputy Attorney General; Michele Van Gelderen, Supervising Deputy Attorney General; Nicklas A. Akers, Senior Assistant Attorney General; Office of the Attorney General, Los Angeles, California; for Amicus Curiae State of California.

Before: A. Wallace Tashima, William A. Fletcher, and Marsha S. Berzon, Circuit Judges.

OPINION

TASHIMA, Circuit Judge:

In this action, the putative class plaintiff alleges that California consumer protection laws require certain food manufacturers to disclose, on their products' labels, that the products' supply chain may involve child or slave labor. Regrettably, despite some efforts to eradicate the practices, child labor and slave labor are modern-day scourges, and manufacturers that source materials from around the world may benefit from that illicit labor. This issue has gained public attention in recent years such that many consumers now consider in their purchasing decisions the labor practices behind household products. In fact, some manufacturers have decided to market their products as free of unsavory labor practices, and some legislatures have attempted to further educate the public about modern-day slavery.

Nonetheless, the California consumer protection laws do not obligate the defendants-appellees to label their goods as possibly being produced by child or slave labor. In the absence of any affirmative misrepresentations by the manufacturer, we hold that the manufacturers do not have a duty to disclose the labor practices in question, even though they are reprehensible, because they are not physical defects that affect the central function of the chocolate products.

One of the key issues in this case is the continued viability of Wilson v. Hewlett-Packard Co. , 668 F.3d 1136 (9th Cir. 2012). Defendants-appellees rely on Wilson to argue that plaintiff-appellant has not alleged that defendants-appellees had a duty to disclose because Wilson stands for the premise that plaintiffs in pure omission cases must plead that the undisclosed information created a safety hazard. Plaintiff-appellant acknowledges the holding in Wilson , but urges us to deviate from that precedent, arguing that intervening California Courts of Appeal cases render our interpretation of California law incorrect. It is true that recent state-court cases have cast doubt on the breadth of this Circuit’s precedent about the duty to disclose, but the facts before us today do not compel us to reexamine that precedent in this case. This is so because, even applying the tests from the intervening California cases, Plaintiff cannot state a claim. We therefore affirm the district court’s order of dismissal.

I. FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff-appellant Robert Hodsdon ("Plaintiff") is a California citizen who purchased defendants-appellees' (together, "Mars") chocolate products at retail stores and viewed the labeling. Hodsdon alleges he would not have bought the chocolate or would not have paid as much for it if the manufacturer had disclosed, on the label itself, the existence of child and slave labor in its supply chain.

The Ivory Coast (or Côte d'Ivoire) is the world’s largest producer of cocoa beans, the raw ingredient for chocolate. Like most chocolate manufacturers, Mars sources at least some cocoa beans from the Ivory Coast. Some cocoa beans from the Ivory Coast are produced using what the International Labor Organization ("ILO") calls "the worst forms of child labour." The Bureau of International Labor Affairs of the U.S. Department of Labor describes the situation in the Ivory Coast as follows:

[C]hildren ... are working under conditions of forced labor on Ivoirian cocoa farms.... Some children are sold by their parents to traffickers, some are kidnapped, and others migrate willingly but fall victim to traffickers who sell them to recruiters or farmers, where they end up in conditions of bonded labor.... Some children are forced to perform dangerous tasks....

Mars recognizes that its supply chains may be infected by the worst forms of child labor, but does not disclose this on its product labeling. However, in compliance with the California Transparency in Supply Chains Act of 2010 ("Supply Chains Act"), Mars does disclose on its website its efforts to combat slavery and labor abuses in its supply chain.¹

Plaintiff brought this action under California’s Consumers Legal Remedies Act ("CLRA"), Unfair Competition Law ("UCL"), and False Advertising Law ("FAL"), alleging that Mars has a duty to disclose on its labels the labor practices that may taint its supply chain. Plaintiff’s CLRA claim is that Mars misrepresented the source, characteristics, and standard of the chocolate products by omitting information about labor practices on its label. See Cal. Civ. Code § 1770(a)(2), (5), (7). As to the UCL, Plaintiff claims that Mars' conduct came within the UCL’s prohibition on "any unlawful, unfair or fraudulent business act or practice" by: (1) violating the "unlawful" prong based on its violation of the CLRA; (2) violating the "fraudulent" prong because it omitted information about the forced labor at the point of sale; and (3) violating the "unfair" prong because the omission contravened legislative policy against child and slave labor, or because Mars' "participation in a supply chain involving [slave labor] is immoral, unethical, oppressive, unscrupulous and injurious to consumers." See Cal. Bus. & Prof. Code § 17200. Finally, Plaintiff’s FAL claim also is based on Mars' alleged failure to disclose its labor practices on its label. See id. § 17500.

The district court dismissed the complaint for failure to state a claim. Fed. R. Civ. P. 12(b)(6). Plaintiff has timely appealed.

II. JURISDICTION AND STANDARD OF REVIEW

The district court had jurisdiction under 28 U.S.C. § 1332(a). We have jurisdiction under 28 U.S.C. § 1291, and review de novo the district court’s dismissal for failure to state a claim. See Hinojos v. Kohl's Corp. , 718 F.3d 1098, 1103 (9th Cir. 2013).

III. ANALYSIS

A. Duty to Disclose

Plaintiff does not allege any affirmative misstatement and relies solely on an omission theory of consumer fraud. Omissions may be the basis of claims under California consumer protections laws, but "to be actionable the omission must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose ." Daugherty v. Am. Honda Motor Co. , 144 Cal.App.4th 824, 51 Cal.Rptr.3d 118, 126 (2006) (emphasis added).

Mars argues that to establish a duty to disclose, under the Ninth Circuit’s interpretation of California law, Plaintiff must always allege that the undisclosed information "caused an unreasonable safety hazard." Wilson , 668 F.3d at 1143. Plaintiff urges us to rule that Wilson is no longer good law after more recent California Courts of Appeal opinions, and to apply the tests for duty to disclose from those cases. While the recent California cases do cast doubt on whether Wilson ’s safety-hazard requirement applies in all circumstances, we have no occasion in this case to consider whether the later state-court cases have effectively overruled Wilson . This is true because even applying Plaintiff’s proposed tests, derived from his reading of the more recent California decisions, he cannot state a claim. Specifically, Plaintiff has not sufficiently alleged that the defect in question—the existence of child labor in the supply chain—affects the central functionality of the chocolate products. Therefore, without either relying on or overruling Wilson , we hold that Plaintiff has not established that Mars had a duty to disclose the labor practices on its labels.

The primary California cases on which Plaintiff relies are Collins v. eMachines, Inc. , 202 Cal.App.4th 249, 134 Cal.Rptr.3d 588 (2011), and Rutledge v. Hewlett-Packard Co. , 238 Cal.App.4th 1164, 190 Cal.Rptr.3d 411 (2015). Plaintiff has not sufficiently alleged that Mars has a duty to disclose under these cases.

In Collins , the plaintiffs were a putative class of consumers that purchased eMachine computers. 134 Cal.Rptr.3d at 591. The plaintiffs complained that a floppy disk controller defect, which manifested itself during the warranty period, caused critical data corruption of the hard drive. Id. at 591–92. Citing the four-prong test from LiMandri v. Judkins , 52 Cal.App.4th 326, 60 Cal.Rptr.2d 539 (1997), the plaintiffs asserted that eMachines had a duty to disclose the defect. Collins , 134 Cal.Rptr.3d at 593. The court explained:

A failure to disclose a fact can constitute actionable fraud or deceit in four circumstances: (1) when the defendant is the plaintiff’s fiduciary; (2) when the defendant has exclusive knowledge of material facts not known or reasonably accessible to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations that are misleading because some other material fact has not been disclosed.

Id. (citing LiMandri , 60 Cal.Rptr.2d at 543 ). The plaintiffs in Collins argued that eMachines had a duty to disclose based on either prong (2) or (3). Id. at 593.

The court held that the plaintiffs had stated a CLRA claim under prong (2). Id. at 594. The fact of the defect was material because a "reasonable consumer would...