Outsourcing or offshoring is a commonplace cost-saving strategy. And corruption, bribery, political instability, and natural disasters are well-known risk issues for those responsible for global supply chain management. A less obvious risk, but one growing in importance given widespread reliance on third-parties in supply chains, is liability for the way in which one's suppliers and manufacturers do business. Liability for third-party relationships in the supply chain is an especially important concern for companies subject to the jurisdiction of US courts.

Two recent cases, both of which bear careful attention for their business implications, illustrate a push to hold multinational companies legally responsible for the acts of third parties in their supply chains. One is still at the pleading stage and the other is the subject of a recent of  appellate decision -- and likely headed for review by the US Supreme Court next Term.

This briefing examines the theories of supply-chain liability being advanced against global business in the US court system and the business implications of this litigation.

Two Supply-Chain Liability Case Studies

Asia.  An eight-story commercial building collapses in Bangladesh, injuring and killing thousands of garment factory workers employed by the foreign suppliers and subcontractors of major Western retailers and brands.  Subsequent investigations uncover numerous labor and building code violations.

Africa.  Some of the largest chocolate companies in the world source their cocoa from plantations in Western Africa that reportedly rely upon child slave labor and other forms of human trafficking to get their product to market.  Media stories proliferate. 

In both instances, the victims of these human tragedies have filed class action lawsuits in the US for money damages on the theory that multinational companies are liable for injuries caused by working conditions and human rights violations in their global supply chains.  Plaintiffs in these case have adopted different strategies, however.

Sourcing Chocolate

Plaintiffs in Doe v. Nestle USA, Inc., sued three of the largest global buyers of West African cocoa under the Alien Tort Statute (ATS), a jurisdictional statute that empowers federal district courts to hear "any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States."  Since the late 1970s, this statute has been used by foreign nationals to seek relief against defendants subject to jurisdiction in the U.S. for violations of customary international law -- norms of an international character recognized by the civilized world (e.g. slavery, torture, human trafficking, etc.) -- on claims sounding in tort.  Plaintiffs in this case allege that defendants aided and abetted child slavery in violation of international law by purchasing chocolate from Ivorian plantations.  Although ATS liability is difficult to establish for a variety of procedural and substantive reasons, plaintiffs recently persuaded the Ninth Circuit to revive their case following dismissal by the district court.  See Doe v. Nestle USA, Inc., 766 F.3d 1013 (9th Cir. 2014).

Sourcing Apparel

The other case Rahaman v. JCPenney Corp. -- a proposed class action arising from the collapse of the Rana Plaza garment factory in Bangladesh -- was filed last month in federal district court in Washington, D.C.  Rather than run the gauntlet of ATS litigation, though, these plaintiffs have opted to proceed solely on the basis of a common law theory of negligence.  See Rahaman v. JCPenney Corp., No. 15-cv-619 (D.D.C. filed Apr. 23, 2015).  (A similar class action lawsuit has also been filed in Toronto, Canada -- with plaintiffs seeking $2 billion in damages.  See Das v. George Weston Limited, No. CV-15-526628 (Ont. Superior Ct. filed Apr. 22, 2015).    

These cases are learning opportunities worth study.