It would appear that the prediction of additional disclosure-based lawsuits alleging modern slavery in product supply chains following the dismissal of various cases in California has come true. Three lawsuits have been filed in Massachusetts against companies alleging human rights violations linked to cocoa farming and processing and taking aim at their CSR statements, supplier codes and human rights policies. See the Tomasella Complaints, No. 1:18-cv-10269-ADB (D. Mass. filed Feb. 12, 2018); No. 1:18-cv-10359-ADB (D. Mass. filed Feb. 26, 2018); and No. 1:18-cv-10360-ADB (D. Mass. filed Feb. 26, 2018). Common themes and strategies are evident and carry lessons for other contexts. We review the claims briefly here.

Background: CATSCA cases

As a reminder, the lawsuits filed in California federal court and currently pending appeal in the Ninth Circuit Court of Appeals focus chiefly on statements contained in companies’ disclosures made pursuant to the California Transparency in Supply Chains Act (CATSCA), and whether California law compels corporations to inform customers of certain facts on product packaging and point of sale advertising. CATSCA, which served as a model for the UK Modern Slavery Act 2015, requires any retailer or manufacturer “doing business” in California with over $100 million in annual worldwide gross receipts to disclose corporate actions to eradicate slavery and human trafficking from its direct supply chain. Specifically, a qualifying businesses must post a conspicuous and easily understood link to the required information on its homepage or, in response to a written request, provide consumers with a written disclosure within 30 days. Although CATSCA does not create a private right of action, it does not prevent plaintiffs from seeking remedy for violations of other state or federal laws.

In a series of cases filed beginning in 2015, various putative class action plaintiffs alleged violations of various state consumer protection laws using CATSCA statements and other corporate disclosures as a hook. All cases were dismissed at the district court level and all have been appealed. In several of the cases, the district court held that the claims were barred by the “safe harbor” doctrine, which shields companies from liability when they truthfully and accurately comply with the limited disclosure obligations that the law (here, CATSCA) mandates. In essence, the court held that businesses’ responsibilities to inform consumers about the presence of forced labor in its supply chains were confined to CATSCA’s limited disclosure obligations and did not extend to product packaging. With respect to allegations of additional false or misleading statements made with respect to modern slavery in the supply chain (which would not have been protected by the safe harbor doctrine), the court held that no reasonable consumer could expect a company’s suppliers to comply with corporate requirements all of the time. Nor had any company claimed it was solving the problem of modern slavery, the court seemed to state.

In the remaining cases, another federal court expressed skepticism towards the safe harbor doctrine in this context and dismissed the complaints on other grounds. The court found that a manufacturer’s duty to disclose is restricted to information about a product’s safety risks and product defects and does extend to situations where information regarding labor practices may induce a consumer to make a different purchasing decision. On December 7, the Ninth Circuit heard oral argument in these cases and could, in the coming weeks, bring clarity. Its reasoning could have broad implications for CATSCA disclosures.

Massachusetts lawsuits

The cases filed in Massachusetts resemble those litigated in California in certain respects. The plaintiffs seek to hold the companies liable for failing to disclose child and slave labor in their supply chains to consumers on product packaging. The plaintiffs maintain that they were wrongly induced to buy products they would not otherwise have purchased, or paid as much for, due to these omissions and inadvertently ended up supporting harmful practices themselves.

The complaints proceed on a theory of unjust enrichment in violation of Massachusetts’ consumer protection law, which prohibits unfair and deceptive conduct but does not define specific business actions that violate the law. Instead of pointing to regulatory disclosures, however, the complaints focus on statements contained in various corporate policies and published statements (e.g., a CSR report containing a zero tolerance policy for the worst forms of child labor, a supplier code of conduct committing the company to eliminate the worst forms of child labor and prohibiting various practices from its supply chains, and a human rights policy describing plans to implement the human rights due diligence, remediation and compliance framework established by the UN Guiding Principles on Business and Human Rights).

The complaints additionally criticize the companies for failure to abide by a voluntary public-private agreement to eliminate the worst forms of child labor in the growth and processing of cocoa in certain countries. The putative class includes all consumers who bought relevant chocolate products made by the companies in Massachusetts in the four years prior to the filing of the complaints. Thus far, no replies have been filed.

Key takeaways

How these claims will fare in court remains to be seen. They do highlight the challenges of satisfying the requirements of openness and disclosure increasingly required by law, and the litigation risks that come with it.

As plaintiffs test legal theories, we expect to see more cases like these and companies are advised to take a precautionary and diligent approach as a result: ensuring consistency and accuracy in any public statements they make regarding human rights policies and reporting, and being able to demonstrate that they have the apparatus in place to deliver any specific public statements that they issue.