McCoy v. Nestle USA, Inc et al

Filing 32

Order by Chief Magistrate Judge Joseph C. Spero granting 16 Motion to Dismiss. (jcslc2S, COURT STAFF) (Filed on 3/29/2016)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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ELAINE MCCOY,

Case No. 15-cv-04451-JCS

Plaintiff,
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v.

ORDER GRANTING MOTION TO
DISMISS

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NESTLE USA, INC,

Re: Dkt. No. 16

Defendant.

United States District Court
Northern District of California

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I.

INTRODUCTION
―The use of child slave labor in the Ivory Coast is a humanitarian tragedy.‖ Doe I v. Nestle

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USA, Inc., 766 F.3d 1013, 1016 (9th Cir. 2014). The fact that major international corporations

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source ingredients for their products from supply chains involving slavery and the worst forms of

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child labor raises significant ethical questions. The issue before this Court, however, is whether

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California law requires corporations to inform customers of that fact on their product packaging

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and point of sale advertising. Every court to consider the issue has held that it does not. This

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Court agrees.

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This is a putative class action in which Plaintiff Elaine McCoy claims that Defendant

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Nestlé USA, Inc. (―Nestlé‖) violated California‘s Unfair Competition Law (―UCL,‖ Cal. Bus. &

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Prof. Code §§ 17200−17210), Consumers Legal Remedies Act (―CLRA,‖ Cal. Civ. Code

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§§ 1750−1784), and False Advertising Law (―FAL,‖ Cal. Bus. & Prof. Code §§ 17500−17509) by

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failing to disclose on the packaging of Nestlé‘s chocolate products that some of the cocoa used

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therein originated at farms in Côte d‘Ivoire (also known as the Ivory Coast) that use slave labor

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and the worst forms of child labor. Nestlé moves to dismiss all claims. The Court held a hearing

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on March 18, 2016.1 For the reasons stated below, Nestlé‘s Motion is GRANTED, and this action

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is dismissed with prejudice.2

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II.

BACKGROUND
Allegations of the Complaint3

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A.

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Côte d‘Ivoire is the world‘s largest producer of cocoa beans, the raw ingredient for

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chocolate, and supplies 40% of global cocoa production and 47% of total imports to the United

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States. Compl. (dkt. 1) ¶¶ 20, 51. Slave labor and the worst forms of child labor are common in

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Ivorian cocoa production, as is well documented by United States government agencies, academic

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studies, nonprofit organizations, investigative journalists, and former laborers. Id. ¶¶ 5−9, 24−26,
33−47. Children are frequently injured in the course of dangerous work involving machetes,

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United States District Court
Northern District of California

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chemicals, and heavy loads, and workers (both children and adults) may be beaten, whipped, and

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locked in to prevent escape. Id. ¶¶ 24−26. The Ninth Circuit has also acknowledged the existence

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of such conditions. Id. ¶ 27; Doe I, 766 F.3d at 1016.
Nestlé is one of the largest food companies in the United States and sells a number of

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popular chocolate products. Id. ¶ 3. In 2001, members if the United States chocolate industry

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including Nestlé signed a voluntary protocol, negotiated by Representative Eliot Engel and

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Senator Tom Harkin, to develop standards for certifying chocolate produced without labor abuses.

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Id. ¶ 28. After failing to meet the initial 2005 deadline, the industry extended the self-imposed

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deadline to 2008, then to 2010, and then to 2020. Id. ¶¶ 30−32.
Despite adopting ―Corporate Business Principles‖ that require ethical business practices in

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its supply chain and a ―Supplier Code‖ that ―strictly prohibit[s]‖ child labor and forced labor,

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Nestlé sources much of its chocolate from Côte d‘Ivoire through a multi-level supply chain of

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independent growers, cooperatives, distributors, and other intermediaries. Id. ¶¶ 4, 11, 21, 50, 52,

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60−66, 52. Nestlé acknowledges child and slave labor in its Ivorian supply chain, including

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The Court also heard argument in Dana v. The Hershey Company, No. 15-cv-4453, which
involves different parties but substantially similar claims and arguments. A separate order has
been published concurrently in that case.
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The parties have consented to the jurisdiction of the undersigned magistrate judge for all
purposes pursuant to 28 U.S.C. § 636(c).
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McCoy‘s allegations are taken as true in the context of a motion to dismiss.
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children engaged in unsafe work, but does not disclose the existence of those labor abuses on its

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product labels. Id. ¶¶ 21, 53. Certain Nestlé products also advertise that Nestlé ―works with [a

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certification program that does not permit child labor] to help improve the lives of cocoa farmers.‖

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Id. ¶¶ 54−55. Although McCoy disputes the accuracy of that certification, her claims here are

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based only on Nestlé‘s omissions, not on any affirmative misrepresentations. Id. ¶ 57; Opp‘n (dkt.

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18) at 12 n.64.
McCoy ―has purchased Nestlé Chocolate Products at various retail stores including Sam‘s

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Club and Safeway in and around Vacaville, and Fairfield, California from 2011 through present.‖

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Id. ¶ 14. Citing studies showing that consumers will pay a premium for ethically produced coffee,

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clothing, and seafood, id. ¶¶ 67−71, McCoy alleges that she and other customers ―would not have

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United States District Court
Northern District of California

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purchased Nestlé‘s Chocolate Products or paid as much for them‖ if Nestlé had disclosed labor

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violations on the product labels. Id. ¶ 11, see also id. ¶¶ 14, 49, 78, 93, 107, 118.

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The Complaint includes three claims, under the UCL, the CLRA, and the FAL,

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respectively. The UCL claim is based on three separate theories arising from Nestlé‘s failure to

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disclose labor abuses in its supply chain on the packaging of its chocolate products: (1) the

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omission is ―unlawful,‖ because it violates the CLRA, id. ¶ 86; (2) the omission is ―unfair,‖

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because the abusive labor practices themselves are immoral and the failure to disclose them

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impairs competition and prevents consumers from making informed decisions, id. ¶ 87; and (3) the

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omission is ―fraudulent‖ because it is likely to deceive a reasonable consumer and the true facts

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would be material to reasonable consumer, id. ¶ 88. The CLRA claim asserts that Nestlé‘s failure

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to disclose labor abuses in its supply chain constitutes a misrepresentation of the ―source,

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characteristics, and standard‖ of the products. Id. ¶ 103, see also id. ¶¶ 100−02 (citing Cal. Civ.

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Code § 1770(a)(2), (5), (7)). The FAL claim asserts that Nestlé had a duty to disclose the labor

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abuses in its supply chain because it had superior knowledge as compared to customers, and

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because it made ―partial representations and/or misrepresentations to the contrary.‖ Id. ¶ 114. In

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her Opposition, McCoy disclaims any theory of an obligation to disclose arising from partial

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misrepresentations. Opp‘n at 12 n.64.

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B.

Procedural History

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McCoy filed this action on September 28, 2015, seeking to represent herself and other

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similarly situated consumers who purchased Nestlé chocolate products in the last four years. See

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generally Compl. McCoy‘s counsel also represents plaintiffs who filed similar actions against two

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other large chocolate manufacturers, Mars and Hershey. See Hodsdon v. Mars, Inc., No. 3:15-cv-

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04450-RS (N.D. Cal.); Dana v. The Hershey Company, No. 3:15-cv-04453 (N.D. Cal.).

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Defendants moved to dismiss in all three cases. Judge Seeborg granted the motion to dismiss in

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Hodsdon, as discussed in detail below. The undersigned heard argument on Hershey‘s motion in

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Dana concurrently with Nestlé‘s motion in the present case.4
Parties’ Arguments

C.

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United States District Court
Northern District of California

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Nestlé argues that the case must be dismissed for several reasons, starting with the safe

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harbor doctrine, which provides that plaintiffs cannot use California‘s consumer protection laws to

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pursue relief that is foreclosed by other, more specific statutes. Mot. (dkt. 16) at 8−11. According

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to Nestlé, the California Transparency in Supply Chains Act of 2010 (the ―Supply Chains Act‖)

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bars McCoy‘s claims because it regulates disclosures related to labor abuses in supply chains and

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does not require the disclosures McCoy seeks. Id. McCoy responds that the Supply Chains Act

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does not specifically permit Nestlé‘s omissions or bar McCoy‘s claims, and that the labor

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violations addressed by that statute (slavery and human trafficking) do not encompass all of the

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violations at issue here (which also include dangerous but non-slave child labor). Opp‘n at 3−8.

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Nestlé also argues that the Court should dismiss the case based on the doctrine of equitable

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abstention, because: (1) the economic policies at issue are better suited for resolution by legislative

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Four other cases based on nondisclosure of supply chain labor violations, brought by
plaintiffs who also share counsel with McCoy, have been dismissed for failure to state a claim in
the Central District of California. Wirth v. Mars Inc., No. SA CV 15-1470-DOC (KESx), 2016
WL 471234 (C.D. Cal. Feb. 5, 2016); Barber v. Nestle USA, Inc., No. SA CV 15-01364-CJC
(AGRx), 2015 WL 9309553 (C.D. Cal. Dec. 9, 2015); De Rosa v. Tri-Union Seafoods, LLC, No.
CV 15-7540-CJC (AGRx), 2016 WL 524059 (C.D. Cal. Jan. 15, 2016) (summarily dismissing for
the reasons stated in Barber); Hughes v. Big Heart Pet Brands, No. CV 15-8007-CJC (AGRx),
2016 WL 524057 (C.D. Cal. Jan. 15, 2016) (same). Those cases, all of which concern seafood (or
pet food that includes seafood products) rather than chocolate, were decided at least in part based
on the safe harbor doctrine, which Hodsdon, Dana, and this Order decline to reach. The four
Central District cases are presently pending on appeal before the Ninth Circuit.
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bodies or administrative agencies; (2) enforcement of injunctive relief would be unduly

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burdensome for the Court due to the need to monitor foreign labor conditions; and (3) the foreign

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relations issues implicated by McCoy‘s claims require a uniform federal policy and should be

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entrusted to the legislative or executive branch. Mot. at 11−13. McCoy argues that the subject

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matter of the case falls within the experience and competence of the Court, and that overseeing an

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injunction requiring Nestlé to change its labeling would not be unduly burdensome. Opp‘n at

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8−10.

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Next, Nestlé argues that it has no duty to disclose labor conditions in its supply chain
because the information at issue does not relate to product safety, and because Nestlé did not have

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exclusive knowledge, actively conceal the information, make misleading partial representations, or

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United States District Court
Northern District of California

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have a fiduciary relationship with McCoy. Mot. at 14−18. Nestlé contends that all of McCoy‘s

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claims fail because, as a matter of law, reasonable consumers are not likely to be deceived by the

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omission of something that Nestlé had no duty to disclose—and even if it were legally possible,

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McCoy has not adequately alleged that consumers expect supply chains to be entirely free of labor

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abuses. Id. at 18−19. McCoy responds that the limitation of the duty to disclose to safety issues

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only applies in post-warranty product defect cases, which this is not, and that a duty arises from

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Nestlé‘s superior (albeit not actually exclusive) knowledge of labor abuses in its supply chain.

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Opp‘n at 10−14. She ―does not here contend that Nestlé‘s partial disclosures give rise to its duty

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to disclose.‖ Id. at 12 n.64. McCoy also argues that she has adequately pled that, absent

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disclosure to the contrary, consumers would expect that chocolate is not produced using slave

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labor or the worst forms of child labor, and that reliance is at least a question of fact. Id. at 14−16.

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Turning to McCoy‘s specific claims, Nestlé contends that the FAL only governs

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affirmative misrepresentations, not omissions. Mot. at 19. McCoy disputes that proposition and

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argues that some cases have allowed FAL claims to proceed based on omissions. Opp‘n at 16.

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Nestlé argues that McCoy‘s CLRA claim fails because omissions regarding labor abuses

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do not fall within the statutory provisions she invokes—which govern representations regarding

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the ―source, characteristics, and standard‖ of the chocolate, see Compl. ¶ 103—and that she

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therefore also cannot proceed on a UCL claim for ―unlawful‖ conduct based on her CLRA claim.
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Mot. at 17−18. McCoy contends that ―Nestlé‘s failure to disclose that its supply chain is not child

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and slave free is likely to deceive a reasonable consumer regarding the chocolate‘s source (from

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plantations using child and slave labor) and characteristics/standard (produced by child and slave

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labor).‖ Opp‘n at 17.

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As for ―unfair‖ conduct under the UCL, Nestlé contends that McCoy cannot succeed under
any of the tests that courts have used, because she has not identified a legislative policy against

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Nestlé‘s non-disclosure, nor has she plausibly alleged that the harm caused was ―substantial‖ or

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that it outweighed the utility of Nestlé‘s conduct. Mot. at 19−21. McCoy argues that the labor

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abuses in Nestlé‘s supply chain contravene legislatively declared policies in the form of United

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Nations prohibitions of forced labor and the worst forms of child labor that the United States has

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United States District Court
Northern District of California

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ratified, and that those abuses are immoral and unethical. Opp‘n at 18−19. She also contends that

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the harm of deceiving consumers outweighs the cost to Nestlé of changings its product labeling.

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Id. at 19. Nestlé notes in reply that the United Nations sources that McCoy cites relate only to

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labor practices, not product labeling. Reply (dkt. 27) at 12.

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According to Nestlé, McCoy lacks both Article III and statutory standing to bring any of

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her claims because she cannot trace the cocoa used in the specific chocolate products she bought

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back to a specific plantation, and thus cannot know whether the products she bought were

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produced with slave or child labor. Mot. at 21−22. Nestlé contends that without that knowledge,

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whether the products McCoy bought were misrepresented (even under McCoy‘s theory of

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misrepresentation by omission) is uncertain, and if they were not, McCoy has not suffered any

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cognizable injury. Id. McCoy responds that her injury and standing arise from misrepresentation

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of the supply chain for the chocolate, and if Nestlé had better disclosed the labor abuses in the

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supply chain, she would not have bought the products regardless of whether she knew the origin of

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the cocoa in a specific item. Opp‘n at 19−21. McCoy relies on case law holding that a consumer

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who purchased or paid more for a product based on misrepresentations has both constitutional and

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statutory standing to bring claims under California‘s consumer protection laws. Id. at 20−21.

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(citing Hinojos v. Kohl’s Corp., 718 F.3d 1098 (9th Cir. 2013); Kwikset Corp. v. Superior Court,

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51 Cal. 4th 310, 330 (2011)).
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Nestlé also argues that McCoy lacks standing because she has not adequately alleged

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reliance on any misrepresentation. Mot. at 22. According to Nestlé, McCoy has not alleged that

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she saw or relied on any misleading affirmative representations, nor that she would have read the

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disclosure she seeks on Nestlé‘s product packaging. Id. McCoy contends that her claim is based

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only on omission of material facts and that her Complaint adequately alleges that she would not

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have bought Nestlé products if the packaging had disclosed severe labor abuses in Nestlé‘s supply

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chain. Opp‘n at 20−21.
Next, Nestlé argues that McCoy‘s Complaint does not satisfy the heightened pleading

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standard of Rule 9(b) of the Federal Rules of Civil Procedure because it does not identify the

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specific products McCoy purchased, provide a complete list of the products she is suing over,

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United States District Court
Northern District of California

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include copies of packaging for all of the products at issue. Mot. at 23. McCoy argues that her

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Complaint meets the pleading standard that courts have applied in fraudulent omission cases, and

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that she need not list the specific products she purchased because ―the omission is identical‖

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across Nestlé‘s product line. Opp‘n at 21−23.

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Finally, Nestlé argues that requiring the labeling McCoy seeks would compel speech in

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violation of the First Amendment. Mot. at 23−25. McCoy contends that laws against misleading

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advertising are constitutional, and that a mere rational basis is required to support laws compelling

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affirmative factual product labeling to avoid misleading consumers. Opp‘n at 23−25 (citing, e.g.,

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Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985)). Nestlé responds that McCoy

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has not alleged any misleading affirmative representations that require labeling to redress

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consumer confusion, and that the disclosure McCoy seeks is not ―‗purely factual and

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uncontroversial.‘‖ Reply at 13−15 (quoting Zauderer, 471 U.S. at 651).

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D.

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In Hodsdon, Judge Seeborg granted a motion by chocolate manufacturer Mars, Inc. to

Hodsdon v. Mars, Inc.

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dismiss claims very similar those in the case at hand. Hodsdon v. Mars, Inc., __ F. Supp. 3d __,

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No. 15-CV-04450-RS, 2016 WL 627383 (N.D. Cal. Feb. 17, 2016). As a preliminary matter, the

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court held that the plaintiff had standing because: (1) ―California law permits litigants to pursue

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claims under the UCL, CLRA, and FAL if they show . . . that ‗the consumer paid more than he or
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she actually valued the product‘‖; (2) the plaintiff adequately alleged that the use of forced labor in

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the supply chain caused him to devalue the product even if he could not prove that forced labor

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was used to produce the specific chocolate products that he purchased; and (3) the plaintiff

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adequately alleged that he saw the product labels before he purchased the products. Id. at *3

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(quoting Hinojos, 718 F.3d at 1104). Turning to the merits, however, the court held that the

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plaintiff failed to state a claim under California law.

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With respect to the FAL claim, the court reconciled cases holding that omissions were not

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actionable with others that allowed FAL claims based on omissions to proceed, ultimately

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determining that omissions accompanying misleading incomplete statements are actionable, but
omissions with no corresponding statements are not. Id. at *4. Compare Norcia v. Samsung

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United States District Court
Northern District of California

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Telecomms. Am., LLC, No. 14-CV-00582-JD, 2015 WL 4967247, at *8 (N.D. Cal. Aug. 20, 2015)

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(―There can be no FAL claim where there is no ‗statement‘ at all.‖), and Stanwood v. Mary Kay,

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Inc., 941 F. Supp. 2d 1212, 1222 (C.D. Cal. 2012) (same), with In re Sony Gaming Networks &

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Customer Data Sec. Breach Litig., 996 F. Supp. 2d 942, 991 (S.D. Cal. 2014) (denying motion to

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dismiss where defendant claimed to have taken steps to secure information but failed to disclose

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security deficiencies), and Tait v. BSH Home Appliances Corp., No. SACV 10-00711 DOC

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(ANx), 2011 WL 3941387, at *2 (C.D. Cal. Aug. 31, 2011) (denying a motion to dismiss where

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the defendant marketed a washing machine as ―sanitary‖ but failed to disclose its tendency to

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accumulate mold). Because the plaintiff in Hodsdon ―asserted the former type of claim, i.e., that

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Mars violated the FAL by failing to issue any statement at all,‖ the court dismissed the claim.

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Hodsdon, 2016 WL 627383, at *4.

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Next, the court turned to the plaintiff‘s CLRA claim and his claim under the ―unlawful‖

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prong of the UCL, which was based on the purported CLRA violation. Id. at *5−6. Noting the

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Ninth Circuit‘s holding that ―California courts have generally rejected a broad obligation to

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disclose,‖ the court looked to whether Mars had any such obligation. Id. at *5. The court held

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that despite one case to the contrary, ―the overwhelming majority of courts to consider the issue‖

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have held that omissions are only actionable under the CLRA if they relate to product safety or

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defects. Id. at *5−6. Because the omissions at issue related instead to ―admittedly horrific labor
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practices‖ in the supply chain, the court dismissed the plaintiff‘s CLRA claim and the ―unlawful

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conduct‖ aspect of the UCL claim that derived from it. Id. at *6.
The plaintiff also brought UCL claims based on the ―fraudulent‖ and ―unfair‖ prongs of the

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statute. The court followed two California appellate decisions holding that omissions cannot

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satisfy the ―fraudulent‖ prong unless there was a duty to disclose, and therefore dismissed that

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claim. Id. at *6 (citing Berryman v. Merit Prop. Mgmt., Inc., 152 Cal. App. 4th 1544, 1557

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(2007); Daugherty v. Am. Honda Co., 144 Cal. App. 4th 824, 838 (2006)). As for the ―unfair‖

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prong, the court held that the plaintiff‘s complaint did not satisfy any of the tests used by

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California courts to assess such claims: (1) unlike the underlying labor conditions themselves, the
lack of disclosure could not be said to be ―‗immoral, unethical, oppressive, unscrupulous or

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United States District Court
Northern District of California

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substantially injurious to consumers,‘‖ because the harm was merely the purchase of a chocolate

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bar and the information that was absent from the packaging was readily available elsewhere; and

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(2) again unlike the underlying labor conditions, the harm from lack of disclosure was not tied to

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any established public policy expressed in ―‗specific constitutional, statutory, or regulatory

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provisions.‘‖ Id. at *7 (quoting S. Bay Chevrolet v. Gen. Motors Acceptance Corp., 72 Cal. App.

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4th 861, 887 (1999); McVicar v. Goodman Glob., Inc., 1 F. Supp. 3d 1044, 1054 (C.D. Cal.

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2014)). The court therefore dismissed the UCL claim in its entirety.
Because the plaintiff failed to state a claim for the reasons summarized above, the court did

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not reach Mars‘s argument that the Supply Chains Act creates a safe harbor, but expressed doubt

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that any such harbor is as broad as Mars contended. Id. at *8−9. The court found that amendment

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would be futile and denied leave to amend. Id. at *9. Hodsdon‘s appeal of Judge Seeborg‘s

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decision is currently pending before the Ninth Circuit.

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III.

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ANALYSIS
A.

Legal Standard
A complaint may be dismissed for failure to state a claim on which relief can be granted

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under Rule 12(b)(6) of the Federal Rules of Civil Procedure. ―The purpose of a motion to dismiss

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under Rule 12(b)(6) is to test the legal sufficiency of the complaint.‖ N. Star Int’l v. Ariz. Corp.

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Comm’n, 720 F.2d 578, 581 (9th Cir. 1983). Generally, a plaintiff‘s burden at the pleading stage
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is relatively light. Rule 8(a) of the Federal Rules of Civil Procedure states that ―[a] pleading

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which sets forth a claim for relief . . . shall contain . . . a short and plain statement of the claim

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showing that the pleader is entitled to relief.‖ Fed. R. Civ. P. 8(a).

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In ruling on a motion to dismiss under Rule 12(b)(6), the court analyzes the complaint and

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takes ―all allegations of material fact as true and construe[s] them in the light most favorable to the

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non-moving party.‖ Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995).

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Dismissal may be based on a lack of a cognizable legal theory or on the absence of facts that

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would support a valid theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir.

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1990). A complaint must ―contain either direct or inferential allegations respecting all the material
elements necessary to sustain recovery under some viable legal theory.‖ Bell Atl. Corp. v.

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United States District Court
Northern District of California

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Twombly, 550 U.S. 544, 562 (2007) (citing Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101,

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1106 (7th Cir. 1984)). ―A pleading that offers ‗labels and conclusions‘ or ‗a formulaic recitation

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of the elements of a cause of action will not do.‘‖ Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

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(quoting Twombly, 550 U.S. at 555). ―Nor does a complaint suffice if it tenders ‗naked

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assertion[s]‘ devoid of ‗further factual enhancement.‘‖ Id. (quoting Twombly, 550 U.S. at 557).

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Rather, the claim must be ―‗plausible on its face,‘‖ meaning that the plaintiff must plead sufficient

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factual allegations to ―allow[] the court to draw the reasonable inference that the defendant is

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liable for the misconduct alleged.‖ Id. (quoting Twombly, 550 U.S. at 570).

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Rule 9(b) of the Federal Rules of Civil Procedure sets a heightened pleading standard for

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claims based on fraud. ―In alleging fraud or mistake, a party must state with particularity the

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circumstances constituting fraud or mistake.‖ Fed. R. Civ. P. 9(b). The Ninth Circuit has held

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that in order to meet this standard, a ―complaint must specify such facts as the times, dates, places,

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benefits received, and other details of the alleged fraudulent activity.‖ Neubronner v. Milken, 6

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F.3d 666, 672 (9th Cir. 1993); see also McMaster v. United States, 731 F.3d 881, 897 (9th Cir.

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2013). The heightened standard does not apply to ―[m]alice, intent, knowledge, and other

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conditions of a person‘s mind.‖ Fed. R. Civ. P. 9(b).

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Nestlé also moves to dismiss under Rule 12(b)(1) on the basis that the Court lacks
jurisdiction because McCoy lacks Article III standing. See Mot. at 8. Where, as here, a
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jurisdictional challenge is based on the allegations of a plaintiff‘s complaint rather than on

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extrinsic evidence, courts ―assume [the plaintiff‘s] allegations to be true and draw all reasonable

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inferences in his favor.‖ Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004). ―[T]he inquiry is

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therefore much like a Rule 12(b)(6) analysis.‖ Animal Legal Def. Fund v. HVFG LLC, 939 F.

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Supp. 2d 992, 997 (N.D. Cal. 2013).

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B.

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Nestlé argues that McCoy lacks Article III and statutory standing to pursue these claims

Standing

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because she does not and cannot allege that the specific products she purchased were made from

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cocoa produced with the labor abuses at issue in this case—slave labor or the worst forms of child
labor—and therefore fails to allege an actual, particularized injury. Mot. at 21−22. The parties

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United States District Court
Northern District of California

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agree that Nestlé currently cannot trace the cocoa used in a particular Nestlé chocolate product to a

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specific plantation, and there is thus no way to know what labor practices were used in its

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production. See Compl. ¶ 11; Mot. at 22. McCoy argues that she has standing because she would

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have either not purchased or paid less for Nestlé‘s products if she had known that the supply chain

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involved the labor abuses at issue, regardless of where the cocoa in a particular chocolate bar

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originated. Opp‘n at 20−21. Judge Seeborg held that the plaintiff in Hodsdon had standing under

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similar circumstances, and the Court agrees that McCoy has standing here. See Hodsdon, 2016

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WL 627383, at *3.

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The issue of Article III standing is straightforward. ―[W]hen, as here, ‗Plaintiffs contend

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that class members paid more for [a product] than they otherwise would have paid, or bought it

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when they otherwise would not have done so‘ they have suffered an Article III injury in fact.‖

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Hinojos v. Kohl’s Corp., 718 F.3d 1098, 1104 (9th Cir. 2013) (quoting Mazza v. Am. Honda

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Motor Co., 666 F.3d 581, 595 (9th Cir. 2012)) (second alteration in original).

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McCoy also has standing under the California statutes at issue. The UCL and FAL require

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that private plaintiffs ―ha[ve] suffered injury in fact and ha[ve] lost money or property as a result

26

of the unfair competition‖ or false advertising. Hinojos, 718 F.3d at 1103 (quoting Cal. Bus. &

27
28
11

1

Prof. Code § 17204 (UCL); citing id. § 17535 (FAL)) (alterations in original).5 In Hinojos, the

2

Ninth Circuit examined the California Supreme Court‘s decision in Kwikset Corp. v. Superior

3

Court, which held that a ―‗consumer who relies on a product label and challenges a

4

misrepresentation contained therein can satisfy the standing requirement of [the UCL and the

5

FAL] by alleging . . . that he or she would not have bought the product but for the

6

misrepresentation,‘‖ and that ―such allegations are sufficient to establish economic injury within

7

the meaning of [those statutes].‖ Id. at 1105 (quoting Kwikset, 51 Cal. 4th 310, 330 (2011))

8

(ellipsis in original).
In both Kwikset, where the defendant marketed locks as ―Made in U.S.A.‖ despite some

9

foreign components and assembly work, and Hinojos, where the defendant allegedly advertised its

11
United States District Court
Northern District of California

10

normal prices as ―reduced,‖ plaintiffs who relied on those representation had standing to sue under

12

the UCL and FAL. Id. at 1107; Kwikset, 51 Cal. 4th at 330. Those courts also listed a number of

13

other scenarios where a plaintiff‘s reliance on false advertising could give rise to standing: ―meat

14

falsely labeled as kosher or halal, wine labeled with the wrong region or year, blood diamonds

15

mislabeled as conflict-free, and goods falsely suggesting they were produced by union labor.‖

16

Hinojos, 718 F.3d at 1105 (citing Kwikset, 51 Cal. 4th at 328−29). McCoy‘s claim that she would

17

have paid less for (or declined to purchase) Nestlé‘s products but for Nestlé‘s misrepresentations

18

of the labor practices in its supply chain fits well within these examples.
The Ninth Circuit‘s decision in Birdsong v. Apple, Inc., 590 F.3d 955 (9th Cir. 2009)—

19
20

which Nestlé does not discuss in its briefs but which Hershey relies on to make a similar argument

21

in Dana—does not deprive McCoy of standing. In that case, the plaintiffs alleged that Apple

22

violated the UCL by selling iPods that were capable of producing dangerous volume levels and

23

thus causing hearing loss. Id. at 957. The Ninth Circuit affirmed the district court‘s holding that

24

the plaintiffs failed to show a particularized and actual injury sufficient for standing under the

25

UCL—despite the plaintiffs‘ argument that the risk of hearing loss diminished the value of the

26
5

27
28

The CLRA allows a consumer who has suffered ―any damage‖ to sue, and ―any plaintiff who
has standing under the UCL‘s and FAL‘s ‗lost money or property‘ requirement will, a fortiori,
have suffered ‗any damage‘ for purposes of establishing CLRA standing.‖ Hinojos, 718 F.3d at
1107−08.
12

1

iPods—in part because ―the alleged loss in value . . . rests on a hypothetical risk of hearing loss to

2

other consumers who may or may not choose to use their iPods in a risky manner,‖ and the

3

plaintiffs did ―not claim that they, or anyone else, have suffered or [were] substantially certain to

4

suffer hearing loss from using an iPod.‖ Id. at 959−62. Here, in contrast, McCoy alleges that the

5

value of the chocolate products was diminished because consumers did not wish to support a

6

supply chain that included severe labor abuses. The alleged damage was therefore done by the

7

purchase itself, not by any contingency that might happen after the purchase.

8
9

Nestlé argues, essentially, that a UCL claim based on misrepresentation of labor practices
can only succeed where a plaintiff is certain that the objectionable practice was used to produce
the specific item that the plaintiff purchased. See Mot. at 21−22. Stepping back from the fact

11
United States District Court
Northern District of California

10

pattern of this case, that argument would dictate that even if Nestlé had—hypothetically—

12

concealed Ivorian labor conditions from its customers, falsely labeled all of its chocolate as

13

certified to be free of child labor, and run a fraudulent national ad campaign touting its child-

14

labor-free chocolate, a customer who relied on that false promotion would lack standing to sue for

15

fraudulent business practices and false advertising so long as some fraction of Nestlé‘s cocoa met

16

those descriptions and the customer was unable to tell what labor conditions produced the cocoa in

17

the actual product he or she purchased. Such a result would undermine the holding of Hinojos and

18

Kwikset. The difference between that hypothetical scenario and McCoy‘s allegation of mere

19

omission is critical to the outcome of the present motion, as discussed in the sections below, but it

20

is a difference relevant to the merits of the claims, not to standing.

21

Similarly, to use some of the examples given in Hinojos and Kwikset, it would be a bizarre

22

result if sellers advertising food as halal or kosher, diamonds as conflict-free, or products as union-

23

made could knowingly mix compliant and non-compliant products with impunity so long as there

24

was no way for a buyer to trace the specific item he or she purchased back to the source. The

25

Eighth Circuit has nevertheless adopted that rule. See Wallace v. ConAgra Foods, Inc., 747 F.3d

26

1025, 1030−31 (8th Cir. 2014) (holding that customers lacked Article III standing to bring a claim

27

based on allegedly false advertising of a product as using 100% kosher beef, where the plaintiffs

28

could not show that the specific products they purchased contained non-kosher beef). This Court
13

1

respectfully disagrees with that result. In this Court‘s view, if a customer has paid a premium for

2

an assurance that a product meets certain standards, and the assurance turns out to be meaningless,

3

the premium that the customer has paid is an actual, personal, particularized injury that is

4

cognizable under Article III. See Hinojos, 718 F.3d at 1104.

5

―‗For a significant segment of the buying public, labor practices do matter in making

6

consumer choices.‘‖ Kwikset, 51 Cal. 4th at 329 (quoting Kasky v. Nike, Inc., 27 Cal. 4th 939, 969

7

(2002)). It is plausible that a consumer would place less value on a product produced from a

8

supply chain involving severe labor abuses. McCoy alleges that she purchased products or paid a

9

higher price for them because she was deceived regarding the labor practices in the supply chain.

10

United States District Court
Northern District of California

11

That actual, particularized injury is sufficient to establish standing.
Nestlé also argues that McCoy lacks standing because she has not sufficiently alleged

12

reliance. Mot. at 22. The Court agrees with McCoy that, at least for the purpose of Article III

13

standing, McCoy adequately pleads reliance by alleging that she saw the product labeling and

14

would not have purchased the products if labor abuses in the supply chain had been disclosed. See

15

Compl. ¶ 14. Whether Nestlé had a duty to disclose those conditions, see Mot. at 22, is relevant to

16

whether the Complaint states a claim on which relief can be granted, but is not an issue of

17

standing.

18

C.

19

The CLRA prohibits certain enumerated ―unfair methods of competition and unfair or

CLRA Claim

20

deceptive acts or practices undertaken by any person in a transaction intended to result or which

21

results in the sale or lease of goods or services to any consumer.‖ Cal. Civ. Code § 1770(a).

22

McCoy argues that Nestlé‘s failure to disclose labor abuses on its packaging violates subsection

23

(a)(2) by ―[m]isrepresenting the source‖ of the chocolate, subsection (a)(5) by ―[r]epresenting that

24

goods . . . have . . . characteristics . . . which they do not have,‖ and subsection (a)(7) by

25

―[r]epresenting that goods . . . are of a particular standard.‖ Id. § 1770(a)(2), (5), (7); see Compl.

26

¶¶ 100−03; Opp‘n at 17. In her Opposition, McCoy makes clear that these theories are based on

27

―Nestlé‘s omission of known child and slave labor in its supply chain,‖ and that she ―does not here

28

contend that Nestlé‘s partial misrepresentations give rise to its duty to disclose.‖ Opp‘n at 12
14

1

n.64.
―[A]lthough a claim may be stated under the CLRA in terms constituting fraudulent

3

omissions, to be actionable the omission must be contrary to a representation actually made by the

4

defendant, or an omission of a fact the defendant was obliged to disclose.‖ Daugherty v. Am.

5

Honda Motor Co., 144 Cal. App. 4th 824, 835 (2006). ―California courts have generally rejected

6

a broad obligation to disclose . . . .‖ Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1141 (9th

7

Cir. 2012). In Wilson, the Ninth Circuit held that, absent affirmative misrepresentations, an

8

obligation to disclose under California law extends only to matters of product safety. Id. at

9

1141−43 (examining Daugherty, 144 Cal. App. 4th at 836, and subsequent decisions); see also

10

Oestreicher v. Alienware Corp., 322 F. App‘x 489, 493 (9th Cir. 2009) (unpublished and non-

11
United States District Court
Northern District of California

2

precedential) (―A manufacturer‘s duty [of disclosure] to consumers is limited to its warranty

12

obligations absent either an affirmative misrepresentation or a safety issue.‖).
At least one district court decision has limited Wilson to cases where a product was

13
14

covered by a warranty that expired before the defect became apparent. Stanwood v. Mary Kay,

15

Inc., 941 F. Supp. 2d 1212, 1221 (C.D. Cal. 2012). Central to the Central District‘s holding was

16

its determination that ―[t]he Ninth Circuit acknowledged that its requirement of a safety issue does

17

not necessarily apply outside the products defect context where warranty protections are not

18

available,‖ and that Wilson ―list[ed] cases where a safety issue was not required to trigger a duty to

19

disclose.‖ Id. (citing Wilson, 668 F.3d at 1142). The Court respectfully disagrees with

20

Stanwood‘s reading of Wilson. The cases listed at the page cited in Wilson by Stanwood do not

21

support Stanwood‘s holding: four cases explicitly based the materiality of an omission at least in

22

part on whether it related to safety,6 and the Ninth Circuit characterized the remaining two7 as

23
6

24
25
26
27
28

O’Shea v. Epson Am., Inc., No. CV 09–8063 PSG (CWx), 2011 WL 3299936, at *7–9
(C.D.Cal. July 29, 2011); Smith v. Ford Motor Co., 749 F. Supp. 2d 980, 987 (N.D. Cal. 2010)
(―[F]or the omission to be material, the failure must pose ‗safety concerns‘ . . . .‖), aff’d, 462 F.
App‘x 660 (9th Cir. 2011); In re Sony Grand Wega KDF–E A10/A20 Series Rear Projection
HDTV Television Litig., 758 F. Supp. 2d 1077, 1095 (S.D. Cal. 2010); Oestreicher v. Alienware
Corp., 544 F. Supp. 2d 964, 971 (N.D. Cal. 2008), aff'd, 322 F. App‘x 489 (9th Cir. 2009); Falk v.
Gen. Motors Corp., 496 F. Supp. 2d 1088, 1096 n.*. (N.D. Cal. 2007) (―Moreover, plaintiffs
successfully allege that the potential for failed speedometers constitutes a safety hazard.‖).
7
Cirulli v. Hyundai Motor Co., No. SACV 08-0854 AG (MLGx), 2009 WL 5788762
(C.D.Cal. June 12, 2009); Bristow v. Lycoming Engines, No. CIV. S-06-1947 LKK GGH, 2007
15

1

having ―arguably concerned safety issues.‖ Wilson, 668 F.3d at 1142 & n.2. Accordingly, the

2

Court does not agree that Wilson is limited to cases where a warranty once existed but has since

3

expired. There are cases holding that a manufacturer has a greater duty to disclose defects that

4

arise during a product‘s express warranty period. E.g., Collins v. eMachines, Inc., 202 Cal. App.

5

4th 249, 257−58 (2011); see also Wilson, 668 F.3d at 1142 n.1 (discussing Tietsworth v. Sears,

6

Roebuck & Co., 720 F. Supp. 2d 1123 (N.D. Cal. 2010)). But there is no allegation that Nestlé

7

made any warranty of its chocolate products that would be relevant in this case.8

8

The Court agrees with Judge Seeborg‘s conclusion that the weight of authority limits a
duty to disclose under the CLRA to issues of product safety, unless disclosure is necessary to

10

counter an affirmative misrepresentation. See Hodsdon, 2016 WL 627383, at *6 (declining to

11
United States District Court
Northern District of California

9

follow Stanwood in light of ―overwhelming authority to the contrary,‖ and collecting cases). The

12

Court also concludes that a plain reading of Wilson governs this case, and this ―Court is not free to

13

deviate from the Ninth Circuit‘s construction of California law in Wilson absent a subsequent

14

interpretation from California‘s courts that the interpretation was incorrect.‖ Rasmussen v. Apple,

15

Inc., 27 F. Supp. 3d 1027, 1036 (N.D. Cal. 2014) (following Wilson despite concluding that its

16

basis in California law is ―subject to reasonable debate‖) (citing Kona Enters., Inc. v. Estate of

17

Bishop, 229 F.3d 887, 884 n.7 (9th Cir. 2000)). Further, the Court agrees with Judge Seeborg and

18

Nestlé that some bright-line limitation on a manufacturer‘s duty to disclose is sound policy, given

19

the difficulty of anticipating exactly what information some customers might find material to their

20

purchasing decisions and wish to see on product labels. See Hodsdon, 2016 WL 627383, at *6

21

(―[Stanwood‘s and McCoy‘s] definition of a material omission has stunning breadth, and could

22

leave manufacturers (chocolate or otherwise) little guidance about what information, if any, it

23

must disclose to avoid CLRA or UCL liability.‖); Reply at 8. There are countless issues that may

24

be legitimately important to many customers, and the courts are not suited to determine which

25
26
27
28

WL 1106098 (E.D.Cal. Apr. 10, 2007).
8
Wilson also acknowledges cases recognizing a broader duty of disclosure in the sale of
services, rather than products. Wilson, 668 F.3d at 1143 (citing, e.g., In re Mediscan Research,
Ltd., 940 F.2d 558 (9th Cir. 1991)). The chocolate products at issue in the present case are
products, not services.
16

1

should occupy the limited surface area of a chocolate wrapper.
A duty to disclose under California law does not extend to all ―information [that] may

2
3

persuade a consumer to make different purchasing decisions.‖ Hodsdon, 2016 WL 627383, at *6

4

(citing Wirth, 2016 WL 471234, at *5−6). Because McCoy does not allege any omission of

5

known dangers to the safety of customers, there is no duty to disclose applicable to this case, and

6

McCoy‘s CLRA claim is therefore DISMISSED. A contrary result would create ―a broad

7

obligation to disclose,‖ which ―California courts have generally rejected.‖ Wilson, 668 F.3d at

8

1141.

9

Even if that were not so, the parties agree McCoy would still need to show one of the
following to support a duty to disclose: (1) a fiduciary relationship between Nestlé and McCoy;

11
United States District Court
Northern District of California

10

(2) that Nestlé had ―exclusive knowledge of material facts not known or reasonably accessible to‖

12

its customers; (3) that Nestlé actively concealed a material fact; or (4) that Nestlé had made

13

misleading partial representations. Opp‘n at 11 (quoting Doe v. SuccessfulMatch.com, 70 F. Supp.

14

3d 1066, 1076 (N.D. Cal. 2014)); Mot. at 15. McCoy relies solely on the ―exclusive knowledge‖

15

test. Opp‘n at 12−14. But even if ―courts do not apply ‗exclusivity‘ with . . . rigidity,‖ see

16

Johnson v. Harley-Davidson Motor Co. Grp., 285 F.R.D. 573, 583 (E.D. Cal. 2012), it is difficult

17

to see how any definition of ―exclusive knowledge‖ could include a case where, by McCoy‘s own

18

allegations: Nestlé acknowledges on a public website its suppliers‘ use of slave labor and the

19

worst forms of child labor, Compl. ¶ 21; the industry acknowledged the issue in the Harkin-Engel

20

Protocol in 2001—more than ten years before the statute of limitations period for McCoy‘s CLRA

21

claim—and has repeatedly admitted its failure to even develop a comprehensive certification

22

system in the years since, id. ¶¶ 28−32; and in 2006 the United States Department of Labor

23

commissioned Tulane University to publish reports detailing labor abuses in the chocolate

24

industry supply chain, id. ¶¶ 33−37; among other public disclosures detailed in the Complaint.

25

Further, even if McCoy could adequately plead that Nestlé had a duty to disclose the labor

26

abuses in its supply chain on its product labels, it is far from clear that such information falls

27

within the categories of representations governed by the CLRA. McCoy invokes provisions

28

barring misrepresentation of the ―source,‖ ―characteristics,‖ and ―standard‖ of a product. Opp‘n at
17

1

17 (citing Cal. Civ. Code § 1770(a)(2), (5), (7)). While the CLRA provides that it ―shall be

2

liberally construed and applied to promote its underlying purposes‖ of consumer protection, Cal.

3

Civ. Code § 1760, it does not explicitly discuss representations regarding labor practices, see id.

4

§ 1770(a), and McCoy cites no authority holding that any of the enumerated categories she relies

5

on are so broad as to encompass labor abuses. Because the Court holds that Nestlé did not have a

6

duty to disclose labor abuses in its supply chain on its product labels, the Court declines to resolve

7

whether misrepresentations regarding labor practices can fall within the scope of the CLRA.

8

D.

9

California‘s UCL prohibits unfair competition, defined as ―any unlawful, unfair, or

UCL Claim

fraudulent business act or practice.‖ Cal. Bus. & Prof. Code § 17200. McCoy brings her claim

11
United States District Court
Northern District of California

10

under each of these prongs, and Nestlé argues that each must be dismissed.
The ―unlawful‖ prong of McCoy‘s Complaint is based solely on Nestlé‘s purported

12
13

violation of the CLRA. Compl. ¶ 86. As discussed above, the Court holds that McCoy fails to

14

state a CLRA claim. Nestlé‘s Motion is therefore GRANTED as to this prong of McCoy‘s UCL

15

claim.

16

The ―fraudulent‖ prong fails for similar reasons. As Judge Seeborg noted in Hodsdon,

17

California courts have held that ―‗[a]bsent a duty to disclose, the failure to do so does not support

18

a claim under the fraudulent prong of the UCL.‘‖ Hodsdon, 2016 WL 627383, at *6 (quoting

19

Berryman v. Merit Prop. Mgmt., Inc., 152 Cal. App. 4th 1544, 1557 (2007)); see also Daugherty,

20

144 Cal. App. 4th at 838 (―We cannot agree that a failure to disclose a fact one has no affirmative

21

duty to disclose is ‗likely to deceive‘ anyone within the meaning of the UCL.‖). Because, as

22

discussed above, the Court holds that Nestlé had no affirmative duty to disclose severe labor

23

abuses in its supply chain on its product labels, Nestlé‘s Motion is GRANTED as to the

24

―fraudulent‖ prong of McCoy‘s UCL claim.

25

That leaves the ―unfair‖ prong, the test for which remains somewhat unsettled in the

26

California courts. Courts previously held a practice to be ―‗unfair‘ . . . when it offends an

27

established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or

28

substantially injurious to consumers.‖ S. Bay Chevrolet v. Gen. Motors Acceptance Corp., 72 Cal.
18

1

App. 4th 861, 886−87 (1999) (citation and internal quotation marks omitted). ―This test involves

2

balancing the harm to the consumer against the utility of the defendant‘s practice.‖ Lozano v.

3

AT & T Wireless Servs., Inc., 504 F.3d 718, 735 (9th Cir. 2007) (citing S. Bay, 72 Cal. App. 4th at

4

886). The California Supreme Court, however, found that the South Bay test was ―too amorphous

5

and provide[d] too little guidance to courts and businesses‖ in a UCL case between competitors,

6

and held instead that:

7

10

When a plaintiff who claims to have suffered injury from a direct
competitor‘s ―unfair‖ act or practice invokes section 17200, the
word ―unfair‖ in that section means conduct that threatens an
incipient violation of an antitrust law, or violates the policy or spirit
of one of those laws because its effects are comparable to or the
same as a violation of the law, or otherwise significantly threatens or
harms competition.

11

Cel-Tech Commc’ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 185, 187. The Cel-Tech court

12

explicitly declined to decide what test applied to actions brought by consumers, as opposed to by

13

competitors. Id. at 197 n.12.

8

United States District Court
Northern District of California

9

14

In the years since Cel-Tech, some courts have continued to use the South Bay test for cases

15

brought by consumers, while others have followed Cel-Tech‘s lead and ―require[d] that the

16

unfairness be tied to a ‗legislatively declared‘ policy,‖ Lozano v. AT & T Wireless Servs., Inc., 504

17

F.3d 718, 736 (9th Cir. 2007), or in other words, ―‗that the UCL claim be tethered to specific

18

constitutional, statutory, or regulatory provisions,‘‖ Hodsdon, 2016 WL 627383, at *7 (quoting

19

McVicar v. Goodman Global, Inc., 1 F. Supp. 3d 1044, 1054 (C.D. Cal. 2014)). ―Absent guidance

20

from the California courts about the proper definition of an ‗unfair‘ business practice, federal

21

courts have applied both tests.‖ Id. (citing Lozano, 504 F.3d at 736).

22

The ―legislative policies‖ on which McCoy relies are the United Nations‘ International

23

Labor Convention No. 182 and the United Nations‘ Universal Declaration of Human Rights—the

24

former forbidding the worst forms of child labor, the latter forbidding slavery, and both having

25

been ratified by the United States. Opp‘n at 18−19. The crux of McCoy‘s claim, however, is not

26

that Nestlé utilized slave labor or the worst forms of child labor, but rather that Nestlé does not

27

disclose the existence of those labor abuses in its supply chain on the packaging of its products.

28
19

1

McCoy has not identified any legislatively declared policy requiring such disclosure,9 nor does she

2

cite any authority for the proposition that where some of a manufacturer‘s suppliers contravene a

3

legislatively established policy, it is ―unfair‖ within the meaning of the UCL for the manufacturer

4

to fail to disclose those violations on its product packaging. The Court declines to make that leap.

5

At the hearing, McCoy‘s counsel suggested for the first time that McCoy could amend her

6

UCL claim to tether the ―unfair‖ prong to the Department of Labor‘s listing of goods produced

7

with child labor and forced labor, see 22 U.S.C. § 7112(b), and to California‘s Supply Chains Act,

8

which is discussed in more detail below in the context of Nestlé‘s safe harbor doctrine argument,

9

see Cal. Civ. Code § 1714.43. Although both statutes call for certain disclosures related to labor
conditions, neither expresses any policy of disclosure on product labels. Amending McCoy‘s

11
United States District Court
Northern District of California

10

Complaint to reference those statutes would not remedy the defects of her UCL claim.
Turning to the South Bay balancing test, the distinction between the underlying labor

12
13

practices and the failure to disclose once again undermines McCoy‘s claim. The slave labor and

14

child labor alleged in the Complaint would certainly qualify as ―immoral, unethical, oppressive,

15

[and] unscrupulous.‖ See S. Bay, 72 Cal. App. 4th at 887. But can the same be said about the

16

failure to disclose Nestlé‘s suppliers‘ labor abuses on Nestlé‘s product packaging? Considering

17

this issue in Hodsdon, Judge Seeborg held as follows:

18

The harm at issue here is that Hodsdon may not have purchased
Mars‘s chocolate products at all, or would have paid less for them,
had he been aware of the prospect for child labor in Mars‘s supply
chain. Such information is, in fact, readily available to consumers on
Mars‘s website. Given that Hodsdon, like any other consumer, has
access to information about the source of Mars‘s cocoa beans, the
absence of such information on the packaging is not ―substantially
injurious to consumers‖ or necessarily immoral. Granting that the
labor practices at issue are immoral, there remains an important
distinction between them and the actual harm for which Hodsdon
seeks to recover, namely his purchase of Mars‘s chocolate products
absent any disclosure. Mars‘s failure to disclose information it had
no duty to disclose in the first place is not substantially injurious,

19
20
21

22
23
24
25
26
27
28

9

While McCoy does not argue in the context of the ―unfair‖ prong that either the CLRA or the
FAL constitutes such a policy, her arguments that those statutes compel the disclosure she seeks
could perhaps be transposed to this claim. For the reasons discussed above and below in the
context of McCoy‘s CLRA and FAL claims, the Court holds that neither statute represents a
policy requiring the disclosure of labor abuses in a supply chain on product labels.
20

immoral, or unethical, and Hodsdon‘s UCL claim may therefore not
advance.

1
2

Hodsdon, 2016 WL 627383, at *7. This Court agrees. Because McCoy has not adequately

3

alleged a violation of either test for the ―unfair‖ prong, or a violation of the ―unlawful‖ or

4

―fraudulent‖ prongs, her UCL claim is DISMISSED.

5

E.

6

The FAL makes it unlawful for any person ―to make or disseminate or cause to be made or

FAL Claim

7

disseminated before the public . . . any statement . . . which is untrue or misleading, and which is

8

known, or which by the exercise of reasonable care should be known, to be untrue or misleading.‖

9

Cal. Bus. & Prof. Code § 17500. The plain language of the statute—which prohibits making,
disseminating, or causing the dissemination of false or misleading statements—does not

11
United States District Court
Northern District of California

10

encompass omissions. Several cases have therefore held that ―[t]here can be no FAL claim where

12

there is no ‗statement‘ at all‖—or in other words that an omission, even of material facts, does not

13

violate the FAL. Norcia v. Samsung Telecomms. Am., LLC, No. 14-CV-00582-JD, 2015 WL

14

4967247, at *8 (N.D. Cal. Aug. 20, 2015); see also Hodsdon, 2016 WL 627383, at *4; Stanwood,

15

941 F. Supp. 2d at 1222.

16

McCoy cites three federal district court cases and two California appellate cases that

17

purportedly held to the contrary, allowing FAL claims to proceed based on omissions. Opp‘n at

18

16 nn.92 & 95. One of those cases actually dismissed the plaintiff‘s FAL claim to the extent that

19

it was based on affirmative misrepresentations, and did not address the FAL claim at all in its

20

discussion of the plaintiff‘s fraudulent omission theory. Elias v. Hewlett-Packard Co., 950 F.

21

Supp. 2d 1123, 1135−36, 1140 (N.D. Cal. 2013) (discussing only the CLRA, UCL, and common

22

law in the context of fraudulent omissions, and granting leave to amend only as to those claims).

23

Both of the California cases were based on claims that print, television, and/or telephone

24

advertising campaigns—which inherently consist of affirmative statements—were misleading for

25

failure to disclose fees associated with financial products or limitations on the use of coupons.

26

People v. JTH Tax, Inc., 212 Cal. App. 4th 1219, 1224 (2013) (―The lawsuit claimed there were

27

misleading or deceptive statements in print and television advertising . . . .‖); People v. Toomey,

28

157 Cal. App. 3d 1, 17 (1984) (―We encounter little difficulty concluding that Holiday‘s telephone
21

1

solicitations and newspaper advertisements were likely to deceive consumers.‖). One of the other

2

cases, which Judge Seeborg considered in Hodsdon, also involved some degree of affirmative

3

misrepresentation. See Hodsdon, 2016 WL 627383, at *4. There, the defendant allegedly

4

―misrepresented that it would take ‗reasonable steps‘ to secure Plaintiffs‘ Personal Information

5

[stored on or transmitted via the defendant‘s network], and that [it] use[d] industry-standard

6

encryption to prevent unauthorized access to sensitive financial information,‖ but failed to disclose

7

that its safeguards were inadequate and network intrusions occurred. In re Sony Gaming Networks

8

& Customer Data Sec. Breach Litig., 996 F. Supp. 2d 942, 990−91 (S.D. Cal. 2014) (quoting the

9

plaintiffs‘ complaint; final alteration in original).10 That leaves only a decision by the Southern
District of California, which held without analysis that the FAL‘s prohibition of untrue or

11
United States District Court
Northern District of California

10

misleading statements also ―requires a duty to disclose‖ in at least certain circumstances. Cortina

12

v. Goya Foods, Inc., 94 F. Supp. 3d 1174, 1192 (S.D. Cal. 2015) (holding that the plaintiffs

13

plausibly stated a claim under the FAL where the defendant failed to disclose a ―potentially

14

dangerous substance‖ in the beverages it sold).
Although the Sony decision did not cite the alleged misrepresentations as the reason for

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16

allowing the plaintiffs‘ omissions claim to proceed, the Court agrees with Judge Seeborg‘s

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conclusion that the outcome is consistent with a requirement that there be at least some affirmative

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misrepresentation to support a claim under the FAL. See Hodsdon, 2016 WL 627383, at *4. As

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for Cortina, and also to the extent that any of the other cases discussed above are not consistent

20

with that rule, the Court respectfully disagrees with their interpretation of the FAL‘s statutory

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language. Because McCoy bases her claims on pure omissions, Opp‘n at 12 n.64, she fails to

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allege that Nestlé ―ma[d]e or disseminate[d] or cause[d] to be made or disseminated‖ any false or

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misleading statement, and thus fails to state a claim under the FAL.11

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10

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26
27
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Judge Seeborg similarly distinguished a Central District decision allowing a claim to
proceed under the FAL where the defendants advertised their washing machines as ―Xxtra
Sanitary‖ and ―high efficiency,‖ but allegedly concealed that the machines developed mold and
were not efficient. Hodsdon, 2016 WL 627383, at *4 (discussing Tait v. BSH Home Appliances
Corp., No. SACV 10-00711 DOC (ANx), 2011 WL 3941387, at *1−3 (C.D. Cal. Aug. 31, 2011)).
11
Moreover, even if the FAL allowed claims based on omissions, McCoy has not established
any duty to disclose the information at issue, as discussed above in the context of her CLRA
claim.
22

1

F.

2

In light of the holdings above that each of McCoy‘s claims must be dismissed, the Court

3

need not reach the parties‘ arguments regarding Nestlé‘s remaining defenses: that the California

4

legislature has created a ―safe harbor‖ against McCoy‘s claims by enacting the Supply Chains Act,

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see Mot. at 8−11; that the equitable abstention doctrine requires dismissal, id. at 11−13; that the

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Complaint falls short of the Rule 9(b) pleading standard, id. at 23; and that the relief McCoy seeks

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would compel Nestlé‘s speech in violation of the First Amendment, id. at 23−25. Although this

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Order need not and does not resolve any of those issues, the Court briefly addresses the safe

9

harbor argument.

10

Additional Defenses

―[T]he reach of the UCL is broad, but it is not without limit and may not be used to invade

United States District Court
Northern District of California

11

‗safe harbors‘ provided by other statutes.‖ Loeffler v. Target Corp., 58 Cal. 4th 1081, 1125 (2014)

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(citing Cel-Tech, 20 Cal. 4th at 182). ―If the Legislature has permitted certain conduct or

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considered a situation and concluded no action should lie, courts may not override that

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determination.‖ Id. The California Supreme Court has described the scope of the doctrine as

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follows:

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A plaintiff may thus not ―plead around‖ an ―absolute bar to relief‖
simply ―by recasting the cause of action as one for unfair
competition.‖ (Manufacturers Life Ins. Co. v. Superior Court (1995)
10 Cal. 4th 257, 283, 41 Cal. Rptr. 2d 220, 895 P.2d 56.) The rule
does not, however, prohibit an action under the unfair competition
law merely because some other statute on the subject does not, itself,
provide for the action or prohibit the challenged conduct. To
forestall an action under the unfair competition law, another
provision must actually ―bar‖ the action or clearly permit the
conduct.
Cel-Tech, 20 Cal. 4th at 182−83; see also Loeffer, 58 Cal. 4th at 1125 (emphasizing the
requirement that another statute ―clearly permit‖ the challenged conduct).

23
The Supply Chains Act requires certain large corporations to disclose on their websites
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25
26

their ―efforts to eradicate slavery and human trafficking from [their] direct supply chain[s] for
tangible goods offered for sale.‖ Cal. Civ. Code § 1714.43(a)(1). The statute does not ―actually
‗bar‘‖ any action. See Cel-Tech, 20 Cal. 4th at 183. Nor does it ―clearly permit‖ any conduct

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except disclosure of efforts to eradicate slavery and human trafficking. See id.; Loeffer, 58 Cal.
28
23

1

4th at 1125. There are also discrepancies between the subject matter of the Supply Chains Act and

2

the disclosure McCoy seeks in this case. As Judge Seeborg noted in Hodsdon, the statute

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―concerns slavery and human trafficking, not [other forms of abusive] child labor,‖ and ―the

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legislative history is silent about whether the legislature contemplated disclosure on labels.‖

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Hodsdon, 2016 WL 627383, at *9. Moreover, there is a difference between, on one hand,

6

advertising the steps a company has taken to reduce slavery in its supply chain (as the statute

7

requires), and on the other, disclosing that such slavery persists (as McCoy seeks here). That the

8

legislature mandated the former in certain instances does not necessarily indicate a conclusion that

9

the latter could never be required under existing consumer protection laws.

10

The Ninth Circuit very recently addressed the safe harbor doctrine in Ebner v. Fresh, Inc.,

United States District Court
Northern District of California

11

a case alleging deception where a cosmetic product label disclosed the net weight of the product

12

contained in a tube but failed to disclose that ―only 75% of that product is reasonably accessible.‖

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Ebner, __ F.3d __, No. 13-56644, Slip Op. at 8, 2016 WL 1056088, at *3 (9th Cir. Mar. 17, 2016).

14

The panel held that the disclosure of the actual net weight fell within the safe harbor because

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―[b]oth federal and California law affirmatively require cosmetic manufacturers to include an

16

accurate statement of the net weight of included cosmetic product.‖ Id. The plaintiff also brought

17

an omission claim, however, arguing that failure to explain how much of the product was

18

accessible rendered the accurate weight disclosure ―deceptive and misleading.‖ Id. The panel

19

held that ―[u]nlike a claim seeking to alter the net weight declaration itself, this [omission] claim

20

does not fall within the safe harbor because there is no law expressly permitting the omission of

21

supplemental statements.‖ Id. Similarly, here, Nestlé has not identified any law ―expressly

22

permitting the omission of‖ disclosures on product labels regarding slave labor and the worst

23

forms of child labor in a product‘s supply chain. See id.

24

The Court recognizes that recent district court decisions have held that the Supply Chains

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Act creates a safe harbor against claims based on non-disclosure of labor abuses in a supply chain.

26

Wirth, 2016 WL 471234, at *6−9; Barber, 2015 WL 9309553, at *2−5; De Rosa, 2016 WL

27

524059 (summarily dismissing for the reasons stated in Barber); Hughes, 2016 WL 524057

28
24

1

(same).12 Because this Court holds for the reasons stated above that California‘s consumer

2

protection laws do not create any obligation to make the disclosures McCoy seeks, the question of

3

whether the Supply Chains Act would shield against such a duty is ultimately moot, and the Court

4

need not and does not resolve whether Wirth and Barber are correct or applicable to the case at

5

hand. The Court nevertheless echoes Judge Seeborg‘s skepticism that the safe harbor doctrine is

6

as broad as Nestlé contends.

7

IV.

CONCLUSION

8

For the reasons stated above, McCoy‘s claims under the CLRA, the UCL, and the FAL fail

9

to state a claim on which relief may be granted, and are therefore DISMISSED. McCoy has made
clear that she does not intend to pursue a claim based on affirmative misrepresentations. See

11
United States District Court
Northern District of California

10

Opp‘n at 12 n.64. The Court therefore finds that leave to amend would be futile, and dismisses

12

this action with prejudice.
IT IS SO ORDERED.

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Dated: March 29, 2016
______________________________________
JOSEPH C. SPERO
Chief Magistrate Judge

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Appeals of all of these cases are currently pending before the Ninth Circuit.
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