Monica Sud v. Costco Wholesale Corporation et al

Filing 93

ORDER GRANTING 80 Motion to Dismiss Amended Complaint filed by Costco Wholesale Corporation, and GRANTING 81 Motion to Dismiss Amended Complaint for Lack of Personal Jurisdiction, Lack of Subject Matter Jurisdiction, and Failure to State a Claim filed by Charoen Pokphand Foods, PCL, C.P. Food Products, Inc. Signed by Judge Jeffrey S. White on January 24, 2017. (jswlc3S, COURT STAFF) (Filed on 1/24/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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Plaintiffs,

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ORDER GRANTING MOTIONS TO
DISMISS FIRST AMENDED
COMPLAINT

v.

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Case No. 15-cv-03783-JSW

MONICA SUD, et al.,

COSTCO WHOLESALE CORPORATION,
et al.,

Re: Dkt. Nos. 80, 81

United States District Court
Northern District of California

Defendants.
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Now before the Court for consideration is the motion to dismiss filed by Defendants

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Charoen Pokphand Foods (“Charoen”), PCL, C.P. Food Products, Inc. (“CP Foods”) (collectively

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the “CP Defendants”). Also before the Court is the motion to dismiss filed by Costco Wholesale

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Corporation (“Costco”) (collectively “Defendants”). The Court has considered the parties’ papers,

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relevant legal authority, and the record in this case, and it HEREBY GRANTS the motions, and it

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DISMISSES this case with prejudice.

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BACKGROUND
A.

Procedural History.
On August 19, 2015, Plaintiff Monica Sud (“Sud”) filed this putative class action asserting

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claims under California’s: Unfair Competition Law (“UCL”), Business and Professions Code

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sections 17200, et seq.; False Advertising Law (“FAL”), Business and Professions Code sections

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17500, et seq.; and Consumer Legal Remedies Act (“CLRA”), Civil Code sections 1750, et seq.

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Each of these claims were based on allegations that Costco sold and the CP Defendants supplied

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prawns farmed in Thailand, for which the supply chain was tainted by slavery, human trafficking,

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and other illegal labor practices.

On January 15, 2016, the Court granted the Defendants’ motion to dismiss on the basis that

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Sud lacked Article III standing, because she had not alleged facts to show that she purchased

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prawns that were a product of Thailand. (See Dkt. No. 76.) The Court gave Sud leave to amend to

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(1) expand the allegations to cover the purchase of prawns farmed in countries other than

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Thailand; (2) add her mother, Cecilia Jacobo (“Jacobo”) as a class representative to such expanded

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claims; or (3) amend to include an additional class representative who could allege facts showing

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that he or she purchased prawns that are a product of Thailand. On February 19, 2016, Sud and

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Jacobo (“Plaintiffs”) filed their First Amended Complaint (“FAC”), in which they assert a claim

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under the UCL against the Defendants. Plaintiffs also assert a claim under the FAL and under the
CLRA against Costco.

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United States District Court
Northern District of California

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B.

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Factual Background.
Plaintiffs allege that Costco sells farmed prawns that “come from Southeast Asia,

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including, but not limited to, the countries of Thailand, Indonesia, Vietnam, and Malaysia, and the

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international waters off these countries’ coasts[.]” (FAC ¶ 5.) Plaintiffs allege the supply chain

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for these farmed prawns, specifically the fish used to create fishmeal for the framed prawns

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depends on slavery, human trafficking, and other labor abuses. Plaintiffs also allege that Charoen

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and CP Foods supply such prawns to Costco. (FAC ¶¶ 12-13, 16; see also id., ¶¶ 80-134

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(detailing facts underlying allegations regarding slavery, human trafficking and labor abuses).)

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Plaintiffs allege that Defendants are aware the feed for the prawns comes from trash fish

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caught on boats that use slave labor or other illegal labor practices, including human trafficking.

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(See, e.g., id. ¶¶ 13, 15, 79, 196.) According to Plaintiffs, Costco publicly states on its website

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that it has a “supplier Code of Conduct which prohibits human rights abuses in our supply

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chain[.]” (Id. ¶ 19.) Plaintiffs allege these statements are misleading, because Costco continues to

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sell prawns that it knows are derived from a supply chain tainted by slavery, human trafficking

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and other human rights violations. Plaintiffs also allege Costco fails to advise consumers of this

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fact and allege that it “market[s] and sell[s] the product in packages which only advise that the

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contents are imported as a product from a foreign country….” (Id. ¶¶ 13, 15-19.)

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Plaintiffs also allege the CP Defendants1 are aware the fishmeal for prawns is tainted by

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slave labor, have made public statements that they are “‘committed’ to ensuring that [their] supply

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chain is free from these human rights violations,” continue to sell prawns tainted by these abuses,

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and fail to disclose that fact to California consumers. (See id. ¶¶ 8, 69-79.)
Plaintiffs each purchased prawns from Costco, which were sourced from Indonesia and

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Vietnam. (Id. ¶¶ 37-38, 41.) Plaintiffs expanded the allegations of their original complaint, and

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they now seek to represent a class of “persons and entities residing in California that [sic], from at

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least 2011, through the present purchased frozen (or previously frozen) Southeast Asian farmed

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prawn products in the United States from Costco[.]” (Id. ¶ 187.) Plaintiffs allege they would not

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have purchased these prawns if they were aware of the facts regarding the supply chain. Plaintiffs

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United States District Court
Northern District of California

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also allege that they “would want to purchase farmed prawns from Defendants in the future but

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only if Defendants address the human rights abuses in their supply chains and couple that effort

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with full compliance with the California Transparency in Supply Chains Act2 so that Plaintiffs can

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make informed purchasing decisions.” (Id. ¶¶ 26, 42.)
The Court shall address additional facts as necessary in its analysis.

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ANALYSIS

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The facts described in the FAC are tragic and “raise significant ethical concerns.” McCoy

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v. Nestle USA, Inc., 173 F. Supp. 3d 954, 956 (N.D. Cal. 2016) (discussing use of child labor in

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supply chain for cocoa products). The issue this Court faces, as others have before it, “is whether

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California law requires corporations to inform customers” of these facts “on their product

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packaging and point of sale advertising.” Id.; see also Hodson v. Mars, Inc., 162 F. Supp. 3d 1016

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(N.D. Cal. 2016) (addressing allegations of child labor in supply chain for cocoa products); Dana

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v. The Hershey Company, Inc., No. 15-cv-04453-JCS, 2016 WL 1213915 (N.D. Cal. Mar. 29,

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2016) (same); Wirth v. Mars Inc., No. SA CV 15-1470-DOC (KESx), 2016 WL 471234 (C.D. Cal.

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Feb. 5, 2016) (addressing allegations of slave labor and forced labor in supply chain for seafood

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Plaintiffs refer collectively throughout the FAC to the CP Defendants as CP Foods and do
not clearly distinguish between these two defendants.

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California Civil Code § 1714.43.
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used in petfood); Barber v. Nestle USA, Inc., 154 F. Supp. 3d 954, (C.D. Cal. 2015) (same).3 The

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Court concludes Plaintiffs’ claims cannot proceed.

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A.

The Court Grants the CP Defendants’ Motion to Dismiss for Lack of Standing.
The CP Defendants move to dismiss the UCL claim, in part, for lack of Article III

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standing. Because this is a threshold issue, and because the Court finds it dispositive, it does not

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reach the CP Defendants’ alternative arguments.4 The Court evaluates a motion to dismiss for

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lack of Article III standing under Rule 12(b)(1). See Maya v. Centex Corp., 658 F.3d 1060, 1067

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(9th Cir. 2011); White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000). A motion to dismiss under

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Rule 12(b)(1) may be “facial or factual.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039

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(9th Cir. 2004). A facial attack on jurisdiction occurs when factual allegations of the complaint

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United States District Court
Northern District of California

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are taken as true. Federation of African Am. Contractors v. City of Oakland, 96 F.3d 1204, 1207

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(9th Cir. 1996); see also Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992) (“At the

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pleading stage, general factual allegations of injury resulting from the defendant’s conduct may

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suffice, for on a motion dismiss, [courts] presume that general allegations embrace those specific

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facts that are necessary to support the claim.”) (internal citation and quotations omitted). The

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plaintiff is then entitled to have those facts construed in the light most favorable to him or her.

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Federation of African Am. Contractors, 96 F.3d at 1207.
In order for Plaintiffs to establish standing, they must show they: “(1) suffered injury in

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fact, (2) that is fairly traceable to the challenged conduct of the defendant, (3) that is likely to be

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redressed by a favorable judicial decision.” Spokeo, Inc. v. Robins, __ U.S. __, 136 S.Ct. 1540,

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1547 (2016) (citing Lujan, 504 U.S. at 560-61). Plaintiffs must “‘clearly allege ... facts

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demonstrating’ each element.” Id. (quoting Warth v. Seldin, 422 U.S. 490, 518 (1975)). Plaintiffs

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allege that Costco sells prawns sourced by the CP Defendants. (FAC ¶ 72.) However, Plaintiffs

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Each of these cases is currently on appeal to the United States Court of Appeals for the
Ninth Circuit.

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The CP Defendants also move to dismiss for lack of personal jurisdiction, which is their
primary argument, lack of statutory standing and failure to state a claim. The CP Defendants also
argue that the Court should equitably abstain from adjudicating this case, and Costco joined in that
argument.
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do not allege that the prawns they purchased were sourced by either of the CP Defendants, and

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there are no facts in the FAC from which the Court could reasonably infer that is the case. A key

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component of Article III standing is “traceability, i.e., a causal connection between the injury and

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the actions” about which a plaintiff complains. Easter v. American West Financial, 381 F.3d 948,

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961-62 (9th Cir. 2004) (finding that plaintiffs who could not trace injury to a particular defendant

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did not have standing to sue that defendant). Thus, in cases “where there are multiple defendants

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and multiple claims, there must exist at least one named plaintiff with Article III standing as to

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each defendant and each claim - but a single named plaintiff who can meet these criteria will

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suffice[.]” Reniger v. Huyndai Motor America, 122 F. Supp. 3d 888, 895 (N.D. Cal. 2015).
In response to the CP Defendants’ argument that, for this same reason, Plaintiffs lack

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United States District Court
Northern District of California

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statutory standing to pursue the UCL claim, Plaintiffs argue they “need not have purchased every

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product covered by the class,” and that they have standing to assert this claim “regardless of the

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branding.” (Dkt. No. 83, Opp. Br. at 22:6-7, 24:14-15.) Plaintiffs rely on a number of food

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labelling cases in which a defendant argued the plaintiff lacked standing to sue based on products

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the plaintiff had not purchased. In those cases, the issue was whether the plaintiff had standing to

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sue based on products they had not purchased but which had been manufactured or marketed by

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the same defendant or defendants. In each case, at least one of the plaintiffs did allege they

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purchased at least one product from the defendant or defendants. In sum, there was no dispute the

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plaintiffs alleged an injury caused by and traceable to the defendant or defendants. See Brown v.

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The Hain Celestial Group, Inc., 913 F. Supp. 2d 881, 889-90 (N.D. Cal. 2012); Cardenas v.

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NBTY, Inc., 870 F. Supp. 2d 984, 992 (E.D. Cal. 2012); Astiana v. Dreyer’s Grand Ice Cream,

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Inc., No. 11-cv-2190-EMC, 2012 WL 2990766, at *1, *12-23 (N.D. Cal. July 20, 2012); Koh v.

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S.C. Johnson & Son, Inc., No. 09-CV-927-RMW, 2010 WL 94265, at *2-3 (N.D. Cal. Jan. 6,

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2010).5
The McCoy and Hudson courts similarly concluded that the plaintiffs had standing under

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Plaintiffs also rely on Colucci v. Zoneperfect Nutrition Company, No. 12-CV-2907-SC,
2012 WL 6737800 (N.D. Cal. Dec. 28, 2012). In that case, the court dismissed claims of one of
the plaintiffs, because he failed to allege he purchased the defendant’s product. Id., 2012 WL
6737800, at *5.
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Article III. Again, in those cases, there was no dispute the plaintiffs purchased a product

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manufactured or marketed by any of the named defendants. See McCoy, 173 F. Supp. 3d at 962-

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64; Hodson, 162 F. Supp. 3d at 1021-23. Because Plaintiffs do not allege they purchased any

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prawns that were produced or marketed by either of the CP Defendants, they fail to allege facts to

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show that they have Article III standing to pursue the UCL claim against the CP Defendants.6

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Accordingly, the Court GRANTS the CP Defendants’ motion to dismiss on this basis.7

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B.

Costco argues: (1) it did not owe Plaintiffs a duty to disclose the information at issue; (2)

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The Court Grants Costco’s Motion.

the FAL does not apply to omissions; (3) the claims are barred by the safe harbor doctrine; and (4)
Plaintiffs lack standing to seek injunctive relief. Because the Court finds the first two arguments

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Northern District of California

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dispositive, and because those arguments impact Plaintiffs’ ability to state a violation of any of the

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statutes at issue, the Court does not reach Costco’s alternative arguments.
On a motion to dismiss under Rule 12(b)(6), a court’s “inquiry is limited to the allegations

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in the complaint, which are accepted as true and construed in the light most favorable to the

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plaintiff.” Lazy Y Ranch LTD v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008). Even under the

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liberal pleadings standard of Federal Rule of Civil Procedure 8(a)(2), “a plaintiff’s obligation to

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provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and

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a formulaic recitation of the elements of a claim for relief will not do.” Bell Atlantic Corp. v.

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Twombly, 550 U.S. 544, 555 (2007) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)).

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Pursuant to Twombly, a plaintiff must not merely allege conduct that is conceivable but must

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allege “enough facts to state a claim to relief that is plausible on its face.” Id. at 570. “A claim

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has facial plausibility when the Plaintiff pleads factual content that allows the court to draw the

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To the extent Plaintiffs rely on allegations of agency, conspiracy, aiding and abetting, and
concerted actions to show they were injured by the CP Defendants, those allegations are mere
legal conclusions couched as fact. (See FAC ¶¶ 48-50.) Cf. Easter, 381 F.3d at 962 (concluding
plaintiffs failed to establish a juridical link between defendants).
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For that same reason, and assuming the Court could assert personal jurisdiction over either
Charoen or CP Foods, Plaintiffs lack statutory standing under the UCL. Because they have not
alleged they purchased prawns produced by either of the CP Defendants, they have not alleged
facts showing they lost money or property as a result of the CP Defendants’ conduct.
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reasonable inference that the Defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal,

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556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).

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The Court begins with Costco’s argument regarding reliance, because Plaintiffs must

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allege reliance to show they have statutory standing to pursue each of their claims. See In re

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Tobacco II Cases, 46 Cal. 4th 289, 326 (2009) (“Tobacco II”); Hodson, 162 F. Supp. 3d at 1022.

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Based on the facts of this case, this issue will impact the scope of Plaintiffs’ claims.
In order to show actual reliance, whether based on an affirmative misrepresentation or a

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Reliance and Statutory Standing Under the CLRA, UCL and FAL.

material omission, Plaintiffs must demonstrate that the misrepresentation or omission was an
“immediate cause of the injury-causing conduct.” Tobacco II, 46 Cal. 4th at 328; accord Daniel v.

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United States District Court
Northern District of California

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Ford Motor Co., 806 F.3d 1217, 1225 (9th Cir. 2015). Plaintiffs need not prove the

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misrepresentation or omission was the “only,” “sole,” “predominant,” or “decisive” cause of the

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injury-causing conduct. Rather, they may show that the misrepresentation or omission was a

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substantial factor in their decision making process. Daniel, 806 F.3d at 1225; Tobacco II, 46 Cal.

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4th at 328. If an omission is material, the fact that one would have behaved differently “can be

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presumed, or at least inferred.” Daniel, 806 F.3d at 1225. However, a plaintiff cannot use that

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presumption, “if the evidence establishes an actual lack of reliance.” Lanovaz v. Twinings North

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America, Inc., No. 12-cv-02646-RMW, 2014 WL 46822, at *3 (N.D. Cal. Jan. 6, 2014) (citing,

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inter alia, In re Tobacco II, 46 Cal. 4th at 327); cf. In re iPhone Application Litig., 6 F. Supp. 3d

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1004, 1020 (N.D. Cal. 2013) (presumption cannot be applied to misrepresentations plaintiffs never

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saw).

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In Daniel, the court identified two “sub-elements” a plaintiff must prove to show an

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omission was a substantial factor in a purchasing decision: awareness; and a change in behavior.

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806 F.3d at 1225-26. The latter sub-element may be presumed if the omitted information is

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material, but a plaintiff must still be able to show she would have been aware of the information if

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it had been disclosed. Id. at 1225-26. In Daniel, the court found that the plaintiffs created a

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genuine issue of material fact about whether they would have been aware of the omitted

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information. There, the plaintiffs presented evidence that the defendant disclosed the allegedly
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omitted information to its dealerships, and plaintiffs testified that they engaged with and obtained

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information from sales staff at the dealerships before they purchased their cars. Id. “Since

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Plaintiffs have sufficient evidence to establish a plausible method of disclosure and to establish

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that they would have been aware of information disclosed using that method, there is a genuine

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issue of material fact as to whether they in fact relied on” defendant’s omissions. Id. at 1227

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(emphasis added).

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Plaintiffs allege Costco fails to include information about the labor abuses in the supply
chain for farmed prawns on the packaging and, instead, states only that the prawns are a product of

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a given country. (FAC ¶ 15.) There are sufficient allegations in the FAC from which the Court

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could infer Plaintiffs relied on the statements on the packaging before they purchased the prawns

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United States District Court
Northern District of California

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at issue and, thus, that they have statutory standing to pursue their claims based on that omission.

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However, Plaintiffs’ allegations regarding Costco’s conduct are based, in part, on the fact

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that Costco publishes a “Disclosure Regarding Human Trafficking and Anti-Slavery” (the

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“Disclosure”) on its website. They also are based on the fact that Costco advertises a supplier

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Code of Conduct, which purports to prohibit the type of labor abuses described in the FAC. (FAC

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¶¶ 18-20, 59-61.) According to Plaintiffs, through the Disclosure, Costco “affirmatively

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represents to consumers that it makes efforts to monitor its suppliers to eradicate human rights

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abuses in the supply chain.” (Id. ¶ 19.) Plaintiffs also allege that Costco’s “practices are

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fraudulent in that ... Costco affirmatively represents that it enforces standards to prohibit the use of

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slave labor.” (Id. ¶ 196.)

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While the Disclosure might have been a “plausible method” of disclosing the fact that

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Costco sells prawns “tainted” by labor abuses in the supply chain, neither Plaintiff alleges that she

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read or relied on the Disclosure before she purchased prawns from Costco. Therefore, to the

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extent their claims are based allegations that the Disclosure is misleading, either because it

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contains affirmative misrepresentations or because it omits information, Plaintiffs fail to allege

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facts to show reliance. Similarly, Plaintiffs have not alleged they read or relied on Costco’s Code

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of Conduct and, thus, fail to allege facts to show they relied on any affirmative statements in that

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Code. They also fail to allege facts to show they were aware of the Code, such that they could
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premise an omissions claim on it. See, e.g., Stanwood v. Mary Kay, Inc., 941 F. Supp. 2d 1212,

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1218 (S.D. Cal. 2012) (dismissing claims relating to website and other documents where plaintiff

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did not allege “that she viewed any of those sources, and therefore cannot link her injuries to those

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misrepresentations”).

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Further, although in paragraph 207 Plaintiffs refer to generally “false statements in

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[Costco’s] television, radio, and print advertising, website, brochures, and … other written and

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oral materials,” they do not allege with particularity any advertisements on which they relied.

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Plaintiffs also do not attempt to allege that Costco engaged in a long term advertising campaign

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about the practices at issue in the FAC, which might otherwise enable them to avoid pleading
reliance on a particular advertisement with specificity. See Tobacco II, 46 Cal. 4th at 328 (holding

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United States District Court
Northern District of California

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a plaintiff “is not required to necessarily plead and prove individualized reliance on specific

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misrepresentations or false statements where … those misrepresentations and false statements

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were part of an extensive and long-term advertising campaign”).

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In sum, notwithstanding Plaintiffs’ arguments that Costco has made affirmative

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misrepresentations or has made partial representations, their claims must be limited to alleged

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omissions from product packaging.

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Plaintiffs allege that, “[g]iven its representations about excluding slave labor from its chain

The Duty to Disclose.

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of supply, … Costco has a duty to accurately disclose to consumers that slavery, forced labor and

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human trafficking have been tainting and continue to taint Costco’s supply chain for farmed

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prawns.” (FAC ¶ 25.) Costco moves to dismiss Plaintiffs claims under the UCL and the CLRA,

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in part, on the basis that it did not have a duty to disclose this information.

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The UCL prohibits any “unlawful, unfair, or fraudulent business act or practice.” Cal. Bus.

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& Prof. Code § 17200. “Since section 17200 is [written] in the disjunctive, it establishes three

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separate types of unfair competition. The statute prohibits practices that are either ‘unfair’ or

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‘unlawful,’ or ‘fraudulent.’” Pastoria v. Nationwide Ins., 112 Cal. App. 4th 1490, 1496 (2003).

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To state a claim under the UCL, a “plaintiff must establish that the practice is either unlawful (i.e.,

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is forbidden by law), unfair (i.e., harm to victim outweighs any benefit) or fraudulent (i.e., is likely
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to deceive members of the public).” Albillo v. Intermodal Container Servs., Inc., 114 Cal. App.

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4th 190, 206 (2003). The CLRA prohibits “unfair methods of competition and unfair or deceptive

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

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the sale or lease of goods or services to any consumer.” Cal. Civ. Code § 1770(a).
Plaintiffs allege Costco violated all three prongs of the UCL. The Court will address

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Plaintiffs’ claims under the unlawful and unfair prongs in more detail in Section B._, infra. In this

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portion of the Order, the Court focuses on the claims under the fraudulent prong. Under both the

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UCL and the CLRA, in order to determine whether a representation is misleading, a court

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evaluates whether members of the public are likely to be deceived. Tobacco II, 46 Cal. 4th at 312

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(allegations that the fraudulent deception was “actually false, known to be false by the perpetrator

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Northern District of California

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and reasonably relied upon by a victim who incurs damages” are not necessary) Colgan v.

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Leatherman Tool Group, Inc., 135 Cal. App. 4th 663, 680 (2006).8
A plaintiff may base a UCL claim or a CLRA claim “in terms constituting fraudulent

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omissions, [but] to be actionable the omission must be contrary to a representation actually made

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by the defendant, or an omission of a fact that the defendant was obliged to disclose.” Daugherty

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v. Am. Honda Motor Co., 144 Cal. App. 4th 824, 835 (2006); see also id. at 838 (finding that

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plaintiff failed to state a UCL claim, because “the failure to disclose a fact one has no affirmative

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duty to disclose” is not likely to deceive a reasonable consumer). In general, “California courts

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have … rejected a broad obligation to disclose[.]” Wilson v. Hewlett-Packard Co., 668 F.3d 1136,

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1141 (9th Cir. 2012); cf. Gray v. Toyota Motor Sales, U.S.A., Inc., 554 Fed. Appx. 608, 609 (9th

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Cir. 2014).9
In Wilson, the plaintiffs alleged the defendant was aware of, but concealed, a design defect

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The standard is the same under the FAL. See Colgan, 135 Cal. App. 4th at 680.

Although Gray is unpublished, the Court finds it instructive. The Ninth Circuit concluded
the plaintiffs could not state a claim under the UCL or the CLRA, on a pure omissions theory,
where they alleged the defendant failed to disclose internal fuel economy data, which plaintiffs
alleged was contrary to EPA estimates. Gray, 554 Fed. Appx. at 609. The Gray court reasoned
“California law instructs that a manufacturer’s duty to its consumers is limited to its warranty,
unless a safety issue is present or there has been some affirmative misrepresentation.” Id.
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that rendered certain of its laptop computers unusable and that posed a safety risk. Wilson, 668

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F.3d at 1138. The plaintiffs argued a “concealed fact need only be ‘material,’” to state a claim

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under the CLRA and relied on Falk v. General Motors Corp., 496 F. Supp. 2d 1088 (N.D. 2007).

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The Wilson court rejected that argument. It distinguished cases on which the plaintiffs had relied

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on the basis that, in those cases, the defendant either made affirmative misrepresentations or the

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cases involved services rather than products. Id. at 1143. It also stated that even if it applied “the

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factors from Falk regarding materiality[,] … for the omission to be material, the failure must still

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pose safety concerns.” Id., 668 F.3d at 1142 (internal quotations and citation omitted).10
In Hodson, the plaintiff alleged the defendant, which marketed and distributed chocolate

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products, failed to disclose that some of the cocoa beans used to make its products “come from

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United States District Court
Northern District of California

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Cote d’Ivoire, where children,” some of whom had been sold or kidnapped, “and forced laborers”

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were forced to work under dangerous conditions. Hodson, 163 F. Supp. 3d at 1020. The court,

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relying on Wilson and “overwhelming authority to the contrary,” found the defendant did not have

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a duty to disclose these “horrific labor practices,” because the plaintiffs neither alleged those

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practices posed a safety risk to consumer nor alleged they were a product defect. Id. at 1025-26.

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Therefore, the court held the “duty to disclose does not extend to situations, as here, where

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information may persuade a customer to make different purchasing decisions.” Id. at 1026; see

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also Wirth, 2016 WL 4711234, at *5-6 (finding, in pure omissions case, defendant had no duty to

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disclose alleged labor violations in fishing industry on packaging for pet food that contained

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seafood caught in Thailand and that was manufactured in Thailand).
In McCoy, the plaintiff’s claims were essentially identical to the claims alleged in Hodson,

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although they named a different chocolate manufacturer as a defendant. McCoy, 173 F. Supp. 3d

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at 956 (plaintiff alleged defendant failed “to disclose on [its] packaging of ... chocolate products

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that some of the cocoa used therein originated at farms in [the Ivory Coast] that use slave labor

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In Falk, the court held a failure to disclose can constitute actionable fraud under the CLRA
in four circumstances: “(1) when the defendant is in a fiduciary relationship with the plaintiff; (2)
when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when
the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant
makes partial representations but also suppresses some material fact.” Id., 496 F. Supp. 2d at 1095
(quoting LiMandri v. Judkins, 52 Cal. App. 4th 326, 336-37 (1997)).
11

1

and the worst forms of child labor”).11 Following Wilson and Hodson, the court determined that

2

the “the weight of authority limits a duty to disclose under the CLRA to issues of product safety,

3

unless disclosure is necessary to counter an affirmative misrepresentation.” Id. at 966. Because

4

the plaintiff did not allege an omission of “known dangers to the safety of consumers, there is no

5

duty to disclose that is applicable to this case.” Id.
Plaintiffs argue that Wilson’s holding is not as broad as Costco argues, and they urge the

6
7

Court not to follow the reasoning set forth in McCoy, Hodson and Wirth. In support of this

8

argument, Plaintiffs rely on the Stanwood case, supra. The Court does not find Plaintiffs’ reliance

9

on Stanwood persuasive. First, it “is not free to deviate from the Ninth Circuit’s construction of
California law in Wilson absent subsequent interpretation from California’s courts that the

11
United States District Court
Northern District of California

10

interpretation was incorrect.” Rasmussen v. Apple Inc., 27 F. Supp. 3d 1027, 1036 (N.D. Cal.

12

2014). Second, it appears that the Stanwood case represents a minority view on this issue. See,

13

e.g., Hodson, 162 F. Supp. 3d at 1025 (“Stanwood stands alone in” the conclusion that Wilson is

14

limited to product liability cases where warranties protected consumers.). Third, the Court finds

15

the reasoning set forth in McCoy and Hodson on this issue persuasive. For the reasons set forth in

16

those cases, it concludes that the Ninth Circuit’s holding in Wilson is not as narrow as the

17

Stanwood court construed it to be. See Hodson, 162 F. Supp. 3d at 1025-26; McCoy, 173 F. Supp.

18

3d at 995-66.
Finally, the Court concurs with the McCoy court that “some bright-line limitation on a

19
20

manufacturer’s duty to disclose is sound policy, given the difficulty of anticipating exactly what

21

information some customers might find material to their purchasing decisions and wish to see on

22

product labels.” McCoy, 173 F. Supp. 3d at 966; see also Hall v. SeaWorld Entertainment, Inc.,

23

No. 15-CV-660-CAB-RBB, 2015 WL 9659911, at *7 (S.D. Cal. Dec. 23, 2015) (“Under the

24

standard argued by Plaintiffs, any consumer would have standing to sue any company that fails to

25

disclose product ingredients or components, or business practices that could cause that consumer

26
27
28

11

The McCoy court also decided the Dana case, cited above. Because the Court’s reasoning
in Dana is substantially similar to, if not identical to the reasoning in McCoy, which is published,
this Court has relied on McCoy.
12

1
2

to regret patronizing that business.”).
Plaintiffs do not allege that the labor practices described in the FAC, while horrific,

3

constitute a safety risk to consumers or constitute a product defect. On the facts of this case,

4

Plaintiffs fail to show Costco had a duty to disclose the allegedly omitted information. Therefore,

5

they fail to state a claim under the CLRA and fail to state a claim under the fraudulent prong of the

6

UCL. McCoy, 173 F. Supp. 3d at 966-67; Hodson, 162 F. Supp. 3d at 1026; see also Wirth, 2016

7

WL 471234, at *3-*5. Even if Wilson’s holding should be limited to cases involving products

8

covered by a warranty, the Court still is not persuaded Plaintiffs have alleged facts to establish a

9

duty to disclose.

10

As set forth in Falk, there are four circumstances that may give rise to a duty to disclose,

United States District Court
Northern District of California

11

only three of which are at issue in this case. 496 S. Supp. 2d at 1095. First, Plaintiffs argue

12

Costco had exclusive knowledge of the facts, which were not known to Plaintiffs. In McCoy, the

13

plaintiff also argued the defendant had a duty to disclose the facts about labor practices in its

14

supply chain for cocoa based on its purportedly superior knowledge of the allegedly omitted facts.

15

173 F. Supp. 3d at 967. The court noted the plaintiff alleged that the defendant “acknowledge[d]

16

on a public website its suppliers use of slave labor,” and also included other public disclosures

17

about the use of such labor in the supply chain for cocoa. Id. Based on those allegations, the court

18

found she had not alleged the defendant had exclusive or superior knowledge of the facts. Id.

19

Plaintiffs, like the plaintiff in McCoy, include numerous paragraphs in the FAC that describe

20

public disclosures of the labor conditions in the fishing industry in Thailand and Southeast Asia

21

and the manner in which those conditions affect the supply chain for farmed prawns. (See, e.g,

22

FAC ¶¶ 64-65, 77-78, 86-89.) The Court concludes that Plaintiffs have not alleged facts to show

23

that Costco would have superior, let alone exclusive, knowledge of those facts.

24

Plaintiffs also assert that Costco actively concealed the facts about the supply chain for its

25

farmed prawns, but their argument on this point is focused on their assertion that Costco made

26

partial representations. (See Opp. Br. at 6:25-10:21.) In addition, the FAC does not contain any

27

facts that would support an inference that Costco actively concealed information about abuses in

28

the supply chain for farmed prawns.
13

1

Third, Plaintiffs argue Costco made partial representations but suppressed other material

2

facts. In the FAC, the Plaintiffs do allege Costco made partial representations, but those

3

allegations pertain to the Disclosure and the Code of Conduct. Plaintiffs do not allege that they

4

relied on those statements. In addition, Plaintiffs do not allege Costco made partial

5

representations on the product packaging that are misleading absent a disclosure. The Court

6

concludes they cannot rely on a partial representation theory to allege a duty to disclose.

7

Accordingly, the Court GRANTS Costco’s motion to dismiss on the basis that Plaintiffs

8

fail to allege it had duty to disclose the information about labor abuses in the supply chain for

9

farmed prawns from Southeast Asia on its product packaging.
2.

11
United States District Court
Northern District of California

10

Plaintiffs also pursue claims against Costco under the unlawful and unfair prongs of the

12
13
14

The Court Dismisses the Remainder of the UCL Claim.

UCL. Costco argues that Plaintiffs fail to allege facts to support a claim under either prong.
a.

Unlawful prong.

The UCL’s unlawful prong proscribes “anything that can be properly called a business

15

practice and that at the same time is forbidden by law.” Smith v. State Farm Mut. Auto. Ins. Co.,

16

93 Cal. App. 4th 700, 717-18 (2001) (internal quotations omitted). “[A] violation of another law

17

is a predicate for stating a cause of action” under the unlawful prong. Berryman v. Merit Property

18

Mgmt., Inc., 152 Cal. App 4th 1544, 1554 (2007). Plaintiffs allege that Costco’s conduct violates

19

the FAL and the CLRA. (FAC ¶ 195.) However, for the reasons set forth in Section B.1 and

20

Section B.3, Plaintiffs fail to state a claim under either statute. Therefore, they fail to state a UCL

21

claim based on alleged violations of those statutes. See, e.g,McCoy, 173 F. Supp. 3d at 967;

22

Berryman, 152 Cal. App. 4th at 1554.

23

Plaintiffs also allege that Costco’s conduct “in sourcing and selling farmed prawns actively

24

contributes to the use of slave labor in violation of bans on such human trafficking enacted by the

25

U.S., California and by international conventions, including but not limited to the Tariff Act of

26

1930[,] … [t]he Anti-Trafficking in Persons Act, the UN Declaration on Human Rights, and

27

California Penal Code § 236, § 237, et seq.,” and the Supply Chains Act. (FAC ¶ 195.) The

28

Supply Chains Act does not clearly speak to product labels, and, to the extent Plaintiffs are
14

1

attempting to suggest the Disclosure does not comply with the requirements of the Supply Chains

2

Act, the Court also has concluded that Plaintiffs lack statutory standing to pursue claims based on

3

the Disclosure. With respect to the remaining statutes and the Declaration of Human Rights cited

4

in paragraph 195, Plaintiffs do not attempt to show how the allegations in the FAC support alleged

5

violations of these laws in their opposition brief. Rather, they simply repeat the allegations set

6

forth in the FAC. (Compare FAC ¶ 195 with Opp. Br. at 12:4-12.)

7
8
9

The Court concludes Plaintiffs fail to plead a violation of the UCL’s unlawful prong.
b.

Unfair Prong.

The UCL also proscribes business practices that are “unfair,” but it does not define that
term. In Cel-Tech Communications, Inc. v. Los Angeles Cellular Tel. Co., the California Supreme

11
United States District Court
Northern District of California

10

Court considered a number of definitions relied upon by the courts of appeal and found they were

12

“too amorphous and provide too little guidance to courts and businesses.” 20 Cal. 4th 163, 185

13

(1999). The Cel-Tech court determined that, in claims between direct competitors, “the word

14

‘unfair’ … means conduct that threatens an incipient violation of an antitrust law, or violates the

15

policy or spirit of one of those laws because its effects are comparable to or the same as a violation

16

of the law, or otherwise significantly threatens or harms competition.” Id. at 187. The Cel-Tech

17

court “limited” the test to claims between competitors and to allegations of anticompetitive

18

practices. Id. at 187 n.12. Thus, “the proper definition of ‘unfair’ conduct against consumers ‘is

19

currently in flux’ among California courts.” Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152,

20

1169 (9th Cir. 2012) (quoting Lozano v. AT&T Wireless Services, Inc., 504 F.3d 718, 735 (9th Cir.

21

2007)); see also McVicar v. Goodman Global, Inc., 1 F. Supp. 3d 1044, 1054 (C.D. Cal. 2014)

22

(citing Boschma v. Home Loan Center, Inc., 198 Cal. App. 4th 230, 252 (2011)).

23

To the extent California courts examine whether the alleged practice “is immoral,

24

unethical, oppressive, unscrupulous or substantially injurious to consumers” and weigh “the utility

25

of the defendant’s conduct against the gravity of the harm to the alleged victim,” the Court

26

concludes Plaintiffs do not allege facts to satisfy this test. See Boschma, 198 Cal. App. 4th at 252

27

(internal quotations and citations omitted). As in the McCoy and Hodson cases, the harm

28

Plaintiffs have alleged is that they would not have purchased the farmed prawns had they been
15

1

aware of the potential of slave and forced labor in the supply chain. In Hodson, the court held

2

that, given the harm at issue, the defendant’s conduct was not “unfair” within the meaning of the

3

UCL.

4

Such information [about the prospect for child labor in the
defendant’s supply chain] is, in fact, readily available to consumers
on Mars’s website. Given that Hodson, 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 Hodson 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 injuries, immoral, or unethical[.]

5
6
7
8
9
10

United States District Court
Northern District of California

11

162 F. Supp. 3d at 1027; accord McCoy, 173 F. Supp. 3d at 969. The Court agrees with this

12

reasoning.

13

Similarly, to the extent California courts require a UCL claim to be “tethered to specific

14

constitutional, statutory, or regulatory provisions,” the Court concludes Plaintiffs’ allegations are

15

not sufficient. See Boschma, 198 Cal. App. 4th at 252 (citations omitted). Again, as in the McCoy

16

and Hodson cases, “the crux of” Plaintiffs’ claim “is not that [Costco] used slave labor …, but

17

rather that [Costco] does not disclose the existence of those labor abuses in its supply chain on the

18

packaging of its products.” McCoy, 173 F. Supp. 3d at 968; see also Hodson, 162 F. Supp. 3d at

19

1027. As in those cases, the Plaintiffs have not identified a particular policy or other statutory or

20

regulatory provision that demonstrate “it is ‘unfair’ within the meaning of the UCL for [a]

21

manufacturer to fail to disclose” such violations on its product packaging. McCoy, 173 F. Supp.

22

3d at 968. The Court concludes Plaintiffs have failed to allege a violation of the unfair prong of

23

the UCL.

24

Accordingly, the Court GRANTS Costco’s motion to dismiss for these reasons as well.

25

3.

26

Costco moves to dismiss the FAL claim on the basis that the FAL does not apply to

The Court Dismisses the FAL Claim.

27

omissions. The FAL states, in part, that “[i]t is unlawful for any ... corporation ... with intent

28

directly or indirectly to dispose of real or personal property... to make or disseminate ... any
16

1

statement ... which is known, or by the exercise of reasonable care should be known, to be untrue

2

or misleading[.]” Cal. Bus. & Prof. Code § 17500. “[M]any courts have held a plaintiff who

3

asserts that a business omitted a material fact in its advertisements, labels, or literature has not

4

stated a claim under the FAL.” Hodson, 162 F. Supp. 3d 1023. However, some courts have

5

concluded otherwise. Id. (citing cases).

6

The Hodson court found these two lines of cases were “not necessarily discordant.” Id. It

7

concluded that if “the crux of a plaintiff’s FAL claim is that the defendant did not make any

8

statement at all about a subject, then a claim under the FAL may not advance.” Id. However, if a

9

plaintiff alleges “the defendant actually made a statement, but omitted information that undercuts
the veracity of the statement,” a claim under the FAL could proceed. Id. Because the plaintiff

11
United States District Court
Northern District of California

10

Hodson alleged the defendant failed “to issue any statement at all” about the alleged labor abuses

12

in its supply chain. Therefore, the court concluded he failed to state a claim for relief and

13

dismissed the FAL claim without leave to amend. Id.

14

In McCoy, the court also found that the plaintiff failed to state a claim under the FAL.

15

McCoy, 173 F. Supp. 3d at 969-70. The court reasoned that the “plain language of the statute --

16

which prohibits making, disseminating, or causing the dissemination of false or misleading

17

statements -- does not encompass omissions.” Id. at 969 (emphasis in original). It then

18

distinguished a number of cases on which the plaintiff relied and concluded those cases either

19

failed to address the issue or involved at least some form of affirmative misrepresentation. Id. at

20

969-70. It concluded, following Hodson, that because the plaintiff’s claims were based solely on

21

omissions, she failed to allege the defendant “‘made or disseminated or caused to be made or

22

disseminated’ any false or misleading statement,” and failed to state a claim under the FAL. Id. at

23

970 (brackets in McCoy omitted).

24

Plaintiffs here have not expressly limited their claims to pure omissions, and although the

25

FAC includes allegations about partial or affirmative representations. However, as the Court has

26

concluded, Plaintiffs do not allege they relied on those statements, and it is clear from the FAC

27

that the crux of their claims is that Costco omitted information about labor abuses in its supply

28

chain from the product packaging. That is, the “focus” of their “claim is on the message that does
17

1

not appear on” Costco’s pr
t
rawn product packaging. Id. at 1024 n.3 (empha in origin
t
.
4
asis
nal). The

2

Court finds the reasoning in McCoy an Hodson pe
e
nd
ersuasive, an it conclud that whe an FAL
nd
des
en

3

cla is based on pure omi
aim
issions, it can
nnot proceed Because P
d.
Plaintiffs’ cl
laims are lim
mited to

4

alle
eged omissio they fail to state a claim under t FAL.
ons,
the
Accord
dingly, the Court GRANT Costco’s motion to d
TS
s
dismiss on th basis as w
his
well.

5
6

C.

The Co
ourt Denies Plaintiffs Leave to Am
L
mend.
In gene
eral, if the all
legations are insufficient to state a c
e
nt
claim, a cour should gran leave to
rt
nt

7
8

mend, unless amendment would be fu
utile. See, e.g Reddy v. L
Litton Indus Inc., 912 F
s.,
F.2d 291,
g.
am

9

296 (9th Cir. 1990); Cook, Perkiss & Liehe, Inc. v. N. Cal. Col
6
L
llection Serv Inc., 911 F
v.,
F.2d 242,
246
6-47 (9th Cir. 1990). Ho
owever, whe a plaintif has previously amende a complai “a
ere
ff
ed
int,

11
United States District Court
Northern District of California

10

dis
strict court’s discretion to deny leave to amend is particularly broad[.]” S
o
e
s
y
Salameh v. T
Tarsadia

12

Ho 726 F.3d 1124, 1133 (9th Cir. 2013). In its previous Or
otel,
d
3
rder, the dism
missed solely on the
y

13

bas of standin Howeve the Defen
sis
ng.
er,
ndants each r
raised many of the same arguments i their
in

14

original motion to dismiss that they ha raised in their renew motions to dismiss. In light of
ns
s
ave
n
wed

15

the Court’s ruli on the is
e
ing
ssue of duty, and given P
Plaintiffs’ co
onsistent repr
resentations in the

16

original Compl
laint and the FAC that th reliance was based o product p
e
heir
on
packaging, ra
ather than on
n

17

any of Costco’s statements in other con
y
s
ntexts, the C
Court conclud it would be futile to grant
des
d

18

Pla
aintiffs further leave to amend.
a
CONCLU
USION

19

For the foregoing re
easons, the Court GRAN the mot
C
NTS
tions to dism
miss, and it d
dismisses the

20
21

cla
aims with pre
ejudice. The Court shall enter a sepa
e
l
arate judgme and the Clerk shall c
ent,
close the

22

file
e.

23
24
25
26

IT IS SO ORDER
S
RED.
Da
ated: January 24, 2017
y
___
__________
___________
__________
________
JEF
FFREY S. W
WHITE
Un
nited States D
District Judg
ge

27
28
18
8