In 2010, the State of California enacted the California Transparency in Supply Chains Act. See Cal. Civ. Code, § 1714.43. The General Assembly took note of the fact that de facto slave labor is common in some parts of the world and that products and raw materials resulting from slave labor end up in products sold to American consumers. To help eradicate slave labor from supply chains, the Act required large retailers and manufacturers — those with sales exceeding $100 million — doing business in California to disclose information regarding their efforts to eradicate human trafficking and slavery within their supply chains on their website or, if a company does not have a website, through written disclosures. See California Attorney General information page here.

One legal question generated by passage of the Act was whether San Diego businesses could be compelled to provide labeling on their products with respect to slave labor. The Act itself does not require labeling, but in 2015, a consumer advocate filed suit in Federal court against candy-maker Mars, Inc. arguing that other California laws combined with the Act required labeling with respect to child and slave labor. See Hodsdon v. Mars, Inc., 162 F. Supp. 3d 1016 (US Dist. Court, ND California 2016).

Even though the Supply Chains Act does not apply to most San Diego businesses, the case provides a reminder about labeling requirements under California statutes and case law. Here is a quick rundown on the Hodsdon case. Note that there are pending unresolved Court of Appeals cases involving Nestle USA, Inc. and The Hershey Co.

San Diego Corporate Law: California Product Labeling and Hodsdon Case

In Hodsdon case, the plaintiff — on behalf of his desired class of consumer plaintiffs — alleged that child and slave labor was used in picking cocoa beans that are the raw ingredient for making chocolate. The plaintiff — Hodsdon — asserted that child labor was used to pick the beans, that the working conditions amounted to “forced labor,” that some children were sold by their parents to traffickers, some children were kidnapped and then sold to the cocoa production farms, and that others willingly or unwillingly ended up as victims of the slave-traders who sell slaves to the farms. The defendant, Mars, Inc., admitted that its supply chain was probably tainted by cocoa beans that were produced on farms using child and slave labor. However, Mars, Inc. also claimed that it was in compliance with the Supply Chains Act because Mars does disclose on its website its efforts to combat slavery and labor abuses in its supply chain.

Hodsdon brought his lawsuit under three California laws — the Consumers Legal Remedies Act, the Unfair Competition Law, and the False Advertising Law. Under his theory, Mars has a duty to disclose on its candy bar labels the child and slave labor practices that very likely taint its supply chain. For purposes of his lawsuit, Hodsdon alleged only that Mars, Inc. failed to disclose. That is, Hodsdon did not allege any affirmative misstatement by Mars.

In the lower court, the trial judge dismissed Hodsdon’s case because, according to the court, California law does not require labeling and disclosure of information if there is no positive misstatement that must be corrected, if there is no safety hazard or defect, and/or unless the law specifically imposes a duty to disclose. In the case of slave/child labor, there is no California law that mandates disclosure on product labels. The Supply Chains Act only requires disclosures on websites and in printed literature, but not on product labels. Since Hodsdon did not allege any active misstatement of fact, there was no duty to disclose corrective information on product labels. The trial court also rejected the argument that labeling was required because the child/slave labor component made the products “defective.” Even if proven, child/slave labor in the chocolate supply chain did not create physical defects or safety hazards in the candy products that would mandate “safety warning” labels. In early June 2018, the Court of Appeals for the Ninth Circuit affirmed in all respects. See here.

San Diego Corporate Law: Lessons

Hodsdon is a reminder that there is a complex array of legal requirements with respect to manufacturing products and various mandated labeling. At the same time, product labeling can be a minefield of potential legal liability if the labeling is deceptive or not truthful. “Made In USA” labels are a good example. If you have questions about proper product labels, a good San Diego corporate attorney can help.

Contact San Diego Corporate Law

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides a full panoply of legal services for San Diego and California businesses. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard has — for the fourth year — been honored as “Best of the Bar” by the San Diego Business Journal for 2018.

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