corporate social responsibility statements: litigation ... · corporate social responsibility...

Corporate Social Responsibility Statements:

Litigation Developments and Minimizing Risk

Presentation to Association of Corporate Counsel, National Capital

Region, April 13, 2016

Andrew S. Tulumello

Jason R. Meltzer

The presentation is for general information purposes and is not intended to be and should not be taken as

legal advice.

<Presentation Title/Client Name>

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Professional Profiles

Jason R. Meltzer 1050 Connecticut Avenue, NW

Washington, DC 20036

Tel: 202.955.8676

[email protected]

Jason R. Meltzer is a senior associate in Gibson Dunn’s Washington, D.C. office. He

is a member of the firm’s Class Actions and Securities Litigation Practice Groups and

has experience in a wide range of complex commercial litigation, with an emphasis

on consumer products and securities class action defense.

Andrew (“Drew”) Tulumello is Co-Partner-in-Charge of Gibson Dunn’s Washington,

D.C. office. He is Co-Chair of the firm’s Class Actions Practice Group and Co-Chair

of its Sports Law Practice Group. Mr. Tulumello has extensive experience defending

class actions at both the trial and appellate levels.

Andrew S. Tulumello 1050 Connecticut Avenue, NW


Tel: 202.955.8657

[email protected]


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Corporate Social Responsibility Statements


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Recent Developments In CSR Litigation Consumer Protection Lawsuits

• Ruiz v. Darigold, Inc., No. C14-1283 RSL (W.D. Wash., Nov. 3, 2014)

• Barber v. Nestle USA, Inc., No. 15-cv-01364 (C.D. Cal. Dec. 9, 2015)

• Hodson v. Mars, Inc., No. 15-cv-0440 (N.D. Cal. Feb. 17, 2016)

• Wirth v. Mars, Inc., No. 15-cv-1470 (C.D. Cal. Feb. 5, 2016)

• NCL v. Wal-Mart, JC Penney and The Children’s Place, No. 2015 CA 007731 B (D.C.

Super.), filed Oct. 8, 2015

Section 220 Books & Records Activity

• LAMPERS v. The Hershey Company, No. 7996 (Del. Ch. Mar. 19, 2014)

Securities Fraud Lawsuits

• In re Yum! Brands, Inc. Securities Litigation, 73 F. Supp. 3d 846 (W.D. Ky. 2014), aff’d

Bondali v. Yum! Brands, 620 Fed. Appx. 483 (6th Cir. Aug. 20, 2015)

• In re BP PLC, Sec. Litig., No. 4:12-cv-1256 (S.D. Tex., Dec. 5, 2013)

AG Investigations

• Exxon Mobile Subpoena (NYS Attorney General, November 4, 2015)

• Peabody Energy Settlement (NYS Attorney General, November 9, 2015)


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• CSR statements are typically contained in Sustainability Reports,

Employee Codes of Conduct, Supplier Codes, Statements of

Ethics/Principles and Commitments to Human Rights

documents.

• Often made pursuant to Global Reporting Initiative (GRI),

Sustainability Accounting Standards Board (SASB), and

International Integrated Reporting Council (IIRC) models and

standards.

• Sometimes included in securities filings and other public

statements to address investor interests.


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• Issues discussed include environmental sustainability, human

rights, responsible sourcing, compliance with applicable laws and

commitments to ethics.

• Statements sometimes respond to growing investor or consumer

interest in CSR issues (i.e., PWC, Forbes, and Nielsen studies).

• California Transparency In Supply Chains Act of 2010, Cal. Civ.

Code § 1714.43, requires retailers to disclose supply chain efforts

to combat human trafficking and forced labor.

• U.K. Modern Slavery Act 2015, requires companies to disclose

steps taken to ensure slavery and human trafficking are not

occurring in their supply chains or businesses.


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Recent Developments In CSR Litigation

Consumer Protection Lawsuits

1. Ruiz v. Darigold, Inc., (W.D. Wash.,

Nov. 3, 2014)

2. Barber v. Nestle USA, Inc., (C.D.

Cal. Dec. 9, 2015)

3. Hodson v. Mars, Inc., (N.D. Cal.

Feb. 17, 2016)

4. Wirth v. Mars, Inc., (C.D. Cal. Feb.

5, 2016)

5. National Consumers League v. Wal-

Mart, JC Penney and The

Children’s Place, (D.C. Super.),

filed Oct. 8, 2015


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Ruiz v. Darigold, Inc./Northwest Dairy Ass’n , No.

No. C14-1283 (W.D. Wash.) – Complaint

• Challenged statements in CSR Report

suggesting workers and cows were treated

“with respect and in compliance with the

law.”

• Relied on examples of wage and other

lawsuits and complaints by Darigold

workers alleging that workers and cows

were mistreated.

• Claimed plaintiffs would not have purchased

Darigold products had they not been misled

by the report.



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Ruiz v. Darigold, Inc./Northwest Dairy Ass’n, No.

No. C14-1283 (W.D. Wash.) – Complaint Challenged statements included:

• Darigold’s “employment policies and practices demonstrate [its]

commitment to fair treatment of all employees wherever [it] operates”

and “at a minimum, [it] complies with local, state and federal laws.”

• “Our farmers’ dedication to producing high quality milk begins with

world class animal care;” they provide “healthy living conditions” for

cows; and follow a “rigorous quality assurance program to ensure

food safety and the highest quality products.”

• “The performance levels of . . . farmers are excellent” and “among

the most responsible in the nation with regard to animal well-being.”



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Ruiz v. Darigold, Inc., No. C14-1283 (W.D. Wash.

Nov. 3, 2014) – Motion To Dismiss Granted

• “[I]n order to construe the CSR [Report] as a guarantee of

perfection . . . plaintiffs ignore the vast majority of the report, its

purpose, and its structure . . . .”

• “A reasonable consumer would not be deceived or misled into

believing that Darigold or its member farms had a perfect track

record on worker rights or animal health.”

• When read in context, the challenged statements were

“aspirational statements” or were not shown to be “false in any

material respect.”



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Barber v. Nestlé USA, Inc., No. 15-cv-01364 (C.D.

Cal.) – Complaint

• Challenged Nestlé’s failure to disclose the use

of slave labor to provide fish for Fancy Feast

cat food.

• Relied on a New York Times article claiming

Fancy Feast contained fish caught by

indentured servants working on fishing boats

in waters between Thailand and Indonesia.

• Plaintiffs sought additional disclosures

regarding the use of slave labor in Nestlé’s

supply chain.



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Cal.) – Complaint

Challenged CSR website statements in Nestlé’s Corporate Business Principles,

Corporate Supplier Code, Responsible Sourcing Guidelines, and Nestle In

Society Report, including:

• “Nestlé requires its suppliers, agents, subcontractors and their employees to

demonstrate honesty, integrity and fairness, and to adhere to the Nestlé

Supplier Code of Conduct.”

• “Nestlé expects the Supplier to adhere to all applicable laws and regulations

. . . and strive to comply with international and industry standards and best

practices.”

• “Nestlé reserves the right to verify compliance with the Supplier Code.”

• “The Supplier must under no circumstances use, or in any other way benefit,

from forced labor.”



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Cal. Dec. 9, 2015) – Dismissal With Prejudice

• Proposed additional disclosures were inconsistent with California’s

Transparency in Supply Chains Act of 2010, which provides safe harbor

against additional disclosures regarding the topics enumerated in § 1714.43.

• The CSR statements challenged merely “were aspirational and when read in

context were actually a nuanced and correct summary of [Nestlé’s] efforts to

combat forced labor.”

• Nestlé’s Supplier Code “makes clear that Nestle ‘asks its suppliers . . . to

comply with its requirements” and the Code “sets forth expectations for

suppliers.”

• “No reasonable consumer who reads the four documents could conclude that

Nestlé’s suppliers comply with Nestlé’s requirements in all circumstances.”



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Hodson v. Mars, Inc./Mars Chocolate N.A., LLC ,

No. 15-0440 (N.D. Cal.) – Complaint

• Alleged omissions and misstatements

regarding forced and child labor used

in West Africa to source cocoa for

chocolate products.

• Relied on news reports documenting

plight of laborers, including children.

• Cited commitments over the past

decade by Chocolate Manufacturers

Association to enforce standards and

certifications preventing forced labor.



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Hodson v. Mars, Inc./Mars Chocolate N.A., LLC ,

No. 15-0440 (N.D. Cal.) – Complaint

• Complained that Chocolate Manufacturer’s Association and Mars

failed to honor their commitments to ethical sourcing practices.

• Alleged Mars had an affirmative duty to disclose forced labor in its

supply chain, in light of partial disclosures to the contrary.

• Challenged statements that: (1) “Freedom” is one of the company’s

five Human Rights principles; (2) “each supplier confirms that it

complies with the legal requirements and standards of its industry”;

and (3) Mars has the right to audit third-party suppliers.

• Cited studies reflecting consumer willingness to pay a premium for

products certified as “Fair Trade,” or “Good Working Conditions.”



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Hodson v. Mars, Inc., No. 15-0440 (N.D. Cal. Feb.

17, 2016) – Dismissal With Prejudice

• Plaintiff abandoned his CSR statement challenges during briefing.

• “The terrible reality of labor practices in the cocoa fields of Côte

d’Ivoire notwithstanding, the FAL, UCL, and CLRA do not require

the disclosure Hodson seeks.”

• “No information about the Ivoirian cocoa farms’ labor practices in

Mars’s supply chain appears on the labels or advertisements for most

of Mars’s chocolate products.”

• “[M]anufacturers are duty-bound to disclose only information about a

product’s safety risks and product defects. The duty to disclose does

not extend to situations, as here, where information may persuade a

consumer to make different purchasing decisions.”



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Wirth v. Mars, Inc., Mars Petcare US, and Iams

Co., No. 15-cv-1470 (C.D. Cal.) - Complaint

• Challenged Mars’s failure to disclose the use

of slave labor to provide fish for Iams cat food.

• Relied on New York Times article claiming

Iams contained fish caught by indentured

servants working on fishing boats in waters

between Thailand and Indonesia.

• Sought additional disclosures regarding the use

of slave labor in Mars’s supply chain.

• Challenged the same CSR statements

challenged in the Hodson/Mars chocolate case.


http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwiC9_SDkLXLAhVU4mMKHXZZBk0QjRwIBw&url=http%3A%2F%2Fwww.mavenofsavin.com%2Fiams-wet-cat-food-coupons-free-target-walmart%2F&psig=AFQjCNEjsLSsb5oWLTkoFcSWa-BsSQvBYQ&ust=1457665116896063


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Wirth v. Mars, Inc., et al., No. 15-cv-1470 (C.D.

Cal. Feb. 5, 2016) – Dismissal With Prejudice

• “The Court agrees with Plaintiffs that ‘labor practices,’ including the

allegations here concerning forced labor in the supply chain, ‘do

matter in making consumer choices.’”

• “But it does not follow that Defendants have a duty to disclose the

nature of these labor practices – along with every other piece of

information that consumers deem important – when making

purchases.”

• “Absent any allegations concerning misrepresentations, the Court

cannot conclude Defendants had an independent and broad duty to

disclose information concerning the possibility of forced labor to

consumers.”



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NCL v. Wal-Mart, JCPenney and The Children’s

Place, (D.C. Super.) – Complaint

• Challenges statements in codes of conduct and

standards for suppliers about supply chain factory

safety and working conditions, and processes for

auditing third-party suppliers for compliance.

• Claims statements were false or misleading based on

a building collapse in Bangladesh in April 2013 that

killed more than 1,000 people and injured more than

2,500.

• Alleges the retailers sourced garments from

factories in the collapsed building, but failed to

honor commitments regarding safety and audits.



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NCL v. Wal-Mart, JCPenney and The Children’s

Place, (D.C. Super.) - Complaint

• Cites to various accidents (mostly fires) at Bangladesh garment

factories over a decade to support claim that defendants should have

known Bangladesh garment factories were unsafe.

• Claims defendants should have known that Bangladesh factories

required significant oversight and auditing.

• Cites studies suggesting CSR issues are important to consumers and

can impact purchase decisions, particularly where representations are

part of labeling or advertising. (Studies focus on environmental

sustainability and treating company employees well).



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1. Louisiana Municipal Police Employees’ Retirement System

(LAMPERS) v. The Hershey Company, No. 7996 (Del. Ch.

Mar. 19, 2014)


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LAMPERS v. The Hershey Company, No. 7996

(Del. Ch.) – Complaint

• Demand and complaint for inspection

pursuant to 8 Del. C.§220 based on

belief that Hershey’s BOD permitted the

unlawful use of child labor in its

business model.

• Focuses on violation of child labor laws

in Ghana and Ivory Coast.

• Alleges violations of the California

Transparency in Supply Chains Act.



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LAMPERS v. The Hershey Company, (Del. Ch.

Mar. 18, 2014) – Motion to Dismiss Denied

• “In 2001 Hershey…signed the Harkin-Engel Protocol, which

established a goal of eliminating the worst forms of child labor in

the cocoa sectors in Ghana and the Ivory Coast.”

• “On October 3, 2011, Hershey’s announced that it would certify that

its chocolate products were free of cocoa tainted with child labor

and human trafficking violations by 2020.”

• “I think from all this, it is quite reasonable to infer…that right now

Hershey’s has to acknowledge that some of its cocoa is produced

through child labor as a result of individuals who were the victims

of human trafficking.”



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LAMPERS v. The Hershey Company, (Del. Ch.

Mar. 18, 2014) – Motion to Dismiss Denied

• “One possible inference…is that Hershey’s cocoa sustainability

efforts, which admittedly and necessarily put Hershey in contact

with farmers in West Africa, results in Hershey knowing of instances

involving the use of trafficked children on cocoa farms in Ghana

that would have triggered the duty to inform.”

• “[T]he allegations…support a reasonable inference that Hershey’s

products contain cocoa and cocoa-derived ingredients that were the

result of child labor and human trafficking.”

• “There’s also a reasonable inference . . . that the board knows some

of its cocoa and cocoa-derived ingredients are sourced from farms

that exploit child labor and use trafficked persons.”



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1. In re Yum! Brands, Inc. Securities Litigation, 73 F. Supp. 3d

846 (W.D. Ky. 2014), aff’d sub nom Bondali v. Yum! Brands,

Inc., 620 Fed. Appx. 483 (6th Cir. Aug. 20, 2015)

2. In re BP PLC, Securities Litigation, No. 4:12-cv-1256, 2013

WL 6383968 (S.D. Tex., Dec. 5, 2013)


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In re Yum! Brands, Inc. Securities Litigation , No.

13-CV-00463 (W.D. Ky.) - Complaint

• Yum! previously had problems with food

safety in 2005-2008 and made CSR and

other safety statements in response.

• In 2012, reports surfaced regarding supply

chain food safety problems, and investors

filed suit.

• Brought Section 10(b) and 20(a) Exchange

Act claims against Yum! challenging

statements about supply chain food safety

measures and audits.



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In re Yum! Brands, Inc. Securities Litigation , No.

13-CV-00463 (W.D. Ky.) - Complaint

Challenged representations:

1. in 10-Ks and other filings about standards for suppliers,

conducting business in an ethical manner, and adherence to

strict food quality and safety standards.

2. in Yum!’s Code of Conduct stating that “food safety is a

primary responsibility . . . and nothing, including cost, is

allowed to interfere,” and “Yum maintains strict specifications

for raw products,” “adheres to a strict food safety program,” and

“continually monitors and improves its procedures and practices

to ensure food safety.”



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In re Yum! Brands Sec. Litig., 73 F. Supp. 3d 846

(W.D. Ky. 2014) – Dismissal with Prejudice

• The statements were “too squishy, too untethered to anything

measurable, to communicate anything that a reasonable person would

deem important to a securities investment decision.”

• “[V]ague, subjective assertions, such as ‘strict’ food safety standards,

watching food safety ‘very closely,’ having the ‘right’ suppliers and

eliminating ‘inferior suppliers,’ constituted the mere opinions of

management and hold no obvious, objective meaning to a reasonable

investor.”

• “The adoption of a code of conduct does not imply that a corporation

or its employees always comply with the code’s guidelines.”



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Bondali v. Yum! Brands, Inc., 620 Fed. Appx. 483

(6th Cir. Aug. 20, 2015) – Dismissal Affirmed

• “[T]hat a few suppliers did not adhere to the standards does not mean

Yum did not have the standards in place, and it is not reasonable to

interpret Yum’s statements as a guarantee that its suppliers would, in all

instances, abide by the corporate standards and protocols.”

• “A code of conduct is not a guarantee that a corporation will adhere to

everything set forth,” but rather “a declaration of corporate

aspirations.”

• “[T]o treat a corporate code of conduct as a statement of what a

corporation will do, rather than what a corporation aspires to do, would

turn the purpose of a code of conduct on its head.”



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In re BP PLC, Securities Litigation, No. 4:12-cv-

1256 (S.D. Tex.) - Complaint

• Following 2005 explosion at Texas

refinery, BP made numerous statements

about safety reform efforts, including in

sustainability reports.

• After Deepwater Horizon explosion and

spill in 2010, investors filed suit.

• Brought Section 10(b) and 20(a) Exchange

Act claims against BP challenging

statements about safety efforts, spill

preparedness and response capabilities.



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1256 (S.D. Tex., Dec. 5, 2013) – Dismissed In-Part

• Plaintiffs adequately alleged falsity for statements in BP’s

Sustainability Reviews and Reports about implementing its safety

operations management systems (OMS), including:

– “OMS covers all aspects of our operations” and “will apply to all

operations by the end of 2010.”

– “OMS is a cornerstone of achieving safe, reliable and

responsible operations at every BP operation.”

– “Operating facilities have the capacity and resources to respond

to spill incidents.”



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1256 (S.D. Tex., Dec. 5, 2013) – Dismissed In-Part

• Plaintiffs alleged that annual sustainability reports on BP’s website

were “intended to reach shareholders and the investing public.”

• The “forward looking statements” doctrine was inapplicable because

the statements were “not predictions of future events,” but rather

“statements of existing fact.”

• The “bespeaks caution” doctrine did not apply because “cautionary

language” was “not sufficient” to render the statements immaterial.

• Vague statements about beginning to roll out OMS system were “too

general and ephemeral” to support a theory of falsity.



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State AG Investigations

• Exxon Mobile (NYAG)

• Peabody Energy (NYAG)


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Exxon Mobile Climate Change Investigation

(November 2015)

• Subpoena issued to Exxon in

November 2015.

• Investigation focuses on climate

change and fossil fuel environmental

effects.

• Seeks a wide variety of records dating

back to January 1977.



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Exxon Mobile Climate Change Investigation

(November 2015)


• Exxon suspected of funding outside groups to undermine

climate change science, while its in-house scientists

outlined potential consequences to company executives.

• Exxon stated that it “unequivocally reject[s] the allegations

that Exxon Mobil has suppressed climate change research.”

• Other states, including Massachusetts, California and

Vermont have recently joined the investigation.


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• Investigation launched in 2007 under NYAG Cuomo. Renewed

in 2013 with new demands for information from Peabody.

• Focused on statements denying Peabody’s ability to predict the

impact of climate change and increased regulation on its

business.

• Based on allegations that the company and its consultants

internally projected severe impacts from potential regulations.

Peabody Energy Climate Change Settlement

(November 2015)


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• In November 2015, Peabody and NYAG announced a settlement.

• NYAG press release stated that Peabody violated New York laws

prohibiting false and misleading conduct in the company’s

statements to the public and investors about climate change risks

and potential regulatory responses.

• Peabody agreed to revise its disclosures to more fully outline the

impact of potential climate change regulations on its business to

end the investigation.

• The settlement does not include any monetary relief or penalties,

or criminal charges.

Peabody Energy Climate Change Settlement


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Recent Developments In CSR Litigation Consumer Protection Lawsuits

• Ruiz v. Darigold, Inc., No. C14-1283 RSL (W.D. Wash., Nov. 3, 2014)

• Barber v. Nestle USA, Inc., No. 15-cv-01364 (C.D. Cal. Dec. 9, 2015)

• Hodson v. Mars, Inc., No. 15-cv-0440 (N.D. Cal. Feb. 17, 2016)

• Wirth v. Mars, Inc., No. 15-cv-1470 (C.D. Cal. Feb. 5, 2016)

• NCL v. Wal-Mart, JC Penney and The Children’s Place, No. 2015 CA 007731 B (D.C. Super.),

filed Oct. 8, 2015


• LAMPERS v. The Hershey Company, No. 7996 (Del. Ch. Mar. 19, 2014)


• In re Yum! Brands, Inc. Securities Litigation, 73 F. Supp. 3d 846 (W.D. Ky. 2014), aff’d

Bondali v. Yum! Brands, 620 Fed. Appx. 483 (6th Cir. Aug. 20, 2015)

• In re BP PLC, Sec. Litig., No. 4:12-cv-1256 (S.D. Tex., Dec. 5, 2013)

AG Investigations

• Exxon Mobile Subpoena (NYS Attorney General, November 4, 2015)

• Peabody Energy Settlement (NYS Attorney General, November 9, 2015)


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CSR Statements: Minimizing Risk

The Path Forward – Best Practices

• Include disclaimer language where CSR initiatives and codes of

conduct are described, noting that initiatives and standards are

not guarantees or promises that all goals will be met and all

policies followed.

• Review CSR statements for overstatements, misstatements, or

concrete statements about initiatives that might be rendered

misleading by an adverse supplier or other event.

• Understand that regulators may target statements relating to “hot

topics” of social concern.

• Avoid promises to hit specific CSR targets by certain dates.


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• Keep statements aspirational and forward looking.

• Favor words like “should,” “expect,” or “strive,” as opposed to

assertions that the company, its employees, or its suppliers

“are” in compliance or “do” comply” with applicable laws and

standards.

• Favor words like “aspires” rather than “promises” or

“guarantees” to meet targets or standards.

• Talk about “estimates” or “approximations” in terms of

measuring progress on sustainability and other goals where

possible, as opposed to stating concrete measurements.




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• Generally, keep statements regarding CSR initiatives out of

securities and other public filings directed to shareholders.

• Be very careful about discussing CSR initiatives on product

packaging

• Understand that CSR statements are riskiest when included in

SEC filings or on product labels. Website statements may still

be risky, particularly where products are sold through

websites.

• Avoid suggesting that CSR initiatives and statements are

“material” to the company, investors, or consumers.




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• Educate individuals responsible for updating CSR documents

about the growing risk of lawsuits and investigations based on

alleged misstatements.

• Confirm company has adequate diligence procedures in place

with respect to information in sustainability, GRI and other

reports about progress on CSR goals.

• Consider internal and external auditors for concrete facts or

numbers listed in CSR documents and reports.

• Members of legal department should review draft public

facing CSR statements.




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44

Professional Profiles

Jason R. Meltzer 1050 Connecticut Avenue, NW


Tel: 202.955.8676

[email protected]

Jason R. Meltzer is a senior associate in Gibson Dunn’s Washington, D.C. office. He

is a member of the firm’s Class Actions and Securities Litigation Practice Groups and

has experience in a wide range of complex commercial litigation, with an emphasis

on consumer products and securities class action defense.

Andrew (“Drew”) Tulumello is Co-Partner-in-Charge of Gibson Dunn’s Washington,

D.C. office. He is Co-Chair of the firm’s Class Actions Practice Group and Co-Chair

of its Sports Law Practice Group. Mr. Tulumello has extensive experience defending

class actions at both the trial and appellate levels.

Andrew S. Tulumello 1050 Connecticut Avenue, NW


Tel: 202.955.8657

[email protected]

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