SAN FRANCISCO (CN) — A Ninth Circuit judge indicated Tuesday she might favor reviving a lawsuit accusing Costco of misleading consumers about slave labor in its supply chain for prawns.
Reversing dismissal of the Costco suit would be a stark departure from another recent Ninth Circuit ruling, Hodson v. Mars, which found companies have no duty to disclose the use of slave labor in their supply chains.
Ninth Circuit Judge Mary Schroeder admonished a Costco lawyer during oral arguments Tuesday: “You may be losing one member of the panel here in trying to say you can publicly announce you have a code of conduct that means you don’t tolerate this kind of thing, that that nevertheless means you’re not representing that you try to police it.”
Costco says that its code of conduct on its website, which “prohibits human rights abuses” in its supply chain, does not guarantee that its products are untainted by slave labor.
The corporate policy does not mean “there are never any instances in which there’s a violation of that code of conduct,” Costco attorney Craig Stewart told the Ninth Circuit panel Tuesday.
Lead plaintiff Monica Sud sued Costco in August 2015 after The Associated Press published a Pulitzer prize-winning investigation of the widespread use of slave labor in Southeast Asia’s multibillion-dollar fishing industry.
Plaintiff’s lawyer Derek Howard told the Ninth Circuit that the Costco case is distinct from Mars: it’s about an affirmative misrepresentation, not an act of omission, he said.
“Mars was strictly an omission case,” Howard said. “Costco was representing to the public that there was no taint in its supply chain.”
Asked if Costco’s code of conduct is an “affirmative representation” or an “aspirational statement,” Howard said that’s a question of fact that must be decided at trial.
Ninth Circuit Judge Ronald Gould posed a hypothetical question: If Costco stated in its policy that it does not tolerate bribery, but someone in its supply chain bribed a local official, would that make the company liable for misleading consumers?
Howard replied that Costco would not be liable for the “lone act” of one individual, but when it comes to buying prawns tainted by slave labor, “the Costco machinery is engaged in importing billions of dollars of seafood.”
“I don’t see it comparable or feasible that with this amount of commerce, Costco is not aware,” Howard said. “We contend that Costco knows exactly what’s going on.”
U.S. District Judge Jeffery White dismissed Sud’s suit against Costco with prejudice in January 2017. White found that because Sud failed to claim she had read the company’s code of conduct before buying prawns, she could not have relied on the allegedly false and misleading statement.
Costco’s lawyer argued that the dismissal must be upheld because plaintiffs can’t sue over a misrepresentation that they never saw or relied on.
“If they didn’t see it, they couldn’t possibly have been misled by it,” Stewart said.
Howard countered that his client can sue Costco for future purchases of prawn products because as a Costco member, she has the right to buy prawns “with the confidence that she is not suffering from a misrepresentation.”
Costco attorney Stewart said there are no facts to support that claim. He said the plaintiffs are making “a leap” based on news reports that revealed some fishing vessels off the coast of Thailand use slave labor.
“There’s no basis for thinking that every prawn that comes out of Thailand is tainted by whatever degree of human trafficking and slave labor,” Stewart told the appeals court.
According to Costco’s code of conduct, when it discovers a violation of its supply standards, the company “will respond in a manner commensurate with the nature and extent of the violation,” which may result in a remediation plan or termination of the supplier.
Stewart told the Ninth Circuit Tuesday that Costco prefers “working with the supplier to correct the violations, rather than immediately terminating the relationship.”
Judge Schroeder replied: “In other words, you’re going to tolerate this kind of thing.”
Stewart: “We’re going to work with our suppliers to remedy the problem.”
The panel asked both sides to submit 7-page briefs within 21 days on how the recent ruling in Hodson v. Mars affects the Costco case.
Visiting Fourth Circuit Judge Albert Diaz joined Schroeder and Gould on the panel. All three circuit judges were appointed by Democratic presidents.