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May 12, 2016

Lit Alerts—May 2016

A publication of the Litigation Practice Group
In This Issue:

Consumer Litigation: California District Court Dismisses Child Slave Labor Disclosure Claims Against Chocolatiers

US Magistrate Judge Joseph C. Spero granted motions to dismiss filed by two famous chocolatiers facing putative class actions for alleged unethical supply chain practices on March 29, 2016. The plaintiffs alleged Nestle USA Inc. and The Hershey Company failed to disclose on their products' labels that "child slaves" in the Ivory Coast harvested cocoa beans used in their products. The plaintiffs claimed that nondisclosure violated California's Unfair Competition Law, Consumers Legal Remedies Act, and False Advertising Law.

In two similar opinions, the court held that "[a] duty to disclose under California law does not extend to all information that may persuade a consumer to make different purchasing decisions" and that the defendants were only required to disclose "issues of product safety, unless disclosure is necessary to counter an affirmative misrepresentation." The plaintiffs also failed to state a claim under the False Advertising Law because they alleged "pure omissions," rather than false or misleading statements.

Earlier this year, Judge Richard Seeborg dismissed a similar suit brought against Mars, Inc.

Personal Jurisdiction: Delaware Supreme Court Rules that Registration Statute Does Not Confer General Jurisdiction Over Defendant Corporation

Delaware requires foreign corporations doing business in Delaware to register with the Secretary of State and to agree that "[a]ll process issued out of any court of this State . . . may be served on the registered agent of the corporation . . . ." Since the 1980s, federal and state courts had held that a foreign corporation's appointment of a registered agent to accept service of process, as required by Delaware's registration statute, constitutes an implicit consent to general jurisdiction in Delaware.

Last month, Delaware's Supreme Court departed from these decisions. It reasoned that the canon of constitutional avoidance required it to interpret the registration statute more narrowly in light of the United States Supreme Court's recent decisions in Goodyear and Daimler, which held that corporations are usually only subject to general jurisdiction in places where they are "essentially at home." Instead, the court ruled the registration statute "can be given a sensible reading by construing it as requiring a foreign corporation to allow service of process to be made upon it in a convenient way in proper cases, but not as a consent to general jurisdiction."

In so doing, the court joined courts in Indiana, New Jersey, New York, and other states that have similarly declined to interpret state registration statutes as evidencing consent to general jurisdiction.

Class Actions: Supreme Court Permits Averaging of Classwide Injury in FLSA Action

In Tyson Foods, Inc. v. Bouaphakeo, 577 U.S. __, No. 14-1146 (Mar. 22, 2016), the Supreme Court held that the US District Court for the Northern District of Iowa did not err in allowing plaintiffs to rely on representative and statistical evidence to establish classwide liability, holding that class members can rely on such evidence as long as each could have relied on the evidence to establish liability had he or she brought an individual action. In this case, the Court explained, a special evidentiary rule for FLSA actions would have enabled the plaintiffs to rely individually on the statistical study because Tyson had violated its statutory duty to maintain proper records. Of note, Tyson carefully distinguishes Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), cautioning that "Wal-Mart does not stand for the broad proposition that a representative sample is an impermissible means of establishing class-wide liability."

Because the damages award had not yet been disbursed, the Court declined to consider Tyson's argument that the plaintiffs had failed to demonstrate a mechanism that would ensure that uninjured class members would not recover damages. Significantly, however, the Court noted in dicta that the problem "appears to be one of petitioner's own making" because Tyson had objected to the plaintiffs' suggested bifurcation of the liability and damages phases of the trial.

Although Tyson represents a victory for class-action plaintiffs, it does not permit unfettered use of statistical evidence to prove classwide liability and outlines a path forward for defendants to challenge the use of such evidence in class actions. The Court highlighted the "great importance" of preventing recovery by uninjured class members, suggesting that a strong argument can be made for overturning class certifications in cases where broadly defined classes mean liability determinations may not eliminate all uninjured parties. At the same time, Tyson's reference to invited error underscores that defendants must timely object to attempts by plaintiffs to use procedures that might otherwise permit uninjured persons to recover from prospective damages awards.

For more information, please contact your Arnold & Porter attorney or one of the attorneys listed below.