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First Circuit Rejects Boundless Consumer-Protection Liability for “Pure Omissions”

Increasingly, consumers base their purchase decisions on facts about a company or its product that have nothing to do with the performance or quality of the product itself.  For example, does the manufacturer treat its workforce fairly?  Is it a responsible steward of the environment?  What are its stances on social issues like abortion or LGBTQ rights?  To which parties or candidates does it (or its officers) donate?  All of these facts—and countless others—are “material” to many consumers in the sense that they affect (or even dictate) purchase decisions.  Indeed, in recent years, ethical, moral, and political concerns like these have led to countless instances of boycotts and other forms of consumer speech—a welcome sign of a healthy body politic and liberal democracy.

But does the “materiality” of this information mean that manufacturers must affirmatively disclose it to consumers, under penalty of liability for consumer-protection violations?  In several recent cases, creative plaintiffs’ lawyers have argued just that.  Attempting to import the same materiality standard from affirmative-misrepresentation cases to omissions cases, they have asserted that the failure to make such disclosures at the point of purchase (e.g., in product labeling) constitutes a misleading “omission,” and therefore a deceptive or unfair practice under consumer-protection laws.  Fortunately, courts have almost uniformly rejected such sweeping claims.

The First Circuit’s recent decision in Tomasella v. Nestlé USA, Inc. et al., 962 F.3d 60 (1st Cir. June 16, 2020), is a case in point.  There, the court held, as a matter of law, that plaintiffs could not base a consumer-protection claim on a manufacturer’s failure to affirmatively disclose information about human rights issues in its supply chain.  Tomasella sends a clear message that consumer-protection statutes exist to prevent traditional forms of marketplace deception—not to protect consumers from all moral or ethical offense.  As we explain, a different rule would impose totally unworkable requirements on sellers; would likely harm the very consuming public that these laws are designed to protect; and would raise significant First Amendment concerns.

Case Background

Unfortunately, products imported from abroad are sometimes harvested or produced using problematic labor practices.  The cocoa used to make chocolate is no exception.  Much of the world’s cocoa comes from West Africa, and it is undisputed that child labor is used on some cocoa plantations in this region.  The reasons for this phenomenon are complex, though they include both crippling poverty and sociopolitical instability.  Many child workers are employed by their parents on family cocoa farms as a matter of economic necessity.  Others are allegedly lured by traffickers and held against their will.  Importantly, Western chocolate companies do not operate the farms where these practices occur; instead, they purchase cocoa from importers, who obtain it from local farmers through a complex, multi-level supply chain. 

This issue came to America’s consciousness in 2001, when a series of exposés were published in newspapers across the country.  Later that year, the leading players in the U.S. cocoa industry acknowledged the problem and signed onto the Harkin-Engel Protocol, a voluntary public-private agreement intended to improve labor conditions in the West African cocoa sector.  Although the industry has spent many millions of dollars on programs intended to combat child labor, the phenomenon persists.  None of this is a secret, as a simple Google search for “cocoa labor” makes clear.  Indeed, the leading American chocolate companies publicly address their efforts to combat child labor (and, a fortiori, the problem’s existence) on their corporate websites and in regular public statements.

These statements apparently did not reach Dannell Tomasella, a Massachusetts resident who allegedly purchased chocolate products unaware of the labor practices discussed above.  When she learned about them, she filed a putative class action against three major chocolate companies under Massachusetts’ consumer-protection statute, Mass. Gen. Laws Chapter 93A, and state common law.  Importantly, Tomasella did not assert that the companies had made any false affirmative statements—e.g., that their products were made only with “fair-trade” cocoa.  Her claims depended on the defendants’ asserted omissions alone. 

In particular, Tomasella advanced three theories of liabilityFirst, that the omissions in the defendants’ product labels constituted a “deceptive practice” because reasonable consumers would not have purchased the products had a disclosure been made.  Second, that the defendants’ “undisclosed participation” in supply chains tainted by forced labor was an “unfair practice” because it was immoral or unethical and substantially harmed consumers.  And third, that the defendants were “unjustly enriched” by their alleged wrongful conduct. 

A Massachusetts federal district judge dismissed Tomasella’s claims against each defendant, and in a comprehensive 53-page decision, the First Circuit recently affirmed all three dismissals. 

The First Circuit’s Decision

The First Circuit took it as a given that child labor is “a humanitarian tragedy.”  However, from the outset, it emphasized that the case before it was not about the morality of child labor.  Rather, the case presented “the very narrow question of whether Defendants’ failure to include on the packaging of their chocolate products information regarding upstream labor abuses in their cocoa bean supply chains constitutes an unfair or deceptive business practice within the meaning of [Massachusetts law].”  Slip Op. at 3. 

First, the appellate court addressed Tomasella’s theory that a manufacturer commits a “deceptive practice” merely by failing to disclose some fact that a reasonable consumer would consider important to their purchase decision.  As the First Circuit noted, no case has ever gone so far.  Rather, in demarcating the limits of Chapter 93A, courts have been “guided” by federal agency and court interpretations of the Federal Trade Commission (FTC) Act.  And, in the context of the FTC Act, “omissions” liability has been carefully limited to two scenarios: (i) where the manufacturer has spoken “half-truths” that are technically correct, but misleading by virtue of what they omit; and (ii) where the manufacturer has remained silent “under circumstances that constitute an implied but false representation.” 

No misleading “half-truths” were alleged in this case; rather, as already stated, Tomasella’s claims were based on the manufacturers’ silence alone.  And the FTC has construed the “implied representation” scenario narrowly, as embracing only situations “where a misleading impression arises from the physical appearance of the product, or from the circumstances of a specific transaction, or based on ordinary consumer expectations as to irreducible minimum performance standards of a particular class of good.”  Slip Op. at 22 (cleaned up; emphases added).  None of those things was alleged here either; rather, Tomasella’s misimpression arose from her own preexisting assumption that products are always free from labor abuses in their supply chains unless otherwise stated.

Thus, in the FTC’s terminology, Tomasella’s claims were based on “pure omissions”: i.e., a scenario “[in] which the seller has simply said nothing, in circumstances that do not give any particular meaning to the silence.”  Id. at 24 (quoting In re Int’l Harvester Co., 104 F.T.C. 949, 1059 (1984)).  And such a “pure omission,” the FTC has held, cannot give rise to liability for deceptive trade practices.  Id.  Were the rule otherwise, the concept of actionable omissions would be expanded “virtually beyond limits,” as “[i]ndividual consumers may have erroneous preconceptions about issues as diverse as the entire range of human error, and it would be both impractical and very costly to require corrective information on all such points.”  Id.  Since nothing in Massachusetts’ own jurisprudence contradicted the FTC’s rule on “pure omissions,” the First Circuit followed that rule and held that the mere absence of information about child labor from the defendants’ product labels was not a “deceptive” trade practice.

Next, the First Circuit turned to Tomasella’s theory that the failure to include child-labor disclosures in product labeling was an “unfair” trade practice because it transgressed recognized societal norms and caused substantial harm to consumers.  Here, Tomasella based her societal-norms argument on the federal Tariff Act, which prohibits the importation of goods produced with forced labor, and on certain United Nations resolutions condemning child labor.  However, the First Circuit held that these provisions were too far afield from the actual grievance that Tomasella had raised in her complaint: the defendants’ failure to include information about child labor in their product labels.  Neither the Tariff Act nor either of the U.N. resolutions at issue addressed point-of-sale packaging disclosures, or even consumer deception more broadly.

The fact that the defendants had already made public disclosures about their supply chain on their websites and elsewhere further “mitigate[d] the concern raised that their omission at the point of sale is unethical.” Id. at 46-47.  Thus, “[t]he pleadings [did] not provide any basis on which to conclude that Defendants ha[d] tricked consumers or taken advantage of their assumptions for capital gain.”  Id. at 46.  Nor could Tomasella plausibly plead that Massachusetts consumers experience “substantial injury” as a result of the challenged practices, so as to render them “unfair.”  Indeed, the First Circuit observed, “[t]he hard truth with which society must reckon is that consumers actually benefit from the prevalence of forced child labor in cocoa bean supply chains because it makes chocolate cheaper.”  Id.  (Notably, this last observation was the Court’s own; the defendants did not raise that argument.)

Finally, the Court held, Tomasella’s unjust enrichment theory failed because she had an “adequate” remedy at law—through the consumer-protection statute—even if she failed to plausibly allege a violation of the same.  A plaintiff, in other words, could not use the equitable concept of unjust enrichment to expand the notion of “deceptive” or “unfair” trade practices beyond the scope of those recognized by Chapter 93A.

Our Analysis

Tomasella is a welcome addition to a line of recent decisions that have rejected unbounded “pure omissions” theoriesIndeed, as the First Circuit observed, this was not even the first federal appellate court to reject a “pure omissions” theory on these facts.  Slip Op. at 29 n.14.  Not two years earlier, the Ninth Circuit held that the same chocolate manufacturers had no duty under California’s consumer-protection law to disclose potential labor abuses on West African cocoa farms, because such practices were “not physical defects that affect the central function of the chocolate products.”  Hodsdon v. Mars, Inc., 891 F.3d 857, 860 (9th Cir. 2018); see also, e.g., Barber v. Nestlé USA, Inc., 730 F. App’x 464 (9th Cir. 2018) (relying on similar reasoning to reject a claim based on failure to disclose forced labor in seafood supply chain); Hall v. Sea World Entm’t, Inc., 2015 WL 9659911, *5-7 (S.D. Cal. Dec. 23, 2015) (same as to failure to disclose alleged mistreatment of whales at Sea World).

This is the right legal outcome for several reasons.  For starters, any other result would be completely unworkable.  As the FTC has recognized, “[t]he number of facts that may be material to consumers … is literally infinite.”  Int’l Harvester, 104 F.T.C. at 1059 (emphasis added).  Moreover, those facts are constantly in flux: with each news cycle, consumers come to care about types of information that they might not have found important before.  For a company to anticipate every fact about its business (or its suppliers’ businesses) that might offend consumers during a product’s shelf life would take uncommon foresight.  See Dana v. Hershey Co., 180 F. Supp. 3d 652, 664-65 (N.D. Cal. 2016) (noting the “difficulty of anticipating exactly what information some customers might find material to their purchasing decisions”).  And disclosing all such facts in the “limited surface area of a chocolate wrapper” (or other product packaging) would be a physical impossibility.  Id.  The inevitable result would be a vast increase in liability to manufacturers—assuming it doesn’t literally “bring business in [the affected jurisdiction] to a standstill.”  Bonilla v. Volvo Car Corp., 150 F.3d 62, 70 (1st Cir. 1998) (discussing and rejecting a duty of unlimited disclosure under RICO).

At the same time, as the FTC has recognized, such a legal regime “would very possibly represent a net harm for consumers.”  Int’l Harvester, 104 F.T.C. at 1059.  For starters, the enormous increase in liability would surely raise prices and/or reduce product offerings for all consumers, including those who do not share the moral scruples of plaintiffs like Tomasella.  At the same time, an unbounded disclosure regime would lead to information overload, drowning out disclosures that are truly crucial, such as serious health and safety warnings.  Cf. Air & Liquid Sys. Corp. v. DeVries, 139 S. Ct. 986, 994 (2019) (observing that requiring manufacturers “to imagine and warn about all . . . possible uses [of a product] . . . would impose a difficult and costly burden on manufacturers while simultaneously overwarning users”).

The limited disclosure regime endorsed in Tomasella strikes a much more appropriate balance.  Information that objectively bears on serious safety risks or fundamental performance issues with the product must generally be disclosed.  Beyond that, additional disclosure requirements are up to the legislature—or the free market.   After all, sellers already have “substantial economic incentives to provide consumers with information about their products, as well as to discover what product or process attributes consumers will find appealing.”  Jonathan H. Adler, Compelled Commercial Speech and the Consumer “Right to Know, 58 Ariz. L. Rev. 421, 453-54 (2016).  If there is a real consumer desire for products that conform to particular ethical standards—e.g., sweatshop-free clothing or conflict-free diamonds—businesses will tailor their offerings and product claims to that market.  Consumers who care about these issues can then choose to purchase products that expressly claim to satisfy their ethical preferences and avoid products that don’t.  (Indeed, as the First Circuit noted, chocolate makers already offer “fair-trade” chocolate that Tomasella could have purchased.)  If those express claims are false, purchasers will have a remedy under existing law.  Thus, there is no need to incur the considerable downsides of imposing liability for pure omissions.

Finally, looming in the background of cases like Tomasella are serious constitutional concerns.  It is well-settled that the First Amendment protects the right not to speak, as well as the right to speak.  Thus, compelled speech—including compelled commercial speech—implicates sellers’ First Amendment rights.  At minimum, laws compelling commercial speech must satisfy heightened scrutiny unless the disclosures provide “purely factual and uncontroversial information about the terms under which … [goods or] services will be available.”  Nat’l Inst. of Family & Life Advocates v. Becerra, 138 S. Ct. 2361, 2372 (2018).  The disclosures at issue in Tomasella are hardly “purely factual and uncontroversial,” as they concern a morally charged human-rights issue and seek to impute responsibility for that issue on downstream manufacturers several steps removed from the actual labor abuses.  And it is doubtful that compelled disclosures concerning potential labor practices in one’s indirect supply chain can satisfy heightened scrutiny.  Even assuming such a disclosure requirement concerning practices in West Africa addresses a “substantial” government interest of a state like Massachusetts, the state could advance that interest “without burdening a [private] speaker with unwanted speech”—e.g., through a “public-information campaign.”  Id. at 2376. 

The First Circuit’s decision in Tomasella wisely steers clear of this First Amendment minefield by adopting a reasonably narrow construction of state consumer-protection law.  This limited conception of “omissions” liability provides important protections against true consumer fraud, while giving sellers fair notice of their disclosure obligations and avoiding the “perverse outcomes” associated with imposing a universal disclosure regime.  Int’l Harvester, 104 F.T.C. at 1059.  We find that outcome sweet indeed. 

Disclosure: Patterson Belknap was counsel for The Hershey Company in the Tomasella case and is covering the decision with client authorization.