District Court Denies Nestle's Motion to Dismiss False Advertising Class Action Based on Alleged Child Labor in Cocoa Supply Chain

Late last week, the United States District Court for the Southern District of California denied a motion to dismiss a putative class action alleging that Nestle had falsely advertised, in part, that its cocoa as "sustainably" harvested. Falcone v. Nestle USA, Inc., No.  3:19-cv-00723-L-KSC (S.D. Cal. July 14, 2023). This is the latest decision interpreting the term "sustainable" to include both environmental and social meaning, and it represents a troubling development for advertisers.

The plaintiff's Third Amended Complaint had alleged that Nestle, which prominently touted its "Cocoa Plan," a sweeping effort to address the use of child labor on African cocoa farms, amounted to greenwashing as, she alleged, the problem of child labor on cocoa farms was worsening.  

Nestle's motion to dismiss argued that it had never represented what the plaintiff had alleged, that all child labor concerns in its cocoa supply chain had been eradicated. It argued that a fair reading of its website and other materials referred to in the complaint makes clear that, although Nestle's Cocoa Plan has made considerable progress, child labor concerns persist.  Indeed, an excerpted quote from Nestle's lengthy online report regarding the Cocoa Plan candidly admits that not all of its efforts succeed. "Tackling Child Labor. 2019 Report" at p. 54 ("Things don't always work out. It shows how complex the remediation is."). The exhibits reviewed by the court also included a chart showing how the number of children being monitored in the Nestle cocoa program had doubled between 2017 and 2019. The court interpreted this wrongly to mean that the child labor problem had worsened, not improved. Instead, what it meant was that the number of children being monitored had increased, resulting in more child laborers being identified, not that the overall number of child laborers had increased. These interpretative disputes, reasoned the court, were best left to trial.

In denying the motion to dismiss, the court held in relevant part, "Defendant’s exhibit does not support dismissal of the complaint. First, in addition to depicting Defendant’s chart, the Complaint includes specific allegations regarding child labor, including child slavery and hazardous child work, and cites third-party sources in support of the contention that the incidence of child labor increased since 2009 (id. ¶¶ 11-12, 14-16). These specific allegations alone are sufficient to support Plaintiff’s claim that Defendant’s advertising message of sustainable cocoa production and support for cocoa farmers was misleading."

Presumably, the case will now proceed to discovery.

What does this mean for advertisers?

The Nestle Cocoa Plan is impressive in sweep and candor. However, in a motion-to-dismiss setting, nuance is lost. Consumer class action lawyers will cite even outdated activist reports regarding a problem and then seize on defendants' admissions and press barely plausible misinterpretations of data. A deciding judge must determine whether disputes regarding interpretation can be resolved at the motion to dismiss stage, where all inferences are to be resolved in favor of the plaintiff. Some courts consider that these disputes can only be resolved by a jury. Others are more critical of complaint allegations and will decide them on the pleadings.  

The decision signals increasing risk for "sustainability" and supply chain claims, especially those built on aspirations or programs commenced, but not yet completed. It is important to allow advertisers some breathing room to communicate about ongoing sustainability efforts, but advertisers should recognize that doing so will increase the risk of litigation and, if they wish to bolster any potential defense, should include prominent qualifications in any consumer-facing materials.