'Blood Chocolate,' Corporate Law and the ACS

Published on ACSBlog on March 24, 2014

I bet you’ve never thought of those three things together. Now, thanks to a couple of ACS board members, you have reason to.

One of the dirty secrets about chocolate is that much of the world’s cocoa production, particularly in west Africa, depends on forced child labor. Chocolate makers around the world have long faced allegations that they know of and benefit from widespread human rights violations. Hershey, for example, controls 42 percent of the U.S. chocolate market, admits that its “major sourcing countries” include The Ivory Coast and Ghana, and acknowledges that abusive child labor practices that violate international law are rampant in those countries. (By some accounts, as much as 89 percent of children in the Ivory Coast are involved in cocoa production.) But there is no mechanism to learn whether Hershey and other like companies are complicit in such abuses, nor is there a meaningful way to hold them accountable if so.

But that may be changing, thanks to ACS board member Reuben Guttman and his colleagues at Grant and Eisenhofer. Last week, Grant and Eisenhofer won an important ruling against Hershey in Delaware Chancery Court, when Hershey lost its summary judgment motion in a "books and records" suit brought on behalf of Hershey shareholders who want to learn more about its role in taking advantage of forced child labor.

An early procedural victory in Delaware business court might not look like much at first glance, but it could turn out to be a significant advance in holding corporations accountable for international malfeasance. And if it does, ACS will have played an important role. Indeed, this story showcases the unique capacity of ACS to bring together the ideas of academics with innovative and visionary litigators who can bring those ideas to bear.

The backstory begins with a law review article I published in 2001. (It’s hard to find online, but here’s the cite: Ultra Vires Lives!  A Stakeholder Analysis of Corporate Illegality (With Notes on How Corporate Law Could Reinforce International Law Norms), 87 VA. L. REV. 1279 (2001).) I had long been troubled by the problem of how to hold companies accountable for illegality, especially in international contexts where the local jurisdiction was unable or unwilling aggressively to enforce domestic or international law. I was troubled at the time by Unocal's alleged involvement with human rights violations in Burma, but the problem was generalizable.

The idea was to reinvigorate the old corporate law doctrine of ultra vires—beyond  the power. Corporations are chartered only for “lawful purposes,” I reasoned, and illegality was thus ultra vires and subject to shareholder objection and injunctive action. The implication was that Delaware corporate law could be used to enforce international human rights law by way of shareholder suit.

Like many ideas in law reviews, my proposal tested the legal equivalent of the “tree in the forest” aphorism. It made no sound.

Fast forward a decade. In 2011, the ACS national convention included a panel on “Globalization, Corporate Accountability, and the Courts” and asked me to moderate. On the horizon for the Supreme Court was Kiobel v Royal Dutch Petroleum, which raised the question of whether the Alien Tort Statute could be used by victims of corporate abuses overseas as a basis of suits in federal court. Most Court watchers were not optimistic. (And they were right; the Court limited the use of the ATS in its 2013 decision.) Some on the panel pondered whether there might be another option available if the ATS was limited. I was moderating the panel and explained my ultra vires idea quickly.

Reuben Guttman was in the audience, and he buttonholed me afterward. I remember him saying that he was intrigued, and that we should investigate further. Then his excellent firm took the idea and ran with it.

On behalf of a Louisiana public pension fund, they filed suit against Hershey in late 2012. (You can read the complaint here.) The posture of the case is a “books and records” suit, which gives shareholders the ability to request the books, records and documents of the company to investigate whether the board has engaged in misconduct. The misconduct alleged is that “the Board has engaged the Company in a pattern of ultra vires conduct,” namely the use of forced child labor in violation of international law.

To our knowledge, this was the first suit ever to argue that an alleged violation of international law by a corporation was ultra vires.

In order to highlight the importance of the case, Guttman and his colleagues asked ACS board member Nancy Gertner and me to write an amicus brief in the case. Such briefs are rare in the Chancery Court, and we got some attention.

Last week, Delaware Vice Chancellor Travis Laster denied Hershey’s summary judgment motion, saying that the plaintiffs had alleged facts sufficient to show a credible basis to infer that Hershey engaged in wrongdoing. So the ultra vires idea will get its day in court, and soon. And it would not have happened but for the ACS.

If successful, corporate law could be a new and powerful tool to hold corporations accountable for illegalities overseas. Stay tuned.