Landmark ruling in Trafficking Victims Protection Reauthorization Act case

By David Livshiz, Emily Holland and Justin Simeone 

“When one door closes, another opens,” so goes the saying. And so it is with human rights litigation. Facing the prospect that the United States Supreme Court will foreclose foreign plaintiffs’ ability to bring human rights claims under the Alien Tort Statute, human rights advocates have been pursuing alternative means by which to assert human rights claims. One vehicle under consideration is the Trafficking Victims Protection Reauthorization Act (the TVPRA), which prohibits human trafficking and forced labor and contains a private right of action that can ensnare a multinational corporation lacking adequate controls over the conduct of its various suppliers.

In a set of orders in Keo Ratha v. Phatthana Seafood Co., Ltd. issued in December 2017 (see here, here and here), the Central District of California made clear, however, that plaintiffs bringing TVPRA claims must overcome substantial evidentiary hurdles—including showing that a US defendant not only benefited from a supplier’s alleged misconduct, but also operated or managed the entity engaging in the misconduct. The Ratha decision provides guidance as to what facts future courts may look at in order to determine whether a corporation did or did not participate in, or knowingly benefit financially from, actionable human rights abuses in the supply chain.

The Facts

In Ratha, the plaintiffs—rural Cambodian villagers—brought suit against (i) Phatthana Seafood Co., Ltd. and S.S. Frozen Food Co., Ltd , two Thai corporations that owned the factories where the plaintiffs worked (the Thai Defendants); (ii) Rubicon Resources, LLC, a Delaware Limited Liability company, whose principal offices were in California; and (iii) Wales & Co. Universe Ltd., a Thai corporation registered to do business in California and a member of Rubicon. The plaintiffs alleged that they were victims of peonage, force labor and human trafficking committed by the Thai Defendants, and that Rubicon and Wales knowingly benefited from participation in a venture they knew or should have known was engaged in such misconduct.

Refusal to extend extraterritorial jurisdiction over foreign defendants 

As an initial matter, the court held it lacked subject matter jurisdiction over claims asserted against the Thai Defendants because the TVPRA applies solely to defendants “present in” the United States, and there was no evidence that the Thai Defendants were. The court rejected the plaintiffs’ use of “minimum contacts” analysis—traditionally used to determine personal jurisdiction—to establish the contrary and held that interpreting the word “present in” so as not to require physical presence in the United States would unduly expand the TVPRA’s reach. The Court then concluded that absent evidence of physical presence in the United States, it lacked subject matter jurisdiction to adjudicate the plaintiffs’ claims over the Thai Defendants.

Defining “participation” in a human trafficking “venture” 

Meanwhile, Rubicon and Wales sought summary judgment dismissing the claims by arguing that the plaintiffs had failed to offer proof that either Rubicon or Wales had “participated’ in the human trafficking venture. The plaintiffs argued they had satisfied the “participation” requirement by establishing that Rubicon, as a purchaser of seafood from one of the Thai Defendants, had benefited from, and therefore participated in, the human trafficking enterprise. But the Court sided with the plaintiffs. Applying case law emanating from the Racketeer Influenced and Corrupt Organizations Act (RICO) context, the court found a plaintiff had to do more than show “receipt of a passive benefit” to satisfy the “participation in a venture requirement.” Rather, in order to prevail, plaintiffs must show that the defendant “took some action to operate or manage” the human trafficking venture, by for example “directing or participating in [the supplier’s] labor recruitment, . . . employment practices, or [establishing] the working conditions” at the supplier’s factory.

This holding materially raises the bar that human rights plaintiffs will need to clear in bringing claims against multinational companies in the future, as it is unlikely that a prudently run multinational company would knowingly engage in such conduct.

Deference shown to internal controls 

Rubicon and Wales separately sought summary judgment by arguing that the plaintiffs had failed to produce evidence that either company knew or should have known that human trafficking was occurring. To the contrary, the court pointed to Rubicon’s and Wales’ internal controls and observed that they “actively sought to source products from companies that did not exploit their workers” as undermining the plaintiffs’ claims. Moreover, the District Court looked to (i) Rubicon’s and Wales’ reliance on industry and government audits and certifications regarding worker safety and welfare, (ii) their actions to return product when allegations of violations emerged, and (iii) their refusal to place additional orders until government investigations cleared the site in question as trafficking-free as evidence rebutting the plaintiffs’ claims. Finally, the court held that the companies’ knowledge of forced labor at a factory they did not own, operate, or control could not be based “solely on conflicting and sometime unsubstantiated general [NGO] reports.”

Conclusion: compliance takeaways

The upshot is clear: emerging forms of human rights litigation risk should shape the way that companies design, implement and report on their human rights policies and procedures. Not only does such an approach help to prevent human rights violations linked to companies’ operations occurring in the first place, as Ratha indicates, it also provides a substantive defense to TVPRA claims.