Seventh Circuit Allows Slavery-Related UDAP Claims to Go Forward

by Steve Gardner

In an historic opinion issued on December 13, the U.S. Court of Appeals for the Seventh Circuit (Judges Posner, Easterbrook and Manion) allowed claims for violations of state Unfair and Deceptive Acts and Practices (UDAP) laws by descendants of slaves to go forward against companies (or their successors) that provided services, such as transportation, finance, and insurance, to slaveowners, and against at least two of the defendants that were slaveowners themselves. The UDAP claim was based on failures to disclose the connection to slavery, because a descendant of a slave would not knowingly give business to a company that had been a part of the slave trade. 

This appears to be a case of first impression where a claim seeking damages arising out of slavery has made it past a motion to dismiss. It is significant for that alone, but beyond that, it will permit the plaintiffs to find out exactly what these modern companies knew about their involvement in slavery and the degree to which these companies hid that fact from the public.

Not a Political Question

At the district level, U.S. District Judge Charles R. Norgle had dismissed all claims in July 2005. Judge Norgle primarily focused on the issue of whether this was a “political question” and found that it was, precluding review by a court, but went on to find that the plaintiffs did not have standing to bring the claims.

On appeal, the Court of Appeals was careful not to extend political question jurisprudence unnecessarily: The court found that the political question doctrine did not bar this lawsuit. As Judge Posner's opinion explained, the “political-question doctrine bars the federal courts from adjudicating disputes that the Constitution has been interpreted to entrust to other branches of the federal government.” The court concluded that “A case that sought reparations for the wrong of slavery would encounter similar obstacles, but the plaintiffs have been careful to cast the litigation as a quest for conventional legal relief. All they are asking the federal judiciary to do is to apply state law (plus the one federal statute, 42 U.S.C. § 1982) to the defendants’ conduct.” Thus the court firmly and quickly rejected the district court’s holding on political question, and moved on to the issue of standing.

On most claims, which looked back to evils that had occurred over a century ago, the court determined that most of the current plaintiffs did not have standing to seek redress for those wrongs.

The UDAP Claim: Concealment of a Material Fact

However, the court then focused on “a claim, rather buried in the complaint but not forfeited, that in violation of state fraud or consumer protection law members of the plaintiff classes have bought products or services from some of the defendants that they would not have bought had the defendants not concealed their involvement in slavery.”

“This claim has nothing to do with ancient violations and indeed would be unaffected if the defendants’ dealings with slaveowners had been entirely legal. It is a complaint of consumers’ being deceived because sellers have concealed a material fact. The injury is the loss incurred by buying something that one wouldn’t have bought had one known the truth about the product.”

Thus, the court simply and correctly applied standard UDAP analysis to these allegations.

Of course, the plaintiffs still must prove these allegations. The court observed that “under no consumer protection law known to us, whether a special statute or a doctrine of the common law of contracts or torts, has a seller a general duty to disclose every discreditable fact about himself that might if disclosed deflect a buyer. To fulfill such a duty he would have to know much more about his consumers than he possibly could.

“But the plaintiffs are charging the defendants with misrepresenting their activities in relation to slavery. A seller who learns that some class of buyers would not buy his product if they knew it contained some component that he would normally have no duty to disclose, but fearing to lose those buyers falsely represents that the product does not contain the component, is guilty of fraud.”

The Significance of Nike

The court used as an example a recent decision by the California Supreme Court that allowed a lawsuit against Nike to proceed under the California UDAP law. “An example would be a manufacturer who represented that his products were made in the United States by companies that employ only union labor, whereas in fact they were made in Third World sweatshops. See Kasky v. Nike, Inc., 45 P.3d 243, 248 (Cal. 2003) . . ..”

Because the California UDAP law in Nike is one of the statutes that the plaintiffs pled in this case (in addition to similar UDAP laws of the states of Texas, New York, New Jersey, Illinois, and Louisiana), Nike is relevant when this case returns to the district court.

In Nike, various advocacy groups had alleged that “in the factories where Nike products are made workers were paid less than the applicable local minimum wage; required to work overtime; allowed and encouraged to work more overtime hours than applicable local law allowed; subjected to physical, verbal, and sexual abuse; and exposed to toxic chemicals, noise, heat, and dust without adequate safety equipment, in violation of applicable local occupational health and safety regulations.” Kasky v. Nike, Inc., 27 Cal.4th 939, 947, 45 P.3d 243, 248, 119 Cal.Rptr.2d 296, 302 (Cal. 2002).

This was not, however, the basis for the complaint in Nike. Instead, “In response to this adverse publicity, and for the purpose of maintaining and increasing its sales and profits, Nike and the individual defendants made statements to the California consuming public that plaintiff alleges were false and misleading. Specifically, Nike and the individual defendants said that workers who make Nike products are protected from physical and sexual abuse, that they are paid in accordance with applicable local laws and regulations governing wages and hours, that they are paid on average double the applicable local minimum wage, that they receive a ‘living wage,’ that they receive free meals and health care, and that their working conditions are in compliance with applicable local laws and regulations governing occupational health and safety.” Kasky v. Nike, Inc., 27 Cal.4th 939, 947, 45 P.3d 243, 248-248, 119 Cal.Rptr.2d 296, 302 (Cal. 2002).

The California Supreme Court upheld the right of the plaintiff to apply the California UCL to Nike’s representations, holding that “such representations, when aimed at potential buyers for the purpose of maintaining sales and profits, may be regulated to eliminate false and misleading statements because they are readily verifiable by the speaker and because regulation is unlikely to deter truthful and nonmisleading speech.” Kasky v. Nike, Inc., 27 Cal.4th 939, 970, 45 P.3d 243, 262, 119 Cal.Rptr.2d 296, 319 (Cal. 2002).

Under the precedent of Nike, and cases construing the UDAP laws of the other states, plaintiffs now have the right to discover the nature and extent of these defendants’ efforts in modern times to misrepresent their own complicity in slavery.

Disclosure: The author provided briefing, drafting, and advice to the plaintiffs in the reparations case on the UDAP issues.

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