Hershey Rebuffs Records Bid in African Child Labor Case

, The Litigation Daily

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A Delaware Chancery Court magistrate judge has rejected a Hershey Co. shareholder's unusual bid to inspect the chocolate company's books and records for evidence that it turned a blind eye to African child labor. The ruling is the latest in a string of losses for the plaintiffs firm Grant & Eisenhofer in litigation over Hershey's cocoa supply chain.

In order to inspect a company's books under Delaware law, plaintiffs lawyers must cobble together some evidence of potential mismanagement. Master in Chancery Abigail LeGrow ruled Friday that Grant & Eisenhofer failed to meet that burden. She determined that while child labor is a "pervasive problem in cocoa farming," there's little indication that Hershey's leaders broke the law and therefore failed shareholders. Legrow's ruling is merely a recommendation to the court to dismiss the shareholder suit, but it is likely to be upheld.

Ghana and the Republic of Cote D'Ivoire supply 70 percent of the world's cocoa beans. Beginning in 2001, journalists reported that cocoa suppliers in the two countries were using child slaves. Some nonprofits criticized Hershey for not doing enough to combat the problem, and in October 2012 Hershey pledged that by 2020 it would only use cocoa beans from certified farms that use legal labor practices.

Shortly after issuing its pledge, Hershey refused to hand over its internal records regarding child labor to the Louisiana Municipal Police Employeees' Retirement System (LAMPERS), a major institutional investor represented by Grant & Eisenhofer. In November 2012 LAMPERS sued to gain access to Hershey's corporate books and records, arguing that "there are substantial grounds to believe that the company's board of directors has caused or permitted the company to support the use of unlawful child labor."

LeGrow wrote in Friday's decision that in order to compel production of books and records, a shareholder must produce evidence from which a judge can infer illegal conduct or breach of fiduciary duty. "At most, LAMPERS has succeeded in alleging that Hershey produced coca, directly or indirectly, from farms that utilize child labor," the judge wrote. "Neither that 'evidence,' nor the other sources on which LAMPERS relies, provides any basis from which the court could conclude that Hershey has violated the law."

Friday's ruling probably didn't come as surprise to the parties. In connection with its books and records request, LAMPERS brought a derivative suit against Hershey alleging mismanagement. As our Delaware colleague Jeff Mordock reported, LeGrow dismissed that case on similar grounds in August.

Grant & Eisenhofer partner Michael Barry didn't return a call seeking comment. We also didn't hear back from Srinivas Raju of Richards Layton & Finger, who represents Hershey.

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