Appeal from the United States District Court for the Central District of California, Andrew J. Guilford, District Judge, Presiding, D.C. No. 2:05-cv-07307-AG.
The opinion of the court was delivered by: Gould, Circuit Judge
Argued and Submitted May 8, 2009 -- Pasadena, California
Before: Betty B. Fletcher, Raymond C. Fisher, and Ronald M. Gould, Circuit Judges.
The appellants were among the plaintiffs in the district court and are employees of foreign companies that sell goods to Wal-Mart Stores, Inc. ("Wal-Mart"). They brought claims against Wal-Mart based on the working conditions in each of their employers' factories.*fn1 These claims relied primarily on a code of conduct included in Wal-Mart's supply contracts, specifying basic labor standards that suppliers must meet. The district court dismissed the complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). We have jurisdiction under 28 U.S.C. § 1291, and we affirm.
Plaintiffs are employees of Wal-Mart's foreign suppliers in countries including China, Bangladesh, Indonesia, Swaziland, and Nicaragua. Plaintiffs allege the following relevant facts, which we take as true for purposes of this appeal:
In 1992, Wal-Mart developed a code of conduct for its suppliers, entitled "Standards for Suppliers" ("Standards"). These Standards were incorporated into its supply contracts with foreign suppliers. The Standards require foreign suppliers to adhere to local laws and local industry standards regarding working conditions like pay, hours, forced labor, child labor, and discrimination. The Standards also include a paragraph entitled "RIGHT OF INSPECTION":
To further assure proper implementation of and compliance with the standards set forth herein, Wal-Mart or a third party designated by Wal-Mart will undertake affirmative measures, such as on-site inspection of production facilities, to implement and monitor said standards. Any supplier which fails or refuses to comply with these standards or does not allow inspection of production facilities is subject to immediate cancellation of any and all outstanding orders, refuse [sic] or return [sic] any shipment, and otherwise cease doing business [sic] with Wal-Mart.
Thus, each supplier must acknowledge that its failure to comply with the Standards could result in cancellation of orders and termination of its business relationship with Wal-Mart.
Wal-Mart represents to the public that it improves the lives of its suppliers' employees and that it does not condone any violation of the Standards. However, Plaintiffs allege that Wal-Mart does not adequately monitor its suppliers and that Wal-Mart knows its suppliers often violate the Standards. Specifically, Plaintiffs claim that in 2004, only eight percent of audits were unannounced, and that workers are often coached on how to respond to auditors. Additionally, Plaintiffs allege that Wal-Mart's inspectors were pressured to produce positive reports of factories that were not in compliance with the Standards. Finally, Plaintiffs allege that the short deadlines and low prices in Wal-Mart's supply contracts force suppliers to violate the Standards in order to satisfy the terms of the contracts.
Plaintiffs filed a class action lawsuit in California Superior Court in 2005 and Wal-Mart removed the case to federal court based on diversity of citizenship. Plaintiffs then filed an amended complaint in federal court, which is the complaint relevant here. Wal-Mart filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. The district court granted the ...