Saturday, September 3, 2022

Ben & Jerry’s Revisited

Back in July, I blogged about the unprecedented dispute between Ben & Jerry’s and its sole shareholder, Unilever, regarding the sale of Ben & Jerry’s products in Israeli-occupied territories.  When Ben & Jerry’s was sold to Unilever, Unilever entered into a shareholders’ agreement with Ben & Jerry’s, whereby it promised that the board of directors would be largely self-perpetuating (i.e., continuing directors would nominate their successors), and the board would have authority to maintain the company’s social mission.  Unilever, via its CEO selection, would have authority over financial and operational decisions.  When the Ben & Jerry’s board objected to selling the company’s products in the West Bank, Unilever decided to transfer the entire West Bank business to an Israeli operator, bringing their spheres of authority into conflict: was this a social decision, or an operational one?  Ben & Jerry’s, under the direction of the board, sought a preliminary injunction to stop the transfer, arguing that it was the former; Unilever opposed on the grounds that it was the latter.

In my earlier blog post, I wrote about the unusual nature of the arrangement and the ambiguity surrounding the real parties in interest.  That ambiguity was not directly at issue in the judge’s decision on the preliminary injunction but – in a subtle way – it ended up being implicated.

To receive a preliminary injunction, Ben & Jerry’s needed to show that it was threatened with “irreparable harm” if Unilever proceeded with the sale while the case was pending, and that the public interest would be served by an injunction.  The harm that Ben & Jerry’s identified involved damage to its reputation, its prospective goodwill, and to “brand integrity,” in part due to confusion by consumers over responsibility for the actions taken.  Ben & Jerry also cited loss of authority over its brand, and loss of its “corporate independence in dictating its Social Mission” as additional harms.  Ben & Jerry’s claimed that it would lose its ability to use its own products to make protest statements; for example, in Australia it refused to serve two scoops of the same flavor ice cream, to protest the country’s ban on same-sex marriage.   The new Israeli owners might not advance the same messages, or would launch products with different messages, ones that Ben & Jerry’s disagreed with.  As for the public interest, Ben & Jerry’s argued that the popularity of the benefit corporation form shows that there is a societal good that flows from permitting corporations to advance social missions.

The district court denied the preliminary injunction, on the ground that Ben & Jerry’s failed to show a threat of irreparable harm.  Here’s what the court said:

The injunctive relief sought cannot issue on the basis of a hypothetical scenario involving several speculative steps, namely that (1) new products will be introduced, (2) those products will seek to convey a particular message, and (3) the new owners then will market those products to convey a contrary message.

The harm of customer confusion regarding Ben & Jerry’s positions is also remote.  Ben & Jerry’s has offered no evidence of such confusion or the impact of the alleged confusion. If anything, media reports and this very lawsuit evince Ben & Jerry’s position on the issue.  Further, the products sold in Israel and the West Bank will use no English trademarks….

Notice how the court – and to some extent even Ben & Jerry’s – approached this problem.  It was treated as an image issue; Ben & Jerry’s did not want to be associated with certain social messages, and the court found there was no irreparable harm because it was unlikely that the public would in fact have those associations.

But a corporate social mission is not about, or at least not exclusively about, projection of an image.  It is a moral stance that allows participants in the corporate enterprise – shareholders, specifically, when it comes to benefit corporations – to avoid having to contribute personally to a project that they believe causes injury in the world.  It’s very much like the idea behind the Supreme Court’s decision in Hobby Lobby, namely, that corporate owners should not be forced to put their capital behind something they find morally abhorrent.  The public image may matter, but it is secondary; the goal is to not use one’s resources to inflict harm, and certainly not to profit from it.

But that was a difficult, if not impossible, claim for Ben & Jerry’s to make as a corporate entity – and one that the district court entirely failed to perceive – because as a corporation, it only has the moral interests of the humans it represents.  And, as my prior post explains, it’s entirely unclear from this arrangement who those humans are supposed to be; it certainly isn’t the single shareholder, Unilever (or the natural persons who invest in Unilever). 

https://lawprofessors.typepad.com/business_law/2022/09/ben-jerrys-revisited.html

Ann Lipton | Permalink

Comments

Glad I didn't steal your thunder! I almost posted on this a few days ago. Thanks for ensuring that the BLPB keeps current on this case.

I agree that "image" (or pure corporate association with a viewpoint or side in a controversy) is not--or should not be--at the heart of the matter from the standpoint of corporate social mission. And the rule of law emanating from Hobby Lobby may be limited--as your description may imply--to circumstances in which owners assert that their interests are at stake. As you point out, the owner is not the party taking moral offense here.

Here's the rub on all that, from my perspective.

The directors of Ben & Jerry's are charged with fiduciary duties owed to the corporation, which has a particular mission they are bound to support (within the boundaries of applicable law). As a result, they more-or-less had to sue Unilever on Ben & Jerry's behalf when Unilever acted in contravention of the Ben & Jerry's board's good faith judgment to refrain from selling products bearing its name and branding in the Occupied Territory. The problem was finding a cause of action. That's where crafty litigators like you chime in, while transactional geeks like me bow out.

But I will keep thinking about it, for sure.

Posted by: joanheminway | Sep 4, 2022 1:34:35 PM

Post a comment