KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION INTERNATIONAL COLLECTIVE IN SUPPORT OF TEXTILE WORKERS (CLAIMANTS) SPEAR SHIRTS INC.

Transcription

1 B1401-R KUALA LUMPUR REGIONAL CENTRE FOR ARBITRATION 2014 INTERNATIONAL COLLECTIVE IN SUPPORT OF TEXTILE WORKERS (CLAIMANTS) v SPEAR SHIRTS INC. (RESPONDENT) MEMORIAL FOR RESPONDENT

2 TABLE OF CONTENTS TABLE OF CONTENTS...i INDEX OF AUTHORITIES...iii STATEMENT OF JURISDICTION...1 QUESTION PRESENTED.1 STATEMENT OF FACTS...2 SUMMARY OF PLEADINGS...4 PLEADINGS...6 I. PROVIDED A SEPARATE DETERMINATION FOR INDIVIDUAL DAMAGES, JOINDER LIMITED TO THE THIRTEEN NAMED CLAIMANTS FOR THE LIABILTIY DETERMINATION IS APPROPRIATE IN THE INTERESTS OF JUDICIAL ECONOMY, EFFICIENCY AND FAIRNESS...6 A. Respondent does not Object to Joinder of the Thirteen Named Members as Claimants for the Duration of the Liability Determination Claimants are Restricted to Join Only the Thirteen Named Members who Agreed to Representation by ICSTW...7 B. The Arbitral Tribunal Must Deny any Request to Continue Arbitration as a Class Action or Class Representative Proceeding 7 1. Class Certification Would Result in Undue Prejudice to Respondent Due to the Individual Damages Calculation 8 2. Lack of Acertainability and Manageability of Potential Members Outweigh any Benefits of Class Adjudication 9 II. CALIFORNIA STATE LAW IS THE MOST APPROPRIATE LAW TO APPLY TO THIS ARBITRATION 10 A. The Contract between Respondent and Manufacturer Mae Sot Clothing, Ltd. Included an Express Choice of Law Provision Designating that California Law Govern the Transaction and Consent to Jurisdiction of the Court of Los Angeles County, California 11 B. The Arbitral Tribunal must Apply California Law as the Most Appropriate Under General Conflict of Law and Proper Law Principles. 11 i

3 1. Due to Substantial Relationship and Interest, California has a Reasonable Basis in Having its Law Applied to this Arbitration 13 III. RESPONDENT, A CUSTOMER WITHOUT CONTROL OF THE MANNER AND MEANS OF PERFORMORMING THE SERVICES CANNOT BE HELD LIABLE FOR THE INJURIES OF THE INDEPENDENT CONTRACTOR S EMPLOYEES 15 A. Buyer, Respondent, and Supplier, Mae Sot Clothing Ltd., Engaged in a Basic Contractor and Independent Contractor Relationship As a Buyer, Respondent Did Not Maintain Control of the Manner and Means of Mae Sot s Manufacturing Service Respondent s Financial Benefit from Complainants Work Did Not Transform Respondent to Employer of the Mae Sot Clothing s Workforce..17 B. Claimants Cannot Hold Respondent Liable for Injuries Occurred in the Workplace as Respondent Implicitly Delegated Any Tort Law Duty to Mae Sot to Comply with Regulatory and Statutory Safety Requirements 19 C. Even if Respondent Retained Some Control Over Mae Sot Clothing, Claimants Fail to Show Respondent Affirmatively Contributed to Injuries of Independent Contractor s Employees. 20 D. Respondent Owes No Duty of Care to Prevent or Correct Unsafe Procedures of an Independent Contractor Which the Contractor Did Not Affirmatively Contribute..22 E. Respondent Cannot be Held Liable Under the Peculiar Risk Doctrine 23 IV. THE ARBITRAL TRIBUNAL SHOULD REJECT CLAIMANTS REQUESTS FOR REMEDIES OR, AT A MINIMUM REQUIRE SPEAR SHIRTS PAY LESS THAN CLAIMANTS ARE REQUESTING.25 A. The Tribunal Should Reject Claimant s Requests Because Respondent is not liable under California State law 25 B. Even if Respondent found Liable for Negligence, Punitive Damages are Not Appropriate as There is No Evidence to Support Actual Malice 25. C. Should The Tribunal Find Spear Shirts Liable, Compensatory Damages Must Be Assessed Separately for Each Individual Claimant 26 CONCLUSION/PRAYER FOR RELIEF.27 ii

4 INDEX OF AUTHORITIES Arbitral Institution Rules KLRCA Rules pg. 6, 7, 8, 10, 25 Cases Angelotti v. Walt Disney Co., 192 Cal. App. 4th 1394 (2d Dist. 2011). pg. 23 Clausing v. San Francisco Unified School Dist., 221 CA3d 1224, (1990). pg. 8 College Hosp., Inc. v. Super. Ct., 8 C4th 704, 725 (1994). pg. 26 Diamond Multimedia Sys., Inc. v. Superior Court, 19 Cal. 4th 1036, 1064 (1999). pg. 14 Hertz Corp. v. Friend, 559 U.S. 77, 78 (2010). pg. 13 Hooker v. Dep't of Transp., 27 Cal. 4th 198, 215 (2002). pg. 20, 21 Hughes v. Atl. Pac. Constr. Co., 194 Cal. App. 3d 987, 997 (1987). pg. 24 Madden v. Summit View, Inc., 165 Cal. App. 4th 1267 (1st Dist. 2008). pg. 21 Martinez v. Combs, 49 Cal. 4th 35, (2010). pg. 18 Maxim Crane Works, L.P. v. Tilbury Constructors, 208 Cal. App. 4th 286, 291 (2012). pg. 11 McKown v. Wal-Mart Stores, Inc., 27 Cal. 4th 219 (2002). pg. 20, 21 Nedlloyd Lines B.V. v. Superior Court, 3 Cal. 4th 459, 470 (1992) pg. 12 Privette v. Superior Court; 5 Cal. 4th 689 (1993). pg. 19 Rose v. Medtronics, Inc., 107 CA3d 150, 155 (1980) pg. 8 SeaBright Ins. Co. v. US Airways, Inc., 52 Cal. 4th 590 (2011). pg. 19 S. G. Borello & Sons, Inc. v. Dept. of Industrial Relations, 48 Cal. 3d 341, 350 (1989). pg. 15 iii

5 Sotelo v. MediaNews Group, Inc., 207 CA4th 639, (2012). pg. 9 Taylor v. Super.Ct., 24 Cal 3d 890, (1979). pg. 26 Toyota Motor Sales U.S.A., Inc. v. Sup. Court, 220 Cal. App. 3d 864 (2d Dist. 1990). pg. 15 California State Law Cal. Labor Code pg. 15. iv

6 STATEMENT OF JURISDICTION Respondent Spear Shirts Inc. and Claimants represented by the International Collective in Support of Textile Workers have agreed to submit the dispute to binding arbitration in Bangkok, Thailand. The Arbitral Tribunal has jurisdiction to decide the dispute under the Kuala Lumpur Regional Centre for Arbitration (herein KLRCA) Rules. QUESTIONS PRESENTED 1. Whether a large number of Claimants (victims and their families) can be joined in a single arbitration? 2. What is the most appropriate law for the Arbitral Tribunal to apply for any substantive issues? 3. Whether, assuming that the Mae Sot Clothing factory was operated in a negligent or grossly negligent manner, can Respondent Spear Shirts a mere customer be held liable for the injuries and deaths of Mae Sot Clothing s employees? 4. What types of monetary damages may the victims and their families recover if Respondent Spear Shirts is obligated to reimburse them for their injuries and deaths? 1

7 STATEMENT OF FACTS Mae Sot Clothing Ltd. is a clothing manufacturing company that produces apparel for some of the world s most famous brands. 1 Mae Sot Clothing s factory is located in Mae Sot, Thailand a town that shares its Western border with Myanmar. 2 Spear Shirts, Inc. ( Respondent ) is a clothing company with its principal place of business in Los Angeles, California USA. 3 the United States and much of the world. 4 Spear Shirts sells its clothing wholesale throughout Ten years ago, Spear Shirts began purchasing men s shirts from Mae Sot Clothing. 5 Although Spear Shirts has no contractual right or ownership interest in Mae Sot Clothing, 6 Spear Shirts has suggested appointees for Mae Sot Clothing directors and has made suggestions related to Mae Sot Clothing s production deadlines and quality control. 7 Mae Sot Clothing has consistently adopted Spear Shirts suggestions. 8 Furthermore, Mae Sot Clothing consented to Spear Shirt s standard purchase order and agreement. 9 This standard purchase order states that [a]ll transactions between the [Spear Shirts] and [Mae Sot Clothing] are governed by the laws of California. 10 The terms of the standard purchase order and agreement further indicate that any claims or controversies arising from the sale of garments by Mae Sot Clothing to Spear Shirts was subject to the jurisdiction of the courts of Los Angeles County, California USA. 11 Notwithstanding the standard purchase order s choice of law and forum selection clauses, the scope of the purchase order was expressly 1 Moot Problem at 1. 2 Id. 3 Id. 4 Id. 5 Clarifications at B-4. 6 Clarification at B-2. 7 Clarifications at B-3; Further Clarifications at E-1. 8 Clarifications at B-3. 9 Clarifications to the Moot Problem, Attachment #1, Applicable Law [hereinafter Standard Purchase Order ]. 10 Standard Purchase Order, Applicable Law. 11 Id. 2

8 limited such that it shall not in any way diminish or limit any arbitration agreement subsequently agreed to by both parties. 12 In 2013, a Spear Shirts employee, Theodore Snowden ( Snowy ), visited the Mae Sot Clothing factory while vacationing in Thailand. 13 Snowden is the assistant to Spear Shirt s Vice President in charge of purchasing, Joe Baydon ( Baydon ). 14 Sometime after the visit Snowy sent Baydon a text message that included observations regarding the conditions and age of the employees at the factory. 15 Baydon subsequently forwarded Snowden s message to the president of Spear Shirts. 16 Several months later, on October 15, 2013 a textile machine overheated igniting a fire that eventually engulfed the Mae Sot Clothing factory. 17 Fifty women were killed, and more than 100 were seriously injured in the fire. 18 Many of the victims of the fire were from Myanmar. 19 The fire destroyed all of Mae Sot Clothing s employment and maintenance records. 20 After the fire, a fire inspector reported that fire extinguishers in the factory were nonfunctional because they were rusty and corroded. 21 A report from an independent auditor later concluded that working conditions in the factory such as obstructed pathways and nonfunctioning fire extinguishers were a major factor contributing to the injuries and deaths Standard Purchase Order. 13 Moot Problem at Id. 15 Id. 16 Further Clarifications at A Moot Problem at Id. 19 Id. 20 Further Clarifications at A-1 and A-3 21 Moot Problem at 2 fn Moot Problem at 2 fn 3 and 3. 3

9 The claimants in this dispute consist of victims injured in the factory fire and the surviving families of the Mae Sot Clothing workers that perished in the fire. 23 The International Collective in Support of Textile Workers ( ICSTW ), a non-governmental organization advocacy group, represents the claimants in this arbitration. 24 The injured and the numerous family members of deceased workers selected amongst themselves a fifteen-member committee to serve as their representatives. 25 Thirteen of members of that committee signed under oath statements granting ICSTW full authority to represent the victims and their families in its dispute with Spear Shirts. 26 The claimants seek compensation from the respondent, Spear Shirts, for the injuries and deaths caused by the October 2013 factory fire. Spear Shirts carries an insurance policy that covers injuries or deaths of its employers, but the policy does not cover its supplier s employees. 27 The parties have agreed to submit this dispute to binding arbitration in Bangkok, Thailand. 28 Pursuant to that agreement, the dispute is now before the Thai Arbitration Institute. 29 SUMMARY OF PLEADINGS 1. The number of victims and their families joined in this arbitration are limited to the 13 named individuals who conferred full authority to ICSTW. As the issues of liability and damages have been bifurcated into two separate proceeding, Respondent does not object to joinder of the 13 Claimants for the duration of the liability determination. The Arbitral Tribunal must deny any request to continue as class action or class representative proceeding. Class 23 Id. 24 Moot Problem at Further Clarifications at D Id. 27 Moot Problem at Moot Problem at Id. 4

10 action would result in undue prejudice to Respondent during the individual damages calculation. In addition, the proposed class must be denied due to the lack acertainability and manageability of potential members outweighs any benefits of class adjudication. 2. California state law is the most appropriate law to apply to this arbitration. The contract between Respondent and Mae Sot Clothing, Ltd. included a valid express choice of law provision designating California law govern the transaction and consent to jurisdiction of the Court of Los Angeles County, California. In addition under general conflict of law and proper law principals, California has a reasonable basis (substantial relationship and interest), in having its law applied to this Arbitration. 3. Respondent, Spear Shirts, a mere customer, cannot be held liable for the injuries and deaths of Mae Sot Clothing s employees. As Buyer, Respondent, and Seller, Mae Sot Clothing Ltd., engaged in a basic contractor and independent contractor relationship. Claimants cannot hold Respondent liable for injuries that occurred in the workplace as Respondent implicitly delegated any tort law duty to Mae Sot, the independent contractor to comply with regulatory and statutory safety requirements. Even if respondent Retained some control over Mae Sot Clothing, Claimants fail to show Respondent affirmatively contributed to injuries. In addition, Respondent owes no duty of care to prevent or correct unsafe procedures of an independent contractor which the contractor did not affirmatively contribute. In addition, Claimant fails to impute liability to Respondent under the peculiar risk doctrine. 4. The Tribunal must reject Claimant s requests for damages because Respondent is not liable under California State law. Even if Respondent was found liable for negligence, punitive damages are not appropriate. Furthermore, should the tribunal find Respondent liable, compensatory damages must be assessed separately for each individual Claimant. 5

11 PLEADINGS I. PROVIDED A SEPARATE DETERMINATION FOR INDIVIDUAL DAMAGES, JOINDER LIMITED TO THE THIRTEEN NAMED CLAIMANTS FOR THE LIABILTIY DETERMINATION IS APPROPRIATE IN THE INTERESTS OF JUDICIAL ECONOMY, EFFICIENCY AND FAIRNESS. A. Respondent does not Object to Joinder of the Thirteen Named Members as Claimants for the Duration of the Liability Determination. In the interests of judicial economy, efficiency, and fairness, Respondent does not object to the thirteen individually named members, each represented by non-governmental organization International Collective in Support of Textile Workers (ICSTW), to be joined as the Claimants in this arbitration. Pursuant to KLRCA Rules, Section III, Article 17(5), The arbitral tribunal may, at the request of any party, allow one or more third persons to be joined in the arbitration as a party provided such person is a party to the arbitration agreement, unless the arbitral tribunal finds, after giving all parties, including the person or persons to be joined, the opportunity to be heard, that joinder should not be permitted because of prejudice to any of those parties. 30 Here, ISCTW represents thirteen named individuals, either an injured employee or family member of a deceased employee from the October 15, 2013 Mea Sot Clothing factory fire. 31 Out of the two groups of injured or deceased employees reported, a fifteen member committee was selected (six members of the families of the deceased employees and nine members of the injured employees). 32 Furthermore, of this fifteen member committee, only thirteen signed under oath a statement giving the ISCTW full authority to represent the victims and their families in their dispute with Spear Shirts. 33 Pursuant to the rule in Article 17(5) which expressly allows the joinder of parties in addition to the repetitious, inefficient and waste of resources that thirteen 30 KLRCA Rules at Further Clarifications at D Id. 33 Id. 6

12 separate arbitrations would require, Respondent does not object to joinder of the named individuals. Importantly, this dispute is bifurcated into two separate proceedings for separate liability and damages determinations. Respondent does not object to joinder of the thirteen named members represented by ICSTW, given that if Respondent is found liable, there will be a separate proceeding as to damages for each Claimant. 34 Pursuant to KLRCA Rules Section III, Article 17(5), The arbitral tribunal may make a single award or several awards in respect of all parties so involved in the arbitration. 35 To minimize delay in the resolution of this matter and to maintain a fair forum for both parties, the Arbitral Tribunal should grant joinder of the thirteen members as the Claimants. 1. Claimants are Restricted to Join Only the Thirteen Named Members who Agreed to Representation by ICSTW. This arbitration is limited to Respondent s liability specifically only to those named thirteen members. As stated above, ICSTW is authorized and given full authority to represent only thirteen injured employees or family members of deceased employees. Therefore the Arbitral Committee must limit ISCTW s representation to only those individuals. B. The Arbitral Tribunal Must Deny any Request to Continue Arbitration as a Class Action or Class Representative Proceeding. The KLRCA Rules do not have an express provision allowing or supporting the formation of a Class Action or Class Representative Proceeding. Because of the complexity and expertise required for many class action or class representative cases, the KLRCA s silence should be deemed as disapproval. Therefore any argument by Claimants to extend the joinder rule, KLRCA Section III, Article 17(5), to allow Class Action should be denied as it would result 34 Moot Problem at KLRCA Rules at 41. 7

13 in undue prejudice to not only Respondent but also to many of the members of the so-called class. 1. Class Certification Would Result in Undue Prejudice to Respondent Due to the Individual Damages Calculation. The Claimants may argue to extend the joinder provision, KLRCA Section III, Article 17(5), to include a representative class. However joinder (of a representative class) should not be permitted because of undue prejudice to any of those parties (emphasis added). 36 In the typical mass tort case, the cause of injury is precisely the same for each injured party (e.g., airplane crash, cruise ship food poisoning, etc.). Arguably, therefore, class adjudication would be advantageous for determining at least the liability issue, even if each injured person's damage claim had to be adjudicated separately thereafter. However, most courts refuse to certify class actions in mass tort cases because of the individual damages issues involved. The interest of each injured person in controlling his or her case is deemed to outweigh any advantage of class adjudication of the liability issues. 37 Therefore, proceeding as a class action would be unduly prejudicial to Respondent due to the individual damages issue. There are no reports available regarding the extent of injuries suffered by the victims. 38 While it is not unduly burdensome or impractical to determine the damages for each of the thirteen members, a possible class of over 150 members makes damages proceeding unmanageable and over burdensome. Although common injuries among the survivors are burns, the injuries vary drastically. Injuries differ not only in severity (potentially first to third degree burns), but also in locations on the body. 39 In addition, many Claimants 36 KLRCA Rules at Rose v. Medtronics, Inc., 107 CA3d 150, 155 (1980); Clausing v. San Francisco Unified School Dist., 221 CA3d 1224, (1990). 38 Further Clarifications at A. 39 Further Clarifications at A 8

14 reported damages to the respiratory system 40 or may claim emotional distress. Every Claimant was injured differently and if Respondent is found liable, an individual case-by-case assessment is necessary. Because the damages will be highly prejudicial and unmanageable, the Arbitral Tribunal must deny any request for class certification. 2. Lack of Acertainability and Manageability of Potential Members Outweigh any Benefits of Class Adjudication. In addition to undue prejudice for the Respondent, the Claimants failed to show the existence of an ascertainable and manageable class. Ascertainability requires the class definition is precise, objective and presently ascertainable. 41 Class manageability includes consideration of the potential difficulty in notifying class members of the suit, calculation of individual damages; and distribution of damages. 42 Claimants may argue there is clear and definable class: any injured or deceased employee of Mea Sot Clothing, Ltd. working in the factory the day of the fire October 15, There is evidence of approximately 150 employees that could join the class. 43 Claimants may also argue that the issue of liability (whether Respondent can be held liable for the single event of the fire) can be determined by facts common to all members of the class. Yet even if Claimants requested to certify two separate classes, those injured and those representing the deceased, in an effort to streamline the damages calculation, there is no feasible way to ascertain or manage potential classes. The evidence shows that all employment records were destroyed 44 therefore it is impossible to verify whether a claimed member of the class actually did work for Mat Sot Clothing at the relevant time. Furthermore, it was discovered that 40 Id. 41 Sotelo v. MediaNews Group, Inc., 207 CA4th 639, ). 42 Id. 43 Moot Problem at Further Clarifications at A. 9

15 all of the injured workers were from Myanmar. 45 Due to the young age of the employees and the extent of injuries, many of the Mae Sot employees may have returned to their villages in Myanmar which are isolated and underdeveloped. Additionally, due to the lack of records, Claimants would have no way of reaching out to potential families representing the deceased employees. Potential members have little or no ability to receive adequate notice regarding the outcome of the case. There is no guarantee that Claimants would be able to reach any or all of the employees that returned to Myanmar nor verify whether a claimed individual rightfully belongs to the class. Due to the issues pertaining to geographic dispersion and lack of access to injured employees who returned home or to families of the deceased that remain in Myanmar, class certification must be denied. The interests of judicial economy, efficient and fairness will not be served by proceeding as a class action. Without proper notice, members would have no way of knowing whether they are access to entitles damages and barred from re-litigating. Therefore, the Arbitral Tribunal must deny class certification request based on lack of manageability and acertainability of the proposed class. II. CALIFORNIA STATE LAW IS THE MOST APPROPRIATE LAW TO APPLY TO THIS ARBITRATION. Under Article 35(1) of the KLRCA, the Arbitral Tribunal shall apply the rule of law designated by the parties as applicable to the substance of the dispute. Failing such designation by the parties, the Arbitral Tribunal shall apply the law, which it determines to be appropriate. Based on a valid choice of law provision and under general conflict of law principals, California state law is the most appropriate law to apply to this arbitration, 45 Moot Problem at 4. 10

16 A. The Contract between Respondent and Manufacturer Mae Sot Clothing, Ltd. Included an Express Choice of Law Provision Designating that California Law Govern the Transaction and Consent to Jurisdiction of the Court of Los Angeles County, California. This Arbitral Tribunal must honor the express choice of law provision in the written agreement between Respondent and Mae Sot Clothing. Under the general principals of contract, the parties had an expectation and understanding that should a legal dispute arise, the parties agreed to be governed by the law of California. This policy protects the expectation of the parties that when they enter into a contract, those provisions of the contract will be binding on them. These expectations should not be disappointed by application of the local law rule of a state (or nation) which would strike down the contract or a provision unless the value of protecting the expectations of the parties is substantially outweighed in the particular case by the interest of the state with the invalidating rule in having this rule applied. Maxim Crane Works, L.P. v. Tilbury Constructors, 208 Cal. App. 4th 286, 291 (2012). Here, at the time of the fire, Respondent and Mae Sot Clothing were bound by a written agreement, evidenced by the Standard Purchase Order (Standard Terms and Conditions). 46 In the contract under the Applicable Law provision, All transactions between the Buyer and the Seller are governed by the law of California. 47 Under the Jurisdiction provision, To the extent that any legal proceeding are commenced by either party, the Buyer and the Seller hereby consent to the jurisdiction of the court of Los Angeles County, California, for any claims or controversies arising in the sale of garments by the Seller to the Buyer. 48 Therefore, due to the clear provisions in the contract, the Arbitral Tribunal must apply California law in accordance with the parties understanding and expectations to be bound by California law. 46 Standard Purchase Order 47 Id. 48 Id. 11

17 Additionally, the issue of law before the Arbitral Tribunal is the allegedly liability of the Respondent for the Claimant s injuries that occurred while employed by Mae Sot Clothing. It is clear that there is no direct connection to Respondent and Claimants without Mae Sot Clothing Ltd. As a result, any allegedly liability of Respondent for the torts of Mae Sot Clothing must be based on a legal theory that the relationship between Respondent and Mae Sot was more than just the average contractor/independent contractor or customer/supplier relationship. Therefore, to prove Respondent should be held liable for the tort of Mae Sot Clothing, Claimants (the employees of Mae Sot) must first demonstrate some special relationship between Respondent and Mae Sot Clothing. Next, Claimants will need to prove that this special relationship can create liability on Respondent under some employer-employee or principal-agent legal theory. Therefore any attempt by Claimant to create liability stems from the relationship between Respondent and Mae Sot, which is bound by the written agreement. As a result the Arbitral Tribunal must adhere to the choice of law provision designated by the parties. Furthermore, in Nedlloyd Lines B.V. v. Superior Court, the California Supreme Court held a valid choice-of-law clause encompasses all causes of action arising from or related to that agreement, regardless of how they are characterized, including tortious breaches of duties emanating from the agreement or the legal relationships it creates. Nedlloyd Lines B.V. v. Superior Court, 3 Cal. 4th 459, 470 (1992). Similarly here, the provision clearly includes any litigation arising from the agreement even if not explicit. In this dispute, even if not explicit in the Standard Purchase Order, the Claimants, employees of Mae Sot Clothing (the Seller), seek to hold the Respondent (Buyer), liable for the torts of the Seller. This arbitration clearly arose and is directly related to the written agreement and the legal relationship that was created between Buyer and Seller. 12

18 B. The Arbitral Tribunal must Apply California Law as the Most Appropriate Under General Conflict of Law and Proper Law Principles 1. Due to Substantial Relationship and Interest, California has a Reasonable Basis in Having its Law Applied to this Arbitration In addition to an express choice of law provision, there are several factors why California has a more substantial relationship and interest in the outcome of this arbitration that any other applicable law. First, although Mae Sot Clothing Ltd. was the sole owner of the factory, Mae Sot s liability is not at issue. In fact both parties have accepted the report that Mea Sot Clothing Ltd. s factory was operated in a negligent manner and that because Mae Sot has no assets it would be futile to pursue legal action against it. 49 In addition, evidence shows that all deceased or injured employees were from Myanmar. 50 Therefore all parties at interest in this particular litigation are either United States or Myanmar citizens. Thailand has a less substantial relationship in the actual litigation of the case as its sole contact to this arbitration is that the injury occurred within the geographical boundaries of that jurisdiction. However as the only Respondent named in the case, the California contacts are substantial and the application of California law is reasonable. Second, California courts clearly have jurisdiction over the Respondent, Spear Shirt Inc. In Hertz Corp. v. Friend, the United States Supreme Court unanimously held, The phrase principal place of business refers to the place where a corporation's high level officers direct, control, and coordinate the corporation's activities, i.e., its nerve center, which will typically be found at its corporate headquarters. Hertz Corp. v. Friend, 559 U.S. 77, 78 (2010). Although Respondent is a world famous brand and sells its clothing carrying the Spear Shirt logo (Spear Shirt ) throughout the United States and internationally, Respondent s principal place of 49 Moot Problem at 5-1 and Moot Problem at 4. 13

19 business is in Los Angeles, California 51 and is therefore considered a corporate resident of the state of California. If this Arbitral Tribunal did find judgment in Claimant s favor, California law should be applied to provide Claimants the most effective and efficient forum to ensure recovery of any possible judgment. Third, California has a substantial interest in deterring unlawful conduct that occurs within its jurisdiction even if the injured parties are non-california residents. Because the principal place of business of Respondent is in California any alleged omission or acts by Respondent would have taken place in California. Furthermore California laws have an interest not only to deter wrongful conduct but to protect residents and non-residents from wrongful conduct that took place in California. In Diamond v. Superior Court, a purchaser of stock in a company brought class action against the company and certain of its officers, seeking damages under section for an alleged violation of Corporations Code section prohibiting market manipulation. The Supreme Court of California upheld that out-of-state purchasers and sellers of securities whose price has been affected may avail themselves of the remedy afforded by California law. Even assuming arguendo that California had no interest in protecting (Claimants) in other states, the Legislature may reasonably conclude that California does have a legitimate interest in discouraging unlawful conduct that has a potential to harm California investors as well as persons in other states Diamond Multimedia Sys., Inc. v. Superior Court, 19 Cal. 4th 1036, 1064 (1999). Because California law explicitly allows remedy for both residents and non-residents of California, this choice of law takes into account interest of both parties. 51 Moot Problem at 1. 14

20 Based on the forgoing reasons California law should be applied due to California s substantial relationship and interest in this arbitration and in addition provides a fair and just forum to ensure the interests of the Claimants are upheld. III. RESPONDENT, A CUSTOMER WITHOUT CONTROL OF THE MANNER AND MEANS OF PERFORMORMING THE SERVICES CANNOT BE HELD LIABLE FOR THE INJURIES OF THE INDEPENDENT CONTRACTOR S EMPLOYEES A. Buyer, Respondent, and Supplier, Mae Sot Clothing Ltd., Engaged in a Basic Contractor and Independent Contractor Relationship As stated above, Claimants ability to impute liability of Mae Sot Clothing to Respondent will depend on the employment relationship between Mae Sot and Respondent. The evidence is clear that over the course of ten years, Buyer Respondent and Seller Mae Sot intended to and executed a basic contractor-independent contractor relationship for the purchase of men s shirts. 1. As a Buyer, Respondent Did Not Maintain Control of the Manner and Means of Mae Sot s Manufacturing Service. The most significant factor in determining whether the status of a person performing services for another is an employee or independent contractor is the right of control of the manner and means of accomplishing the result, that is, the details of the work. Toyota Motor Sales U.S.A., Inc. v. Superior Court, 220 Cal. App. 3d 864 (2d Dist. 1990). An independent contractor is a person who renders service in the course of an independent employment or occupation, under the control of a principal as to the result of the work only and not as to the means by which the result is accomplished. Cal Lab. Code, 3353 (emphasis added). The strongest evidence of control whether the hirer can discharge the worker without cause, because [t]he power of the principal to terminate the services of the agent gives him the means of controlling the agent's activities. S. G. Borello & Sons, Inc. v. Department of Industrial 15

21 Relations, 48 Cal. 3d 341, 350 (1989). Because the analysis is fact intensive, courts may also consider the following; whether the one performing services is engaged in a distinct occupation or business the skill required in the particular occupation whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work the length of time for which the services are to be performed the method of payment, whether by the time or by the job whether or not the work is a part of the regular business of the principal and whether or not the parties believe they are creating the relationship of employer-employee. Id. Applying these factors, there is no evidence that Respondent had any control over the manner and means of Mae Sot Clothing Ltd. that would turn the relationship from one of hire and independent contract to an employer-employee. The evidence shows that Mea Sot Clothing is engaged in a distinct business separate from Respondent. Mae Sot is not a subsidiary of another company and does not have any divisions or subsidiaries 52 and produces all its products in house. 53 Furthermore Respondent did not have authority or control over Mae Sot Clothing s management or employees. Baydon s authority is limited to decisions regarding which companies manufacture shirts for Respondent. 54 Respondent does not have any power or contractual rights to appoint the Directors of Mae Sot. 55 In fact, any suggestions made by Respondent regardless of whether they were subsequently adopted or not- dealt with production deadlines and quality control. 56 In addition there is absolutely no evidence to support that Respondent was either the landowner or property owner of the equipment and facilities at Mae Sot Clothing. 52 Clarifications at A Clarifications at A Further Clarifications at A. 55 Clarifications at B Further Clarifications at E-1. 16

22 Additionally, there is no evidence to show that Respondent had any direct involvement in whether the Complainants are hired/fired or trained/supervised. Respondent does not determine the rate and manner of pay (hourly or piece rate), set work hours, tell them when and where to report to work, nor when to take breaks. The fact that Mae Sot, not Respondent, maintained all employment records 57 supports Respondent lack of control. Additionally, Respondent does not have a company code of conduct and has made no announcements to commit to labor standard in their supply chain. 58 There are no terms or conditions regarding the work conditions in the Standard Purchase Order. 59 Claimants may argue that Snowy s recreational visit to the factory constitutes supervision and direction in the manner of means of production. However the evidence shows that over the course of 10 years there is no evidence that any other officers or employees of Respondent visited or made any attempts to determine the working conditions at Mae Sot factory. 60 Based on the totality of the circumstances and weighing all the factors of an employer-employee relationship, the evidence clearly shows that Respondent lacked any control over the means and manner of production. 3. Respondent s Financial Benefit from Complainants Work Did Not Transform Respondent to Employer of the Mae Sot Clothing s Workforce Although Respondent does not own any shares or any other forms of interest in Mae Sot Clothing 61, Claimants may argue that the large amount of business between Respondent and Mae Sot indicates an employer-employee relationship. Respondent does not dispute that the two companies had a significant financial relationship over the course of ten years. However, this relationship was not mutually exclusive: Respondent continually contracted with other 57 Further Clarifications at A. 58 Id. 59 Standard Purchase Order 60 Further Clarifications at E Clarifications at B-2. 17

23 manufactures 62 and Mae Sot supplied clothing to many different companies. In fact at the time of the accident, Mae Sot was producing garments for at least five other companies besides Respondent. 63 In addition, the courts in California hold that benefitting financially, even substantially, is not enough to impute liability. In Martinez v. Combs, the defendant (produce merchants) were not considered the employer of the seasonal agricultural workers of a strawberry farm operation (Munoz). The Martinez Court states, Certainly defendants benefited in the sense that any purchaser of commodities benefits, however indirectly, from the labor of the supplier's employees. However, the concept of a benefit is neither a necessary nor a sufficient condition for liability under the suffer or permit standard Here, neither [Defendant Merchants] suffered or permitted plaintiffs to work because neither had the power to prevent plaintiffs from working. Munoz had the exclusive power to hire and fire his workers, to set their wages and hours, and to tell them when and where to report to work... Perhaps [Defendant/Merchants], by ceasing to buy strawberries, might as a practical matter have forced Munoz to lay off workers or to divert their labor to other projects But any substantial purchaser of commodities might force similar choices on a supplier by withdrawing its business. Such a business relationship, standing alone, does not transform the purchaser into the employer of the supplier's workforce. Martinez v. Combs, 49 Cal. 4th 35, (2010) (emphasis added). Although Martinez dealt with minimum wage laws, the court was required to interpreted a very broad definition of employer (any person who directly or indirectly, or through an agent or any other person, employed or exercised control over wages, hours, or working conditions of any person. Id at 72). This far reaching definition was based on a public policy a similar to the arguments made by Claimants in the present arbitration, to reach through straw men and other sham arrangements to impose liability on the actual employer. Id at 72. For the reasons stated in the previous subsection, Respondent did not exercise control over wages, hours, or working conditions to be considered an employer, even under a generous 62 Clarifications at B Clarifications at C-1. 18

24 definition based on identical public policies arguments. Therefore the Arbitral Tribunal must determine whether Respondent (the general contractor or hirer) can be held liable for the torts committed by Mae Sot (an independent contractor) that injured the Claimants (employees of independent contractor). B. Claimants Cannot Hold Respondent Liable for Injuries Occurred in the Workplace as Respondent Implicitly Delegated Any Tort Law Duty to Mae Sot to Comply with Regulatory and Statutory Safety Requirements Generally, when employees of independent contractors are injured in the workplace, they cannot sue the party that hired the contractor to do the work. Privette v. Superior Court; 5 Cal. 4th 689 (1993). By hiring an independent contractor, the hirer implicitly delegates to the contractor any tort law duty it owes to the contractor's employees to ensure the safety of the specific workplace that is the subject of the contract. SeaBright Ins. Co. v. US Airways, Inc., 52 Cal. 4th 590 (2011). That implicit delegation includes any tort law duty the hirer owes to the contractor's employees to comply with applicable statutory or regulatory safety requirements. Id at 594. In SeaBright, when an airline hired an independent contractor to maintain and repair a conveyor, airline presumptively delegated to independent contractor any duty of care the airline had under California Occupational Safety and Health Act (Cal-OSHA) and its regulations to ensure workplace safety for the benefit of independent contractor's employees. This includes a duty to identify the absence of the safety guards required by Cal-OSHA regulations and to take reasonable steps to address that hazard, since any tort law duty airline owed to independent contractor's employees only existed because of the maintenance and repair of the conveyor that independent contractor was performing for airline. While the existence of California workers' compensation laws favors delegation of liability, the court states it would be unfair to permit the 19

25 injured employee to obtain full tort damages from the hirer of the independent contractor damages that would be unavailable to employees who did not happen to work for a hired contractor. This inequity would be even greater when, as is true here, the independent contractor had sole control over the means of performing the work. Id. at 603. Similarly here, Respondent entered into an agreement with an independent contractor, not as employer-employer, presumptively delegated any tort law duty of care. Especially because Mae Sot Clothing retained exclusive control of the means and manner of its operations, Respondent cannot be held liable for ensure the safety of the specific workplace that is the subject of the contract. Therefore, Claimants, as employees of an independent contractor, have no standing to sue the Respondent under both Thailand and California s Occupation Safety and Health Regulations. C. Even if Respondent Retained Some Control Over Mae Sot Clothing, Claimants Fail to Show Respondent Affirmatively Contributed to Injuries of Independent Contractor s Employees Under tort law, the California Supreme Court has ruled that a hirer of an independent contractor is liable to an employee of a contractor insofar as the hirer's exercise of retained control affirmatively contributed to the employee's injuries. McKown v. Wal-Mart Stores, Inc., 27 Cal. 4th 219 (2002). [A]n assertion of control occurs, for example, when the principal employer directs that the contracted work be done by use of a certain mode or otherwise interferes with the means and methods by which the work is to be accomplished. Hooker v. Dep't of Transp., 27 Cal. 4th 198, 215 (2002). This exception does not contradict the general rule of non-liability for failure to comply with state statutory or regulatory workplace safety standards discussed above. Imposing tort liability on a hirer of an independent contractor when the hirer's conduct is appropriate, only if, 20

26 the hirer affirmatively contributed to the injuries of the contractor's employee. Hooker v. Dep't of Transp., 27 Cal. 4th 198, 215 (2002). If the hirer affirmatively contributed to the injuries then liability is not in essence vicarious or derivative in the sense that it derives from the act or omission of the hired contractor, especially since any regulatory or statutory liability has been delegated. Rather through any acts that constitute affirmative contribution, the liability of the hirer is direct. Id. In Hooker v. Department of Transp., although employer of an independent contractor permitted construction vehicles to pass, it was not sufficient to show the employer contributed to the contractor's employees' injuries. When the employee attempted to swing the boom on the crane with the outriggers retracted, the weight of the boom caused the crane to tip over, and the employee fell to his death. However, the court found that defendant did not direct the decedent to retract the outriggers. By merely permitting traffic to use the overpass, defendant did not affirmatively contribute to the decedent's death. Id.at While permission does not establish affirmative contribution, in McKown v. Wal-Mart the Court held request or direction may satisfy. There an employer of independent contractor who requested the use of unsafe equipment was sufficient to show employer contributed to injuries suffered by contractor's employees. The defendant retailer was liable to employee of independent contractor who was injured when using defendant's forklift to install sound equipment in store's ceilings. The defendant had requested that plaintiff's employer use defendant's forklifts whenever possible in performing the work. McKown v. Wal Mart Stores, Inc., 27 Cal 4th 219, (2002). Applying Hooker and McKown, Claimants failed to prove Respondent affirmatively contributed to the injuries by interfering with the means and methods by which the work is to be 21

27 accomplished. Claimants may argue that Snowy s 64 is evidence of inspection or supervision by Respondent. Claimants may try to impute liability based on the fact that Respondent s omission to correct the conditions affirmatively contributed to the injuries under the theory that silence indicates approval. However, Respondent never requested nor directed Mae Sot Clothing or any of their employees to work in the conditions that contributed to the fire. Respondent never prevented Mae Sot Clothing, the Claimants, or any governmental agency to rectify the open and obvious conditions. Even if Claimants could prove Respondent s omission establishes permission, Claimants failed to prove the alleged permission affirmatively contributed to Mae Sot s negligent operation. Furthermore Claimants may allege Respondent s suggestion on production deadlines and quality control affirmatively contributed to the injuries. In Madden v. Summit View, a general contractor was not liable to employee of subcontract for merely permitting an employee of a subcontractor to work on a patio without a guardrail, even if the general contractor had some input regarding the location of the electrical box the employee was working on at the time of the fall. Madden v. Summit View, Inc., 165 Cal. App. 4th 1267 (1st Dist. 2008). Similarly Respondent s input on deadlines and quality of the product is not an affirmative contribution by requesting, directing, or supervising how the work will be done. Therefore even if the Arbitral Tribunal finds some retained control, Claimants fail to show Respondent affirmatively contributed to injuries. D. Respondent Owes No Duty of Care to Prevent or Correct Unsafe Procedures of an Independent Contractor Which the Contractor Did Not Affirmatively Contribute. Under California tort law, the hirer of an independent contractor owes no tort law duty to an employee of the contractor to exercise its retained control so as to prevent or correct unsafe 64 Moot Problem, pg. 2 22

28 working conditions that the hirer did not affirmatively contribute to in some manner. Hooker at 209. See also Angelotti v. Walt Disney Co., 192 Cal. App. 4th 1394 (2d Dist. 2011). This differs from the delegation of any tort law duty to comply with regulatory or statutory workplace safety requirement discussed in the above section IV(B). In Angelotti v. Walt Disney, a general contractor (studio) owes no duty of care to an employee of a subcontractor (production company) to prevent or correct unsafe procedures or practices to which the contractor did not contribute by direction, induced reliance, or other affirmative conduct; the mere failure to exercise a power to compel the subcontractor to adopt safer procedures does not, without more, violate any duty owed to the plaintiff. The production company hired the stunt performer and leased the equipment from another entity. The studio did not participate in the design or coordination of the stunts, and the studio did not promise to undertake any particular safety measure. Id. at Similarly here, Respondent did not provide the unsafe equipment and Mae Sot Factory is the owner of the factory and maintains the equipment. Respondent did not participate in the design or coordination of the Claimant s working conditions. Furthermore throughout the ten years of employment, Respondent did not make any promises to undertake any particular safety measure. Because Respondent did not affirmatively contribute to the working conditions that caused Claimants injuries, there was no duty to correct or prevent unsafe practices of Mae Sot. E. Respondent Cannot be Held Liable Under the Peculiar Risk Doctrine Claimants may attempt to hold Respondent liable under the peculiar risk doctrine, which is an to exception general principle of nonliability for injuries to an independent contractor s employees. [T]he analysis of the applicability of the peculiar risk doctrine to a particular fact situation can be broken down into two elements: (1) whether the work is likely to create a 23

29 peculiar risk of harm unless special precautions are taken; and (2) whether the employer should have recognized that the work was likely to create such a risk. Hughes v. Atl. Pac. Constr. Co., 194 Cal. App. 3d 987, 997 (1987) (citing Griesel v. Dart Industries, Inc., 23 Cal.3d 578 (1979). Peculiar risk of harm is one which is peculiar to the work to be done and arises out of its character and the place where it is to be done. It is something other than an ordinary and customary danger which may arise in the course of the work or of normal human activity. Id. It has reference only to a special, recognizable danger arising out of the work itself. Id. The court in Hughes states, The doctrine does not apply to injuries resulting from the independent contractor's negligence for failing to take precautions as to the work's operative details which a careful contractor would take in its performance, such as the failure to use reasonable care to insure that the laminated plywood and wedges were properly installed which [subcontractor] provided to its workers. These are ordinary, customary risks, apart from the nature of the work itself. Every owner employing an independent contractor can anticipate that the independent contractor's employees may improperly install forms, thus endangering themselves and third parties.such a risk is always present. Hughes v. Atl. Pac. Constr. Co., 194 Cal. App. 3d 987, 1000 (Cal. Ct. App. 1987) Similarly here the manufacture of shirts was not itself a peculiar risk. Over the course of ten years there is no evidence to show the manufacturing of shirts was particularly dangerous. The employees did not have to work with hazardous chemicals or explosives. Under the ordinary course of a textile factory there is no recognizable peculiar danger arising out of the work. Here the risk was Mae Sot s would fail to take proper precautions and reasonable care in their performance. The court is clear that a hirer is not liable because [i]t would be entirely impracticable, unreasonable and expensive to expect a [general contractor] to set up a system to monitor the manner in which [the component parts selected and assembled] are used by workmen and guard against misuse or negligent use of [such items] by workmen in day-to-day 24