February 10, 2004
Cintas Defamation Suit Challenges Shareowner Free Speech Rights
by William Baue
Cintas files a defamation lawsuit against Tim Smith of Walden Asset Management for alleging that
the company uses sweatshop labor in Haiti.
Until now, shareowners have unquestioningly enjoyed and exercised their Constitutional free speech
rights to express concerns with management at corporate annual general meetings (AGMs). However, a
defamation lawsuit filed late last month by Cintas (ticker: CTAS) against socially responsible
investment (SRI) firm Walden Asset
Management and its senior vice president, Tim Smith, could have a "chilling effect" on
The Cintas complaint centers around remarks Mr. Smith made at
the October 2003 AGM introducing a resolution that asks Cintas to assess the efficacy of its Code of Conduct in
preventing sweatshop labor in countries where it sources. Mr. Smith referred to Haitian American
Apparel (HAACOSA) as "a major supplier to Cintas."
"Cintas products in Haiti are currently
being produced in violation with its own Code of Conduct," the complaint quotes Mr. Smith as
saying. "Cintas is sourcing from a factory which is a poster child for sweatshops."
Cintas complaint vehemently denies these allegations, and charges Mr. Smith with defamation for
knowingly disseminating "false" information.
"This lawsuit is pretty alarming, as it
could have a chilling effect on shareowners' ability to speak freely," said Adam Kanzer, general
counsel & director of shareholder advocacy at Domini Social Investments, which co-filed the resolution. "The
lawsuit raises the question of what it means to speak freely at annual meetings."
looks like a 'slap suit' to scare people away," Mr. Kanzer told SocialFunds.com.
Cintas complaint alleges that Walden cited the Union of Needletrades, Industrial and Textile
Employees (UNITE) as its sole source for
the statements, despite Walden's own policy of fact-checking with more than one source.
UNITE is currently embattled with Cintas, and has posted a white paper on its website outlining
its grievances against the company. The Cintas complaint characterizes UNITE as "a highly biased
Cincinnati-based Cintas claims to be the largest supplier of uniforms in North
America with more than 27,000 employees, 500,000 customers, and more than 5 million people wearing
their product each day. Cintas was selected as one of the most admired companies in 2003 by
Fortune Magazine and also made the “A-List” of the best global companies as
designated by Forbes Magazine.
This case has far-reaching implications for
shareowner action. The complaint calls for an injunction to enjoin Walden from making statements
associating Cintas with Haitian sweatshops. Applied more broadly, such an injunction could amount
to a gag order for shareowner action practitioners, who wonder at the suit's motivations.
"What is the purpose of this lawsuit?" asks Sister Ruth Rosenbaum, executive director of the
Center for Reflection, Education, and Action (CREA), a shareowner activist who has done extensive research on
the contract-supply labor chain in Haiti and other countries. "Is it to intimidate shareowners?
Is it to say that the company is not responsible to its shareowners?"
"If the company
disagrees with these statements, why don't they provide documentation as proof instead of filing a
lawsuit?" Sister Rosenbaum told SocialFunds.com.
Cintas spokesperson Wade Gates declined
to respond to SocialFunds.com's questions and requests for such documentation, referring only to
the complaint as the sole public commentary on the suit.
The Cintas lawsuit represents an
intriguing counterpoint to the Kasky v. Nike lawsuit that reached the US Supreme Court,
which sent the case back to California with conflicting opinions issued by the Justices. In 1998,
San-Francisco-based social advocate Marc Kasky filed suit against Nike (ticker: NKE), extensively documenting false
statements the company made publicly denying its use of sweatshop labor in developing countries.
Nike claimed first amendment free speech protection for its public statements. The
California Supreme Court disagreed with Nike, and defined its statements as commercial speech,
which the law holds to a high standard of veracity. After the US Supreme Court sent the case back
to California, Mr. Kasky and Nike settled out of court, precluding a judicial examination of the
veracity or falsity of Nike's public statements.
Now, the Cintas Corporation is turning
the tables, seeking to deny shareowners free speech rights.