NJ wants to divest after Ben & Jerry's ends sales in settlements. Will it stand in court?

New Jersey plans to pull $182 million in investments from the parent company of Ben & Jerry’s after the ice cream maker's decision to end sales in Israeli settlements on Palestinian land.

Whether those sanctions can hold up in court is an open question. 

New Jersey is one of more than 30 states with laws that impose penalties for boycotts of Israel, Israeli-controlled territories, or Israeli goods or companies. Last week, the state Division of Investment informed Unilever plc, a British conglomerate with American operations based in Englewood Cliffs, that the law required the Garden State to divest. 

Unilever, which employs 1,600 people out of its Bergen County headquarters, has 90 days to appeal. 

In First Amendment challenges to anti-boycott laws in Arizona, Georgia, Kansas and Arkansas, courts have ruled in favor of businesses and individuals that sued after losing jobs because of their alleged support for boycotts.

But none of those cases involved challenges over divestment of state pension funds.

What is clear is that the international debate over the Israeli-Palestinian conflict is playing out in statehouses and courtrooms across the United States, as growing progressive support for the boycott, divestment and sanctions (BDS) movement runs into a backlash from Israel and its supporters.

Free speech or discrimination?

Illinois, Florida, Texas and New York are among states considering pulling investments in Unilever. Arizona has already announced that it is selling off $143 million in company bonds in response to Ben & Jerry’s action.

Divestment may send a political message, but on its own it isn't likely to put much of a financial strain on Unilever: The company's stock has a total market capitalization of more than $140 billion and its bonds are valued at about $26 billion. 

Civil rights groups say anti-boycott laws are unconstitutional because they infringe on the right to free speech. Defenders say they are permissible because they protect against discrimination targeted at Israel and its Jewish citizens. New Jersey also maintains that boycotts are bad for business, as $1.3 billion in goods and services are traded annually between the state and Israel. 

Legal challenges could depend on the legislators’ intent when passing the law, said Amanda Shanor, an assistant professor of legal studies and business ethics at the University of Pennsylvania's Wharton School. A judge will consider whether it was meant to protect a targeted group from discrimination or to clamp down on political speech, she said.

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“If they are passing a law to try to stamp out boycotts because of what they are expressing, then it is going to be unconstitutional,” Shanor said.

Debbie Kaminer, a law professor at the Zicklin School of Business at Baruch College in New York, said commercial entities don’t have a First Amendment right to discriminate against people in a protected class.

“The state has the power to tell commercial businesses who they must associate with,” Kaminer said. “You must allow the gay customer, the Black customer, the Jewish customer.”

States have laws shielding people against discrimination based on race, religion and national origin, but also have wide leeway to create additional protected classes, Kaminer said. She noted, for instance, that Texas has declared people who refuse to get COVID vaccinations as a protected class.

“State legislatures can pretty much choose whatever protected class they want to choose from a policy perspective," Kaminer said. "For the most part, it's not going to be unconstitutional."

Question of liability

Unilever declined to comment about its legal strategy, but CEO Alan Jope sent an Aug. 8 letter to the New Jersey Division of Investment director about the matter. He wrote that the company's agreement to purchase Ben & Jerry’s gave the ice cream maker's board independence to decide its social mission. Unilever does not support the boycott movement, Jope added.

The reason corporations exist is to shield owners from liability, said Charles Sullivan, professor of law emeritus at Seton Hall University. “If a corporation goes bankrupt, you can’t sue shareholders. The corporation is a kind of insulation for the owner. A corporation is limited liability for a reason,” he said.

“Unilever hasn’t engaged in any boycott,” added Sullivan, who specializes in business law. “As a company, it hasn’t. Some other company has. It does own the company, but that’s the purpose of corporate insulation.”

The wording of New Jersey’s law, which says it will divest from “companies” that boycott Israel, leaves room for interpretation. The “real question, in this case, is what the state Legislature meant by the word 'companies,' and whether it means broader corporate entities,” Sullivan said.

Even if it's shielded from liability, Unilever should be concerned, he said. The state Treasury Department’s Division of Investment could simply decide not to invest — without making a public relations show of it — because it believes that’s the intent of New Jersey’s law.

“If I were director [of investment] and had this statute staring me in the face, I’d divest because that’s what the legislation wants me to do,” he said.

On Sept. 2, the Division of Investment informed Unilever that it had 90 days to challenge a preliminary finding that calls for pulling stocks and bonds from state pension funds.

Is it a boycott?

Some companies and organizations that support halting business in settlements, including Ben & Jerry’s and its Jewish founders, say their actions are pro-Israel because the settlements are a risk to peace and democracy.

In a July statement, Ben & Jerry's said the decision to halt sales outside Israel’s borders is not a boycott of Israel. But Israel's leaders do not differentiate between the settlements and the rest of its territory. Neither does New Jersey, which extends protections to "Israeli-controlled territories" in its 2016 law.

New Jersey’s Office of the Attorney General declined to comment about legal questions around divestment. Assemblywoman Valerie Vainieri Huttle, a Bergen County Democrat, said in a previous statement that the anti-boycott bill she co-sponsored “was deemed constitutional by our non-partisan Office of Legislative Services and never intended to prohibit free speech.”

“There are at least 26 states that have passed anti-BDS laws and some have been struck down for violating the First Amendment,” she said. “However, since Israel is the world’s only Jewish State, boycotts are discriminatory and violate the law.”

Hannan Adely is a diversity reporter covering Arab and Muslim communities for NorthJersey.com, where she focuses on social issues, politics, bias and civil rights. To get unlimited access to the latest news, please subscribe or activate your digital account today.

Email: adely@northjersey.com 

Twitter: @adelyreporter