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Are Companies Liable in the U.S. for Abuses Abroad?

Jaclyn Jaeger | November 22, 2011

A split has emerged among federal appeals courts over whether corporations can be held liable in U.S. courtrooms for human rights abuses conducted overseas—with the California-based Ninth Circuit Court of Appeals, as usual, charting its own course for corporate liability.

That court decided on a 6-5 vote in late October that mining giant Rio Tinto could be held liable under the Alien Tort Statute (ATS) for allegations that the company aided the Papua New Guinea government in committing genocide and war crimes. It was the latest ruling in a running legal dispute over whether companies can be held liable in the United States under the ATS for charges of human rights violations in foreign countries. Last year, the New York-based Second Circuit Court held that the ATS extends only to civil actions against individuals, not actions against corporations.

Shortly after the Ninth Circuit Court's ruling, the U.S. Supreme Court agreed to hear a case this term that will finally settle the controversial question. The case, Kiobel v. Royal Dutch Petroleum, stems from a lawsuit filed by the families of seven Nigerians over accusations that Royal Dutch Petroleum, Shell Transport and Trading Co., and their subsidiary Shell Petroleum Development Co. of Nigeria aided the Nigerian government in violently suppressing protests against oil exploration in the area.

“It will be the big international law case of the term,” says John Bellinger, a partner at Arnold & Porter and former State Department legal adviser for the Bush Administration. Given how closely watched Kiobel will be by businesses, human rights, and academic groups, “there probably will be more amicus briefs filed in this case than any other case this term, maybe even more than healthcare,” he says.

So far, only the Second Circuit decision has gone in favor of the corporate defendants. In dismissing the plaintiffs' claims, the court reasoned that “no corporation has ever been subject to any form of liability (whether civil or criminal) under the customary international law of human rights.”

In February, after a sharply divided 5-5 vote denying a rehearing en banc—where all of the judges in the circuit would hear the case—plaintiffs filed a U.S. Supreme Court cert petition, which was granted on Oct. 17. The High Court combined Kiobel with Mohamad v. Rajoub, which also poses the question of whether companies may be held liable under the Torture Victim Protection Act.

Since Kiobel, no other appellate court has adopted the Second Circuit's view, with the D.C., Seventh, Ninth, and Eleventh Circuits ruling in favor of corporate liability under the ATS. “Kiobel has become an outlier,” says Susan Farbstein, associate clinical director at Harvard Law School's Human Rights Program. “Before Kiobel, circuit courts presented with corporate ATS cases have consistently assumed that corporations could be held liable under the statute.”

In the Rio Tinto case the Ninth Circuit specifically rejected the Second Circuit's holding that “international law as a whole” does not recognize the doctrine of corporate liability. In reversing a district court dismissal, the Ninth Circuit majority held that the ATS “provides a domestic forum for claims based on conduct that is illegal everywhere.”

“The question of whether a corporation could be held liable was not a major factor until Kiobel. The most important thing is that we will have clarity after the decision on this issue.”


—Tyler Giannini,
Clinical Professor of Law,
Harvard Law School

In dissent, Judge Andrew Kleinfeld criticized the majority for creating a “new imperialism, entitling our court, and not the peoples of other countries, to make the law governing persons within those countries.” The ruling means “we on the Ninth Circuit now exercise jurisdiction over all the earth, on whatever matters we decide are so important that all civilized people should agree with us.”

Judge Sandra Ikuta also disagreed with the majority. “The dangers created by the majority's method of creating (or ‘recognizing') international rules of law, to say nothing of their application to foreign nationals suing one another in federal court, are obvious,” she said. “I dissent from this ill-conceived, ill-reasoned, and, I fear, ill-fated exercise of judicial power.”

The case now goes back to the district court for further proceedings. Rio Tinto did not respond to requests for comment.

In another case, Doe v. Exxon Mobil, the District of Columbia Circuit Court held that aiding and abetting liability is well established under the ATS. In that case, decided in July, Indonesian villagers filed a complaint in 2001 alleging that Exxon's security forces committed genocide, extrajudicial killing, torture, and crimes against humanity in violation of ATS.

In an extensive 112-page opinion, the majority in a 2-1 vote held that “neither the text, history, nor purpose of the ATS supports corporate immunity for torts based on heinous conduct allegedly committed by its agents in violation of the law of nations.” Judge Brett Kavanaugh argued in his dissent that the ATS was not meant to apply to conduct in foreign countries.

KIOBEL DECISION

The excerpt below from Kiobel v. Royal Dutch Petroleum explains the U.S. Court of Appeals' Decision in the Kiobel case.

Plaintiffs assert claims for aiding and abetting violations of the law of nations against
defendants—all of which are corporations—under the Alien Tort Statute (“ATS”), 28 U.S.C. § 1350,
a statute enacted by the first Congress as part of the Judiciary Act of 1789. We hold, under the
precedents of the Supreme Court and our own Court over the past three decades, that in ATS suits
alleging violations of customary international law, the scope of liability—who is liable for what—is
determined by customary international law itself. Because customary international law consists of
only those norms that are specific, universal, and obligatory in the relations of States inter se, and
because no corporation has ever been subject to any form of liability (whether civil or criminal)
under the customary international law of human rights, we hold that corporate liability is not a
discernable—much less universally recognized—norm of customary international law that we may
apply pursuant to the ATS. Accordingly, plaintiffs' ATS claims must be dismissed for lack of
subject matter jurisdiction.

The order of the United States District Court for the Southern District of New York (Kimba
M. Wood, Judge) is AFFIRMED insofar as it dismissed plaintiffs' claims against the corporate
defendants and REVERSED insofar as it declined to dismiss plaintiffs' claims against the corporate
defendants.

Judge Leval concurs only in the judgment of the Court dismissing the complaint and files a
separate opinion.

Source: Kiobel v. Royal Dutch Petroleum.


Days following the Exxon case, the Seventh Circuit Court of Appeals on July 11 found in Flomo v. Firestone Natural Rubber that federal common law allows U.S. courts to address corporate violations of customary international law. That case accused Firestone of using and encouraging child laborers to perform hazardous tasks on a rubber plantation in Liberia in violation of customary international law.

The court also addressed whether aiding and abetting applies to a corporate defendant that merely buys tires made from rubber produced at a foreign plantation using child labor. The court concluded, however, that this would stretch customary international law too far.

“This suggests that liability for aiding and abetting violations of international law must be based not merely on knowledge, but also on assistance beyond routine activities that have the effect of advancing the violation,” wrote law firm Pepper Hamilton in a client alert.

Potential Implications

“This may be a case of good news and bad news if the U.S. Supreme Court ultimately affirms Kiobel,” says Bellinger. The good news is that corporations would no longer be liable under ATS, but the bad news is plaintiffs would simply start filing lawsuits against individual corporate officers, directors, and managers, he says.

Given the Supreme Court's decision in Sosa v. Alvarez-Machain, its only priorcase to address the ATS, Bellinger says it's likely the Court will affirm the Second Circuit's decision. “The Supreme Court historically has been very cautious and conservative about expanding or broadly reading the ATS,” he says.

“U.S. courts have been open to survivors of human rights abuses for decades, and the question of whether a corporation was completely exempt from liability was not a factor until Kiobel,” says Tyler Giannini, Clinical Professor of Law at Harvard Law School and Clinical Director of its Human Rights Program. “The Supreme Court will clarify whether U.S. courts will be open to victims' claims going forward.”

The Court is expected to hear the Kiobel case in February, with a decision expected by June.