Ruling Closes the Door on Alien Tort Statute Liability

A recent appeals court decision could end corporate liability under the Alien Tort Claims Act for charges of human rights violations abroad.

The Second Circuit Court of Appeals ruled that companies can't be held liable in the United States under the Act, also called the Alien Tort Statute, for violations of international law in foreign countries. The decision effectively closes the door on the bulk of ATS litigation, at least for now.

The ATS was enacted in 1789 to allow foreign citizens to file actions against U.S.-based multinational companies for violations of “international law.” In recent decades, the statute has been used as the primary vehicle for foreign citizens to file class-action lawsuits in the United States against multi-national companies for human rights violations.

Few such cases have produced successful rulings for plaintiffs, but they have driven several companies to agree to large settlements to avoid continued costly litigation and reputational harm.

Those cases may now be out for good if the ruling by the Second Circuit in Kiobel v. Royal Dutch Petroleum stands. In that case, the families of seven Nigerians accused Royal Dutch Petroleum Company, Shell Transport and Trading Company, and their subsidiary Shell Petroleum Development Company of Nigeria of aiding the Nigerian government in violently suppressing protests against oil exploration in the area.

In its original decision handed down in September 2010, the Second Circuit held that ATS extends only to civil actions against individuals, not actions against corporations. On Feb. 4 in a 2-1 vote, the panel denied the plaintiffs' petition for a rehearing, and later that day the full court denied a rehearing en banc—whereby all of the judges in the circuit would hear the case—with a sharply divided 5-5 vote.

In its 50-page majority opinion, the court concluded that, while individuals have been held liable for human rights violations under the law of nations, such liability has never been extended to include a corporation. “No corporation has ever been subject to any form of liability (whether civil or criminal) under the customary international law of human rights,” the court wrote. “Accordingly, plaintiffs' [Alien Tort Statute] claims must be dismissed.”

Citing U.S. Supreme Court precedent in Sosa v. Alvarez-Machain, the Second Circuit held that, because corporate liability isn't recognized as a “specific, universal, and obligatory” international norm, federal courts lack subject matter jurisdiction to entertain ATS cases against companies.

Jonathan Drimmer, a partner with law firm Steptoe & Johnson, says the decision is a big one due to the sensitivity of the issue and the strong influence of the Second Circuit, even if the outcome is not surprising.

The September ruling to dismiss Kiobel is already having an effect on other cases. In January, the Southern District of New York Bankruptcy Court ruled not to allow apartheid plaintiffs' claims against the pre-IPO General Motors to move forward, agreeing that corporate liability cannot form the basis of a suit under the ATS.

“My big advice on the compliance side in helping companies with human rights compliance issues is you don't focus on the lawsuits and you don't focus on the ATS. You focus on the conduct.”

—Jonathan Drimmer,

Partner,

Steptoe & Johnson

The GM bankruptcy case is an offshoot of In re South African Apartheid Litigation, which has been lingering in the Southern District of New York for nearly a decade. That lawsuit accuses more than 30 multinational companies of aiding the South African government in the practice of apartheid in violation of international law.

A Ninth Circuit case against Rio Tinto mining company for its activities in Papua New Guinea and a Seventh Circuit case that challenges Exxon Mobil activities in Indonesia are also in jeopardy due to the Kiobel ruling.

Split Vote

Not all judges on the Kiobel panel agreed. In a dissenting opinion, Judge Gerard Lynch, joined by three others on the panel, reasoned that a rehearing for Kiobel should have been granted, because “the panel majority opinion is very likely incorrect as to whether corporations may be found civilly liable under the [ATS].”

Lynch also argued that the case now “presents a significant issue and generates a circuit split.” He was referring to a 2008 Eleventh Circuit decision in Romero v. Drummond, which upheld corporate liability under the ATS. That case revolved around a series of complaints filed in 2002-2004 by a Columbian trade union and several Colombian nationals against Drummond and its Columbian subsidiary.

Steptoe & Johnson's Drimmer says the Second and Eleventh Circuit's opposing views don't necessarily represent a circuit split, because, while the Eleventh Circuit said it allows cases against corporations, it did not go into the lengthy, painstaking international law analysis that the Second Circuit did. That may soon change, though. On Feb. 3, the Eleventh Circuit agreed to reinstate the lawsuit against Drummond in the case Baloco v. Drummond.

USCIB COMMENTS

The following remarks are from Timothy Deal, senior advisor at the United States Council for International Business, regarding the Alien Tort Claims Act:

In April 2003, USCIB joined five other business associations in filing an amicus brief in the case of John Doe I v. UNOCAL Corporation in the Ninth Circuit. We expressed our concern about the increasing number of claims under the ATS. We pointed out that global companies could find themselves

entangled in litigation brought by non-U.S. plaintiffs alleging wrongs committed outside the U.S., not by

companies, but by the plaintiffs' own governments or agents of those governments, over which the

companies have no control. We also stressed that this proliferation of claims resulted from a

fundamental misinterpretation of the ATS itself, which, we argued, did not provide a legal basis for such

suits. In the view of the U.S. business community, the ATS was never intended to provide a basis for

federal jurisdiction over claims against private corporations from alleged acts taking place in foreign

countries.

In calling for a reversal of a decision by the Ninth Circuit, USCIB and its fellow business organizations set

forth three lines of argument:

First, ATS litigation interferes with foreign investment and foreign relations.

Second, the ATS provides for “jurisdiction” only and contains no private cause of action.

Third, the ATS confers jurisdiction only where Congress has provided a cause of action by statute

or treaty.

The rate and scope of ATS litigation has increased markedly since the Filartiga decision in 1980. While

the ATS is occasionally invoked against individuals or officials accused of violating international law, the

vast majority of recent cases have targeted private companies with deep pockets. Foreign plaintiffs and

the lawyers and organizations supporting them have adopted the statute as a way to embarrass foreign

governments, many of which the U.S. Government counts as friends and allies, while putting pressure

on corporations to abandon operations in targeted countries. ATS suits invariably raise highly charged

allegations of human rights abuses, generate considerable publicity, and involve enormous potential

damages.

Another consideration is that it is often difficult, if not impossible, to join other parties, many of which

are not subject to the jurisdiction of U.S. courts. That is particularly true with respect to sovereign

governments whose acts are often challenged by plaintiffs, but who are protected by sovereign

immunity and the act of state doctrine. Furthermore, evidence needed for the defense of ATS claims is

often located abroad and may not be accessible to defendant corporations.

As a practical matter, ATS cases are brought mostly against corporate defendants, especially U.S.

multinationals, for which personal jurisdiction is more likely obtainable and from which judgments are

more likely collectible. In contrast, foreign companies without a U.S. presence need not fear ATS suits

and their associated costs. That means that U.S. companies (and foreign companies with a U.S.

presence) are potentially at a significant competitive disadvantage. The U.S. stands virtually alone in

entertaining law suits over claims arising from conduct undertaken by a foreign sovereign in its own

territory.

All these factors increase the risk, uncertainty, and cost of overseas operations and investment. The

threat of ATS lawsuits can result in higher insurance costs, difficulties in accessing capital markets, and

negative effects on shareholder confidence and stock prices.

Source: USCIB Comments, November 10, 2010.

Whether or not the Supreme Court will agree to hear Kiobel upon appeal remains uncertain. According to Drimmer, the more likely outcome is that the Court will wait to see what the Ninth and Seventh Circuits do before weighing in. He adds that it could be hard to argue with Second Circuit precedent, given that the language in ATS is not terribly clear, and because the court's reasoning is consistent with the Supreme Court's ruling in Sosa.

However, John Bellinger, a partner with Arnold & Porter, says the Supreme Court could step in to end the debate on the statute. “Overall, this issue of corporate liability has been, or is being, considered in a number of the circuit courts and particularly with decisions coming out probably sometime this year in D.C. and the Ninth Circuit, this might be an opportune time for the Supreme Court to take the case and make a decision,” he says.

At least, that is the hope of business industry groups. Jonathan Huneke, a spokesman for the United States Council of International Business (USCIB), says: “Of course we agree with the circuit court's ruling, but so long as the Supreme Court leaves the door ajar, even a bit, to such lawsuits, the ATS will continue to be abused by forum-shopping plaintiffs' lawyers.”

It's possible that the plaintiffs in Kiobel won't appeal the case to the Supreme Court, Bellinger says. Since the Supreme Court is likely to affirm the Second Circuit's decision, the plaintiffs face substantial risk by appealing. "It's not a very hospitable environment for their arguments to be heard,” he says.

Regardless of an appeal, the Kiobel decision does not completely end litigation for human rights violations abroad. As stated in its opinion, the court stressed that only companies are protected from ATS claims; individual corporate officers, directors, managers, and employees can still face liability for intentionally aiding and abetting a violation of international law. That creates the potential that plaintiffs' lawyers will shift their focus to the individual executives of the companies they have targeted.

And cases that don't rely on ATS can still move forward. “The Alien Tort Statute is one discreet component of the risks on the human rights side that companies face,” says Drimmer. "And nobody should breathe a sigh of relief that somehow they can become more lenient in their compliance programs when it comes to human rights as a result of this decision,” he says.

“My big advice on the compliance side in helping companies with human rights compliance issues is you don't focus on the lawsuits and you don't focus on the ATS,” says Drimmer. “You focus on the conduct.”