Hard to Kill: Recent Decisions Concerning Alien Tort Statute Revive Debate Over Corporate Social Responsibility
Adrienne Kitchen Moeller | Bloomberg Law
If you’re a corporation looking to dodge liability for, well, dodgy conduct that goes on in other countries, you’d be wise to pay attention to fresh developments in jurisprudence concerning the applicability of the once-sleepy Alien Tort Statute (ATS), 28 U.S.C. § 1350, to corporate entities.
The ATS, enacted over two centuries ago as part of the Judiciary Act of 1789, ch. 20, § 9, 1 Stat. 73, 77, allows civil suits to be brought in U.S. courts for torts “committed in violation of the law of nations or a treaty of the United States.” The statute was essentially dormant until 1980, when the U.S. Court of Appeals for the Second Circuit held in Filartiga v. Pena-Irala, 630 F.2d 876, 890 that ATS provided jurisdiction over (1) tort actions, (2) brought by aliens (only), (3) for violations of “customary international law,” including war crimes and crimes against humanity. In 1997, the first ATS case was brought against a corporate defendant.1 The U.S. Supreme Court has decided only one ATS case in its history.2
This may change come the Court’s fall term. Recent appellate decisions in cases with troubling fact patterns and horrendous allegations of human rights violations against corporate entities demonstrate a deepening circuit split on the issue of whether, and to what degree, corporations may be sued and held liable under the ATS. These decisions, two of which were released over a four-day period, reveal very different judicial perspectives on the ability of American courts to decide tort claims relating to corporations’ activities abroad, whether they involve aiding and abetting human rights violations committed by another or more direct involvement on the part of the entity.
On a broader scale, these cases shine a spotlight on the concept of corporate social responsibility, which holds corporations accountable for their conduct with regard to intangibles such as environmental, social and governance factors. While these factors are technically non-economic in nature, they can directly affect a corporation’s reputation, valuation and performance.
Second Circuit Rules Corporations Cannot Be Sued under ATS
In Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111, 2010 BL 217596 (2d Cir. 2010), a 2-1 majority of the Second Circuit held for the first time that the scope of the ATS did not extend to claims against corporations. The plaintiffs in Kiobel are a group of Nigerian citizens who sued Shell Petroleum Development Company of Nigeria, Ltd. (SPDC) and its parent entities in connection with alleged human rights abuses involving the Nigerian government’s suppression of protests against the company’s oil exploration and production activities in Nigeria. Specifically, the plaintiffs alleged that in 1993 and 1994, Nigerian military forces shot and killed Nigerians in the Ogoni region and viciously attacked their villages, with the assistance of SPDC, which provided transportation, food and compensation to the forces and permitted their property to be utilized as a staging ground for attacks.
In the controversial majority opinion penned by Judge Jose Cabranes, the court reasoned that established international jurisprudence, beginning with the Nuremberg Tribunal following World War II, revealed that no international tribunal had ever extended the scope of liability for a violation of a given norm (and in particular, for a violation of human rights) to a corporation. The court explained that beginning with Filartiga and extending to Sosa, U.S. precedent required the court to look to international law to determine whether corporations could be held liable under the ATS for alleged violations of customary international law.
Drawing from the U.S. Supreme Court’s opinion in Sosa, the court found that the jurisdictional scope of the ATS was in fact limited to cases involving an international norm that was “specific, universal, and obligatory.” Kiobel at 148 (quoting Sosa at 732). Since there was no universal international recognition of the concept of corporate liability for violations of customary international law as a “norm,” corporations could not be held liable under the ATS. Id. at 149. The court thus dismissed the plaintiffs’ complaint against the corporate defendants for lack of subject matter jurisdiction.
In February 2011, the Second Circuit denied a petition for rehearing en banc by a court sharply divided 5-5. In June 2011, the Kiobel plaintiffs filed a petition for a writ of certiorari with the U.S. Supreme Court.
D.C. Circuit Holds ATS Does Apply to Corporations
On July 8, 2011, the U.S. Court of Appeals for the D.C. Circuit took the position in Doe v. Exxon Mobil Corp., 2011 BL 180065 (D.C. Cir. July 8, 2011), that corporations are not immune from liability under the ATS merely because of their corporate status. In a 2-1 decision, the court reversed a district court’s dismissal of lawsuits alleging that Exxon was liable for human rights violations perpetrated by Indonesian military personnel employed by Exxon as security guards in Indonesia. The plaintiffs had alleged that the soldiers subjected villagers in the Aceh province to extrajudicial killing, torture and prolonged arbitrary detention, and further alleged that Exxon had control over the soldiers’ actions and continued to support them despite having knowledge of the atrocities being committed.
The appellants in this case argued that the district court erred in ruling that aiding and abetting liability was unavailable under the ATS. The circuit court agreed, concluding that aiding and abetting liability for corporations under the ATS was well established. In so deciding, the court held that it is enough that a corporation aids and abets a wrongful act knowingly—regardless of whether it was purposeful—which stands in contrast to the Second Circuit’s decision in Presbyterian Church of Sudan v. Tailsman Energy, Inc., 582 F.3d 244, 2009 BL 216550 (2d Cir. 2009), which held that the aider and abettor must share the same purpose as the principal actor.
With respect to the issue of whether corporations could be held directly liable under the ATS, the court explained that the question of corporate liability is not determined by customary international law because the attribution of liability for the conduct of an actor does not implicate the norms that govern the conduct itself. The court found that the Kiobel majority decision was problematic in that it overlooked the “distinction between norms and technical accoutrements in searching for an international norm of corporate liability in customary international law.” Exxon at 85.
The court’s review of the historical record revealed that corporate liability under the ATS is sufficiently implied. Specifically, the ATS was enacted during a period of nationwide concern over the failure of the Articles of Confederation to provide the federal government with the authority to enforce violations of the law of nations, which could have led “to the United States’ entanglement in foreign conflicts when a single citizen abroad offended a foreign power by violating the law of nations.” Id. at 64. There was no reason to conclude “that the First Congress was supremely concerned with the risk that natural persons would cause the United States to be drawn into foreign entanglements, but was content to allow formal legal associations of individuals, i.e., corporations, to do so.” Id. Moreover, the court explained, by 1789, corporate liability was an accepted principle of tort law in the United States.
The court supported this reasoning with the text of the ATS, which provides federal courts with jurisdiction over all violations of the law of nations and does not explicitly exclude corporations. The court explained:
Given that the law of every jurisdiction in the United States and of every civilized nation, and the law of numerous international treaties, provide that corporations are responsible for their torts, it would create a bizarre anomaly to immunize corporations from liability for the conduct of their agents in lawsuits brought for ‘shockingly egregious violations of universally recognized principles of international law.’
Id. at 84-85 (internal citation omitted). Finding that other courts considered cases against corporations under the ATS without indicating that the issue of corporate liability was in controversy, the court explained that Exxon had not given it any reason to take a different approach.
Interestingly, the court considered this particular argument by Exxon despite the fact that Exxon only raised the issue after appeal. The court’s reason for shirking procedure: the issue was a novel and important question of federal law and review would not prejudice the plaintiffs. Exxon may yet seek en banc review of the decision. For further discussion of this opinion, see here.
Seventh Circuit Rules in Favor of Liability for Corporations under ATS
Just days after the D.C. Circuit’s Exxon decision, the Seventh Circuit made the same determination regarding corporate liability under the ATS in Flomo v. Firestone Natural Rubber Co., 2011 BL 180571 (7th Cir. July 11, 2011). Firestone was sued for allegedly using “hazardous child labor” in violation of customary international law at a Liberian rubber plant.
Judge Richard Posner, who authored the opinion, dismissed Firestone’s argument that a corporation or similar entity can never be held liable for a violation of customary international law, explaining that while the U.S. Supreme Court has not definitively ruled on the issue of corporate liability under the ATS, courts at the federal appellate level generally have “[held] or assume[d] (mainly the latter) that corporations can be liable.”
Pointing to the obvious Kiobel exception out of the Second Circuit, the Seventh Circuit court stated that it found the factual premise of the majority opinion there to be incorrect in that it overlooked the fact that German corporations that aided the Nazi regime were dissolved by the Allied powers based on customary international law. Citing the creation of the Nuremberg Tribunal as an example, the court reasoned that even if no corporation had theoretically ever been held liable for a violation of customary international law, “[t]here is always a first time for litigation to enforce a norm; there has to be.” Flomo at 7.
While the court acknowledged that corporations “have rarely been prosecuted criminally or civilly for violating customary international law,” it believed that “the paucity of cases reflects a desire to keep liability . . . for such violations within tight bounds by confining it to abhorrent conduct”—a factor that does not touch upon the issue of whether corporations can be liable in the first place. Id. at 8. The court even remarked that “[s]ometimes it’s in the interest of a corporation’s shareholders for management to violate the law, including the criminal law, including norms of customary international law the violation of which is deemed criminal.” Id. at 8-9.
While much of its discussion centered on its belief that a corporation can face criminal liability for violating customary international law, the court left open the question of whether only criminally “grave” violations are actionable under the ATS. As it explained, “[i]nternational law imposes substantive obligations,” and it is up to each individual country to determine how to enforce these obligations, whether by civil or criminal sanctions. The court ultimately upheld the district court’s dismissal of the case on other grounds but was clear in its opinion that corporations may be held liable for violating the ATS. For additional information on this decision, see here.
Threat of ATS Litigation Against Corporations Remains Viable . . . for Now
Should the Supreme Court opt to hear the petition in Kiobel and adopt the Second Circuit majority’s holding, liability under the ATS will essentially be a dead issue for corporations, which will no longer fall under its jurisdiction (barring any legislative amendments). A number of currently pending actions will be impacted by any such definitive decision, including current ATS-based district court actions against Chiquita Brands International, Inc. and DaimlerChrysler Corp. Whether redress against corporations will be available in a court of law or merely in the court of public opinion, the principles of corporate citizenship will continue to play a key role in a company’s ultimate success or failure.
This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. Bloomberg Finance L.P. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.
© 2011 Bloomberg Finance L.P. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of Bloomberg Finance L.P.