Today, my friend and colleague, Joel Slawotsky, contributes this excellent and insightful essay on the recent line of cases considering the application of the U.S. Alien Tort Claims Act (28 U.S.C. § 1350) to corporate entities. The ATS provides simply: “The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.”
(From Lee Dunst and Brian Lutz, Alien encounters - global companies must be wary of the controversial US Alien Tort Claims Act, LegalWeek.com, July 2, 2011).
Joel is a former law clerk to the Hon. Charles H. Tenney (U.S.D.J., S.D.N.Y.) and AV rated litigator with Sonnenschein Nath & Rosenthal (now Sonneneschein-Denton). He is a lecturer at the IDC's Radzyner School of Law (Herzilya, Israel) and at the Haim Striks School of Law (Rishon LeZion, Israel). Joel can be reached at
Thank you Larry for inviting me to guest blog on your site.
Rumors of corporate liability’s demise in the context of ATS litigation apparently have been premature. In the aftermath of the Second Circuit’s September 2010 earthquake of a ruling in Kiobel - where a 2 judge majority (J. Leval voiced a vigorous dissent) held that international law does not recognize corporate liability - some opined that ATS litigation was ending for corporate defendants.
Kiobel was indeed quite a surprise and a serious blow to corporate liability. Prior to Kiobel, virtually all appellate and trial courts had either presumed that corporations may face liability. The Second Circuit itself acknowledged the general presumption that a corporation should be treated as any other private actor in 2007. In Khulumani, the majority stated:
We have repeatedly treated the issue of whether corporations may be held liable under the ATCA as indistinguishable from the question of whether private individuals may be.Id. at page 49. Thus, prior to Kiobel, corporations did have liability in the Second Circuit. However, Kiobel’s ruling drew support from some legal scholars. For example, in a Virginia International Law Journal article, Professor Julian Ku remarked that Kiobel represented the first crack in the consensus in favor of liability. Ku referred to the numerous rulings impliedly holding corporations may have liability as flawed. “This curious and flawed judicial consensus on corporate liability under the ATS was finally shattered in September 2010 when the Second Circuit issued Kiobel v. Royal Dutch Petroleum.” The Curious Case of Corporate Liability Under the Alien Tort Statute: A Flawed System of Judicial Lawmaking, Ku, at 372. According to Ku, Kiobel was correctly decided and he agreed that corporations cannot have liability under the ATS. Other international law scholars described Kiobel as the beginning of the end of ATS corporate liability. One blog quoted some commentators as follows:
In a blockbuster opinion that could spell the end of the vast bulk of Alien Tort Statute litigation, the U.S. Court of Appeals for the Second Circuit has held that corporations cannot be liable for violations of customary international law under the Alien Tort Statute.
There's going to be a huge reduction in such litigation if this holds up
Indeed, Professor Roger Alford remarked that developments in ATS case indicated the possible end of such litigation.
The slow, quiet demise of the ATS continues. Without further support from the Supreme Court, it appears that the statute is in free fall.However, two recent appellate opinions call the above predictions into serious question. These two decisions, handed down within days of each other, have probably set in motion the need for ultimate Supreme Court clarification.
A. The Seventh Circuit’s Ruling in Flomo v Firestone
About a week ago, the Seventh Circuit in Flomo v. Firestone, ___F.3d___, 2011 WL 2675924 (7th Cir. 2011), held corporations may indeed have liability in ATS suits. Describing Kiobel as a rebel opinion, the court did not mince words. It called the Kiobel ruling wrong.
All but one of the cases at our level hold or assume (mainly the latter) that corporations can be liable... The outlier is the split decision in Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111 (2d Cir.2010), which indeed held that because corporations have never been prosecuted, whether criminally or civilly, for violating customary international law, there can't be said to be a principle of customary international law that binds a corporation. The factual premise of the majority opinion in the Kiobel case is incorrect.Flomo, at page 3. Flomo also summarily dispensed with two other defense arguments; exhaustion of remedies and extraterritoriality. Referring to the exhaustion of remedies requirement as “ridiculous”, the court noted “imagine having been required to file suit in a court in Nazi Germany complaining about genocide, before being able to sue under the Alien Tort Statute.” Flomo at 11. The court also summarily dismissed the argument the ATS does not have extraterritorial reach, stating, “[c]ourts [including the Supreme Courts Sosa opinion] have been applying the statute extraterritorially (and not just to violations at sea) since the beginning.” Id. The manner in which these defenses were dismissed and the brevity of words deemed adequate to rebut same speaks volumes at to the court’s appraisal of the defenses.
As to the substantive corporate liability argument, Flomo proceeds on several arguments to dispel the notion that corporations cannot have liability. The court completely disagreed with the Second Circuit and found that international law had in fact been used by the Nuremberg Military Tribunals to punish corporations. Id. at 3.
I want to focus on the court’s reference to the corporation as comprised of individual shareholders with incentive to promote corporate wrongdoing. The court stated:
Sometimes 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. Criminal punishment of corporations that commit crimes is not anomalous merely because a corporation cannot be imprisoned or executed. It can be fined; and so if a crime at least ostensibly in the corporation's financial interest is committed or condoned at the managerial or board of directors level of the corporation, the corporation itself is criminally liable...The burden of a fine on the corporation will be borne by the shareholders, who correspond to the employers of tortfeasing employees, and indirectly by the managers.Id. at 4.
The court added further down:
If a corporation complicit in Nazi war crimes could be punished criminally for violating customary international law, as we believe it could be, then a fortiori if the board of directors of a corporation directs the corporation's managers to commit war crimes, engage in piracy, abuse ambassadors, or use slave labor, the corporation can be civilly liable.Id. at 5.
If a corporation has used slave labor at the direction of its board of directors, then whether the board members should be prosecuted as criminal violators of customary international law-or also or instead be forced to pay damages, compensatory and perhaps punitive as well, to the slave laborers-or, again also or instead, whether the corporation should be prosecuted criminally and/or subjected to tort liability-all these would be remedial questions for the tribunal, in this case our federal judiciary, to answer in light of its experience with particular remedies and its immersion in the nation's legal culture, rather than questions the answers to which could be found in customary international law.
Interestingly, the court then makes a distinction potentially limiting corporate liability to situations where the corporation participates or ratifies the misconduct of the employee or agent.
[T]he plaintiffs concede that corporate liability for such violations is limited to cases in which the violations are directed, encouraged, or condoned at the corporate defendant's decision making level. That is analogous to the liability of municipalities under the Monell doctrine, where as we noted recently "a person who wants to impose liability on a municipality for a constitutional tort must show that the tort was committed (that is, authorized or directed) at the policymaking level of government-by the city council, for example, rather than by the police officer who made an illegal arrest." Vodak v. City of Chicago, 639 F.3d 738, 747 (7th Cir.2011). We needn't decide how far corporate vicarious liability for violations of customary international law extends; it's enough that we see no objection to corporate civil liability as circumscribed as the plaintiffs concede.Id. at 6.
While the court concedes that shareholders and management may at times have a preference to engage in misconduct, the court emphasizes a linkage to senior management ordering, sanctioning or participating in the misconduct. The court hints that liability may not be clear cut if engaged in by a renegade employee in some far off nation under which the corporation may not have full control. Or alternatively, the liability may not exist if the senior managers did not ratify or approve the international law violations. According to Flomo, holding corporations liable for conduct in other jurisdictions may not be justified:
The theory attenuates when the employees include local residents of Third World countries, such as the Liberian rubber farmers employed on Firestone's plantation. American corporations that have branches in backward or disordered countries may be incapable of preventing abuses of workers in those countries.Id.
The requirement of approval or ratification is a criminal liability tenet. Criminal guilt is personal to the agent who commits a criminal act (the corporate employee) and criminal law does not punish a principal (the corporate employer and its managers) for the actions of an agent absent participation or approval. Although the basis of international law violations has a criminal law basis (assaults/kidnapping ambassadors, piracy, slavery, crimes against humanity, etc), the ATS is a civil statute and we are not dealing with formal corporate criminal liability. The concept of complicity or approval on the part of the owners/senior managers is generally not applicable in a straightforward civil suit seeking compensatory damages. Requiring plaintiffs to demonstrate some sort of approval by the directors/senior managers makes sense before imposing a quasi-criminal penalty such as punitive damages on a successor corporation in civil litigation. The purpose of punitive damages is to punish and deter. If the successor’s shareholders and management are different than the predecessors’, I agree fairness might demand a showing of participation and/or ratification of the misconduct on the part of the employee or agent. But in ATS litigation (aside from a punitive phase) why should it matter if the directors/senior managers approved the misconduct?
Moreover, the court notes the difficulty in overseeing operations in disordered nations. Why should a distinction exist if the defendant operated in a “backward” or a “failed” state? Perhaps the defendant should take extra caution in such nations to ensure that no international law violation occurs. The court’s comments present interesting questions: Should a different legal standard be utilized when a renegade employee commits an international law violation outside the United States and in particular, in a “backward” nation? What if senior management does not condone the misconduct but lower level employees engage in the activity to the benefit of shareholders and management? Should the latter reap the rewards bereft of liability? The court’s reference to corporate inability to monitor its far flung operations seems counter-intuitive when in reality, the most egregious misconduct often occurs in those “backward and disordered” nations. Should corporations be treated differently if the misconduct occurs in failed states or those with weak legal and/or governance systems? It is a two edged sword since large corporations, through their injection of capital, may be able to positively influence the local government. On the other hand, corporations may have incentive to “let things slide” knowing that liability claims against them may be lessened if they do business in “backward” nations.
B. The D.C. Circuit’s Ruling in Doe v. Exxon
A few days before the Flomo ruling, the District of Columbia Court of Appeals in Doe v. Exxon, ___F.3d___, 2011 WL 2652384 (D.C. Cir. 2011) (J. Kavanaugh dissenting) also held corporations may indeed have liability in ATS suits. In Exxon, the D.C. Circuit delivered another blow to Kiobel calling the Second Circuit opinion internally inconsistent and illogical. The court held Kiobel’s:
analysis conflates the norms of conduct at issue in Sosa and the rules for any remedy to be found in federal common law at issue here; even on its own terms, its analysis misinterprets the import of footnote 20 in Sosa and is unduly circumscribed in examining the sources of customary international law.
Exxon at 21.
Citing both Louis Henkin and Judge Edwards’ Tel-Oren opinion, the Exxon court ruled that international law itself provides no remedies for its violations. Rather, individual nations determine whether and how such violations should be addressed. The court stated:
The ATS provides federal jurisdiction where the conduct at issue fits a norm qualifying under Sosa implies that for purposes of affording a remedy, if any, the law of the United States and not the law of nations must provide the rule of decision in an ATS lawsuit. Consequently, the fact that the law of nations provides no private right of action to sue corporations addresses the wrong question and does not demonstrate that corporations are immune from liability under the ATS.
Id. at 23.
The court held the domestic remedy for violations of international law is left for the individual nations and therefore the ATS may be used to enforce international law norms. Therefore, according to Exxon, Kiobel is inherently contradictory inasmuch as the Kiobel majority concedes that “individuals” from a corporation may have liability. If as Kiobel admits individuals have liability, than a juridical entity may also have liability.
Because international law generally leaves all aspects of the issue of civil liability to individual nations, there is no rule or custom of international law to award civil damages in any form or context, either as to natural persons or as to juridical ones. If the absence of a universally accepted rule for the award of civil damages against corporations means that U.S. courts may not award damages against a corporation, then the same absence of a universally accepted rule for the award of civil damages against natural persons must mean that U.S. courts may not award damages against a natural person. But the majority opinion concedes (as it must) that U.S. courts may award damages against the corporation's employees when a corporation violates the rule of nations. Furthermore, our circuit and others have for decades awarded damages, and the Supreme Court in Sosa made clear that a damage remedy does lie under the ATS. The majority opinion [in Kiobel] is thus internally inconsistent and is logically incompatible with both Second Circuit and Supreme Court authority.
Exxon at 33. The decision is noteworthy in that in broad terms, it embraces the ATS plaintiffs’ bar arguments that corporations may have liability under international law citing to the Allied dismemberment of corporate violators of international law after WWII. The opinion also favorably references legal scholarship supporting corporate liability.
While the Exxon decision is of critical import with respect to the corporate liability debate, the ruling is also significant because it discusses the standard required to impose secondary liability. In fact, nearly all corporate defendants in ATS litigation are alleged to have been secondary actors – charged with aiding and abetting or conspiring with the primary tortfeasors. As such, the standard required is significant. Here again, Exxon disagrees with the Second Circuit’s “purpose” standard. In the oft cited Talisman opinion, the Second Circuit, citing primarily the Rome Statute but also the Nuremberg Tribunals, found that international law requires the defendant to have acted purposely in aiding and abetting the conduct. The purpose standard is a tough hurdle for plaintiffs to satisfy. Here again, the D.C. Circuit diametrically opposes the Second Circuit:
We hold that aiding and abetting liability is available under the ATS because it involves a norm established by customary international law and that the mens rea and actus reus requirements are those established by the ICTY, the ICTR, and the Nuremberg tribunals, whose opinions constitute expressions of customary international law. The Rome Statute does not constitute customary international law. Its mens rea requirements contemplate, in any event, a "knowledge" standard. The discussion of the aiding and abetting charge against Rasche in The Ministries Case does not support a "purpose" standard when considered in conjunction with the charges against Puhl, also part of The Ministries Case, and other cases heard at Nuremberg that establish that "knowledge" suffices to meet the mens rea requirement for aiding and abetting liability. The decisions of the ICTY and ICTR adopt a "knowledge" mens rea and a showing for actus reus of acts that have a substantial effect in bringing about the violation. For all practical purposes, we agree with appellants that the standard under federal common law applies inasmuch as the parties suggest no differences between it and the standard under customary international law
Exxon at 19.
So Exxon has now sharpened a prior circuit split on the aiding and abetting standard as well as the split on the question of corporate liability itself.
The result of both Flomo and Exxon is the deepening circuit rift regarding liability as well as the standard to be used in deciding secondary liability claims. Pressure on the Supreme Court to accept either Kiobel (cert petition filed) or Exxon is understandable. Kiobel‘s sweeping across the board rejection of corporate liability makes it a good candidate for Court review. However, Exxon is even more intriguing since the Court could deal with both the liability aspect as well as the secondary liability standard question simultaneously. For plaintiffs, defendants and academics, the question of corporate liability remain alive and well and its ultimate contours remain wide open and will certainly generate, in time, much needed Court ordered guidance.