Saturday, April 26, 2014

Joel Slawotsky on "Corporate Liability Under The Alien Tort Statute: The Latest Twist"

Joel Slawotsky, of the Radzyner School of Law, Interdisciplinary Center, Herzliya, Israel, and the Law and Business Schools of the College of Management, Rishon LeZion, Israelhas guest blogged for "Law at the End of the Day"  on issues relating to corporate liability under international law.  (e.g., Joel Slawotsky : " Rethinking Financial Crimes and Violations of International Law", Jan. 9, 2013).

(Pix (c) Larry Catá Backer 2014)

For this post he considers one of the most vexing issues that remains after the Supreme Court's recent decision in Kiobel v. Royal Dutch Petroleum Co., 133 S.Ct. 1659 (2013), the issue of corporate liability under the Alien Tort Claims Act. The issue, unresolved to anyone's satisfaction, has now produced enough disagreement among lower courts to make it likely that the Supreme Court will once again be asked to consider the issue. Joel Slawotsky, "Corporate Liability Under The Alien Tort Statute: The Latest Twist," follows.

Corporate Liability Under The Alien Tort Statute: The Latest Twist
Joel Slawotsky
April 26, 2014

Corporate liability is one of the most significant legal, business and ethical issues in our inter-connected and globalized era. Corporations span the world actively seeking business opportunities, cost savings through lower labor costs and markets and perhaps less stringently enforced environmental regulations. Doing so inevitably brings corporations into contact with despots, failed states and rogue regimes. The question of whether corporations should be – and under what standards – liable for violations of international law involves balancing various competing interest such as human rights, transnational justice and corporate rights. The subject is a hot button topic as evidenced by the recent conference convened at Harvard Law School wherein leading scholars discussed cutting edge business and human rights issues.

The context of the United States Alien Tort Statute (“ATS”) provides an excellent context to examine this important legal issue. It is not surprising that an article on corporate liability in international law under the perspective of the ATS is currently the second most downloaded article in the Qatar University Law School International Law Journal article database.

ATS litigation against corporate defendants has enjoyed a rollercoaster ride. While the subject of a current circuit split among the federal appellate courts, and ongoing academic debate, for many years parties presumed that corporations were viable defendants in ATS suits and indeed several corporations had proceeded to trial or settlement of such claims. However, the Second Circuit in 2010 ruled in Kiobel (2-1 over a vigorous dissent) that corporations could not be liable for violations of international law. Immediately following the Second Circuit ruling, corporate liability against corporations was claimed by some to be “finished”. The Second Circuit decision was appealed to the Supreme Court which after an initial round of argument on corporate liability requested briefing on the issue of extraterritorial application of the ATS. After a second round of argument, the Court affirmed the Second Circuit but not because corporate liability was unavailable. Rather, the Court held a presumption against extraterritoriality existed which can be overcome if a plaintiff establishes the wrongdoing touched and concerned the United States with sufficient force. Following the Supreme Court’s ruling, the presumption against extraterritoriality was claimed to have effectively eliminated the ATS as a viable platform for pursuing international law violation claims. However, the Second Circuit’s no corporate liability ruling has been rejected by the D.C., Seventh, Ninth and Eleventh circuits and various other post Supreme Court rulings have not supported the conclusions and initial rumors of the ATS’s demise. Indeed, rumors of the ATS’s demise have often been exaggerated.

Judge Scheindlin’s Opinion

As noted above, a split exists among the federal circuit courts with respect to whether a corporate defendant can be liable for international law violations. Now there exists a split within the Second Circuit as Southern District of New York Judge Shira Sheindlin ruled last week that corporations may indeed have liability for violations of international law. Judge Scheindlin noted that in 2013 another panel of the Second Circuit in Licci diluted Kiobel’s significance by refusing to abide by the Second Circuit’s own precedent calling into question the present status of the no corporate liability ruling. The Licci panel commented that the Supreme Court did not affirm Kiobel’s no corporate liability ruling and remanded the issue back to the Southern District. According to the panel in Licci:

Because the question of subject matter jurisdiction was not briefed on appeal, because the Supreme Court's opinion did not directly address the question of corporate liability under the ATS, and in light of the other claims brought by the plaintiffs, we now think it best for the district court to address this issue in the first instance.

Judge Scheindlin also pointed out another recent Second Circuit decision wherein the court reversed a jury verdict based upon the presumption against extraterritoriality. Judge Cabranes – the author of Kiobel – proffered some “extraneous” comment on ATS corporate liability. Judge Cabranes stated that:

the Supreme Court’s decision in Kiobel did not disturb the precedent of this Circuit, see Kiobel, [citation omitted] that corporate liability is not presently recognized under customary internationat law and thus is not currently actionable under the ATS. See Baraket v. Holder, 632 F.3d 56, 59 (2d Cir. 2011) (“‘A decision of a panel of this Court is binding unless and until it is overruled by the Court en banc or by the Supreme Court.’”)

Interestingly, another member of the panel, Judge Poole, took issue with Judge Cabrane’s comments.

I write separately for the sole purpose of emphasizing the narrowness of this Court’s disposition with respect to the implications of Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659 (2013), for claims brought under the Alien Tort Statute, 28 U.S.C. 1350 (the ATS). This narrowness is tied to considerations regarding which claims do not touch and concern the territory of the United States, Kiobel, 133 S. Ct. at 1669, and conclusions which are driven by the facts and arguments made in the case before us on appeal.

Judge Poole noted that the Ninth Circuit found the Supreme Court Kiobel ruling actually endorsed corporate liability. Judge Poole noted:

At least one sister circuit has determined that, by not passing on the question of corporate liability and by making reference to American corporate presence in its opinion, the Supreme Court established definitively the possibility of corporate liability under the ATS.
Judge Poole was citing the Doe v Nestle ruling wherein the Ninth Circuit held “[i]n light of intervening developments in the law, we conclude that corporations can face liability for claims brought under the Alien Tort Statute, 28 U.S.C. § 1350. Kiobel v. Royal Dutch Petroleum, 133 S. Ct. 1659, 1669 (2013) (suggesting in dicta that corporations may be liable under ATS so long as presumption against extraterritorial application is overcome).”

Judge Scheindlin’s ruling is pragmatic inasmuch as it recognizes that the validity of the Second Circuit’s no liability view – at this point – is in doubt given the failure of the Supreme Court to affirm on that ground. Moreover, as Judge Scheindlin points out, the Court, by referring to mere corporate presence as being inadequate to overcome the presumption, seems to be implicitly endorsing corporate liability. Simultaneously, Judge Scheindlin’s decision incorporates the Court’s presumption against extraterritorial application of the ATS by obligating plaintiffs to show how the violation of international law sufficiently touched and concerned the United States.

Where Do We Go From Here

In a post-Kiobel world, courts evaluating the issue of ATS jurisdiction need to examine the international law violation and determine whether the misconduct satisfies the “substantially affecting an important American interest” standard.

What conduct could potentially satisfy this test? In Pfizer, a pre-Kiobel ATS case, the Second Circuit described conduct that potentially affected and harmed American national interests. The court found conduct that impairs national security, damages relations with other nations and generates anti-American hostility are types of conduct that adversely affected important American interests.

The administration of drug trials without informed consent also poses threats to national security by impairing our relations with other countries…. Consequently, American companies are likely to be sponsors of medical experiments on human subjects abroad. As this case illustrates, the failure to secure consent for human experimentation has the potential to generate substantial anti-American animus and hostility.[1]

In Mwani, a post-Kiobel ruling, the court noted:

It is obvious that a case involving an attack on the United States Embassy in Nairobi is tied much more closely to our national interests than a case whose only tie to our nation is a corporate presence here. Ample evidence has been presented for me to conclude that the events at issue in this case were directed at the United States government, with the intention of harming this country and its citizens. As noted by the D.C. Circuit, this attack was orchestrated ‘not only to kill both American and Kenyan employees inside the building, but to cause pain and sow terror in the embassy’s home country, the United States.’ (citation omitted).

As both Pfizer and Mwani indicate, harming the United States can take various forms. Harming the United States undoubtedly comprises conduct that “significantly affects and touches and concerns “the United States. Thus, conduct capable of harming national security, American economic prosperity or creating global instability against American strategic interests, may constitute misconduct overcoming the presumption against extraterritoriality thus allowing for ATS jurisdiction.

Moreover, not only can conduct adversely affecting the United States rebut the presumption, many potential defendants are United States entities potentially precluding the presumption. In Ahmed, a post-Kiobel ruling, the court declined to apply the presumption holding it was inapplicable to U.S. defendants. The court held, “as a permanent resident of the United States, the presumption of against extraterritoriality has been overcome in this case.” This ruling supports the opinion that domestic U.S. corporations would be ineligible to invoke the presumption.

Hypothetical example

North Korea provides an illustrious example of how ATS litigation might be viable. North Korea has consistently threatened both South Korea and the United States by initiating "full-scale" war, taking "merciless counteraction" and turning Seoul into a "sea of flames." North Korea has threatened to end the ceasefire that concluded the Korean Conflict and “to strike the United States with “lighter and smaller nukes.” There are 30,000 U.S. troops stationed on the Korean border prepared to defend South Korea. Clearly, North Korea poses serious risk of harming American national interests including military conflict with American troops. American financial institutions that perform financial transactions which facilitate and empower North Korea’s government may potentially constitute conduct which “touches and concerns” the United States.

Presuming corporate liability is upheld, potential ATS defendants may include corporations which have aided and abetted failed states and rogue regimes such as North Korea and other rogue regimes. Financial services corporations assist rogue actors in money laundering and looting of national assets. Such entities may include large financial institutions such as banks which provide financial services to the regime in violation of United States or international sanctions.


While creating palace intrigue at the Second Circuit, Judge Scheindlin’s ruling on corporate liability comports with other federal appellate rulings on corporate liability. The view that the ATS encompasses corporate liability quite possibly received the Supreme Court’s tacit approval in Kiobel. Moreover, Judge Scheindlin embraced Kiobel’s admonition regarding extraterritoriality. There is little doubt the defendants’ will appeal Judge Scheindlin’s ruling. The Second Circuit – depending on who is on the panel – may distance itself from the Kiobel ruling eliminating the circuit split or may re-assert it preserving the circuit split. Either way, it seems that once again, the corporate liability question will return to the Supreme Court.

[1] Pfizer was a pre-Kiobel holding and did not deal with the issue of extraterritoriality. The court’s comments were made in discussing whether the misconduct involved the mutual concern of nations. The court noted that the alleged misconduct was clearly an American concern. See Pfizer, 562 F.3d 163, 187 (2dCir.2009).

No comments: