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Focus: Corporates can be liable in the US for international law breaches

1 August 2011

In brief: Two recent decisions by different US Circuit Courts of Appeal have reaffirmed that plaintiffs can bring actions against corporations under the US Alien Tort Claims Act for alleged violations of international law, entrenching the conflict between Circuit Courts on this issue. Partner Annette Hughes , Senior Associate Rachel Nicolson and Lawyer Dora Banyasz report.

How does it affect you?

  • These decisions are relevant to multi-national corporations with a presence in the US, as they confirm that plaintiffs can, at least in the D.C. Circuit and the Seventh Circuit, bring lawsuits directly against corporations, under the Alien Tort Claims Act (the ATCA).1
  • However, there is a direct conflict on this between the Courts of Appeal in different circuits, as the Second Circuit Court of Appeals has ruled that corporations cannot be liable under the ATCA.
  • The issue of liability for corporations under the ATCA will be unclear until it is addressed by the Supreme Court – in the meantime, the courts of at least two circuits are open for business in this area.

Context: the ATCA and corporations

The ATCA, a law dating from 1789, gives non-US citizens or residents the right to bring tort actions in US federal courts for breaches of customary international law or treaty law. It was not until the 1980s that plaintiffs attempted to use the ATCA as a tool to hold corporations and individuals accountable for violations of customary international law and, since that time, the number of cases against corporations has steadily increased. Corporations have spent large sums of time and money defending or settling such claims, and have suffered considerable related reputational damage.

A number of cases in various circuits of the Court of Appeals have proceeded on the assumption that corporations can be liable under the ATCA for breaches of customary international law, without directly addressing the issue.2 There are also other Court of Appeals decisions that have squarely held that corporations can be liable under the ATCA.3 The US Supreme Court has decided only one ATCA case and did not rule on the question of corporate liability.4

Nevertheless, as reported in an earlier Focus , in Kiobel v Royal Dutch Petroleum, the Second Circuit Court of Appeals directly rejected the proposition that corporations can be the subject of actions under the ATCA.5 This decision represented a major change of direction in ATCA jurisprudence, at least for the Second Circuit. The majority of the three-judge panel held that the scope of liability for violations of customary international law under the ATCA is determined by customary international law itself. In the majority's view, the sources of customary international law do not reveal a discernable, universally recognised norm of corporate liability for either civil or criminal offences, and so they came to the conclusion that it could not be relied upon to found liability under the ATCA. The third judge on the panel issued a strong dissent on the issue of corporate liability.

The plaintiffs in the Kiobel case filed a petition for a panel rehearing and rehearing en banc by the Second Circuit, but both petitions were denied.6 A number of judges chose to write opinions, revealing deep divisions within the court on this issue. The plaintiffs have sought to appeal to the Supreme Court, which has not yet determined whether it will hear the appeal.

These decisions highlight the conflict between Circuit Courts on this question of corporate liability under the ATCA. Two recent decisions – one of the Court of Appeals for the D.C. Circuit and one of the Seventh Circuit Court of Appeals – further cement this conflict.

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The decision of the Court of Appeals for the D.C. Circuit

On 8 July 2011, the Court of Appeals for the D.C. Circuit decided the case of John Doe VIII v Exxon Mobil Corporation,7 specifically rejecting the notion that corporations are immune from liability under the ATCA. The proceeding was brought by a group of Indonesian villagers from Aceh, who asserted that Exxon Mobil was complicit in human rights abuses committed by Indonesian security forces. The court held that neither the text, history, nor purpose of the ATCA supports the argument that corporations are immune from liability.8 Circuit Judge Rodgers, writing the court's opinion, determined that liability is extended to corporations both under federal common law (which, in the court's view, is the correct source for determining the question of corporate liability) and under general principles of international law.9 The court explicitly rejected the basis on which the Second Circuit reached its decision in Kiobel.

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The decision of the Seventh Circuit Court of Appeals

Three days later, on 11 July 2011, in Boimah Flomo v Firestone Natural Rubber Co, the Court of Appeals for the Seventh Circuit held that corporate liability is possible under the ATCA. The plaintiffs alleged that Firestone had utilised hazardous child labour on its rubber plantation in Liberia, in violation of customary international law. The court noted that all but one Court of Appeals decision have held or assumed that corporations can be liable. Referring to the Allied powers' dissolution, at the end of the Second World War, of German corporations that had assisted the Nazi war effort, which was done on the authority of customary international law, the court rejected the factual premise of the Kiobel decision (that corporations have never been prosecuted, either criminally or civilly, for violating customary international law and therefore it can't be said there is a principle of customary international law that binds a corporation).10 The court commented that even if no corporation had ever been punished for violating customary international law, this would not be a reason not to enforce a norm of corporate liability; there always needs to be a first time.11

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Implications of the decisions

These decisions may encourage plaintiffs to bring actions against corporations, seeking redress under the ATCA. They also indicate the conflict of opinion on this question in the US Federal Courts, and highlight the need for Supreme Court guidance. Whether the Supreme Court takes the opportunity to consider the question by allowing an appeal of the Kiobel decision remains to be seen, but it will be important for corporations to monitor developments in this space, and remain vigilant.

Footnotes
  1. The US federal courts are divided into thirteen circuits, with a Court of Appeal sitting over each, from which an appeal then goes to the US Supreme Court. 
  2. The Presbyterian Church of Sudan v Talsiman Energy, Inc 582 F 3d 244 (2nd Cir, 2009); Flores 414 F 3d 233; Wiwa v Royal Dutch Petroleum 226 F 3d 88 (2nd Cir, 2000). 
  3. Doe I v Unocal 963 F Supp 880 (CD Cal, 1997); Romero v Drummond 552 F 3d 1303 (11th Cir, 2008); John Doe VIII v Exxon Mobil Corporation, No. 09-7125 (2011); Boimah Flomo v Firestone Natural Rubber Co, No. 10-3675 (2011). 
  4. Sosa v Alavarez-Machain 542 US 692 (2004). 
  5. 621 F 3d 111 (2nd Cir, 2010). 
  6. See our Focus on this decision.
  7. No. 09-7125 (2011). 
  8. Ibid, 4.
  9. Ibid, 80, 84-5 
  10. Boimah Flomo v Firestone Natural Rubber Co, No. 10-3675 (2011), 6-7.
  11. Ibid, 7.

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