Allens

International Business Obligations

Focus: Changes to corporate liability under the US Alien Tort Claims Act

29 September 2010

In brief: In a major change of direction, the US Court of Appeals for the Second Circuit has held that corporations cannot be the subject of actions that allege violations of customary international law under the US Alien Tort Claims Act. Partner Craig Phillips , Senior Associate Rachel Nicolson and Lawyer Michael Gomm report.

How does it affect you?

  • This decision is relevant to multi-national corporations with a presence in the US.
  • If it is not overruled by the US Supreme Court, this decision directly rejects the proposition that corporations may be liable for breaches of customary international law under the US Alien Tort Claims Act (the ATCA).
  • This decision may result in increasing plaintiff focus on the role of individuals alleged to have breached international law, including employees, managers, officers and directors of a corporation.

Context: the ATCA and corporations

The ATCA is a unique piece of legislation that provides non-US citizens with the right to bring tort actions in US federal courts for breaches of international or treaty law. As discussed in a previous Focus article, the ATCA was enacted in 1789 but not relied on regularly until the 1980s when plaintiffs started to use it to bring claims against individuals and corporations for alleged direct or indirect human rights abuses. As a result of this recent activity under the statute, a number of corporations have sought to settle actions brought under the ATCA, with large amounts being spent to avoid judgments or prolonged litigation.

A number of US cases have proceeded on the assumption that corporations can be liable under the ATCA for breaches of international customary law, such as genocide or slavery. Significant cases include The Presbyterian Church of Sudan v Talisman Energy, Inc1, Flores2 and Wiwa v Royal Dutch Petroleum Co3. In respect of corporate defendants, plaintiffs have to a large extent relied on principles of aiding and abetting, or complicity, in state violations of human rights.

On 17 September 2010, the assumption of corporate liability under the ATCA was directly addressed by the Second Circuit Court of Appeals decision in Kiobel v Royal Dutch Petroleum4. The majority (Chief Judge Jacobs and Judge Cabranes) held that, because corporations are not liable under the customary international law of human rights, they cannot be the subject of liability under the ATCA.

Return to top

The facts

In Kiobel, the plaintiffs alleged that the defendants were complicit in human rights breaches by the Government of Nigeria in the Ogoni region. The defendants were all corporate entities incorporated outside the US, including a local subsidiary that was incorporated and operated in Nigeria. The local subsidiary was engaged in oil exploration and production in the Ogoni region and was the subject of local discontent over the alleged environmental effects of its operations. The plaintiffs alleged that, in 1993, the defendants responded to the local discontent by procuring the Nigerian military to suppress the local movement. It was further alleged that the defendants provided support to the Nigerian military including by providing transport, allowing their property to be used by troops, providing food, and compensating the troops.

Return to top

The decision

The three judges hearing the matter affirmed the decision of the US District Court for the Southern District of New York to dismiss the plaintiffs' claims. By majority the Court of Appeals reversed the decision of the District Court to refuse dismissal against corporate defendants, although Circuit Judge Leval issued a separate judgment which was strongly critical of the majority's findings in relation to the application of the ATCA to corporations.

The majority held that the scope of liability under an ATCA action is to be determined by the content of customary international law and not US domestic law. Essentially, customary international law determines 'who can be liable for what'.5 The majority recognised that, although states are the primary subjects of international law, in a limited number of circumstances, individuals can be held liable for certain crimes, such as crimes against humanity, war crimes and torture.6 However, the liability of individuals related to actual persons, not 'juridical' persons such as corporations.

The majority analysed the generally accepted sources of international law such as treaties, international tribunal decisions and the work of prominent scholars. They could not find a 'discernible, much less universal, acceptance among nationals of the world' that liability could be imposed on corporations for violations of customary international law.7

The majority explicitly recognised that this finding did not preclude actions being brought against the employees, managers, officers or directors of a corporation under the ATCA.8

Circuit Judge Leval's separate judgment commenced forcefully by stating that:

[t]he majority opinion deals a substantial blow to international law and its undertaking to protect fundamental human rights. According to the rule my colleagues have created, one who earns profits by commercial exploitation of abuse of fundamental human rights can successfully shield those profits from victims' claims for compensation simply by taking the precaution of conducting the heinous operation in the corporate form.9

In essence, Judge Leval disagreed with the majority in relation to corporate liability under the ATCA because he did not accept their analysis of the application of international law to corporations. However, he did agree that the plaintiffs' claims should be dismissed on other grounds.

Notably, shortly before the Kiobel decision was delivered, the US District Court, Central District of California, also decided that the ATCA does not recognise a cause of action for corporate violations of international law.10 This decision came to the same conclusion as the majority in Kiobel and found that because international law was the appropriate source of law under the ATCA, the lack of consensus regarding corporate liability for violating international human rights norms meant that corporations could not be held liable under the ATCA.11

Return to top

Implications of the decision

This decision has important ramifications for the way plaintiffs may now seek redress under the ATCA. While the decision may serve to shield corporations from liability under the ATCA, at least in the Second Circuit, it may refocus attention on employees, managers, officers or directors of relevant corporations.

However, given that a number of cases presently before other US Circuits are based on the assumption that corporations may be liable either directly or indirectly under the ATCA, it is likely that this issue may not be completely settled until addressed by the US Supreme Court. Until then, corporations need to consider the Kiobel case in the light of the broader context of legal and related exposure posed by the ATCA.

Footnotes
  1. 582 F.3d 244, 261 n.12 (2d Cir. 2009).
  2. 414 F.3d 233.
  3. 226 F.3d 88 (2d Cir. 2000).
  4. 06-4800-cv.
  5. Kiobel, above n 4, 1 of the joint opinion.
  6. Kiobel, above n 4, 8 of the joint opinion.
  7. Kiobel, above n 4, 43 of the joint opinion.
  8. Kiobel, above n 4, 11 and 48-9 of the joint opinion.
  9. Kiobel, above n 4, 1 of the separate opinion.
  10. Doe v Nestle (CD CA 08 Sept 10), 120.
  11. Doe, above n 10, 130.

For further information, please contact:

Return to top

Share or Save for later

What are these?
 

To save this publication on your smartphone or
tablet for off-line reading (eg on a plane flight),
we recommend Pocket.