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International Business Obligations

Focus: Corporate liability still uncertain under the US Alien Tort Claims Act

7 March 2011

In brief: The US Court of Appeals for the Second Circuit has refused to rehear the Kiobel v Royal Dutch Petroleum case, letting the September 2010 decision of a three judge panel of that court barring corporate liability under the Alien Tort Claims Act stand. Partner Annette Hughes , Senior Associate Rachel Nicolson and Lawyer Dora Banyasz report.

How does it affect you?

  • The decision confirms that plaintiffs are unable to seek redress directly against corporations under the Alien Tort Claims Act (the ATCA), at least in the Second Circuit. This may encourage suits against individuals within corporations, who can be found liable for violations of customary international law or treaty law under the ATCA. 
  • Plaintiffs may still file ATCA suits in federal courts in all of the other circuits (federal courts in all states except New York, Connecticut and Vermont), where results may differ.
  • The decision highlights the need for the Supreme Court to resolve this issue, in order to provide certainty to corporations around the world.

Background to the ATCA

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 is only since the 1980s that plaintiffs have attempted to use the ATCA as a tool to hold corporations and individuals accountable for violations of customary international law, and, in that time, the number of cases against corporations has steadily increased.  Corporations have spent large amounts of time and money defending or settling such claims, and have suffered considerable related reputational damage.

The issue of whether corporations can be held liable under the ATCA has not been directly addressed until recently.  A number of Circuit Court of Appeal cases have proceeded on the assumption that corporations can be the subject of an action pursuant to the ATCA, without squarely addressing the issue,1 and the US Supreme Court has decided only one ATCA case, and did not definitively rule on the question of corporate liability under the statute.2   

However, as reported in an earlier Focus of 17 September 2010, in Kiobel v Royal Dutch Petroleum3, a majority of the US Court of Appeals for the Second Circuit rejected outright the argument that corporations can be held liable under the ATCA for violations of customary international law.  Chief Judge Jacobs and Judge Cabranes held that the scope of liability for violations of customary international law under the ATCA is determined by customary international law itself.  As the sources of customary international law do not reveal a discernable, universally recognised norm of corporate liability for either civil or criminal offences, they came to the conclusion that it could not be relied upon to found liability under the ATCA.  Judge Leval wrote a strong dissent on the issue of corporate liability, arguing that international law leaves the question of corporate liability to the domestic law of each state, and that US law recognises corporate liability for conduct covered by the ATCA. 

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The petition

The plaintiffs from the Kiobel case filed a petition for a panel rehearing and rehearing en banc by the Second Circuit.  They argued that rehearing was necessary because the panel's decision addressed an issue of exceptional importance and created a circuit split.  Additionally, the plaintiffs argued that the panel's decision was in conflict with the single Supreme Court ATCA decision that exists, with the Second Circuit's prior ATCA jurisprudence, and with the plain language, history and purpose of the ATCA. 

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The decision

Both the petition for panel rehearing and for rehearing en banc were denied.  A full panel of the court split five-five, with the failure to obtain a majority resulting in the petition for en banc review being rejected. The original panel voted two-one against panel rehearing.  A number of judges chose to write opinions, revealing the deep divisions among members of the court on this issue.

Chief Judge Jacobs pointed to a number of policy considerations to explain why imposing liability on corporations for violations of customary international law has not attained, and is unlikely to attain, a discernable, much less universal, acceptance among nations.  As noted above, according to the majority in the panel decision, such a status is required to support corporate liability under the ATCA.  As corporations are often the engines of their national economies, Chief Judge Jacobs deemed it unlikely that nations would consent to the formation of a norm of customary international law that allowed American courts to inquire into the operations of such corporations, to regulate them, and to impose on them obligations to pay damages. 

Although suggesting that the number of cases that will be excluded by the majority decision is very small (on the basis that, even without this decision, a plaintiff has to overcome the hurdle of showing that a corporation has purposefully engaged in a violation of customary international law), Chief Judge Jacobs held that this was nevertheless an important decision.  Without it, he stated, it would be open to plaintiffs to pursue proceedings, and with that comes invasive discovery and potentially coercive settlements 'that have no relation to the prospect of success on the ultimate merits'.4  Such discovery, according to Chief Judge Jacobs, 'uncovers corporate strategy and planning, diverts resources and executive time, provokes bad public relations or boycotts, threatens exposure of dubious trade practices, and risks trade secrets.'5  Such a process does no favours to international comity, in Chief Judge Jacobs' view.  

In his dissent, Judge Leval reaffirmed his opinion that '[n]either the law of nations nor the [ATCA] furnishes any basis for leaving corporate and other juridical entities free to violate fundamental human rights without liability to victims.'6 The dissent also addresses a number of the issues Chief Judge Jacobs raised.  Responding to Chief Judge Jacobs' assertion that the majority decision will only have trivial detrimental effect, Judge Leval commented that '[t]o justify a rule that exempts certain defendants from liability on the ground that the rule protects only the very worst offenders is strange logic.' 7 Judge Leval noted that to the extent that Chief Judge Jacob had reasonable grievances, they could be addressed in ways that are less drastic and that 'do not leave juridical entities free to conduct businesses based on the abuse of human rights without exposure to civil liability.'8  

Also writing a dissent to the denial of rehearing, Judge Lynch, joined by Judges Pooler, Katzmann and Chin, stated that for the reasons Judge Leval set forth in his panel dissenting decision, 'the panel majority is very likely incorrect' and therefore the matter should be reheard en banc.9  

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Conclusion

These opinions highlight that corporate liability under the ATCA is a contentious issue that will not be decisively determined until there is a Supreme Court decision on point.  It remains to be seen if this case will be pursued to the Supreme Court, or if another case will frame the issue, but it seems likely to be only a matter of time before the Supreme Court weighs in on the matter.  Only then will corporations around the globe be in a stronger position to assess their US liability risk. 

Footnotes
  1. The Presbyterian Church of Sudan v Talisman Energy, Inc 582 F.3d 244 (2nd cir, 2009); Romero v Drummond Co., Inc., 552 F.3d 1303 (11th cir, 2008); Khulumani v Barclay National Bank 504 F.3d 254 (2nd cir, 2007); Wiwa v Royal Dutch Petroleum Co 226 F.3d 88 (2nd cir, 2000). (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. Sosa v Alvarez-Machain, 542 U.S. 692 (2004). 
  3. Docket No 06-4800-CV.
  4. Ibid, Panel Rehearing Opinion, 8 of Chief Judge Jacobs' opinion.  
  5. Ibid.
  6. Ibid, Panel Rehearing Opinion, 11 of Judge Leval's opinion. 
  7. Ibid, Panel Rehearing Opinion, 7 of Judge Leval's opinion. 
  8. Ibid, Panel Rehearing Opinion, 3-4 of Judge Leval's opinion. 
  9. Ibid, En Banc Opinion, 5.

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