SCOTUS Narrows Alien Tort Statute: Foreign Corporations Can’t Be Sued in U.S. Court for Alleged Human Rights Violations Under ATS

After much anticipation, the U.S. Supreme Court ruled on April 24, 2018, on the question of whether the Alien Tort Statute (ATS)— a United States law that allows non-U.S. citizens to bring lawsuits in U.S. courts for serious violations of international human rights laws—permits liability for foreign corporations. In Jesner v. Arab Bank, the Supreme Court considered whether a group of victims or family members of the victims of terrorist attacks in Israel, the West Bank, and Gaza, could use the ATS to sue Arab Bank, a foreign corporation, based on the bank’s U.S. subsidiary’s role in processing financial transactions that the claimants alleged funded the terroristic activities. Without looking at the merits of the claim, and evaluating only whether the ATS would permit the lawsuit:

• The majority of the Supreme Court, in a narrow 5:4 divide, held that foreign corporations could not be sued in U.S. federal courts for alleged human rights violations, tightening the scope of available claims under the ATS;
• The Court’s reasoning was fractured, with the majority opinion agreeing only on the issue of whether the ATS allows lawsuits against foreign corporate defendants;
• Separate concurrences split as to the reason for ruling that foreign corporations could not be defendants, with reasoning including separation of powers and foreign policy concerns, and the question of whether courts were capable of recognizing new causes of action under the ATS; and
• In a robust dissent, the four remaining justices argued that foreign corporations could be liable under the ATS, noting that corporations are in general capable of being held liable for tort claims, and that the statute itself does not specify any particular class of defendants. The dissent additionally disputed many of the baseline assumptions on which the majority opinion was premised, such as the need to establish an international “norm” of corporate liability.

Despite the plethora of differing opinions and premises, Jesner v. Arab Bank drew a hard line in holding that foreign corporations cannot be held liable for ATS claims, meaning that foreign corporations no longer have to be concerned that they will be hauled into U.S. federal courts based on activities that allegedly abuse human rights.

Significantly, however, while the Court did expound on the nature of corporate liability in general, the ruling itself did not address whether U.S. corporations could be liable for ATS claims, and was silent as to the implications of their decision for domestic corporations. The Court’s silence on this issue indicates that all alleged corporate human rights malfeasance is not precluded from ATS liability, and U.S. corporations may still be subject to ATS lawsuits.

Overview of the Alien Tort Statute

The ATS (28 U.S.C. §1350), also called the Alien Tort Claims Act (ATCA), is a section of the U.S. Code that reads, “[t]he 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.” It allows U.S. federal courts to hear cases brought by non-U.S. citizens who were victims of egregious human rights abuses no matter where the harm occurred. Theoretically, ATS claims can be brought against both natural persons and corporations, but claims against foreign governments are governed by the Foreign Sovereign Immunities Act (FSIA) and will generally be precluded. See Samantar v. Yousuf (2010) (noting, in the context of an ATS claim, that the FSIA provides “the sole basis for obtaining jurisdiction over a foreign state in federal court”). ATS lawsuits may be brought for serious violations of international law such as terrorism, state-sponsored torture and extrajudicial killings, war crimes, crimes against humanity, and genocide. In 2013, in the case of Kiobel v. Royal Dutch Petroleum, the U.S. Supreme Court applied a limited scope of the ATS and maintained a presumption against extraterritoriality. The court in Kiobel held that a foreign multinational corporation with a presence in the U.S. could not be sued for human rights abuses against foreign nationals committed abroad, stating that the case at hand did not adequately “touch and concern” the United States, as “all the relevant conduct took place outside the United States.” While Kiobel stands for the presumption that U.S. courts cannot hear “foreign cubed” cases, in which a foreign plaintiff sues a foreign defendant for acts committed on foreign soil, it did not speak to “foreign squared” cases, in which the defendant is a U.S. national or where the harm occurred on U.S. soil.

Background of Jesner v. Arab Bank

The question of whether such claims, involving a local arm of a foreign parent company, a foreign victim, and actions committed abroad, are viable were explored by the U.S. Supreme Court for the first time in Jesner v. Arab Bank. The plaintiffs in Jesner, a majority of whom were foreign nationals, were injured or were related to individuals who were injured in terrorist attacks in Israel, the West Bank, and the Gaza Strip occurring between January 1995 and July 2005. They sought to hold Arab Bank, a Jordanian institution, liable, alleging that the bank’s New York branch processed and cleared U.S. dollar-denominated transactions which financed the terrorist attacks and provided financial support for the families of terrorists, and that the bank helped facilitate financial transactions for terrorist groups such as Hamas, as well as for terrorist “front” organizations, including the Texas-based charity, the Holy Land Foundation for Relief and Development, all of which amounted to a human rights violation that the ATS seeks to penalize. The case was a manifestation of five ATS lawsuits against Arab Bank, originally filed in the U.S. District Court for the Eastern District of New York between 2004 and 2010. The U.S. Court of Appeals for the Second Circuit determined that the plaintiffs could not use the ATS, citing Kiobel, and the plaintiffs appealed the case to the Supreme Court.

The Supreme Court’s
Decision in Jesner

On April 24, 2018, the Supreme Court handed down its decision in Jesner. By a 5 to 4 vote, the Court determined that “foreign corporations may not be defendants in suits brought under the ATS.” The Court’s reasoning was fractured, with Justice Anthony Kennedy’s opinion commanding a majority only with respect to a small number of relatively narrow issues.

The majority opinion focused on whether it was appropriate, in the context of the ATS, to recognize a “right of action” (or “cause of action”) against corporate defendants. A right of action empowers plaintiffs to bring a lawsuit in court to obtain relief from injuries caused by another’s conduct. Rights of action may be expressly provided for in federal laws, but federal courts may also infer rights of action in certain circumstances. According to the majority’s framing of the case, the key question was whether it was appropriate for the Supreme Court to “extend” a judicially-created right of action under the ATS that would allow plaintiffs to bring a lawsuit against foreign corporate defendants. The majority noted precedent holding that the judiciary should be cautious when creating private rights of action, and that decisions to create new rights of action should generally be made by Congress instead of the courts. In the majority’s view, neither the language of the ATS nor prior judicial decisions interpreting the ATS supported an exception to this general principle of caution.

In particular, the majority focused upon the fact that the ATS—which provides courts with jurisdiction over actions brought by non-U.S. citizens for acts in violation of international law—implicates foreign policy concerns that are better left to be addressed by Congress and the Executive Branch. The majority also highlighted that the ATS was originally intended to promote harmony in international relations, and reasoned that allowing lawsuits against foreign corporations would undermine this goal. The majority noted that the longstanding litigation against Arab Bank had been a cause of diplomatic tension between the U.S. and Jordan, which it described as a “critical ally.”

Two-Step Test

To the extent Justice Kennedy’s opinion went beyond these conclusions, it was joined only by Chief Justice John Roberts and Justice Clarence Thomas. Following the Supreme Court’s decision in Sosa v. Alvarez-Machain (2004), Justice Kennedy applied a two-step test to determine whether to recognize a common-law action against foreign corporations under the ATS. First, Justice Kennedy considered whether the “alleged violation” of international law is “of a norm that is specific, universal, and obligatory.” Second, he considered whether allowing the case to proceed under the ATS was a proper exercise of judicial discretion, or whether caution required Congress or the Executive Branch to grant specific authority before corporate liability could be imposed.

Importantly, with regard to the first step of this test, Justice Kennedy examined whether there existed a “norm” of corporate liability under international law, rather than focusing on the “alleged violation” of international law, which in this case consisted of supporting acts of terrorism. Justice Kennedy noted that the governing statutes of certain international criminal law bodies, including the International Criminal Court and the International Criminal Tribunal for the Former Yugoslavia, did not extend criminal liability to corporations, and noted that the Charter for the Nuremberg Tribunal, created by the Allies after World War II, provided that the Tribunal had jurisdiction over natural persons only. However, Justice Kennedy avoided making a decision as to whether any corporation could be liable under the ATS, as he ultimately considered that it was unnecessary to decide the question of whether or not there is a “specific, universal and obligatory” norm of corporate liability under international law. Justice Kennedy reasoned that there was at least sufficient doubt on this point to move to the second step of the Sosa test.

Turning to this second step, Justice Kennedy reasoned that courts should leave it to Congress to determine in the first instance whether or not an international norm of corporate liability exists, and that therefore the Supreme Court should not exercise its discretion to extend a right of action against foreign corporations under the ATS. In particular, Justice Kennedy placed considerable weight on the Torture Victim Protection Act (TVPA)—a congressional statute which provides a cause of action against perpetrators of torture and extrajudicial killing—as he considered it to be an important source of guidance on the appropriate boundaries of judicially-created causes of action in the context of international law. The TVPA provides for a cause of action only against individuals, and Justice Kennedy considered this congressional choice to exclude corporate liability as “all but dispositive” in Jesner.

Finally, Justice Kennedy noted other considerations that weighed against recognizing a cause of action against corporations under the ATS, including that corporate liability had not been shown to be essential to serving the goals of the statute (given that individual corporate employees could still be sued for international law violations).

Concurrences

Justices Samuel Alito and Neil Gorsuch concurred in the judgment, but wrote separately to set out their own reasoning for why foreign corporations could not be defendants in ATS lawsuits. Justice Alito focused on separation-of-powers concerns, and argued that no cause of action should be recognized under the ATS unless it materially advanced the goal of the ATS, which he characterized as “avoiding diplomatic strife.” Notwithstanding the fact that the U.S. government had submitted an amicus brief opposing a categorical exclusion of corporate liability under the ATS, Justice Alito found that permitting corporate liability under the ATS was likely to increase rather than decrease diplomatic strife, and therefore found that such liability should be excluded for separation-of-powers reasons.

Justice Gorsuch took the most strict view of the ATS. He considered that a proper application of Sosa would preclude courts from ever recognizing any new causes of action under the ATS, and that in any case, the ATS should be read to require a purely domestic defendant, rather than a foreign defendant like Arab Bank.

Dissent

Justice Sonia Sotomayor wrote a lengthy dissent, in favor of holding corporations liable, that was joined by Justices Ruth Bader Ginsburg, Stephen Breyer, and Elena Kagan. First and foremost, Justice Sotomayor took issue with how the majority had framed the key questions in the case. In her view, the appropriate inquiry was “whether there is any reason—either under either international law or our domestic law—to distinguish between a corporation and a natural person who is alleged to have violated the law of nations under the ATS.” Justice Sotomayor concluded that the text, history, and purpose of the ATS all supported the conclusion that corporations could be held liable.

First, Justice Sotomayor’s dissent noted that the ATS provides jurisdiction over civil actions for torts, and that corporations have long been liable for torts under the federal common law. Secondly, Justice Sotomayor noted that while the ATS limits the class of possible plaintiffs to “alien[s],” it does not specify any particular class of defendant. Justice Sotomayor also cited historical precedent for the notion that corporations could be held liable under the ATS, including a 1907 opinion from the U.S. attorney general.

The dissent also rejected several of the key premises relied upon by the majority and the concurring opinions. For instance, Justice Sotomayor considered that it made little sense to discuss an international “norm” of corporate liability, as the relevant norms at issue under the ATS concern conduct—e.g. acts violating human rights—and not remedial issues such as who can be held liable for such conduct. Therefore, Justice Sotomayor saw no reason to “delve into the propriety of creating new causes of action” as the Court had not been asked to address whether the ATS provided a cause of action stemming from any particular conduct that violates international law.

Additionally, Justice Sotomayor contended that “[n]othing about the corporate form in itself justifies categorically foreclosing corporate liability in all ATS actions.” Justice Sotomayor argued that any concerns about diplomatic friction could be better addressed by applying the presumption against extraterritoriality that was discussed in the Supreme Court’s prior Kiobel decision, and questioned whether suits against foreign corporations were any more likely to produce diplomatic strife than lawsuits against individual officers of those corporations. Justice Sotomayor also relied heavily on the U.S. government’s submissions as amicus curiae—in which the government had argued against categorically excluding corporate liability under the ATS. Finally, Justice Sotomayor considered that Justice Kennedy’s analogies to the TVPA were inapt, as there were “critical textual differences” between the ATS and the TVPA.

Implications of the Jesner Decision

While the Jesner decision involved a complex series of conflicting opinions, one result is clear—foreign corporations can no longer be subjected to a lawsuit in U.S. courts under the ATS. Lawsuits such as Jesner or the lawsuit at issue in Kiobel (both of which involved claims raised by foreign plaintiffs against foreign corporate defendants) can no longer be maintained.

However, the Court was careful not to address whether U.S. corporations can properly be made defendants in ATS lawsuits. Given that only narrow portions of Justice Kennedy’s opinion commanded a majority of the Court’s votes, both plaintiffs and lower courts may have a fair amount of leeway in determining how to approach a lawsuit by foreign plaintiffs against a U.S.-based corporation for human rights violations. For instance, the ATS would still apply in a situation where the alleged violation of international law took place on U.S. soil and was committed by a U.S. corporation. The ATS may also provide a cause of action related to conduct that took place abroad, where a U.S. corporation was directly responsible for this conduct. A third—and less clear—scenario would involve conduct abroad allegedly committed by a foreign subsidiary of a U.S. corporation. In such a scenario the ATS may still provide a right of action, but the plaintiff would likely have to establish a legal basis for imputing the foreign subsidiary’s conduct to the parent company (such as principles of agency or piercing the corporate veil). It remains to be seen how lower courts will address this question, and whether the Supreme Court will be given another chance to weigh in.

Author Information

Viren Mascarenhas is a partner in King & Spalding’s New York office and a member of the firm’s International Arbitration and Litigation practice group.

Kayla Winarsky Green is an associate in King & Spalding’s New York office and a member of the firm’s Special Matters and Investigations practice group.

Timothy M. McKenzie is an associate in King & Spalding’s New York office and a member of the firm’s International Arbitration and Litigation practice group.