Clifford Chance

The US Supreme Court will squarely consider whether US corporations and US subsidiaries of foreign corporations can be liable for alleged violations of customary international law under the Alien Tort Statute.

Background

The Alien Tort Statute ("ATS") gives US federal district courts jurisdiction over "any civil action by an alien for a tort only, committed in violation of the law of nations . . . " 28 USC § 1350. Plaintiffs have used the ATS to sue corporations for alleged facilitation of human rights violations abroad.

These cases generally involve corporations doing business in countries with systemic human rights issues - for example, providing banking services, selling industrial products, or extracting natural resources. The corporations are accused of involvement in abuses by a third party, such as a security service, which is often associated with the relevant state. The possibility of this litigation presents significant financial and reputational risk for companies operating abroad.

The US Supreme Court will once again take up the question of corporate liability under the ATS. In 2005, three Malian former child slaves brought suit - which was converted to a class action in 2009 - against chocolate importers, cocoa suppliers, and food and beverage companies, including Nestlé USA, the US affiliate of Swiss-based Nestlé, and Cargill, Inc., a US corporation, alleging that they aided and abetted forced labor and torture in Cote d'Ivoire through their business relationships with cocoa suppliers that used forced child labor. The plaintiffs alleged that employees from the companies' US offices provided spending money to the cocoa farmers and regularly inspected operations in Cote D'Ivoire.

The history of the case is extensive. The trial court twice dismissed it under the increasingly strict standards for ATS jurisdiction handed down by the Supreme Court, and each time the Ninth Circuit reinstated it.

After the Supreme Court held in 2018 in Jesner v. Arab Bank, 138 S. Ct. 1386, that the ATS does not provide jurisdiction over suits against foreign corporations, a three-judge panel of the Ninth Circuit stated that "Jesner did not eliminate all corporate liability under the ATS", and maintained that the ATS applies to US domestic corporations. Doe v. Nestle, S.A., 906 F.3d 1120 (9th Cir. 2018). The panel then held that the companies could be sued under the ATS based on the customary international law prohibition against slavery, because the alleged violations were "perpetuated from headquarters in the United States". The full Ninth Circuit, over the dissent of eight judges, declined to rehear the case, allowing the panel's ruling to stand and diverging with the law in the Second Circuit. 929 F.3d 623 (9th Cir. 2019).

Appeal to the Supreme Court

Nestlé USA and Cargill each asked the US Supreme Court to address the questions whether US corporations are subject to liability under the ATS and whether the presumption against extraterritorial application of US law can be overcome by allegations of general corporate activity in the US. The Solicitor General ("SG"), the US government's top litigator, weighed in, recommending that the Court take the cases and rule in favor of the corporations, and also find that aiding and abetting liability is not available under the ATS. The SG's position with respect to corporate liability represented a reversal from that taken in Kiobel and Jesner.

On July 2 the Court agreed to review the cases.

ATS Precedents

The Supreme Court's trend of narrowing the ATS favors the corporations. In Sosa v. Alvarez-Machain, 542 US 692 (2004), the Court stated that the ATS is "strictly jurisdictional" and best read as providing "a cause of action for the modest number of international law violations" that existed at the time of its enactment in 1789, such as piracy. The Court left open the potential for additional claims but warned that any new claims would be "subject to vigilant doorkeeping". The issue of corporate liability did not arise in Sosa, as the case involved an individual.

The Supreme Court further narrowed the ATS, this time geographically, in Kiobel v. Royal Dutch Petroleum Co., 569 US 108 (2013), which held that the foreign corporations could not be sued for conduct occurring overseas because the statute did not apply extraterritorially. To overcome the presumption against extraterritoriality, a claim must "touch and concern the territory of the United States . . . with sufficient force" to justify jurisdiction. The Supreme Court sidestepped the issue of corporate liability in Kiobel, leaving intact the Second Circuit's holding that the ATS does not provide jurisdiction over corporations. Please see our briefing here.

Then, in Jesner, the Supreme Court categorically eliminated ATS jurisdiction over foreign corporations. Applying Sosa's framework, the Court held that the ATS did not provide private rights of action against foreign corporations because of the foreign policy and separation of powers interests at stake; according to the Court, Congress did not clearly authorize such suits. The Court expressly left open the question whether the ATS applies to domestic corporations. Please see our briefing here.

Implications

The Court will consider Nestlé and Cargill during its next Term, which begins in October and ends in summer 2021. Whatever the result, the case will have a significant impact on human rights litigation in the US. If the Court decides that the ATS categorically does not apply to corporations, plaintiffs likely will look to other avenues (whether US state law, federal law other than the ATS, or non-US jurisdictions) to assert customary international law claims against corporations for human rights violations abroad.

Alternatively, the Court might hold that US corporations can be sued for customary international law violations under the ATS - similar to the Canadian Supreme Court's recent decision in Nevsun Resources v. Araya (please see our blog post here) - and clarify the US nexus required.

Even if the Supreme Court eliminates corporate liability under the ATS, corporations will continue to face significant reputational risks in connection with human rights violations, as well as legal risks under other US laws, such as the Trafficking Victims Protection Act, the Tariff Act's ban on importing goods made with forced labor, the Anti-Terrorism Act, and state law tort claims. The ATS is just one risk of which companies must be aware in connection with their own and their supply chains' conduct abroad.