Clifford Chance

The US Supreme Court has decided that the Alien Tort Statute ("ATS") does not permit a long-running suit against two US companies for aiding and abetting child slavery abroad but sidestepped the issue of whether suits against US companies are possible.

Background

The Alien Tort Statute grants federal courts jurisdiction over suits by foreign nationals for torts "committed in violation of the law of nations or a treaty of the United States." 28 USC § 1350. Over the last few decades, foreign plaintiffs have used the ATS as a vehicle for lawsuits against companies for alleged human rights violations committed abroad. These suits generally allege that a company is liable for aiding and abetting human rights abuses committed by others – for example, foreign state authorities or paramilitaries.

The Supreme Court has limited the scope of this litigation in a series of cases. Related briefings are here and here. Still, plaintiffs have continued to test the limits of the ATS, in cases that often last for years. In Nestle USA v. Doe, 593 US __ (2021), a group of Malians had sued Nestle and Cargill, among others, alleging that they were trafficked as children to Cote d'Ivoire and forced to work on cocoa farms in violation of the international law prohibition on child slavery. The plaintiffs did not allege that Nestle and Cargill had themselves engaged in child slavery, but rather that they aided and abetted the violations by providing financial and technical resources to farms which the companies "knew or should have known" utilized slave labor.

The district court twice dismissed the case, but the court of appeals revived it, holding most recently that the claims were viable because the defendant companies' "major operational decisions" took place in the United States. Our blog post here provides more details.

The Supreme Court's Decision

The Supreme Court agreed to consider two questions: (1) whether challenging corporate decision making in the US that aided and abetted foreign human rights violations was an impermissibly extraterritorial application of the ATS, and (2) whether corporations could be liable for ATS violations at all. On June 17, the Court held that a valid ATS claim requires "more domestic conduct than general corporate activity common to most corporations."

Ducking the Corporate Liability Question (Again)

The Supreme Court avoided the question whether US corporations can be liable for human rights violations, and not for the first time. The Court first took up the question almost a decade ago in Kiobel, 569 US 108 (2013), and then in 2018 in Jesner v. Arab Bank, 138 S. Ct. 1386, but so far has held only that the ATS does not apply to foreign corporations.

In perhaps a Pyrrhic victory for plaintiffs, five Justices in Nestle suggested that domestic corporations can be liable under the ATS, with Justice Gorsuch expressly stating that "[n]othing in the ATS supplies corporations with special protections against suit."

But Putting an End to This Lawsuit

The narrow majority opinion disposed of this suit by applying the Court's previous jurisprudence on the presumption against extraterritoriality, which has been a consistent theme in a variety of contexts in recent years. Eight of nine Justices agreed that the proposed application of the ATS would be impermissibly extraterritorial because the injuries occurred solely in Cote d'Ivoire.

The Nestle plaintiffs had attempted to overcome the presumption against extraterritoriality by alleging that, although the companies did not own or operate farms in Cote d'Ivoire, they bought cocoa from farms located there, provided technical and financial resources, and failed to use economic leverage over the farms to eliminate child slavery. The Court took all of two pages to reject that argument, holding that "general corporate activity" in the United States was insufficient.

Bucking an International Trend?

The Court's decision implicitly rejected arguments presented by human rights organizations as amici. Relying on international instruments including the UN Guiding Principles on Business and Human Rights ("UNGP"), the organizations argued that "ensuring the legal accountability of business enterprises and access to effective remedy for persons affected by such abuses is a vital part of a State's duty to protect against business-related human rights abuse." Invocation of the UN Guiding Principles in human rights litigation against business is a growing trend.

The Supreme Court's narrow approach stands in contrast to courts in other jurisdictions, which are apparently becoming more receptive to theories of legal liability for businesses' involvement in human rights abuses. There has been some willingness to recognize that parent companies have a duty of care to avoid human rights related harms. See, e.g., Vedanta Resources PLC v Lungowe (Supreme Court of the UK 2019); Okpabi v RDS (Supreme Court of the UK 2021); Nevsun Resources Ltd. v. Araya (Supreme Court of Canada 2020). Most recently, one court has expressly considered the UNGP in finding a duty of care: Milieudefensie v. Royal Dutch Shell (District Court of The Hague 2021) (please see our blog posts on these cases here and here).

Implications

While US companies may be relieved at the Nestle outcome, plaintiffs undoubtedly will continue to employ creative approaches to argue that business conduct in the US went beyond 'ordinary corporate activity' and contributed to human rights violations. With the Court signaling that domestic corporations are not immune to such claims, companies will continue to face these suits.

In addition to the ATS, US plaintiffs have a variety of other tools to pursue human rights claims, including the Trafficking Victims Protection Reauthorization Act, or TVPRA. Indeed, while the Supreme Court was considering Nestle, plaintiffs filed a TVPRA version of the case in federal court in Washington, DC in February 2021, arguing that the TVPRA explicitly applies extraterritorially and provides liability where a defendant knowingly benefits from human trafficking and forced labor. Coubaly v. Nestle, 1:21-cv-00386-DLF.

While multinational corporations cannot entirely eliminate litigation risk, they can mitigate it by establishing effective human rights-related policies and due diligence processes designed to identify and address their risk of involvement in adverse impacting human rights both at home and abroad. Backed by a growing patchwork of mandatory requirements worldwide (e.g., in Germany, Norway, and soon the European Union), companies should act now to keep up with the pace of change.