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20 September 2010

Second Circuit Bars Alien Tort Statute Claims Against Corporations

The Alien Tort Statute (ATS), which was enacted by the first Congress in 1789, has served as the primary vehicle in recent decades for class action lawsuits by foreign plaintiffs alleging human rights violations abroad by US and foreign corporations.

Last week, in Kiobel v. Royal Dutch Petroleum Co., the US Court of Appeals for the Second Circuit held that the ATS does not authorize claims against corporations. It therefore dismissed for lack of subject matter jurisdiction pending claims that the oil company defendants assisted the Nigerian government in human rights violations.

The ATS provides jurisdiction over tort actions brought by aliens for violations of the “law of nations.” ATS suits generally allege crimes against humanity and threaten enormous damages, thereby causing severe financial and reputational harm to defendants before any evidence has even been heard. As a result, the mere threat of such suits often has compelled companies into unwarranted settlements.

The Second Circuit’s ruling, if it survives inevitable challenges on rehearing and at the US Supreme Court, puts an end to such suits against corporations, at least in the Second Circuit, which governs federal courts in New York where the bulk of ATS suits have been filed.

The Second Circuit reasoned that the ATS requires courts to look to customary international law to determine the categories of defendants subject to ATS claims. In a lengthy opinion by Judge José Cabranes, the court explained that corporations (as opposed to natural individuals and States) have never been subject to civil or criminal liability under the customary international law of human rights. The court therefore concluded that the ATS does not confer subject matter jurisdiction over suits against corporations.

Judge Leval concurred in the judgment but disagreed with the majority’s holding that ATS claims are not viable against corporations. He opined that international law leaves the question of corporate liability to the domestic law of each State, and that US law recognizes corporate liability for conduct covered by the ATS. However, he agreed that the pending claims must be dismissed for failure to plausibly allege that the defendants intended to assist the Nigerian government’s alleged human rights violations.

The Kiobel plaintiffs undoubtedly will seek rehearing en banc and, if unsuccessful, US Supreme Court review. Given the enormous importance of the corporate liability issue, companies with operations abroad may want to consider participating as amici in support of the panel majority. In any event, it should be noted that the Kiobel ruling, if upheld, protects only corporations as entities from ATS claims. Individual corporate officers, directors and employees remain potential defendants. In addition, plaintiffs may file ATS cases against corporations in other circuits where they hope the result will be different.

For more information, please contact Mark Hanchet (New York) or Jeffrey Sarles (Chicago).

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