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United States Supreme Court Holds that Foreign Corporations May Not Be Held Liable Under the Alien Tort Statute

In Jesner v. Arab Bank, PLC, 584 U.S. ___, 2018 WL 1914663 (U.S. Apr. 24, 2018) (Kennedy, J.), the Supreme Court of the United States held that foreign corporations may not be sued under the Alien Tort Statute (“ATS”), 28 U.S.C. § 1350. The Court, disagreeing with opinions from the Seventh, Ninth and District of Columbia Circuits (see blog articles here and here), concluded that United States courts do not have authority under the ATS to impose liability on foreign corporations for violations of international human rights laws where the law of nations does not impose such liability. This decision provides relief to foreign corporations that otherwise could have been held liable for committing violations of international law under the ATS, in the area of human rights and beyond.

About 6,000 plaintiffs filed five lawsuits between 2004 and 2010 in the United States District Court for the Eastern District of New York, claiming that they or their family members (predominantly foreign nationals) were injured or killed by terrorist attacks in the Middle East. They alleged that defendant Arab Bank, PLC conducted electronic transfers through its New York City office that funded these injurious terrorist operations — aid which is presumptively illegal under international law. The questions facing the Supreme Court revolved around the liability of corporations for human rights violations by their employees who provide such aid through the corporation.

The Supreme Court was first presented with this question in Kiobel v. Royal Dutch Petroleum Co, 569 U.S. 108 (2013). In that case, the Supreme Court declined to decide the narrow question of whether the ATS extended to suits against foreign corporations, and instead held on broad grounds that the ATS does not apply to conduct that is entirely foreign in nature. (See blog article here). The Court left open the issue of whether an ATS claim might appropriately be asserted against a corporation based upon acts occurring outside the United States, but in some way touching and concerning the United States.

The district court dismissed the Jesner plaintiffs’ claims based upon Kiobel. The United States Court of Appeals for the Second Circuit affirmed, applying the reasoning in its own decision in Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111 (2d Cir. 2010), that, because international criminal tribunals typically limit their jurisdiction to natural persons, the ATS does not apply to violations of international law by corporations. (See blog article here).

In the plurality opinion written by Justice Kennedy, the Court held that there is no “specific, universal, and obligatory norm” in international law providing for corporate liability. Rather, the Court held that there is significant doubt as to whether prevailing international law imposes criminal liability on corporations and, in light of that doubt and the daunting foreign policy consequences (such as mounting tensions with the Hashemite Kingdom of Jordan over this very case), the decision to extend the application of the ATS to foreign corporations is the role of Congress and not the courts.

In concurring portions of the plurality opinion, Justices Kennedy and Thomas, joined by Chief Justice Roberts, note that limited application of the ATS to foreign corporations may likely be deemed favorable by Congress leading legislative action. Concurring with the opinion of the Court in full, Justice Thomas briefly highlighted and supported the views of his concurring colleagues. Justice Gorsuch wrote an opinion concurring in part and concurring in the judgment, urging that the Supreme Court should not be creating new causes of action under the ATS, and arguing more broadly that the ATS likely does not apply to suits between foreign plaintiffs and foreign defendants. Justice Alito penned his particular concerns where doing so may create just the “diplomatic strife” the ATS was intended to prevent.

In a dissenting opinion, Justices Sotomayor, Ginsburg, Breyer and Kagan expressed their view that the international treaty standard rendering the financing of terrorism a violation of international law, not the method of enforcing that standard, is the relevant “specific, universal, and obligatory norm” at issue. The dissenting Justices determined that this is not the proper inquiry at all, and instead believed that the Court should look at whether any reason exists to distinguish between natural persons and corporations under the ATS. Analogizing to pirate ships’ liability under the ATS centuries ago, the dissenting Justices interpreted the corporate form as not being inherently devoid of responsibility under international law, and observed that foreign policy concerns identified by the plurality could instead be addressed on extraterritoriality grounds.

The new precedent set by the Jesner plurality decision reflects this Court’s hesitation to engage in what its consider judicial overreach. It will therefore be up to Congress to decide whether to expand the ATS to allow victims to sue foreign corporations — often the only “deep pocket” for recovery in light of foreign sovereign immunity — in federal courts for their participation or assistance in violations of human rights.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

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About this Author

John Stigi, securities, corporate, attorney, Sheppard Mullin, law firm
Partner

John Stigi is a partner in the Business Trial Practice Group in the firm's Century City and New York offices, and leader of the firm's Corporate/Securities Litigation Team.

Mr. Stigi's practice focuses on securities class action and shareholder derivative action defense, SEC investigation defense, internal corporate investigations, complex contract and commercial litigation, and M&A and corporate governance litigation.  He has extensive experience representing issuers, officers, directors and auditors in all areas of securities, corporate...

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Alyssa Shauer, Sheppard Mullin Law Firm, Century City, Cybersecurity and Litigation Attorney
Associate

Alyssa M. Shauer is an associate in the Business Trial Practice Group in the firm's Century City office. Ms. Shauer is a Certified Information Privacy Professional (CIPP/US) and a member of Sheppard Mullin’s Privacy Team.

Prior to joining Sheppard Mullin, Ms. Shauer externed in the chambers of the Honorable Margaret M. Morrow, Central District of California. She served as a Managing Editor of the UCLA Law Review and as Vice President of the Cyber Crimes Symposium and Competition on the Moot Court Honors Board. Prior to law school, Ms. Shauer studied emerging technology and cyber security regulations as a policy analyst for a managed care health plan and as a software developer for the Federal Aviation Administration in Washington, D.C.

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