Second Circuit Holds that Corporations are not Proper Defendants under the Alien Tort Statute

On September 17, in a controversial opinion, the Second Circuit Court of Appeals held in Kiobel v. Royal Dutch Petroleum that corporations cannot be properly sued under the Alien Tort Statute (“ATS”) for violations of customary international law.  The case is one of a series of cases arising from claims that Royal Dutch Petroleum was complicit in human rights abuses against the Ogoni people in Nigeria.  Three related cases (the Wiwa cases) settled on the eve of trial in June 2009 for a disclosed settlement of $15.5 million.

In an opinion written by Judge Jose Cabranes, the Second Circuit concluded that

Because customary international law consists of only those norms that are specific, universal, and obligatory in the relations of States inter se, and because no corporation has ever been subject to any form of liability (whether civil or criminal) under the customary international law of human rights, we hold that corporate liability is not a discernable—much less universally recognized—norm of customary international law that we may apply pursuant to the ATS. Accordingly, plaintiffs’ ATS claims must be dismissed for lack of subject matter jurisdiction.

The Kiobel opinion has some legal scholars wondering whether this may be the beginning of the end for ATS litigation against corporations.  The decision will certainly be appealed, and this may be the case that results in Supreme Court clarification on the applicability of the ATS to corporate actors.  The question of whether corporations are properly liable under the ATS was left unsettled by the Supreme Court in Sosa v. Alvarez-Machain, and the Supreme Court declined to take up the issue when it recently denied Pfizer’s writ of certiorari in Pfizer v. Abdullahi.

In Kiobel, the majority stated that “the fact that corporations are liable as juridical persons under domestic law does not mean that they are liable under international law (and, therefore, under the ATS).”  In doing so, the Court directly addressed the question posed in a footnote in Sosa.  In that footnote, the Supreme Court stated that an evaluation of whether a norm of international law was sufficiently definite to support a cause of action under the ATS involved the "related consideration" of “whether international law extends the scope of liability for a violation of a given norm to the perpetrator being sued, if the defendant is a private actor such as a corporation or individual.”  The Court in Kiobel took up this "related consideration" and found that corporations are not proper defendants in ATS cases because “the principle of individual liability for violations of international law has been limited to natural persons—not ‘juridical’ persons such as corporations.”

Before Kiobel, several post-Sosa appellate court decisions have upheld jurisdiction over corporate defendants.  Notably, many of these decisions have not involved much analysis of whether corporations were proper defendants.  In Presbyterian Church v. Talisman, decided in 2009, the Second Circuit assumed “without deciding, that corporations…may be held liable for the violations of customary international law[.]”  In Khulumani v. Barclays Nat. Bank Ltd., decided in 2007, defendants did not raise the question of corporate liability on appeal, but the Second Circuit observed that  “[w]e have repeatedly treated the issue of whether corporations may be held liable…as indistinguishable from the question of whether private individuals may be.”  Other appellate courts, including the Eleventh Circuit in Romero v. Drummond Co., decided in 2008, and Aldana v. Del Monte Fresh Produce, decided in 2005, have similarly upheld corporate liability under the ATS.   

These cases have left unsettled the question of whether the ATS properly applies to corporate defendants.  In Kiobel, the Second Circuit noted this uncertainty and cited a recent decision by the District Court for the Central District of California that declined to find corporate liability under the ATS.  In Doe v. Nestle, decided on September 8, the District Court first observed that “domestic courts have almost uniformly concluded that corporations may be held liable for violations of international law” and then found that “existing cases have not adequately identified any international law norms governing corporations. Accordingly, the Court concludes that corporations cannot be held directly liable under the Alien Tort Statute for violating international law.”

Advocates for corporate liability will find support in the concurring opinion in Kiobel, written by Judge Pierre Laval, in which he strongly critiqued the majority opinion’s finding on corporate liability as “[w]ithout any support in either the precedents or the scholarship of international law[.]”  In his critique, Judge Laval questioned the potential impact of the majority’s ruling, stating that

according to the rule my colleagues have created, one who earns profits by commercial exploitation of abuse of fundamental human rights can successfully shield those profits from victims’ claims for compensation simply by taking the precaution of conducting the heinous operation in the corporate form.

The policy arguments contained in Judge Laval’s concurrence echo a 2005 opinion in In re Agent Orange Prod. Liab. Litig. in which the District Court for the Eastern District of New York found that “[l]imiting civil liability to individuals while exonerating the corporation directing the individual’s action through its complex operations and changing personnel makes little sense in today’s world.” 

It is certain that the Kiobel decision represents one of the most significant ATS decisions in years, although it is far too early to state that this is the end of ATS litigation for companies.  Both the majority and concurring opinions in Kiobel will find many advocates and detractors and all parties will continue to look to the Supreme Court for final resolution.

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