Corporate Social Responsibility and the Law : Foley Hoag LLP

Earlier today, the District Court for the Southern District of New York entered an order dismissing, with prejudice, plaintiffs' claims in Abdullahi v. Pfizer, 01-cv-8118 (S.D.N.Y.). The case involved allegations that Pfizer conducted nonconsensual testing of Trovan, an experimental drug, during a meningitis outbreak in Nigeria in 1996.  Earlier this month, plaintiffs and Pfizer had filed a stipulation of dismissal after the parties reached an agreement to settle all claims.

The Nigerian plaintiffs had originally filed suit in 2001, bringing claims under the Alien Tort Statute ("ATS"), alleging that Pfizer's testing was done on children without their parents’ informed consent. Eleven children died as a result of their participation in the drug trial. 

In 2009, as discussed in an earlier post, the Second Circuit held that plaintiffs could properly bring claims against Pfizer under the ATS for “violation of the norm of customary international law prohibiting medical experimentation on human subjects without their consent.” Abdullahi v. Pfizer, Inc., 562 F.3d 163 (2d Cir. 2009). In that decision, the Second Circuit found that the international law norm prohibiting nonconsensual medical testing is sufficiently “universal, specific, and obligatory” so as to meet the standard for subject matter jurisdiction under the ATS established in the Supreme Court’s decision in Sosa v. Alvarez-Machain, 542 U.S. 692 (2004).

Plaintiffs' case against Pfizer, however, was subject to potential dismissal in light of the Second Circuit's more recent decision in Kiobel v. Royal Dutch Petroleum, 621 F.3d 111 (2d Cir. 2010), in which the court held that corporations cannot be properly sued under the ATS for violations of customary international law.

Pfizer faced pressure as the result of a recent increase in the level of media attention to the case. The heightened scrutiny came about, at least in part, as the result of disclosures in certain diplomatic cables released by Wikileaks, which called into question the propriety of Pfizer's efforts to settle two related cases brought in Nigeria. Those cases were settled in July 2009 for a total of $75 million and attorneys fees.

The most recent settlement, the specific terms of which are confidential, reportedly allows a maximum of $175,000 to be paid per child to people who can prove death or permanent disability due to the 1996 trial.  Any payments would come from a $35 million trust fund set up as part of the earlier settlement of the Nigerian claims.

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Last week, Sarah Altschuller was interviewed on Capital Thinking, an internet radio program on VoiceAmerica Business Network. During the interview, she addressed several recent legal developments in the field of corporate social responsibility, including the Dodd-Frank provisions on conflict minerals and disclosure of payments to governments, as well as the California Transparency in Supply Chains Act. She also discussed the Draft Guiding Principles recently released by the U.N. Special Representative on Business and Human Rights. A podcast of the interview is available here (.mp3).

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This year’s Super Bowl, held on February 6, provided advocates with an opportunity to shine a spotlight on one of the darkest sides of major sporting events: the trafficking of sex workers. At an anti-trafficking event held in January, Texas Attorney General Greg Abbott stated that “the Super Bowl is one of the biggest human trafficking events in the United States.”

When large numbers of people attend events like the Super Bowl, a correspondingly large number of sex workers reportedly come, or are brought to, the site of the event. Many of these workers may be underage and brought to the site against their will. The Federal Bureau of Investigation has estimated that more than 100,000 underage girls may be exploited for commercial sex in the United States each year. 

In the weeks and months leading up to the Super Bowl, a wide variety of advocates sought to enlist the help of companies in addressing the problem. In a statement shortly before the game, Rev. David Schilling of the Interfaith Center on Corporate Responsibility observed that “shareholders are requesting that the travel and tourism industry in Texas play a vital role in addressing human trafficking in the lead-up to the Super Bowl.” 

Hotels and airlines were the focus of much of the advocacy attention. The week before the Super Bowl, Airline Ambassadors International, a non-profit organization, organized a training at Dallas-Fort Worth Airport for the employees of several major airlines that was intended to provide flight staff with information on how to identify, and help, children who might be trafficking victims.

The attention paid to the Super Bowl was not an isolated occurence. Earlier in 2010, in the lead-up to the World Cup in South Africa, Christian Brothers Investment Services ("CBIS") produced a report evaluating the efforts of several major hotel chains to combat child sexual exploitation. The CBIS report highlighted The Code, a hospitality industry code of conduct intended to facilitate efforts to combat the sexual exploitation of children, and noted that only one major U.S. hotel chain - Carlson Companies (with brands including Radisson and Country Inns & Suites) has adopted The Code to date.

ECPAT-USA, a non-governmental organization, has identified four steps that hotels can take to help combat human trafficking. These steps were highlighted by CBIS in its advocacy efforts leading up to both the Super Bowl and the World Cup.  Adopted from The Code, the steps include:

• Adopting a corporate policy against sexual exploitation;
• Training staff to be observant to potential victims and, should they observe anything suspicious, making them aware to whom they should report such incidents;
• Building alliances with police, anti-trafficking organizations, and child welfare agencies; and
• Providing information to guests regarding national laws, hotline numbers to report potential incidents, and the penalties imposed for trafficking and the sexual abuse of children, reinforcing the fact that it is not accepted by the hotel.

As companies seek to address stakeholder concerns about human trafficking, it is important to note that Congress is paying attention to role of the private sector in addressing the problem. In July 2010, the House of Representatives organized a hearing on human trafficking during which Rep. Christopher Smith (R-NJ) declared that “[t]he airline and hotel industries should be on the front lines of the fight."

Human trafficking for sexual exploitation remains a problem that is often hidden from sight, especially in the United States, but the level of advocacy on this issue continues to increase. Companies, especially in the hospitality and transportation industries, are likely to face increasing pressure from stakeholders to play a role in addressing the problem.

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The Global Network Initiative ("GNI") released its first annual report (.pdf) last month. This is a milestone worth celebrating by all who continue to believe in the power of the information and communications technology ("ICT") sector to promote freedom and development (and development as freedom) worldwide.

Although the changes wrought in the last decade by the proliferation of ICT companies to the furthest reaches of the globe are almost unimaginable, the first decade of the new century has seen a decided dampening of the panglossian optimism that surrounded the early growth of what was then called the "information superhighway.” The myth that cyberspace is a sphere whose very architecture prevents governments from extending their writ there has now been shattered. 

As the GNI's inaugural annual report documents, some 40 countries worldwide – ranging from authoritarian China to antipodean Australia – filter internet content with varying degrees of effectiveness and heavy-handedness; and practically every government in the world has asked ICT companies to turn over user-identifying data for purposes ranging from bona fide law enforcement to the suppression of dissent.

Founded as they were by young idealists who believed in the early conception of cyberspace as an information commons, many ICT companies were initially caught off guard by government demands to disclose information that could pierce the cloak of anonymity behind which many internet users believed they were operating. Following criticism from civil society groups, academic commentators, and socially responsible investors for their responses to such incidents, the GNI was founded as a multi-stakeholder organization bringing together these disparate actors to develop a set of principles to protect and promote privacy and free expression online from unwarranted government intrusion.

As its inaugural annual report documents, the GNI has made substantial progress in furthering its four goals of fostering accountability, promoting policy engagement, enabling shared learning between its member organizations, and perhaps most importantly, establishing a framework for responsible company decision-making and action in responding to government requests. What is more, the GNI's report documents how its core principles have already been put into effect by its three current corporate members, Google, Microsoft, and Yahoo!:

• Faced with revelations that its servers in China were being attacked to obtain information pertaining to human rights activists, Google decided to restructure its activities in that market by discontinuing its filtered search services.
• Following media reports that prosecutors in Russia were harassing nettlesome NGOs by trumping up charges that they were pirating Microsoft software, the software giant consulted widely in the human rights community -- including with its GNI partners -- to develop a special licensing program for eligible organizations in certain countries.
• Finally, prior to expanding its polyglot offerings to yet another language, Yahoo! decided to manage and operate its new Vietnamese-language services from Singapore, owing to the stronger regulatory environment for protecting user privacy offered by the island-state.

With the recent appointment of its first-ever executive director, Susan Morgan, and an independent chair, Jermyn Brooks, the GNI is set to build on its already impressive accomplishments and continue to articulate the defining set of best practices on how to manage the unintended human rights consequences of the information revolution. Other ICT companies – particularly from the hardware and Web 2.0 sectors – would do well to take advantage of the opportunity for multi-stakeholder engagement that the GNI presents, before they too come face to face with the unintended consequences of their technologies.

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On February 4, the Second Circuit Court of Appeals denied plaintiffs' petition for a rehearing en banc in Kiobel v. Royal Dutch Petroleum, 621 F.3d 111 (2d Cir. 2010).  Plaintiffs filed the petition after the Second Circuit held, in a controversial September 2010 decision, that corporations cannot be properly sued under the Alien Tort Statute (“ATS”) for violations of customary international law.

The Court was divided 5-5 on the decision of whether to grant en banc review.  Several judges prepared separate opinions, and these opinions reflect a deeply divided court.

In support of the decision to deny a rehearing, Chief Judge Dennis Jacobs stated that "no international consensus has arisen (or is likely to arise) supporting corporate liability" for violations of customary international law.  He warned that allowing ATS cases to go forward against corporations could provoke "invasive discovery" that might "coerce settlements that have no relation to the prospect of success on the ultimate merits."

Chief Judge Jacobs also observed that the Second Circuit's decision in Presbyterian Church of Sudan v. Talisman, 582 F.3d 244 (2d Cir. 2009), had limited aiding and abetting liability under the ATS to those cases in which "conduct is done with the positive intention of bringing about a violation of the Law of Nations."  He found, therefore, that the "incremental number of cases actually foreclosed by the majority opinion in Kiobel approaches the vanishing point."  He warned, however, that unless Kiobel was upheld, "plaintiffs would be able to plead around Talisman in a way that would delay dismissal of ATS suits against corporations[.]"  He concluded that "this case has no great practical effect except for the considerable benefit of avoiding abuse of the courts to extort settlements."

Judge Leval dissented from the denial of a rehearing, in an opinion that echoed his vigorous dissent from the original September 2010 decision.  He noted the Chief Judge's argument that Kiobel "can have no more than trivial detrimental effect because, under our holding on Talisman, liability may be imposed for aiding and abetting only in the most serious cases -- those in which the defendant acted with a purpose to violate the law of nations."  Judge Leval then argued that "[t]o justify a rule that exempts certain defendants from liability on the ground that the rule protects only the very worse offenders is strange logic." 

Judge Leval noted many of Chief Judge Jacobs' concerns and found that "[t]o the extent Judge Jacobs airs reasonable grievances, these can be ameliorated by less drastic measures, which do not leave juridical entities free to conduct businesses based on the abuse of human rights without exposure to civil liability."

In a short dissenting statement attached to the order denying the request for rehearing, Judge Lynch, joined by Judge Pooler, Judge Katzmann, and Judge Chin, observed that "this case presents a significant issue and generates a circuit split," citing to the Eleventh Circuit's decision in Romero v. Drummond, 552 F.3d 1303 (11th Cir. 2008), which upheld corporate liability under the ATS.  This observation of the circuit split may foreshadow the ultimate resolution of the question of corporate liability under the ATS as the split provides a basis for a petition to the U.S. Supreme Court.

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The Securities and Exchange Commission ("SEC") has extended the time period for comments on proposed rules issued pursuant to Section 1502 (conflict minerals) and Section 1504 (disclosure of payments to governments) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The proposed rules are now open for comment until March 2, 2011.

The extension applies to rules proposed pursuant to:

• Section 1502 of the Dodd-Frank Act, which requires companies that utilize certain conflict minerals to conduct and disclose due diligence on their supply chains in order to identify whether the sourcing of these minerals is supporting the ongoing conflict in the Democratic Republic of Congo; and
• Section 1504, which lays out transparency provisions requiring oil, gas, mining, and other extractive industry companies to report their payments to governments to the SEC.

As stated by the SEC in the notices of extension (.pdf),

The nature of the proposed disclosure requirements differs from the disclosure traditionally required by the Exchange Act…The Commission believes that providing the public additional time to consider thoroughly the matters addressed by the release and to submit comprehensive responses to the release would benefit the Commission in its consideration of final rules. 

Many companies and industry groups had requested an extension of the comment period because of the new and complex issues raised by the proposed disclosure provisions.

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