Corporate Social Responsibility and the Law : Foley Hoag LLP

It is likely that the coming year will see a number of legal developments relating to the immunity and liability of corporations, states, and individuals as recognized by U.S. courts.  With an increasing number of suits filed against companies for human rights abuses, the question of whether immunity attaches is of great significance.

Courts inside and outside the United States are weighing questions regarding jurisdiction and immunity, and their decisions and arguments will likely be picked up by other courts dealing with issues of corporate responsibility for alleged human rights violations.  

What follows is a brief round-up of some of the most anticipated legal developments in the field of corporate responsibility to keep an eye on during 2012.  In this overview, we look at three key questions under consideration by U.S. and international courts :

1. Can corporations, or their executives, be sued for human rights violations?
2. Does immunity under the Foreign Sovereign Immunities Act reach to corporations, states, and individuals?
   
3. What does international law say about state immunity?

(1) Can corporations, or their executives, be sued for human rights violations?

The answer to the question of whether corporations may be sued for human rights violations under the Alien Tort Statute (ATS) or Torture Victim Protection Act (TVPA) in the U.S. will have serious consequences in terms of corporate liability.  With the Supreme Court preparing to hear arguments in Kiobel v. Royal Dutch Petroleum and Mohamad v. Rajoub on February 28, discussions are ramping up regarding liability and immunity in human rights litigation in U.S. federal courts.  Between the two (consolidated) cases the Supreme Court will be looking at three questions:

1. Whether the issue of corporate civil tort liability under the Alien Tort Statute ("ATS"), 28 U.S.C. § 1350, is a merits question, as it has been treated by all courts prior to the decision below, or an issue of subject matter jurisdiction, as the court of appeals held for the first time. (Kiobel v. Royal Dutch Petroleum)
2. Whether corporations are immune from tort liability for violations of the law of nations such as torture, extrajudicial executions or genocide, as the court of appeals decisions provides, or if corporations may be sued in the same manner as any other private party defendant under the ATS for such violations, as the Eleventh Circuit has explicitly held. (Kiobel v. Royal Dutch Petroleum)
3. Whether the Torture Victim Protection Act, 28 U.S.C. § 1350 note § 2(a), permits actions against defendants which are not natural persons (Mohamad v. Rajoub)

All three questions will be of significant consequence in the field of corporate responsibility.  Until now there was a circuit split as to whether corporations may be sued under the ATS.  Notwithstanding the disagreement of whether a corporation may be sued under the ATS, it is clear that an individual corporate executive may be sued pursuant to the statute.  Thus, depending on the decision of the Supreme Court there may be an increase in suits filed against individuals rather than corporations.  This may lead to the emergence of an additional line of questions regarding individual liability for the actions of a corporation.

Lurking in many of these cases is the question of what exactly comprises the law of nations, which is referenced in the ATS.  Some courts have concluded it is synonymous with customary international law, while others have rejected such an understanding.  A clear definition of what amounts to the law of nations is critical to determining if a claim properly falls within the ATS.  Though not one of the questions presented to the Supreme Court, it will be interesting to see whether the Court addresses it in its decision.

Continue Reading...

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The Obama Administration has filed an amicus brief with the U.S. Supreme Court in Kiobel v. Royal Dutch Petroleum in support of the plaintiffs' position that corporations are proper defendants in cases involving claims under the Alien Tort Statute ("ATS").  Filed on December 21, the brief was signed by the Department of Justice, the Department of State, and the Department of Commerce. 

The Supreme Court will review the Second Circuit's controversial decision that corporations cannot be properly sued under the ATS for violations of customary international law.  Notably, the Ninth Circuit, the D.C. Circuit, the Seventh Circuit, and the Eleventh Circuit have all upheld corporate liability under the ATS.

In its brief, the Administration states that neither international law nor "[t]he text and history of the ATS itself" provide a basis for distinguishing between natural and juridical persons. The brief then observes "[b]oth natural persons and corporations can violate international-law norms that require state action. And both natural persons and corporations can violate international-law norms that do not require state action."  

Stating that international law is the proper source of law for the relevant standards of conduct in ATS cases, the Administration states that "[w]hether corporations should be held accountable for those violations in private tort suits is a question of federal common law."  Federal courts must cautiously exercise their discretion to enforce specific international law norms and "[i]nternational law informs, but does not control, the exercise of that discretion."

Kiobel is scheduled for oral argument before the Supreme Court on February 28, 2012.

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Almost one year ago, we wrote about the long history of Sarei v. Rio Tinto, an Alien Tort Statute ("ATS") case filed in 2000 against Rio Tinto Plc involving allegations stemming from the company's mining operations on the island of Bougainville, Papua New Guinea. Last week, on October 25, the Ninth Circuit Court of Appeals reversed the District Court's dismissal of plaintiffs' claims for genocide and war crimes.  In doing so, the Court upheld corporate liability under the ATS.  

Notably, this decision comes shortly after the Supreme Court's decision to grant plaintiffs' petition for a writ of certiorari in Kiobel v. Royal Dutch Petroleum Co. In Kiobel, the Second Circuit held that corporations are not proper defendants in ATS cases. The Ninth Circuit disagreed and emphasized the importance of looking to the statute's "language and purpose." The Court noted that it had previously held that Torture Victim Protection Act's "express language and documented legislative history reflected congressional intent to limit liability under that statute to individuals." (citing Bowoto v. Chevron, 621 F.3d 1116 (2010)). In comparison, the Court found that

The ATS contains no such language and has no such legislative history to suggest that corporate liability was excluded and that only liability of natural persons was intended. We therefore find no basis for holding that there is any such statutory limitation.

The Ninth Circuit thus joins the D.C. Circuit, the Seventh Circuit, and the Eleventh Circuit in upholding corporate liability under the ATS. In response to the Ninth Circuit's ruling, one legal observer stated, "[t]his opinion reiterates that Kiobel is an outlier." 

Notably, one year ago, the case had been referred to a mediator “to explore the possibility of mediation.” Sarei v. Rio Tinto, 02-cv-56256 (9th Cir. October 26, 2010). In February 2011, the case was returned to the en banc Court. Sarei, 02-cv-56256 (9th Cir. February 11, 2011).

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On Monday, October 17, the U.S. Supreme Court granted plaintiffs' petition for a writ of certiorari in Kiobel v. Royal Dutch Petroleum Co. In Kiobel, the Second Circuit Court of Appeals held that corporations cannot be sued under the Alien Tort Statute (“ATS”) for violations of customary international law. The question of corporate liability under the ATS was left unsettled by the Supreme Court in Sosa v. Alvarez-Machain (2004) and the Court's decision to grant certiorari in Kiobel was widely anticipated. 

Cases brought by plaintiffs in the United States under the ATS represent the largest body of domestic jurisprudence on corporate responsibility for violations of international human rights law.  Kiobel itself 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. 

The September 2010 decision in Kiobel was suggested by some legal scholars to be the beginning of the end for ATS litigation again corporate defendants. Since the Second Circuit's ruling, however, the Seventh Circuit and the D.C. Circuit have both issued decisions finding that corporate liability is proper under the ATS. The Eleventh Circuit has also upheld corporate liability under the ATS. 

The Supreme Court also granted certiorari in Mohamed v. Rajoub, in which the D.C. Circuit held that non-natural persons were not proper defendants under the Torture Victims Protection Act. In Mohamed, plaintiffs had sought damages against the Palestine Liberation Organization and Palestinian Authority. In its orders granting certiorari, the Supreme Court directed that Kiobel and Mohamed be argued in tandem.

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On Monday, July 11, for the second time in four days, a U.S. appellate court issued a decision stating that corporations are proper defendants in cases involving claims under the Alien Tort Statute (“ATS”). The Seventh Circuit Court of Appeals dismissed plaintiffs’ claims in Flomo v. Firestone, but held that “corporate liability is possible” under the ATS.

In a decision written by Circuit Judge Richard Posner, the Court observed that appellate courts in the Eleventh, District of Columbia, Second, Fifth, and Ninth Circuits have all held, or assumed, that corporations can be liable under the ATS. The Court then noted that the “outlier” decision on the question of corporate liability is Kiobel v. Royal Dutch Petroleum, and found that “the factual premise of the majority opinion in the Kiobel case is incorrect."  The Second Circuit's decision held that because corporations have never been prosecuted, civilly or criminally, for violating customary international law, there can’t be a principle of customary international law that binds a corporation. The Court disagreed with this premise, citing the dissolution of German corporations after World War II under the authority of customary international law.

After stating that Kiobel’s factual premise was incorrect, the Court then observed:

And suppose no corporation had ever been punished for violating customary international law. There is always a first time for litigation to enforce a norm; there has to be.

Ultimately, the Court found “[i]nternational law imposes substantive obligations and the individual nations decide how to enforce them.” Finding that corporate civil liability is proper in U.S. courts, the Court stated that corporate liability for violations of customary international law is “limited to cases in which the violations are directed, encouraged, or condoned at the corporate defendant’s decisionmaking level.”

The case involved allegations that children at the Firestone Natural Rubber Company’s rubber plantation in Liberia worked in such hazardous conditions that the work violated customary international law. The Court upheld the dismissal of plaintiffs' claims, finding that the conditions under which the children were alleged to have worked did not provide “an adequate basis for inferring a violation of customary international law.”

While the dismissal of plaintiffs’ claims was upheld, this decision, and the D.C. Circuit’s decision in Doe v. Exxon Mobil, represent two significant victories for those seeking to hold corporations liable under the ATS. As one of the plaintiffs’ lawyers, Terry Collingsworth, observed after the announcement of the Flomo decision, “We won the war, but lost the battle.” 

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On July 8, the D.C. Circuit Court of Appeals reinstated a lawsuit brought against Exxon Mobil Corp. (“ExxonMobil”) by Acehnese villagers, alleging that the company and its Indonesian subsidiary are liable for killings, torture, and other human rights abuses committed by the Indonesian military. In a lengthy 2-1 decision, the D.C. Circuit held that companies are proper defendants under the Alien Tort Statute (“ATS”), expressly disagreeing with the Second Circuit’s decision in Kiobel v. Royal Dutch Petroleum, 621 F.3d 111 (2d Cir. 2010).

The ExxonMobil case, originally filed in 2001, has a complex history. In 2005, the District Court for the District of Columbia dismissed plaintiffs’ claims under the ATS and the Torture Victim Protection Act, and held that aiding and abetting was not a proper theory of liability under the ATS. Plaintiffs were subsequently allowed to amend their original complaint and proceed under D.C. tort law. In 2009, the District Court dismissed plaintiffs’ remaining claims in an unusual decision relying on the “prudential standing” doctrine. Plaintiffs appealed the dismissal, and ExxonMobil raised the question of corporate liability on cross-appeal.

In reinstating plaintiffs’ claims, the D.C. Circuit stated “neither the text, history, nor purpose of the ATS supports corporate immunity for torts based on heinous conduct allegedly committed by its agents in violation of the law of nations.” The Court stated that the Kiobel decision “overlooks the key distinction between norms of conduct and remedies” and found that while international law provides the norms of conduct applicable in ATS cases, citing to Sosa v. Alvarez-Machain, 542 U.S. 692 (2004), federal common law governs the available remedies.

The Court also agreed with plaintiffs that aiding and abetting is a proper theory of liability under the ATS. Notably, the Court found that the proper standard for aiding and abetting liability is “knowing assistance that has a substantial effect on the commission of the human rights violation.” In stating that a “knowledge” standard is proper for aiding and abetting claims, the Court disagreed with the Second Circuit’s holding in Presbyterian Church of Sudan v. Talisman, 582 F.3d 244 (2d Cir. 2009). In that case, the Second Circuit held that defendants may only be found liable for violations of customary international law under an aiding and abetting theory of liability if they provide substantial assistance to the primary violator with the intent of furthering the human rights violation.

In its decision,  the D.C. Circuit observed that the Eleventh Circuit has also upheld corporate liability for ATS claims, citing Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252 (11th Cir. 2009), Romero v. Drummond Co., Inc., 552 F.3d 1303 (11th Cir. 2008), and Aldana v. Del Monte Fresh Produce N.A., 416 F.3d 1242 (11th Cir. 2005).  Unlike the D.C. Circuit's decision, the Eleventh Circuit cases do not include much analysis of the question of whether corporations are proper defendants.  The D.C. Circuit’s opinion establishes a clear split with the Second Circuit's analysis in Kiobel.  In June, plaintiffs in the Kiobel case have filed a petition for a writ of certiorari with the Supreme Court.  Some commentators believe that the clear split between the Circuits may lead the Supreme Court to take up the question of corporate liability under the ATS, an issue which was left unanswered in Sosa.

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On June 3, the U.S. District Court for the Southern District of Florida declined to dismiss certain claims brought by Colombian plaintiffs against Chiquita Brands International ("Chiquita") alleging that the company knew, or should have known, that its material support for the United Self-Defense Forces of Colombia (“AUC”), a paramilitary organization, would lead to the death or torture of their family members. In Re: Chiquita Brands International, Inc., Alien Tort Statute and Shareholders Derivative Litigation, 08-1916 (S.D. Fla. June 3, 2011).

In March 2007, Chiquita admitted that it had provided payments to the AUC, stating that it had done so in order to ensure the protection of Chiquita employees and banana plantations in Colombia.  At the time of its admission, the company agreed to pay a $25 million fine for providing funds to an organization on the United States’ list of terrorist organizations and to cooperate in an investigation by the U.S. Department of Justice. 

After Chiquita's admission, cases were filed against Chiquita in several jurisdictions. Plaintiffs' claims were brought pursuant to the Alien Tort Statute ("ATS") and the Torture Victim Protection Act.  Plaintiffs also brought state law tort claims under the laws of Florida, New Jersey, Ohio, and the District of Colombia, as well as several claims under Colombian law.

Generally, to survive a motion to dismiss, plaintiffs are required to plead facts that, if accepted as true, state a claim to relief that is plausible on its face.  Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).  In its June 3 order, the District Court upheld plaintiffs' ATS claims for torture, extrajudicial killing, war crimes, and crimes against humanity. The Court dismissing several other ATS claims, including claims for terrorism, material support for terrorism, and for cruel, inhuman, and degrading treatment, finding that these claims were not actionable under the ATS. The Court upheld plaintiffs' TVPA claims for torture and extrajudicial killing.  Finally, the Court dismissed plaintiffs' state law claims, as well as claims brought under Colombian law. 

In upholding several of plaintiffs' ATS claims, the District Court recognized certain theories of indirect liabilty under the ATS, including aiding and abetting and conspiracy.  In upholding these indirect theories of liability, the Court stated that

[I]n order for Plaintiffs to allege that Chiquita is secondarily liable for the AUC's violations of international law, they must allege that Chiquita assisted or conspired with the AUC with the purpose or intent to facilitate the commission of the specific offenses alleged. Thus, to plead aiding and abetting liability, Plaintiffs must allege that (1) the AUC committed an international-law violation, (2) Chiquita acted with the purpose or intent to assist in that violation, and (3) Chiquita's assistance substantially contributed to the AUC's commission of the violation....To plead conspiracy liability, Plaintiffs must allege that (1) Chiquita and the AUC agreed to commit a recognized international-law violation, (2) Chiquita joined the agreement with the purpose or intent to facilitate the commission of the violation, and (3) the AUC committed the violation.

In upholding these indirect theories of liability, the Court cited to several appellate court decisions, including Presbyterian Church of Sudan v. Talisman Energy, Inc., 582 F.3d 244 (2d Cir. 2009), Cabello v. Fernandez-Larios, 402 F.3d 1148 (11th Cir. 2005), and Aldana v. Del Monte Fresh Produce, N.A., 416 F.3d 1242 (11th Cir. 2005).  Notably, the Court rejected plaintiffs' agency theory of indirect liability, observing that "Plaintiffs point to no authority recognizing agency liability under international law."

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Last week, the Ninth Circuit Court of Appeals reversed and remanded a lower court's decision to dismiss Bauman v. DaimlerChrysler Corp. The case involves allegations by residents of Argentina stating that one of DaimlerChrysler's subsidiaries, Mercedes-Benz Argentina, collaborated with state security forces to kidnap, detain, torture and/or kill plaintiffs or their relatives during Argentina's "Dirty War."  Plaintiffs have asserted claims under both the Alien Tort Statute ("ATS") and the Torture Victims Protection Act.

The District Court for the Northern District of California had held that plaintiffs could not properly assert personal jurisdiction over defendant DaimlerChrysler AG (now known as Daimler AG). Bauman v. DaimlerChrysler AG, 2005 WL 3157472 (N.D. Cal. 2005), Bauman II, 2007 WL 486389 (N.D. Cal. 2007). Plaintiffs sought to assert jurisdiction over DaimlerChrysler AG through its wholly-owned U.S.-based subsidiary Mercedes-Benz USA, LLC.

The Ninth Circuit's decision that personal jurisdiction is proper in this case (assuming all plaintiffs' allegations are true) relied upon a traditional minimum contacts analysis. The decision does not address questions of subject matter jurisdiction and the validity of specific claims under the ATS.  Nor does it address the question of whether corporations are proper defendants under the ATS.

That said, in addressing whether California has an interest in adjudicating the suit, the Court observed that "California partakes in 'the shared interest of the several States in furthering fundamental substantive social policies.'" (citing World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980). Continuing on, the Court stated that

as the [plaintiffs'] claims are predicated upon the ATS and TVPA, that policy is providing a forum to redress violations of international law by defendants who have enough connections with the United States to be brought to trial on our shores, even though the injury is to aliens and occurs outside our borders...American federal courts, be they in California or any other state, have a strong interest in adjudicating and redressing international human rights abuses.

As American courts continue to evaluate the ultimate impact of Kiobel v. Royal Dutch Petroleum, 621 F.3d 111 (2d Cir. 2010) (in which the Second Circuit found that corporations are not proper defendants under the ATS), the Ninth Circuit's decision in Bauman is a reminder of the divisions between the appellate courts on the nature and import of the policy considerations at issue in these cases.

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Gare Smith and I recently co-authored an article on corporate social responsibility ("CSR") and risk management for Executive Counsel magazine. In the article, "Making Corporate Social Responsibility Systemic," one issue we discuss is the potential risk to companies that "claim to have embraced CSR and then simply point to glossy reports reflecting anecdotal philanthropic initiatives to demonstrate the degree of their commitment." We believe that

such companies fail to develop the internal policies and mechanisms necessary to ensure that the correct people, in the right functional areas, are held accountable for following specific environmental and social standards. References to good deeds do not mitigate against the risks associated with lack of internal commitment and oversight.

We observe that a lack of executive-level oversight with regard to a company's approach to CSR may leave companies with little capacity to develop strategic and comprehensive responses to stakeholder concerns about the social and environmental impacts of the company's operations. 

A copy of the full article is available here (.pdf).

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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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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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This post was originally published on January 21, 2011 by Vault.com's CSR Blog, "In Good Company."

Last week’s post, "Why Don’t Executives Understand CSR?" prompted me to reflect on the risks to companies where executives claim pride in corporate CSR programs, but don’t really see CSR as a core element of their business strategy.

As a lawyer, it’s hard for me not to talk about risk. I see CSR as critical to corporate risk management, and it worries me when I see companies that state a commitment to CSR, but, in reality, limit CSR to a section on the corporate website and a few standards that no management-level personnel are accountable for implementing.

There is a Business Case for Well-Managed CSR

Why the worry? Many people talk about the business case for CSR, but I qualify this slightly – there is a business case for well-managed CSR. A CSR approach that is not sufficiently integrated into the company’s operations and that very few people, especially at the executive level, actually understand, can present business risks.

What are those risks?

1. Disconnect With Stakeholders

A poorly managed CSR program can diminish corporate capacity to understand the concerns of its stakeholders about the social and environmental impacts of its operations. Companies may think that by stating a commitment to CSR they are somehow responsive to these concerns, and this may preclude the diligent effort required to evaluate legitimate and evolving stakeholder expectations. This lack of understanding is then revealed when corporate contributions to local charities fail to preclude a community from lobbying against company activity.

References to acts of corporate citizenship do not mitigate against the risks associated with a lack of internal commitment to CSR.

2. All Talk, No Action

If CSR is limited to high-level policies and glossy philanthropic reports, few people within the company are actually tasked with assessing and understanding the complex impacts of company operations. Even fewer are developing strategies to respond in both the short- and the long-term.

Many people talk about how to define CSR, but I think it is more interesting to ask "What does CSR do?" and "What is its function within the company?" At its core, I think CSR creates a culture of listening and provides the discipline to know when, and how, to respond to what is being said.

What can companies do?

1. Listen

Companies need to be skilled at listening to a range of stakeholders, including employees, investors, governments, and local communities. They need to develop a strong understanding of stakeholders’ expectations of the company and their concerns about the impacts of corporate activity. Listening is an active process: it requires proactive engagement and seeking out new perspectives, both internally and externally. Giving a voice to stakeholders provides companies with invaluable information and perspectives on how to run their operations, if they are willing to hear what is being said.

2. Respond

If CSR begins with listening, it ends with a management system that is responsive to the information that stakeholders provide. If stakeholder concerns and expectations are not understood--and the company seen as unresponsive--stakeholders begin to take action. Employees leave, consumers shop elsewhere, investors express concern, and communities protest. And perhaps, legislation is passed and lawsuits get filed.

In order to be responsive to stakeholder concerns, a company needs to develop the internal capacity to evaluate these concerns, assess potential responses, and make decisions about corporate strategy. A strong CSR approach requires both active stakeholder engagement and an internal management system that provides the oversight mechanisms and training resources necessary to develop the capacity of employees in many functional areas to engage effectively on these issues.

And this is why executive-level understanding is key.

I’m not saying that executives need to be CSR experts. But they need to understand that CSR, to be effective, is not something that is solely the responsibility of a few people within the company. Without high-level support and oversight, CSR policies are drafted but not implemented, and stakeholders are heard, but not understood.

Ultimately, executives need to understand the relevance of CSR programs to the company’s overall business strategy and to its engagements with internal and external stakeholders, who will always be sole arbiters of its future success.

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Looking back at 2010, there have been a number of significant legal developments in the field of corporate social responsibility.  New federal and state statutes have imposed due diligence requirements on companies with the specific intent of addressing human rights concerns, ranging from forced labor to the ongoing conflict in the Democratic Republic of Congo.  Courts continue to grapple with the potential scope of corporate liability under the Alien Tort Statute (“ATS”).  At the international level, the concept of the corporate “responsibility to respect” human rights continues to gain credence, at the same time as access to water was recognized as a human right by the United Nations.

As lawyers, we advise clients on developments in both “hard law” requirements and “soft law” expectations for companies in the area of human rights and social responsibility.  The intersection of what is required and what is expected of companies can present both challenges and opportunities.  In no specific order, here are five “big developments” that we think will impact corporations, and the expectations of corporate stakeholders, in 2011 and beyond.

• The SEC, Conflict Minerals, and Disclosure of Payments.  Buried in the Dodd-Frank financial reform legislation are two provisions that impose significant new disclosure requirements on companies.  Section 1502 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 conflict in the Democratic Republic of Congo.  Section 1504 requires companies in the extractive sector to report on taxes, royalties, fees, and other material benefits paid to foreign governments and the United States.  Compliance with these provisions will be a significant challenge for many companies.  In mid-December, the SEC released proposed rules pursuant to these two provisions, and final rules are expected to be in place by April 2011, although under the new Congress implementation of these rules may be delayed.

• Ruggie's Draft Guiding Principles.  The U.N. Special Representative on Business and Human Rights, John Ruggie, released his Draft Guiding Principles for the implementation of the three-part “Protect, Respect, and Remedy” framework first set forth in his 2008 report to the U.N. Human Rights Council.  Institutions ranging from the European Parliament to the OECD have already cited certain provisions of the framework, especially with regard to the corporate responsibility to respect human rights -- that is, not to infringe on rights -- and its central component of human rights due diligence.

• Water is a Human Right.  In July, the U.N. General Assembly declared access to safe water to be a human right.  In September, the U.N. Human Rights Council adopted a resolution recognizing access to clean water and sanitation as a fundamental human right, “equal to all other human rights” and capable of legal enforcement.  These developments came at the same time as increasing water scarcity is impacting communities, and companies, around the world.  Companies will likely find that stakeholders increasingly expect due diligence efforts, especially with regard to human rights impacts, to include assessments of corporate impacts on community water resources.

• The Second Circuit Declares that Companies are Not Proper Defendants Under the ATS.  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 ATS for violations of customary international law.  Already cited by other courts, and by many defendant briefs, this opinion, whether or not it is upheld, stands as one of the most significant ATS decisions to date.

• California Transparency in Supply Chains Act.  Retailers and manufacturers operating in California with global receipts in excess of $100 million will now be required to disclose what efforts they are taking, if any, to “evaluate and address” the risks of slavery and human trafficking in their supply chains.  This requirement applies to a wide range of companies, ranging from apparel companies that have grappled with concerns about their supply chains for many years, to companies in other sectors for which these due diligence requirements represent a new challenge.

As the New Year begins, we will continue to monitor these developments, and others, in the dynamic field of corporate social responsibility and the law.

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Early last week, the Ninth Circuit Court of Appeals revived a tort case brought by 25 members of the Peruvian Achuar indigenous group and Amazon Watch against Occidental Petroleum ("Occidental").  Plaintiffs allege that the company's operations in the Peruvian Amazon resulted in severe contamination of the land and rivers in the region and that, as a result, they have suffered adverse health effects and negative impacts on their livelihoods.

Plaintiffs originally filed suit in 2007 in state court and asserted common law tort claims including negligence, fraud and misrepresentation, trespass, and strict liability.  Plaintiffs also brought claims under California's Unfair Competion Law.  The case was subsequently removed to federal court and, in April 2008, the District Court for the Central District of California dismissed the case on forum non conveniens grounds.

The Carijano litigation is notable in part due to the fact that plaintiffs have sought redress through common law tort claims rather than through claims asserted pursuant to the Alien Tort Statute.  The ultimate viability of plaintiffs' claims remains uncertain, as the litigation has only dealt with jurisdictional issues to date.  Those seeking to hold corporate defendants liable in U.S. courts for acts outside the United States will be watching the future progression of this case closely.

Last week's Ninth Circuit decision also raises important considerations for litigants in cases where an alternate forum may be available outside the United States.  Based on the facts of the case, the Court found that the district court had abused its discretion in finding that Peru represented an adequate alternate forum for this litigation.  The Ninth Circuit observed that Occidental had consented to jurisdiction in Peru without waiving the statute of limitations defense that would be available under Peruvian law, and found that dismissal on the basis of forum non conveniens is improper when the lawsuit would be time-barred in the alternate jurisdiction.  Specifically, the Court said that

where there is reason to believe that a defendant will seek immediate dismissal based on the foreign forum's statute of limitations, dismissal should be conditioned on waiting any statute of limitations defenses that would not be available in the domestic forum.

In addition, the Ninth Circuit found that the district court had failed to weigh plaintiffs' expert testimony which stated that Peru did not offer a practical remedy for plaintiffs, especially with regard to damages.  The Court also found that insufficient deference was given to plaintiffs' choice of forum. 

Finally, the Court found that a dismissal on forum non conveniens grounds should have been conditioned with certain requirements, including a commitment that Occidental would waive the statute of limitations defense.  The Court also noted that "[w]hen there is reason to beliveve that enforcing a judgment in a foreign country would be problematic, courts have required assurances that a defendant will satisfy any judgment as a condition of dismissal."

As noted above, this case raises the question of whether common law tort claims may support litigation by plaintiffs on the basis of corporate activities, and alleged abuses, outside the United States.  The Ninth Circuit's dismissal also raises key concerns for defendants seeking to dismiss foreign plaintiffs' claims on the basis of forum non conveniens, especially where certain claims and defenses are available in one forum and not the other.

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Ten years ago today, plaintiffs filed an Alien Tort Statute (“ATS”) suit against Rio Tinto Plc alleging that they were the victims of numerous violations of international law as the result of Rio Tinto’s mining operations on the island of Bougainville, Papua New Guinea.  Almost ten years later, on October 26, an en banc panel of the Ninth Circuit Court of Appeals referred the proposed class action, Sarei v. Rio Tinto, to a mediator “to explore the possibility of mediation.”  Sarei v. Rio Tinto, 02-cv-56256 (9th Cir. October 26, 2010) (.pdf).

The selected mediator is scheduled to report before the end of November whether the case will proceed to mediation or whether it should be returned to the en banc panel of the Ninth Circuit for further consideration. 

In its long history, this case has already been before the Ninth Circuit several times.  In an earlier decision, Sarei v. Rio Tinto, 550 F.3d 822 (9th Cir. 2008), the Court had remanded the case to the District Court for the Central District of California, stating that certain claims brought under the ATS “are appropriately considered for exhaustion under both domestic prudential standards and core principles of international law.”  In July 2009, the District Court declined to find that a prudential exhaustion requirement was appropriate given the nature of the plaintiffs’ claims.   

There is certain merit to the Ninth Circuit’s attempt to find an alternate resolution to a case that could drag on for many years before reaching final resolution.  In a separate statement, Judge Reinhardt observed that “[i]f the mediation succeeds, we will simply have helped to resolve a complex legal dispute of great importance to the various litigants by means of a peaceful settlement rather than through extended litigation.” 

A recent paper (.pdf) published by the Corporate Social Responsibility Initiative at Harvard University’s Kennedy School of Government argued that “mediation has a legitimate and compelling role to play alongside litigation as a means of addressing human rights-related disputes between companies and individuals or communities.” Whether the Ninth Circuit’s attempt to find an alternate resolution to this case will be successful remains to be seen. 

Notably, the Ninth Circuit’s order provoked a vigorous dissent by Judge Kleinfeld, who argued that it was improper for the Court to refer the case to mediation before determining that it had jurisdiction to hear the case. Judge Kleinfeld stated that jurisdiction in the case was doubtful because the case involves foreign policy issues that raise political questions and because “we lack subject matter jurisdiction on account of extraterritoriality.”  He argued “it is risible to think that the first Congress wrote the Alien Tort Statute intending to adjudicate claims of war crimes committed abroad.” 

Judge Kleinfeld’s dissent is at odds with the vast majority of ATS jurisprudence in which courts have found that the ATS provides for jurisdiction over claims stemming from events outside the United States.  His dissent, however, highlights the fact that the Ninth Circuit has not yet ruled definitively on the appropriateness of jurisdiction in this case.  Whether mediation is appropriate is ultimately up to the parties, but the lengthy history of this case reflects the inherent inefficiencies of litigation as a means to resolve complex disputes and to vindicate rights. 

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Earlier today, the United States Supreme Court issued an order (.pdf) declining to grant a writ of certiorari in response to plaintiffs' petition, and defendant's conditional cross-petition, seeking review of the Second Circuit's decision in Presbyterian Church of Sudan v. Talisman Energy, Inc., 582 F.3d 244 (2nd Cir. 2009).  The Second Circuit upheld a lower court decision dismissing the case, which involved allegations that Talisman Energy aided and abetted the Sudanese Government in committing human rights abuses in Southern Sudan. 

The Second Circuit's earlier decision, widely cited in Alien Tort Statute ("ATS") jurisprudence, held that companies may only be found liable for violations of customary international law under an aiding and abetting theory of liability if they provide substantial assistance to the primary violator with the intent of furthering the human rights violation.  The Court determined that international law is the proper source for establishing a standard for accessory liability, and that “the mens rea standard for aiding and abetting liability in ATS actions is purpose rather than knowledge alone.”  Notably, the 2009 decision predates the Second Circuit's recent decision in Kiobel v. Royal Dutch Petroleum, in which the Court held that corporations cannot be sued under the ATS for violations of customary international law. 

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After the recent decision in Kiobel v. Royal Dutch Petroleum, 06-4800-cv, 06-4876-cv (2d Cir. September 17, 2010) (.pdf), in which the Second Circuit Court of Appeals held that corporations cannot be sued under the Alien Tort Statute (“ATS”) for violations of customary international law, it is worth reviewing statements made by courts in other circuits with regard to corporate liability under the ATS.

As is reflected in the summaries below, many federal courts have not yet directly addressed the question of corporate liability under the ATS and others have merely made observations without precedential value.  Some courts have assumed, without comment, that corporations and other private actors are proper defendants in ATS cases.  Other courts have found that corporate defendants are only proper defendants when the plaintiffs can show that defendants were de facto state actors. 

For background, an overview of the 12 regional circuits within the U.S. federal court system can be found here.

First Circuit -- The First Circuit Court of Appeals has not directly addressed the question of corporate liability under the ATS. 

Second Circuit -- Kiobel’s holding that corporations cannot be held liable under the ATS is now law in the Second Circuit.  This decision may be reviewed en banc, or by the Supreme Court.

Prior to Kiobel, the Second Circuit assumed “without deciding, that corporations...may be held liable for the violations of customary international law” in Presbyterian Church of Sudan v. Talisman Energy, Inc, 582 F.3d 244 (2nd Cir. 2009).  In Khulumani v. Barclays Nat. Bank Ltd., 504 F.3d 254 (2d Cir. 2007) (Katzmann, J., concurring), the Second Circuit observed, although the issue was not raised on appeal, 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.”  In Abdullahi v. Pfizer, Inc., 562 F.3d 163 (2d Cir. 2009), the Second Circuit allowed certain claims to proceed in an ATS suit and did not directly address the question of whether corporations were proper defendants.

Third Circuit -- The Third Circuit Court of Appeals has not directly addressed the question of corporate liability under the ATS.  The Third Circuit upheld the lower court’s dismissal of Hereros ex rel. Riruako v. Deutsche Afrika-Linien Gmblt & Co., 232 Fed.Appx. 90 (3d. Cir. 2007), a case involving claims under the ATS, on other grounds.

In a lower court decision, the District Court in Iwanowa v. Ford Motor Co., 67 F. Supp. 2d 424 (D.N.J. 1999), stated that “[n]o logical reason exists for allowing private individuals and corporations to escape liability for universally condemned violations of international law” and noted that it was therefore inclined to find that “private entities using slave labor are liable under the law of nations.” The District Court, however, did not decide whether corporate defendants were liable as private actors after finding that the defendants were de facto state actors.

Continue Reading...

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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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On September 10, the Ninth Circuit Court of Appeals upheld a jury verdict in favor of Chevron Corporation (.pdf) in a case involving plaintiff allegations that Chevron was complicit in human rights abuses committed by Nigerian security forces in 1998.  Plaintiffs brought claims under the Alien Tort Statute (“ATS”) and the Torture Victim Protection Act (“TVPA”).

The primary events at issue in the litigation took place at an offshore platform belonging to Chevron’s Nigerian subsidiary.  After protesters spent several days at the platform in May 1998 protesting Chevron’s drilling activities, Chevron’s Nigerian subsidiary contacted the Nigerian Government Security Forces. The security forces that came to the scene ultimately fired on the protesters, killing two and injuring a number of others.

Plaintiffs originally filed the case in 1999 and almost ten years of litigation preceded the final commencement of trial.  In December 2008, after a seventeen-day trial, a jury in the District Court for the Northern District of California ruled in favor of Chevron on all counts.  One of the issues at trial was the nature of the protest activity at the platform.  Plaintiffs alleged that the protesters were unarmed and peaceful, while Chevron witnesses insisted that the protesters were armed and threatened violence against the platform and its crew.  Plaintiffs appealed the jury verdict, raising challenges to the jury instructions and the District Court’s evidentiary rulings.  Plaintiffs also appealed two points of law, including the District Court’s ruling that the TVPA does not apply to corporations.

The Court of Appeals fully affirmed the District Court’s judgment, including the finding that plaintiffs' ATS claims were preempted by the Death on the High Seas Act.  With regard to the TVPA claims, the Court determined that "the plain language of the TVPA does not allow for suits against a corporation."  This decision conflicts with a 2005 Eleventh Circuit decision in which the TVPA was held, without discussion, as applicable to corporate actors. (Aldana v. Del Monte Fresh Produce, N.A., Inc., 416 F. 3d 1242 (11^th Cir. 2005).)  This is a significant issue in part because most cases brought against companies for complicity in human rights abuses committed by public security forces abroad include claims under both the TVPA and the ATS. 

Although Chevron has prevailed in the judgments issued in this case, the length of the litigation and the considerable publicity surrounding it are powerful reminders of the legal and reputational risks that can accrue to companies operating abroad in states with poor human rights practices. Such risks have led Chevron and peer companies to participate in initiatives like the Voluntary Principles on Security and Human Rights as a means to identify and manage security force-related risks, as well as to include human rights due diligence processes in their management systems.

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Isa Saharkhiz, an Iranian journalist who has been in detention in Iran since June 2009, and his son, a resident of New Jersey, recently filed suit against Nokia Siemens Networks (“NSN”), a joint venture of Nokia Corporation and Siemens Corporation.  The lawsuit, filed on August 16 in the District Court for the Eastern District of Virginia, includes claims under the Alien Tort Statute ("ATS") and the Torture Victim Protection Act and alleges that NSN aided and abetted the Iranian Government in detaining and torturing Mr. Saharkhiz.

Plaintiffs specifically allege that the Iranian Government used technology supplied by NSN to monitor the mobile communications of, and locate, Mr. Saharkhiz prior to his arrest.  Both Nokia and Siemens were also individually named in the lawsuit.

NSN has admitted that it sold mobile networks to Irancell as well as Mobile Communications Company of Iran (“MCI”), which is Iran’s largest cellular operator and is owned by the state-controlled Telecommunication Company of Iran (“TCI”).  These networks included lawful intercept capability, as is required by law in most countries and by the global standards developed by the European Telecommunications Standards Institute.  More controversially, NSN provided a monitoring facility to MCI/TCI which allowed Iranian authorities to utilize the intercept capability to monitor local calls made within Iran.  NSN subsequently halted all work related to the monitoring facility in Iran in 2009.

NSN’s provision of telecommunications monitoring capabilities to Iran has brought the company under significant levels of international scrutiny and criticism.  In a June 2010 statement to the European Parliament Subcommittee on Human Rights, Barry French, Head of Marketing and Corporate Affairs for NSN, conceded that monitoring facilities are “problematic and have a risk of raising issues related to human rights that we are not adequately suited to address.”  Mr. French also observed that  "we believe that we should have understood the issues in Iran better in advance and addressed them more proactively.” 

In his June 2010 remarks, Mr. French also emphasized that NSN provides "technology that is intended to be used in ways that support human rights.  When that technology is misused, the accountability must sit with those who misuse it."

NSN and the other defendants in the lawsuit brought by Mr. Saharkhiz will likely challenge both the forum of the suit as well as the ability of the court to properly assert jurisdiction over the defendants.  If the case proceeds, it could bring to the forefront the question of what standard courts should use in evaluating "aiding and abetting” claims in ATS cases.  If the Court reaches this issue, it may decide to endorse the Second Circuit’s standard, as set forth in Presbyterian Church of Sudan v. Talisman Energy, Inc. 582 F.3d 244 (2d Cir. 2009), which held that defendants may only be found liable under an aiding and abetting theory of liability if they provide substantial assistance to the primary violator with the purpose of furthering the human rights violation.  This a high barrier to plaintiffs’ claims.

Under a less strict “knowledge” standard for aiding and abetting liability, plaintiffs may have an easier time surviving a motion to dismiss.  In In Re South African Apartheid Litigation, 617 F. Supp. 2d 228 (S.D.N.Y. 2009) (decided before the Second Circuit's decision in Presbyterian Church of Sudan), the Court held that a defendant could be held liable if it knew that its actions would substantially assist a perpetrator in the commission of a crime or tort in violation of the law of nations.  By that standard, the Court said “[o]ne who substantially assists a violator of the law of nations is equally liable if he or she desires the crime to occur or if he or she knows it will occur and simply does not care.”

In thinking through the implications of a lower “knowledge” standard for the NSN case, it is notable that the Court in the South Africa case denied defendants’ motion to dismiss plaintiffs' claims that International Business Machines ("IBM") aided and abetted the South African Government in carrying out acts of apartheid.  The Court relied upon plaintiffs’ allegations that IBM provided the South Africa Government with computers, software, training and technical support that was specifically used to produce identity documents and administer a denationalization program.  The Court found that “given that IBM provided the programming expertise as well as the hardware, there is a plausible inference that the company understood the nature of the projects it assisted.”  With the standard for aiding and abetting liability unsettled, litigation in the case against NSN will likely involve in-depth inquiry into the nature of the company’s assistance to Iranian officials, particularly with regard to the monitoring facility. 

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On June 29^th, the United States Supreme Court declined to grant a petition for a writ of certiorari filed by Pfizer Inc. seeking review of a January 2009 decision by the Second Circuit Court of Appeals involving claims brought under the Alien Tort Statute (“ATS”). The Second Circuit's decision held that Nigerian 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).  The Second Circuit decision represents that first time that a court has found that the failure to gain informed consent for medical testing is a cognizable claim under the ATS.

The Second Circuit’s decision addressed consolidated appeals in two cases in which plaintiffs allege that Pfizer conducted nonconsensual testing of Trovan, an experimental drug, during a meningitis outbreak in Nigeria in 1996.  Eleven children died as a result of their participation in the drug trial.  Plaintiffs specifically allege that the testing was done with the involvement of the Nigerian government and that the drug was tested on children without their parents’ informed consent.

In evaluating the current impact of the Pfizer litigation, a 2009 column in the New England Journal of Medicine suggested that the Second Circuit’s decision that domestic tort liability may stem from the failure to secure informed consent in international clinical trials “should help persuade international corporations and researchers alike to take informed consent…much more seriously.”

Companies conducting clinical testing abroad should be very careful to ensure that proper consent is obtained, especially when dealing with patient populations that, because of language barriers or level of education, may not fully comprehend the risks associated with specific trials. 

More generally, companies should be aware of the analysis used by the Second Circuit in finding 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 (2004).  The court observed that “declarations of international norms that are not in and of themselves binding” may provide evidence as to the current state of customary international law when viewed in conjunction with state practice. 

In its determination, the Second Circuit looked to a wide range of international sources cited by plaintiffs including non-binding treaties, declarations by international organizations, and the Nuremberg Code, promulgated by a U.S. military tribunal after the Nuremberg trials.  The court found that it is not necessary for these sources of international law to explicitly authorize a cause of action in order to give rise to proper claim under the ATS.   This type of analysis may support a wider range of ATS claims that many observers thought would be properly viable after Sosa. 

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