Human Rights:  Multinational corporations are being asked to answer claims of aiding and abetting violations of international law in their operations.  Contrary to popular belief, the US Supreme Court has left the door to US courts ajar for corporate ATS liability.  This is a matter of concern for companies operating in high-risk regions or high-risk industries. 

Background

Two years ago, in Kiobel v. Royal Dutch Petroleum Co., the US Supreme Court dramatically curtailed the scope of the Alien Tort Statute (ATS), holding that the presumption against extraterritoriality barred all ATS claims that do not "touch and concern the territory of the United States … with sufficient force to displace the presumption against extraterritorial application." This decision ended the cottage industry of "foreign-cubed" ATS litigation in US courts: claims by foreign plaintiffs against foreign defendants for human-rights abuses carried out in foreign countries. It left other critical questions unresolved, however. One is whether corporations can be held liable under the ATS for violations of international law; another is what sort of territorial connection to the US is necessary to displace the presumption against extraterritoriality.

Corporate ATS Liability. Although the US Supreme Court had an opportunity to squarely decide the corporate-liability question in Kiobel, it punted -- dismissing the case instead on grounds that the claims did not "touch and concern" the US with "sufficient force" to rebut the presumption, because "all the relevant conduct took place outside the United States." The majority opinion, though, seemed to tacitly recognize corporate ATS liability in shooting down the notion that "mere corporate presence" might be enough to open the door, noting that "[c]orporations are often present in many countries, and it would reach too far to say that mere corporate presence suffices." So far, the federal court of appeals for the Second Circuit (where a majority of ATS claims have been filed historically) stands alone in holding that ATS liability does not attach to corporations. Federal courts of appeal in Atlanta, Chicago, Richmond, San Francisco, and Washington, D.C., on the other hand, have uniformly ruled that corporations can be held liable under the ATS. See, e.g., Doe v. Nestle USA, Inc., No. 10-56739 (9th Cir. May 6, 2015); Doe v. Exxon Mobil Corp., 654 F.3d 11, 57 (D.C. Cir. 2011), vacated in part, 527 F. App'x 7 (D.C. Cir. 2013); Al Shimari v. CACI Premier Tech., Inc., 758 F.3d 516 (4th Cir. 2014); Doe v. ExxonMobil Corp. (D.D.C. July 6, 2015).

"Touch and Concern" Test. Application of Kiobel's "touch and concern" test, by contrast, is an intensely fact-based inquiry that turns on the relationship between the claims at issue and the US territory. In keeping with the caution urged by the US Supreme Court in the ATS sphere generally in Kiobel (as well as Sosa v. Alvarez-Machain several years earlier), however, lower federal courts are consistently requiring substantial ties to US territory. The fact that corporations are typically charged with aiding and abetting human rights abuses by others outside the US adds an interesting wrinkle to the "touch and concern" test, to the extent the acts giving rise to (secondary) aiding and abetting liability (as opposed to the primary or predicate crimes) are likely to occur in the US -- giving such claims a distinctly territorial flavor. Examples would include knowledge of past crimes and human-rights violations by business partners or US-based decision-making by a defendant's executives that supports or facilitates the underlying violations. See, e.g., Doe v. ExxonMobil Corp. (D.D.C. July 6, 2015) (detailing US-based conduct sufficient to displace the presumption against extraterritoriality).

Recent ATS Case: Balintulo v. Ford Motor Co.

A three-judge panel of the Second Circuit tackled these issues last week in Balintulo v. Ford Motor Co., an ATS case filed a number of years ago in a New York federal court against various corporations, including Ford and IBM, for allegedly aiding and abetting violations of customary international law by the South African government during apartheid. After a lengthy procedural history, the district court dismissed the action, finding that the "relevant conduct … all occurred abroad" and, further, that binding circuit precedent precluded corporate liability under the ATS. Plaintiffs appealed, arguing (among other things) that they had alleged sufficient US conduct to displace the presumption against extraterritorial application of US law pursuant to the "touch and concern" standard.

Jurisdictional Analysis for ATS Claims

Unanimously affirming the lower court's dismissal order, the appeals court began by identifying the "numerous jurisdictional predicates" that must be satisfied before a court "may properly assume jurisdiction over an ATS claim," including that:

(1) the complaint pleads a violation of the law of nations; (2) the presumption against the extraterritorial application of the ATS … does not bar the claim; (3) customary international law recognizes [the asserted] liability [of a] defendant; and (4) the theory of liability alleged by plaintiffs (i.e., aiding and abetting, conspiracy) is recognized by customary international law.

Referencing the discretion "courts retain … regarding the order and manner in which they undertake these inquiries," the panel began its inquiry with the question of whether plaintiff had "alleged sufficient conduct to displace the presumption against extraterritoriality" consistent with Kiobel's "touch and concern" test.  Answering in the negative, the court had no reason to address the other jurisdictional predicates. It noted in passing, however, that the claims also failed under Second Circuit precedent against corporate ATS liability, which the US Supreme Court's disposition of Kiobel left undisturbed.

Addressing the "touch and concern" standard for overcoming the presumption, the court explained that "a court must isolate the 'relevant conduct' of a defendant -- conduct that is alleged to be either a direct violation of the law of nations or the aiding and abetting of another's violation of the law of nations -- in a complaint and then conduct a two-step jurisdictional analysis." The first step involves "a determination of whether the 'relevant conduct' sufficiently 'touches and concerns' the United States so as to displace the presumption against extraterritoriality." The second looks at "whether the same conduct states a claim for a violation of the law of nations or aiding and abetting another's violation of the law of nations" (emphasis in original). And to meet the second step for an aiding and abetting theory of liability, a plaintiff in the Second Circuit must demonstrate that the defendant both (1) provided "practical assistance" that had a "substantial effect" on the perpetration of the crime (actus reus), and (2) did so with "the purpose" of facilitating that crime (mens rea).

The court then applied this two-step analysis to the complaint. 

The Claims' Alleged Ties to the US

As against Ford, plaintiffs alleged that the presumption was displaced because it provided "specialized vehicles" to South African security forces that were used "to violently suppress opposition to apartheid," and aided and abetted "the suppression of its own workforce in South Africa." IBM, in turn, was said to have (a) "trained employees of the South African government on how to use [IBM] hardware and software to create identity documents" that were ultimately used to "denationalize" black South Africans; (b) bid on contracts in South Africa "with unlawful purposes" such as denationalization; and (c) designed "specific technologies" essential to racial separation and denationalization under apartheid.

Ford. The allegations against Ford failed to satisfy step one of the jurisdictional analysis, because Ford's subsidiary in South Africa, not Ford, allegedly "assembled and sold the specialized vehicles to South Africa's government" (without any parts coming from the US), and it was also the subsidiary that "allegedly provided information to the apartheid government about anti-apartheid activists in South Africa." The court held that Ford could not be held vicariously liable on an agency theory under the ATS since none of the alleged conduct by its putative agents occurred within the US. It also refused to hold Ford directly liable for the actions of its South African subsidiary by piercing the corporate veil based on plaintiffs' failure to allege "that Ford's control over its subsidiaries differed from that of most companies headquartered in the United States with subsidiaries abroad." In reaching this conclusion, the court ruled that "[a]llegations of general corporate supervision are insufficient to rebut" the presumption against extraterritoriality "and establish aiding and abetting liability under the ATS."

IBM. Plaintiffs' first allegation against IBM failed for similar reasons, namely because "IBM's South African subsidiary" (not IBM) was "alleged to have trained South African government employees to use IBM hardware and software to create identity" documents. The second allegation failed because "[i]t is simply not a violation of the law of nations to bid on, and lose, a contract that arguably would help a sovereign government perpetrate an asserted violation of the law of nations." Plaintiffs' third allegation against IBM -- that it "developed both the hardware and the software … to create" identity documents essential to racial separation -- did "touch and concern" the US with "sufficient force" to rebut the presumption against extraterritoriality, however. In this regard, the court held:

Identity documents like those allegedly created by IBM and transferred to the [South African] government, were an essential component of the system of racial separation in South Africa. And so, designing particular technologies in the United States that would facilitate South African racial separation would appear to be both 'specific and domestic' conduct that would satisfy the first of the two steps of our jurisdictional analysis (emphasis added).

The case against IBM fell apart, though, at the next step in the jurisdictional analysis -- for failure to satisfy the mens rea requirement in the Second Circuit for aiding and abetting liability, which rejects the more common "knowledge" standard in favor of a "purpose" standard. Instead of supporting an inference that IBM "acted with the 'purpose' to advance" South Africa's human rights abuses, the court found that the complaint against IBM alleged "at most" that "the company acted with knowledge that its acts might facilitate the South African government's apartheid policies." This was fatal since "mere knowledge without proof of purpose is insufficient to make out the proper mens rea for aiding and abetting liability" under Second Circuit precedent.

The Long and Short of ATS Liability in US Courts

There are many pluses for business interests to take away from Balintulo, but the decision raises eyebrows on several counts, and may in time prove cold comfort. Given the Second Circuit's jurisdictional isolation in its approach to corporate ATS liability (together with its heightened mens rea standard for aiding and abetting liability), complacency would be a mistake.

Corporate Liability.  Its view, for instance, that corporations cannot be sued under the ATS, which is almost exclusively the work of a single judge of that court, makes little sense. Well-established precedents and authorities running from the military tribunals at Nuremberg and Tokyo to the present recognize corporate liability as a matter of both customary international law and domestic law. Judge Cabranes' conclusion that ATS liability attaches only to "persons" (based on a constrained reading of footnote 20 in Sosa) makes even less sense in light of the US Supreme Court's 2010 decision in Citizens United v. Federal Election Committee, which recognized corporations as "persons" for purposes of political speech. The flaws in his legal reasoning are exposed by Judge Leval in the concurring opinion he filed in Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111 (2d Cir. 2010), affirmed on other grounds, 133 S. Ct. 1659 (2013) (applying presumption against extraterritoriality to ATS).

Mens Rea.  The Second Circuit's adoption of the "purpose" (or intent) standard for aiding and abetting liability (based on a flawed reading of Article 25(3)(c) of the Rome Statute, among other things) is also suspect. The weight of authority both internationally and in other federal courts of appeal is overwhelmingly to the contrary, holding that the mens rea requirement for complicity or accessorial liability is a "knowledge" standard.

The jurisdictional split between the Second Circuit and its sister courts over the scope and requirements of corporate liability under the ATS for complicity can only be resolved by the US Supreme Court. Balintulo might be a vehicle for that as well as Doe v. Nestle USA, Inc. Last week, in fact, Nestle obtained an extension of time from Justice Kennedy (until 18 September 2015) in which to file a petition for certiorari for Supreme Court review of the Ninth Circuit's decision denying its motion to dismiss ATS claims arising from its purchase of chocolate from Ivorian plantations known to practice child slavery. (For more on Nestle, see our prior post. For a searching and persuasive criticism of the Second Circuit's ATS precedent, see this excellent article by Professor David Scheffer).