Directors' and officers' and other liability insurers are rightly concerned about US litigation. For those that underwrite US companies, such litigation is a fact of life. Other insurers concentrate on risks outside the United States so as to minimise that exposure, but must still contend with the exposure of companies with operations located in, or securities issued in, the United States. Even those insurers focusing on non-US companies must bear in mind the possible extraterritorial reach of US laws. The scope of one such law will soon be addressed by the Supreme Court, whose decision could confirm or remove liability exposure affecting directors, officers and employees of both US and non-US corporations.
On February 28 2012 the Supreme Court heard oral arguments in Kiobel v Royal Dutch Shell.(1) The case was brought against three oil companies by 12 Nigerian nationals whose family members were allegedly tortured or executed for protesting oil drilling in the Ogoni region of the Niger Delta. The plaintiffs allege that the oil companies aided and abetted the Nigerian military to commit human rights violations.
The lawsuit was brought pursuant to the Alien Tort Statute.(2) This 33-word statute was enacted in 1789, with only two reported cases until 1980. The act was used in 1795 in a piracy case(3) and again in 1961 in a custody battle between two aliens.(4)
In 1980 the act was used in Filartiga v Pena-Irala.(5) The plaintiffs – two Paraguayan citizens residing in the United States – used the act to sue a former Paraguayan police chief – also living in the United States – for civil damages for acts of torture and murder that he had allegedly committed in Paraguay. This interpretation of the act opened the floodgates. In the 1990s plaintiffs' lawyers began using the Alien Tort Statute to sue multinational corporations. Since then, more than 120 lawsuits have been filed against 59 corporations and their officers for alleged wrongful acts in 60 foreign countries.(6)
The statute states in full that: "The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States."(7)
Many cases brought pursuant to the Alien Tort Statute since 1980 appear to have arisen out of what is arguably a broad reading of the statute. Some cases, including Kiobel, have been brought for wrongful acts allegedly occurring within the territory of other sovereign nations.(8) This interpretation of the statute appears to have provided the United States with a unique statute, giving non-citizens a remedy for wrongful acts that took place in a foreign territory. It seems that no other country in the world allows this type of remedy.
In Kiobel the Supreme Court first heard oral arguments on the narrow issue of whether corporations, as opposed to individuals, can be held liable under the statute. However, during the course of the arguments, the justices made clear that they were concerned with the statute's application to extraterritorial acts. This was crystallised when Justice Alito asked: "What business does a case like that have in the courts of the United States?"(9) In an unusual move, the court directed the parties to file supplemental briefs on whether the Alien Tort Statute "allows courts to recognise a cause of action for violations of the law of nations occurring within the territory of a sovereign other than the United States".(10) After briefing, the case will be reargued in October or November 2012.
It is unlikely that when it passed the Alien Tort Statute, Congress envisioned it would be used by an alien against another alien for acts that occurred outside the United States (other than piracy). In the past 30 years the use of the Alien Tort Statute arguably has expanded beyond the scope of Congress's original intent. Today, cases such as Kiobel create diplomatic problems that the Alien Tort Statute likely sought to avoid. The Supreme Court may take the original intent of the statute into consideration when reviewing Kiobel and use this intent to limit the statute's reach.
The question is significant to liability insurers. If the statute is held not to apply to human rights violations committed by non-US citizens in other nations, it will eliminate a potentially expensive exposure. Of course, US corporations which commit wrongful acts in other nations would remain potentially exposed under other statutes to suits by victims or, if stock prices were affected, suits by investors. But the exposure of non-US corporations and their directors and officers to suits in the United States would be significantly reduced if the Alien Tort Statute was to be curtailed. There will likely be no decision for some time, but it is likely that the Alien Tort Statute will be held to apply only to acts committed within the United States or in non-sovereign territory, not within other countries.
For further information on this topic please contact Arthur Washington or David Polizzi at Mendes & Mount LLP by telephone (+1 212 261 8000), fax (+1 212 261 8750) or email ([email protected] or [email protected]).
(1) Kiobel v Royal Dutch Shell, 182 L Ed 2d 270 (SCt 2012).
(3) Bolchos v Darrell, 3 F Cas 810 (DSC 1795).
(4) Adra v Clift, 195 F Supp 857 (DMD 1961).
(5) John B Bellinger III, "Why the Supreme Court Should Curb the Alien Tort Statute", The Washington Post, February 21 2012.
(6) Filartiga v Pena-Irala, 577 F Supp 860 (EDNY 1984).
(8) See In Re Chiquita Brands International Inc Alien Tort Statute and Shareholder Derivative Litigation (SDFl 2007), case no 08-01916. See also Sarei v Rio Tinto Plc, 2011 US App Lexis 21515 (9th Cir 2011).
(9) See SCt Tr page 11, lines 22-23.
(10) Kiobel v Royal Dutch Shell, 182 L Ed 2d 270 (SCt 2012).