US government contractors and subcontractors performing contracts overseas should be aware that on January 3, 2017, the United States Court of Appeals for the Fifth Circuit issued a decision in Adhikari v. Kellogg Brown & Root, Inc., No. 1520225 (5th Cir. Jan. 3, 2017), in which the court held that claims asserted against a US defense contractor for injuries incurred in Iraq were not cognizable under the Alien Tort Statute (ATS). In foreclosing plaintiffs’ claims, the Fifth Circuit held that the presumption against extraterritorial application of a statute bars claims under the ATS for injuries occurring abroad. In so ruling, the court created a clear circuit split with the Fourth Circuit, increasing the possibility that the Supreme Court will weigh in to resolve the conflict. Clarification from the Supreme Court could assist US government contractors and subcontractors performing contracts overseas to better assess their risks of exposure to claims under the ATS.

In Adhikari, twelve Nepali men were kidnapped and murdered by Iraqi insurgents as they were traveling through Iraq to work for a subcontractor on a US government contract with Kellogg Brown & Root (KBR). The decedents’ survivors sued the US contractor and others under ATS and the Trafficking Victims Protections and Reauthorization Act (TVPRA), alleging that it had been involved in a human trafficking scheme that forced the decedents into Iraq where they were murdered. After six years of litigation and discovery, the district court dismissed plaintiffs’ claims under both statutes on the grounds that the statutes did not apply extraterritorially and the plaintiffs’ claims were grounded in conduct occurring outside the United States. The plaintiffs appealed to the Fifth Circuit.

The US Supreme Court’s 2013 decision in Kiobel v. Royal Dutch Petroleum Co. holding that the ATS does not apply extraterritorially was central to deciding the plaintiffs’ appeal. The Supreme Court’s decision concluded by observing that the ATS could create jurisdiction when “claims touch and concern the territory of the United States . . . with sufficient force to displace the presumption against extraterritorial application.” The plaintiffs in Adhikari alleged that although the injuries occurred in Iraq, Kiobel’s “touch and concern” language permitted their claim because KBR’s contract was issued and directed from the United States and supported the US military. In particular, the plaintiffs relied on the Fourth Circuit’s decision in Al Shimari v. CACI Premier Technology, Inc., in which the court allowed claims brought under ATS to proceed against a government contractor for injuries allegedly occurring in Iraq.

The Fifth Circuit agreed with KBR that the plaintiffs’ claims under ATS were barred because the extraterritoriality doctrine adopted in Kiobel requires courts to analyze the “focus” of the statute at issue, and the conduct that is the focus of the statute is what must occur domestically in order for the statute to apply. The Adhikari court held that the “focus” of ATS is “conduct that violates international law,” and because the alleged conduct in violation of international law occurred in Iraq, the presumption against extraterritoriality barred jurisdiction for claims under ATS even if the US government contractor was involved and even if personnel in the United States were aware of the alleged human trafficking scheme in Iraq.

In reaching that conclusion, the Fifth Circuit rejected the Fourth Circuit’s conclusion in Al Shimari that “courts [performing an extraterritoriality analysis] must consider all the facts that gave rise to ATS claims, including the parties’ identities and their relationship to the causes of action.” Indeed, the plaintiffs in Adhikari sought leave to amend their complaint to assert aiding and abetting claims, arguing that they “would be able to allege facts that satisfy Al Shimari,” but the court rejected this request because “Al Shimari is not the test.”

The court also affirmed dismissal of the plaintiffs’ TVPRA claims because the statute did not apply extraterritorially at the time of the conduct alleged—the TVPRA has since been amended and now contains provisions addressing extraterritorial application. Judge Graves also dissented from the court’s ATS holding, stating his view that the majority viewed the “focus” of the ATS too narrowly and that KBR’s domestic conduct should support jurisdiction even if the domestic conduct was not itself a violation of international law.

Adhikari is a significant decision because it makes clear, at least within the Fifth Circuit, that the “focus” test applies for determining what conduct must occur domestically in order for the presumption against extraterritoriality to be overcome in ATS cases. The Fifth Circuit explained that the domestic conduct must be conduct in violation of international law. On a broader scale, Adhikari is important because the court expressly rejected the Fourth Circuit’s extraterritoriality analysis in Al Shimari as an incorrect application of the ATS. This circuit split may increase the chances for the Supreme Court to consider reviewing the Adhikari decision, assuming the plaintiffs seek further review, in order to clarify the application of the presumption against extraterritoriality under the ATS.