Underwriting multinational risks presents potential problems but detailed due diligence and analysis of where the exposure may arise goes some way towards minimising that risk. Recent court decisions in the US, however, illustrate how difficult this task can be in a shifting legal landscape.
On 17 April 2013, the US Supreme Court issued its decision in Kiobel v Royal Dutch Petroleum No. 10-1491 (U.S. 2012). This case was brought by Ester Kiobel, who filed a class action lawsuit alleging that Royal Dutch Shell had “aided and abetted” attacks on Ogoni civilians by providing vehicles, food, transportation, compensation and staging areas for attacks.
The basis for this action was the Alien Tort Statute (ATS), a US law enabled in 1789, which granted jurisdiction to federal courts for “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”. The legislative history behind this statute is unclear but scholars suggest that it was designed to allow US courts to hear human rights cases brought by US citizens in relation to conduct committed outside the US. From 1789 until 1980 the ATS was not commonly used; there are only two reported decisions dating from this period. In more recent times, however, two questions have arisen. The first is whether the ATS allows non-US as well as US citizens to bring actions and the second is whether it permits claims to be brought against US corporations as well as against individuals.
In 1980, the US Court of Appeals for the Second Circuit dealt with the first question when they decided Filartiga v Pena-Irla 630 F.2d 876 (2d Cir. 1908), a case which has encouraged a revival in the use of the ATS. This case was brought by two Paraguayan citizens against a Paraguayan former police chief who was living in the US. The court held that, through the ATS, they did have jurisdiction in a case between two aliens. This case therefore allowed a non-US individual to use the ATS to bring a claim in the US courts.
In Kiobel the court was required to consider the second question: whether the ATS could be used to bring a claim against a US corporation. The court held that it should not. For an ATS claim to survive a motion to dismiss, the court said that it must touch and concern activities occurring inside the territory of the US with sufficient force to displace the presumption that the ATS would not apply.
However, whilst Kiobel was a case in which it was relatively easy for the court to apply the above rules (as all the relevant conduct took place outside the US) it was noted that “it would reach too far to say that mere corporate presence [in the US] suffices”. The court therefore left it open for claimants to bring cases with a greater nexus to the US than was present in Kiobel.
The case currently causing controversy is DaimlerChrysler AG v Bauman (docket 11-965). It has been brought by 22 residents of Argentina, who have sued DaimlerChrysler, a German corporation, in a federal court in California. The claimants allege that one of DaimlerChrysler’s subsidiaries, Mercedes-Benz Argentina, is guilty of human rights violations.
DaimlerChrysler has no facilities in the US, although it does have a subsidiary, Mercedes-Benz US, which distributes DaimlerChrysler’s manufactured vehicles in California.
The Supreme Court is expected to explore whether a whollyowned US subsidiary can be used to create a territorial nexus between a foreign corporation and the US sufficient to justify the exercise of jurisdiction in circumstances where the subsidiary had no involvement in the alleged violation.
The District Court originally dismissed the case for lack of jurisdiction, reasoning that there was no agency between DaimlerChrysler and its wholly owned subsidiary, Mercedes- Benz US. However, the Ninth Circuit Appeals Court reversed this decision.
DaimlerChrysler’s petition now urges the Supreme Court to overturn the Ninth Court’s ruling. DaimlerChrysler argues that it is a German public stock company which does not manufacture or sell products, own property or employ workers in the US. It is undisputed that DaimlerChrysler and its US subsidiary, Mercedes-Benz US, adhere to all the legal requirements necessary to maintain their separate corporate identities.
The respondents in turn request the Supreme Court to uphold the Ninth Circuit’s ruling as they contend that DaimlerChrysler maintains a very close control over its subsidiary. They assert, for example, that the companies have the same chairman and that Mercedes-Benz US is unable to replace key personnel, alter management control or set prices without DaimlerChrysler’s permission.
Although there have been exceptions, the trend in US litigation has previously appeared to show a reluctance to encourage jurisdiction shopping. In Kiobel, the Supreme Court concluded that the presumption against extraterritoriality closed the door on ATS suits brought against corporations which have no nexus in the US. The case left a window open, however, as to what could displace this presumption in the event that a corporation could demonstrate a relevant connection to the US “with sufficient force”.
DaimlerChrysler means that there is a real danger that foreign corporations will be able to use the ATS as a tool to bring claims against non-US companies. The US courts are expected to use this case as an opportunity to explore the issue of corporate presence and determine when the ATS might apply to foreign companies.
As has been frequently seen in the past, lawyers for the claimant can be very creative and there is no doubt that they will continue to find ways of issuing proceedings on behalf of claimants against foreign corporations where there is a chance of obtaining more compensation than in the claimant’s home jurisdiction. The unfortunate thing is that the courts may agree…