On April 24, 2018, in a 5-4 decision, the U.S. Supreme Court held that foreign corporations cannot be sued in the United States under the Alien Tort Statute, 28 U.S.C. § 1350 ("ATS"). This case – Jesner v. Arab Bank1– appears to eliminate the ATS as a vehicle for plaintiffs to bring claims against foreign multinational companies for their employment practices overseas.

What is the ATS?

The very first U.S. Congress passed the ATS as part of the Judiciary Act of 1789. The statute is short, and reads: "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." The Court in Jesner recognized, consistent with existing precedent, the ATS is "strictly jurisdictional" and does not by its own terms create cause of action for international law violations. Instead, most commentators believe the framers in 1789 envisioned that the statute would allow for limited common law torts "in violation of the law of nations," including violations of safe conduct extended to aliens, interference with ambassadors, and piracy.

What was the State of ATS Litigation Leading to Jesner?

Over time, courts expanded the types of international law violations subject to the ATS. Modern ATS litigation developed to the point that foreign plaintiffs brought ATS cases against foreign companies for actions occurring outside and with arguably little connection to the U.S., setting the stage for the Supreme Court's pre-Jesner decision of Kiobel v. Royal Dutch Petroleum Company.

In Kiobel, Nigerian villagers brought an ATS suit in a New York federal court, claiming that several corporate entities aided and abetted extrajudicial killing, rape and other human rights abuses committed by Nigerian military forces in connection with the corporations' oil exploration in Nigeria.2 On appeal, the U.S. Supreme Court dismissed the suit, holding that the ATS cannot be used to bring claims in U.S. courts against corporations for actions in foreign jurisdictions since the ATS is a strictly jurisdictional statute that does not provide a private right of action. However, the Court left open the possibility of ATS suits if foreign conduct gives rise to claims that "touch and concern" the U.S. "with sufficient force [so as] to displace the presumption against extraterritorial application" while also failing to resolve whether a corporation could be sued under the ATS. Notably, the Court had been slated to determine the issue of corporate liability under ATS decided in Jesner prior to shifting course to address the issue of the ATS's extraterritorial application.

In light of these open questions, foreign plaintiffs continued to seek redress under the ATS, and the decisions following Kiobel reached varying conclusions.3 In one prominent post-Kiobel case, three anonymous plaintiffs alleged that certain corporate defendants had "aided and abetted" slavery through their pursuit of low-cost cocoa in the Ivory Coast.4 A California federal court dismissed the most recently amended complaint, finding that the complaint seeks an impermissible extraterritorial application of the ATS, and the plaintiffs appealed to the Ninth Circuit Court of Appeals.5

Jesner arrived on the scene against this backdrop.

What is the Jesner Case About?

In Jesner, foreign plaintiffs filed suit in the U.S. District Court for the Eastern District of New York, alleging that they, or the persons on whose behalf they assert claims, were injured or killed by terrorist acts committed in Israel, Palestine and the West Bank, and that those acts were facilitated by defendant, Arab Bank, PLC, a Jordanian financial institution with a branch in New York. They claimed the bank used its New York branch to clear dollar-denominated transactions that benefited terrorists through the Clearing House Interbank Payments System (CHIPS) and to launder money for a Texas-based charity allegedly affiliated with Hamas.

The District Court dismissed the suit, and the Second Circuit Court of Appeals affirmed, holding that, based on Kiobel, corporations could not be sued under the ATS. The Supreme Court recognized that Kiobel had not squarely resolved the broader question of corporate liability and accordingly found the time was now ripe to analyze that question in Jesner.

What Did the Supreme Court Hold in Jesner?

The issue before the Supreme Court was whether courts should exercise their authority to impose ATS liability on corporations for acts that contravene the "law of nations". Indeed, the Court did not resolve whether Arab Bank's alleged activities actually contravened an accepted international norm. Instead, its ultimate decision hinged on whether the Court could properly exercise its discretion in recognizing corporate liability under the ATS, or whether "caution requires the political branches to grant specific authority before corporate liability can be imposed."

The Court's opinion, delivered by Justice Kennedy,6 started with the recognition that – as it held in Kiobel – the ATS does not create a private right of action. It held that courts are reluctant to extend judicially-created private rights of action – especially when those actions implicate foreign relations, which is the province of the president and Congress, and not the judiciary. The Court noted that the ATS was intended to promote harmony in foreign relations by ensuring foreign plaintiffs a remedy for international law violations in limited circumstances, where the absence of such a remedy might provoke foreign nations to hold the U.S. accountable. However, the Court reasoned that this particular case was doing precisely the opposite by creating diplomatic tensions with Jordan—where the bank was incorporated—as it considered the suit an affront to its sovereignty. Thus, the Court held that courts must exercise "great caution" before recognizing new forms of ATS liability.

The Court also looked to the practical implications of finding corporate liability. It found that if foreign corporations were liable under the ATS, then other nations likewise may find the right to haul U.S. corporations into their courts for alleged international law violations, causing a ripple effect in the global economy stemming from American corporations declining to invest abroad.

The Court also reasoned by analogizing the Torture Victim Protection Act of 1991 ("TVPA"). The TVPA created an express right of action for victims of torture and extrajudicial killing in violation of international law. The Court found it a "key feature" of the TVPA to limit liability to "individuals," and thus exclude liability for corporations.

Using the TVPA as a guidepost, in combination with its stated separation of powers and practical concerns, the Court held that "absent further action from Congress it would be inappropriate for courts to extend ATS liability to foreign corporations," The Court accordingly affirmed the Second Circuit's dismissal of the case.

What Does Jesner Mean for Companies and ATS Litigants?

Jesner should shut the door on foreign corporate liability under the ATS. Nonetheless, companies should take note that it is only the corporate entity that is immune to ATS suits. As the Court emphasized, "plaintiffs still can sue the individual corporate employees responsible for a violation of international law under the ATS." Individual corporate officers who commit covered violations could thus still be sued if the claims sufficiently "touch and concern" the United States.

One potential open issue is whether ATS cases can be brought against U.S. corporations. Indeed, while the Court was considering corporate liability under the ATS in general, its ultimate holding was specific to foreign corporations: "the Court holds that foreign corporations may not be defendants in suits brought under the ATS." The Court held that "foreign corporate defendants create unique problems," and in his concurrence, Justice Alito emphasized the diplomatic strife that results from allowing suits against such defendants and further opined that "[b]ecause this case involves a foreign corporation, we have no need to reach the question whether an alien may sue a United States corporation under the ATS." Time will tell whether and to what extent the ATS will continue to be a vehicle for claims against U.S. corporations.

Moreover, Justice Sotomayor's full-throated dissent argued, by way of example, that any diplomatic friction caused by recognizing ATS corporate liability "can be addressed with a tool more tailored to the source of the problem than a blanket ban on corporate liability," and that, thus, the plurality was using a "sledgehammer to crack a nut." For instance, the dissent argues that the Kiobel "touch and concern" standard that embraces the presumption against extraterritoriality, as well as the exhaustion of domestic remedies, are effective prophylactics against suits proceeding in the United States with no connection to the United States. Justice Alito, in his concurrence, noted that "[m]any of the 'more tailored' tools offered by the dissent will still be hotly litigated by ATS plaintiffs, and it may be years before incorrect initial decisions about their applicability can be reviewed by the court of appeals."

Finally, Justice Kennedy appeared to call on the U.S. Congress to consider legislation that addresses extraterritorial violations by corporations. He stated that Congress might decide that violations of international law do, or should, impose liability to ensure that corporations make every effort to deter human rights violations, so that compensation for injured persons will be a cost of doing business. There is at least some indication that Congress may actually heed this call. For instance, a bipartisan group of U.S. Senators filed amici briefs with the Court, arguing that foreclosing liability against banks that facilitate terrorist financing could create a "dangerous gap."7

Justice Kennedy's call for this federal legislation echoes other countries' recently-developed or pending legislation, resulting in a plethora of national laws placing varying levels of duties on corporate conduct both domestically and abroad. These laws include those imposing mandatory human rights "due diligence," placing direct liabilities on companies for human rights violations, and requiring companies to disclose their efforts on avoiding, identifying, and eradicating, for example, modern slavery from their business operations around the world. These laws are emerging from jurisdictions as diverse as Australia,8 Hong Kong,9 Canada,10 France,11 the Netherlands,12 and California.13 In addition, the United Nations is currently developing a multilateral treaty that may seek to impose direct liabilities on multinational companies for their activities abroad.14

Thus, despite Jesner, the requirements on companies to ensure that their domestic and foreign operations are free from human rights violations may not abate. Indeed, legal schemes and theories designed to drive greater corporate liability for alleged human rights abuses continue to develop at unprecedented speed.15 Ensuring both corporate awareness and compliance with these rapidly evolving developments is a complex, culture-specific and risk-specific exercise, requiring the involvement of experienced counsel and internal stakeholders.