A Growing Danger On The Horizon For Companies Doing Business Internationally: Corporate Liability Under The Alien Tort Statute

Sunday, February 1, 2009 - 01:00

On December 1, 2008, a federal jury in San Francisco found that Chevron Corporation was not liable for the Nigerian military's actions in attempting to suppress a protest at one of Chevron's offshore oil platforms in which two protesters were killed and a number of others were allegedly beaten and tortured. The question before the jury was whether or not Chevron bore any responsibility for the military's actions under a discrete federal statute called the Alien Tort Statute (ATS), which allows aliens to file suit in United States federal court for torts that occur abroad. The Chevron case is the most recent example in a line of actions that are increasingly being pursued by foreign nationals under the ATS seeking to hold multinational corporations responsible for alleged human rights abuses perpetrated abroad. With Chevron's recent victory, the defendants have won the only two "corporate ATS" cases that have gone to trial - in July 2007, a jury in Alabama found that Drummond Co. was not responsible for a paramilitary organization's murder of three labor union leaders near a mine in Columbia.1However, the mere fact that these two cases survived pretrial motions and were allowed to proceed to trial suggests that multinational corporations may increasingly find themselves embroiled in ATS litigation based on a variety of business activities abroad.

The Alien Tort Statute, 28 U.S.C. § 1350, was passed by the First Congress as part of the Judiciary Act of 1789, and it provides that "[t]he 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." For the first 200 years of its existence, the ATS lay virtually dormant. Indeed, it is widely agreed that the modern era of ATS litigation began in 1979 with the case of Filartiga v. Pena-Irala . In that case, two citizens of Paraguay, a father and his daughter, sued the former Inspector General of Police in Asuncion, Paraguay for allegedly kidnapping, torturing, and murdering their son/brother in retaliation for the father's political activities. Following dismissal by the district court, the United States Court of Appeals for the Second Circuit announced that the ATS confers federal jurisdiction for recognized violations of international law - including deliberate torture committed under color of official authority as alleged by the plaintiffs.2Following the Filartiga decision, plaintiffs' lawyers increasingly began using the ATS to seek redress for international human rights violations, often targeting oppressive dictators or military leaders such as former Philippine dictator Ferdinand Marcos and former Bosnian-Serb leader Radovan Karadziç.3However, the individual defendants in these cases often refused to submit to the jurisdiction of the U.S. courts and frequently failed to appear to contest the charges. Although plaintiffs may have been able to obtain default judgments in these cases, their ability to collect damages was speculative at best, though there have been occasional monetary awards in such cases.4

Plaintiffs Shift Their Focus To Corporate Defendants

Likely as a result of the difficulties associated with suing foreign tyrants, in the early 1990s plaintiffs' lawyers shifted their focus and began using the ATS to target large, multinational corporations. In these "corporate ATS" suits, the plaintiffs allege that the companies facilitated or were complicit in the commission of various international torts abroad. There are numerous advantages for plaintiffs in targeting multinational corporations as defendants in ATS cases: the corporations do business in the United States and are, therefore, subject to jurisdiction in the federal courts; the corporations often have deep pockets and would be able to satisfy any judgment; factors such as corporate brand and reputation can be used as leverage to extract settlements even where legal underpinnings are weak; and the media and public pressure accompanying such suits, which often involve stories of horrific abuses against the plaintiffs, may lessen a company's desire to fight.

Although no company has been held liable under the ATS for human rights abuses carried out abroad, plaintiffs' lawyers are trying to establish a roadmap for a successful corporate ATS case. Plaintiffs' lawyers continue to alter their theories in response to decisions from federal courts setting boundaries, albeit fuzzy ones, on the scope of the ATS. Indeed, plaintiffs have recently overcome motions to dismiss and motions for summary judgment, and have now gotten two corporate ATS cases before juries. All corporations doing business internationally should take notice of this "litigation creep." ATS cases typically revolve around heart-wrenching accounts of horrific human rights abuses such as genocide, war crimes, extrajudicial killings, rape and torture. Plaintiffs' attorneys are likely to continue to look for a set of facts they can present to a jury that will result in a finding of liability against a corporation.5Therefore, companies facing a corporate ATS suit should take the matter very seriously and defend the claims aggressively. This is especially true given the legal uncertainty as to both the types of abuses that are actionable under the ATS and whether or not corporations can be held secondarily liable - under theories such as aiding and abetting - for violations of international law committed by others.

Current Legal Landscape

The Supreme Court has yet to take up a corporate ATS case, and has only addressed the scope of the ATS on one occasion. In Sosa v. Alvarez-Machain , the Supreme Court held that foreign plaintiffs could assert claims under the ATS for a very limited set of torts that could be found to violate international law, but left it to the lower courts to determine which claims could proceed. The Supreme Court cautioned that "any claim based on the present-day law of nations [should] rest on a norm of international character accepted by the civilized world," and that the norm be defined with adequate "specificity."6Although there is little dispute that acts of genocide, war crimes, and torture satisfy this standard, the boundaries of actionable conduct are far from clear.

More recently, and of greater concern to corporations doing business abroad, several federal appellate courts - most notably the Second Circuit and the Ninth Circuit - have suggested that claims premised upon theories of secondary liability are available under the ATS.7Under this developing interpretation of the law, plaintiffs have alleged that corporate defendants aided and abetted or facilitated various human rights violations carried out by host governments. Thus, companies are increasingly being sued in corporate ATS suits based on a variety of business activities abroad.

At one end of the spectrum are claims against corporations that contract for private or public security forces to guard their operations abroad. These claims typically arise from alleged human rights abuses committed by the security forces in the course of protecting the corporation's property or operations. In one such case, Unocal Corp. and several other entities had entered into a joint venture with the Myanmar government to produce and transport natural gas. The contracts provided that the Myanmar military would provide security for various pipelines and other property. The plaintiffs sought to hold Unocal liable for the Myanmar military's forced labor practices and forced relocation of entire villages in connection with the project. Indeed, the plaintiffs alleged that prior to entering into the joint venture with Myanmar, Unocal was well aware that the military had engaged in such activity in the past. Although the Unocal case settled before the courts could address the scope of corporate ATS liability, it illustrates the difficulties that can arise from the fact that many resource-rich areas of the world are also areas with some of the poorest human rights records.8Given the blurry boundaries of ATS liability, companies must be cautious when dealing with governments in the developing world, especially when those countries insist on requiring that state security forces protect foreign business operations.

Somewhere in the middle of the spectrum are claims against corporations that perform experimental trials abroad, outside of the strict regulatory framework that exists for product testing in the United States. These claims often arise from clinical trials that are alleged to have run afoul of various international ethical principles and guidelines for biomedical experimentation. A recent example is a suit brought by a class of Nigerian citizens against Pfizer in which the plaintiffs alleged that Pfizer had secretly tested the experimental antibiotic Trovan on them in response to an outbreak of bacterial meningitis in Kano, Nigeria in 1996. The plaintiffs' primary arguments were that Pfizer supplied inadequate medical treatment and failed to obtain informed consent for the alleged experimentation which resulted in injury and death to several children.9Although the case was dismissed on forum non conveniens grounds, it reveals another area of corporate activity that may be challenged by ATS litigation.10

At the other end of the spectrum are claims against corporations that simply do business abroad with foreign governments. Relying heavily on "aiding and abetting" theories of liability, these claims typically arise from alleged human rights abuses committed by foreign governments, abuses which plaintiffs argue would not have occurred (or would have occurred in a different manner) but for a company's willingness to sell its goods or services to the foreign government. In one such case, multiple corporations were sued by foreign individuals that allegedly suffered damages as a result of crimes of apartheid in South Africa.11The plaintiffs alleged that the defendants had supplied the apartheid regime with various resources (such as technology, money, oil, etc.) and that these resources allowed the government to perpetuate its abuses. The plaintiffs contend that this case is not simply about doing business with an oppressive regime, but a review of the complaints reveals that this is the extent of the defendants' activity. Although a number of defendants were recently dropped from this litigation, the case remains open and is a powerful example of the breadth of corporate ATS liability being pursued by plaintiffs.

Recommendations For Corporations Doing Business Abroad

Given the current state of the law and plaintiffs' ongoing attempts to create new causes of action in this field, there are several steps companies should take to limit their exposure to ATS litigation:

• Before contracting with a foreign government, determine whether there are any domestic or international restrictions or resolutions regarding doing business with the particular government.

• Contracting with foreign governments should be done transparently and at arms length, especially when the provision of military or security forces is involved.

• Be a good corporate citizen - establish and follow corporate codes of conduct for the humane treatment of workers and residents.

• Adopt and follow any relevant international codes or policies regarding doing business in a particular country, and seek guidance from the country's domestic ministries regarding business activities.

Not only will the above precautions help to minimize a corporation's exposure to ATS suits (by both steering a company clear of doing business with questionable governments and dissuading plaintiffs' lawyers from naming the company as a defendant), but adherence to these prescriptions also ensures that powerful exculpatory evidence will exist in the event that a corporation is ultimately sued. Moreover, if a company does get named as a defendant in an ATS case, the following additional tactics can be employed to minimize costs and maximize the company's position in the litigation:

• Take the case seriously from day one and defend dubious claims aggressively (to avoid acquiring an "easy-target" reputation).

• Seek dismissal of the case at an early stage based on prudential concerns that will negate the need for costly discovery - such as the political question doctrine, case-specific deference, forum non conveniens , principles of comity, and the plaintiffs' failure to exhaust local remedies.

• Mobilize public relations and crisis management teams to assess the facts, respond to allegations quickly and accurately, and manage media messages.

• If the company's actions were not entirely above board, seek to resolve the case on reasonable terms with minimal media attention so as to protect corporate brands and reputations.

Conclusion

Until the Supreme Court sets firm boundaries for the scope of ATS jurisdiction and corporate ATS liability, plaintiffs' lawyers will likely continue to push the envelope in seeking to use dubious theories of vicarious liability to obtain redress for atrocities committed around the world from deep-pocket corporate defendants that have little or no connection to such abuses. Although companies should defend such claims aggressively, caution must also be exercised in determining which cases to push for appellate review in the event of unfavorable trial court rulings or verdicts. A key aspect of clarifying the ATS legal landscape will be advancing the right case or cases before the Supreme Court. Until the Supreme Court weighs in, however, companies should take this statute into account when doing business abroad and should continue to monitor corporate ATS cases as they make their way through the courts. 1 Pretrial opinions resolving various motions in these cases delve deep into the factual background giving rise to the plaintiffs' claims .See Bowoto v. Chevron Corp ., 557 F. Supp. 2d 1080 (N.D. Cal. 2008); Rodriquez v. Drummond Co ., 256 F. Supp. 2d 1250 (N.D. Ala. 2003).

2 Filartiga v. Pena-Irala, 630 F.2d 876 (2d Cir. 1980).While the appeal was pending, the defendant returned to Paraguay and took no further part in the action.On remand, a default judgment was entered on behalf of plaintiffs in the amount of $10,385,364, which included costs and punitive damages. Filartiga v. Pena-Irala, 577 F. Supp. 860 (E.D.N.Y. 1984).

3 See Hilao v. Estate of Marcos, 103 F.3d 767 (9th Cir. 1996); Kadic v. Karadzic, 70 F.3d 232 (2d Cir. 1995).

4 See Arce v. Garcia, 434 F.3d 1254 (11th Cir. 2006) (affirming $54.6 million jury verdict for Salvadoran refugees that were tortured by military personnel in El Salvador); Cabello v. Fernandez-Larios, 402 F.3d 1148 (11th Cir. 2005) (affirming $4 million jury verdict for survivors of a Chilean economist who was executed by Chilean military officers following the 1973 coup d'état).

5 Perhaps wary of opening the ATS floodgates, corporations have been willing to settle cases in which the allegations of misconduct by the corporation are substantial and are supported by evidence.Recently, Yahoo! Inc. settled a lawsuit brought by Chinese dissidents who alleged that Yahoo! aided and abetted the Chinese government's torture of political dissidents by providing the government with the identities and other personal information about the dissidents.The terms of the settlement are confidential, but the swiftness with which the settlement was reached, and the subsequent apology from Yahoo! executives, have been interpreted by the media as an acknowledgement of at least moral wrongdoing, if not legal liability, by the company.The case , Xiaoning, et al. v. Yahoo!, Inc. et al., was filed in the U.S. District Court for the Northern District of California (No. C07-02151).

6 Sosa v. Alvarez-Machain, 542 U.S. 692, 725 (2004); see Filartiga v. Pena-Irala, 630 F.2d 876, 881 (2d Cir. 1980) ("[C]ourts must interpret international law not as it was in 1789, but as it has evolved and exists among the nations of the world today.").

7 See Khulumani v. Barclay Nat'l Bank Ltd., 504 F.3d 254, 260 (2d Cir. 2007); Sarei v. Rio Tinto, PLC, 487 F.3d 1193, 1202-03 (9th Cir. 2007).

8 The procedural history of the Unocal case is representative of the fact that courts have yet to firmly establish the standard for applying the ATS to corporations.The district court initially granted summary judgment to Unocal, holding that the plaintiffs were required to prove that Unocal directed the military to commit the abuses complained of by the plaintiffs .See Doe v. Unocal Corp . , 110 F. Supp. 2d 1294 (C.D. Cal. 2000).The Ninth Circuit reversed this decision, allowing the lawsuit to proceed and holding that the plaintiffs were only required to demonstrate that Unocal gave "knowing practical assistance or encouragement that [had] a substantial effect on the perpetration of" the alleged underlying tort in order to be held secondarily liable under the ATS. Doe v. Unocal Corp . , 395 F.3d 932, 937 (9th Cir. 2002).The Ninth Circuit granted Unocal's application for rehearing en banc, thereby vacating the Circuit's prior opinion. Doe v. Unocal Corp . , 395 F.3d 978 (9th Cir. 2003).However, before the case was heard by the en banc panel, the parties agreed to a settlement, reported to be $30 million.Accordingly, the parties then moved to dismiss the appeal and the district court's original opinion was vacated. Doe v. Unocal Corp., 403 F.3d 708 (9th Cir. 2005). Therefore, there is no precedential authority arising from the Unocal case, but it is instructive of the various approaches courts can take in this area of law.

9 It is interesting to note, however, that the mortality rate for children who were administered Trovan was approximately the same as those who were treated with Pfizer's FDA-approved medication (6%), and was significantly lower than the rate for children treated by Doctors Without Borders (9.1%).For a detailed discussion of the Pfizer case, and the ATS issues surrounding the case , please see Konrad L. Cailteux and B. Keith Gibson , "Alien Tort Statue" Shakedown: Court Must Arrest New Attempt To Expand Mischievous U.S. Law, Washington Legal Foundation Legal Backgrounder, Jan. 14, 2005, at http://wlf.org/upload/011405LBCailteux.pdf.

10 Abdullahi v. Pfizer, Inc., 2005 WL 1870811 (S.D.N.Y. Aug. 9, 2005).

11 See Khulumani v. Barclay Nat'l Bank Ltd., NY3:\1525579\01\wp5701!.DOC\99980.0001

B. Keith Gibson and Jeremy T. Grabill are Associates in the New York office of the law firm Weil, Gotshal & Manges. They focus their practices on the defense of products liability actions, mass tort matters, class actions and other complex litigation. They have been involved in defending companies against actions brought under the Alien Tort Statute. Please visit www.metrocorpcounsel.com for the full version of this article, including footnotes and citations.

Please email the authors at keith.gibson@weil.com or jeremy.grabill@weil.com with questions about this article.