In my last contribution to this prestigious publication, in an article titled “Corporate Civil Liability for Human Rights Violations in Global Supply Chains,” I wrote about recent developments in case law at the Supreme Court of England, which has made positive innovations in the field of civil liability claims against “holding companies” in connection with the activities of their subsidiaries abroad. The main issue concerns when a lawsuit may be brought directly against the parent company for human rights violations abroad.
In today’s column, we focus on the very recent U.S. approach to this issue, which has its origins in the Alien Tort Statute, also known as the Alien Tort Claims Act (ATCA), a section of the United States Code that grants federal courts jurisdiction over claims brought by foreign nationals for wrongful acts committed in violation of international law. It was enacted in 1789 and is one of the oldest federal laws still in force in the U.S. The ATS was rarely invoked for nearly two centuries after its enactment. However, since 1980, the courts have interpreted the ATS to allow foreign nationals to seek remedies in U.S. courts for human rights violations committed by corporations in other nations, provided there is a sufficient connection to the United States.
On June 17, 2021, in the case Nestlé USA, Inc. v. Doe, 593 U.S., the U.S. Supreme Court established the grounds on which plaintiffs may seek redress in U.S. courts for human rights abuses occurring abroad. By an 8-1 vote, the Court held that for the Alien Tort Statute—28 U.S.C. § 1350—to apply in the U.S., plaintiffs must demonstrate domestic conduct and not merely general corporate activity.
In light of the wording of the Alien Tort Statute (ATS) “the district courts shall have original jurisdiction over any civil action brought by an alien solely for a tort committed in violation of the law of nations or a treaty of the United States” (June 25, 1948, chap. 646, 62 Stat. 934).
The case was filed in 2010 in the U.S. District Court for the Central District of California by six individuals from Mali who allege that, as children, they were abducted and trafficked to Côte d’Ivoire as slaves for cocoa production. The U.S. companies Nestlé USA, Inc. and Cargill, Inc. do not own or operate cocoa farms in Côte d’Ivoire, but they purchase cocoa from local farms and provide those farms with technical and financial resources. The plaintiffs alleged that this arrangement aided and abetted child slavery, in that the defendants “knew or should have known” that the farms were exploiting enslaved children, yet continued to provide them with resources. In other words, they had economic influence over the farms but failed to exercise it to eliminate child slavery. Although the distribution of resources and the harms occurred outside the United States, the plaintiffs filed their claim in a U.S. federal court, given that the defendants allegedly made all major operational decisions within the United States.
However, given that the harms suffered by the plaintiffs occurred abroad and the only domestic conduct alleged against the defendants was general corporate activity, the District Court dismissed the claim as an impermissible extraterritorial application of the ATS under the Supreme Court precedent in Kiobel v. Royal Dutch Petroleum Co., 569 U.S. 108 (2013), in which it was held that “mere corporate presence” in the United States does not constitute sufficient domestic conduct.1 Nevertheless, on appeal, the Ninth Circuit reversed the District Court’s decision, concluding that it had jurisdiction to hear the case to the extent that the defendants’ conduct was relevant to the scope of the ATS, given that other federal courts had already allowed ATS claims against U.S. corporations.
Pursuant to a “writ of certiorari,” the case reached the Supreme Court for review of two issues: whether there was a sufficient allegation of facts regarding domestic conduct to support the ATS claim, and, more generally, whether U.S. corporations could be held civilly liable under the ATS. SCOTUS reaffirmed the ruling that the ATS does not apply extraterritorially—a presumption that cannot be rebutted even when a U.S. company is accused of overseeing its foreign operations from its headquarters, provided the unlawful acts were committed abroad. “Funding decisions” made in the United States regarding overseas operations are insufficient to transform the situation into a domestic claim.
Writing for the majority, Justice Clarence Thomas explained that U.S. statutes apply extraterritorially only where there is a clear and affirmative indication that the conduct relevant to the application of the Alien Tort Statute occurred in the United States. Furthermore, the ATS grants federal courts jurisdiction to hear claims brought by a foreign national only for a civil wrong committed in violation of the law of nations or a U.S. treaty. In other words, in principle, the court referred back to the case of Sosa v. Alvarez-Machain, 542 U.S. 692 (2004), in which the Court held that the ATS was a jurisdictional statute that did not create any new causes of action beyond claims involving three principal torts that were commonly accepted as violations of international law when the ATS was enacted in the 18th century: (1) offenses against ambassadors; (2) breach of safe conduct, and (3) piracy. Courts could exercise judicial discretion to recognize a new cause of action—other than these three original ones—only under limited circumstances.
According to Thomas, under the Supreme Court’s “two-step framework” for analyzing questions of extraterritoriality, it is first presumed that a law applies only domestically, and the court then determines whether the case provides a clear and affirmative indication that rebuts that presumption. In both Nestlé and the precedent Kiobel, the ATS does not rebut the presumption of domestic application. The judiciary is not permitted to create a “cause of action,” as this would constitute an encroachment on the legislature’s authority. Moving on to the second step, when the law does not apply extraterritorially, plaintiffs must establish that the conduct relevant to the statute’s scope occurred in the United States, even if other conduct took place abroad. That is to say, reiterating what was decided in RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2101 (2016), it was held that the ATS applies only within the United States when “the claims touch and concern the territory of the United States with sufficient force to displace the presumption.” However, nearly all of the conduct that the plaintiffs allege aided and abetted forced labor—providing training, fertilizers, tools, and money to farms abroad—occurred in Côte d’Ivoire.
Although the plaintiffs alleged that important operational decisions were made in the United States, the Court viewed these as allegations of general corporate activity—activity common to most companies—without a sufficient connection to the alleged wrongdoing. As the Court put it: “The presumption against extraterritorial application would be a craven watchdog indeed if it retreated to its kennel whenever some domestic activity is involved in the case.”. Thus, SCOTUS ultimately reversed the Ninth Circuit’s decision, which had held that the plaintiffs had sufficiently pleaded a cause of action.
A note: The Supreme Court did not define the meaning of the indeterminate concepts “mere corporate presence” or “general corporate activity.” The Court did not delve into the intricacies of the parent-subsidiary relationship (including how they are treated in overlapping areas of law in other jurisdictions), nor did it address what the scope of such “operational decisions” might entail in distinguishing between general corporate activity and an upper limit on such activity. The Court also did not discuss what constitutes “due diligence” or the parent company’s legal duty of care toward the subsidiary with regard to making the subsidiary’s conduct—whether by commission or omission—directly attributable to the parent company or, at the very least, rendering it negligent for failing to fulfill its own independent legal responsibilities under its duty of care toward the subsidiary and its stakeholders. The Court also focused its interpretive lens exclusively on ATS claims in U.S. courts, without considering the broader trajectory of the interpretation of a parent company’s due diligence responsibilities toward subsidiaries in foreign jurisdictions, such as the United Kingdom in landmark cases like Vedanta v. Lungowe and Okpabi v. Royal Dutch Shell, decided by the UK Supreme Court, in human rights litigation.
However, and just as importantly: the Supreme Court did not address the second question posed to it, namely, whether the ATS exempts corporations from ATS claims. In this regard, 5 of the 8 justices who authored the majority opinion held that, a priori, corporations are not immune from lawsuits under the ATS. Justice Gorsuch noted that the ATS has never distinguished between individual and corporate defendants and that tort claims against U.S. corporations and other legal entities, such as ships, have long been recognized in the United States. Similarly, Justice Sotomayor stated that there is no reason to exempt domestic corporations from liability for violations of the law simply because they are legal entities rather than natural persons.
While the Nestlé case suggests that the Supreme Court has narrowed the jurisdictional scope of the ATS and that, in principle, corporate America can rest assured that it will not be indiscriminately held liable for purely extraterritorial damages, it cannot be denied that the door remains open for U.S. companies to eventually be held civilly liable in the U.S. for ATS claims with a more substantial basis. Although the opinions of these five justices are not binding, they ultimately reveal the Court’s stance on the second issue. The text and purpose of the ATS, as well as the long and consistent history of corporate liability for unlawful acts, demonstrate that, at the very least, SCOTUS has not categorically ruled out ATS lawsuits against U.S. corporations, and that claims for civil liability for extraterritorial violations can still be brought against companies.2
Despite this “legal loophole,” what is most concerning in the Nestlé case is that a U.S. corporation can avoid ATS liability even if it has actual knowledge that its offshore ties violate international law. As long as the U.S. company’s domestic conduct regarding the violation consists of nothing more than general corporate activity, the U.S. company will likely be immune from ATS claims. This “post-Nestlé” standard is reckless because it reduces incentives for U.S. corporations whose international activities violate human rights—including labor abuses (bordering on slavery), environmental damage3, and war crimes—to mitigate harm. Henceforth, these companies can openly acknowledge these violations, do nothing to prevent them, and still avoid ATS liability under the vague claim that corporate conduct in the United States did not occur outside the “normal course of business”—a definition that remains open to future judicial interpretations.4
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- In an article titled “The Supreme Court and the Alien Tort Statute: Kiobel v. Royal Dutch Petroleum Co,” Ingrid Wuerth criticizes the Kiobel decision: “The ATS in general and Kiobel in particular have engendered much hand-wringing, some of it shrill. Those who favor the decision lament the lower court opinions and law professors who ignored the presumption against extraterritoriality for so long, thereby permitting this unique and pernicious form of American exceptionalism. Those opposed to the decision lament the corporate and individual human rights abuses that may now go entirely unaddressed. And then there is the seemingly-unending lack of certainty about the statute, which now focuses on detailed parsing of the opinions in Kiobel, especially those of Justice Kennedy and the majority”. In, Vanderbilt University Law School Public Law and Legal Theory Working Paper Number 13-26.
- As John H. Knox rightly points out in his article, “The Ruggie Rules: Applying Human Rights Law to Corporations”: “At a minimum, these duties require states to avoid interfering with human rights themselves. However, that is not all that human rights law requires. It has long been clear that human rights may be abused by non-state actors. Slavery, terrorism, and violence against women are among the countless historical and modern examples. International law does not ignore the threats that private actors pose to the enjoyment of human rights but, with very few exceptions, it does not directly impose duties on them to refrain from such abuses. Instead, it requires each state not only to respect human rights itself, but also to take steps to protect rights from interference by non-state actors. States are required not just to refrain from slavery, for instance, but also to bring about its "complete abolition" "throughout their jurisdiction”. The UN Guiding Principles on Business and Human Rights (Radu Mares, ed., 2012), Wake Forest Univ. Legal Studies Paper No. 1916664, available at SSRN. Available here.
- Eric Posner argues for its extension to the serious issue of climate change in Climate Change and International Human Rights Litigation: A Critical Appraisal: “ATS litigation has been distinctive because it has produced awards and even payment of damages (in settlements); so today it is the most prominent and effective means for litigating international human rights. If a plausible claim can be made that the emission of greenhouse gases violates human rights, and that these human rights are embodied in treaty or customary international law, then American courts may award damages to victims”. In Chicago, John M. Olin Law & Economics Working Paper No. 329.
- As Doori C. Song concludes in U.S. Corporate Liability Under the Alien Tort Statute After Jesner v. Arab Bank, PLC: “Furthermore, domestic corporate liability under the ATS would incentivize U.S. corporations to undertake better due diligence efforts to prevent the occurrence of human rights violations. To avoid liability, corporations would identify risks in their supply chains and work closer with suppliers to minimize adverse human rights impacts.To promote transparency and good faith, corporations would also be encouraged to conduct compliance audits and disclose their findings.270 Furthermore, domestic corporations subject to ATS suits would have an incentive to withdraw from host states and business relationships that cause, create, or are directly linked to adverse human rights impacts.271 Holding U.S. corporations accountable under the ATS would result in greater overall due diligence efforts”. Available here.