Alexis Sarei says he risks “grave harm” if he returns to Papua New Guinea to sue mining giant Rio Tinto for what Sarei claims was the destruction of the land, health and livelihoods of his fellow villagers during the 1970s and 1980s.

So in 2000 Sarei and 21 others launched a class action under the Alien Tort Statute (ATS) in the U.S. District Court for the Central District of California against Rio Tinto’s British and Australian subsidiaries.

Activists tout the suit as an ATS test case that will signal how easy it will be for plaintiffs to hold companies civilly responsible in the United States for their alleged complicity in human rights and environmental abuses that foreign governments have committed abroad.

Sarei v. Rio Tinto, which plaintiffs filed on behalf of more than 10,000 former and current residents of Papua New Guinea’s Bougainville Island, claims Rio Tinto collaborated with the Papua New Guinea government in atrocities, discrimination and environmental damage in a shared quest to reap profits from the company’s Bougainville copper mine. The mine was shut down after locals revolted in 1988, but the plaintiffs allege government reprisals, at the behest of Rio Tinto, sparked a civil war and thousands of deaths.

Rio Tinto denies the claims but has been unable to get the case booted from the U.S. on jurisdictional grounds, notwithstanding three trips to the 9th Circuit.

On Dec. 16, however, the 9th Circuit offered Rio Tinto some hope on that front. The splintered en banc ruling by 11 judges, which was rendered more than 14 months after the hearing, hands defendants a new shield to keep foreign-based ATS claims from getting to trial here. Counsel say the decision marks the first time a circuit court has restricted the scope of the ATS by giving the presiding judge the discretion to require a foreign plaintiff to show that all local legal remedies have been exhausted or that such remedies are unavailable, ineffective or futile.

New Defense

“It’s good for defendants,” says Rio Tinto’s lawyer Jack Londen, a Tokyo-based partner with Morrison & Foerster. “It recognizes that cases brought under the Alien Tort Statute that arise in jurisdictions that have functioning independent judiciaries … may be subject to a defense that wasn’t recognized before.”

The plaintiffs’ lawyer, Steve Berman, the managing partner at Hagens Berman Sobol Shapiro, sees a bright side for the plaintiffs. He says the en banc ruling leaves intact a 2007 9th Circuit ruling that the district court incorrectly dismissed his clients’ claims on the basis that they were political questions.

Instead, the en banc court focuses on whether ATS claims may be dismissed because the plaintiff has failed to exhaust local remedies or local remedies would be futile. Four or five of the 11 judges (depending on how you read the court’s five separate opinions) say an exhaustion requirement may be imposed, as a discretionary matter, if the presiding judge considers it to be prudent. Two other judges say the ATS itself demands that foreign plaintiffs always exhaust their local remedies before suing. The remaining four judges argue, in dissent, that the exhaustion principle should never apply to ATS cases.

The upshot is that seven of the 11 judges seem to agree that, at least in some cases, ATS plaintiffs may have to demonstrate they have exhausted their local remedies.

Exhaustion is not mentioned in the ATS. The statute simply states that U.S. courts may hear “any civil action by an alien for a tort committed in violation of the law of nations or a treaty of the United States” (see “Danger Zones”).

Circuit Conflict

The 9th Circuit’s stance contradicts a 2005 holding by the 11th Circuit that exhaustion doesn’t apply to the ATS, says Beth Stephens, a professor at Rutgers School of Law.

The debate was triggered by Sosa v. Alvarez-Machain, a 2004 U.S. Supreme Court decision that counsels “restraint” in ATS cases. In a one-line footnote that Rio Tinto and the 9th Circuit majority seized upon, the Supreme Court suggested, “We would certainly consider this [exhaustion] requirement in an appropriate case.”

The 9th Circuit majority beat the Supreme Court to the punch. Six of the judges remanded the case to the district court, which will determine if the plaintiffs must show they have exhausted their legal remedies in Papua New Guinea. If so, Sarei and other villagers’ alleged fear of homeland retaliation will be relevant.

The 9th Circuit’s three-judge plurality opinion cautions lower courts to carefully consider the question of exhaustion if a case has a weak nexus to the United States, particularly if the claims don’t involve torts of “universal concern” such as war crimes or crimes against humanity.

Berman says the 9th Circuit’s approach to exhaustion can be fair to both plaintiffs and defendants. “Many people think the Supreme Court was going to put a big stake through these cases by virtue of that [Sosa] footnote, and the 9th Circuit may have come up with a rule of law that is kind of a middle ground, … saying [to judges] you may apply an exhaustion analysis.”

Stephens predicts the new exhaustion rule won’t affect most ATS cases, which usually arise in countries without effective domestic remedies. “It’s another hurdle [for plaintiffs], but I don’t think it’s a major one,” she says. “It would be a mistake to think it’s a dramatic change in how these cases are won or lost.”