The 2nd Circuit’s September 2010 holding in Kiobel v. Royal Dutch Petroleum broke ground when it threw into question whether plaintiffs could use the Alien Tort Statute (ATS) to bring civil claims against corporations—the paradigm modern-day use of the law. However, in the Supreme Court’s May 2013 judgment in Kiobel the court did not even reach a conclusion on that question, the one that led it to take the case. The 2nd Circuit had dismissed the claims on grounds that international law doesn’t provide for corporate civil liability, and the Supreme Court granted certiorari in the case in October 2011.

In March 2012, however, just after oral arguments, the high court directed the parties to file supplemental briefs on the question of the basis and the limits of the Alien Tort Statute’s extraterritorial reach. Specifically, the court asked them to consider “Whether and under what circumstances the Alien Tort Statute … allows courts to recognize a cause of action for violations of the law of nations occurring within the territory of a sovereign other than the United States.”

It was on that broader basis that the Supreme Court ruled that the ATS does not allow federal courts to hear cases concerning violations of the law of nations that occur outside the U.S.

“It’s a much more comprehensive bar than the ground the 2nd Circuit had relied on and it’s a much more fundamental ground than if they had decided the case as it had been presented to them,” says James Berger, a partner at King & Spalding.

End of Extraterritoriality

The justices dismissed the Kiobel case unanimously and landed 5-4 on the reasoning behind the dismissal. Chief Justice John Roberts’ opinion for the majority states that “the danger of unwarranted judicial interference in the conduct of foreign policy is magnified in the context of the [Alien Tort Statute] because the question is not what Congress has done but instead what courts may do.”

More than anything else, Berger says this decision really was intended to vindicate that principle. “[It was meant to] make sure the courts are not deciding cases that could be seen by foreign countries as the U.S. condemning actions that took place within another sovereignty,” he adds.

The ruling falls in line with the court’s unanimous 2010 decision in Morrison v. National Australia Bank, which dealt with the application of U.S. securities laws to overseas transactions. Morrison firmly upheld the presumption against extraterritoriality.

In Kiobel, the court cited the Morrison court’s assertion that “When a statute gives no clear indication of an extraterritorial application it has none.”

As the Kiobel court notes, the ATS is a strictly jurisdictional statute—it does not create a cause of action but rather gives federal courts subject matter jurisdiction over violations of international law. The majority’s reasoning in the case thus could have broad implications: For the first time the court has applied the presumption against extraterritoriality to a jurisdictional statute, reasoning that the same principles apply.

Kiobel’s Shadow

It’s a limitation that “could and very likely will” spill over into other areas, says Owen Pell, a partner at White & Case.

Early evidence of Kiobel’s broader implications may be found in the Supreme Court granting cert in DaimlerChrysler AG v. Bauman less than a week after it delivered its Kiobel opinion. The Bauman case deals with general personal jurisdiction rather than the subject matter jurisdiction that was at issue in Kiobel.

Many observers, Pell says, expected the court to toss the Bauman petition back to the lower court for reconsideration in light of Kiobel. Instead, the Supreme Court granted review in the case and, furthermore, framed its question as whether it is a violation of due process for a court in the U.S. to extend jurisdiction over a foreign company “based solely on the fact that an indirect corporate subsidiary performs services on behalf of the defendant in the forum state.”

“There’s no question that the reasoning in Kiobel—this concept of wholly foreign disputes finding their way into U.S. courts—is on the court’s mind,” Pell says. “The Bauman case is now framing a debate that is unbelievably important as to all kinds of corporations: non-U.S. corporations, non-U.S. banks with branches in the U.S., and even U.S. corporations with big non-U.S. subsidiaries.”

Broad Implications

Apply the presumption against extraterritoriality to, say, the Federal Rules of Civil Procedure, which don’t speak to extraterritoriality, and all sorts of questions arise: How deep is the extraterritorial reach of, for instance, a U.S.-issued discovery subpoena? To what extent can U.S. courts enforce judgments against foreign parties?

The 9th Circuit held in Bauman that a foreign company could be subjected to general personal jurisdiction in California by virtue of the acts of its U.S. affiliate, which the court construed as an agent acting on the parent company’s behalf despite the fact that they maintain separate corporate identities.

“If the 9th Circuit’s ruling becomes the law of the U.S. as a whole, it would force in-house counsel and the people who are managing major multinational companies around the world to think about the extent to which their litigation risk has just gone up,” Berger says.