Your client, a chemical company, is doing business in a foreign country. It has a pesticide manufacturing facility located in a rural area and also sells its products for use on nearby, government-owned plantations. To its credit, the company’s environmental practices have gotten better in recent years, but it has a history of disposing of hazardous wastes from the manufacturing process in a less than environmental-friendly manner, resulting in extensive contamination. Questions have also been raised about the toxic effects of the pesticide and its by-products on human health. Nearby residents and plantation workers come to believe that numerous health problems seen in the local population can be attributed to the company’s pesticides and disposal methods.

Can these foreign citizens sue your corporate client in U.S. federal court where the alleged harm occurred entirely outside the United States? The U.S. Supreme Court will likely answer this question in Kiobel v. Royal Dutch Petroleum Co., a case heard by the Court on Oct. 1, 2012 that was filed under the Alien Tort Statute (ATS).

Adopted over two centuries ago in 1789, the ATS has more recently been used by plaintiffs to pursue corporations in federal court for alleged violations of international law, including suits claiming damages stemming from environmental contamination and product liability. Until now, plaintiffs routinely filed these suits despite the fact that many involved alleged tortious conduct in foreign lands, with no connection to the United States, or named only corporate defendants, when one usually thinks of a governmental entity or an individual (e.g., dictator) violating international law.

All of this may soon change, however, with the Supreme Court’s consideration of Kiobel. Does jurisdiction under the ATS extend to suits against corporations? Can plaintiffs assert a cause of action for conduct occurring in a foreign country? The Court’s decision could have significant ramifications for corporations and plaintiffs alike, as the scope of suits filed under the ATS, including those alleging environmental damage or product liability, could substantially change.

The plain language of the ATS provides only general guidance. The statute grants federal courts original jurisdiction over “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.” 28 U.S.C. § 1350. Not surprisingly, the ATS was originally interpreted as applying to claims that seem far removed from what we see today in environmental and product liability litigation. According to the Supreme Court, the statute was historically limited, at least with respect to the “law of nations,” to just a few offenses such as wrongs committed against ambassadors and piracy. Sosa v. Alvarez-Machain, 542 U.S. 692, 720, 724 (2004).

The Supreme Court, however, has not so restricted the ATS’s scope in modern times. In Sosa, the Court held that claims may be “based on the present-day law of nations,” thus viewing the statute as one that evolves with changing international norms. But the Court, at the same time, explained that “federal courts should not recognize private claims under federal common law for violations of any international law norm with less definite content and acceptance among civilized nations than the historical paradigms familiar when [the ATS] was enacted.”

Modern ATS Claims

For the first 170 years after its adoption, the ATS was rarely invoked. In 1980, however, the U.S. Court of Appeals for the Second Circuit upheld claims under the ATS, in a case involving allegations of torture of an individual, and since then there has been an “abundance” of litigation involving the statute. See Filartiga v. Pena-Irala, 630 F.2d 876 (2nd Cir. 1980). Between 1980 and the mid-1990s, ATS cases were brought only against foreign individuals; then, in 1997 the first ATS suit was filed against a corporation. ATS litigation has not been the same since.

Among the many types of claims brought under the ATS have been allegations of harm related to environmental contamination and product liability. Generally, plaintiffs have alleged that a corporation either violated what they characterize as international environmental law or committed a human rights violation resulting from extensive environmental damage or the sale of a purportedly dangerous product.

Many of these claims, however, have been dismissed for failure to state a violation of the law of nations under the ATS. Indeed, the lack of success is largely because environmental harms do not easily reach the required levels of universality, acceptance, and specificity. Even where an environmental-related treaty exists, there remains significant discord among nations regarding what constitutes environmental harm.

But not all ATS claims have failed. For example, in a product liability case, the Second Circuit found that the prohibition on nonconsensual medical experimentation on human beings is a norm of customary international law. Abdullahi v. Pfizer, 562 F.3d 163, 187 (2d Cir. 2009). The court reversed the dismissal of plaintiffs’ claims against Pfizer for testing an experimental antibiotic on Nigerian children without obtaining proper consent.

Regardless of the outcome, one common thread is that plaintiffs pursued companies based on alleged misconduct in a foreign country. See Vietnam Ass’n for Victims of Agent Orange v. Dow Chemical Co., 517 F.3d 104, 108 (2nd Cir. 2008) (claims of injuries from spraying of herbicides manufactured by defendants). Not until Kiobel, when the Second Circuit held that federal courts do not have jurisdiction over corporations under the ATS, was the question taken up by the Supreme Court.

In Kiobel, Nigerian citizens sued non-U.S. corporations, alleging that defendants aided and abetted the Nigerian government in committing various human rights violations. The Second Circuit held that the ATS did not extend subject matter jurisdiction to corporations, and as a result found that plaintiffs’ claims against defendants should be dismissed. Kiobel, 621 F.3d at 145, 148-149. The court looked to international law and found that there is no “specific, universal, and obligatory” norm of corporate liability for violations of the law of nations. The court concluded that “corporate liability has not attained a discernable, much less universal, acceptance among nations of the world in their relations inter se, and it cannot, as a result, form the basis of a suit under the ATS.”

The Supreme Court granted certiorari and heard oral arguments in February 2012. Shortly thereafter, however, the Court ordered supplemental briefing on the issue of extraterritoriality; in other words, whether the ATS extends to alleged violations of the law of nations occurring outside of the United States, an issue not addressed by the Second Circuit. These two questions, regarding corporate liability and extraterritoriality, are now at the heart of the Supreme Court’s consideration of Kiobel and whose resolution will define the scope of future ATS litigation.

Change In Tactics?

Potential Implications of Kiobel:

1) Corporate Liability: If the Supreme Court affirms the Second Circuit’s ruling and finds that courts do not have jurisdiction over corporations under the ATS, not only will we likely see a decrease in the number of environmental and product liability cases overall, as those have typically been brought against corporations, but also a change in tactics for those plaintiffs still intent on filing ATS claims.

One area that may see more attention is a focus on the liability of individual corporate employees. Targeting individuals is certainly a less attractive option, as it may be more difficult to allege that the actions of one or just a few employees rose to the level of an international law violation. Individual employees also do not have “deep pockets,” especially in instances where they are deemed to have acted outside the scope of their employment. However, as the Second Circuit in Kiobel expressly stated, nothing in its opinion “limits or forecloses suits under the ATS against a corporation’s employees, managers, officers, directors, or any other person who commits, or purposefully aids and abets, violations of international law.”

On the other hand, lawsuits will likely continue as usual, and may increase, if the Supreme Court extends ATS jurisdiction to corporations, thus forcing companies to continue refining litigation and business strategies to minimize potential liabilities. In terms of litigation defense, corporate defendants should consider, depending on the facts of the case, arguments in favor of a motion to dismiss, including lack of personal jurisdiction, forum non conveniens, international comity, and the political question doctrine. From a business perspective, as respondents in Kiobel have noted in their brief, companies may consider reducing operations in countries from which ATS suits tend to originate. Finally, parent companies should ensure that their subsidiary relationships are structured so as to withstand attempts to pierce the corporate veil.

2) Extraterritoriality: If the Supreme Court limits the scope of the ATS so that foreign nationals can sue for violations of international law that only occur in the U.S.. this will strike a significant blow to ATS claims alleging environmental or product liability damages. Given the extensive regulations in the United States governing environmental and product liability issues, it is unlikely we will see many alleged violations of international law on home soil. Moreover, even in the event that a potential ATS claim arises, plaintiffs will no doubt turn first to more readily available causes of action, whether under common law or federal/state environmental and consumer statutes for relief.

Conclusion

It remains to be seen how the Supreme Court will rule in Kiobel. Nevertheless, companies should be aware of the potential impact that the Supreme Court’s decision could have on litigation risks, both here and outside of the United States.•