Jesner Et Al. v. Arab Bank, PLC: Closing the Door to Litigation Against Foreign Corporations Under the Alien Tort Statute?
Ludovica Chiussi, University of Oslo and Università di Bologna
A recent post on this blog has highlighted a certain trend among European states towards an opening of their courts to foreign direct liability cases. Meanwhile, the US Supreme Court has just struck another blow against transnational human rights litigation against corporations.
On 24 April 2018, the United States Supreme Court rendered its long-awaited judgment in Jesner et al v. Arab Bank PLC (Jesner, 584 U.S.).
The claim adds to the extensive list of lawsuits filed under the Alien Tort Statute (ATS), an 18th-century statute which grants US courts 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. para 1350).
The claimants, non-US citizens victims of terror attacks in Israel, the West Bank, and Gaza, alleged that Arab Bank, PLC, a Jordanian financial institution with a branch in New York, in part caused or facilitated acts of terrorisms in the Middle East. Whilst most of the claimants’ allegations concerned conducts that occurred outside the United States, the claim sought to impose liability on Arab Bank for using its New York branch to clear dollar-denominated transactions that benefited terrorists through a system known as ‘Clearing House Interbank Payments System’. The Bank was also accused of facilitating the transfer of funds from a Texas-based charity to the bank accounts of terrorist-affiliated charities in the Middle East.
The ruling of the US Supreme Court, decided by a 5-to-4 vote, upheld the decision of the Court of Appeals for the Second Circuit, according to which foreign corporations cannot be sued under the ATS. Justice Kennedy penned a plurality opinion, joined by Chief Justice Roberts and Justice Thomas. Justices Alito and Gorsuch filed opinions concurring in parts of the judgment. Justice Sotomayor wrote a dissenting opinion which was joined by Justices Ginsburg, Breyer and Kagan.
The core legal question in Jesner is a vintage one, namely whether foreign corporations can be defendants under the ATS. In the well-known 2013 case Kiobel v. Royal Dutch Petroleum Co., (Kiobel, 569 U.S.), the US Supreme Court stated that the ATS does not grant jurisdiction to US courts over foreign corporations when “all the relevant conduct took place outside the United States”. (ibidem, 124). “Even where the claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritorial application” of the ATS (ibid., 124-125). Yet in Kiobel the Court left the question unsolved as to whether foreign corporations per se can be held liable under the ATS.
According to the majority’s view in Jesner, the question in hand falls to the Congress (584 U.S., 29). The decision largely relied on the two-tier test set in the 2004 Sosa v. Alvarez-Machain decision (Sosa, 542 U.S., 692).
The first part of the Sosa test starts from the assumption that the ATS is strictly jurisdictional and does not itself provide causes of action for international law violations. Federal courts might allow new causes of action only for violations of rules that are “specific, universal, and obligatory”. (542 U.S., 732). The Court in Jesner applied the Sosa requirement to ask itself whether a rule of international law exists that establishes liability of corporations for human rights violations. Whilst acknowledging that corporate liability might be permissible under international law in some circumstances, the Court affirmed that the claimants fell short of demonstrating the existence of a specific, universal, and obligatory norm on liability for corporations.
As to the second part of the Sosa test, which bears on whether allowing a particular case to proceed is an appropriate exercise of judicial discretion, the Court asked itself whether federal courts have the authority to impose liability on foreign corporations under the ATS. The majority emphasised the perils of extending the scope of ATS liability to foreign multinational corporations, like Arab Bank. It was recalled that the purpose of the ATS was “to promote harmony in international relations by ensuring foreign plaintiffs a remedy for international-law violations when the absence of such a remedy might provoke foreign nations to hold the United States accountable.” (584 U.S., 25).
In his concurring opinion, Justice Alito stressed that extending the scope of the ATS would precipitate exactly the sort of diplomatic strife that the law was enacted to prevent” (Justice Alito, concurring in part and concurring in judgment U.S. 584, 1). Justice Gorsuch similarly noted that the judiciary should “refuse invitations to create new forms of legal liability […] and should not meddle in disputes between foreign citizens over international norms” (Justice Gorsuch, concurring in part and concurring in judgment, 584 U.S., 1). It seems that a cause of concern for the Court was also the possibility that allowing to sue foreign corporations under the ATS “could subject American corporations to an immediate, constant risk of claims seeking to impose massive liability for the alleged conduct of their employees and subsidiaries around the world, all as determined in foreign courts”. (584 U.S., 24).
The majority agreed with the lower court by concluding that the judiciary is not well suited to make the policy judgments related to foreign corporate liability, and that deference must be given to the political branches (584 U.S., 29). Going beyond the bounds of Congress’s authorization would mean, according to the Court, crossing the lines set by the principle of separation of powers.
The dissent of Justice Sotomayor blamed the reasoning and conclusion of the majority for “absolving corporations from responsibility under the ATS for conscience-shocking behaviour” (Justice Sotomayor, with whom Justice Ginsburg, Breyer, and Kagan, dissenting, 584 U.S, 1).
Justice Sotomayor emphasised that the “specific and universally recognised rule” that had to be assessed was not the one on corporate liability under international law, but rather the rule on the prohibition against financing of terrorism. Assuming that the Court of Appeal had considered such rule conform to the Sosa test, the relevant inquiry should have focused on “whether there is any reason — under either international law or […] domestic law — to distinguish between a corporation and a natural person who is alleged to have violated” such rule (ibid, 1).
As to the foreign policy concerns raised by the majority in Jesner, Justice Sotomayor noted that “nothing about the corporate form in itself raises foreign-policy concerns that require the Court, as a matter of common-law discretion, to immunise all foreign corporations from liability under the ATS” (Ibid, 1). She concluded that “[f]oreclosing foreign corporate liability in all ATS actions, irrespective of circumstances or norm, is simply too broad a response to case-specific concerns that can be addressed via other means.”
The long-awaited Jesner decision has left high and dry those who relied on the ATS as an effective judicial avenue to hold corporations liable under international law.
One would subscribe to Justice Sotomayor’s argument when she pointed out that Jesner echoes a misinterpretation of the threshold test set in Sosa. Requiring the plaintiff to prove the existence of a rule on corporate liability “fundamentally misconceives how international law works” (584 U.S., Justice Sotomayor, Dissenting, 2). The Sosa requirement of a “generally accepted and specifically defined norm of international law” most probably refers to the existence of a primary rule. The question is therefore whether there is a relevant difference between natural persons and legal person in the reach of the rule on the prohibition of terrorism (and the financing thereof).
But even assuming that the legal question as penned by Justice Kennedy, i.e. whether a rule on corporate liability exists in international law, is correct, the analysis carried out by the Court appears unfitting to the subject in hand.
First, assessing the existence of a given rule is not to be confused with the question of whether an international institution exists to enforce such rule. Justice Kennedy emphasised that there are no international criminal courts and tribunals with jurisdiction over corporate violations of international law. (584, Justice Kennedy, 14-15). Yet this only tells us that states have not, so far, agreed on an international mechanism to address corporate violations. In other words, a rule on corporate liability may very well exist regardless of the mechanism chosen by states to enforce it.
Second, a potential rule on corporate liability in international law must be assessed by looking at the entire corpus of sources of international law. In Kiobel the Second Circuit Court had held that corporations could never be held liable under the ATS because there is no “norm of corporate liability under customary international law.” (621 F.3d, 145). The Court seems to have overlooked general principles of law as referred to by Article 38(1)(c) of the Statute of the International Court of Justice. As pointed out by the Amicus Curiae of Comparative Scholars and Practitioners in Support of Petitioners, the great majority of legal systems in the world recognise corporate liability in some forms. This could have led the Court to enquire whether corporate liability has evolved into a general principle of law.
Certainly, one cannot ignore the foreign policy concerns that must be weighed in circumstances such as the ones before the Supreme Court in Jesner. Jordan considered the suit against Arab Bank “a direct affront” to its sovereignty and one that “risk[ed] destabilizing Jordan’s economy and undercutting one of the most stable and productive alliances the United States has in the Middle East.” (Brief for Hashemite Kingdom of Jordan as Amicus Curiae, 4).
But the utilitarian approach adopted by Justice Alito, according to which “unless corporate liability would actively decrease diplomatic disputes, we have no authority to act”, finds no support in the text of the ATS. It is arguable that foreign policy considerations also come into play when foreign states and their nationals are affected by breaches of universal (erga omnes) rules for the protection of international security, such as the prevention and repression of terrorism, piracy, genocide and the like. As stressed by Justice Breyer in Kiobel, those who perpetrate certain gross violations of international law represent “common enemies of all mankind.” (569 U.S., 131)