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High court could increase corporate liability


WASHINGTON—An 18th century law could have liability implications for 21st century corporations depending on how the Supreme Court rules on a case that alleges human rights violations.

At issue in Esther Kiobel et al. vs. Royal Dutch Petroleum Co. is whether the Alien Tort Statute of 1789 applies to corporations as well as individuals. The law allows non-U.S. citizens to bring tort actions in federal court for violating the “law of nations” concerning international human rights.

The case, on which the Supreme Court heard oral arguments last week, involves allegations that Royal Dutch “aided and abetted” human rights violations by the Nigerian government in the 1990s.

According to the plaintiffs' filing, the law was designed to avoid potential diplomatic problems if the civil actions were decided in state courts, which were regarded as being more partial than their federal counterparts.

In 2010, a three-judge panel of the 2nd U.S. Circuit Court of Appeals ruled that the law does not apply to corporations, partially overturning a lower court ruling.

In that ruling, Judge Jose A. Cabranes noted that the law largely was dormant until 1980, when plaintiffs tapped it to pursue allegations of human rights violations outside the United States in U.S. courts. “No corporation has ever been subject to any form of liability (whether civil, criminal or otherwise) under the customary international law of human rights. Rather, sources of customary international law have, on several occasions, explicitly rejected the idea of corporate liability,” he wrote.

Mrs. Kiobel, the widow of an activist hanged by the Nigerian government, appealed to the Supreme Court and had the backing of the Obama administration, which filed an amicus brief supporting her position that corporations should be subject to the 1789 law.

“Courts may recognize corporate liability in actions under the ATS as a matter of federal common law,” Solicitor General Donald B. Verrilli Jr. wrote in the government's brief. “The text and history of the AFS itself provide no basis for distinguishing between natural and juridical persons. Corporations have been subject to suit for centuries, and the concept of corporate liability is a well-settled past of our "legal culture.'”

In its brief supporting Royal Dutch, the U.S. Chamber of Commerce viewed the matter differently.

Robin S. Conrad, executive vp of the National Chamber Litigation Center Inc., which handles litigation for the chamber, wrote that the chamber agrees with Royal Dutch that “corporate ATS liability for the offense alleged here does not comport with customary international law. But even if the question were close, the "practical consequences' of such a regime would counsel against its adoption.”

Practical consequences, the chamber argued, include ATS-based suits against corporations that are “often based on nothing more than allegations” that the companies did business in countries where human rights abuses occur; that ATS suits hurt not only corporations but the countries in which they do business as well; and that ATS liability can hurt the U.S. domestic economy by discouraging foreign investment.

Observers say the high court's decision could significantly affect corporate liability for U.S. companies.

“I think it is a significant moment,” said Paul Regan, associate professor of law at Widener University School of Law in Wilmington, Del., who attended the oral arguments. “The Alien Tort Statute has been a source of litigation in other settings, but the big question has always been, "Can you use it against corporate defendants?'”


“American businesses that are involved in operations around the world have this open question: Are we somehow exposed to claims based on human rights violations by local governments or military figures? It's a risk management issue in terms of operations and compliance with your own policies,” he said. “With the uncertainty being if our own policies aren't followed, is it not just a business problem but a legal liability issue as well?”

Richard Samp, chief counsel of the Washington Legal Foundation, noted that even if Royal Dutch prevails, individual corporate officers still could be sued for alleged complicity in human rights abuses. But he said plaintiffs' aim in such cases is not so much to go after officers as to “highlight conditions in Third World countries and try to shame businesses to pull out of those countries.”

“The allegations are of the most heinous crimes,” said Anne Cohen, a partner in the New York office of Debevoise & Plimpton L.L.P., who wrote a brief supporting Royal Dutch on behalf of the Product Liability Advisory Council Inc. “I think companies take this very seriously. Even if they are dismissed or even if they are eventually won, they are very expensive to defend” and damage companies' reputations, she said.

During oral arguments last week, Supreme Court Associate Justice Samuel Alito asked, “What business does a case like that have in the courts of the United States?” But before the plaintiffs attorney could respond, Justice Alito said, “There's no connection to United States whatsoever.”

Justice Alito added that when the law was enacted, there appeared to be a consensus that that it was meant to prevent international tension. However, “this kind of a lawsuit only creates international tension,” he said.