Holding Foreign Corporations Liable In US Courts Might Impact American Corporate Investments In Developing Economies: SCOTUS [Read Judgment]

The recent decision by the Supreme Court of the United States (SCOTUS) in the case of Jesner et al. v. Arab Bank, PLC has further restricted the scope of holding foreign corporations liable in the Federal Courts of the United States under the Alien Torts Statute (ATS). The ATS is part of the Judiciary Act of 1789 which provides that “The district courts shall have original jurisdiction of 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.” In plain language, this law means that aliens (non-US citizens) have a right to bring claims within the Federal Courts of the United States for certain violations of international law. The plaintiffs in the Jesner case were victims of terrorist activities which were committed outside the jurisdiction of the United States (in the Middle East) and these terrorist activities were in part caused or facilitated by the respondent Arab Bank, PLC, a Jordanian bank with a branch in New York. The victims claimed that the bank’s New York branch facilitated the financial transactions through the Clearing House Interbank Payments System (CHIPS) which was used to launder money for a charity based in Texas which had connections with Hamas. The Supreme Court in a 5-4 vote reaffirming the decision of the U.S. Court of Appeals for the Second Circuit’s dismissed the case and held that the US Federal Courts are not available to aliens for actions against foreign corporations.

The scope of ATS has been hotly contested in two earlier cases. In the case of Sosa v. Alvarez-Machain, the SCOTUS held that only when “specific, universal and obligatory” international norms are violated only then such claims will be pursued under the ATS. Similarly, in 2013, the SCOTUS in Kiobel v. Royal Dutch Petroleum held the “presumption against extraterritoriality applies to [ATS] claims” and that the claims must “touch and concern the territory of the United States . . . must do so with sufficient force to displace” the presumption against extraterritoriality. Riding on the jurisprudence laid down by these two precedents, the majority opinion did not allow foreign corporations to be defendants in the ATS suit in Jesner. But the attempt in this article will be to evaluate how the SCOTUS read the impact on “developing economies” as a reason for not allowing foreign corporations to be held liable in US Courts. This is important because the SCOTUS used corporate investment in developing economies as a reason for not holding foreign corporations liable in the courts of law of United States. The majority and the minority opinion were delivered by Kennedy J. and Sotomayor J. respectively.

Kennedy J. writing for the majority conservative opinion held that the if foreign aliens can sue foreign corporations, who have an American connection, under the ATS then a dangerous trend can develop where American corporations will be discouraged from investing in developing economies especially where the governments are allegedly involved in human rights abuses or the host country lacks proper judicial forums and legal protections. He goes on to add that, discouragement of active corporate investment in developing economies directly hinders economic development of the host state and prevents establishment of human rights. Kennedy J. supports his argument by quoting from the Brief for United States as Amicus Curiae in American Isuzu Motors, Inc. v. Ntsebeza, [O. T 2007, No. 07–919, p. 20] where it was argued that holding foreign corporations liable under the ATS would expose American corporations to instant and continuous peril of claims seeking huge liability which  in turn would “hinder global investment in developing economies, where it is most needed.” Sotomayor J. disagreeing with Kennedy J. replied that there is “no evidence to support the alarmist conjectures” of the majority opinion and dismissed the entire argument as a “hypothetical worry”. She discredits the Isuzu caselaw quoted by the majority by highlighting how the “case was concerned with the availability of civil aiding and abetting liability, not corporate liability generally”.

The debate surrounding whether ATS suits against foreign corporations negatively impact the operations of American Corporations seems to be highly erroneous. It is improbable that an ATS lawsuit will “discourage” big multinational corporations from investing abroad in “developing economies”. In a competitive price sensitive globalized economy, the flow of capital is not restricted by national boundaries and rarely, if at all threatened by the possibility of future ATS lawsuits. This is true especially considering that no ATS lawsuit has ever succeeded. US corporations have acted as a major force of economic development in certain circumstances, but we should not forget that many US corporations have also been linked to major human rights violations. Realisation of human rights through corporate investments seems to be a paradox considering that we are living in times of­­ – in Prof. Baxi’s words – “human rights markets recession.” The important point is that a culture of corporate accountability which was evolving after the arrival of the United Nations Guiding Principles on Business and Human Rights has taken a big blow with this decision. It only stands to reason that errand corporation should be held liable for wrongdoings and efforts should be made to deter corporate impunity regarding violation of human rights. The SCOTUS has virtually closed all avenues for holding foreign corporations responsible for the wrongs committed in a foreign land on the ground of protection of American corporate interest. This has done an irreparable damage to the cause of harmonization of Business and Human Rights.

Justin Jos is a PhD student in Business and Human Rights at University of New South Wales, Sydney. He is also associated with the Australian Human Rights Institute, UNSW.