This article has been written by Vibha Oswal pursuing the Diploma in US Corporate Law and Paralegal Studies from LawSikho. This article has been edited by Amitabh Ranjan (Associate, LawSikho) and Dipshi Swara (Senior Associate, LawSikho).
The Supreme Court of the United States (“SCOTUS/ Court”), on 17th June 2021, issued its decision in Nestle USA, Inc. v. Doe et al (together with Cargill, Inc. v. Doe et al.), wherein the question placed before the court was whether corporations are liable for human rights violation under the Alien Tort Statute (“ATS”) was placed before the Court. The ATS, inter alia, provides courts in the United States with the power to examine “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.” This article will discuss in brief the decision of the Court and its implications vis-à-vis the concept of parent corporate liability under the ATS.
Concept of parent corporate liability
In simple terms, parent corporate liability means cases in which a parent corporation may be held liable for the acts of its subsidiaries. For such a claim to succeed, one needs to prove that the parent company exercises complete control over the acts of the subsidiaries. In the absence of such control, a parent company cannot be made liable for the acts of its subsidiaries.
The case revolves around the actions of two corporations based in the United States, namely Nestle and Cargill (“Petitioners”) with respect to cocoa farms situated in the Ivory Coast. It was alleged that the Petitioners were guilty of abetting and aiding child slavery on the cocoa farms of Ivory Coast, as they were providing the farm owners who engaged child slaves with technical and financial resources. The Respondents i.e., the six former child slaves (“Respondents”) had sued the Petitioners in the US District Court for the Central District of California in the year 2005, however, the District Court dismissed the case on jurisdictional grounds in the year 2010. Thereafter, the Respondents filed an appeal before the Ninth Circuit, which reversed the decision of the District Court and held that in light of the principles laid down in RJR Nabisco, Inc. v. European Community, ATS would be applicable in the present case as the Petitioner’s conduct in the US was relevant to the ATS’s focus i.e., a tort which is in violation of international norms (here abetment and aiding of child slavery). In 2019, the Petitioners appealed to SCOTUS.
- Whether the Respondents adequately pled facts pertaining to the Petitioners’ conduct in the United States to overcome the Court’s presumption against extraterritorial application of the ATS; and
- Whether U.S. corporations are exempt from corporate liability for human rights violations under ATS.
The Court in determining the said issues replied upon the following rule:
The rule for determining whether a statute can be applied extra-territorially, laid down by the Court in RJR Nabisco, Inc. v. European Community, which states that the Court in determining such claims, should first presume that all statutes are domestic in nature unless expressly stated otherwise in the statute itself. Once the presumption stands true, the Court should determine whether the plaintiff has pled sufficient facts to show that the conduct in question occurred in the United States. In case, the plaintiff fails to state such facts, then the statute cannot be applied extraterritorially.
- Whether the Respondents adequately pled facts pertaining to the Petitioners conduct in the United States to overcome the Court’s presumption against extraterritorial application of the ATS?
The Court, with respect to the above issue, by an eight-to-one decision held that the Respondents failed to pled sufficient facts of domestic conduct to overcome the presumption of extraterritorial application of the ATS applied by the Court. The Court in reaching the above conclusion relied on the two-step framework laid down by the Court in RJR Nabisco, Inc. v. European Community for analysing extra-territorial issues, which states as under:
“First, we presume that a statute applies only domestically, and we ask whether the statute gives a clear, affirmative indication that rebuts this presumption; and Second, where the statute does not apply extraterritorially, plaintiffs must establish that the conduct relevant to the statute’s focus occurred in the United States.”
In addition to the above test, the Court also applied the “touch and concern” test laid down by it in Kiobel vs. Royal Dutch Petroleum Co., which provides that “when a statute gives no clear indication of an extraterritorial application, it has none unless the claims touch and concern the territory of the United States with sufficient force to displace the presumption.”
While opening on the first step, the Court relied on the decision given by it in Kiobel v. Royal Dutch Petroleum Co., which upheld that “ATS does not rebut the presumption of domestic application and therefore, does not apply extra-territorially.” On the second step, the Court determined whether in the present case, the Respondents established that the conduct of the Petitioner in the US was relevant to the ATS’s focus or not. The Court answered in negative and opined that “nearly all the conduct they allege aided and abetted forced labor: providing training, equipment, and cash to overseas farmers occurred in Ivory Coast. Pleading general corporate activity, like mere corporate presence does not draw a sufficient connection between the cause of action respondents seek and domestic conduct. To plead facts sufficient to support a domestic application of the ATS, plaintiffs must allege more domestic conduct than general corporate activity common to most corporations.”
In light of the above and the tests laid down by the SCOTUS, the Court dismissed the case on the ground that ATS was not applicable without opining on the 2nd issue.
- Whether U.S. corporations are exempt from corporate liability for human rights violation under the ATS?
The Court did not address the question of whether U.S. Corporations (such as Nestle and Cargill) are liable under the ATS or not, as the case was dismissed based on the 1st issue. However, five out of eight judges in their separate opinions stated that U.S. Corporations are not exempt from liability under ATS.
Justice Gorsuch in his concurring opinion stated that “Nothing in the ATS supplies corporations with special protections against the suit. The statute specifies which plaintiffs may sue (“alien[s]”). It speaks of the sort of claims those plaintiffs can bring (“tort[s]” in “violation of the law of nations or a treaty of the United States”). But nowhere does it suggest that anything depends on whether the defendant happens to be a person or a corporation.”
Further, in her concurring opinion, which is joined by Justice Breyer and Justice Kagan, Justice Sotomayor also answers this question in negative and states that “there is no reason to insulate domestic corporations from liability for law-of-nations violations simply because they are legal rather than natural persons.”
Justice Alito in his dissenting opinion, with respect to the issue in hand, also states that “for the reasons explained in Part I of JUSTICE GORSUCH’s opinion, which I join, I would hold that if a particular claim may be brought under the ATS against a natural person who is a United States citizen, a similar claim may be brought against a domestic corporation. See also ante, at 8, n. 4 (SOTOMAYOR, J., joined by BREYER and KAGAN, JJ., concurring in part and concurring in judgment). Corporate status does not justify special immunity.”
In light of the above opinions, even though the same cannot be construed as law, it appears that U.S. Corporations will not be exempted from the scope of the ATS, and an alien may make a claim against a U.S. Corporation under the ATS as long as it satisfies the tests laid down in RJR Nabisco, Inc. v. European Community, and Kiobel v. Royal Dutch Petroleum Co.
Other relevant case laws
Through the series of below-stated case laws, SCOTUS has narrowed the jurisdictional scope of the ATS.
Sosa v. Alvarez Machain
In this case, SCOTUS held that “ATS is a jurisdictional statute only and does not itself supply plaintiffs with a cause of action against those who violate international law.” The Court further held that “no new cause of action could be created under the ATS other than the claims recognized at the time of the ATS’s enactment—namely, violation of safe-conducts, piracy and infringement of the rights of ambassadors unless such new claims were violations of the present-day law of nations.”
Kiobel v. Royal Dutch Petroleum Co.
In this case, the Court held that “presumption against the extraterritorial applicability of statutes applies to the ATS”, and dismissed a suit filed against two foreign corporations who were accused of aiding and abetting atrocities committed by Nigerian officials because all relevant conduct occurred overseas and thus did not “touch and concern the territory of the United States.” The defendant companies’ mere physical presence in the United States—in the form of a New York office—was insufficient to overcome the presumption and satisfy that test.”
RJR Nabisco, Inc. v. European Community
The Court, in this case, while discussing the extra-territorial application of the ATS held that “ATS can only be applied extra-territorially when the plaintiffs establish that the conduct relevant to the statute’s focus occurred in the United States.”
Jesner v. Arab Bank
SCOTUS, in this case, further restricting the extraterritorial application of the ATS, held that “foreign corporations are categorically exempt from suit under the law.”
The decision is given by SCOTUS in Nestle USA, Inc. v. Doe et al. (together with Cargill, Inc. v. Doe et al.) lays down the test by which a corporation may be made liable under the ATS (i.e., by proving that the domestic conduct of such a corporation in the United State is more than (i) mere corporate presence; and (ii) general corporate activities.
However, the Court fails to determine what constitutes “domestic conduct than general corporate activity common to most corporations”, thereby making the decision ambiguous. The Court also failed to opine on the parent-subsidiary relationship and the duty of care that a parent company has towards its subsidiaries. The decision, indirectly further lays down that the U.S. Corporation is exempt from liability under the ATS, irrespective of having actual knowledge of a violation of international law norms if the petitioner fails to prove that the domestic activities conducted by the corporation in the United States are limited to general corporate activities.
Further, the Court through this decision has made it abundantly clear that the Court, under the ATS, does not intend to create any new causes of action and where, if the plaintiff requires such a cause of action to be created, the Court will refuse to exercise its discretion under the ATS. In light of the above, it will be interesting to see the manner in which courts in the United States determine what constitutes “domestic conduct than general corporate activity common to most corporations.”
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