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Article: 9-0 Supreme Court Victory for Shell in Alien Tort Statute Case

May 01, 2013
Business Litigation Reports

In what The New York Times has called “the most important business decision of the current term,” Quinn Emanuel obtained a landmark 9-0 victory for Shell Oil in the U.S. Supreme Court in Kiobel v. Royal Dutch Petroleum Co., 569 U.S. __, 133 S. Ct. 1659 (2013). All nine Justices agreed that the Alien Tort Statute (“ATS”) and federal common law do not extend to allegations by Nigerian nationals that English and Dutch subsidiaries of Shell supposedly aided and abetted the Nigerian government’s human rights violations on Nigerian soil.

The Court’s ruling is a significant development for corporations (whether U.S. or foreign) that operate in foreign countries. Plaintiffs’ lawyers have filed some 245 ATS cases since 1980 based on allegations of foreign conduct—imposing significant costs and negative publicity on the corporate defendants who increasingly became the targets of such suits. With the ruling in Kiobel, the Supreme Court has dramatically curtailed the reach of the ATS, holding that it extends only to claims that “touch and concern the territory of the United States … with sufficient force to displace the presumption against extraterritorial application.” Kiobel will enable corporate defendants to obtain dismissal of many ATS suits now pending and will discourage the filing of new ones.

The ruling in Kiobel was the result of a bold and creative litigation strategy. The Second Circuit had held that the case against Shell required dismissal on the ground that ATS liability does not extend to corporations as opposed to natural persons, and the Supreme Court granted certiorari initially to review that question. Upon being retained as Supreme Court counsel, Quinn Emanuel recognized that the Second Circuit’s decision, while correct, might be difficult for the Supreme Court to sustain given that it had recently decided in Citizens United that corporations enjoy the same rights as natural persons in the campaign finance context. Quinn Emanuel therefore argued for affirmance both on the corporate liability ground and also the alternative ground that the ATS does not apply extraterritorially to conduct within a foreign nation’s borders. After oral argument, the Court took the rare step of setting the case for reargument on that alternative ground, which the Court heard on the first day of the October 2012 Term. That alternative argument is now the law of the land.

The Road to Kiobel: A 1789 Statute Is Resurrected in the Lower Courts
The ATS provides: “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.” 28 U.S.C. § 1350. The First Congress enacted the ATS as part of the Judiciary Act of 1789, in the wake of two incidents where foreign ambassadors or consuls suffered assaults on U.S. soil (one in Philadelphia, another in New York). The lack of recourse in federal courts for such incidents was viewed as an affront to foreign nations that might lead to international conflict or even war.

The ATS was invoked only three times before the Second Circuit’s 1980 decision in Filartiga v. Peña-Irala, 630 F.2d 876, which held that the ATS applied to a claim against a former Paraguayan official who had allegedly committed torture in Paraguay. Similar ATS cases followed, mostly alleging conduct on foreign soil. Because foreign governments are immune from suit, and individual perpetrators are often judgment-proof, plaintiffs’ lawyers increasingly named corporations as ATS defendants, alleging that they had aided and abetted human rights violations by foreign governments. While defendants obtained dismissal of many of these suits on personal jurisdiction, forum non conveniens and other grounds, it was commonly assumed that the ATS extended extraterritorially.

Sosa: The Supreme Court’s First Attempt to Limit the ATS
Almost a decade ago, the U.S. Supreme Court interpreted the ATS for the first time in Sosa v. Alvarez-Machain, 542 U.S. 692 (2004). The suit was filed against a Mexican individual defendant by a Mexican individual plaintiff who had allegedly been kidnapped and detained for one day on Mexican soil before being handed over to U.S. authorities. The Court observed that federal common law provides federal courts with authority to recognize certain causes of action as within ATS jurisdiction but held that such authority does not extend to “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” (namely, assaults against ambassadors, violation of safe conducts, and piracy). The Court further held that such a cause of action should be recognized only sparingly, taking into account the “practical consequences of making that cause available.” Applying this standard, the Court concluded that a short-term detention of one day did not support a cause of action under the ATS. Sosa involved conduct on foreign soil, but the Court did not address the issue of extraterritorial application of U.S. law in its decision.

Post-Sosa ATS Litigation in the Lower Courts
Despite Sosa’s newly-announced “high bar” to ATS cases, the ATS continued to spawn substantial litigation. Corporations increasingly complained that such lawsuits effectively imposed an unwarranted tax on doing business abroad, and several foreign nations complained that such suits were usurping those nations’ ability to regulate conduct within their borders. Faced with these ongoing ATS suits, corporate defendants sought dismissal through various means, invoking the Sosa standard, lack of personal jurisdiction, strict standards for aiding and abetting liability under international law, and the doctrine of forum non conveniens. Lower courts often adopted one or more of these grounds for dismissal but typically only after many years of litigation that took a toll on defendants in the form of both litigation cost and incendiary headlines.

The Kiobel Case
In 2002, a group of Nigerian nationals by then residing in the United States filed suit against Nigerian, English and Dutch Shell entities (the Nigerian entity was later dismissed for lack of personal jurisdiction) for allegedly aiding and abetting the Nigerian government in violently suppressing demonstrations against the Nigerian Shell entity’s oil-development efforts in the Ogoni region of Nigeria. The plaintiffs alleged, among other offenses, that Shell had aided and abetted torture, crimes against humanity, and arbitrary arrest and detention—all claims that the district court allowed to proceed as sufficiently definite under Sosa.

On appeal, the Second Circuit held that the ATS does not apply to corporations—a novel ruling that no other circuit has yet adopted. Writing for the court, Judge Cabranes held that the “law of nations,” as that term is used in the ATS, does not recognize corporate (as opposed to individual) responsibility for the offenses alleged. International human rights tribunals, for example, have never tried corporations for human rights violations. Judge Leval concurred separately in the result, reasoning that the law of nations does apply to corporations but that any aiding-and-abetting liability under international law requires a mens rea of purpose not knowledge and that purpose had not been adequately alleged. A divided Second Circuit denied rehearing en banc.

The Supreme Court granted the plaintiffs’ petition for certiorari, and Shell retained Quinn Emanuel to handle proceedings in the Court. In the initial briefing, Quinn Emanuel defended the Second Circuit’s no-corporate-liability holding, which is strongly supported by all relevant international-law and federal-common-law precedent, but argued as well that either of two alternative grounds would justify affirmance: that the ATS does not extend extraterritorially to conduct on foreign soil, and that the ATS does not extend to aiding-and-abetting claims. The U.S. Solicitor General, as amicus curiae, joined the plaintiffs in urging the Court to reverse the Second Circuit on the corporate-responsibility issue and not to reach the alternative grounds.

The case was argued in February 2012 by Quinn Emanuel name partner and appellate practice chair Kathleen Sullivan (partner Sanford Weisburst led the firm’s efforts on the briefs). The Justices’ questions at the argument focused largely on the extraterritoriality issue, and five days after oral argument, the Court issued an unusual order setting the case for reargument on the question “whether and under what circumstances the [ATS] allows courts to recognize a cause of action for violations of the law of nations occurring within the territory of a sovereign other than the United States.”

The parties proceeded to brief that question over the summer. Because no court had ever dismissed an ATS case based on the presumption against extraterritorial application of U.S. law, briefing the new question on Shell’s behalf required sweeping original research. Fifty amicus briefs were filed in this second round, in addition to the 86 filed in the first round. The U.S. Solicitor General now moved over to Shell’s side of the case, filing an amicus curiae brief in support of affirming the judgment of dismissal in the case because it involved foreign plaintiffs, foreign defendants and foreign conduct—a position that was influenced by the fact that the United States had argued, in earlier amicus briefs in Sosa and other cases, that the ATS and its related cause of action do not extend to conduct on foreign soil. Ms. Sullivan reargued the case for Shell in October 2012.

The Kiobel Decision
On April 17, 2013, the Supreme Court issued a decision unanimously affirming the Second Circuit’s judgment and holding that the suit against Shell must be dismissed. Chief Justice Roberts (joined by Justices Scalia, Kennedy, Thomas and Alito) adopted Shell’s position, writing for the Court that the presumption against extraterritorial application of U.S. law applies to the ATS, and that neither the text, history nor purpose of the ATS overcame the presumption in this case because “all the relevant conduct took place outside the United States.” Justice Breyer (joined by Justices Ginsburg, Sotomayor and Kagan) concurred in the result but would have upheld the dismissal of the suit on other grounds.

The long-standing presumption against extraterritorial application of U.S. law rests on the notion that the political branches are better suited than the judiciary to trigger potential tension between U.S. and foreign nations, a principle the Court reaffirmed in 2010 in the federal securities-law context in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010). As in Morrison, the Court held in Kiobel that Congress had evinced no clear intent to override the presumption. The text of the ATS does not mention conduct abroad, and the historical purpose of the statute was to provide redress for injuries suffered on U.S. soil (and perhaps piracy on international waters where no sovereign exists), not conduct that occurs within the borders of a foreign sovereign. Chief Justice Roberts explained that the ATS and its related cause of action cannot apply unless the plaintiffs’ claims “touch and concern the territory of the United States … with sufficient force to displace the presumption against extraterritorial application,” and held that they could not do so in a case where all the alleged conduct took place in Nigeria.

Justice Kennedy joined Chief Justice Roberts’s opinion but added a one-paragraph concurring opinion noting that future cases “may require further elaboration and explanation of the presumption against extraterritoriality.” Justice Alito (joined by Justice Thomas) filed a concurring opinion elaborating that, for an ATS claim to “touch and concern the territory of the United States … with sufficient force” to overcome the presumption against extraterritorial application of U.S. law, it must be predicated upon “domestic conduct … sufficient to violate an international law norm that satisfies Sosa’s requirements of definiteness and acceptance among civilized nations.” In other words, it will not suffice if the plaintiff relies on a combination of domestic and foreign conduct to make out an international law violation.

Justice Breyer’s concurrence in the result disagreed with the majority’s reliance on the presumption against extraterritoriality, reasoning that the ATS expressly refers to foreign matters in mentioning “alien[s]” and “the law of nations.” Instead, Justice Breyer would consult a multi-factored analysis drawn from the Restatement (Third) of Foreign Relations Law, finding ATS jurisdiction appropriate “where (1) the alleged tort occurs on American soil, (2) the defendant is an American national, or (3) the defendant’s conduct substantially and adversely affects an important American national interest, and that includes a distinct interest in preventing the United States from becoming a safe harbor (free of civil as well as criminal liability) for a torturer or other common enemy of mankind.” Finding none of these factors satisfied, Justice Breyer agreed with the Court’s conclusion that the ATS does not extend to a case involving only foreign defendants and foreign conduct.

The ATS After Kiobel
Going forward, Kiobel eliminates ATS jurisdiction in virtually any “foreign cubed” case involving foreign plaintiffs, foreign defendants and alleged foreign conduct. But it also will likely rule out most ATS suits against “foreign squared” cases involving U.S. corporations, foreign plaintiffs and alleged foreign conduct. In relying on the presumption against extraterritorial application of U.S. law, Kiobel focuses on where the relevant conduct occurred, not on the nationality of the defendant. And Kiobel expressly rejected “mere corporate presence” in the United States as sufficient to trigger ATS jurisdiction. Thus, while plaintiffs may attempt in future cases to allege that relevant conduct took place within the United States, the mere fact that a defendant company is incorporated in the United States or maintains operations here will not be enough for an ATS claim to overcome the presumption against extraterritoriality. Moreover, few cases that center on conduct abroad will be able to satisfy Kiobel’s “touch and concern the territory of the United States … with sufficient force” standard—especially if the standard is applied, as Justice Alito suggests, to require that the U.S. conduct itself violate specific and definite international law norms, apart from any alleged foreign conduct.

Because Kiobel thus forecloses nearly all cases under the ATS that stem from conduct on foreign soil, plaintiffs will likely seek to bring such claims under theories other than the ATS. For example, plaintiffs may frame their claims as arising under the law of the foreign nation, international law, or state law; they may seek to pursue such claims in state court or, if alien diversity jurisdiction is available, in federal court. Faced with such cases, defendants will have to invoke different grounds for dismissal, such as personal jurisdiction and forum non conveniens. For example, in Palacios v. The Coca-Cola Company, 499 F. App’x 54 (2d Cir. 2012), plaintiffs filed purely state-law claims concerning conduct in Guatemala; Quinn Emanuel, representing The Coca-Cola Company, successfully obtained dismissal of the case from federal district court in favor of a Guatemalan forum, and the Second Circuit affirmed.

Thus, while some avenues may remain for plaintiffs to file suit in the United States arising from conduct abroad, plaintiffs no longer will be able to invoke the specter of a “law of nations” violation under the ATS and federal common law, with the considerable cost and negative publicity that such a claim tends to bring even when the suit is ultimately proven meritless. Quinn Emanuel is proud to have achieved this landmark result, and we stand ready to represent corporate defendants in future cases calling for strategic and sensitive responses to allegations of wrongdoing abroad.