[co-author: Scott Prior]

The Supreme Court of the United States (SCOTUS) has ruled in the case of Jesner v Arab Bank. On a 5:4 majority, the court ruled that foreign corporations are excluded from the scope of the Alien Tort Statute (ATS). This highly-anticipated decision means that foreign corporations can no longer be sued under the ATS, but SCOTUS made no finding with respect to US domiciled corporations. As a consequence, there remains no categorical answer to the question of whether corporations can or cannot be sued under the ATS.

The case

The plaintiffs, and persons on whose behalf they are claiming, were victims of terrorist attacks in Israel between 1995 and 2005. They alleged that, inter alia, Arab Bank – via its New York branch – processed and cleared U.S. dollar-denominated transactions that financed the terrorist acts and provided financial support for the families of terrorists, and that in doing so Arab Bank violated “the law nations“, giving rise to liability under the ATS.

The question before SCOTUS was whether corporations (as opposed to natural persons) could be held liable under the ATS – that question having been left unanswered by SCOTUS in its ruling in Kiobel v Royal Dutch Shell (2013). The plaintiffs in Jesner argued that the ATS extends to corporations and that recognising corporate liability was necessary to give effect to the purpose of the ATS. For their part, Arab Bank pointed, inter alia, to the lack of precedent for corporate liability in customary international law. For a more detailed analysis of the ATS, the parties’ positions and the issues to be tried, see our earlier blog post here.

The judgment

Justice Kennedy delivered the plurality opinion of the Court, conclusively determining that the ATS does not apply to foreign defendant companies. SCOTUS’ analysis flowed from the application of the two-part test laid down in Sosa v. Alvarez-Machain (2004) for the identification of admissible causes of action under the ATS, which grants U.S. federal 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. § 1350).

1. The first limb of the Sosa test is whether the alleged “violation of the law of nations” is of “a norm that is specific, universal and obligatory“. Justice Kennedy framed the question to be determined in this case as whether there is a specific, universal and obligatory norm that corporations are liable for violations of international law (see below on dissenting views of other Justices on this point).

Justice Kennedy made clear his own view (with which Justices Robert and Thomas concurred) that the international community does not yet universally recognise corporate liability for violations of international law. In support of this position, he cited inter alia the exclusion of corporations from the scope of modern and historical international tribunals. He recognised that some of the cases mentioned by the plaintiffs indicated that corporate liability may be permissible under international law in some circumstances, but argued that they fell short of creating a specific, universal and obligatory norm (in the sense required by Sosa).

However, the question was left unsettled by the Court, Justice Kennedy concluding that there was sufficient doubt on it that the Court should move on to the second part of the Sosa test.

2. The second question is whether allowing the case to proceed would be a proper and appropriate exercise of judicial discretion. The majority opinion on this question was determinative of the case – the Court concluding that the extension of liability under the ATS to foreign corporations should be a matter for Congress, rather than the judiciary, to decide.  The majority was particularly concerned with the foreign policy ramifications of extending liability under the ATS to foreign corporations, noting the effect that the present case had had on relations between the U.S. and Jordan (where Arab Bank is based). The Court considered that Congress was better placed to weigh the foreign policy implications of allowing suits to be brought under the ATS against foreign corporations.

Division in the Court

It is notable that the Supreme Court decided this case by a (narrow) majority verdict of 5:4. Justice Kennedy presented the opinion of the court; but even on the above points there were differing views among the Justices.  Although a majority position was achieved on the second limb of the Sosa test, which enabled the Court to decide the case, Justice Kennedy’s views on the first question (as to whether corporate liability is universally recognised in customary international law) did not get majority support.

Most revealing of the deep division in the Court is the lengthy dissenting opinion of Justice Sotomayor (joined by Justices Ginsburg, Breyer and Kagan), who strongly disagreed with both the Court’s decision and the analysis and application of the Sosa test on which the decision was based.

1. In relation to the first limb of the Sosa test, Justice Sotomayor criticised Justice Kennedy’s formulation of the question. The “norm” to be identified, she stated, is a substantive norm: what substantive prohibition is it being alleged that the defendant violated? In the opinion of the dissenting Justices, the question in this case should have been whether the conduct alleged (eg. the financing of terrorism) violated a norm of international law that was sufficiently “specific, universal and obligatory“. Whether the international community recognises that corporations can be held liable for violations of international law is a question of remedy and enforcement, which according to the dissenting Justices should not have been relevant to the application of the first limb of Sosa.
2. As to the second limb, Justice Sotomayor argued that the potential for international friction cited by the majority did not justify a blanket removal of all foreign corporations from the scope of the ATS, which she described as “using a sledgehammer to crack a nut“. To the extent that suits against foreign defendants can lead to international friction, that concern is better addressed via the presumption against extra-territoriality of the ATS affirmed in Kiobel, which requires a sufficient connection to the U.S. for an ATS action to be allowed to proceed, would enable the Court to deal with many cases that may be perceived to pose a risk to foreign relations.

Where does this leave the ATS?

SCOTUS’ decision turned on the foreign policy concerns cited above and conclusively determined that foreign corporations fall outside the scope of the ATS and can no longer be sued under that statute for violations of customary international law. While this much is clear, the judgment does leave some questions open as to the remaining scope of the ATS.

U.S. domiciled companies ostensibly remain within the scope of the ATS, but the impact, on claims against such companies, of Justice Kennedy’s comments on the first limb of Sosa (to the effect that corporate liability is not a norm of sufficiently “specific, universal and obligatory” application to found a cause of action under the ATS) remains to be seen.

And how does the Court’s decision interact with the extra-territorial presumption laid down in Kiobel requiring that claims should “touch and concern the territory of the United States… with sufficient force“? This will presumably still apply to claims under the ATS against foreign individuals.  What about claims brought against U.S. parent companies in respect of conduct by overseas subsidiaries (or other related parties)?

There is no doubt that the Supreme Court’s decision in Jesner represents a significant narrowing of the scope for human rights claims to be brought in the United States, but it may not be the end of the ATS just yet.

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