The ATS’s Second Act: The Supreme Court Looks to Address the Unanswered Questions of Kiobel

by Foley Hoag LLP - Corporate Social Responsibility

Supreme CourtThe U.S. Supreme Court granted cert on April 22 in two important cases for the future application of the Alien Tort Statute (“ATS”) following its decision last week in Kiobel v. Royal Dutch Petroleum

As discussed in last week’s post, in Kiobel, the Supreme Court offered little guidance to litigants regarding what facts and circumstances would be sufficient to overcome the presumption against extraterritoriality in ATS cases. Yesterday’s orders indicate that the Supreme Court is looking to move forward in providing greater clarity on this issue.  Specifically:

  • In DaimlerChrysler v. Bauman, the Supreme Court is expected to explore the level of contacts needed to justify the exercise of personal jurisdiction in ATS cases over a foreign corporation (albeit one with significant financial, business, and administrative ties to the United States), and specifically whether a wholly-owned U.S. subsidiary can be used to create a territorial nexus between a foreign corporation and the United States sufficient to justify the exercise of jurisdiction.
  • In Rio Tinto PLC v. Sarei, the Supreme Court vacated the Ninth Circuit’s judgment regarding the presumption against extraterritoriality and remanded the case back to the Ninth Circuit “for further consideration in light of Kiobel.”

As noted by SCOTUSblog,

[t]he Court had been holding the DaimlerChrysler case until it decided the core question of whether ATS claims could be made when all of those involved were foreign nationals or entities, and the incidents occurred abroad – that is, virtually no U.S. connection.

In Kiobel, the Supreme Court did address this question and concluded the presumption against extraterritoriality closed the door on ATS suits that have no nexus to the United States, but it left a window open as to exactly what could rebut or displace the presumption in the event that a plaintiff could demonstrate a relevant connection to the United States “with sufficient force.” In so doing, although not directly answering the question of corporate liability, Chief Justice Roberts underscored that

Corporations are often present in many countries, and it would reach too far to say that mere corporate presence suffices.

Bauman offers a better opportunity than Kiobel to explore the issue of corporate presence. Unlike Kiobel, in which the Second Circuit focused primarily on the subject matter jurisdiction question of whether corporations could be found liable under the ATS, in Bauman the Ninth Circuit focused on personal jurisdiction questions and thus has provided the Supreme Court with a lengthy and detailed record of analysis of the minimum contacts between the defendant corporation and the forum (California).

The Bauman plaintiffs are twenty-two Argentinian residents “alleging that one of [DaimlerChrysler AG’s foreign] subsidiaries … collaborated with state security forces to kidnap, detain, torture, and kill the plaintiff’s and/or their relatives during Argentina’s ‘Dirty War.’” The district court dismissed the case for lack of jurisdiction, reasoning that there was no agency between DaimlerChrysler AG (DCAG) and its wholly owned U.S. subsidiary, Mercedes-Benz USA, and that the exercise of jurisdiction in California was not fair and reasonable over the arguably foreign parent corporation based on the activities of a U.S. subsidiary.

The Ninth Circuit revived the case in 2011, reversing the district court’s decision that there was no agency and concluding that there was “no doubt that DCAG is subject to personal jurisdiction in California” on the ATS and Torture Victim Protection Act (“TVPA”) through, inter alia, its wholly-owned U.S. subsidiary, “and that the exercise of such jurisdiction is not only reasonable, but fair and just.”

As framed by Daimler Chrysler AG in its petition for cert, the question presented to the Court now is:

[W]hether it violates due process for a court to exercise general personal jurisdiction over a foreign corporation based solely on the fact that an indirect corporate subsidiary performs services on behalf of the defendant in the forum State.

The second ATS-related case of the day, Rio Tinto, also provides a proving ground for many of the questions raised but left unanswered by Kiobel, including whether an ATS claim can be based on aiding-and-abetting rather than the actions of a principal, the necessity — if any — of the exhaustion of local remedies, and how the presumption against extraterritoriality as articulated in Kiobel may be “displaced.”

As many noted before the Court’s call for rehearing in Kiobel, the lower court record in Rio Tinto is superior to that of Kiobel for many of these issues given that in Rio Tinto the Ninth Circuit had expressly questioned the extraterritorial application of the ATS where the claim is grounded in exclusively foreign conduct by foreign actors and where there was no exhaustion of local remedies. The Rio Tinto majority’s holding that permitting lawsuits under the ATS for transitory torts does not violate the presumption against extraterritoriality has certainly been undermined by Kiobel, and corporations will be watching closely the Ninth Circuit’s application of Kiobel’s less-than-clear discussions of the presumption.

As Justice Kennedy’s prescient concurrence underscored, Kiobel was “careful to leave open a number of significant questions regarding the reach and interpretation of the [ATS].” Bauman and Rio Tinto should be seen as the beginning of the follow-on litigation to Kiobel that will — hopefully — tease-out the answers to these questions over the coming years.


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Foley Hoag LLP - Corporate Social Responsibility

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