United States: U.S. Supreme Court Rejects Extraterritorial Application Of The Alien Tort Statute To U.S. Companies

On Thursday, the U.S. Supreme Court ruled in favor of two U.S. corporations¹-Nestlé USA and Cargill-accused of aiding and abetting forced child labor in Ivory Coast in violation of the Alien Tort Statute (ATS)-a 1789 statute that grants federal district courts jurisdiction over civil claims by aliens for "violation[s] of the law of nations or a treaty of the United States."²

In an 8-1 ruling, the Supreme Court held that the Ninth Circuit improperly allowed plaintiffs' claims to proceed where plaintiffs did not allege sufficient relevant conduct in the United States to give rise to ATS jurisdiction.

Writing for the majority, Justice Clarence Thomas pointed out that "nearly all" of the conduct alleged by plaintiffs to aid and abet forced labor-providing technical and financial resources to cocoa bean suppliers in Ivory Coast in the form of training and cash-occurred outside the United States.

Conversely, the companies' domestic activities-purchasing and financing decisions that plaintiffs described as "major operational decisions," but Justice Thomas considered "general corporate activity"-could not alone establish domestic application of ATS.

The Supreme Court's decision in Nestlé and Cargill is the latest in a series of decisions limiting the extraterritorial application of the ATS for any corporate activity conducted overseas.

In Kiobel v. Royal Dutch Petroleum Co., 569 U.S. 108 (2013), the Court rejected extraterritorial application of the ATS to plaintiffs' corporate aiding and abetting claims where almost all of the conduct complained of occurred abroad, and the defendant was a foreign corporation.³ Writing for the majority, Chief Justice John G. Roberts Jr. stated that "[e]ven where the claims touch and concern the territory of the United States . . . they must do so with sufficient force to displace the presumption against extraterritorial application."⁴

Later, in Jesner v. Arab Bank, the Court ruled in favor of a Jordanian bank accused of processing financial transactions through a New York branch for groups linked to terrorism.⁵ The Court held that foreign corporations could not be sued in federal courts under the ATS, and cautioned that creating a new cause of action under the ATS would necessarily have foreign policy implications and interfere with the role of the executive branch.⁶

Notably, the Court did not directly address the question of whether domestic corporations could be sued at all under the ATS, a question left open by Jesner and raised in subsequent ATS suits including Doe v. Cisco Sys. (currently awaiting decision in the Ninth Circuit pending the outcome of the Nestle and Cargill cases).

Justice Gorsuch, writing in concurrence, noted this omission. While he agreed with the outcome of the decision, and that the ATS should not permit the judiciary to create new causes of action, Justice Gorsuch (and four other Justices) concluded that corporations should be treated no differently than natural persons for ATS purposes.

The Court's decisions in Nestlé and Cargill provide relief for U.S. corporations doing business overseas. Although the Court has not wholly foreclosed the possibility of ATS jurisdiction for domestic corporations, consistent with its decisions in Kiobel and Jesner, the Court has significantly limited the scope of ATS jurisdiction for corporate conduct overseas. Extraterritorial conduct such as providing training or financing to overseas suppliers will not give rise to federal jurisdiction under the ATS. Nor will general corporate activity occurring in the United States, such as decision-making or financing, establish domestic application of ATS for aiding and abetting or corporate complicity claims, which comprise the bulk of overall ATS claims. Moreover, the Court's limited view of the role of the judicial branch in adjudicating alleged violations of international law occurring overseas versus the legislative or executive branch will likely continue to narrow the scope of ATS litigation for the foreseeable future.

Footnotes

1. Nestle USA, Inc. v. DOE et al., No. 19-416 (U.S. June 17, 2021).

2. 28 U.S.C. § 1350.

3. 569 U.S. 108 (2013).

4. 569 U.S. at 124-25.

5. 584 U.S. __ (2018).

6. Id. at 18-19.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.