SCOTUS Further Narrows Parent Corporate Liability under the Alien Tort Statute: Ambiguities and Evidentiary Thresholds in the June 2021 Judgment in Nestle USA Inc. v. Doe et al.

Introduction

On June 17, 2021, the Supreme Court of the United States issued its decision in Nestle USA, Inc. v. Doe, __ S. Ct. __ (2021), which involved six former child slaves (“Respondents”) who had been kidnapped and forced to work on cocoa farms in the Ivory Coast. Nestle USA, Inc. and Cargill, Inc. (together, “Petitioners”) purchased, processed, and sold cocoa derived from these farms while providing the farm owners with technical and financial resources in exchange for the exclusive right to purchase their cocoa. The Respondents sued the Petitioners under the Alien Tort Statute (“ATS”), which provides U.S. courts with jurisdiction to review “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.” The issues presented to the Court were twofold: (1) whether the Respondents sufficiently pled facts of domestic conduct to overcome the Court’s presumption against extraterritorial application of the ATS, and (2) if so, whether U.S. corporations such as the Petitioners are exempt from ATS lawsuits. Without deciding issue two, the Court ruled in favor of the Petitioners and dismissed the case on issue one because the Respondents failed to sufficiently plead facts of domestic conduct to support their ATS claim.

Procedural Background

In 2010, the Respondents sued the Petitioners in the U.S. District Court, Central District of California, alleging that Nestle and Cargill aided and abetted child slavery on the Ivory Coast cocoa farms. The Respondents specifically alleged that the Petitioners made operational decisions in the United States to perpetuate the child slavery scheme by providing the farm owners with technical and financial resources to maintain an exclusive buyer-seller relationship. The District Court dismissed the suit because the Respondents’ claims did not fall under the jurisdictional scope of the ATS. On appeal, the Ninth Circuit reversed the District Court, finding that it had jurisdiction to review the case because the Petitioners’ conduct was relevant to the ATS’s focus and because many federal cases had recognized ATS suits against U.S. corporations. On September 25, 2019, the Petitioners filed a writ of certiorari to the Supreme Court of the United States to review whether the Respondents sufficiently pleaded facts of domestic conduct to support their ATS claim and whether U.S. corporations could be namable defendants under the ATS. On July 2, 2020, the Supreme Court granted certiorari to review both issues.

The Supreme Court’s Decision in Nestle

In an eight-to-one decision with respect to issue one, Justice Thomas, writing for the majority in which Chief Justice Roberts and Justices Breyer, Sotomayor, Kagan, Gorsuch, Kavanaugh, and Barrett joined, held that the former child slaves failed to sufficiently plead facts of domestic conduct to support their ATS claim. The Court had previously held in Kiobel v. Royal Dutch Petroleum Co., 569 U.S. 108 (2013) that the ATS was subject to a “presumption against extraterritoriality,” which provides that “[w]hen 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. A U.S. corporation’s “mere corporate presence” in the United States does not involve enough of a domestic nexus to overcome the presumption. But if the U.S. corporation’s conduct relevant to the ATS’s “focus” occurred in the United States, then the case involves a permissible domestic application even if other conduct occurred abroad. RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2101 (2016). Based on these standards, the Court in Nestle held that the Respondents impermissibly sought extraterritorial application of the ATS and dismissed the case because the Respondents pleaded no more than “general corporate activity” in the United States. The Petitioners’ conduct in the United States, such as making “operational decisions” over the Ivory Coast cocoa farms, did not draw a sufficient connection with the domestic conduct relevant to the ATS’s focus. Thus, the Court concluded that “[t]o plead facts sufficient to support a domestic application of the ATS, plaintiffs must allege more domestic conduct than general corporate activity.”

U.S. Corporate Immunity was not Resolved

Regarding the second issue, the Court did not resolve the question of whether U.S. corporations are immune from suit under the ATS. Instead, the Court dismissed the Respondents’ lawsuit on the first issue. However, a majority of the Justices stated in separate concurring opinions that U.S. corporations are not exempt from ATS lawsuits. In his concurring opinion in which Justice Alito joined in part, Justice Gorsuch stated that “[n]othing in the ATS supplies corporations with special protections against suit,” and that “the ATS has never distinguished between [individual and corporate] defendants.” Justice Gorsuch noted that the ATS’s text does not exempt U.S. corporations from being a namable defendant and that actions for torts against U.S. corporations and other legal entities such as ships have long been recognized in the United States.  Similarly, in her concurring opinion in which Justices Breyer and Kagan joined, Justice Sotomayor stated 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.” As she previously explained in her dissent in Top of Form

Jesner v. Arab Bank, PLC, 138 S. Ct. 1386 (2018), the text, history, and purpose of the ATS, as well as the long and consistent history of corporate liability in tort, confirmed that tort claims for law-of-nations violations could be brought against corporations under the ATS. Although the opinions of these five Justices are not binding law, they are nevertheless telling as to the Court’s view on issue two. At minimum, the Court did not categorically foreclose ATS lawsuits against U.S. corporations like it did against foreign corporations in Jesner v. Arab Bank, PLC, 138 S. Ct. 1386 (2018), as Doori Song has previously shown here.

Nestle and the Future of ATS Litigation

With its opinion in Nestle, the Supreme Court again narrowed the jurisdictional scope of the ATS. When the Court first reviewed the ATS’s scope in Sosa v. Alvarez-Machain, 542 U.S. 692 (2004), the Court held that the ATS was a jurisdictional statute that created no new cause of action other than for claims involving three principal offense that were commonly accepted as violations of international law when the ATS was enacted in the eighteenth century: (1) offenses against ambassadors, (2) violation of safe conducts, and (3) piracy. Courts could only exercise judicial discretion to recognize a new cause of action other than for these three in narrow circumstances. The Court further narrowed the ATS’s scope in Kiobel v. Royal Dutch Petroleum Co., 569 U.S. 108 (2013) where it held that the ATS cannot be applied extraterritorially unless the ATS claims sufficiently “touch and concern” the territory of the United States. The Court further discussed the domestic application of the ATS in RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2101 (2016), where it held that the ATS only applies where the defendant’s conduct relevant to the ATS’s “focus” occurred in the United States.

With respect to corporate defendants, the Court stated in Kiobel that “mere corporate presence” in the United States is not sufficient domestic conduct. The Court then categorically foreclosed ATS litigation against foreign corporations in Jesner v. Arab Bank, PLC, 138 S. Ct. 1386 (2018). Although the Court in Nestle did not exempt domestic corporations from ATS lawsuits like it did for foreign corporations in Jesner, the Court nevertheless limited the scope of ATS claims against U.S. corporations to those that plead more domestic conduct than “general corporate activity.” Thus, to sufficiently plead an ATS claim against a U.S. corporation, the corporation’s domestic conduct must consist of more than merely being “present” in the United States and more than “general corporate activity.” The Court did not define the meaning of “mere corporate presence” or “general corporate activity,” but based on its opinion in Nestle, “general corporate activity” includes making “operational decisions” in the United States and providing offshore contractors with technical and financial resources in return for an exclusive buyer-seller relationship.

What remains ambiguous from the Nestle decision is the scope of conduct that is “more than general corporate activity”, including “operational decisions”.  The Court did not delve into the intricacies of the parent-subsidiary relationship (including how they are regarded with respect to overlapping areas of foreign law in other jurisdictions), and what the scope of such “operational decisions” could mean to differentiate between routine or general corporate activity as opposed to a higher threshold of activity.  The Court also did not discuss what the “due diligence” or the legal duty of care is of the corporate parent relative to the subsidiary (even for purposes of understanding the scope of “general corporate activity”), as to make the conduct (action) or omission (failure to act) of the subsidiary either directly imputable to the corporate parent, or at the very least, render a corporate parent negligent for failing to observe its own independent legal responsibilities under its due diligence towards the subsidiary and its stakeholders.  The Court also exclusively focused its interpretive lens to ATS claims in U.S. courts, without considering the wider trajectory of the interpretation of the due diligence responsibilities of the parent corporation over subsidiaries in foreign jurisdictions such as the United Kingdom in landmark cases of Vedanta v. Lungowe and as Okpabi v. Royal Dutch Shell decided by the UK Supreme Court, among other key jurisdictions in business and human rights litigation.

Arguably the most concerning implication of Nestle is that a U.S. corporation may avoid ATS liability even if it has actual knowledge that its offshore contacts violate international law. So long as the U.S. corporation’s domestic conduct relating to the violation consists of no more than general corporate activity, the U.S. corporation would likely be safe from ATS lawsuits. This standard post-Nestle raises concerns because U.S. corporations now have little incentive to take corrective action upon discovering that their offshore activities violate international law. Many U.S. corporations are linked with numerous instances of human rights violations involving labor abuse, slavery, extrajudicial kills, pollution, and war crimes; now these corporations may openly acknowledge these violations, do nothing to stop them, and still avoid ATS liability. To sufficiently plead an ATS claim against a U.S. corporation following Nestle, plaintiffs should identify any corporate conduct in the United States performed outside the ordinary course of business. That remains open for litigation and future judicial interpretation in the United States.