Corporate Liability Debate still Alive and Kicking in US Courts

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While various bodies of the UN continuously work on the issue of the human rights law obligations of multinational corporations, the US courts have been grappling with the question as to whether such entities can be held liable for violations before domestic courts. While some observers lamented the death of the corporate liability debate following the 2013 Supreme Court decision Kiobel II, it appears that the discussion is still very much alive. Continuous disagreement among US courts shows that corporate liability for human rights violations is a complicated issue, as a matter of both domestic and international law.

The Arab Bank Case

In December 2015, a panel of the US Court of Appeals (Second Circuit) ruled on the case of Arab Bank, which concerned claims brought against Arab Bank PLC for its alleged role in financing and facilitating armed attacks that took place in Israel between January 1995 and July 2005. The plaintiffs alleged that Arab Bankʹs involvement with payments to the families of ‘martyrs’ incentivized and encouraged suicide bombings and other killings that harmed the plaintiffs. In its judgment, the Second Circuit confirmed the position taken in Kiobel I (2010), in which it held that corporations cannot be held liable under the Alien Tort Statute (ATS, 28 U.S. Code § 1350).

Arab Bank was heard by a different panel of the same Court of Appeals that had issued Kiobel I. The panel struggled in deciding whether to follow the Court’s own precedent (Kiobel I) or the subsequent Kiobel II decision of the Supreme Court. In that much-debated decision, the Supreme Court affirmed Kiobel I, but on different grounds, namely that a presumption against extraterritoriality applies to ATS cases, without discussing the original question of corporate liability. The Arab Bank panel identified several ways in which Kiobel II had “cast a shadow on Kiobel I”. It nevertheless decided to follow its own precedent in Kiobel I and left it to “either an en banc sitting of [the Second Circuit] or an eventual Supreme Court review to overrule Kiobel I”.

The latest development occurred on 9 May 2016, when seven of the thirteen judges of the Second Circuit rejected a petition for an en banc review of the Arab Bank case. The order denying rehearing en banc included four separate opinions revealing a highly divided court. The profound differences within the same Circuit, as well as discontent with Kiobel I voiced by the Ninth Circuit, the D.C. Circuit, and the Seventh Circuit, suggest that corporate liability for human rights violations under the ATS is still a contested issue.

Between Kiobel I and Kiobel II

The Arab Bank decision on appeal acknowledged discrepancies between Kiobel I and Kiobel II, although the Supreme Court affirmed the former in the latter: “Kiobel II appears to suggest that the ATS allows for some degree of corporate liability”. In holding that “mere corporate presence is insufficient” to establish liability, the Supreme Court implied that corporations were not categorically immune from suit under the ATS. Indeed, as the Arab Bank decision on appeal put it, “corporate presence in combination with some factual allegations is sufficient – so jurisdiction over ATS suits against corporations is sometimes proper”. The Arab Bank panel also warned against the risk that the two Kiobel decisions may “work in tandem to narrow federal courts’ jurisdiction under the ATS” and “put aggrieved potential plaintiffs in a very small box”.  Finally, the panel also noted the growing consensus among other circuits that the ATS allows for corporate liability suggesting all in all that “something may be wrong with Kiobel I”.

The Arab Bank court refused to consider whether the case would have passed the threshold of Kiobel II. It was noted that an assessment of the case under Kiobel II would require a complex and fact-intensive analysis concerning the territorial presence of the corporation. Such an analysis, however, would be superfluous as long as Kiobel I were fully left intact: “if Kiobel I were correctly decided, there would be no reason to (…) probe into the complex and fact-intensive issues of corporate presence (…). If the bright-line rule is that corporations may not be sued under the ATS”, there would be no reason to engage in a Kiobel I type analysis.

The Way Forward

Apparently, international law does not work the way Kiobel I suggested; a fact that the judges of the Second Circuit recognised. In her dissenting opinion to the order denying en banc review of Arab Bank, Judge Pooler noted that “from the very outset, the panel majority [in Kiobel I] erred by framing the question in the wrong way when they asked whether there is a ‘norm of corporate liability under customary international law’”. Before Kiobel I, the existence of such a norm was simply assumed (examples here, here and here), but in that decision the Second Circuit held that “no international tribunal (…) has ever held a corporation liable for a violation of the law of nations”. According to the Court, “the relatively few international law treaties that impose particular obligations on corporations” do not establish corporate liability as a “specific, universal, and obligatory” norm of customary international law, as required for applicability of the ATS. The Court was searching for a general norm of corporate liability that would apply regardless of the particular international law violation alleged. Both the Arab Bank decision on appeal, as well as Pooler’s dissenting opinion on rehearing en banc, considered this an error. Judge Pooler argued that “customary international law does not contain general norms of liability or non‐liability applicable to actors”.

The Arab Bank case reveals that the corporate liability debate is far from dead in the US. The case clearly demonstrates the division within and among Circuits on the issue. Judge Pooler stated in her dissent that by denying rehearing en banc, the Circuit missed an opportunity to correct Kiobel I, which now continues to maintain a needless Circuit split. The opinions to the order denying rehearing en banc do not have any precedential weight. An empirical analysis by Jeremy Horowitz suggests that judges write these primarily as a means of obtaining Supreme Court review of a case, since indeed, the Supreme Court grants certiorari more often in cases with dissents from orders denying a rehearing en banc.

It is likely, therefore, that the Supreme Court will revisit the question of corporate liability to resolve remaining issues. In Kiobel II, the Court refused to endorse explicitly the agreement among various Circuits (excluding the Second) that corporations can be liable under international law, but still moved on to discuss limitations to this liability as far as US court jurisdiction was concerned. One can imagine that the real question is not whether corporations can be held liable for violations under international law but instead, whether there is any reason why they should be exempted from liability.

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Jordan says

May 30, 2016

Companies and corporations have had rights and duties under international law for more than 100 years! Http://
Note the many US Supreme Court cases! Some judges and clerks refuse to do computer-assisted research to discover the numerous precedents.
And Kiobel S.CT. opinion was full of errors. Shocking sense of history, misstating prior Court opinions, etc. See
God save us from judges!