Corporate Executives: Get Ready for a Billion Dollar Lawsuit

I recently spoke with the Managing Counsel of a publicly traded multinational corporation with a market cap well over $150 billion and operations on every continent. Although he had read a recent federal court of appeals opinion about the Alien Tort Statute ("ATS"), he admitted that he had little idea what it meant for his company in either the short or long term. In Kiobel v. Royal Dutch Petroleum, the Second Circuit held that corporations cannot be held liable for violations of customary international law under the ATS, thereby reversing a well-established trend of aliens suing corporate entities in U.S. federal courts for alleged human rights violations. However, Kiobel is hardly, as some observers have incorrectly hailed it, the blockbuster opinion that spells the end of the multi-billion dollar ATS litigation industry. On the contrary, those same suits will still proceed, but their cross-hairs will shift from corporations to the individuals who serve them.

A Look Back: How Corporations Came to Be Sued by Aliens in Federal Court

The ATS is a relic of the Federal Judiciary Act of 1789 that was intended to allow non-U.S. citizens to seek redress in American courts for violations of the law of nations (i.e., customary international law) such as piracy, attacks on ambassadors, and violations of rights of safe passage. The ATS remained dormant for 200 years until 1980, when the Second Circuit revived it in Filartiga v. Pena Irada, a sweeping opinion that held that the ATS confers jurisdiction over tort actions brought by aliens (only) for violation of customary international law including war crimes against humanity. Filartiga gave rise to an abundance of litigation in federal district courts limited to suits against individuals, thereby reflecting one of the major trends in the international human rights movement of the post-WWII era. In 1999, however, federal courts began to allow hundreds of ATS suits alleging that a corporation -- a "juridical" person -- could also be an enemy of mankind.

Kiobel and the Resurgence of Individual Liability under the ATS

The Second Circuit's recent opinion in Kiobel has closed for now the window used by plaintiffs to sue corporations under the ATS. However, it simultaneously turned the clock back 30 years by encouraging plaintiffs once again to target corporate directors and executives for such billion dollar suits. These suits will now become the norm among groups and plaintiffs' lawyers putatively advocating under the aegis of human rights.

In Kiobel, residents of Nigeria claimed that Dutch, British, and Nigerian corporations that were engaged in oil exploration aided and abetted the Nigerian government in committing violations of customary international law. They sought damages under the ATS. The federal district court allowed their claims with respect to aiding and abetting arbitrary arrest and detention; crimes against humanity; and torture or cruel, inhuman, and degrading treatment. These claims were fair game. In light of the importance of the issues at stake, the trial court voluntarily certified its entire order for interlocutory (i.e., provisional) appeal to the Second Circuit.

The Second Circuit held that corporations cannot be held liable for violations of customary international law. The court reasoned that the scope of liability -- "who is liable for what" -- must be determined by "specific, universal, and obligatory" norms of international (not domestic) law and that "corporate liability is not a discernible -- much less a universally recognized -- norm of customary international law." At the same time, the Court explicitly reminded both plaintiffs and individual corporate officers and directors alike that "nothing in [its] opinion limits or forecloses suits under the ATS against the individual perpetrators of violations of customary international law -- including the employers, managers, officers, and directors of a corporation. . . ." Indeed, no one questions that individual liability for alleged violations of human rights -- including for violations committed by those individuals' corporations -- is precisely the sort of "specific, universal, and obligatory" norm that the Second Circuit and other federal courts recognize.

The Nuremberg Trials: The Root of Individual Liability in the International Human Rights Movement

The court accorded particular weight to no less than the Nuremberg Tribunals. The Tribunals explicitly refused to hear any claims against corporate defendant I.G. Farben, which, in close participation with the Nazi State, manufactured Zykon B, an insecticide knowingly used as a lethal asphyxiating agent in the gas chambers at Auschwitz, yet charged its individual executives with war crimes. The principle invoked by the Second Circuit in Kiobel was stated poignantly by Justice and U.S. Chief Prosecutor at Nuremberg Robert H. Jackson 75 years ago: "Crimes against international law are committed by men, not by abstract entities, and only by punishing individuals who commit such crimes can the provisions of international law be enforced."

Some suits brought under the ATS are legitimate. Yet corporate counsel generally deem the jurisdictional reach of the statute as having given rise to little more than a cottage industry of thousands of frivolous suits filed in often successful attempts to obtain 9-figure verdicts rather than face the uncertainty of complex, newsworthy trials with the specter of billion dollar jury verdicts.

A Final Word of Caution: Re-Aiming Litigation Cross-Hairs on Individual Directors, Officers, Managers, and Employees

Kiobel does nothing to deter the trend described above. On the contrary, the Second Circuit guides plaintiffs to their new -- yet very old and once familiar -- targets of choice: individual directors, officers, managers, and employees of those same corporations. Corporate executives and general counsel must institute proactive policies based on a detailed understanding of the ATS and relevant precedent in order to keep their companies far from suspicion while doing business abroad -- and thereby keeping themselves from being named as individual defendants in lengthy cases with devastating costs.


Ben Kerschberg is a Founder and the Chief Operating Officer of Consero Group LLC. Mr. Kerschberg has a Bachelor of Arts in Foreign Affairs and German, summa cum laude and Phi Beta Kappa, from the University of Virginia and a Juris Doctor from Yale Law School, where he was as a Coker Fellow. He clerked for the Honorable Gilbert S. Merritt, Chief Judge of the U.S. Court of Appeals for the Sixth Circuit.