Jurisdiction of US Federal Courts on Non-US-based Companies for Violations of Human Rights

Practitioners and academics interested in litigation against foreign companies for violations of human rights happening outside the United States (US) would likely have paid attention to the US Supreme Court of the United States lately. In the last couple of months, the Court has decided two important cases regarding federal courts’ jurisdiction over foreign companies who have allegedly committed torts abroad, involving human rights violations.

On 17 April 2013, the US Supreme Court gave its much awaited judgment in the Kiobel vs. Dutch Petroleum et. al (Kiobel). case. In this matter, Nigerian refugees sued three European and European-owned oil and gas companies – Royal Dutch Petroleum Company, Shell Transport and Trading Company, and their joint Nigerian subsidiary – in the US Federal Courts, to claim compensation for torts involving violations of international law, that occurred on Nigerian soil. The Claimants alleged that the companies aided and abetted the Nigerian government in harshly repressing protests by inhabitants of the villages adjacent to their oil fields.

The Supreme Court granted certiorari to consider the question of “whether and under what circumstances courts may recognize a cause of action under the Alien Tort Statute (ATS) for the violations of the law of nations occurring within the territory of a sovereign other than the United States”. The Supreme Court held that the presumption against extraterritoriality applies to the ATS and that nothing in that statute rebuts that presumption. In other words, lacking any apparent ‘contrary intent’ of the legislator, the ATS is meant to apply only within the territorial jurisdiction of the US (see Foley Bros., Inc. v. Filardo, 336 U.S. 281, 1949).

Then, on 14 January 2014, the Supreme Court decided the matter of Daimler AG v. Bauman et. al (Daimler). In this case, Argentinian residents had filed a suit in the Federal Courts in California for alleged violations of human rights perpetrated by Germany-based Daimler AG’s Argentinian subsidiary against Argentinian workers during the Argentinian ‘Dirty War’ (1976–1983).

The claim was directed exclusively against the German parent company, and was based on the ATS and on Californian Law. Certiorari was granted to consider the question of “whether 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”. Confirming the Ninth Circuit Appeal Court’ decision, the Supreme Court held that Daimler was not amenable to suit in California for injuries allegedly caused by the conduct of its Argentinian subsidiary that took place entirely outside the US.

The claims in Daimler and Kiobel have much in common. They both address the question of the liability of foreign companies for torts that occurred entirely outside the US. Moreover, such torts involved serious violations of basic human rights (mainly the right to life and to physical integrity). Also, they were both brought by foreign plaintiffs. The ATS was invoked by the claimants in the two cases. In both cases, the only issue discussed was whether or not the federal court could hear the case, i.e. whether or not it had jurisdiction over the claim.

Kiobel and Daimler were actually decided by the US Supreme Court on different grounds. They thus offer a complete picture of the (very few) possibilities that foreign claimants have left to bring claims against non US-based companies, in the US federal courts, for torts involving violations of human rights that occurred entirely outside the US territory.

On the one hand, Kiobel was a “classic” ATS case. The ATS provides that “the district courts shall have original jurisdiction of 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” (28 U.S. Code § 1350 – Alien’s action for tort). The claimants in Kiobel sought redress for violations of human rights, allegedly part of “the law of nations”, in the US courts based only on the ATS. The Supreme Court denied the possibility to ground the federal courts’ jurisdiction in the ATS because of its territorial reach.

Indeed, the application of the presumption against territoriality to the ATS in Kiobel will greatly limit the scope of future ATS litigation. Only if the “violation of the law of nations” took place on the US territory and, probably, on the high seas, would Federal courts have jurisdiction.

Interestingly such limitations would probably be relevant for claims brought in the federal courts against US and non-US based companies alike. Because the key element would be the “violation of the law of nations” and the place where that occurred, the connecting factor (as it would be described in European private international law) would be the violation itself, i.e. the tort. If it has no connection with the US, then the ATS does not reach it. Hence federal courts have no jurisdiction on the matter based on the ATS. That would be true regardless of where the company is based.

On the other hand, even though the ATS was invoked before the Federal Courts, Daimler was decided on the ground of general (or all-purpose) jurisdiction. General jurisdiction allows the Federal Courts to hear any and all claims against foreign companies when their contacts with the forum State are so “continuous and systemic” as to render them “essentially at home” in that State (see Goodyear Dunlop Tires Operations, S. A. v. Brown, 564 US.).

In Daimler, the Supreme Court limited the scope of federal jurisdiction regarding the alleged tortfeasor, i.e. the defendant. The Court stated that “subjecting Daimler [a company based in Germany] to the general jurisdiction of courts in California [for the conduct of its Argentinian subsidiary that took place in Argentina] would not accord with the ‘fair play and substantial justice’ due process demands”. The Court found little or no contact between Daimler AG and the State of California. This meant that Daimler AG was not “at home” in California and hence that California federal courts did not have jurisdiction over the claim.

From the perspective of foreign plaintiffs wanting to sue non-US based companies in the federal courts, the two cases have to be read together. Kiobel essentially narrowed ATS litigation to violations of the law of nations occurring on US soil or on the high seas. Consequently, disregarding the ATS, plaintiffs could claim that a non-US based company is actually “at home” in one Federal State so as to trigger that State’s general jurisdiction, like the plaintiffs did in Daimler. Still, contacts between the non US-based company and the State would have to be substantial, as in the Perkins opinion. In this case, a Philippines based company had its temporary “seat” in Ohio, hence affording Ohio federal courts general jurisdiction over it (see Perkins v. Benguet Consol. Mining Co., 342 U.S. 437).

The difficulty with that approach would providing the existence of such contact to trigger general jurisdiction. Furthermore, the majority opinion in Daimler is far from clear as to how to assess such contact (see also Justice Sotomayor’s concurring opinion in Daimler). Additionally, as noted by Brilmayer and Smith, the way in which the Court in Daimler allowed a foreign company to claim US constitutional rights might seem contrary to its precedents (for example, United States v. Verdugo-Urquidiez.

The US Supreme Court will shortly have to answer another question; in this instance, the issue of specific personal jurisdiction over foreign defendants and due process. In the Walden v. Fiore (Walden) case, certiorari was granted to discuss the question of  “whether due process permits a court to exercise personal jurisdiction over a defendant whose sole ‘contact’ with the forum state is his knowledge that the plaintiff has connections to the State”.

Waiting for Walden to be decided, up to today, this year has marked a remarkable contraction of the scope of federal jurisdiction in cases such as Kiobel and Daimler, where human rights violations were at stake and the corporate defendants were not based in the US.

From a comparative viewpoint, it is worth contrasting the American approach with that in Europe. In Daimler and Kiobel, the defendants were European-based companies. It is safe to say then that it would have been possible to sue them in Europe for the same cause of action. Indeed, the two main defendants in Kiobel, Royal Dutch Petroleum Company and Shell Transport and Trading Company, were two corporations based in, and incorporated under the law of, the Netherlands and the United Kingdom (UK) respectively. Daimler AG is based in Germany.

Under Article 2 of Regulation (EC) 44/2001  (also known as the Brussels Regulation) and under Regulation 1215/2012 which will replace the Brussels Regulation by 10 January 2015, the Netherlands, the UK and Germany respectively would have jurisdiction in a civil claim concerning compensation for damages against those companies, regardless of where the alleged tort took place.

Furthermore, as far as Kiobel is concerned, it should be recalled that under Article 6 of the Brussels Regulation, a company whose seat is in the EU may also be sued in the Courts of the place where any of the other defendants is domiciled, provided that the claims against them are closely connected, which we might reasonably assume would be the case. So, under Articles 2 and 6 of the Brussels Regulation, proceedings against the defendants in Kiobel, including the Nigerian subsidiary, might be brought before the Court of either of the defendants’ domicile, i.e. the UK or the Netherlands.

Assuming that such claims would be brought in Europe, it is impossible to tell whether or not the claimants would receive compensation for the alleged violations of human rights. Nonetheless, as far as jurisdiction is concerned, claimants all around the world should keep in mind that European companies can be sued relatively easily in the country of their seat for any tort that occurred anywhere in the world. The courts of that State will have jurisdiction and will be allowed to hear the case on the merits, which seems to be more and more difficult in the US federal courts.