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October 31, 2018 Practice Points

Domestic Corporation Liability for Foreign Torts under the Alien Torts Statute

By Maxwell W. Mahoney

The Alien Tort Statute (ATS), 28 U.S.C. § 1350, states that, “[t]he 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.” While the statute’s 32 words seem simplistic on their face, the statute’s application is less clear. In light of the Supreme Court of the United States’ recent ATS opinion in Jesner v. Arab Bank, 138 S. Ct. 1386 (2018), the Court of Appeals for the Ninth Circuit updated its interpretation and application of the ATS in Doe v. Nestle, et al., No. 17-55435 (9th Cir. October 23, 2018) (Nestle II).

In Nestle II, the plaintiffs, former child slaves that they were kidnapped and forced to work on cocoa farms in the Ivory Coast, alleged that the defendants (large manufacturers, purchasers, processors, and retail sellers of cocoa beans located in the United States) perpetuated a system of child slavery. Specifically, the plaintiffs alleged that the defendants, Nestle and Cargill, aided and abetted slave-holding cacao famers by providing certain “kickbacks” that were outside of ordinary business conduct to keep prices of and competition for cocoa low. The plaintiffs further alleged that the defendants were aware of the child slave labor because the defendants established exclusive buyer-seller agreements with the slave owners, provided training and equipment to the slave owners, and visited the slave owners’ farms several times per year.

The Nestle II matter has been in litigation for over a decade and the Ninth Circuit has already reviewed certain issues in Doe I v. Nestle USA, Inc., 766 F.3d 1013 (9th Cir. 2014) (Nestle I). In the latest ruling, the district court granted the defendants’ motion to dismiss the plaintiffs’ complaint finding that the plaintiffs’ complaint sought an impermissible extraterritorial application of the ATS to what the district court found to be the defendants domestic and ordinary business conduct. After the district court’s decision, however, the Supreme Court of the United States decided Jesner v. Arab Bank, PLC, 138 S. Ct. 1386 (2018), which altered the application of the ATS to corporate defendants. As a result, the Ninth Circuit sought to revisit parts of its application of the ATS in the Nestle II matter.

The Nestle II court first reaffirmed its holding in Nestle I that under the norm-specific, three-principle test from Sarei v. Rio Tinto, PLC, 671 F. 3d 736 (9th Cir. 2011) (en banc) corporations can be liable for aiding and abetting slavery because such conduct violates international law and universal norms prohibiting slavery. The court noted, however, that Jesner abrogated this finding from Nestle I insofar as Jesner held that foreign corporations cannot be sued under the ATS. The Nestle II court further noted that Jenser did not eliminate domestic corporations’ liability under the ATS.

The Nestle II court then turned to the application of the ATS to the corporate defendants. Adopting the two-part “focus” test from RJR Nabisco v. European Cmty., 136 S. Ct. 2090 (2016), the Nestle II court asked itself (1) whether the ATS gives a clear, affirmative indication that it applies extraterritorially and (2) whether this case involves a domestic application of the statute, by looking to the statute’s focus. In analyzing the first step, the court found that the ATS’s language does not clearly indicate an extraterritorial application.

Regarding the second step, the defendants argued that any assistance taking place domestically is irrelevant because the analysis should focus on the location of the injury or principal offense, the Ivory Coast here. The Nestle II court disagreed with defendants’ analysis, however, finding that the focus of the ATS is not limited to principal offenses. Rather, the ATS’s focus is on the defendant’s conduct—aiding and abetting—which the plaintiffs allege violates international law and norms. The Nestle II plaintiffs alleged that the defendants aided and abetted a system of child slave labor in the Ivory Coast by providing certain kickbacks that were outside ordinary business conduct to slave-holding farmers to depress the cost of cocoa. The plaintiffs also alleged that the defendants aided and abetted the slave-holding famers from the defendants’ headquarters in the United States. Therefore, the Nestle II court found that the alleged conduct was both specific and domestic, and relevant to the ATS’s focus. Therefore, the plaintiffs’ complaint should have survived the defendants’ motion to dismiss.

Based on its findings and reasoning, the Ninth Circuit reversed the district court’s granting of the defendants’ motion to dismiss and remanded to allow the plaintiffs to amend their complaint to include additional information regarding the defendants’ alleged domestic conduct.

Maxwell W. Mahoney is an associate with Jennings Strouss in Phoenix, Arizona.


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