March 30, 2020

Joseph Jesner v. Arab Bank, PLC

CIVIL PROCEDURE

The Alien Tort Statute and Corporate Liability in the Age of International Terrorism

CASE AT A GLANCE

The Court will decide whether the Alien Tort Statute (ATS), 28 U.S.C. § 1350, embraces or forecloses corporate liability. The plaintiffs, foreign citizens who were injured in Israel during the Second Intifada, alleged that the defendant, the Arab Bank based in Jordan, provided financial services to terrorists who engaged in the Second Intifada. The Bank argued, and the lower court agreed, that the ATS barred corporate liability for such a case.

Docket No. 16-499
Argument Date: October 11, 2017
From: The Second Circuit
by Linda S. Mullenix
University of Texas, Austin, TX

ISSUE

Does the Alien Tort Statute, 28 U.S.C. § 1350, create a federal common law right of action against corporations, or foreclose corporate liability?

FACTS

The Arab Bank Ltd. (Bank) is a multinational financial corporation based in Jordan with a federally chartered branch in New York City. It is the largest bank in Jordan and operates in nearly 30 countries. It is the leading bank operating in the Palestinian Territories, where it partners with relief agencies and the international donor community. It is closely regulated by financial oversight agencies in both the United States and Jordan. Jordanian domestic law prohibits money laundering and assistance to would-be terrorists, and the Bank complies with the financial legal requirements in the countries in which it operates.

The plaintiffs are 6,000 foreign citizens who were injured in Israel during the Second Intifada. The plaintiffs alleged that the Bank provided financial services to terrorists who engaged in actions against Israel, including the Second Intifada uprising waged by Palestinians in 2000.

The plaintiffs did not sue the attack perpetrators or any other banks. Instead, they sued only the Arab Bank, alleging the Bank maintained accounts for Hamas leaders and reviewed and approved fund transfers into accounts with Hamas designated beneficiaries. The plaintiffs alleged the Bank processed 282 fund transfers through the New York branch, valued at approximately $2.5 million.

The Bank countered that the alleged 282 transfers never transited through the United States but occurred entirely outside the United States. Moreover, the New York branch checked and cleared transactions against prohibited persons’ lists and processed transactions for individuals who subsequently were placed on prohibited lists. The Bank further contended that, with four exceptions involving computer or human error, none of the transactions designated individuals or entities on terrorist blacklists.

The plaintiffs further alleged that the Bank accepted and transferred private donations solicited to fund terrorism. They claimed that the Bank served as the paymaster for Hamas and other terrorist organizations through the Saudi Committee for the Support of the Intifada Al-Quds, assisting that organization in identifying and paying families of suicide bombers and other terrorists. The plaintiffs contended that an internal document indicated that the Bank knew the purpose of these disbursements. The document listed families designated to receive payments for deceased persons whose deaths were “martyrdom operations.”

In 2004–05, the United States Financial Crimes Enforcement Network (FinCEN) and the Office of the Comptroller of the Currency (OCC) investigated the Bank on suspicion of money laundering and violation of Bank Secrecy Act regulations. The agencies concluded that the New York operations did not sufficiently monitor transfers from nonaccount holders and that the Bank’s practices posed a risk of terrorist financing. The OCC agreed and ordered the Bank to stop offering fund transfers and other services. The Bank agreed to pay a $24 million civil penalty and the matter closed in 2005.

Between 2004 and 2010, victims of terrorist attacks that took place in Israel, the West Bank, and Gaza filed five lawsuits in the District Court for the Eastern District of New York against the Bank.

They alleged that the Bank, through the involvement of its New York branch, knowingly and intentionally facilitated terrorism by distributing millions of dollars to terrorists. They also alleged the Bank supported terrorism through its compensation payments to families of deceased terrorists.

The plaintiffs pursued their litigation under the Alien Tort Statute, 28 U.S.C. § 1350 (ATS). They alleged that the Bank had violated the law of nations by financing terrorism and had directly and indirectly engaged in genocide and crimes against humanity. The plaintiffs did not allege any connection between the Bank’s activities and the attacks that caused their injuries. The plaintiffs sought to recover 100 percent for their injuries, as well as punitive damages. The district court consolidated the five cases and related litigation. The court held that the complaints included claims of actionable conduct by the Bank in New York.

A separate set of American nationals pursued relief under the Antiterrorism Act (ATA), 18 U.S.C. § 2331. The ATA provides that United States citizens may recover for injuries caused upon proof that a corporation has materially supported terrorist activities. The district court severed the ATA claims, which were then tried. In 2014, a jury found the Bank liable under the ATA for providing material support to a designated foreign terrorist organization; namely, Hamas. The jury found that the Bank’s activities had substantially contributed to 22 terrorist attacks. The court upheld the verdict, which currently is on appeal.

In 2010, while the foreign plaintiffs’ claims were pending, the Second Circuit decided Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111 (2d Cir. 2010). Based on its interpretation of a footnote in a prior decision, the court held that the ATS does not recognize corporate liability. In a concurring opinion, Judge Pierre Leval suggested that the issue of corporate liability is left to the domestic law of individual nation-states. Corporate liability is a staple of United States remedial law.

In 2013, the Supreme Court granted certiorari to determine whether the ATS recognized corporate liability. After supplemental briefing, the Court decided Kiobel on grounds relating to the extraterritorial reach of the ATS, leaving the issue of corporate liability open. 133 S. Ct. 1659 (2013). However, the Court’s reasoning and concurring opinions suggested that the ATS might allow for corporate liability.

Subsequently, the Bank moved to dismiss the plaintiffs’ ATS claims based on the Second Circuit’s prior determination that the ATS barred corporate liability, arguing this holding was binding precedent that had not been overruled by the Supreme Court. The Second Circuit affirmed dismissal. The Second Circuit denied rehearing en banc in an 8–5 vote, which generated an array of opinions.

Some panel judges defended the prior circuit holding. One dissenting judge suggested that the original panel’s holding was “almost certainly incorrect”; while two other panel judges suggested the need to bring the Second Circuit into line with other appellate courts that had decided the ATS embraced corporate liability. Finally, another panel judge indicated that the Supreme Court was the best way to settle the issue of corporate liability under the ATS.

CASE ANALYSIS

The Jesner appeal addresses the issue of corporate liability under the ATS that the Supreme Court left unresolved in its 2013 decision in Kiobel. The ATS simply provides: “The district courts shall have original jurisdiction of any civil action by an alien for tort only, committed in violation of the law of nations or a treaty of the United States.” 28 U.S.C. § 1350.

Congress enacted the ATS in 1789. The ATS lay dormant for nearly 200 years as a means for redressing tortious injuries to foreign nationals. The ATS was resuscitated in 1980 in federal court in New York, in litigation brought by Paraguayan nationals against Paraguayan officials for events occurring in Paraguay. Filartiga v. Pena-Irala, 630 F.2d 876 (2d Cir. 1980), set the precedent that foreign nationals could invoke the ATS to punish non-American citizens for tortious acts committed outside the United States for violations of public international law. Filartiga, however, left many questions unanswered relating to application of the ATS, including what constituted violations of the law of nations and who could be sued as an ATS defendant.

The Supreme Court addressed the issue of corporate liability in Sosa v. Alvarez-Machain, 542 U.S. 692 (2004). In Sosa, the Court held that the ATS grants federal courts jurisdiction to redress violations of a small number of well-established customary norms of international law, such as war crimes, genocide, and crimes against humanity. In an ambiguous footnote 20, the Court alluded to whether international law extends the scope of liability for a violation of a given norm to the perpetrator being sued, if the defendant is a private actor, “such as a corporation or an individual.” But the Court provided no further definitive guidance as to whether a corporation was a viable defendant under the ATS.

The Second Circuit was next to address the issue of corporate liability in 2010 in Kiobel. Kiobel involved a lawsuit brought by 12 Niger nationals who sued three oil company defendants under the ATS. The plaintiffs alleged human rights violations by the Abacha dictatorship in the Ogoni region of the Niger delta from 1992–95. They further alleged that the oil companies enlisted the Niger military in a systematic campaign of torture, extrajudicial executions, and prolonged arbitrary detention aimed at suppressing a grassroots movement protesting Shell’s operations in Ogoni.

The district court granted the defendant’s motion to dismiss. The Second Circuit affirmed, holding that corporations could not be sued under the ATS for torts committed in violation of the law of nations. The court held that, under Sosa, plaintiffs in ATS cases had to demonstrate a customary international law norm of corporate liability, and no such norm existed for the plaintiffs’ claims.

The Second Circuit held that Sosa required a court “to determine both whether certain conduct leads to ATS liability and whether the scope of liability under the ATS extends to the defendant being sued,” rather than applying domestic law (under which corporations are liable as juridical persons). The court further held that corporate liability under the ATS is an issue of subject matter jurisdiction, an issue that had not been raised in the district court.

In a concurring opinion, Judge Leval rejected the majority’s reasoning and conclusions regarding corporate liability. He suggested that international law takes no position on whether to impose liability for law-of-nations violations, and leaves that decision to each country to resolve individually. He disagreed that the absence of corporate criminal liability in international tribunals precluded corporate liability under the ATS.

The Kiobel plaintiffs appealed to the Supreme Court, which originally granted certiorari to consider the question of corporate liability under the ATS. Kiobel was briefed and argued to the Court twice. In the first instance, after briefing and oral argument, the Court declined to decide the question of corporate liability under the ATS. Instead, the Court requested that the parties submit supplemental briefing on the issue of the jurisdictional reach of the ATS. In the second round of briefing and argument, the Court addressed the question of the extraterritorial extent of the ATS.

In 2013, the Court unanimously decided Kiobel. The Court held that the presumption against extraterritoriality applied to claims under the ATS and neither the statute’s text, history, nor purposes rebutted that presumption. Thus, nothing in the ATS indicated a clear extraterritorial reach. Moreover, the historical background against which Congress enacted the ATS did not overcome the presumption. This historical background illustrated that the ATS was enacted to apply to three principal offenses against the law of nations: violations of safe conduct, infringements of the rights of ambassadors, and piracy.

The Court suggested that there was no indication that the ATS had been enacted to make the United States a “uniquely hospitable forum for enforcement of international norms.” The Court also stressed that the danger of unwarranted judicial interference in the conduct of foreign policy might be magnified in the context of ATS actions. In addition, the Court expressed concern with the possibility of United States citizens being hauled into foreign courts for violations of the law of nations.

The Court did not directly address the question of corporate liability under the ATS. Nonetheless, the Court indicated as follows: “Corporations are often present in many countries, and it would reach too far to say that mere corporate presence suffices. If Congress were to determine otherwise, a statute more specific than the ATS would be required.”

While Kiobel was on appeal, the Court decided Mohamad v. Palestinian Authority under the Torture Victim Protection Act (TVPA). 566 U.S. 449 (2012); 28 U.S.C. § 1350. The Mohamad litigation was brought against the Palestinian Authority and the Palestinian Liberation Organization. In a unanimous decision, the Court held that the TVPA was aimed at individuals, a term Congress did not define. The Court concluded that TVPA lawsuits targeted only human beings, not organizations that might engage in human rights violations. The Court stated that it would not give an unnatural meaning to the word “individual,” by saying that it meant corporations, also.

The Jesner appeal returns the Court to the question of corporate liability under the ATS, largely left open after Kiobel and Mohamad. The Court is well prepared to hear argument because the corporate liability issue was exhaustively well briefed and argued in Kiobel and Sosa. The plaintiffs-petitioners now renew the position of the Kiobel plaintiffs that the text, history, and purposes of the ATS permit corporate liability.

In fleshing out this argument, the plaintiffs argue that the ATS does not differentiate among types of defendants. The plaintiffs contend that Congress’s failure to specify any particular class of defendants indicates that the statute embraces corporate liability. If Congress wanted to limit the range of defendants, it would have indicated this in the statute’s text.

The plaintiffs contend that the text, history, and purposes of the ATS reinforce the appropriateness of subjecting corporations to liability under the ATS. Congress enacted the ATS to provide a federal forum to redress violations of the law of nations. Subjecting corporate defendants to such jurisdiction for such transgressions, they argue, is consistent with tort law, which embraces a “bedrock principle” that corporations be held accountable and liable for their injurious conduct.

The plaintiffs argue that when Congress enacted the ATS, it was unquestionable that corporations could be held liable for torts. In an inventive approach to historical application of the ATS to the narrow category of piracy claims, the plaintiffs note that when Congress enacted the ATS, courts regularly imposed liability on ships when their occupants violated the law of nations by committing piracy. Thus, the plaintiffs find a historical basis for entity liability in the piracy example.

The plaintiffs further suggest that the Sosa Court’s opaque footnote 20 poses no problem to imposing corporate liability under the ATS. They argue that the Second Circuit incorrectly applied Sosa in the underlying Jesner litigation and misinterpreted footnote 20. The plaintiffs argue that footnote 20 does not suggest that international law dictates whether corporations may be held liable. Rather, international law leaves that question to domestic law.

Hence, if domestic American law would hold corporate defendants liable for their tortious acts, then courts may impose corporate liability under the ATS. Extending this argument, the plaintiffs contend that “every common law guidepost” in American jurisprudence counsels in favor of corporate liability. They also find support for corporate liability in an array of state and federal statutes. Corporations can violate customary international law norms as can individuals. Furthermore, international law supports holding corporations liable for tortious conduct in violations of the law of nations.

Distinguishing the Court’s holding in Mohamad, the plaintiffs point to different statutory language in the TVPA, which limits liability to an “individual” acting under the color of state law. The plain text of the TVPA, they argue, forecloses entity liability. But the text of the ATS does not exclude corporate defendants, and so the respondent’s reliance on Mohamad is misplaced and inaccurate.

The plaintiffs note that basic fairness requires that corporations not be able to evade responsibility for especially noxious violations of human rights, such as torture, murder, genocide, slavery, and terrorism. Finally, the plaintiffs address concerns over the possibility of creating international friction by the interference of American courts into foreign affairs, suggesting that courts have various procedural tools to avoid such friction. These include the doctrine of forum non conveniens and international comity.

In response, the defendant-respondent counters with a central theme emphasizing the dangers to diplomatic relations of permitting foreign corporations to be sued under the ATS in American courts. The Bank argues that the Sosa Court cautioned against creating new causes of action not recognized by international common law. The Bank points out that, historically, most international obligations attached to nation-states, and not to artificial entities like corporations. In addition, the Bank finds primary support in the analogous TVPA, which specifically excludes corporations as a potential defendant in international lawsuits. Moreover, the Bank contends, the Court signaled its resistance to recognize corporate liability in a Bivens action. Corr. Servs. Corp. v. Malesko, 534 U.S. 61 (2001).

Focusing on the ATS, the Bank argues that the statute does not create a private right of action, and therefore, the Court should not invent a common law implied right of action against corporate defendants under the ATS. The Bank points out that in absence of express statutory command, courts always disfavor implied rights of action. The Sosa Court narrowly interpreted the ATS to recognize causes of action for violations of international law that are “specific, universal, and obligatory.”

The Bank contends that “[t]here is nothing remotely resembling a specific, universal, and obligatory norm of corporate liability under international law.” Instead, for centuries, international law norms have addressed relations between nations. Moreover, numerous international institutions have been unwilling to impose international law obligations on corporations, pointing to the Nuremberg Tribunal, the International Criminal Tribunal for the former Yugoslavia, the International Criminal Tribunal for Rwanda, and the International Criminal Court. All these institutions asserted jurisdiction only over individuals, not corporations or organizations. Citing Mohamad, the Bank notes that the Court determined that the TVPA does not impose liability against corporations and rejected corporate liability in Malesko. 

The Bank notes the exponential growth in litigation under the ATS in recent years and suggests that this lawsuit is a poster-child for everything wrong with ATS litigation. The litigation has been going on for more than 13 years, generating more than a decade of friction between the Jordanian government and the United States. The defendant stresses that Jordan is a major United States ally in the Middle East, and the continuation of this litigation—against a major stakeholder in the Jordanian economy—has exacerbated diplomatic relations between the two countries. The Bank points out that when the ATS originally was enacted in 1789, its main purpose was to avoid diplomatic friction with other sovereign states. Ironically, the Bank suggests, the ATS has turned into an engine for creating and perpetuating diplomatic friction.

The Bank recognizes that the Court has discretion to resolve this appeal on alternative grounds. One ground is to conclude that the plaintiffs’ claims are barred by the Court’s Kiobel holding. The Bank argues that, under Kiobel, it is clear that the case does not “touch and concern” the United States. The Bank contends that the Second Circuit’s conclusion that the New York clearing-house transactions were sufficient to give rise to ATS jurisdiction is inconsistent with Kiobel.

The Bank urges that even if the Court declines to set forth a black-letter rule against corporate liability, the Court should at least find that there is no corporate liability on these facts. The Bank recommends that the Court should put an end to this litigation, which has dragged on for 13 years, exacerbating diplomatic relations with an important and strategic ally.

The defendant notes that banks are highly regulated institutions in their respective countries, as is true for the Arab Bank in Jordan. Thus, in order to preserve important diplomatic goals, issues relating to banking practices are better accomplished through “a finely tuned regulatory solution” in the defendant’s domestic forum.

SIGNIFICANCE

Jesner is an important appeal precisely because of the pervasiveness of multinational corporations as actors on a global stage, punctuated with egregious eruptions of human rights violations. In its most elemental distillation, the Sosa-Kiobel-Jesner case-line pits human rights advocates (the presumptive good guys) against multinational corporations (the presumptive bad guys). As such, the essential nature of the problem invites resolution along the Court’s liberal and conservative divide.

The original Kiobel appeal, which first raised the ATS corporate liability question, incited the passions of the human rights community as well as the hackles of the worldwide business community. Kiobel alerted the corporate community to the threat of being sued in American courts for corporate actions abroad. In Kiobel round one, the Court was inundated with numerous amicus briefs counseling the Court with regard to the corporate liability question.

The business community takes solace in the Court’s unanimous Mohamad decision, which definitively foreclosed corporate liability under the TVPA. The business community also takes comfort in Sosa’s ambiguous footnote 20, which has dogged lower court consideration of ATS litigation and provides an argumentative platform for precluding corporate liability. At a minimum, the Court should provide some clarity to footnote 20 to lay that quandary to rest. 

The Court will now have to evaluate the ATS against the TVPA, and sort out the corporate liability question, which it decided differently in Mohamad as compared to Kiobel and Sosa. It remains to be seen whether the Court will default to its earlier Kiobel statement, that if Congress wants to impose corporate liability, it needs to amend the statute or draft one that explicitly provides for such liability.

The high stakes involved in the Court’s resolution of the corporate liability question is evidenced again by the array of amicus briefs filed on behalf of the parties in Jesner. In a “usual suspects” fashion, an array of liberal organizations; constitutional, admiralty, comparative, and international law professors; historians; and at least one foreign ambassador have weighed in with support of the plaintiffs. On behalf of the Bank, a lineup of business concerns have filed briefs to stave off corporate liability under the ATS. It should be noted, however, somewhat unusually, the United States, the United States Chamber of Commerce, the Center for Constitutional Rights, and International Federation for Human Rights have filed amicus briefs supporting neither party.

Finally, for those Court watchers who enjoyed the extensive briefing and arguments on the history of piracy (and the so-called General Bradford memorandum) in Kiobel, you may be delighted to learn that we may have another go-round of piracy-related arguments.

Jeannette Cox is a professor of law at the University of Dayton School of Law. She specializes in legal issues related to disability rights, employment discrimination, statutory interpretation, and civil procedure. She can be reached at 937.229.4656 and jcox01@udayton.edu.

PREVIEW of United States Supreme Court Cases 46, no. 1 (October 1, 2018): 8–11. © 2018 American Bar Association

ATTORNEYS FOR THE PARTIES

  • For Petitioner Mount Lemmon Fire District (E. Joshua Rosenkranz, 212.506.5000)
  • For Respondents John Guido, et al. (Don T. Awerkamp, 520.798.5282)

AMICUS BRIEFS

In Support of Respondents John Guido, et al.

  • AARP, AARP Foundation, and the National Employment Lawyers Association (NELA) (Daniel B. Kohrman, 202.434.2064)
  • United States (Noel J. Francisco, Solicitor General, 202.514.2217)

In Support of Petitioner Mount Lemmon Fire District

  • National Conference of State Legislatures (Collin O’Connor Udell, 860.522.0404)