Supreme Court Opinion Suggests US Corporations Are Not Immune From Liability Under the Alien Tort Statute

Child labor and other forms of modern slavery that occur deep in the supply chains of legitimate businesses and business’ role and responsibility in its eradication continue to garner greater attention by all sectors - nation states, investors, non-governmental organizations (“NGOs”) and business itself. The dialogue may occur under the umbrella of environmental, social or governance (“ESG”), as an ethical and reputational imperative or in response to changing social norms. Regardless, it remains a complex issue to address, much less solve, and raises questions of transparency, accountability and liability.

Eradicating modern slavery, including child labor, requires a multi-faceted and collaborative effort among nation states, NGOs and businesses. However, avenues for remedies for those individuals enslaved in countries that do not have the force of, or even any, applicable law can be few and far between. The Alien Tort Statute (“ATS”), a US federal law adopted by the first Congress in 1798, gives federal jurisdiction to hear claims by non-US individuals who seek to hold accountable those who commit, or aid and abet, violations of international law.

On June 17, 2021, the Supreme Court issued an 8-1 decision on whether foreign citizens can bring claims against United States (“US”) corporations under the ATS where nearly all of the alleged human rights abuses occurred outside of the US. In short, the Court found that general allegations of corporate decision-making in the US by the defendant corporations are insufficient to show that the conduct at issue in the Ivory Coast sufficiently touched and concerned the US under the ATS. The Court noted that plaintiffs impermissibly sought an “extraterritorial application of the ATS.”

The ruling left the door open for whether ATS claims can be brought against US corporations in general. Concurring opinions by Justices Gorsuch, Sotomayor, Breyer and Kagan and the dissenting opinion by Justice Alito indicates that, at a minimum, five justices believe US corporations are not immune from liability under the ATS.

The Allegations

The Court’s decision addressed claims against two US corporations, Nestle and Cargill, alleging that they aided and abetted child slave labor in violation of the ATS. The plaintiffs are six Malian citizens, who claim they were sold as child slaves to work on cocoa farms on the Ivory Coast of Africa. Plaintiffs allege that, during their enslavement, they were subjected to various human rights abuses, including being physically beaten, deprived of food and required to work up to 14 hours per day, six days per week without any pay.

Neither Nestle or Cargill owned the cocoa plantations at issue. Instead, plaintiffs claim the companies aided and abetted these human rights abuses under the ATS, because they supported the plantations, despite knowing about the use of child slavery. In particular, the companies are alleged to have purchased cocoa beans and provided the farms with various resources and training under a partnership between the companies, the Department of Labor and the Government of the Ivory Coast.

Historically, there has been a legal presumption that the ATS does not apply to conduct occurring outside of the US, unless the conduct sufficiently “touches and concerns” the US. There has been disagreement amongst federal courts over the years, however, regarding what type of conduct satisfies this standard. In addition, although the Supreme Court previously ruled that ATS claims cannot be brought against foreign corporations, it has not decided whether claims could be brought against US corporations.

A Long Procedural History

The Central District of California dismissed plaintiffs’ original case in 2010, finding (among other things) that corporations could not be sued under the ATS. Plaintiffs thereafter amended their claims, which were dismissed again by the Central District of California in 2017 on the grounds that the claims did not sufficiently “touch and concern” the US under the ATS. The Ninth Circuit reversed this decision and reinstated plaintiffs’ claims, finding that “every major operational decision by both companies is made in or approved in the U.S.”

After the Ninth Circuit denied a request for a rehearing, the Supreme Court agreed to hear the case. The two main issues on appeal the Supreme Court addressed were:

(1) whether the defendants’ operational decision making in the US, alone, was sufficient for ATS jurisdiction over human rights violations occurring outside of the US and, if so,

(2) whether the Court could establish a new cause of action under ATS—aiding and abetting the alleged violations.

The Supreme Court’s Decision

The Supreme Court reversed the Ninth Circuit’s decision. The majority found that plaintiffs sought an impermissible extrajudicial application of the ATS. The Court noted that “allegations of general corporate activity—like decision making [in the United States]—cannot alone establish domestic application of the ATS.” The Court further noted that “[b]ecause making ‘operational decisions’ is an activity common to most corporations, generic allegations of this sort do not draw a sufficient connection between the cause of action respondents seek—aiding and abetting forced labor overseas—and domestic conduct.”

The Court’s majority decision did not reach the principal issue on which Nestle and Cargill sought review of the Ninth Circuit’s decision: whether ATS claims can be brought against US corporations. However, the decision strongly suggests that, in the right circumstances, they can. In particular, Justices Gorsuch’s concurring opinion noted “[t]he notion that corporations are immune from suit under the ATS cannot be reconciled with the statutory text and original understanding.” A concurring opinion written by Justice Sotomayor and joined by Justices Breyer and Kagan similarly stated “there is no reason to insulate domestic corporations from liability for law-of-nations violations simply because they are legal rather than natural persons.” Justice Alito’s dissenting opinion further stated that he would have found that corporations were not immune from suit under that ATS and remanded the case for further proceedings.

Finally, the Court’s opinions showed conflicting views about whether the judiciary could create a private cause of action for aiding and abetting under the ATS. Justices Thomas, Gorsuch and Kavanaugh, opined that the Court could not. They found that federal courts cannot recognize any private right of action under the ATS beyond three historical violations of international law: violations of the right of safe passage, crimes against ambassadors, and piracy. In a concurring opinion, Justices Sotomayor, Breyer and Kagan disagreed that federal courts’ ability to create private rights of action under the ATS were limited to these three circumstances.

Looking Ahead

This decision leaves open the question of whether US corporations can be liable under the ATS. The opinions written by Justices Gorsuch, Sotomayor and Alito suggested they can. As such, corporations will likely face continued jurisdictional claims under the ATS going forward. However, the Court did not agree on what private rights of action (including aiding and abetting) could be judicially created under the ATS. Absent further action by Congress, this leaves open the specific nature of claims corporations may face under the ATS.

For the business community, this decision is still considered a win. Many hold the view that a contrary decision would hamper efforts towards voluntary human rights due diligence and protection. The Court noted that the resources provided to the farms were through a collaborative partnership with the US Department of Labor and the Government of the Ivory Coast. Such partnerships and sharing of resources and knowledge are critical to effective due diligence.

The decision comes when the scale of modern slavery and child labor remains incomprehensible. With more than 150 million children in child labor globally and 70% of those children in agriculture, June 12, 2021 signified the United Nation’s World Day Against Child Labor. This year also marks the 10th anniversary of the United Nations Guiding Principles (“UNGPs”) on Business and Human Rights. The UNGPs create a framework for governments and businesses to protect, respect and remedy human rights abuses in business operations. The UNGPs create a template for businesses to create a human rights due diligence program.

Although seeking redress under the ATS was not viable under the facts in this case, we are nevertheless at a time when the international landscape is seeing a patchwork of laws directly addressing a business’ obligations with respect to identifying, remediating and disclosing the occurrence of modern slavery or human trafficking, which includes child labor, in their supply chains. These laws include, among others, the UK and Australian Modern Slavery Acts, which require disclosure. And, most recently, Germany’s Act on Corporate Due Diligence in Supply Chains and the EU’s impending law, both requiring mandatory human rights due diligence across the value chain. While Germany’s and the EU’s laws will not come into effect for a few years, they are and expected to be anchored in the UNGPs.

With the potential door for liability remaining open and the legislative tides moving beyond disclosure and towards mandatory due diligence, the impetus for businesses, whether subject to a current law or not, to understand and manage the modern slavery and child labor risks in their supply chains continues to increase.

For more information, please contact any of the authors or a member of Seyfarth’s ESG, Corporate Citizenship and Human Rights Group. For information on a human rights due diligence program, please see our alert series here.