Overview

The Alien Tort Statute (“ATS”) has been the subject of several US Supreme Court decisions over the past decade.   To summarize its long and complicated past, the ATS is a statute that gives US federal courts jurisdiction to hear lawsuits filed by non-US citizens for torts committed in violation of international law.  In recent years, plaintiffs have tried to use the ATS as a vehicle to hold multinational corporations liable for human rights violations and labor abuses committed abroad by their subsidiaries, suppliers, and other third-party business partners.  These lawsuits have been largely unsuccessful, with the Court progressively limiting the scope and jurisdictional reach of the ATS to specific violations of binding international law that “touch and concern” the US, and to violations that were committed by US corporations.  Thus collectively, these cases have established a presumption that the ATS does not apply extraterritorially. 

Ninth Circuit Challenges ATS Precedent

However, in Doe v. Nestlé, S.A., the Ninth Circuit challenged precedent by seemingly widening the scope of potential ATS liability.  In that case, former child slaves from the Côte d’Ivoire brought a class action lawsuit against chocolate brands Nestlé, Cargill, and Archer Daniels Midland.  Asserting violations of the ATS, the plaintiffs alleged that they endured severe physical abuse while being forced to work without pay on the farms that supplied the cocoa purchased by the defendants.  According to plaintiffs, defendants knew or should have known that the farms used child labor, and that defendants aided and abetted this misconduct by providing financial and logistical support to the farmers. 

In a split opinion released in July 2019, the Ninth Circuit reversed the district court’s dismissal of the action and remanded it to allow plaintiffs to replead their ATS claim.  Central to the Ninth Circuit’s decision appears to be a reliance on plaintiffs’ assertions that the defendants were more than just tangentially involved in their suppliers’ overseas activities.  This is allegedly evidenced by the financial support defendants provided to their suppliers, their facilitation of supplier inspections by employees from US headquarters, and the fact that operative financing decisions were made from the defendants’ US offices.  The Ninth Circuit found that such assertions are sufficient to provide jurisdiction for an ATS case to go forward.

SCOTUS Grants Certiorari — Implications for the Future

A few months following the Ninth Circuit’s decision, Nestlé filed a cert petition requesting review by the Supreme Court.  In its petition, Nestlé argues that the conduct allegedly amounting to aiding (e.g., the financial support provided by defendants to the cocoa farms) is not enough to rebut the presumption against extraterritoriality under the ATS.  More specifically, Nestlé argues that plaintiffs have failed to show that defendants acted with any purpose or intent to perpetuate child slavery, or that defendants engaged in more than “ordinary commercial transactions.”

The Supreme Court granted Nestlé’s cert petition earlier this month.  This is significant, as the Court’s decision is likely to have an impact on the extent to which corporations — especially those with global supply chains — can be held liable for human rights violations and labor abuses committed abroad by their suppliers and third-party agents.  On the one hand, the Court could further narrow the scope of corporate accountability under the ATS by reserving aiding and abetting as a potential theory of liability for very limited circumstances, or eliminating it as a possible theory all together.  On the other hand, the Court could recognize aiding and abetting as a viable theory of liability under the ATS, and as a consequence, increase the accountability of corporations for their indirect involvement in human rights violations.

While the current Court is conservative-leaning, recent decisions highlight that it can be unpredictable, especially on key social issues.  Moreover, legal regimes requiring public disclosure of supply chain compliance activities and other laws elevating the risk that companies can be held liable for violations in their supply chains continue to grow in number and breadth.  As such, and to best prepare for any potential outcome in the ATS Supreme Court case, corporations with global supply chains and/or third-party agents operating in foreign jurisdictions should consider implementing a risk mitigation strategy that:

  • Includes a risk-based supply chain assessment and responsible sourcing program.
  • Provides management with sufficient knowledge of supplier activities, but balances the company’s overall involvement in supply chain management and audits by involving knowledgeable, reputable third-parties that abide by industry best practices in audits and related monitoring activities.
  • Mandates, through an anonymous, well-communicated reporting system, the escalation of actual or suspected human rights violations, labor abuses, and other forms of misconduct by suppliers and third-party agents.
  • Terminates suppliers and third-parties in instances where remediation was ineffective or would not adequately cure the violation at issue.

As we have discussed in prior blog posts, corporations must balance the liability risks of over- vs. under-engagement in their supply chain activities.  Too much involvement can establish a more direct link between the corporation and the “bad acts” in its supply chains, while too little involvement may amount to gross negligence or elevate the risk of reputational harm.  Nevertheless, the importance of risk-based supply chain compliance assessments continues to grow.  Thus, no matter the outcome reached by the Supreme Court in response to Nestlé’s petition, corporations should adopt a balanced but effectively rigorous approach to managing and responding to supplier risks.

Author

Aleesha Fowler is an associate in Baker McKenzie’s North American Litigation Practice Group in New York, New York. She has experience in the areas of white collar criminal defense, internal investigations, regulatory compliance matters, and complex civil litigation. Aleesha focuses her practice on white collar criminal defense, internal investigations, regulatory and compliance matters, and complex civil litigation. She has significant experience representing financial institutions under investigation by the US Department of Justice, the US Securities and Exchange Commission, FINRA, and the OCC. She also has experience advising companies (both domestic and foreign) on their compliance with the US Foreign Corrupt Practices Act.

Photo of Reagan Demas
Author

Reagan Demas has significant experience working on behalf of companies and investors in emerging markets and high risk jurisdictions. He has managed major legal compliance investigations for a variety of Fortune 500 companies and negotiated settlements before the US Department of Justice, US Securities and Exchange Commission, and other federal and state regulatory entities, obtaining declinations in a number of matters. He has also conducted risk assessments and due diligence in a variety of legal compliance matters for companies across industries, and has worked on the ground evaluating partnerships, investments and other business opportunities worldwide. Reagan has written and spoken extensively on corruption, business ethics, human rights-related legal obligations and emerging regulatory regimes.