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At a time of heightened concern over a new wave of terrorism financing threats, the decade-long Arab Bank terrorism financing litigation took another turn last week when the Second Circuit denied several thousand terrorism victims the right to pursue claims against the Jordan-based Arab Bank PLC in U.S. federal court. The plaintiffs are non-U.S. victims of Palestinian terrorism from the Second Intifada from 2000-2004 who sued Arab Bank under the Alien Tort Statute (ATS) for alleged financing and facilitation of terrorist organization activities. The Second Circuit’s decision comes at a time when courts across the country are grappling with broader issues of how to handle complex substantive and jurisdictional questions involving foreign companies and extraterritorial conduct.
Last Tuesday, a three-judge panel of the Second Circuit issued a ruling that addressed the narrow but critical issue whether the ATS applies to corporations. Citing the Court’s 2010 decision in Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111 (2d Cir. 2010) (Kiobel I), affʹd on other grounds, Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659 (2013) (Kiobel II), the panel held that it does not, and therefore affirmed the district court’s dismissal of these claims against the Arab Bank. However, all is not lost for the plaintiffs; the panel also recognized that Kiobel I “appears to swim alone against the tide” of sister circuits, which allow for corporate liability under the ATS, and welcomed en banc or Supreme Court review. Plaintiffs’ counsel is also contemplating an appeal.
The ATS is an eighteenth century law that permits foreign plaintiffs to bring suit in federal court for torts “committed in violation of the law of nations or a treaty of the United States.” After laying dormant for much of its existence, the ATS has been used in recent decades to pursue claims against individuals and corporations around the world for human rights violations. The Supreme Court, however, has approached the ATS with some skepticism, and has reined in the use of the statute considerably in recent years. In the seminal ATS case Sosa v. Alvarez Machain, 542 U.S. 692 (2004), the Supreme Court held that the ATS is a jurisdictional statute, which grants jurisdiction over violations of only those international norms that are binding, specific, and universally accepted, such as piracy and torture.
Kiobel I, the Second Circuit decision on which Tuesday’s Arab Bank ruling is based, purported to apply Sosa. The majority opinion, authored by Judge Cabranes, held that corporations are not subject to liability under the ATS, because the concept of corporate liability has not attained “universal acceptance” in international law. Yet all other Circuits that have addressed the issue have disagreed, assuming or deciding that the ATS permits corporate liability under certain circumstances. This includes the Ninth, D.C., Seventh, Eleventh, Fourth, and Fifth Circuits. Judge Leval likewise came to that conclusion in Kiobel I, reasoning in his concurring opinion that “international law takes no position” on whether civil liability should be imposed on particular actors, such as corporations, but “leaves that question to each nation to resolve.”
The Supreme Court granted certiorari in Kiobel on the issue of corporate liability, but instead applied the presumption against extraterritoriality and ruled that the case was not actionable, because the alleged violations did not sufficiently “touch and concern” the United States. The ATS is a statute specifically designed to address wrongs committed against non-U.S. nationals, so application of the presumption against extraterritoriality significantly narrows that the scope of actionable claims. Moreover, the Supreme Court’s strict interpretation of the presumption against extraterritoriality in Kiobel II and Morrison v. National Australia Bank, 561 U.S. 247 (2010), has had, and will continue to have, a resounding impact not only on the viability of ATS cases, but on the viability of all cases involving non-U.S. actors and conduct. The Supreme Court recently granted certiorari in another Second Circuit case, European Community v. RJR Nabisco, concerning the proper application of the presumption against extraterritoriality under RICO. It will be important to watch how the Supreme Court rules in that case, and whether its decision applies beyond the context of RICO.
As for corporate liability under the ATS, the issue remains unresolved. The lack of an outright rejection by the Supreme Court may indicate that such liability is theoretically possible, and some language in Kiobel II appears to specifically contemplate corporate liability. The Second Circuit acknowledged as much in the Arab Bank decision, noting that “Kiobel II suggests a reading of the ATS that is at best ‘inconsistent’ with Kiobel I’s core holding.” That, combined with the opposite conclusions of several Circuit Courts indicates that there may be “something wrong” with Kiobel I. Yet the Second Circuit “declined to conclude” that Kiobel II overruled Kiobel I, reasoning it would be preferable to have the issue resolved en banc and/or through further review by the Supreme Court. Therefore, for the moment at least, corporations may be not sued under the ATS in the Second Circuit.
More broadly, beyond the ATS, the Arab Bank case exists in a complex legal, policy, and diplomatic space. Along with the non-U.S. ATS victims, nearly 500 American plaintiffs sued under a separate statute, the Anti-Terrorism Act, and are engaged in ongoing settlement negotiations with the Arab Bank after achieving a federal jury verdict against the bank in September 2014 and the announcement of a settlement framework on the heels of the damages trial in August 2015. The case has also provoked a spirited interagency debate pitting the State Department against the Treasury and Justice Departments that implicates diplomatic relations with Jordan and the Palestinian Authority.
Ultimately, another court will have to decide if corporations can be sued under the ATS. However, this Arab Bank decision nudges the issue forward for future resolution and serves as another example to consider when weighing how to address foreign companies and extraterritorial conduct under U.S. law.
Sarah Freuden is an attorney who recently completed a federal district court clerkship. Her practice focuses on international criminal law and international human rights.
Alex Zerden is an attorney and the founder of Toccoa Strategies, an international risk advisory company. He previously served on the plaintiffs counsel for the Arab Bank case.