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9th Circuit Takes a Bite out of Nestle

In a move that could have lasting implications for how corporations do business abroad, the 9th Circuit Court filed an opinion on December 19th holding that corporations can face liability for claims brought under the Alien Tort Statute. A class of plaintiffs of Malian descent has alleged they were illegally trafficked to the Ivory Coast and forced to perform slave labor on cocoa farms that supplied goods to Nestle and other companies.

The complaint alleges that despite the fact that Nestle knew that slave labor was a significant problem on the Ivory Coast, Nestle nonetheless provided such farms with money, supplies, and training.  The Ivory Coast is the largest exporter of cocoa in the world, and a majority of that supply is imported to the U.S.

The district court originally dismissed this case for a failure to state a claim. “Judicial diktat cannot change the basic fact that international law does not recognize corporate liability.” However, the 9th Circuit held that contrary to the district court’s conclusions, recent authority indicates that corporations—and not merely “natural persons”—may be liable under the Alien Tort Statute. Furthermore, the split panel held that the district court erred in requiring the plaintiffs to allege specific intent on the part of the defendants.

The result may be partially attributed to dicta in Kiobel v. Royal Dutch Petroleum, a Supreme Court case decided this year. While the majority of the court in Kiobel found that the plaintiff’s case did not overcome a presumption against extraterritorial application of the ATS, the court did not rule out the possibility of a plaintiff being able to do so. While it is still unclear what exactly is required of plaintiffs, “even where the claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritorial application.” Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659, 1669 (2013). It appears that mere “corporate presence” will not suffice.

Opponents of the 9th Circuit ruling argue that this case involves no “treaty of the United States” or “violation of the law of nations” as required by the Act. According to the Chamber of Commerce amicus brief, “the law of nations” encompasses (1) violations of safe conduct, (2) the rights of ambassadors, and (3) piracy. Other claims may be recognized by federal courts, but only those that “rest on a norm of international character accepted by the civilized world and defined with a specificity comparable to the features of [those paradigmatic cases].” Sosa v. Alvarez-Machain, 542 U.S. 692, 725 (2004).

Arguably these claims will increase now that the 9th Circuit has removed the more stringent specificity requirements. Businesses fear that opening the avenue for corporate liability will work to punish U.S. companies for their commercial relationships with foreign partners and discourage investment in developing countries. It remains to be seen if those fears are warranted. We will keep a watchful eye as this case continues to develop.

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