On The Case

DOJ’s curious Supreme Court brief in Arab Bank Alien Tort case

(Reuters) - It’s always fascinating to see how the U.S. solicitor general’s office attempts to reconcile competing executive-branch interests when it files briefs in U.S. Supreme Court litigation affecting the government’s relationships with foreign sovereigns.

The latest example is the Justice Department’s brief in a dispute over whether about 6,000 non-U.S. citizens can use a 1798 law to sue Jordan’s biggest financial institution, Arab Bank, for allegedly facilitating terrorism. The brief preserves the integrity of the solicitor general’s office by repeating arguments the Justice Department made in a 2012 Supreme Court case that raised the exact same question as the Arab Bank case. But the filing also reflects the U.S. State Department’s concerns about alienating an important ally.

That awkward balance could be an opportunity for Arab Bank to get the Supreme Court to look at a second issue in a case the bank is otherwise almost certain to lose.

The Supreme Court granted review of the case, Jesner v. Arab Bank, to decide whether the Alien Tort Statute can be asserted against corporations. If that question sounds familiar, it’s because the justices agreed to hear the same issue back in 2011, in Kiobel v. Royal Dutch Petroleum. The Justice Department, siding with the Nigerian plaintiffs in the Royal Dutch case, submitted a brief arguing that the 2nd U.S. Circuit Court of Appeals was wrong to hold that corporations cannot be sued under the ATS. It urged the Supreme Court to reverse the 2nd Circuit and rule that corporations can be liable.

Instead, the Supreme Court changed its mind about what the real issue in the case was. The justices called for additional briefing about whether the ATS extends to conduct outside of U.S. borders. The court’s 2013 Kiobel decision held that the ATS presumptively does not apply to overseas conduct but plaintiffs can rebut the presumption by showing “with sufficient force” that their claims “touch and concern the territory of the United States.”

The Supreme Court’s Kiobel decision did not directly address whether corporations can be sued so the 2nd Circuit’s Kiobel ruling remained intact, as the non-U.S. plaintiffs trying to sue Arab Bank discovered to their detriment in 2015. The plaintiffs, all of whom blame the Jordanian bank for allowing Hamas to finance international terror attacks, moved to revive dismissed ATS claims after the Supreme Court’s Kiobel decision. A three-judge 2nd Circuit panel said they still couldn’t sue the bank because Kiobel was still binding 2nd Circuit precedent, and under that precedent, plaintiffs can’t assert the ATS against corporations. In 2016, a splintered en banc 2nd Circuit declined to hear the Arab Bank ATS case.

In the plaintiffs’ here">June 20 merits brief, their Supreme Court counsel, Jeffrey Fisher of Stanford’s Supreme Court Litigation Clinic, argued that the 2nd Circuit’s prohibition on ATS suits against corporations is the result of a misread footnote in a Supreme Court case that only discussed actionable conduct under the ATS, not liability. There’s nothing in the text of the ancient statute, which was supposed to address piracy on the high seas, or in its long history to indicate corporations are exempt when they violate international norms, the brief said.

“A business should not be allowed to reap the benefits of incorporation while claiming immunity from liability for noxious acts such as terrorism, slavery, or genocide,” Fisher wrote.

The Justice Department’s brief, posted Wednesday on the SG’s website, completely backed the plaintiffs’ interpretation – and Justice’s own previous analysis from Kiobel – of corporate liability under the ATS. (DOJ’s brief was signed by Deputy Solicitor General Edwin Kneedler because Acting SG Jeffrey Wall is recused.) No other federal circuit has adopted the 2nd Circuit’s bar on suing corporations under the ATS, the Justice Department pointed out, and “nothing in international law discountenances civil claims against corporations.”

By my read, the 2nd Circuit’s Kiobel prohibition on ATS suits against corporations is doomed. Even Arab Bank, represented at the Supreme Court by Paul Clement of Kirkland & Ellis, didn’t try very hard in its brief opposing Supreme Court review to justify the legal reasoning of the 2nd Circuit’s Kiobel precedent, though the brief half-heartedly mentioned the U.N. Council on Human Rights “has recognized that international law does not currently impose any direct legal responsibilities on corporations.”

But the second half of the Justice Department brief may keep the Arab Bank case from being completely lopsided – if Arab Bank can leverage it to persuade the justices to look beyond the narrow question of corporate liability under the Alien Tort Statute.

The Justice Department’s brief didn’t stop at that question. It went on to address whether the non-U.S. plaintiffs suing Arab Bank can rebut the presumption against overseas application of the ATS, as the Supreme Court said they must in that 2013 Kiobel ruling. According to the Justice Department, non-U.S. plaintiffs can’t overcome the presumption just by arguing that foreign banks used automated systems to clear U.S. dollar transactions through banks in the U.S.

“Automated clearance activities alone would not support claims under the ATS,” the Justice brief said. “A foreign actor’s preference for dollar-denominated transactions, and the consequent likelihood that a transaction will be automatically routed through a bank’s U.S. branch or affiliate, are not generally circumstances for which the international community might validly deem the United States to be responsible. Congress did not intend the ATS to ‘make the United States a uniquely hospitable forum for the enforcement of international norms.’ That limitation is difficult to reconcile with an approach under which a claim under the ATS may be premised on the popularity of the dollar as a currency for remunerating foreign illegal activity.”

The Justice Department conceded that our own government has been known to base criminal and forfeiture actions on “foreign misuse of domestic (banking) instrumentalities,” but said the rules are different for private plaintiffs asserting the ATS. That’s especially true, the brief said, when foreign policy is implicated, as it is in the Arab Bank case, which has already frayed the government’s relationship with a crucial friend in military operations against the Islamic State.

The Justice Department did not call on the Supreme Court to expand the Arab Bank case to include whether dollar-clearing is sufficient to provide the requisite “touch and concern” with U.S. territory. It also noted that plaintiffs have alleged more than dollar-clearing against Arab Bank, and that those additional assertions could justify reviving the ATS suit.

The brief asked the Supreme Court to instruct the 2nd Circuit to decide whether the Arab Bank plaintiffs meet the territorial test for an ATS suit – an issue the 2nd Circuit pointedly avoided when it said the case couldn’t be brought because Arab Bank is a corporation.

The big question now is whether Arab Bank, in its response brief, will push for the Supreme Court to go even farther and decide whether what the bank has always described as mere banking services can give rise to ATS liability. That’s a potentially more difficult question than the 2nd Circuit’s bar on ATS suits against corporations. Global banks have already been spooked by a Brooklyn federal jury verdict holding Arab Bank liable to U.S. citizens in a terror financing suit that parallels the case at the Supreme Court. If the justices decide they’re interested in dollar-clearing transactions and territoriality, international banks will be watching intently.

That’s unlikely to happen, of course. The plaintiffs suing Arab Bank described in detail their evidence that the bank wasn’t just processing transactions by rote but was facilitating money transfers for known Hamas leaders. There’s every reason for the justices to wait for a different case to test the jurisdictional power of dollar-clearing transactions in suits by private citizens.

But Kiobel’s history at the Supreme Court shows that anything can happen. The justices already changed their focus in one ATS case. Who says they won’t do it again?