Alien Tort Statute Update

Supreme Court, SDNY Issue Alien Tort Statute Decisions With Important Implications For Multinational Corporations

Southern District Dismisses Alien Tort Statute Case Against Shell’s Nigerian Subsidiary for Lack of Jurisdiction

The Alien Tort Statute (“ATS”) permits an “alien” to bring suit in U.S. federal court for a violation of international law occurring anywhere in the world. In Kiobel v. Royal Dutch Petroleum Co., Nigerian plaintiffs brought suit under the ATS against Shell Petroleum Development Company of Nigeria (“SPDC”), a Nigerian subsidiary of Royal Dutch/Shell, alleging that their protests of SPDC’s oil development and exploration activities in Nigeria were violently suppressed by the Nigerian government with SPDC’s cooperation and assistance. Last week, Judge Kimba Wood of the Southern District of New York dismissed the case against SPDC for lack of personal jurisdiction. By carefully maintaining corporate formalities between affiliates performing varied functions, the Shell Group was able, in Kiobel, to avoid an ATS suit in New York, based on conduct occurring entirely in Nigeria.

SPDC was formed by the Shell Group of Companies as a Nigerian operating subsidiary. SPDC, the largest private-sector oil and gas company in Nigeria, participated in a joint venture with the government of Nigeria and two other private companies. SPDC had no physical presence in the United States, and although half of its oil production reached the United States, SPDC did not sell to, or participate in any transactions with, any U.S. buyers. Rather, SPDC sold crude oil to Shell International Trading Company (“SITCO”), which then sold oil around the world.

Although the ATS may provide federal subject-matter jurisdiction over a multi-national corporation like SPDC, which lacks any physical presence in the United States, an ATS plaintiff must also show personal jurisdiction before such a suit may proceed. In Kiobel, the plaintiffs relied on the concept of “general jurisdiction,” which allows suit in federal court where a defendant is not subject to the jurisdiction of any one state, but the defendant’s contact with the United States as a whole permits the exercise of personal jurisdiction in federal court consistent with the requirements of due process. To meet this test, a plaintiff must establish that the putative defendant has “continuous and systematic general business contacts” with the United States, and that those contacts “approximate physical presence” here. Once those contacts are shown, the plaintiff must also show that the assertion of jurisdiction comports with “traditional notions of fair play and substantial justice,” i.e., that it is “reasonable under the circumstances” of a particular case.

The District Court originally dismissed the claim against SPDC in 2008, but the Court of Appeals found that it had erred in doing so without permitting the plaintiffs jurisdictional discovery. Following such discovery, the Kiobel plaintiffs argued that the court had jurisdiction over SPDC based on (a) sales of SPDC oil to United States customers; (b) “cross-posting” of SPDC employees to other Shell companies in the United States; and (c) SPDC’s recruitment of employees in the United States.1 The District Court rejected each.

First, the court noted that although oil produced by SPDC was ultimately sold in the United States, it was sold there by SITCO, and not by SPDC. Critically, under its contracts with SITCO, SPDC had no part in determining to whom SITCO sold oil it purchased from SPDC, or where that oil was shipped. In addition, although the price paid to SPDC by SITCO was affected by the location to which the oil was shipped, it was not based on the actual location of the customers to whom it was shipped, but on assumptions made by SITCO and SPDC at the outset of the contract — for example under the contract, 60% of SPDC’s oil was “deemed delivered” to the United States.

Second, the court rejected the plaintiffs’ arguments about “cross-posted” SPDC employees. Between 2000 and 2004, SPDC cross-posted at least 48 employees to Shell affiliates in the United States. This was done to “increase the ‘technical and managerial competence of Nigerian nationals,’” who would then be reassigned. The District Court rejected this as a basis for personal jurisdiction over SPDC to SPDC. The cross-posted employees’ employment by SPDC was terminated, and they became employees of the host affiliates, and the court found that any business they conducted in the United States was conducted for other Shell affiliates, rather than SPDC. Although SPDC retained an interest in the cross-posted employees, the court found that its purpose in sending the employees to the United States was to “increase their subsequent utility in Nigeria” rather than to “generat[e] or otherwise conduct[] business” on behalf of SPDC.

Third, the court rejected the plaintiffs’ argument that SPDC’s recruitment of employees in the United States provided a basis for jurisdiction. SPDC recruited most of its employees in Nigeria, but also engaged Shell People Services (“SPS”), another Shell affiliate, to recruit employees in the United States and Europe. Each year, Shell operating companies, including SPDC, provide SPS with a list of the number and type of employees they hope to recruit for open positions, and SPS assigns responsibility for filling each position to its branch offices, including SPS’s Houston office. SPS then charges each operating company a fee for each successful hire. The Kiobel court held that SPS’s recruiting activities in the United States could not be imputed to SPDC, because SPS did not act as SPDC’s “agent,” in that SPS lacked authority to bind SPDC, and performed services for numerous entities other than SPDC. The court went on to hold that there would be no basis for jurisdiction even if SPS were considered SPDC’s agent, because SPDC did most of its own recruiting in Nigeria, and there was no evidence that SPS had recruited any employees for SPDC from the United States in 2002, 2003 or 2004.

The Kiobel decision makes clear the importance, in ATS litigation, of maintaining corporate formalities. By definition, ATS litigation concerns conduct occurring in countries other than the United States, and basic fairness (as well as judicial economy) dictates that disputes concerning such conduct should, to the extent possible, be resolved where they occur. In Kiobel, the careful maintenance of boundaries between subsidiaries performing separate functions allowed the Shell Group to avoid litigation in a New York federal court based on conduct by SPDC — a Nigerian company operating entirely in that country — over conduct occurring entirely in Nigeria and with no relationship to the United States. Similarly-situated MNCs at risk of ATS litigation would be well-advised to review their organizational structure with this in mind.

1 The Kiobel plaintiffs also sought discovery on claims that jurisdiction could be based on a public relations campaign concerning SPDC’s activities and “targeted” at the U.S., and contracts between SPDC and the U.S. Agency for International Development. They did not, however, press those arguments on the motion to dismiss.