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Justices Seem Poised To Increase Cos.' Liability Overseas


Time to Read: 14 minutes Practices: Supply Chain Compliance & Corporate Social Responsibility

This article by partner Douglas Hallward-Driemeier and associate Jonathan Ference-Burke and Jane Tomic was published by Law360 on February 27, 2020.

For corporations that are increasingly targets of lawsuits seeking to impose retroactive liability for their overseas activities, the Feb. 24 oral argument before the U.S. Supreme Court in Opati v. Sudan suggests the case may prove another example of the adage that bad facts make bad law.

The case concerns whether a 2008 amendment to the Foreign Sovereign Immunities Act, or FSIA, applies retroactively to permit the recovery of punitive damages in claims against foreign states for terrorist activities that occurred prior to the amendment’s passage. The defendant in the case, the Republic of Sudan, is hardly sympathetic.

It is a designated state sponsor of terrorism that has been found responsible for providing critical support for al Qaeda’s bombings of U.S. embassies abroad that killed or injured over 150 Americans and U.S. embassy employees. Sudan knew at the time of the bombings not only that its conduct was wrong, but that it would be subject to suit for that conduct in the courts of the U.S.

Moreover, Sudan, as a foreign state, has no due process rights under the U.S. Constitution that could shield it from immediate application of any shift in U.S. foreign policy. In light of all that, it is perhaps not surprising that the Supreme Court had little sympathy at oral argument for Sudan’s complaint about being subject to Congress’ post-bombing legislation that would newly expose Sudan to punitive damages for its terrorist acts.

What is potentially more problematic, however, is the way the court seems poised to reject Sudan’s argument. Rather than rely on the specific characteristics of Sudan as a foreign state, the court seems like it may water down — at least compared to the U.S. Court of Appeals for the District of Columbia Circuit’s understanding — the presumption against retroactive imposition of new substantive liabilities.

As it relates to private parties, that presumption has its roots in fundamental principles of due process of law. The consequences of the Opati decision, therefore, may be significant to the ever-expanding categories of companies and individuals who find themselves sued on retroactive theories of liability for international human rights claims, including new amendments to the Anti-Terrorism Act.

The briefing in Opati highlighted the ongoing tension between two established legal principles: the long-standing presumption against retroactive application of new legislation — articulated prominently in the court’s 1994 decision in Landgraf v. U.S.I. Film Products — and the judiciary’s historical deference to the political branches in matters involving foreign policy — even, as in Republic of Austria v. Altmann, when it involves applying new exceptions to foreign sovereign immunity to state actions that took place when the foreign government would have been immune from such suits.

And as complicated as the case would be if it only involved these competing first principles, nearly every aspect of the Opati litigation adds a new layer of complexity. The statutory scheme at issue is thorny; each side asks the court to decide issues beyond the question on which certiorari was granted; and the petitioners and the U.S. (which supports them as amicus) disagree on core aspects of the legal analysis for reaching the same result.

While the case seemed initially to focus on how to resolve competing legal principles as they relate to foreign sovereigns, oral argument suggests the court might avoid the more complicated aspects of the relationship between Landgraf and Altmann. Instead, the justices appeared to lean toward a narrower ruling, that Congress had spoken with sufficient clarity with regard to the retroactive application of punitive damages, notwithstanding the ambiguity identified by the D.C. Circuit, which had struck the punitive damages award.

While the court seems disinclined to make broad pronouncements about the role of the judiciary and its level of deference to the political branches in the timing and execution of foreign policy decisions, a decision that avoids those issues may nonetheless have far-reaching effects. Depending on how the court articulates its reasoning, the decision could play a significant role in how courts interpret the retroactivity of claims brought against private defendants under similar statutes, like the ATA.

As the substantive causes of action available under these statutes expand, such as through the recent addition of aiding-and-abetting “secondary” liability claims to the ATA, litigants are likely to continue to test the contours of retroactivity — especially given the astonishingly large damage awards such litigation can yield.

Background

The procedural background of the case is interwoven with major revisions to the FSIA enacted during the litigation’s lengthy history. This article discusses first the relevant parts of the FSIA and the changes that Congress made before turning to the present litigation and its likely impacts.

The FSIA

The FSIA affords a general grant of sovereign immunity to foreign states, subject to exceptions. The general exceptions are codified at 28 U.S.C. Sections 1605 and 1607, but the scope of a foreign state’s liability under those exceptions is limited by Section 1606, which explicitly removes the possibility of punitive damages as a remedy for “any claim for relief with respect to which a foreign state is not entitled to immunity under section 1605 or 1607.”

Before 2008, the terrorism exception in the FSIA was codified in 1996 as a general exception, in Section 1605(a)(7), and was thus explicitly subject to Section 1606’s restriction on punitive damages.

In 2008, Congress amended the FSIA, including by making substantive and structural changes to the terrorism exception. Congress replaced the Section 1605(a)(7) exception with Section 1605A, an entirely new section passed as Section 1083 of the 2008 National Defense Authorization Act, or NDAA.

The NDAA moved the terrorism exception to sovereign immunity to 28 U.S.C. Section 1605A(a), and thus took it out of the explicit reach of Section 1606 — because 1605A is not “section 1605 or 1607.” The NDAA also created an explicit federal cause of action, codified in 28 U.S.C. Section 1605A(c), that permits claims against foreign states for certain acts of terrorism by U.S. nationals, U.S. employees and their personal representatives, including family members.

Previously, plaintiffs had invoked state or foreign tort law as the basis of claims for which Section 1605(a)(7) had abrogated foreign state immunity. Finally, Congress expressly provided for recovery of punitive damages on the basis of the new federal cause of action in Section 1605A(c), whereas such damages were previously expressly precluded by Section 1606.

Petitioners’ Claims

In August 1998, long before the NDAA adopted Section 1605A, al Qaeda forces executed multiple terrorist attacks against the U.S., detonating truck bombs at the U.S. embassies in Kenya and Tanzania and killing or injuring 159 U.S. government employees. The 567 petitioners in this case are the victims of the 1998 U.S. embassy bombings and their family or representatives. Some, but not all, of the petitioners are U.S. nationals.

Invoking the FSIA’s abrogation of immunity, petitioners filed four lawsuits in the U.S. District Court for the District of Columbia against Sudan seeking both compensatory and punitive damages and alleging that Sudan provided critical and essential support to al Qaeda in orchestrating the 1998 attacks. The first lawsuit was filed in 2001. Later, after the NDAA’s passage, many of the petitioners — those who were U.S. employees or nationals or family members of U.S. nationals — asserted claims under the FSIA federal cause of action, 28 U.S.C. Section 1605A(c).

Other petitioners — non-U.S. nationals who were family members of U.S. employees injured in the attacks — could not rely on the federal cause of action, and thus continued to rely on state or foreign law, but now invoked the new terrorism exception to sovereign immunity in 28 U.S.C. Section 1605A(a).

In 2011, the district court entered a default judgment against Sudan, which had largely failed to appear. After two years of additional proceedings to calculate damages, the district court awarded the petitioners over $10 billion, including approximately $4.3 billion in punitive damages. Although that remedy was not available at the time of the 1998 attacks, the petitioners argued that the 2008 FSIA amendments retroactively authorized the additional relief.

Sudan appealed. The D.C. Circuit affirmed in most respects, but vacated the punitive damages awards on the ground that the authorization of punitive damages under the 2008 FSIA amendments did not apply retroactively to claims arising out of pre-enactment conduct.

Considering several petitions for certiorari, the Supreme Court granted review only as to whether, pursuant to Altmann, the 2008 FSIA amendment “applies retroactively, thereby permitting recovery of punitive damages under 28 U.S.C. Section 1605A(c) against foreign states for terrorist activities occurring prior” to that date. So phrased, the question presented is limited to the federal cause of action adopted in 2008.

Two Threshold Questions

The U.S. and petitioners have asked the court to weigh in on an issue outside the four corners of the order granting certiorari: whether the 2008 amendments permit retroactive punitive damages awards for petitioners proceeding with state or foreign claims, on the ground that Congress’ re-enumeration of the terrorism exception to sovereign immunity as Section 1605A, rather than Section 1605, makes punitive damages available.

The U.S. and petitioners claim that this issue is “inextricably linked” to the question on which the court granted review. Unsurprisingly, Sudan asks the court to decline to address the issue, in addition to disputing the argument on the merits.

Oral argument suggested that, even if the court does not explicitly reach the question of the retroactivity of punitive damages for state or foreign claims, the court regards that question as closely related, and believes that its answer may well be dictated by the court’s resolution of the primary issue in the case.

Sudan has tried to raise a different threshold question — whether the case is properly in a U.S. federal court at all. Sudan had raised this issue in its own petition for certiorari, in case no. 17-1406, but the court has never acted on that petition, seemingly holding it for resolution after deciding Opati’s case.

Though the court could reach the question nonetheless on the theory that it goes to subject matter jurisdiction, oral argument suggested that the court was unlikely to give the argument significant attention. Justice Samuel Alito’s skeptical question of counsel for Sudan whether its reading of the statute would mean federal courts possess jurisdiction only when the terrorists who committed the acts were “officially on the payroll of the state” likely sums up the court’s attitude.

On the Merits

Briefing

On the central issue whether punitive damages are available retroactively against foreign nations for acts of terrorism under the new federal cause of action in 28 U.S.C. Section 1605A(c), Sudan and the U.S. each defended the D.C. Circuit’s holding that Landgraf’s clear statement rule must be satisfied as to every new remedy available.

The U.S. and Sudan disagree on the outcome under the Landgraf test. While the parties agree that those provisions suffice to make the federal cause of action retroactive, they part company on whether they are clear enough to do the same for the punitive damages remedy.

Sudan, in line with the reasoning of the D.C. Circuit, argues Congress made no clear statement within the 2008 amendments regarding the retroactivity of punitive damages. In support of this conclusion, the D.C. Circuit emphasized that, facially, Section 1605A is silent as to the retroactive application of punitive damages, and that the hodge-podge approach to finding a clear statement articulated by the plaintiffs was too far of a “logical leap” to accept.

The U.S., by contrast, contends that the 2008 amendments do constitute a clear statement requiring retroactive availability of punitive damages, since those amendments apply to an entire claim and all available forms of relief as if that claim had been filed pre-enactment. The U.S. also relies on legislative history, noting back-and-forth between Congress and the White House that appeared to contemplate that the punitive damages claims would be retroactive — which was a concern to the George W. Bush administration, in light of the potential exposure of a post-Saddam Hussein Iraqi government to such claims.

The petitioners, by contrast, urged the court to eschew Landgraf entirely in this case, arguing that the presumption against retroactivity is inapplicable to foreign states under Altmann. In the petitioners' view, the case should be decided based on the principle of judicial deference to the political branches in matters of foreign policy, including foreign sovereign immunity. The petitioners argue that Altmann mandates that all provisions in the FSIA, not just its jurisdictional exceptions to immunity, should be applied as they exist at the time of decision, because that state represents the political branches’ current foreign policy judgments.

The petitioners further contend that the constitutional principles underlying Landgraf’s presumption against retroactivity exist to protect against the unjust burdening of private rights, and are therefore inapplicable in the context of claims brought against a foreign sovereign, where even retribution could be a valid foreign policy objective. The D.C. Circuit had rejected this argument, holding that Altmann only addressed retroactive application of jurisdictional provisions, not retroactive application of a new substantive liabilities — and that, accordingly, Landgraf’s underlying principles of fairness and deterrence apply, regardless of the fact that the defendant was a foreign sovereign.

At Oral Argument

At oral argument, most of the eight justices hearing the case (Justice Brett Kavanaugh is recused) signaled a desire to issue a narrow decision focused primarily on the clarity of the 2008 amendments, sidestepping any broad reconciliation of Landgraf and Altmann. Moreover, the indications were that the court might well hold that the amendments were sufficiently to operate retroactively.

Justice Sonia Sotomayor summarized the view at one point, questioning the need to “get into the Landgraf/Altmann issue” and suggesting instead the court could “just see the plain language of the statute and say whatever — however we look at it through the Landgraf lens or the Altmann lens, Congress was clear: Punitive damages apply retroactively in this case.”

The justices appeared unconvinced by Sudan’s arguments. For example, Justice Ruth Bader Ginsburg emphasized that “the whole discussion of retroactivity ... is supposed to be based on people having the opportunity to know what the law is and conform their conduct to it,” before skeptically asking Sudan’s counsel whether Sudan was maintaining that it “might have withheld [its] aid to Al Qaeda just to prevent exposure to punitive damages.”

Justices also repeatedly pressed Sudan’s counsel on Sudan’s attempt to distinguish retroactivity of the federal cause of action, which Sudan had conceded, from the punitive damages remedy. Significantly, several justices seemed to suggest that Sudan’s arguments might have fared better in a different context — for example, as constitutional due process claims about fair notice — rather than as attempts to avoid what the justices perceived to be fairly straightforward statutory language.

Counsel for the U.S. similarly noted, “Sudan hasn’t raised th[e] issue” of whether retroactive imposition of punitive damages would violate Sudan’s due process rights, likely since courts have generally declined to extend due process claims to sovereign nations.

Implications

In Opati, the court is presented with an opportunity either to reinforce Landgraf’s protections against retroactive expansion of liability, or, alternatively, to carve out a clear exception to such protections for foreign sovereigns, via Altmann. Oral argument suggested that the court may do neither.

Yet, a seemingly narrow ruling that Congress spoke sufficiently clearly to impose retroactive punitive damages in this instance could nonetheless impact the strength of Landgraf’s protections for cases involving private parties. Notably, the D.C. Circuit felt Landgraf’s standard was not met, so a reversal would lower the protections afforded by Landgraf in that key jurisdiction.

If Landgraf is more easily satisfied, the courts will undoubtedly be presented with more arguments by private defendants that, notwithstanding Congress’ intent to apply new liabilities retroactively, doing so violates those defendants’ constitutional rights to due process. Given the difficulty of winning a due process argument on those grounds, a weakening of the Landgraf presumption would be a significant loss for defendants.

This broader issue is one of increasing relevance to large corporations, especially as it relates for their international activities. Plaintiffs are filing an increasing number of suits under analogous statutes that present similar retroactivity questions.

For example, Atchley v. AstraZeneca UK Ltd. is a case brought under the ATA against a group of defendants that includes pharmaceutical manufacturers and medical equipment companies. In that case, the plaintiffs rely on the 2016 Justice Against Sponsors of Terrorism Act, which is susceptible to similar debates about retroactivity and scope as the NDAA in Opati.

In other cases, plaintiffs have targeted banks under the ATA. Plaintiffs seem willing to use the ATA and new amendments to sue defendants with ever-more-attenuated links to the underlying terrorist acts, seeking to expand the scope of the law in search of massive damage awards, just as they sought to do under the Alien Tort Statute before the Supreme Court significantly cut back on its reach in Kiobel v. Royal Dutch Petroleum.

The private defendants in Atchley and similar cases may be able to raise the types of constitutional due process challenges that the Supreme Court hypothesized — but will not able to answer — in Opati. Justice Alito may yet get to decide the question he asked during oral argument: “In a case involving ... a private defendant, rather than a sovereign nation, are there constitutional limits on Congress’ ability to make punitive damages retroactive?”

In the meantime, we will await the decision in Opati to see how much, if at all, it waters down the Landgraf presumption against retroactivity from what the D.C. Circuit thought it afforded.

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