CORPORATE UPDATE

Human Rights Abuses

Suits Attempt to Extend Liability to Corporations

The New York Law Journal
September 4, 1997

BY DOMINIC BENCIVENGA

CORPORATIONS doing business abroad have a new reason to worry: If they fail to monitor how their overseas partners treat workers, they could become targets of human rights suits.

Corporate governance attorneys are keeping a close eye on two cases pending in federal district courts -- one in Los Angeles and another in the New York's Southern District -- alleging corporate violations of international human rights. The suits were brought under the Alien Tort Claims Act, enacted by Congress in 1789. The Act was little used until 1980, when the U.S. Court of Appeals for the Second Circuit affirmed its application to human rights cases.

The suits, believed the first to be brought against corporations, were filed by a coalition of attorneys including the Center for Constitutional Rights in New York. They are the latest step in a 17-year effort to enforce human rights claims under the law, which allows aliens to sue in the United States for torture and forced labor "committed in violation of the law of nations." The cases build on legal standards established by the Second Circuit in 1995 when it expanded the scope of those who can be sued under the Act to reinstate two human rights cases charging Bosnian-Serb leader Radovan Karadzic with torture.

Although the law specifically applies to private citizens, it also should apply to corporations, attorneys said.

"For almost all areas of the law, a corporation has liability just like a person if the corporation is the wrongdoer," said Judith Brown Chomsky, an attorney working with the Center for Constitutional Rights, who is representing plaintiffs in both cases. "If any person can be liable under the statute, then a corporation can be liable."

Claims of Torture

That logic has prevailed so far in the Los Angeles suit filed on behalf of 15 villagers from a region of Myanmar, formerly Burma, against Unocal Corp., its two top executives, and Total S.A., a French company. The energy companies are partners in a joint venture with the Myanmar military government to build a $1.2 billion pipeline through Myanmar into Thailand in John Doe v. Unocal Corp., 963 F. Supp. 880.

The suit charges that Unocal and Total conspired with the Myanmar government to relocate villages and enslave villagers to work on the pipeline. The companies ignored warnings and evidence that the government forces were torturing, raping and murdering workers, the suit claims.

Unocal denies any wrongdoing.

U.S. District Judge Richard A. Paez startled some members of the corporate community in March by denying Unocal's motion to dismiss. The plaintiffs, he said, may be able to prove claims that Unocal "knew or should have known" that forced labor was being used, and that the company benefited through lower project costs. He also found that the Myanmar government and a state-owned energy company were entitled to sovereign immunity. Judge Paez is scheduled to hear motions this month and next to certify the class, and on a request to stop Unocal and Total from paying the Myanmar government while the case is pending. Total plans to request that the suit be dismissed.

A motion to dismiss is also pending in the Southern District case, Wiwa v. Royal Dutch Petroleum Inc., 96 Civ. 8386, which involves charges that Royal Dutch conspired with the Nigerian military to torture and murder Nigerian citizens. Royal Dutch owns Shell Petroleum Inc., which has offices in New York.

The 'Caremark' Effect

Some attorneys say the effect of Unocal will be to drive companies to develop or improve international standards and practices for foreign subsidiaries and to increase inspections of factories or projects, much like last year's Delaware Chancery Court ruling, In re Caremark International Inc. Derivative Litigation, 1996 Del. Ch. Lexis 125, prompted corporate counsel to protect directors from personal liability for damages by improving compliance programs.

"Unocal is going to be a vehicle to push people [internationally] like Caremark was the vehicle to push people in the corporate governance area," said Carole Basri, executive director of the Greater New York Chapter of the American Corporate Counsel Association. Even if Unocal is not found liable, "in the future, [companies] are on notice that they may not get by the next time around," she said.

But corporate governance experts point out that the legal doctrine is still developing, particularly the standards of proof and the level of knowledge needed to prove liability for human rights abuses.

The standard in Judge Paez's ruling "raises a lot of questions," said Gregory J. Wallance, a partner at Kaye, Scholer, Fierman, Hays & Handler LLP. Knowing about forced labor is "one thing, but 'should have known'? What does that mean? And how do you prove that the company should have known?"

A Law Develops

Much of the body of law on the Alien Tort Claims Act has developed since 1980, when the Second Circuit allowed the family of a Paraguayan man who was tortured and killed by a Paraguayan police official to sue in the U.S. when the official moved here. Filartiga v. Pena-Irala, 630 F2d 876. The case opened the door for a number of suits against foreign officials.

The Second Circuit took Filartiga a step further in its 1995 ruling in Kadic v. Karadzic, 70 F.3d 232, which established that the law covered human rights violators who are not "acting on behalf of a recognized government," as well as those who conspire with a state to commit human rights violations, said Jennifer M. Green, a staff attorney with the Center for Constitutional Rights who is involved in the Unocal and Royal Dutch cases.

"With the Unocal decision, we established firmly that it can also be private actors," such as corporations, she said.

Human rights attorneys said they plan to bring more cases against corporations on the theory that the threat of paying multi-million dollar judgments might force the companies to improve their human rights records. "If sheer morality doesn't do it, maybe hitting the pocketbook of companies will make a difference," Ms. Green said.

Standards of Proof

Unocal, however, denies there have been any human rights abuses on the pipeline project. The company said it conducted on-site tours and hired an independent contractor to examine working conditions. In addition, the company warns its employees to avoid practices that could violate the Foreign Corrupt Practices Act, including forced labor.

"We've done our own due diligence in the pipeline area, and we are convinced the claims are without merit," said Dennis P.R. Codon, Unocal's general counsel and chief legal officer. "The accusations that we have been involved in torturing people or providing some human suffering: it's bizarre."

He added that the project has created jobs paying much more than the prevailing wages, helped develop numerous support industries and sparked health and social programs including malaria prevention education.

If the suit is successful, Mr. Codon said it "could have a chilling effect with regard to foreign investment."

While the actions alleged in the Unocal and Royal Dutch cases are recognized internationally as human rights violations, the plaintiffs still face a formidable task in proving their claims, attorneys said.

Key areas still undefined are the amount and quality of information a company should have about violations; which acts constitute a tort; and how much of a direct or indirect benefit a company must receive before it is liable under the Tort Claims Act.

"What [Unocal] leaves open is just how far does the Alien Tort Claims Act go?" Mr. Wallance said. "What degree of knowledge should be sufficient? Some anecdotal reports? Affidavits by farmers claiming that their land was taken away and they were forced into slavery, or do you need direct evidence of the company's knowledge such as admissions in company documents?"

The Unocal case was brought to U.S. attorneys by human rights groups in Asia who found the plaintiffs and

helped gather evidence, attorneys said. But in the future, fact-finding within many countries could be a struggle, making it difficult to distinguish systemic abuse from isolated cases.

It is also unclear how courts would view other cases that might not include allegations of such egregious violations.

"If an American corporation used Chinese prison labor, and the prisoners were being tortured or beaten to perform jobs, and the corporation was involved in that, they might be hooked, like Unocal," said Jack Greenberg, a professor at Columbia University School of Law. "On the other hand, if they used labor that was displaced from a province, it might not be considered to cross that line."