Jam v. IFC: Secondary Liability in Transnational Disputes

Later this month, the U.S. Supreme Court will consider a petition for a writ of certiorari in Jam v. International Finance Corp., a case that raises important questions about United States jurisdiction over cross-border disputes.  The case most immediately involves the scope of sovereign immunity where a foreign state or international organization takes actions in the United States that contribute to tortious conduct overseas.  But the case also has broader implications for secondary liability generally.

Under the Foreign Sovereign Immunities Act (FSIA), foreign sovereigns and their state-owned companies enjoy a presumption of immunity in U.S. courts.  The FSIA has several exceptions, including one for actions that are “based upon” the foreign state’s commercial activity in the United States.  28 U.S.C. §1605(a)(2).  The International Organizations Immunities Act (IOIA) grants international organizations like the International Finance Corporation the “same immunity from suit . . . as is enjoyed by foreign governments.”  22 U.S.C. §288a(b).  In an earlier decision in this same litigation, Jam v. International Finance Corp. (2019), the Supreme Court held that the IOIA provides the same immunity that Congress grants to foreign states at the relevant time.  International organizations are therefore entitled to immunity under the FSIA in many cases, but not if the action is “based upon” the organization’s commercial activity in the United States.

This latest petition for a writ of certiorari concerns how to determine whether a suit is “based upon” a defendant’s commercial activity in this country, particularly where the defendant’s conduct was not the most direct cause of the plaintiff’s injury.  In OBB Personenverkehr AG v. Sachs (2015), the Supreme Court held that the “based upon” standard requires a court to examine the “gravamen” of a claim.  In that case, for example, the Court held that an American plaintiff could not sue an Austrian railroad over an accident in Austria merely because the plaintiff had purchased a train ticket through an agent in the United States.

Jam involves an important variation on that question.  The case concerns the International Finance Corporation (IFC), a World Bank affiliate that promotes economic growth in developing countries by investing in their private sectors.  In 2008, the IFC loaned $450 million to an Indian energy company, Coastal Gujarat Power Ltd., which used the proceeds to construct a power plant in India.  Under the loan agreement, Coastal Gujarat was required to meet environmental and social requirements designed to protect the surrounding communities.  The IFC could withdraw support if Coastal Gujarat did not comply.

In 2015, a group of local residents sued the IFC in the U.S. District Court for the District of Columbia, alleging that coal dust and other pollutants from Coastal Gujarat’s plant had contaminated the local environment.  The plaintiffs asserted that the IFC had failed to adequately supervise the plant’s construction and to enforce the environmental and social conditions in the loan agreement.  The plaintiffs argued that the court had jurisdiction under the commercial activity exception because the IFC had made its funding and supervisory decisions at its headquarters in Washington, D.C., even if the borrower’s actions that caused the pollution took place overseas.

The U.S. Court of Appeals for the D.C. Circuit rejected the suit.  In that court’s view, the “gravamen” of the action was Coastal Gujarat’s construction and operation of the plant in India, not the IFC’s allegedly negligent funding and supervision of the project in Washington.  The court therefore held that the action was not “based upon” the IFC’s commercial activities in the United States.  The court reached that result even though the plaintiffs were asserting claims against the IFC for its negligent funding and supervision, not claims against Coastal Gujarat for defective construction and operation.

The plaintiffs’ latest cert petition seeks review of that decision.  As the petition explains, the D.C. Circuit’s decision has major ramifications for secondary liability claims against foreign sovereigns.  Many federal and state laws permit plaintiffs to sue not only the defendant that directly caused their injury, but also other parties that contributed to the injury, under theories such as agency, conspiracy, aiding and abetting, and so on.  The D.C. Circuit’s decision significantly restricts the viability of those secondary liability claims under the FSIA.  Even when all of a foreign sovereign’s conduct that contributed to an injury consisted of commercial activity in the United States, the D.C. Circuit’s decision would afford immunity if the primary wrongdoer’s conduct occurred overseas.  As petitioners emphasize, that rule could have broad implications in a variety of contexts, such as suits against foreign state-owned companies that use the U.S. banking system to fund human-trafficking abroad, or suits against foreign state-owned companies that take actions in the United States to support global price-fixing schemes.

Jam is only the latest of several contexts where courts have grappled with how far to extend U.S. jurisdiction over claims for conduct that contributes to, but does not directly cause, a plaintiff’s injuries.  Another context is material support for terrorism.  The original FSIA included a “noncommercial tort” exception that permitted plaintiffs to sue for “personal injury or death, or damage to or loss of property, occurring in the United States,” subject to limitations.  28 U.S.C. §1605(a)(5).  Courts interpreting that exception adopted an “entire tort” rule that required all the tortious conduct to occur in the United States.  That rule precluded claims where a foreign state provided material support for terrorism abroad, even if the terrorist act ultimately occurred here.

In 1996, Congress enacted a new exception, now codified at 28 U.S.C. §1605A, that explicitly applies to material support for terrorism, and which courts construed to apply extraterritorially.  That exception, however, applies only to foreign states the executive branch has designated as state sponsors of terrorism.  The “entire tort” rule therefore continued to preclude recovery in many cases.  In 2016, after a district court relied on the rule to dismiss claims accusing Saudi Arabia of supporting the 9/11 attacks, Congress enacted the Justice Against Sponsors of Terrorism Act.  That statute created a new exception to immunity at 28 U.S.C. §1605B that applies to injuries caused by “an act of international terrorism in the United States” and “a tortious act or acts of the foreign state . . . regardless where the tortious act or acts of the foreign state occurred.”  The statute thus reaches situations where a foreign state engages in tortious conduct overseas that results in a terrorist attack, so long as the attack itself occurs in the United States.

Those same sorts of questions arise in suits against private companies too.  The Alien Tort Statute, 28 U.S.C. §1350, provides a civil cause of action in favor of foreign citizens for acts committed in violation of international law.  For many years, plaintiffs relied on that statute to sue multinational corporations for human rights abuses in foreign countries.  In Kiobel v. Royal Dutch Petroleum Co. (2013), the Supreme Court sharply curtailed such suits by holding that the Alien Tort Statute does not overcome the presumption against extraterritoriality and thus does not apply where the tortious conduct occurs outside the United States.

Disputes persisted over how that holding applied where some but not all the conduct that contributed to the tort occurred in the United States.  In Nestlé USA, Inc. v. Doe (2021), plaintiffs sued U.S. companies that processed and sold cocoa on the theory that they had aided and abetted child slavery in the Ivory Coast by providing training, fertilizer, tools, and cash to farms that relied on child labor there.  The plaintiffs argued that the companies had engaged in tortious conduct in the United States because they had made financing and operational decisions from their headquarters here.  The Supreme Court disagreed, holding that “general corporate activity” was not sufficient to make the claims domestic for purposes of the Alien Tort Statute.  Judge Randolph, concurring in Jam, relied on the Supreme Court’s reasoning in Nestlé to support the panel’s construction of the FSIA.

In other contexts, the Supreme Court has taken on secondary liability directly.  Most famously, in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A. (1994), the Court held that private plaintiffs could not bring claims for aiding and abetting under the federal securities laws.  Defendants have made similar arguments against aiding and abetting claims under the Alien Tort Statute.  To date, courts have continued to allow such claims, while enforcing other limits – such as the presumption against extraterritoriality at issue in Nestlé – that have the practical effect of sharply restricting secondary liability.

Secondary liability can be particularly contentious in transnational disputes.  Plaintiffs often urge that the primary wrongdoers – an Indian construction company, cocoa farmers in the Ivory Coast, and (especially) international terrorists – are doubtful or even unrealistic targets for meaningful recovery.  Precluding secondary liability thus often forecloses any remedy to the injured plaintiff altogether.  Defendants, by contrast, urge that American-style joint and several liability can produce disproportionate judgments against secondary actors who bear only a portion of the responsibility for the plaintiff’s losses.  Those competing concerns are put in sharp relief where multiple legal regimes, each potentially applicable to a dispute, take different views about the extent to which secondary actors should be held financially responsible.  Jam is merely the latest case in which the Supreme Court will have to navigate those thorny issues.