Socialfunds: To Avoid Risk of Alien Tort Claims Act Cases, Companies Must Improve Human Rights

SocialFunds.com -- Late last month, a federal jury delivered the verdict in the first corporate Alien Tort Claims Act (ATCA) case to make it through trial, finding Drummond coal company not complicit in the 2001 murder of three union leaders at one of its mines in Colombia. Drummond’s reprieve may be temporary, however, as the plaintiffs filed appeals protesting the judge’s exclusion or limitation of eye-witness testimony linking the company’s Colombian operations with the murders by right-wing paramilitary troops.

A host of other companies face legal, reputational, and financial risks as defendants in cases based on the 1789 law that allows non-citizens to seek legal recourse in US courts for violations of international law. While the law was originally intended to protect US financial interests from piracy on the high seas, it was revived in the early 1980s to seek accountability for overseas human rights violations, such as extrajudicial killings. The early-1990s saw the first ATCA case filed against corporations, and now dozens of companies face such suits.

Earlier this week, a federal judge blocked a motion by Chevron, whose subsidiary Texaco faced the first corporate ATCA case in 1993, to dismiss an ATCA case in which EarthRights International alleges company complicity in torture and wrongful death of Nigerian villagers.

And last month, EarthRights filed an ATCA case against Chiquita, which earlier this year admitted to the US Justice Department that it paid right- and left-wing paramilitaries in Colombia, which are officially deemed terrorists, money to protect its workers.

Other companies, including Coca-Cola, Exxon-Mobil, Firestone, Shell, and Wal-Mart, face ATCA cases, and they should not necessarily consider the Drummond not guilty verdict as setting a precedent predisposing them toward winning their cases.

“One negative jury verdict is not that important: look at the tobacco litigation, where for twenty years the few cases that went to trial were unsuccessful,” said Cynthia Williams, a business law professor at Toronto’s York University on leave from University of Illinois. “It is significant that these cases can withstand motions to dismiss and go into discovery and ultimately trial--the process of discovery will allow a procedure for getting the facts developed under oath and getting access to internal documents, e-mails, and other material, potentially giving valuable evidence of companies' internal operations.”

“Moreover the process of ATCA litigation generally will affect and broaden--slowly, no doubt, but probably inexorably--the scope of claims that will be cognizable under the ATCA,” Prof. Williams told SocialFunds.com.

This is one of the primary points Prof. Williams makes in a paper she co-authored with John Conley of the University of North Carolina, “Is There an Emerging Fiduciary Duty to Consider Human Rights?” Profs. Williams and Conley propose three dynamics driving this emerging attenuation to human rights: laws, specifically ATCA; market forces, particularly institutional investor activism; and norms, namely the UN Global Compact promoting corporate responsibility.

ATCA operates on all three levels, the authors note: in the legal venue of the courtroom, in the marketplace of public opinion responding to allegations, and in the normative sphere where the ever-present threat of ATCA encourages companies to improve their human rights policies and practices to avoid litigation.

“The risks to business reputation from credible allegations of human rights abuses create incentives for companies and directors to consider these issues seriously, irrespective of whether an ultimate finding of liability is likely,” the authors write.

The paper, written before the Chiquita ATCA case, cites Chiquita for developing best practice in corporate social responsibility (CSR) in response to shareowner activism by socially responsible investors (SRIs) in the early 1990s over its environmental and human rights record in Latin America. The company partnered with the Rainforest Alliance to develop the Better Banana “Seal of Approval” and also met S A 8000 social and environmental standards.

The EarthRights ATCA case filed against Chiquita last month hinges on the company’s admission that it had paid $1.7 million from 1997 to 2004 to right- and left-wing paramilitary groups to protect its workers. The company paid both the rightist United Self-Defense Forces of Colombia, known as AUC for its Spanish initials, as well as leftist Revolutionary Armed Forces of Colombia, or FARC--both deemed terrorist organizations by the US government-—depending on which controlled its banana-growing areas at the time.

“We think Chiquita’s admission makes this an open-and-shut case,” said Rick Herz, litigation coordinator for EarthRights. “What they admitted to is a federal crime, and they were complicit with AUC, the architect of some of the worst massacres in the Western hemisphere in the last 20 years, so whatever good they’ve done, it certainly pales in comparison to the evil they’ve done in Colombia.”

“What they didn’t admit to in this criminal indictment is that they were also running guns to the AUC--that was documented by the Organization of American States,” Herz told SocialFunds.com.

Chiquita maintains that the payments were solely intended to protect its workers.

“I think that the way the company handled the problem of having paid protection money in Columbia demonstrates responsibility because of my view that no one--no person, no company--is perfect, and thus we'll make mistakes,” Williams said. “The question is, what do we expect from people and companies in advance to try to limit the number of mistakes, and what do we expect ex-post to address them?”

“Here, I think that Chiquita became involved in operations in Colombia before its CSR culture took hold, and then did not act to extricate itself fast enough, which was a mistake in judgment, in retrospect,” Williams continued. “But they were the ones who came forward to the Department of Justice, which is what government regulators like to see, and it does demonstrate responsibility, to my mind, and as far as I can tell have they been honest about the problems with their stakeholders.”

Rainforest Alliance agrees.

“We think that Chiquita did the right thing by reporting these payments to the government and accepting the consequences,” Julianne Baroody?of Rainforest Alliance said. The company paid a $25 million fine to the US government, and sold its Colombia subsidiary at a significant financial loss--though it ensured that the farms maintained their social and environmental certification.

Herz is less sanguine about the consequences for Chiquita.

“Companies engaged in human rights abuses the way Chiquita pay not just a moral price, but also a corporate price, because when people see Chiquita bananas, they’re going to say, ‘this funded death,’” said Herz. “I’d rather eat bananas that don’t have blood on them.”