International organisations may consider taking practical steps to limit their exposure to U.S. lawsuits after the U.S. Supreme Court’s decision in Jam v. International Finance Corporation

Volterra Fietta Client Alert
2 May 2019

On 27 February 2019, the U.S. Supreme Court broadened the potential pathways to sue international organisations (“IOs”) in U.S. courts in the closely watched case of Jam et al. v. International Finance Corporation.[1]  The Supreme Court’s decision increases the possibility that IOs, including development banks, may find themselves named as defendants in mass tort and class action lawsuits in the United States.  IOs should therefore consider taking practical steps to mitigate their risk of being subject to the jurisdiction of U.S. courts for such lawsuits.

Over the last several years, private law firms and NGOs have worked together to file U.S.‑based mass tort and class action lawsuits against IOs for hundreds of millions of dollars in damages.  These include lawsuits against the United Nations for the Haitian cholera epidemic and against the IFC for alleged human rights violations and environmental torts for projects outside the United States.  U.S.-based lawsuits can be expensive and time-consuming.  Simply by being filed, they can generate negative impacts on an IO’s reputation.  Moreover, if successful, mass tort and class action lawsuits can lead to considerable damages, sometimes up to tens or hundreds of millions of dollars.

In Jam v. IFC, the Supreme Court considered precisely this type of class action lawsuit.  In the case, an environmental NGO filed a class action lawsuit against the IFC purportedly on behalf of local farmers and fishermen who were harmed by pollution connected to an IFC‑funded development project in Gujarat, India.[2]  Previously, some U.S. courts – including, pivotally, the U.S. Court of Appeals for the District of Columbia – had found that the U.S. International Organizations Immunities Act (“IOIA”)[3] granted “absolute immunity” to designated IOs that protected them from any lawsuit in U.S. courts, without exception.  Relying on that precedent, the lower federal courts had ruled that IFC enjoyed absolute immunity from any lawsuit and had dismissed the plaintiffs’ claims.

The Supreme Court disagreed.  A 7-1 majority of the Supreme Court[4] instead ruled that organisational immunity under the IOIA is a “restrictive immunity” that incorporates the limited exceptions to immunity applied to foreign governments under the U.S. Foreign Sovereign Immunities Act (“FSIA”).[5]  The Supreme Court’s ruling in Jam v. IFC thus allows lawsuits to proceed against IOs if a plaintiff can prove that an exception to immunity in the FSIA applies.

As a result, the risk of U.S. mass tort and class action lawsuits has somewhat increased for IOs.  IOs, including development banks, may therefore be well-advised to take practical steps in line with their values and goals to limit their exposure to such lawsuits.

Such practical steps can include conducting human rights due diligence and constructing a comprehensive and effective operational grievance mechanism for local populations to raise human rights and other concerns related to development projects.  These measures could satisfy evolving international standards and an organisation’s ethical values.  If done properly, they may also limit an IO’s potential liability in U.S. and other courts.

In addition, an IO should carefully assess the level of immunity it likely still enjoys under U.S. law.

• First, only specific IOs that have been listed by the President of the United States can claim organisational immunity under the IOIA.[6] After Jam v. IFC, each listed IO should familiarise itself with the exceptions to its immunity set forth in the FSIA.[7]  For many of those exceptions, an IO could preserve its immunity by abstaining from commercial acts or activities in the United States.
• Second, in Jam v. IFC, the Supreme Court left open the possibility that IOs whose charters or conventions provide for absolute immunity could still enjoy that immunity.[8] But that would likely only apply if the U.S. was a party to that charter or convention.
• Third, all other IOs may not enjoy immunity in U.S. courts. They must therefore look to other legal doctrines to mitigate the risk of being sued in U.S. courts.  These can include the presumption that U.S. laws only apply within the territory of the United States, a doctrine the U.S. Supreme Court has strengthened in recent years;[9] the concept of forum non conveniens, where U.S. courts refuse to hear cases that are better heard in another jurisdiction; and the Act of State doctrine, where U.S. courts will not hear disputes about a foreign government’s acts in its own territory.  IOs that enjoy some form of immunity in the U.S. can also rely on the same doctrines.

In addition, IOs may also be able to mitigate the risk of having to appear before U.S. courts by limiting their contacts with the U.S. for each project.  This includes conducting contract negotiations and executing contracts outside the U.S.  It can also include, where applicable, overseeing projects from outside the U.S.  IOs should also consider avoiding references to U.S. laws in governing law clauses.  Subject to the applicable governing law, it might also be possible to put contract clauses in project and funding agreements that (1) require any third party claiming a right or interest in the contract to bring their dispute to arbitration and (2) limit the scope of punitive and other excessive damages.

In the end, an IO may want to work proactively to formulate a considered U.S. litigation risk strategy that reflects its values, standards and interests.

***

Robert Volterra is a partner, and Gunjan Sharma is an associate, at Volterra Fietta, the public international law firm.  The attorneys at Volterra Fietta have significant experience in consular, state and organisational immunity and with business and human rights planning and litigation.  This article represents the views of the authors and not the views of their firm or their clients.  Please contact the authors at Robert.Volterra@volterrafietta.com and Gunjan.Sharma@volterrafietta.com with any questions or comments on this article.

[1]      586 U.S. __ (2019) (publication pending).

[2]     586 U.S. __, at *2.

[3]     22 U.S.C. § 288 et seq.

[4]     Justice Kavanaugh took no part in the consideration or decision of the case.

[5]    28 U.S.C. § 1602 et seq.

[6]    22 U.S.C. § 288.  The complete list of those IOs can be found here

[7]    Those exceptions include an express or implied waiver of immunity; commercial activity in the United States; acts           performed in the United States in connection with commercial activity; commercial activity abroad that causes               direct effects in the United States; claims to expropriated property present in the United States; tortious damage             in the United States; and a limited waiver to enforce arbitration agreements and their awards.  28 U.S.C. § 1605.

[8]    586 U.S. __, at *14.

[9]    See Kiobel v. Royal Dutch Petroleum Co., 569 U.S. 108 (2013); Daimler AG v. Bauman, 571 U.S. 117 (2014); RJR                     Nabisco v. European Community, 136 S. Ct. 2090 (2016); Jesner v. Arab Bank, PLC, 138 S. Ct. 1386 (2018).