Lucien J. Dhooge, Due Diligence as a Defense to Corporate Liability Pursuant to the Alien Tort Statute

• Publication year: 2008

DUE DILIGENCE AS A DEFENSE TO CORPORATE LIABILITY PURSUANT TO THE ALIEN TORT STATUTE

Lucien J. Dhooge^*

INTRODUCTION .............................................................................................. 456

I. THE FRAMEWORK FOR BUSINESS AND HUMAN RIGHTS ..................... 460

A. Overview ..................................................................................... 460

B. The Corporate Responsibility to Respect Human Rights ........... 465

II. RECOGNIZING AND FORMULATING A DUE DILIGENCE DEFENSE TO

ATS LIABILITY ................................................................................... 469

A. Recognizing Due Diligence as a Defense ................................... 469

B. Formulating a Due Diligence Defense ...................................... 476

C. The Benefits of Recognizing a Due Diligence Defense .............. 482

CONCLUSION .................................................................................................. 496

The business and human rights debate currently lacks an authoritative focal point. Claims and counter-claims proliferate, initiatives abound, and yet no effort reaches significant scale. Amid this confusing mix, laggards-States as well as companies-continue to fly below the radar.¹

INTRODUCTION

On April 7, 2008, John Ruggie, the Special Representative of the United Nations' Secretary-General on the issue of human rights and transnational corporations, issued a report entitled "Protect, Respect and Remedy: A Framework for Business and Human Rights" (Framework).²The Framework was the product of a three-year research and consultative process commissioned in July 2005 by the Secretary-General.³Special Representative

Ruggie's mandate included "identify[ing] and clarify[ing] standards of corporate responsibility and accountability for transnational corporations . . . with regard to human rights . . . [and] compil[ing] a compendium of best practices of States and transnational corporations."⁴

The Framework identified labor rights and non-labor rights, which included rights relating to personal welfare and environmental protection, as impacted by transnational corporations.⁵However, unlike its predecessor, the "Norms on the Responsibilities of Transnational Corporations and Other Business

Enterprises with regard to Human Rights" (Norms), the Framework concluded that the business and human rights debate could not be resolved by merely listing rights that transnational corporations ignored at their peril.⁶Rather, the "root cause of the business and human rights predicament" was "governance gaps" between economic forces and actors and the ability of the societies in which they operated to manage adverse consequences.⁷These governance gaps could be addressed through a framework comprising three core principles, specifically, "the State duty to protect against human rights abuses by third parties, including business; the corporate responsibility to respect human rights; and the need for more effective access to remedies."⁸The Framework was designed to serve as a conceptual and policy basis for achievement of

"more effective protection to individuals and communities against corporate- related human rights harm."⁹The three principles were intended to form "a complementary whole in that each supports the others in achieving sustainable progress" on the issue of human rights and business.¹⁰The United Nations

Human Rights Council approved the Framework in June 2008, which was the first time that the Council had endorsed a substantive statement on this topic.¹¹

The responsibility to respect human rights serves as "the baseline expectation for all companies in all situations."¹²Corporate decision-making bodies could discharge this duty by engaging in due diligence "to become aware of, prevent and address adverse human rights impacts."¹³The Framework concluded that transnational corporations could satisfy procedural aspects of due diligence by analyzing the country context in which their activities occurred and by determining their human rights impacts and whether such activities might contribute to abuses.¹⁴Corporations could derive substantive guidance from the International Bill of Rights as well as the core conventions of the International Labor Organization (ILO).¹⁵

In the United States, human rights and the operations of transnational corporations have intersected through litigation filed pursuant to the Alien Tort Statute (ATS). The ATS provides that "[t]he district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States."¹⁶Largely dormant from the time of its inclusion by the U.S. Congress in the Judiciary Act of 1789, the ATS has proven contentious since its reinvigoration as a tool by which alien plaintiffs seek to hold foreign government officials liable in the United States for human rights violations.¹⁷Its more recent utilization against transnational corporations for alleged complicity in human rights abuses associated with their foreign investment activities has proven even more controversial.¹⁸

This Article advocates the creation of a defense to ATS claims derived from a combination of the due diligence approach set forth in the Framework and the business judgment rule from corporate law. The Article contends that business decisions should be immunized from ATS liability if they are the product of the exercise of due diligence. The Article concludes that if transnational corporations are not accountable for human rights violations occurring despite the exercise of due diligence, such a standard should also serve as a defense to attempts to enforce international norms in a domestic context as provided by the ATS.

I. THE FRAMEWORK FOR BUSINESS AND HUMAN RIGHTS

A. Overview

The Framework developed as a result of perceived shortcomings in the legal environment regarding the relationship between transnational corporations and human rights, including three efforts undertaken in the 1990s by the Sub-Commission on the Prevention of Discrimination and Protection of

Human Rights.¹⁹These efforts initially led to the drafting of the Norms in

2003.²⁰The Human Rights Commission rejected the Norms in April 2005, and requested that the Secretary-General appoint a special representative to undertake a new effort to address the human rights impacts of transnational business activity.²¹This representative received a five-part mandate for an initial period of two years.²²Secretary-General Kofi Annan appointed John

Ruggie as Special Representative in July 2005.²³

Ruggie conducted numerous consultations and research projects and received voluminous submissions.²⁴In addition, Ruggie filed three reports with the Human Rights Commission. In his first report filed in February 2006, Ruggie echoed the Commission's rejection of the Norms. Ruggie characterized the Norms as "engulfed by its own doctrinal excess . . . [resulting in] the highly contentious though largely symbolic proposal to monitor firms and provide reparation payments to victims."²⁵This proposal was based on "exaggerated legal claims and conceptual ambiguities [that] created confusion and doubt even among many mainstream international lawyers and other impartial observers."²⁶The assertion that human rights principles traditionally applicable only to states were now immediately applicable to transnational corporations lacked sufficient authoritative basis in international law.²⁷

Additionally, the Norms suffered from a lack of precision in delineating state and corporate responsibilities and "obscure[d] rather than illuminate[d]

Id. promising areas of consensus and cooperation among business, civil society, governments and international institutions with respect to human rights."²⁸

Issued in February 2007, Ruggie's second report discussed current trends in corporate liability for human rights abuses. These trends included "the gradual extension of liability to companies for international crimes, under domestic jurisdiction but reflecting international standards."²⁹Most notable in this regard was the utilization of the ATS against transnational corporations in the United States. The report predicted an increase in future ATS litigation and noted that "[t]he risk environment for companies is expanding slowly but steadily, as are remedial options for victims."³⁰Despite these trends, states had demonstrated an unwillingness to adopt binding international human rights standards for transnational corporations.³¹This unwillingness was offset by the efforts of such corporations and non-governmental organizations to work together to establish soft law initiatives such as the Organization for Economic

Cooperation and Development (OECD) Guidelines and the Extractive Industries Transparency Initiative.³²The report concluded that these instruments and similar initiatives would play "a key role in any future development of defining corporate responsibility for human rights."³³

Ruggie's proposals for addressing the relationship between transnational corporations and human rights were contained in the Framework issued in April 2008. While praising the freer markets resulting from globalization for increased investment, job creation, and efficiency in resource allocation, the Framework found that markets as currently structured pose significant risks to society as "their scope and power far exceed the reach of the institutional underpinnings that allow them to function smoothly and ensure their political sustainability."³⁴Ruggie characterized the disparities between the scope and impact of economic forces and the capacity of societies to manage such forces through their national governments as "governance gaps," which resulted in an increasing number of corporate-related human rights abuses.³⁵The inability of national governments to manage the social impact of globalization effectively left the business and human rights discussion...