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How Business Trounced the Trial Lawyers

  Practice Focuses  -   POSTED: 2007/03/11 08:58

The media recently has been writing the obituary of the tort lawyers. "The power of the plaintiffs bar is on the wane," argued the American Lawyer; a cover story in Business Week promised to reveal "How Business Trounced the Trial Lawyers." With apologies to Mark Twain, the reports of the trial lawyers' demise are greatly exaggerated.

While asbestos and tobacco litigation bonanzas are winding down, America's most aggressive contingency-fee law firms still have in place a fee structure in search of an investment strategy. And so, faced with shrinking domestic opportunities, these firms have gone global.

Consider one class-action lawsuit, in which a plaintiffs firm sued Deutsche Bank on behalf of an African tribe which suffered atrocities committed by imperial Germany in the 19th century. Or another, consolidating 10 complaints filed around the country on behalf of all South Africans injured by the former apartheid regime from 1948 to the present.

One of the South African complaints was on behalf of a class including 32,000 plaintiffs; the class in another was estimated to encompass "millions of individuals." The defendants, almost 100 multinational corporations that did business in South Africa after 1948, were alleged to be liable for injuries on the theory that they had aided and abetted the apartheid regime. Purported damages in just one of the consolidated actions total $400 billion.

The law used to lodge these massive foreign class actions in the U.S. is the Alien Tort Statute (ATS). This obscure piece of legislation adopted in 1789 gave federal district courts jurisdiction in civil cases brought by an alien for a tort committed in violation of the law of nations, or of a U.S. treaty. The law was passed primarily to assure a hearing for cases involving offenses against foreign ambassadors, violations of safe conduct and piracy.

The ATS was virtually dormant for two centuries. Then relatives of a Paraguayan citizen who had been kidnapped and tortured to death by a Paraguayan police official—on Paraguayan soil—brought a civil suit against the police official. Plaintiffs and defendants happened to be in the U.S., the police official illegally. In 1980 a U.S. court of appeals allowed the suit to go forward under the ATS, on the grounds that the police official violated international law, including various U.N provisions. From that acorn a mighty oak has grown.

Even by American standards the size of recent ATS class actions is extraordinary. Cases involving wholly foreign events routinely consist of tens or hundreds of thousands of "John Doe" plaintiffs who reside in remote locations as distant as Sudan and Pakistan. The size of the class of defendants has also grown to 500 or more deep-pocketed individuals or companies.

The fact that these lawsuits appear in U.S. courts at all defies common sense. Imagine our justifiable indignation if courts in Japan, France or Russia determined they had jurisdiction over alleged wrongdoing by Americans, in America, against other Americans. It takes a thoroughly arrogant view of the world—call it legal imperialism—to presume that our courts should be the arbiter of problems everywhere, whether or not the problem had anything whatsoever to do with the U.S.

Nevertheless, our tort lawyers presume just that, demanding that our court system sit in judgment over alleged conduct occurring completely within the borders of other sovereign nations, regardless of the effect this may have on U.S. foreign relations. Huge ATS cases have been filed against classes of unnamed defendants in Saudi Arabia, the United Arab Emirates, Qatar and other countries in the Middle East where vital, and delicate, U.S. national security interests are at stake.

Of course, it ultimately will be impractical for U.S. courts to police these monster ATS class actions if they are allowed to proliferate; they dwarf in size the asbestos cases that currently plague the U.S. courts. Congress could have amended the ATS to limit the damage, and in 2005, Democratic Sen. Dianne Feinstein proposed to do so, without success.

Fortunately, the Supreme Court weighed in. In Sosa v. Alvarez-Machain, a Mexican doctor suspected to have participated in the torture and murder of a U.S. DEA agent was apprehended in Mexico by Jose Sosa, a Mexican national hired by U.S. law enforcement. Mr. Sosa brought the Mexican doctor to the U.S., where he was arrested. The doctor sued Mr. Sosa for unlawful detention. In 2004, the Supreme Court dismissed the action and imposed a "high bar" against innovative ATS lawsuits. As a result of Sosa, several ATS suits have been rejected because of the potential for interference with U.S. foreign policy.

In one case, the D.C. circuit dismissed an ATS case seeking reparations from Japan for crimes committed during World War II because the suit interfered with state-to-state negotiations and threatened to "disrupt Japan's delicate relations with China and Korea, thereby creating serious implications for stability in the region."

In another, a federal court dismissed a case brought after the Israeli Defense Forces used heavy equipment to demolish buildings in the Palestinian territory. Plaintiffs sought damages from the manufacturer, Caterpillar, along with an order to stop supplying products to the Israeli armed forces. The court noted that the plaintiffs improperly sought to challenge the acts of an existing government in a region "where diplomacy is delicate and U.S. interests are great."

Trial lawyers nevertheless continue to test the outer limits of ATS liability, "high bar" or not, by filing an array of increasingly ambitious ATS class actions. In one pending case, Wal-Mart has been sued on behalf of residents of China, Bangladesh, Indonesia, Swaziland and Nicaragua. Plaintiffs seek to hold the company vicariously liable for the labor policies of its overseas suppliers. The improvement of labor policies in other countries is certainly a worthy goal. But it is the province of the executive branch and Congress under the foreign affairs and treaty-making powers, not that of attorneys looking for contingency fees.

The corporations named in the South African case—including IBM, General Motors, Ford, Xerox, Coca-Cola and Citigroup—were legally doing business in South Africa pursuant to the official U.S. policy of "constructive engagement" that sought to encourage positive changes in South Africa through economic investment. Recognizing this, the federal court in the Southern District of New York dismissed all 10 of the cases.

That dismissal, along with the dismissals of several other ATS cases, is now pending on appeal before the Second and Ninth Circuits. As these and other ATS cases ripen for appellate review, the era of post-Sosa ATS jurisprudence is entering a critical phase.

The executive branch has promoted strict conformance with Sosa: Both the Clinton and Bush administrations have filed progressively stronger "Statement of Interest" briefs urging that federal courts dismiss ATS cases that could interfere with U.S. foreign policy.

Still, leading class-action law firms such as Motley Rice, Milberg Weiss and Cohen Milstein have launched exploratory ATS cases to test the waters, trying to maneuver around sovereign immunity, which prevents lawsuits against foreign governments. Instead, the plaintiffs lawyers claim that U.S. corporations doing business abroad are vicariously liable for the purely overseas acts of foreign governments, or other actors, in jurisdictions where the U.S. companies do business. And pressured by the massive exposure involved in ATS class actions, defendants in some early cases have opted to settle rather than undertake the risks of litigation.

These plaintiffs firms are flush with cash, experts in the business of creating cases, and undeterred by setbacks. In fact, contingency-fee lawyers take each rejection as a lesson in which tactics work and which do not. They know that if they can weather dismissal motions in a single case, they can proliferate a succession of copycat ATS class actions.

Once they do, you can be sure that a torrent of global ATS class actions will follow—to the detriment of the U.S. court system, foreign policy and U.S. standing around the world.

The media recently has been writing the obituary of the tort lawyers. "The power of the plaintiffs bar is on the wane," argued the American Lawyer; a cover story in Business Week promised to reveal "How Business Trounced the Trial Lawyers." With apologies to Mark Twain, the reports of the trial lawyers' demise are greatly exaggerated.

While asbestos and tobacco litigation bonanzas are winding down, America's most aggressive contingency-fee law firms still have in place a fee structure in search of an investment strategy. And so, faced with shrinking domestic opportunities, these firms have gone global.

Consider one class-action lawsuit, in which a plaintiffs firm sued Deutsche Bank on behalf of an African tribe which suffered atrocities committed by imperial Germany in the 19th century. Or another, consolidating 10 complaints filed around the country on behalf of all South Africans injured by the former apartheid regime from 1948 to the present.

One of the South African complaints was on behalf of a class including 32,000 plaintiffs; the class in another was estimated to encompass "millions of individuals." The defendants, almost 100 multinational corporations that did business in South Africa after 1948, were alleged to be liable for injuries on the theory that they had aided and abetted the apartheid regime. Purported damages in just one of the consolidated actions total $400 billion.

The law used to lodge these massive foreign class actions in the U.S. is the Alien Tort Statute (ATS). This obscure piece of legislation adopted in 1789 gave federal district courts jurisdiction in civil cases brought by an alien for a tort committed in violation of the law of nations, or of a U.S. treaty. The law was passed primarily to assure a hearing for cases involving offenses against foreign ambassadors, violations of safe conduct and piracy.

The ATS was virtually dormant for two centuries. Then relatives of a Paraguayan citizen who had been kidnapped and tortured to death by a Paraguayan police official—on Paraguayan soil—brought a civil suit against the police official. Plaintiffs and defendants happened to be in the U.S., the police official illegally. In 1980 a U.S. court of appeals allowed the suit to go forward under the ATS, on the grounds that the police official violated international law, including various U.N provisions. From that acorn a mighty oak has grown.

Even by American standards the size of recent ATS class actions is extraordinary. Cases involving wholly foreign events routinely consist of tens or hundreds of thousands of "John Doe" plaintiffs who reside in remote locations as distant as Sudan and Pakistan. The size of the class of defendants has also grown to 500 or more deep-pocketed individuals or companies.

The fact that these lawsuits appear in U.S. courts at all defies common sense. Imagine our justifiable indignation if courts in Japan, France or Russia determined they had jurisdiction over alleged wrongdoing by Americans, in America, against other Americans. It takes a thoroughly arrogant view of the world—call it legal imperialism—to presume that our courts should be the arbiter of problems everywhere, whether or not the problem had anything whatsoever to do with the U.S.

Nevertheless, our tort lawyers presume just that, demanding that our court system sit in judgment over alleged conduct occurring completely within the borders of other sovereign nations, regardless of the effect this may have on U.S. foreign relations. Huge ATS cases have been filed against classes of unnamed defendants in Saudi Arabia, the United Arab Emirates, Qatar and other countries in the Middle East where vital, and delicate, U.S. national security interests are at stake.

Of course, it ultimately will be impractical for U.S. courts to police these monster ATS class actions if they are allowed to proliferate; they dwarf in size the asbestos cases that currently plague the U.S. courts. Congress could have amended the ATS to limit the damage, and in 2005, Democratic Sen. Dianne Feinstein proposed to do so, without success.

Fortunately, the Supreme Court weighed in. In Sosa v. Alvarez-Machain, a Mexican doctor suspected to have participated in the torture and murder of a U.S. DEA agent was apprehended in Mexico by Jose Sosa, a Mexican national hired by U.S. law enforcement. Mr. Sosa brought the Mexican doctor to the U.S., where he was arrested. The doctor sued Mr. Sosa for unlawful detention. In 2004, the Supreme Court dismissed the action and imposed a "high bar" against innovative ATS lawsuits. As a result of Sosa, several ATS suits have been rejected because of the potential for interference with U.S. foreign policy.

In one case, the D.C. circuit dismissed an ATS case seeking reparations from Japan for crimes committed during World War II because the suit interfered with state-to-state negotiations and threatened to "disrupt Japan's delicate relations with China and Korea, thereby creating serious implications for stability in the region."

In another, a federal court dismissed a case brought after the Israeli Defense Forces used heavy equipment to demolish buildings in the Palestinian territory. Plaintiffs sought damages from the manufacturer, Caterpillar, along with an order to stop supplying products to the Israeli armed forces. The court noted that the plaintiffs improperly sought to challenge the acts of an existing government in a region "where diplomacy is delicate and U.S. interests are great."

Trial lawyers nevertheless continue to test the outer limits of ATS liability, "high bar" or not, by filing an array of increasingly ambitious ATS class actions. In one pending case, Wal-Mart has been sued on behalf of residents of China, Bangladesh, Indonesia, Swaziland and Nicaragua. Plaintiffs seek to hold the company vicariously liable for the labor policies of its overseas suppliers. The improvement of labor policies in other countries is certainly a worthy goal. But it is the province of the executive branch and Congress under the foreign affairs and treaty-making powers, not that of attorneys looking for contingency fees.

The corporations named in the South African case—including IBM, General Motors, Ford, Xerox, Coca-Cola and Citigroup—were legally doing business in South Africa pursuant to the official U.S. policy of "constructive engagement" that sought to encourage positive changes in South Africa through economic investment. Recognizing this, the federal court in the Southern District of New York dismissed all 10 of the cases.

That dismissal, along with the dismissals of several other ATS cases, is now pending on appeal before the Second and Ninth Circuits. As these and other ATS cases ripen for appellate review, the era of post-Sosa ATS jurisprudence is entering a critical phase.

The executive branch has promoted strict conformance with Sosa: Both the Clinton and Bush administrations have filed progressively stronger "Statement of Interest" briefs urging that federal courts dismiss ATS cases that could interfere with U.S. foreign policy.

Still, leading class-action law firms such as Motley Rice, Milberg Weiss and Cohen Milstein have launched exploratory ATS cases to test the waters, trying to maneuver around sovereign immunity, which prevents lawsuits against foreign governments. Instead, the plaintiffs lawyers claim that U.S. corporations doing business abroad are vicariously liable for the purely overseas acts of foreign governments, or other actors, in jurisdictions where the U.S. companies do business. And pressured by the massive exposure involved in ATS class actions, defendants in some early cases have opted to settle rather than undertake the risks of litigation.

These plaintiffs firms are flush with cash, experts in the business of creating cases, and undeterred by setbacks. In fact, contingency-fee lawyers take each rejection as a lesson in which tactics work and which do not. They know that if they can weather dismissal motions in a single case, they can proliferate a succession of copycat ATS class actions.

Once they do, you can be sure that a torrent of global ATS class actions will follow -to the detriment of the U.S. court system, foreign policy and U.S. standing around the world.


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