How to Steer Clear of the U.S. Human Rights Litigation Trend
By Jonathan Drimmer
As two recent legal opinions demonstrate, the consequences of being accused of human rights abuses have never been greater. With decisions issued less than a week apart in December, in Romero v. Drummond and Sarei v. Rio Tinto, two different U.S. Courts of Appeal confronted widely divergent human rights claims emanating from mining operations on different corners of the globe. These cases are part of a rapidly growing trend of hauling corporations and their executive officers into U.S. courts based on alleged human rights violations committed abroad. And the mining industry has been targeted more than any other sector. While Corporate Social Responsibility programs and other initiatives are useful in helping minimize the risk of exposure, given the vast potential damages in these cases along with the dramatic financial and reputational harms of being accused of complicity in human rights violations, taking direct steps becomes paramount in the current economy--something that can be done cheaply and easily.
The Alien Tort Claims Act & The Litigation Trend
Most of the human rights cases being filed against multi-national companies are based on a once-obscure U.S. law, the Alien Tort Claims Act (ATCA). On the books since 1789, the ATCA permits foreign claimants to file tort actions in U.S. federal courts based on a discrete set of serious international crimes--“violations of the law of nations”--committed domestically or abroad. For nearly 200 years, the law remained essentially dormant. In 1980, the ATCA was revived in a case where Paraguayan citizens filed suit in New York under the ATCA against a Paraguayan police official for acts of torture and murder of a relative in Paraguay. When the courts permitted the lawsuit to proceed, there was an ATCA explosion. Dozens of foreign claimants have since invoked the law to emphasize unpunished international human rights abuses against government officials or oppressive regimes, leading to damage awards that have regularly exceeded $10 million and in several instances $100 million.
It was not until the mid-1990s, with cases against Texaco based on alleged environmental damage resulting from its mining operations in Ecuador and Peru, that the ATCA started being used to target multi-national corporations. The trend picked up further steam in 1997; after a federal court ruled that Unocal and its executives could be held liable under the ATCA for alleged slave labor, murder, rape and forced relocation of villagers by the Burmese military in connection with the construction of a pipeline, scores of other corporate ATCA cases soon followed.
To date, a survey of published legal decisions reveals that roughly 120 ATCA cases now have been brought against corporate defendants, most of which have been filed since 2000 (See Figure 1) While these cases have been levied against companies operating in a variety of sectors, mining and other extractive companies are by far the most frequent defendants (See Figure 2).
The potential liability in these highly charged cases, which normally involve graphic allegations of murder, torture, environmental devastation, and Dickensian working conditions, is always substantial. Indeed, just a few months ago a federal court in Florida entered an $80 million ATCA judgment against a multinational corporation for trafficking three individuals to work in slave labor conditions in Curacao. Other multi-million dollar lawsuits against Shell, Exxon, and perhaps others are expected to go to trial in 2009. And even where the company prevails, as they often do, the cases bring mammoth legal costs, and the interim publicity associated with allegations of corporate collusion in human rights violations can inflict heavy reputational damage, drive away investors or purchasers, and create sharp tensions with host governments and operational environments to a point where even a threat of a human rights lawsuit can create immediate problems.
Sarei & Drummond
The recent decisions in Drummond and Sarei are representative of the human rights litigation trend against mining companies. Sarei involves a lawsuit filed against Rio Tinto in 2000 in connection with its copper mine on the island of Bougainville, in Papua New Guinea (“PNG”). The plaintiffs are alleging decades of environmental damage and human rights violations by the PNG government, for which the plaintiffs Rio Tinto claim is vicariously liable under the ATCA and other laws. After a trial court in San Francisco dismissed the case, in 2006 it was largely reinstated in 2006 by a three judge appeals panel; on December 16, 2008, an 11 judge appeals panel sent the case back to the district court for further proceedings, which no doubt will continue to generate negative press for the company.
Drummond, although filed after Sarei, already has been tried before a jury. In 2002, the estates of three murdered union leaders filed suit in Alabama under the ATCA and other theories, alleging that Drummond’s management in Colombia provided support to paramilitary and military units to eliminate the union from the company’s open-pit coal mine near the town of La Loma. After a jury ruled in Drummond’s favor in July 2007, the plaintiffs appealed. On December 22, 2008, a federal court of appeals in Atlanta upheld the verdict, but expressly reaffirmed that the ATCA permits suits against corporations and that companies can be liable for the actions of state security forces and other third parties.
Both cases thus involve human rights claims filed in the U.S. against mining companies based on their operations abroad. They encompass diverse sets of issues and distant locales, but they demonstrate the inherent price of being accused of human rights violations. For nearly a decade, Drummond and Rio Tinto endured significant litigation costs and a steady drumbeat of stories repeating the accusations that they were complicit in human rights violations. And although the jury found in Drummond’s favor, and Rio Tinto has solid arguments, the cases underscore that a human rights action seeking tens of millions of dollars in damages, based on acts that were not committed by either company but foreign security forces the companies did not control, can reach a jury where results always are unpredictable.
Beyond CSR: Six Steps to Take Now
Given the obvious hazards in these high-profile, high-damage lawsuits, coupled with their growing numbers in the U.S. courts, it is critical for both juniors and majors to pay close attention to human rights concerns. Certainly, over the past several years, the industry has been incorporating some of those concerns into business planning through CSR programs and other sustainability initiatives. Those efforts have been motivated in no small part by demands from funding sources, such as the International Finance Corporation, Export Development Canada, and others that require attention to CSR and sustainability standards, and pressures to meet at least minimum standards in operations or face the prospect of being denied access to mine sites.
The result has been general industry operating guidelines designed to improve community relationships and resource management. They include admonitions to maintain ethical business practices, attend to health, safety, and the environment, integrate sustainable development initiatives into decision-making, seek improvements to the local community, and otherwise engage with traditional and non-traditional stakeholders.
There is no question that those types of sustainability efforts can improve relations in local operating environments, which in turn can reduce the kinds of tensions and threats that lead to Alien Tort and other human rights lawsuits. However, those efforts are not designed to directly address human rights problems, and in a period of falling stock prices for public mining companies, and in which most companies are facing challenges attracting investments for their projects, even the whiff of a human rights issue can have dramatic effects. The following are six concrete, inexpensive, and easy to implement steps designed to address human rights issues directly.
To the extent you have no written code of conduct that covers human rights, draft one. Emphasize in broad terms the company’s commitment to promoting and protecting human rights, to the health and safety of its workers, the community, and other stakeholders, and to probing potential abuses. While the code cannot realistically include or anticipate every human rights-related cause of action, write it to cover relevant types of conduct by employees and agents. Tailor the code to the company’s locations. Depending on the company’s situation, a parent and each corporate subsidiary or affiliate might have their own individual codes. Consider incorporating or referencing provisions contained in relevant legal instruments, such as the Voluntary Principles on Security and Human Rights (http://www.voluntaryprinciples.org).
2. Tailor the compliance program. Merely putting a code on the books, however, is not enough. The values and expectations contained in a code of conduct must be effectively implemented. In addition to having those expectations reiterated by management to help stress the desired ethos, make sure you have a formal compliance program, and that it specifically addresses human rights issues.
As part of the program, train key employees and officers on relevant human rights matters. Consider asking relevant employees to sign annual certifications affirming that they are unaware of human rights problems. Conduct periodic internal, external or management audits to gauge whether the program is working, and to identify problems and control failures.
The program should provide mechanisms for employees and non-employees to report potential problems, and stress that reports will be taken seriously and not lead to retribution. Where problems are identified, immediate appropriate actions -- such as disciplinary measures, remediation plans, or informing appropriate authorities -- should be pursued.
3. Tighten relationships with third parties. It is critical to scrutinize formal and informal relationships with third parties. As with Drummond and Sarei, most corporate human rights lawsuits are not premised on misdeeds committed by corporations or their employees. Instead, they often arise based on the acts of others, with victims seeking to pin the wrongdoings on the company itself through theories of vicarious liability.
Given that threat, conduct basic due diligence--through internet and public filing searches, background and reference checks, and other standard means--for overseas suppliers, agents and contractors to ensure there is no history of human rights red flags. Where companies rely on third-parties for goods or services in which ATCA and other human rights issues can arise, include in contracts with those parties clauses that require adherence to the company’s code of conduct in whole or as relevant, making prohibited practices a breach of the agreement. Consider a provision requiring key third-party employees to undergo training and provide annual certifications. Include a clause declaring the company’s expectation that the third-party will adhere to pertinent local civil and criminal laws and international instruments. Agreements also might clearly identify the company’s degree of responsibility over and rights in the third-party; if none exist, a helpful fact, make that clear. Also consider including requirements and expectations regarding third-party sub-agents.
Contracts also should include provisions that permit some means of monitoring of third-party conduct. That monitoring then should be pursued throughout the relationship. This can be accomplished through periodic inspections or audits, annual interviews, and other similar methods.
4. Watch relationships with government entities. The need to carefully define third party relationships extends to government entities. Under the ATCA, “violations of the law of nations” traditionally have been limited to misconduct by states or state officials, and many human rights claims tend to arise based on actions by or in conjunction with state actors.
In light of that, monitor formal and informal relationships with government and quasi-government entities. While not always feasible, limit direct reliance for services on government entities or regimes with reputations for human rights abuses. That is especially true for security services, as corporate ATCA and other human rights cases--like Drummond and Sarei--frequently arise based on actions committed by police, military, or paramilitary units actually or allegedly operating on a company’s behalf.
For companies that have no choice but to rely on foreign governments for various services that create human rights concerns, strive to enter into contracts or memorandums of understanding with relevant government entities. Those agreements should delineate respective roles and responsibilities; if the company lacks the authority to supervise or direct government employees, or the selection or assignments of government personnel, make that explicit. Include, if possible, provisions stating clearly that all parties will comply with pertinent domestic and international human rights laws and conventions, violations of those laws will be investigated and reported to appropriate authorities, and suspected wrongdoers will be suspended from performing work for the company pending the outcome of those inquiries. If government entities will agree to provide relevant employees with human rights training, that is even better.
5. Look before you leap. The need to carefully scrutinize third parties extends in particular to consolidations. Far too often in the mining industry, human rights problems are inherited from others. Given the state of economy, mergers and partnerships are becoming more and more frequent. Companies with good balance sheets have started to take advantage of the current situation to make acquisitions, which may continue to happen throughout the year.
Conducting effective due diligence in such consolidation efforts is a strategic necessity. A failure to include human rights issues within the scope of that review, particularly for partnerships with or acquisitions of companies without strong compliance programs or who operate in jurisdictions without strong regulatory regimes, is potentially catastrophic. It can lead to a multi-million dollar problem, and deeply tarnish reputations, for problems not of your making.
Just as with a third-party agent, include human rights issues within the scope of due diligence during the acquisition or investment process. Review public materials for potential human rights red flags about the company or the location. Determine whether lawsuits have been filed against other companies based on operations in the region. Ask simple questions of management and local residents about conflicts, lawsuits, and incidents. Request documents reflecting complaints, on- or near-site injuries, or company investigations. As few simple inquiries such as these can avoid a major headache down the road.
6. Be prepared for rapid response. Although some ATCA cases are premised on a pattern of conduct over a significant period of time, like Sarei, others involve rapid responses to high pressure situations. To minimize potential exposure, it is important to be able to identify red flag conditions and have a defined plan in place. That plan, at a minimum, should include a coordinated effort between trained personnel at the relevant location, informed public relations staff, and knowledgeable legal personnel. Include immediate notification requirements to this core group and perhaps others when a red flag circumstance occurs. Consider requiring immediate investigations and/or written reports memorializing known facts, at least whenever a serious injury occurs. While many such inquiries may be probed and handled internally, for more serious allegations, independent external inspections by legal counsel or other third parties may be appropriate. And of course, where actual misdeeds are suspected, take immediate action.
Though the risk of a human rights lawsuit will not disappear, these steps, beyond sustainability programs, will help you reduce the likelihood of these escalating hazards. And where litigation does occur, the possibility of obtaining an early dismissal or a positive jury decision, and countering the wave of negatively publicity, can be increased. In other words, while human rights lawsuits may continue to flow against mining companies, the prospect of liability need not.
Jonathan Drimmer is a partner at Steptoe & Johnson where he advises mining clients and companies in the extractive industries on human rights and other areas of international compliance and litigation. He also is an Adjunct Professor at Georgetown University Law Center, where he teaches courses that encompass the ATCA and human rights litigation. He can be reached at [email protected]