2nd Circuit splinters over rehearing Alien Tort Statute case vs Arab Bank

The 2nd US Circuit Court of Appeals prides itself on putting up a united front. The court almost never grants requests to reconsider rulings by three-judge panels. (Maybe that’s why the 2nd Circuit’s “in banc” locution hasn’t displaced the more common “en banc.”) Instead, 2nd Circuit judges working on controversial opinions typically circulate drafts to the rest of the appeals court to probe for and resolve disagreements before the three-judge panel issues its opinion.

So it’s always news when cracks show at the 2nd Circuit – as they did Tuesday in the court’s deeply splintered four-part decision not to rehear en banc the dismissal of Alien Tort Statute claims by non-US citizens who accuse Arab Bank of financing terrorism attacks. 

The 2nd Circuit’s internal debate goes back to its own disputed 2010 holding in Kiobel v. Royal Dutch Petroleum that corporations cannot be sued under the ATS.

As you may recall, that 2010 Kiobel opinion had a unique aftermath. The panel that decided it was divided, with Judges Jose Cabranes and Dennis Jacobs in the majority and Judge Pierre Leval in dissent. In 2011, the 2nd Circuit split 5-to-5 over taking the case en banc. After the appeals court let the panel holding stand, the US Supreme Court agreed to take the case to resolve a split among the federal circuits on the issue of whether corporations can be sued under the ATS. But after oral arguments, the justices decided the real issue was whether the law — enacted as part of the Judiciary Act of 1789 to address piracy on the high seas — gives US courts jurisdiction over claims against foreign defendants accused of misconduct outside of US borders.

After rebriefing and reargument, the Supreme Court ruled in 2013 that the ATS doesn’t extend abroad unless “claims touch and concern the territory of the United States  with sufficient force to displace the presumption against extraterritorial application”, wrote Chief Justice John Roberts in the court’s opinion.

The Supreme Court did not directly answer the original Kiobel question of whether corporations can be sued under the ATS, though the chief justice’s opinion seemed to imply that they can. Every federal circuit to have considered the issue, before and after the Supreme Court’s Kiobel decision, has disagreed with the 2nd Circuit’s flat prohibition.

Nevertheless, when non-US terror victims asked to reinstate their case against Arab Bank, arguing that Kiobel’s exception applies to their claims, the trial judge said the 2nd Circuit’s prohibition on ATS suits against corporations remains in effect. Last December, a three-judge 2nd Circuit panel reluctantly agreed: “We conclude that Kiobel I is and remains the law of this Circuit, notwithstanding the Supreme Courts decision in Kiobel II,” wrote Judge Robert Sack for a panel that also included Judges Denny Chin and Susan Carney. “We do so despite our view that Kiobel II suggests that the ATS may allow for corporate liability and our observation that there is a growing consensus among our sister circuits to that effect. Indeed, on the issue of corporate liability under the ATS, Kiobel I now appears to swim alone against the tide.”

The panel more or less called upon the entire 2nd Circuit to resolve en banc whether its Kiobel holding remains good law after the Supreme Court’s decision. Plaintiffs’ lawyers at Motley Rice and Sayles Werbner obliged with a petition for an en banc rehearing. Arab Bank, represented by Mayer Brown, and the Kingdom of Jordan, represented as an amicus by Hogan Lovells, opposed the petition.

Thirteen judges voted on the petition. Eight seem to have voted not to rehear the case, though only four joined Judge Jacobs in the main opinion discussing why the circuit’s Kiobel decision need not be revisited. (One of those four was Judge Cabranes, who, as it happened, made up the original Kiobel majority along with Judge Jacobs.) Basically, Judge Jacobs said the Arab Bank panel asked for trouble when it didn’t have to.

“The panel’s angst in having to follow Kiobel I was selfinflicted,” he wrote. “The appeal could have been resolved under Kiobel II; if the problem was lack of briefing, briefing could have been ordered; if finding the right answer under Kiobel II was a strain on the panel, it could have remanded; if the easiest course was to follow a precedent that the panel dislikes, it could have done what appellate judges must frequently do: swallow hard. The one course that makes no sense is to force difficulties, reel off dicta criticising our precedent, and seek in banc consideration of a doctrine that now has sharply reduced application. Going in banc on this would do nothing but supply catnip for law clerks looking to teach.”

Pretty harsh, right? The author of the Arab Bank opinion, Judge Sack, is a senior judge so he didn’t take part in the en banc vote. But Judge Chin, who was also on the panel, rose up to defend the opinion’s call for reconsideration. “There will be cases where plaintiffs can meet the requirements of Kiobel II. And in those cases, even assuming the claims are meritorious, in this circuit the plaintiffs will be precluded from seeking relief under this courts ruling in Kiobel I that corporations categorically are not subject to suit under the ATS,” Chin wrote. “We are the only circuit to reach that conclusion, and we should have taken this opportunity to reconsider the matter.”

Judge Rosemary Pooler, who wrote the main dissent, similarly said, “In short, Kiobel I was wrong. Every circuit to address the matter agrees that it is wrong. It is a disservice to the litigants in this case, and every other litigant with a potentially viable ATS case against corporate defendants, to rely on the Supreme Court to fix our error.” (Judge Cabranes, in a separate concurrence joined by three other judges, said Judge Pooler’s dissent contained at least two “misconceptions” of the law.)

I can think of three instances, aside from the first Kiobel case, in which the 2nd Circuit ended up in a fierce debate over en banc review: on pharmaceutical pay-for-delay deals in a case against Bayer; in RJR Nabisco’s challenge to extraterritorial application of the federal racketeering law; and in broadcasters’ appeal of the ruling allowing Aereo to rebroadcast intercepted signals. All of those issues ended up at the US Supreme Court.

The lead plaintiffs’ lawyer in the Arab Bank case, Michael Elsner of Motley Rice, said that’s where his clients are headed now. “This issue needs to be cleared up,” Elsner said, adding that he is eager to write a petition for certiorari that explains why this case would have been allowed to proceed under the Supreme Court’s “touch and concerns” test in any circuit but the 2nd. “We were disappointed the 2nd Circuit didn’t take the opportunity to use the en banc procedure.”