What Comes Next: After Supreme Court Reduced Obstacles to Suing International Organizations

Suing international organizations just got a little bit easier, as a result of a 7-1 U.S. Supreme Court decision issued last week in Jam v. International Finance Corporation. The case concerned the scope of immunity provided to these organizations — including the World Bank, the World Health Organization, and dozens of others — by the International Organizations Immunities Act (IOIA). The result is a significant, but still incomplete, victory for the plaintiffs.

The D.C. Circuit had long interpreted the statute to provide absolute immunity to international organizations, at least in the absence of a waiver or some other limitation. The Supreme Court held that the immunity conferred by the IOIA is considerably narrower — specifically, that it tracks the immunity that foreign governments enjoy from suit. But how much will this ruling open the courthouse doors to those seeking to hold international organizations accountable?

The plaintiffs and some commentators suggested that a ruling in their favor would strike a blow against impunity and send a message that international organizations are not above the law. (See, for example, Harold Koh’s post here.) The defendants, on the other hand, argued that a ruling against them would open the floodgates to a devastating rush of lawsuits that would seriously undermine the work of the IFC and other international organizations. (One could add that any setback is especially damaging at a moment when multilateral institutions are already under attack by the Trump administration for a completely different set of reasons.)

Both sides overstate the impact of the decision: its consequences are rather modest. Those international organizations that rely exclusively on the IOIA for immunity from legal process will have to defend more cases, but it may not be many more, and in any event, many organizations have alternative sources of immunity. It’s abundantly clear, however, that assuring appropriate recourse for individuals who are harmed by international organizations remains a genuine problem. Jam didn’t get us to a solution, and may not even have brought us closer.

The Underlying Dispute

The International Finance Corporation (IFC) was established by treaty in 1956 to supplement the work of the World Bank. The IFC’s purpose, as provided in the treaty, is “to further economic development by encouraging the growth of productive private enterprise in member countries.” The treaty also lays out how the IFC is supposed to go about achieving that purpose: among other things, by “assist[ing] in financing the establishment, improvement and expansion of productive private enterprises . . . where sufficient private capital is not available on reasonable terms.”

At issue in this litigation, the IFC provided a $450 million loan to support the Tata Mundra coal-fired power plant in the state of Gujarat, India. According to farmers and fishermen in the local community, as well as a local organization representing them, the construction and operation of the power plant caused serious damage to marine life, contaminated the groundwater, and polluted the surrounding air. They filed a lawsuit in D.C. District Court, making several tort claims against the IFC, in addition to arguing that they were third-party beneficiaries of the social and environmental terms of IFC’s lending contract.

To persuade a court to even hear their case on the merits, the plaintiffs must surmount a number of obstacles. One of those obstacles was the IOIA, which provides that international organizations “shall enjoy the same immunity from suit . . . as is enjoyed by foreign governments.” The D.C. Circuit had long understood this language to refer to the virtually absolute immunity that foreign governments enjoyed in 1945, at the time that the IOIA was enacted.

In Jam v. IFC, the Supreme Court held that the IOIA’s language tethers the immunity of international organizations to that of foreign governments as it evolves over time. Foreign sovereign immunity is considerably narrower today than it was in 1945 as a result of the 1976 Foreign Sovereign Immunities Act (FSIA). And after last week’s ruling, the IOIA must be read to incorporate any and all substantive changes to foreign sovereign immunity that might come in the future.

Writing for the majority, Chief Justice John Roberts considered this the “more natural” reading of the text. He also argued that at that time the IOIA was enacted, courts frequently interpreted a statute that referenced a general body of law (as opposed to a specific statutory provision) to incorporate substantive changes in that body of law. The majority opinion pointedly declined to consider the purposes that Congress meant the IOIA to serve except to the extent those purposes are reflected in the statutory text.

Notably, a brief filed by the Trump administration supported the conclusion reached by the Supreme Court. This position might be taken as one more expression of the Trump administration’s skepticism towards (and in some cases hostility to) international organizations. Indeed, speaking in Brussels last December, Secretary of State Mike Pompeo targeted the World Bank and IMF for criticism, arguing that they often “crowd out private-sector actors.” He didn’t mention the IFC, but the same criticism could also apply to it. Perhaps as a strategic matter, the government’s brief strikes a notably different tone, opening with the following statement:

The United States’ participation in international organizations is a critical component of the Nation’s foreign relations and reflects an understanding that robust multilateral engagement is a crucial tool in advancing national interests.

The government’s brief goes on to explain that the government’s position does not reflect a break with the views of prior administrations. To the contrary, on several occasions since 1977, Democratic and Republican administrations alike had taken the view that the FSIA narrows the immunity conferred by the IOIA. The brief goes on to argue that the plaintiffs’ preferred interpretation of the IOIA does not pose a threat to the United States’ capacity to comply with any international obligations. Where the United States does have treaty obligations to accord international organizations broader immunity, the government argued, the United States could rely on self-executing treaty provisions or separately enacted legislation.

Next Steps for the Plaintiffs

Having achieved victory at the Supreme Court, the plaintiffs will now have to establish that the IFC’s activities fall within one of the statutory exceptions to immunity from suit that foreign governments enjoy under the FSIA. To do that, the plaintiffs first will have to establish that the “commercial activity” exception to foreign sovereign immunity applies to the IFC — that is, that the IFC is engaged in a commercial activity.

Under Argentina v. Weltover, the key question is whether the foreign state (or, in this case, the IFC) is exercising powers “peculiar to sovereigns” or “only those powers that can also be exercised by private citizens.” The D.C. Circuit thought the answer to this question was obvious, describing the IFC’s activities as “solely” commercial. The court didn’t elaborate, but the judges were likely thinking that private actors engage in the kind of lending that IFC does all the time.

That categorical view is surely wrong, however. Even the plaintiffs’ lawyers conceded at oral argument that the IFC engages in some activities like “giv[ing] advice to foreign governments about legislation” that are “probably” not commercial activities. The Supreme Court went a bit further, suggesting that at least some lending by international financial institutions might not qualify as commercial. (As I explained here, the Second Circuit has held that repaying a loan from the IMF is a sovereign act, because it is something only governments can do: private actors cannot borrow from the IMF, nor can they implement the policies on which IMF loans are sometimes conditioned.)

If the plaintiffs succeed in characterizing the IFC’s actions as commercial, next they will have to establish an adequate nexus to the United States. In particular, plaintiffs will have to show that their cause of action is “based upon a commercial activity carried on in the United States by the foreign State.” It may be possible to trace the harm that the plaintiffs suffered to decisions or omissions at IFC headquarters in Washington D.C. But that is not enough to bring the suit within the scope of this provision under the relevant Supreme Court case law, including OBB Personenverkehr AG v. Sachs. Under that precedent, if the tortious act or omission that forms the core of the lawsuit took place abroad, then the suit falls outside the scope of this FSIA exception. At oral argument, the plaintiff’s attorney expressed confidence about satisfying this test, but it won’t be easy.

And there are still more obstacles. Among other things, on remand the district court may dismiss the case pursuant to the doctrine of forum non conveniens – that is, on the grounds that Indian courts the more appropriate and convenient forum for adjudicating a controversy where the relevant harm happened in India.

For all these reasons, neither the executive branch nor the majority of the Court worried much about the practical consequences of siding with the plaintiffs; they were confident that the floodgates would remain closed.

They are probably right that the outcome of Jam will not change very much. According to the government’s lawyer (at oral argument), the universe of cases that would be barred by absolute immunity but permissible under FSIA immunity would be limited to “quintessential domestic disputes, contract disputes with your contractor who renovated the building, the slip and fall at the . . . organization’s headquarters, or the driving accident on the streets of New York and D.C.”

It is pretty easy to see how the hypothetical contractor dispute would fall within the commercial-activities exception. (That said, Jam probably does not affect even cases involving contractors and they like, because they probably provided for dispute settlement by contract before undertaking any work.) The ability to bring cases regarding slip-and-falls and driving accidents is new — such suits are now permissible against international organizations under a different exception of the FSIA for torts that cause injury within the United States. In at least some cases, international organizations have already adopted policies to compensate such victims, though now it will be easier for those victims to challenge their recoveries.

That said, international organizations face some uncertainty. They may have some real fights on their hands, especially when it comes to arguing in court about what constitutes a commercial activity. When these fights arise, they may not be able to count on the executive branch for support, for policy reasons or otherwise.

And even if the executive branch does step in to support a defendant organization, courts may not accord its arguments much weight. When it comes to interpreting the FSIA, courts make a point of not deferring to the executive branch. (See, for example, Austria v. Altmann.) Courts distrust the executive branch on this particular topic because of the history of foreign sovereign immunity. Before the FSIA, the State Department determined whether the conduct at issue in particular suits was commercial or not, and often failed to do so in a principled way, as the Altmann ruling outlines. Though there’s no comparable history with respect to international organizations, courts may import this skepticism of executive branch views along with the FSIA’s substantive provisions.

Consequences for International Accountability Mechanisms

The fact that individuals who are harmed by international organizations often lack recourse is a real problem. At the same time, subjecting international organizations to suit in national courts involves serious problems and risks as well. (For more on both points, see my prior article at Just Security.)

The best solution by far would be to strengthen the international accountability mechanisms created to provide recourse for communities harmed by projects involving international organizations – like the World Bank’s Inspection Panel and the IFC’s Compliance Advisor/Ombudsman – and to create new ones for international organizations that do not yet have such mechanisms. Jam could perhaps encourage this outcome, as it brings into the spotlight the real harms that go without redress for communities like the plaintiffs in Jam.

Along similar lines, Jam may encourage negotiations between international organizations and the U.S. government that would lead to the development or reinforcement of such accountability mechanisms. In particular, organizations that are worried about the scope of their immunity in the wake of Jam may seek a new international agreement or legislation so that they do not have to rely exclusively on the IOIA.

In that case, the U.S. government could condition more extensive immunity on the development of accountability mechanisms. The headquarters agreement for the Organization of American States involved precisely such a quid pro quo. The Trump administration may not be receptive to such arrangements, but a future administration may be more open to doing so.

But Jam also might pull in the opposite direction and discourage the further development or retention of accountability mechanisms. At oral argument, the IFC’s lawyer pointed out:

“The factual basis for the lawsuit is the report of our internal accountability process. So if they can just grab that and take it into court and make it the basis for a class action tort lawsuit in which they can make a claim for all this money, it’s going to create a powerful disincentive for us — not [sic] to engage in that kind of self-policing activity.”

In short, the plaintiffs in Jam have succeeded in calling attention to a real problem. At least for now, a real solution remains elusive.

IMAGE: View of Tata Power Plant (on the left) in Mundra, Gujarat, India, and Adani Power Plant (on right), at sun set in October 2014. Both plants share coal and water used in generating electricity, and affect fishing and farming communities and the general environment in the area. (Photo: Sami Siva/International Consortium of Investigative Journalists)

 

About the Author(s)

Kristina Daugirdas

Professor of Law at the University of Michigan Law School; before joining the Michigan Law faculty, Professor Daugirdas was an attorney-adviser at the U.S. Department of State Office of the Legal Adviser. Follow her on Twitter (@kdaugirdas).