You don’t often catch me reading bankruptcy court opinions. I find the Bankruptcy Code impenetrable, and I’m ecstatic that there are smart people at my firm who want to practice in this area so that I don’t have to.
But occasionally a bankruptcy court has something important to say about mass tort litigation. And so, last week I uncharacteristically sat reading a bankruptcy court decision, In re Motors Liquidation Co., 2011 WL 284933 (Bankr. S.D.N.Y. Jan. 28, 2011). I even wrote up a post that – to my utter annoyance [insert curse words here] – disappeared into the ether before I could upload it. That turns out to have been a good thing, though, as there have been subsequent developments that I am now able to share with you in this post.
In Motors Liquidation, Judge Robert Gerber was faced with two basic questions. First, could the claims against the Old General Motors brought under the Alien Tort Statute be certified as class claims in the proof of claim process? Second, could ATS claims even be asserted against Old GM at all, given the Second Circuit’s holding in Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111, 149 (2d Cir. 2010) that corporate liability cannot form the basis of a suit under the ATS?
Judge Gerber’s opinion gives these two questions straightforward and frank consideration, ultimately answering both in the negative. Despite the fact that it is a bankruptcy court opinion, Judge Gerber’s opinion is instructive for how questions regarding corporate ATS liability should be answered in the Second Circuit post-Kiobel.
Despite the fact that there is some question about the applicability of Rule 23 to some stages of the bankruptcy process, Judge Gerber’s opinion makes it plain that under classic Rule 23 jurisprudence, there simply is no way that the sweeping class pled in the Apartheid litigation could possibly meet the predominance and superiority requirements of Rule 23(b)(3). The proposed classes spanned over twenty years’ worth of alleged misconduct that purportedly gave rise to at least four causes of action under international law: “crimes against humanity,” “extrajudicial killing,” “torture,” and “cruel, inhuman or degrading treatment.” Moreover, the legal issues were complicated by the fact that the Old GM was alleged to have aided and abetted these crimes, not committed them itself directly. This added layers of questions about action and intent for each incident.
Judge Gerber explained this eloquently:
For both the more general claim of “crime against humanity,” on the one hand, and the more specific ways by which people were injured, on the other, I just see too many individual issues.
The complication (and in my view it’s a major one) is the difficulty in establishing, for so many people’s unique injuries, causation and the requisite purpose on the part of Old GM personnel with respect to whatever was being done to cause or facilitate the particular injury alleged by the claimant (or class member) involved – which in my view is not just a matter of damages but a matter necessary to fix liability in the first place. . . .
. . .
. . . [Claimants’] rights to recover against the Old GM for such injuries would depend not just on their individual damages (which, if that were all, would likely not defeat class certification), but also on the numerous combinations of injury involved, action causing it, assistance of that action, and purpose on the aprt of Old GM personnel to facilitate the commission of the primary violations of international law and resulting injury on which the aiding and abetting claims would be based.
. . .
. . . As relevant here, apartheid was implemented in many different ways, injuring people in many different ways, and Old GM’s alleged wrongful acts and purpose, if any, would have a nexus to the affected people in too many different ways. . . .
. . . [C]laims of secondary liability for aiding and abetting . . . at least normally requires showings not just of the primary violation, but of additional matters applicable to the aider-and-abettor, such as substantial assistance, and a purpose or intent to advance the primary violation.
2011 WL 284933 at *5-*8 (citations omitted).
Judge Gerber also recognized that because any classwide trial would be unmanageable, the superiority requirement of Rule 23(b)(3) also could not be met:
But to proceed on a class action basis, I’d have to choose between holding one or more trials of extraordinary complexity, on the one hand, or taking inappropriate shortcuts as to individual issues of wrongful conduct, causation and requisite purpose and assistance, on the other. . . . I think any shortcuts that would have to be taken to make class action treatment superior as an administrative matter would have to come at the expense of due process concerns.
Id. at *9.
Judge Gerber’s opinion states the obvious, but it is still remarkable for doing so clearly in the face of the inevitable criticism that would come from any opinion finding against classwide recovery in the face of an evil such as Apartheid, no matter how far removed the defendant may have been from it. The simple truth is that it is beyond cavil that a class action over aiding and abetting millions of individual acts in furtherance of Apartheid over a more than twenty-year period presents too many individual issues to be adjudicated in a single classwide trial consistent with a defendant’s due process rights. Judge Gerber’s opinion gives the roadmap to this conclusion.
As for the second question, Judge Gerber recognized that the Second Circuit in Kiobel already instructed that there cannot be corporate liability under the Alien Tort Statute:
No corporation has ever been subject to any form of liability whether civil, criminal or otherwise) under the customary international law of human rights. Rather, sources of customary international law have, on several occasions, explicitly rejected the idea of corporate liability. Thus, corporate liability has not attained a discernable, much less universal, acceptance among nations of the world in their relations inter se, and it cannot, as a result, form the basis of a suit under the Alien Tort Statute.
Id. at *13.
The plaintiffs offered Judge Gerber a number of reasons to ignore Kiobel. It was subject to a motion for rehearing. The opinion had raised the issue sua sponte and not had the benefit of briefing by the parties. Another panel of the Second Circuit had not reflexively followed Kiobel yet in an appeal.
But Judge Gerber rejected all of these arguments, sticking to the limited scope of his authority:
[T]hose are points for the Circuit to consider, not me; I’m bound as a lower court in the Second Circuit to abide by any Second Circuit holding. As “corporate liability . . . cannot . . . form the basis of a suit under the ATS,” and each of the claims submitted by the Aparthied Claimants is alleged against a corporation, I must disallow the remaining claims.
Id. at *14 (citation omitted).
Judge Gerber was right. One week later, the Second Circuit issued two orders: one from the panel that heard the case denying rehearing by the panel, and another order denying the petition for rehearing Kiobel in banc, reflecting a tied 5-5 vote. The former order really merits reading, as it places the debate about corporate liability under the ATS in context. This much is abundantly clear: Kiobel is Second Circuit law and can no longer be avoided.
Interestingly, some of the news services have been reporting that the Eleventh Circuit recently decided an ATS case that creates a split with Kiobel. See Baloco v. Drummond Co., No. 09-16216 (11th Cir. Feb. 3, 2011). But although Baloco results in the continuation of ATS claims against a corporate defendant, nowhere does it undertake an analysis of whether customary international law actually allows claims against juridical entities. Rather, in Baloco, the court held that family members of union leaders killed in Columbia adequately pled causes of action under the ATS, the Torture Victims Protection Act, and Columbian wrongful death law. The court in Baloca also considered whether the plaintiffs were bound by the res judicata effect of a prior action, holding that the minor children – who, according to the pleadings, had not been represented by guardians in the prior proceeding – could not be bound by the res judicata effect of the prior proceeding.
Notably, Judge Gerard E. Lynch, in dissenting from the denial of in banc rehearing in Kiobel, argued that that Kiobel had caused a circuit split with the 11th Circuit due to its decision in Romero v. Drummond Co., 552 F.3d 1303, 1315 (11th Cir. 2008). We no doubt will see this argument advanced forcefully in certiorari petitions in the U.S. Supreme Court.