Diana Cahill and Casey Yamasaki
Economic globalization has raised questions about how international corporations should be regulated. Should international standards be established or must these corporations comply with a country’s laws (and if so, which country)? Since the United States is the largest importer in the world, and one of the most active countries in the global economy, the extent foreign companies can be subjected to domestic law is particularly significant. In a trilogy of recent decisions, the U.S. Supreme Court (the “Court”) has set up a two-step framework for determining whether a company or organization can be tried in the U.S.
U.S. law dictates a presumption against extraterritoriality in these types of cases, meaning it is assumed that the foreign company or organization is not subject to U.S. law. It is the plaintiff’s burden to prove that the organization is subject to U.S. law, following the framework set by the Court.
Morrison’s “Focus” Test
The first precedential decision by the Court was Morrison v. National Australia Bank, 561 U.S. 247, in which a handful of American and Australian investors sued National Australia Bank (“NAB”) for violating the Securities Exchange Act of 1934. Plaintiffs sought to apply the anti-fraud provisions of §10(b) to NAB’s conduct on the Australian stock exchange. The plaintiffs claimed NAB defrauded Australian investors through the purchase of a mortgage servicing company in Florida. Plaintiffs argued that since the fraud was related to a purchase within the U.S., and because some of the deceptive conduct and misleading statements emanated from Florida, NAB should be subject to U.S. law.
The Court ruled in favor of the defendant, determining the presumption against extraterritoriality cannot be overturned simply by the involvement of some domestic activity. Furthermore, the Court invoked the “focus” test, which became one step in the framework for extraterritorial cases. This test requires that the “focus” of the relevant statute be pertinent to regulating foreign organizations. In
Morrison, §10(b) did not pass the “focus” test because its intent is to regulate the trading of U.S. securities, not Australian securities, even if being traded among U.S. investors.
Kiobel’s “Touch and Concern” Test
The Court added to its extraterritoriality framework in its decision in Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659, which involved the Alien Tort Statute, 28 U.S.C. § 1350 (“ATS”). A group of Nigerian citizens sued the Dutch oil corporation for allegedly aiding and abetting the Nigerian government in violating international law during the 1990s. The ATS allows non-U.S. citizens to file civil actions against organizations violating international law or U.S. treaties. The Court ruled that the ATS did not apply because “all the relevant conduct took place outside the United States.” It held further that, “even where the claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritorial application” (
Id. at 1669).
The Kiobel ruling thus created the “touch and concern” test, which, in extraterritorial cases, requires a foreign organization’s conduct have taken place or created significant repercussions in the U.S.
After the Court’s decision in Kiobel, there was confusion over whether it had failed to apply the “focus” test or if the use of the language “touch and concern” called for a different conclusion in the ATS context.
RJR Nabisco’s Latest Contribution
The Court’s decision in RJR Nabisco, Inc. v. The European Community, 136 S. Ct. (2016), clarified that the “focus” test is the controlling standard in evaluating whether a statute is applicable to extraterritorial cases.
RJR Nabisco Inc. (“RJR”) was accused of violating the Racketeer Influenced and Corrupt Organizations Act (“RICO”) by the European Community for participating in a money-laundering scheme. RICO protects against racketeering activity that infiltrates, controls, or operates an enterprise that affects interstate or foreign commerce. After years of litigation, the Court ruled in favor of RJR, holding that RICO did not apply extraterritorially because the relevant conduct to the statute’s focus did not occur domestically.
RJR Nabisco reaffirmed the “two-step framework” where the court must first ask whether the normal “presumption against extraterritoriality” has been rebutted by a “clear, affirmative indication that [the statute] applies extraterritorially,” and if there is no indication, then the court would look to whether the case involves a domestic application of the statute’s focus. (Id. at 2101.) The Court further tried to diminish the previous confusion caused by
Kiobel by stating that it did not need to move forward to step two of the framework in
Kiobel because the relevant conduct took place outside the U.S., and thus, the “focus” test was moot. Law analysts have characterized RJR Nabisco as further entrenching the limited extraterritoriality reach interpreted in U.S. statutes.
The legal team at SFMS has substantial experience litigating international matters. If you have any questions regarding this subject or this posting, please contact Nick Lussier (firstname.lastname@example.org) or Chiharu Sekino (email@example.com). We can also be reached toll-free at (866) 540-5505.
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Jura, Perlette Michele and Dylan Mefford. “Extraterritoriality: The ATS In Focus.”Law360. Portfolio Media, Inc. 25 Oct. 2016. Web.
“Racketeer Influenced and Corrupt Organizations Act – Extraterritoriality – RJR Nabisco, Inc. v. European Community.” (2016).
Harvard Law Review, 130, 487-496.