By Linfan (Derek) Zha

Budha Ismail Jam and his family have fished at Tragadi bunder, a small harbor on the Gujarat, India, for generations.[1] In the nearby village of Navinal, Ranubha Jadeja and many other farmers use well-water to grow cotton, wheat, and other crops.[2] These fishermen and farmers all worked hard to scratch out a living, but they all became casualties of a power plant project funded by the International Finance Corporation (“IFC”), the private lending arm of the World Bank.[3] As its chimneys belch smoke into the sky, the plant has changed the temperature of the water gushing down into the fishing area, destroyed the local marine environment, and ruined the wells that residents used for drinking water and irrigation.[4]

This disaster is not an isolated incident.[5] The IFC has come under the spotlight for other projects with alleged human rights abuses or environmental damage.[6] However, victims of these poorly executed projects are powerless against the IFC. U.S. courts have traditionally interpreted that the International Organizations Immunities Act of 1945 (“IOIA”) awards virtually absolute immunity to international organizations like the IFC.[7]

Not surprisingly, the “perplexing state” of the law on immunity has been the subject of intense debate as international organizations increasingly become involved in commercial activities.[8] In a 7-1 decision, Jam v. International Finance Corp., the Supreme Court reversed a ruling in favor of the IFC, holding that international organizations do not enjoy broader immunity than foreign governments.[9] The implication of Jam is substantial because this ruling opens international organizations to litigations over their commercial activities.

International Organizations Immunities Act of 1945

In 1945, Congress adopted the IOIA to attribute the immunity of foreign states to international organizations.[10] The IOIA did not directly provide the scope of the immunity of international organizations but simply stated that international organizations “shall enjoy the same immunity from suit and every form of judicial process as is enjoyed by foreign governments, except to the extent that such organizations may expressly waive their immunity.”[11] At that time, foreign governments were entitled to “virtually absolute” immunity as a matter of international grace and comity.[12]

In 1976, Congress passed the Foreign Sovereign Immunities Act (“FSIA”), codifying the restrictive theory of foreign sovereign immunity[13] which only allows immunity for foreign governments’ sovereign activities.[14] Under the FSIA, a foreign government is subject to litigation in connection with its commercial activity that has a sufficient nexus with the United States.[15] However, international organizations continued to assert their rights to the immunity at the 1945-level.[16] Before Jam, Atkinson v. Inter-American Dev. Bank has been the determining case when construing international organizations’ immunity, which concluded the IOIA immunity was absolute and not subject to the FSIA exceptions.[17]

Jam v. IFC: Background

In Jam, the petitioners are farmers, fishermen, and a small village in India.[18] They allege that the power plant in Gujarat has caused devastating environmental damage and destroyed their livelihood.[19] The respondent, IFC, headquartered in Washington D.C, is charged with furthering economic development by encouraging private enterprise in developing countries.[20] In 2008, the IFC loaned $450 million to the Coastal Gujarat Power Limited (“Coastal Gujarat”), for the construction of a coal-fired power plant.[21] Under the loan agreement, Coastal Gujarat was required to comply with an environmental and social action plan which was designed to protect the surrounding communities.[22] The IFC retained supervisory authority and could revoke financial support if Coastal Gujarat failed to abide by the terms.[23] Unfortunately, the IFC failed to adequately supervise the project and the plant’s construction and operation did not comply with the plan.[24] Yet, the IFC failed to take any steps to force Coastal Gujarat into compliance.[25]

In 2015, the petitioners asserted several causes of action against the IFC, including negligence, nuisance, trespass, and breach of contract.[26] The District Court, applying D.C. Circuit’s precedent, Atkinson, concluded that the IFC was immune from suit because the IOIA grants international organizations the virtually absolute immunity that foreign governments enjoyed when the IOIA was enacted.[27] The D.C. Circuit affirmed this decision in light of Atkinson precedent.[28]

Supreme Court Decision and Implication

The Supreme Court reversed the D.C. Circuit’s decision, holding that the IOIA confers international organizations the “same immunity” as foreign governments enjoy today under the FSIA, not the “virtually absolute” immunity that foreign governments enjoyed at the time the IOIA was first enacted.[29] In the majority opinion, Chief Justice John Roberts, Jr. stated that by granting international organizations the “same immunity” from suit “as is enjoyed by foreign governments,” the IOIA “continuously link[s] the immunity of international organizations to that of foreign governments, so as to ensure ongoing parity between the two.”[30] Otherwise, the statute could “have simply stated that international organizations ‘shall enjoy absolute immunity from suit,’ or specified some other fixed level of immunity.”[31]

The Court then discounted the IFC’s concern about a flood of litigation in connection with its lending activities.[32] It is not clear that all the lending activities of international organizations necessarily qualify as “commercial activities” for purposes of the FSIA.[33] Even if an international organization’s activity does qualify as commercial, that does not mean the organization is automatically subject to suit.[34] The commercial activity must have a sufficient nexus to the United States.[35] Moreover, a lawsuit must be “based upon” either the commercial activity itself or acts performed in connection with the commercial activity.[36]

By denying “virtually absolute” immunity for the IFC, the Supreme Court clarified the scope of immunity for international organizations under the IOIA. Companies and individuals that transact with international organizations may find it easier to bring lawsuits in the United States against some international organizations.[37] However, the elimination of the categorical bar on judicial proceedings against international organizations may trigger much more legal entanglement, i.e., attachment writs, subpoenas and other types of proceedings. [38] Moving forward, International organizations, especially those involved in much-needed energy and infrastructure projects in the developing countries, may be reluctant to engage some projects due to legal concerns.

 

[1] Matt Kennard, Fishermen and Farmers Sue World Bank Lending Arm Over Power Plant in India, The Guardian (Nov. 10, 2015), https://www.theguardian.com/global-development/2015/nov/10/fishermen-farmers-sue-world-bank-lending-arm-ifc-power-plant-india.

[2] Id.

[3] Id.

[4] Id.

[5] Nina Lakhani, World Bank Lending Arm Forced into U-Turn After Honduras Loan Row, The Guardian (Jan. 23, 2014), https://www.theguardian.com/global-development/2014/jan/23/world-bank-ifc-forced-uturn-honduras-dinant; John Vidal, World Bank Facing Renewed Pressure Over Loan to Honduran Palm Oil Firm, The Guardian (Mar. 12, 2014), https://www.theguardian.com/global-development/2014/mar/12/world-bank-honduras-loan-palm-oil-company-dinant.

[6] Kennard, supra note 1; see Anthony Cooper, Recent Developments: Jam v. International Finance Corporation: Access to Remedy, But Only When We Say So, 26 Tul. J. Int’l & Comp. L. 417, 417 (2018).

[7] Atkinson v. Inter-American Dev. Bank, 156 F.3d 1335, 1340 (D.C. Cir. 1998).

[8] Jam v. Int’l Fin. Corp., 860 F.3d 703, 709 (D.C. Cir. 2017) (concurring opinion).

[9] Jimmy Hoover, International Orgs Don’t Have Total Immunity, Justices Rule, Law360 (Feb. 27, 2019), https://www.law360.com/articles/1133313/international-orgs-don-t-have-total-immunity-justices-rule (“Justice Stephen Breyer was the sole dissenter Wednesday. Justice Brett Kavanaugh took no part in the decision, having considered the case while he was on the D.C. Circuit.”); Jam v. Int’l Fin. Corp., 139 S. Ct. 759, 772 (2019).

[10] James E. Berger, Jam Exposes International Orgs to New Litigation Risks, Law360 (Mar. 11, 2019), https://www.law360.com/articles/1136702/jam-exposes-international-orgs-to-new-litigation-risks.

[11] 22 U.S.C. § 288 (2012).

[12] Jam, 139 S. Ct. at 766.

[13] Id. In 1952, the State Department adopted the restrictive theory of sovereign immunity because the widespread and increasing practice on the part of governments of engaging in commercial activities made it necessary to “enable persons doing business with them to have their rights determined in the courts.”  Under this theory, foreign governments are entitled to immunity only with respect to their sovereign acts, not with respect to commercial acts.

[14] Id. (citing Republic of Austria v. Altmann, 541 U.S. 677, 691 (2004)).

[15] Id.  (citing 28 U.S.C. § 1605 (2012)).

[16] Mark C. Williams, Supreme Court Narrows International Organizations’ Immunity in US Courts, Lexology (Mar. 22, 2019), https://www.lexology.com/library/detail.aspx?g=043bbbd3-262c-477c-b118-480fe9c15193.

[17] Cooper, supra note 6, at 422; Boris Bershteyn et al., US Supreme Court Construes Scope of Immunities in Jam, JDSupra (Mar. 7, 2019), https://www.jdsupra.com/legalnews/us-supreme-court-construes-scope-of-83405/.

[18] Jam, 139 S. Ct. at 765.

[19] Id.

[20] Id. at 766.

[21] Id.

[22] Id.

[23] Id.

[24] Id.

[25] Id.

[26] Id.

[27] Id.

[28] Id.

[29] Id. at 768–70.

[30] Id. at 768.

[31] Id.

[32] Id. at 772.

[33] Id.

[34] Id.

[35] Id.

[36] Id.

[37] Williams, supra note 16.

[38] Berger, supra note 10.