Jam v. International Finance Corporation: Nine misconceptions from the Supreme Court argument

(Marco Simons is General Counsel at EarthRights International, and counsel for the petitioners in the Jam case. He is a graduate of Yale Law School, where he received the Robert L. Bernstein Fellowship in International Human Rights.)

Yesterday, the Supreme Court heard argument in Jam v. International Finance Corporation (IFC), where the question is the degree of immunity that international organizations (IOs) enjoy in U.S. courts. In brief, the International Organizations Immunities Act (IOIA), 22 U.S.C. § 288a, provides that IOs “shall enjoy the same immunity from suit and every form of judicial process as is enjoyed by foreign governments.” It is the meaning of those eighteen words that the Supreme Court will decide. Does that mean the immunity that foreign governments received in 1945, when the IOIA was enacted? Or the immunity that they receive today, with its exceptions for injuries in the United States and commercial activities under the “restrictive theory” of immunity?

I may be biased, but I think the answer is clear; “the same . . . as is enjoyed” means the same as currently enjoyed by foreign governments. There are a lot of approaches to statutory construction at issue in this case – and they all point toward the same result – but I think the easiest way to see this is to look at 42 U.S.C § 1981, one of the key provisions of the Civil Rights Act of 1866 (reenacted in 1870): “That all persons within the jurisdiction of the United States shall have the same right . . . . to make and enforce contracts . . . as is enjoyed by white citizens.”

There is no question that this provision means the same rights as are currently enjoyed by white citizens. This formulation would have been familiar to Congress in 1945, and section 1981 (and its companion section 1982) are the only other places in the U.S. Code that the “same . . . as is enjoyed” formulation appears. The same language has to be interpreted the same way – and thus the IFC and other IOs should receive restrictive immunity, which is what foreign states now receive under the Foreign Sovereign Immunities Act (FSIA) of 1976, and previously received pursuant to State Department policy announced in 1952.

Against this backdrop, the IFC’s counsel – former U.S. Solicitor General Don Verrilli, Jr. – made a number of policy arguments. Most of his arguments were based on misconceptions. But the first misconception came not from the IFC but from the Court, in the form of a question by Justice Breyer.

  1. The purpose of the IOIA was “to get these organizations to locate here”

Justice Breyer was very concerned about whether applying the restrictive theory of immunity would undermine the original purpose of the IOIA – which he identified as follows:  “The purpose of the statute, going back to 1945 and the U.N. and everything, was to get these organizations to locate here.” This is, at most, half right.

First, Congress’s major purpose in enacting the IOIA was clear on the face of the legislative history: “The basic purpose of this title is to confer upon international organizations, and officers and employees thereof, privileges and immunities of a governmental nature.” That was Congress’ overriding purpose, and it should be honored.

Second, it is true that a secondary purpose was to help prepare the ground to allow the United Nations to locate in the United States – but there is no indication that it was intended, as a general measure, to encourage IOs to locate in the United States on an ongoing basis. The Senate Report on the IOIA indicates that it was intended “primarily to meet the requirements” of IOs generally; it named several, only some of which were headquartered in the United States. The law would, however, “also be available to meet the needs of the United Nations Organization, the headquarters of which will in all probability be established in the United States.” Debates in Congress indicate that part of the need to pass the law before the end of 1945 was to meet the needs of the UN as the headquarters issue was resolved.

But helping to resolve the UN headquarters location is very different from generally trying to encourage IOs to locate in the U.S. There is no indication in the legislative history that the U.S. needed to provide extensive immunities to encourage IOs to locate here; instead the law was intended to give IOs appropriate immunities of a governmental nature.

The distinction matters, because there is no danger that any interpretation of the IOIA would threaten any purpose related to the UN. As it happened, the IOIA was not sufficient to satisfy the UN. First a Headquarters Agreement was separately negotiated between the U.S. and the UN. At the time, the U.S. had not adopted the Convention on the Privileges and Immunities of the United Nations (CPIUN), but some of its immunities were incorporated into the Headquarters Agreement. And then the U.S. did ratify CPIUN, giving broad immunity from suit. The IOIA is almost irrelevant to the UN.

In fact, most international organizations established after the IOIA do not have headquarters in the U.S.; the ones that do are either financial institutions that the U.S. dominates (like the IMF and the World Bank Group), organizations founded by the U.S. and only one or two other nations (usually Canada and/or Mexico), or regional inter-American organizations like the Organization of American States (which in any event also negotiated its own separate Headquarters Agreement with the United States). Indeed, other than the UN, no major global organization outside the World Bank Group has sited its headquarters in the U.S. since the enactment of the IOIA; no organization has been relying on the IOIA’s immunity regime for its headquarters decisions.

  1. There was a fixed rule of “virtually absolute immunity”

The IFC argued that, in 1945, the immunities of foreign governments had a “settled meaning of virtually absolute immunity,” which IOs should continue to receive today. This is accurate to a point – the Supreme Court has said that states at the time enjoyed “virtually absolute immunity,” but that this was not a common-law rule; instead it was the consequence of deference to the immunity determinations of the State Department.

So “virtually absolute” immunity could mean no immunity if the State Department chose not to extend immunity in a particular case. And this deference to the political branches means that the 1945-era approach could not be considered a fixed rule, as the IFC argued.

  1. Treaties required the U.S. to grant “virtually absolute immunity”

Next, the IFC argued that “Congress enacted the IOIA . . . to fulfill treaty obligations that committed us to provide virtually absolute immunity.” And later, that “what led to the enactment of the IOIA” was the need “to get these organizations up and going and give them the immunity we promised them.” This is simply false.

Congress enacted the IOIA against the backdrop of three recently-created IOs: the UN, the IMF, and the International Bank for Reconstruction and Development (IBRD, known as the World Bank – though today’s World Bank Group also encompasses four subsequently established institutions, including the IFC). Not one of their founding agreements commits the U.S. to provide “virtually absolute immunity.”

The UN Charter commits the U.S. to grant the UN the “privileges and immunities as are necessary for the fulfilment of its purposes.” No one has suggested why applying the restrictive theory would have frustrated the purposes of the UN, especially in 1945. The UN’s framers could have put absolute immunity into the Charter; they did not.

The IMF’s Articles of Agreement do provide absolute immunity from suit (not “virtually absolute immunity,” a concept that simply does not exist in international law). But that immunity had already been codified into U.S. law, in 22 U.S.C. § 286h; the IOIA was unnecessary for this purpose. As for the IBRD, its Articles of Agreement decidedly do not provide absolute immunity, and arguably do not provide any immunity at all (except for suits from member states).

Thus the U.S. was under no treaty obligations in 1945 to provide “virtually absolute immunity” to any IO.

  1. The UN Charter requires absolute immunity

The IFC then suggested that while the original UN Charter only required “necessary immunities,” the negotiation of CPIUN in 1946 elaborated that “the U.N. should get virtually absolute immunity” – and that not granting such immunity to the UN would put the U.S. “in violation of the commitment we made in the U.N. charter.”

This is wrong in at least two ways.

First, CPIUN again does not provide “virtually absolute immunity”; it provides unqualified, absolute immunity from suit. Again, no treaty reflects the standard that the IFC urges.

Second, and more importantly, the US was not bound by CPIUN until it ratified it. While the purpose of CPIUN was to elaborate on the functional immunity in the UN Charter, not all states agreed with that elaboration. Even today, while there are 193 members of the UN, only 162 have adopted CPIUN. And that adoption was not immediate – 36 countries adopted CPIUN in the 1940s, and adoption continued gradually throughout the 1950s, 1960s, and up through today (the most recent being Saudi Arabia and East Timor in 2015).

The U.S. did not ratify CPIUN until 1970, and until then it was not bound by its interpretation of the UN Charter. It would only have been in violation if the U.S. approach to immunity frustrated the purposes of the UN, and there is no evidence of that.

Indeed, even today, some countries do not accord the UN absolute immunity. As August Reinisch, a leading expert on the subject, notes, “some national courts have tried to limit the Organization’s scope of immunity along the initially envisaged ‘functional’ immunity. In practice, this has also sometimes led to the application of restrictive State immunity principles denying immunity for ‘commercial” activities.’”

  1. The IOIA was enacted to give international organizations “functional” immunity

The IFC argued that – contrary to the language of the IOIA – immunity of IOs should not be the same as immunity of states because “immunity is granted for different reasons. The reason you give an international organization immunity is a functional reason, not a status reason. It’s not about according the appropriate respect to the sovereigns, because international organizations aren’t sovereigns.” But that’s not what Congress thought in 1945.

The Senate Report on the IOIA is replete with indications that Congress intended to do just what the IFC argues against – to tie the immunity of IOs to sovereign immunity as a matter of status. The Senate Report indicates that the IOIA would grant IOs “immunities of a governmental nature,” and that the immunities granted “are those accorded foreign governments under similar circumstances.” Proponents of the IOIA indicated that IOs that are “made up of a number of foreign governments . . . should enjoy the same status as” a foreign embassy.

While Congress’ clear intent was to link IO immunity with foreign sovereign immunity as a matter of status, this still does not disturb any need for functional immunity – as we see next.

  1. Restrictive immunity would impair the functions of international organizations

The IFC suggested throughout that the “restrictive” approach to immunity from suit would conflict with IOs’ needs to function. But it is far from clear why that would be so, other than a generalized argument that subjecting anyone to the possibility of lawsuits makes it impossible for them to function, which is a rejection of much of the U.S. legal system.

The two major categories of exceptions to immunity, under the restrictive theory, are torts within the United States – auto accidents, slip-and-falls, other kinds of negligence in the U.S. – and commercial activities within the United States. The IFC’s argument did not even address the first category. As to the second, it’s not clear why, if every other commercial lender can manage to operate while being subject to suit, the IFC cannot.

Indeed, the only reason for that would be if the IFC’s commercial activities risk harming people in a way that commercial banks would not be willing to do. And if that’s what’s going on, it’s something that needs to be stopped, not protected. Immunity is supposed to protect an IO’s purposes, and the IFC’s purpose is to promote development and end poverty – not harm vulnerable communities. If we think, as a matter of policy, that legal liability impairs sustainable economic development, why don’t we immunize all corporations for all of their actions in developing countries? (In fairness, some might argue for that – but I hope there is no serious debate here.)

  1. The IFC is being sued because its borrower failed to meet its contractual obligations

While the question at issue in the Supreme Court goes far beyond this case, the next misconception peddled by the IFC is about this case in particular, which relates to harms from a power plant project in India. The IFC argued that it is being sued because it tried to put in robust environmental standards into its contract, and the project developer didn’t follow them: “The entity that we loan this money to didn’t live up to the standards and it’s our fault. And so we’re being sued here.”

That is not true at all. The IFC is being sued for its own negligence. The IFC expressly allowed the project developer to deviate from its original plans, which led directly to massive impacts on the local population.

Think of the classic hypothetical where a man walks into a gun dealer and says “I need to buy a gun because I plan to kill my wife.” Now while it’s generally legal to sell guns, you’re abetting a crime if you sell a gun to someone who you know is going to use it to hurt someone. So suppose the gun dealer simply says, “well, first I need you to sign a contract saying you’re not going to hurt anyone with this gun.” The man signs the contract, buys the gun and kills his wife. The gun dealer can make exactly the same argument as the IFC, characterizing the case against it as “the man that we sold this gun to didn’t live up to the standards and it’s our fault. And so we’re being sued here.”

The point is that while including environmental and social standards in a contract is a good thing, it doesn’t get you off the hook if you still know that you’re enabling someone to cause injury. The IFC is not being sued because of its contract; it’s being sued in spite of its contract. The absence of environmental and social standards in the IFC’s contract would not absolve it of liability here. The essential facts – that the IFC knew the project was going to cause harm, specifically approved many of the features of it that do so, and went forward with it anyway – would remain the same.

  1. The IFC takes remedial measures in response to identified problems

Perhaps the argument most divorced from reality was the IFC’s contention that they have an effective internal policing mechanism: “We’ve also got a robust internal accountability mechanism, where if people think something has gone wrong on one of our projects, they can come to us and they can say –they can say, look, there’s a problem here. And they — and we investigate. We take internal remedial measures if we find there’s a problem.”

The mechanism at issue is the Compliance Advisor Ombudsman (CAO). And the CAO does great work. The problem is with the last part of this assertion: that the IFC takes remedial measures if the CAO identifies problems.

If the IFC had done so here, there would never have been a lawsuit. In fact, although the CAO identified numerous problems with the IFC’s behavior on this project, the IFC’s response has been lackluster at best. The CAO’s compliance audit was issued in October 2013 – over five years ago. But the CAO still considers the case to be open, in the “compliance” stage, where the CAO is monitoring IFC’s response to its recommendations. The CAO issued its second monitoring report in February 2017; its bottom line conclusion was that it was “concerned that the actions reported by IFC are not sufficient to address the findings of the audit.”

  1. Absolute immunity for IOs “has been the law for a very long time” and has “worked well”

The IFC closed its argument by suggesting that the absolute immunity rule “this has been the law for a very long time. There is no evidence that it has done anything other than work well.” Neither piece of that is true.

At most, the absolute immunity interpretation has been relied on by international organizations for the past 20 years, since the D.C. Circuit decided Atkinson v. Inter-American Development Bank in 1998. Before that, there was no indication that international organizations would get absolute immunity in U.S. courts.

During the initial years of the IOIA, the State Department treated its immunity not as a fixed rule of absolute immunity, but as a rule of deference to the State Department – just like the rules for foreign states. Thus, just like it did with foreign states, the State Department had a practice of filing “suggestions of immunity” for international organizations; the U.S. confirmed this in its amicus brief. But the U.S. stopped doing so, and in 1977 the State Department indicated that it would be inappropriate to do so after the 1976 passage of the FSIA, precisely because the IOIA “links the two types of immunities.” Again in 1978, the U.S. submitted an amicus brief in the D.C. Circuit arguing that the FSIA’s restrictive approach applies to IOs. The Executive Branch would go on to repeat this interpretation multiple times over the next four decades.

So at least from 1978 to 1998 – a 20-year span – no one had any reason to believe that international organizations had absolute immunity. And during that period, there was no indication that applying the restrictive approach would have any negative consequences.

All this proves is that suits against international organizations, regardless of what degree of immunity is applied, are rare. There was no flood of litigation after the FSIA was enacted and the State Department said it applied to international organizations; there will be no flood of litigation now. There may be a handful of suits – and those suits will encourage more careful behavior on the part of international organizations.

And has immunity worked well? The facts of this case demonstrate that it has not. Immunity distorts market behavior; it creates classic moral hazard problems, where actors take unwarranted risks because they know they cannot be sued. The irony is that if the IFC knew its immunity was not absolute, there would have been no lawsuit here – because the IFC never would have made the decisions that caused the plaintiffs’ injuries.

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