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BOARD MEMO 2021

Companies, directors and officers as targets of allegations of human rights violations and other litigation trends

Linda Martin

Linda
Martin

Partner, New York

Timothy Harkness

Timothy
Harkness

Partner, New York

David Livshiz

David
Livshiz

Counsel, New York

One litigation trend that directors and senior management should monitor closely in 2021 is the increasing instance of claims brought by human rights activists seeking to hold companies, as well as corporate directors and senior management, accountable for human rights abuses committed by the corporation or within its supply chain. In early December, the United States Supreme Court heard arguments in Nestle USA Inc. v. John Doe 1 et al.

In that case, plaintiffs – allegedly survivors of child slavery – sued US corporations for violations of international law under the Alien Tort Statute (ATS) alleging that defendants turned a blind eye to red flags of child slavery occurring on farms from which defendants sourced supplies. In 2018, the Supreme Court held that the ATS does not provide a basis for exercising jurisdiction over foreign (i.e. non-US) corporations under the ATS, but suggested that claims against directors, officers, and employees may survive. We anticipate that the Supreme Court will reach a similar decision in Nestle with respect to US corporations. But, with companies outside the scope of the ATS, we anticipate activist plaintiffs will increasingly target corporate directors and officers for any perceived misconduct on the part of the corporation, arguing that directors and officers turned a blind eye to human rights abuses within the company’s supply chain and/or failed to investigate red flags brought to the company’s attention. Given the potential reputational and economic risks posed by such claims, we recommend that senior management take steps to mitigate the risk of their being brought. We note that in at least one case, the existence of such corporate compliance programs proved useful in obtaining dismissal of human rights claims brought by activist plaintiffs.

In addition, directors also should remain alert to the ways in which litigation is increasingly being conducted on a global basis. For example, class actions are no longer a US-only concern. The European Commission is on the verge of formally enacting its Collective Redress Directive, which will require each member state to ensure that class claims can be filed on behalf of consumers affected by breaches of various EU consumer protection laws –including GDPR, product liability, and unfair contract terms or trade practices. As each member state considers whether and how to adapt their laws to implement the directive over the next two years, companies will have an opportunity to influence national approaches through individual or industry association lobbying on issues such as the standard for class certification and the amount of permissible discovery. Indeed, with discovery increasingly crossing borders (including the ability of foreign litigants to get broad US-style discovery in the United States for use in foreign proceedings pursuant to Section 1782), boards also may want to re-examine their corporate structure and ensure the maintenance of intra-company governance hygiene; be thoughtful about where certain operations occur (and which employees are involved); and consider technology issues such as the location of computer servers, the use of shared domains, and how information is exchanged across borders. Most critically, boards should ensure they and their legal teams are prepared to co-ordinate immediately on litigation strategy across multiple jurisdictions and be able to respond nimbly when litigation is filed.  

Finally, with vaccines slated for deployment we are set for a recovery in 2021. However, medical and public health literature suggests that further global pandemics are possible, even likely. With that in mind, companies would be well advised to take lessons from our experience litigating a number of COVID-related commercial disputes and review their existing and future contractual forms. In particular, they should pay attention to boilerplate provisions such as force majeure, adequate assurance and termination clauses to make sure the company is best positioned to survive and thrive should further business interruption events occur. Similarly, if a company intends to engage in material corporate transactions, boards and senior management should pay particularly close attention to how MAC/MAE clauses are framed to ensure the desired amount of deal certainty, even in the face of events that destabilize the market.