Should Multi-National Corporations Based in the United States be Held Liable in This Country for Their Extra-Territorial Toxic Torts? Professor Skillern Spring 1986 Independent Research Carid~ce L. Caperton 00001 Should Multi-National Corporations Based in the United States be Held Liable in This Country for Their Extra-Territorial Toxic Torts? In the past two decades, devastating environmental disasters have emerged from the pages of science fiction and into reality. Spurred on by innovations in tech- nology and science, such calamities are becoming more and more commonplace and their locales span the globe, from Love Canal, New York, to Bhopal, India. As with the Bhopal incident, these environmental nightmares often involve multi-national corporations, thus complieating matters even more. The atrocity which occurred in Bhopal, India, will be scrutinized closely in arriving at the conclusion that, indeed, multi-national corporations based in the United States should be held liable in this country for their extra-territorial toxic torts. Around midnight on December 2, 1984, a toxic methyl isocynate gas escaped from Union Carbide's pesticide plant in Bhopal, Madhya Praden, India, killing two thousand persons and injuring two hundred thousand more. 1 The massive litigation which has ensued since the Bhopal incident epitomizes why multi-national corporations based in the United States should be liable in this country for their extra-territorial toxic torts. 1 2 torts. However, it is important to note that the type of toxic tort seen in the Bhopal incident was quite unique and distinguishable from the types of toxic torts which are usually observed in the chemical industry. The Bhopal disaster was different in that it occurred at a specific time, on a specific date, with immediate and identifiable repercussions. More often than not, environmental harms manifested in the form of toxic waste pollution are discrete, liability-concealing incidents whose effects may not be known for years. 2 For this reason, the legal theories employed in redressing these harms must be chosen with care; more often than not, however, traditional tort law will be used. argued, 3 It has been though, that traditional tort law may be diffi- cult to apply to injuries caused by toxic tort pollution, for reasons to be discussed shortly. Because of this difficulty, the possibility of redressing toxic environmental harms via statutory means comes to mind. The quality of our environment is becoming an increasingly important concern for most Americans, and this concern is reflected in the multitudinous environmental statutes and regulations implemented in recent years. 4 Thus, the possibility of remedying toxic environmental injuries by way of American environmental 000fl3 3 statutes and regulations is yet another reason why multinational corporations based in the United States should be held liable in this country for their extra-territorial toxic torts. American statutory remedies may be feasible solutions to liability because, as indicated, traditional tort law may be difficult to apply to injuries caused by toxic tort pollution. Harm caused by improperly disposed or released toxic wastes appear particularly ill-suited to tort recovery for numerous reasons. For one, this type of pollution does not usually injure few, specifically identifiable persons. 5 Additionally, traditional tort law application necessitates statutes of limitations, or legislative decisions that certain claims should be valid for only a limited time. 6 Generally speaking, statutes of limitations for tort actions begin to run at the time • one I s tort1ous act occurs. 7 However, within the context of a so-called "toxic tort," often the injury is caused by the leaking of toxic substances from disposal sites. It may take years for contaminants to migrate out of disposal sites, 8 and many of the injuries associated with toxic chemicals have long latency periods. 9 . 1 statutes o f 1'1m1. Thus, convent1ona tations appear to be ill-suited for toxic tort litigation. For this reason, some states in this country have altered 4 the date at which a toxic tort cause of action accrues and from which the statute of limitations runs. For in- stance, a cause of action may accrue only when a victim discovers both his injury and its potential relation to a toxic contaminant exposure. 10 Different versions of this discovery rule abound from state to state. 11 Furthermore, if a great deal of time has passed since the date of disposal of a toxic substance and subsequent injury, imposing liability on waste generators and disposers for past actions may be neither fair nor efficient, if doing so requires judges to hold defendants to today's knowledge and standards rather than to the technological competence prevalent at the time of disposal. 12 This is yet another reason for turning to statutory remedies offered by the American legal system when dealing with toxic environmental harms. Another problem with applying traditional tort law to toxic tort litigation is found in the requirement that a definite, causal linkage be found between the toxic 13 . . s ub stance an d 1nJury. This connection is often hard to prove when toxic harm to the environment has occurred. Statistics are often used to show such a connection, and, due to the flexible and interpretative nature of statistical findings, a court or jury may be apprehensive of imposing 5 . b 1'1'1ty wh en on 1 y s t a t.1s t.1ca 1 ev1dence . . offered. 14 1 1a 1s Something more concrete is desirable. The difficulty in proving causal connections is yet another reason why statutory relief found in American regulations, rather than traditional tort law, might be employed in redressing toxic environmental injuries. Furthermore, waste generators, haulers, and disposers may be insolvent by the time the tort action is brought, or a large number of aggregated claims may exceed the assets of the defendent, forcing it into bankruptcy and . . f f s. 15 . f u 11 recovery f or t h e p 1 a1nt1 prec 1 u d 1ng . . 11 y, Add 1t1ona identifying potential defendants may be a difficult obstacle to overcome. For example, waste generators may be hard to locate if they contracted with a waste disposer instead of disposing of the wastes on their own; 16 waste generators are often abundant in number, 17 and lackadasical recordkeeping of disposers may lead plaintiffs on fruitless searches. 18 Again, these are all problems encountered in applying traditional tort law to environmental toxic torts; hopefully, statutory relief, such as that found in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) , 19 will alleviate these difficulties and provide yet another reason for making multi-national corporations liable in this country for their 6 extra-territorial toxic torts. Clearly, given the two major characteristics of toxic waste injuries which differentiate them from ordinary torts, that is, the time lag between the tortious act and injury and the difficulty in proving causation, it appears that perhaps United States environmental regulations rather than traditional tort law should be res o:tted to .. Our national environmental laws are wide and very encompassing. We have laws dealing with clean air, toxic substances, pesticides, and hazardous wastes. 20 The Environmental Protection Agency sets uniform standards, and financial responsibility arrangements and compulsory insurance funds exist to remedy certain environmental disasters. 21 Those who violate environmental laws may face criminal charges. 22 The attorney general, or the EPA, or a private citizen may be able to sue to obtain compliance; governments and private parties may be able to sue for reimbursement of cleanup costs, response costs, or harms to natural resources. 23 However, these federal regulations fail to provide a means whereby the . . ~nJure d . part~es . d amages. 24 can o b ta~n Although it might be argued that private rights of action for damages might possibly be implied in environmental legislation, this notion was done away with in OOOf-7 7 Middlesex County Sewerage Auth. v. Nat'l Sea Clarnmers Ass'n. 25 Thus, it appears that remedies for damages caused by environmental disasters, such as toxic torts, will have to be found in the common law, despite the facts that the common law is wrought with troubles in this context. Of course, if "American" law is imposed upon multi-national corporations, in fact it would be the law of some state which would actually be applied. is true in light of Illinois v. City of Milwaukee. This 26 Thus, in considering whether a multi-national corporation should be liable in the United States for its extraterritorial toxic torts, the common law of the state in which litigation would likely take place should be scrutinized. The selection of a favorable forum is of paramount importance when determining where litigation concerning a multi-national corporation's toxic torts should take place. Quite often, a plaintiff's forum choice will be granted; however, Gulf Oil Corp. v. Gilbert 29 set forth numerous private and public factors to be weighed by a court in determining whether to overcome the presumption against disturbing a plaintiff's forum choice. 28 This case established the doctrine of forum non conveniens which means, essentially, that a district court may dismiss 8 a case more appropriately held elsewhere. 29 This doctrine is applicable where an alternative forum is a court in a . 30 f ore1gn country. The next significant Supreme Court case which focused on choice of forums was Piper Aircraft Co. v. Reyno. 31 Here, the Supreme Court narrowed application of the Gilbert analysis to litigation involving injured foreign nationals and American defendants. Reyno indicated that a district court must first determine whether an adequate alternative forum exists. Inadequacy could be shown by the inability of the alternative forum to exercise personal jurisdiction over the defendant or if its remedy was so unsatisfactory that it was no remedy at a11. 32 Remedies may be insufficient when the foreign forum lacks subject matter jurisdiction, or when there is some . . . t.1a 1'1 t y. 33 quest1on o f 1ts 1rnpar Reyno also indicated that a court may properly consider the financial barriers to pursuit of the plaintiff's claim in their horne forums. 34 Other factors for the court to scrutinize include: the relative ease of access to sources of proof; the possibility of viewing the premises where the accident occurred; the cost of obtaining attendance of willing witnesses; and the availability of . 35 compulsory process for unw1'11'1ng w1tnesses. After balancing all these ennurnerated private interests, and if they are not dispositive, the court 9 may balance the public interest factors in considering . . a f arum non conven1ens mot1on. 36 Public interest factors will weigh against dismissal if a sufficient nexus with the chosen forum to justify the use of its judicial time and resources can be found. 37 In this context the court will examine: the connection between the forum and the parties or the site of the accident or challenged conduct; 38 interest in dispute; law. 39 the local or general regulatory and the need to apply foreign 40 The final public interest factor to be weighed by the district court, the need to apply foreign law, is extremely significant. In a diversity action, the type of action which would probably be involved when dealing with extra-territorial torts of multi-national corporations, a federal court must apply the choice-of-law rules of the state in which the court sits. 41 Different states adhere to different choice-of-law doctrines. For instance, some follow the traditional lex loci delecti approach, which will apply the law of the place of the wrong in tort cases. 42 Several states apply the substantive law of the state with the most significant relationship to or relevant contacts with the occurrence of the tort and . 43 th e part1es. Finally, states which have adopted the governmental interest analysis approach will apply the t(lfllO 10 substantive law of the state with the greatest interest in resolving the rights and liabilities of the parties. 44 Thus, the analysis set out in Gilbert and Reyno, in connection with choice-of-law questions, will be critical in determining whether a suit filed in the United States against a multi-national corporation for its extraterritorial torts will remain intact or be dismissed to an alternative, foreign forum. This determination is committed to the trial judge's discretion, 45 and appellate . rev~ew . ~s . d • 46 accor d'~ng 1 y 1'~m~te Even if the doctrine of forum non conveniens and choice-of-law rules indicate that litigation should take place in a forum other than the United States, other considerations exist which may make the American legal system more attractive than a foreign one. For instance, when a federal court in the United States dismisses a case on the basis of forum non conveniens, it ordinarily conditions that dismissal on the defendant's undertaking to submit to the . . . jur~sd~ct~on of t he f . ore~gn tr~'b una 1 . 47 However, the transnational tort plaintiff who has lost his access to the United States forum usually either gives up altogether or manages to settle the case for a very small fraction of its value. 48 Reasons why a plaintiff might decide not to pursue his complaint if the lawsuit is relegated to an alternative, 11 foreign forum are exemplified in an examination of the Bhopal disaster. For instance, the Indian legal system is plagued with many troubles. Access to Indian courts requires the prepayment of substantial filing fees. 49 Additionally, other drawbacks to the Indian legal system include the absence of contingency attorney's fees, exorbitant ad valorem court fees, a congested court system, the lack of investigative and fact-developing solicitors, and low standards of accountability applicable to the government and private employers. 50 Undoubtedly these imperfections were taken into consideration by the Government of India before it decided to file a class action on behalf of the Bhopal victims in federal court in the Southern District of New York. 51 Of course, it goes without saying that these considerations will also be examined by the American court system in determining whether to grant Union Carbide's forum non conveniens motion. Due to inherent differences in the legal systems of different countries, forum shopping will undoubtedly take place when multi-national corporations are faced with law suits concerning their extra-territorial toxic torts. Such a practice is inevitable when multi-national parties are involved, as plaintiffs will be inclined to file suit in the location most advantageous to them. This tendency 12 to forum shop was arguably seen in the Bhopal incident, where, as mentioned the Government of India filed suit in the Southern District of New York against union Carbide in the form of a class action on behalf of the . . d ~n]ure I n d.~an . 1 s. nat~ona 52 Most likely, the Indian Government only took these steps after meticulously scrutinizing the situation at hand and determined that the United States could offer the most beneficial forum. Such international forum shopping is not as much of a concern as that which occurs between states. Public policy mandates uniformity and consistency within the American legal system; blatant forum shopping between various states definitely disrupts this equilibrium. In deciding whether multi-national corporations based here in the United States should be liable in this country for their extra-territorial toxic torts, the question is not merely whether America or another country offers a more feasible forum. Often, the dilemma centers on which American state would provide the most agreeable forum for the plaintiff. To illustrate, American states with contacts relevant to the Bhopal litigation are New York (state of incorporation of Union Carbide), Connecticut (locus of general corporate decision-making) , and West Virginia (site where decisions relating to the design and operation of the 13 Bhopal plant were allegedly formulated) . 53 Thus, the stage is set for forum shopping not only between this country and India, but also between New and West Virginia as well. Yor~ Connecticut, This inherent forum shopping which occurs between states is perhaps one reason why multi-national corporations based in the United States should not be liable in this country for their extraterritorial toxic torts. On the other hand, however, holding multi-national corporations liable in this country for their extraterritorial toxic torts might be advantageous because of the three principal theories of liability which have been applied in this country against such multi-national corporations. These theories are: a) the traditional "piercing the corporate veil"; b) a concept of worldwide financial responsibility for multi-nationals, regardless of corporate forms; and c) a multi-national's "duty to manage responsibly,~· derived perhaps from evolving . . 1 co d es. 54 mu 1 tlnatlona The "piercing the veil" concept may be invoked when the owner of the offending corporation previously ignored or abused the corporate form and thus should be treated as if the limited liability shield had never been erected. 55 The imposition of a worldwide financial responsibility upon multi-nationals is another approach to direct 00014 14 liability. This theory is based upon the notion that the policies which underlie limited liability for corporations should not be seen in the case of multi-national companies, especially those investing in emerging nations lacking well-developed regulatory infrastructures. 56 The rationale for this theory is founded in equity; it hardly seems fair for multi-national corporations to reap the benefits of overseas operations, such as cheap labor and favorable exchange rates, and yet escape liability for the torts they commit abroad. To illustrate, this equitable concept was recently approved in Container Corp. of America v. Franchise Tax Board, 57 where California applied a "unitary" treatment to the income of a multi- . 1 • 58 nat1ona Also, in Argentina,in the early 1970's Campania Swift went into bankruptcy and was unable to meet the financial obligations to Argentinian creditors. However, Swift's Bahamian parent, Deltec, was held 59 . . responsible for those ob 1 1gat1ons. Of course, any adoption of worldwide financial responsibility would have serious ramifications in the area of international investments. If a developing nation adopted worldwide financial responsibility as a legal concept, a strong incentive for investment to be geared to other countries might develop. 00015 60 15 Imposing worldwide financial responsibility upon multi-nationals might prove even more beneficial if done in conjunction with the imposition of a theory of multinational management responsibility. Multi-national man- agement responsibility is, quite simply, a legal duty upon multi-nationals to manage their subsidiaries, particularly those in emerging countries, in accordance with some standard of responsible international investment and management. 61 Responsibility for training and super- vising local management and providing regularly updated technology would be of utmost importance. 62 Finally, a theory of strict liability, as set forth in the English case of Rylands v. Fletcher, adhered to. 63 might be That is, where a defendant exercises a measure of control over a hazard, and the hazard escapes, with resultant damage to the plaintiff, there is liability without a need to show fault. 64 Arguably, this doctrine could be applied to a parent company based in the United States, as well as a foreign subsidiary; of course, application of strict liability would depend on whether litigation was taking place in federal or state courts, and, if the controversy was being resolved in state courts, what the laws of that particular state were. Another means of forcing a United States parent company to be responsible for its subsidiaries' toxic Ctlflt6 16 torts could be a lawsuit by the subsidiary against the parent company, based on breaches of express and implied warranties in the technology licensing agreement between 65 paren t an d s ub s1'd'1ary. s uc h an agreement, if not explicit, could be implied from ordinary commercial usage, 66 and would logically extend to personal injuries suffered by third parties. In summary, it is true that in considering whether multi-national corporations based in the United States should be liable in this country for their extra-territorial toxic torts, it is important to keep in mind the burdensome difficulties which will be encountered when applying traditional tort law to toxic tort litigation. However, given the fact that federal environmental statutes afford no relief concerning damages to injured private parties, traditional tort law will have to be applied, and its inherent problems will simply have to be dealt and contended with. Problematic application of traditional tort law is not an excuse for a United States based, multinational corporate defendant to escape liability. Next, in any situation involving injured foreign plaintiffs and a domestic defendant, the Gilbert and Reyno cases mandate a thorough weighing of relevant private and public interests along with a complete investigation of choice-of-law rules. Although this process is oriented 17 towards the selection of the most appropriate and objective forum for all concerned, some forum shopping is more than likely to occur; however, this is yet another inherent problem which must be contended with. The possibility of forum shopping from state to state is one basis for advocating foreign liability for multi-national corporations based here who have committed extra-territorial toxic torts; however, it can also be argued that the possibility of forum shopping should not preclude the bringing of toxic tort litigation within this country, if a balancing of all Gilbert and Reyno factors indicate that a United States court will indeed be the most proper forum. Another reason for making multi-national corporations liable in this country is the shortcomings and obstacles encountered in foreign legal systems. As noted, the Indian legal system is besieged with problems, making American courts appear to be more favorable forums. 67 Of course, assuming that all foreign legal systems are inferior to ours would be an extremely presumptious postulation; however, the advantages of the American legal system will undoubtedly be considered when deciding on the locus of litigation concerning the liability of American based, multi-national corporations who have co~~itted extraterritorial toxic torts. 00018 18 As indicated, our legal system may hold multinational corporations accountable on several theories of liability; piercing the corporate veil; worldwide financial responsibility; duty to manage responsibility, and strict liability. Although these theories may make American courts more enticing, it should be noted that these enumerated possibilities of parent company liability might be construed as running contrary to the freeenterprise concept of incorporating to limit risk and increase profits. However, environmental disasters involving toxic torts are extremely unique and extremely devastating. A trend has developed in the American conscience in the last several years; environmental protection seems to be moving to the forefront of American sentiments, 68 and perhaps it should be up to everyone, particularly American industry and its foreign tributaries to maintain, if not enhance, the worldwide environmental status quo. In conclusion, it is evident that many factors point to the finding that multi-national corporations based in the United States should be held liable in this country for their extra-territorial torts. American based corpora- tions should not be allowed to benefit from their foreign subsidiaries without being answerable for the toxic torts committed by these corporate branches, and, perhaps more 00019 19 often than not, restitution for these wrongdoings should be achieved by using American, rather than foreign, legal systems. ... 00020 20 Endnotes (1). Diamond, The Bhopal Disaster: How it Happened, N.Y. Times, Jan. 28, 1985, at Al, col. 1. (2). Duce, In Searth of Adequate Compensation for Toxic Waste Injuries: Who and How to Sue, 12 Pepperdine L. Rev. 609 (1985). ( 3) . Id at 610. (4). Dhavan, For Whom? And for What? Reflections on the Legal Aftermath of Bhopal, 20 Tex. (1985). Int'l L.J. 309 See also The Clean Air Act, 42 u.s.c. § 7401-7642 (1982); Toxic Substances Control Act (TSCA), 15 U.S.C. §§ 2601-2629 (1982); Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), 7 u.s.c. §§ 136-136y (1982); and Resource Conservation and Recovery Act (RCRA), 42 u.s.c. §§ 6922-6987 (1982), as amended by 1984 Amendments. (5). Strand, The Inapplicability of Traditional Tort Analysis to Environmental Risks: The Example of Toxic Waste Pollution Victim Compensation, 35 Stan. L. Rev. 578 (1985). (6). Id. at 580. (7). Id. (8). Id. (9). Environmental Causes of Cancer: Hearings Before the Subcornrn. on Oversight and Investigations of the House Comm. on Interstate and Foreign Commerce, 94th Cong., 2d Sess. 180 (1976). 21 (10). Superfund 301 (E) Study Group, 97th Cong., 2d Sess., Injuries and Damages from Hazardous Wastes Analysis and Improvement of Legal Remedies: Report To Congress in Compliance with § 301 (E) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (P.L. 96-510) pt. 2, 19-53 (Cornrn. Print 1982). (11). Id. (12). Henderson, Coping with the Time Dimension in Products Liability, 69 Calif. L. Rev. 919 (1981). (13). Strand, at 583. (14). Id at 584. See also Castrilli, Problems of Proof and Credibility Issues in Relation to Expert Evidence in Toxic Tort Litigation, 10 Queen's L.J. 76 (1984), which states that hazardous substance issues can often be characterized as situations in which there is some evidence of a risk pf damage, but the likelihood of the risk culminating in damage cannot be demonstrated with objective certainty. It is largely or entirely speculative. (15). Podgers, Toxic Time Bombs, 67 A.B.A.J. 139, 141 (1981). (16). Ginsberg & Weiss, Common Law Liability for Toxic Torts: A Phantom Remedy, 9 Hofstra L. Rev. 859 (1981). (17). Strand at 587. (18). Id. 22 {19). Comprehensive Environmental Response, compensation, and Liability Act, 42 u.s.c. §§ 9601-9657 (1982). {20). Note, supra note 4. {21). Dhavan at 310. See also TSCA, 15 u.s.c. §§ 2601-2629; FIFRA, 7 U.S.C §§ 136-136y; Comprehensive Environmental Response, C0mpensation, and Liability Act, 42 U.S.C. §§ 9601-9657 {1982); and the Price-Anderson Act, 42 U.S. C. § 7 413 (c) . ( 22) . RCRA, 42 U.S.C. § 6928 (d); Clean Air Act, 42 U.S.C § 7401-7642 (1982). ( 2 3) • Dhavan at 310. ( 2 4) • I d. ( 25) • 453 u.s. 1 (1981). {26) . 451 u.s. 304 (1981). ( 2 7) • 330 u.s. 501 (1947). ( 2 8) • I d. ( 29) . I d. ( 30) • Wright, Law of Federal Courts, 44, at 260 (4th ed. 19 83) • {31). 454 u.s. 235 (1981), reh'g denied, 455 U.S. 928 (1982). (32). Id at 254. (33). Id. ( 34) . Id at 256. (35). Gilbert, 330 u.s. at 508. 23 ( 36) • Pain v. United Technologies, 637 F. 2d 775, 785 (D.C. Cir. 1980), cert denied, 454 u.s. 1128 (1981). ( 3 7) • Pain, 637 F. 2d at 791. ( 3 8) • Gilbert, 330 U.S. at 508. ( 39) • Reyno, 454 ( 40) . I d. ( 41) . Klaxon Co. v. Stentor Mgf., 313 U.S. 487 (1941). ( 42) . See generally Kay, Theory Into Practice: Choice of u.s. at 260. Law in the Courts, 34 Mercer L. Rev. 521 (1983), giving a description of choice-of-law doctrine followed in fifty states. ( 43) . Kay at 556. ( 44) • Id. ( 45) . Reyno at 235. See also Gilvert at 501. ( 46) . I d. ( 4 7) • Robertson, Introduction to the Bhopal Symposium, 20 Tex Int'l L.J. 279 (1985). ( 4 8) • Id. ( 49) . Id. (50) . See generally, Galanter, Legal Torpor: Why so Little has Happened in India after the Bhopal Tragedy, 20 Tex. Int' 1 L. J. 2 7 3 ( 19 85) . (51) . Lewis, Carbide is Sued by India in Gas Disaster, N.Y. Times, April 9, 1985, at 1, col. 5. (52) . I d. 24 (53). Costagliola, Jurisdiction and Conflicts of Law - the Bhopal Litigation, 26 Harv. L.J. 644 (1985). (54). Westbrook, Theories of Parent Company Liability and the Prospects for an International Settlement, 20 Tex. Int'l L.J. 322 (1985). (55) . Id. {56) . Id. at 324. {57) • 10 3 S • Ct . 2 9 3 3 {19 8 3 ) . (58) • Id. at 2940. {59) . Westbrook at 325. {60) • Id. ( 61) . Id. at 326. { 6 2) • Id. { 6 3) • Rylands v. Fletcher, L.R. 3 H.L. 330 (1868). { 6 4) • Id. {65) • Westbrook at 328. { 66) • Id. ( 6 7) • Note, supra note 50. { 6 8) • Tucker, Environmentalism: the Newest Toryism, 6 Pol'y Rev. 141 (1980).