Budha Ismail Jam, et al v. IFC | EarthRights International

SUMMARY

Fishing communities and farmers are taking on the International Finance Corporation (IFC), the arm of the World Bank Group that finances projects by private corporations, for its role in funding and enabling the destructive Tata Mundra Ultra Mega coal-fired power plant in Gujarat, India. In 2015, plaintiffs sued the IFC in federal court in Washington, D.C., challenging the IFC’s claim that it has “absolute” immunity from suit. Representing these communities, EarthRights International seeks to prove the IFC is not – as it believes – above the law.

The construction and operation of the 4,150MW power plant along the Gujarat coast have destroyed the natural resources relied upon by generations of local families for fishing, farming, salt-panning, and animal rearing. The IFC’s own accountability mechanism has sharply criticized IFC for its role in the project, finding failures at every stage. But the IFC ignored its own ombudsman. So the communities turned to court as a last resort, marking the first time project-affected communities have taken legal action to hold an international financial institution like the IFC accountable for funding and enabling a harmful project. IFC has not denied causing harm – instead, it responded by arguing it has complete immunity from suit and simply cannot be held accountable, regardless of how much harm it causes. We thought that’s wrong. We share our clients’ belief that no institution should be above the law and we believe the law is on their side. So we took the issue all the way to the United States Supreme Court.

On February 27, 2019, in a historic 7-1 decision, the Supreme Court decided that international organizations like the World Bank Group can be sued in U.S. courts. The Supreme Court ruled that these organizations can be sued in cases where established exceptions to the immunity enjoyed by foreign nations apply.

The Court’s decision marked a defining moment for the IFC and World Bank Group. For years, the IFC has operated as if it were “above the law,” at times pursuing reckless lending projects that inflicted serious human rights abuses and other harms on local communities, and then leaving the communities to fend for themselves. The decision sent the message that IFC is not untouchable.

The case then returned to the trial court and IFC moved again to dismiss the case, arguing this time that the exceptions to immunity do not apply here, and advancing another overly broad argument for why communities should not be able to have their claims heard in court.

In February 2020, U.S. District Judge John D. Bates granted the IFC’s motion to dismiss, finding that the IFC is immune under the facts of this case because its relevant acts occurred in India; immunity applies unless the lawsuit is based upon commercial activity in the United States. After plaintiffs showed the IFC actually took all relevant action (including approving the loan) from its headquarters in Washington, DC, the court issued a different ruling dismissing the case, holding this time that regardless of whether IFC’s conduct was commercial activity in the United States, the suit was “based upon” other conduct.

EarthRights appealed to the D.C. Circuit Court of Appeals, arguing that holding was inconsistent with existing precedent on how the commercial activity exception is applied. The Court of Appeals affirmed the district court’s ruling in July 2021. EarthRights filed a petition for review with the U.S. Supreme Court, but in April 2022, the United States Supreme Court declined to hear the case, leaving that decision intact. The Jam communities are currently evaluating their options for further legal action.

Plaintiffs Budha Ismail Jam, Sidik Kasam Jam and Kashubhai Abhrambhai Manjalia are fishermen who reside at the fishing harbors (known as “bunders”) that are closest to the plant. Tragadi bunder is located directly next to the outfall channel, where enormous quantities of hot water used to cool the plant are discharged each day. Kotadi bunder is located next to the intake channel and close to the coal conveyor belt that transports coal from the port to the Plant. Their livelihoods and their way of life are increasingly threatened by the depletion of fish stocks and other vital marine resources their community has depended on for generations.

Plaintiff Ranubha Jadeja is a farmer from Navinal village whose wells have been ruined by the increasing salinity of the groundwater and whose farmland has been damaged by the ash and dust from the plant.

Additionally, we also represent the fishermen’s organization, Machimar Adhikar Sangharsh Sangathan (Association for the Struggle for Fisherworkers’ Rights) (MASS) and the Navinal Panchayat (village), a local government entity.
The named plaintiffs filed suit on their own behalf, and on behalf of other members of their community who are similarly situated in a potential class action.

The IFC is the private lending arm of the World Bank Group and plays a major role in funding private-sector development projects in developing countries. Because it only invests in projects that could not otherwise attract sufficient private capital, the IFC has immense influence over how the projects are designed, constructed and operated.

The IFC’s stated goals are to end poverty and boost shared prosperity and to carry out its development activities “with the intent to ‘do no harm’ to people and the environment.” To fulfill its institutional goals, the IFC has developed a Sustainability Framework, which dictates the conditions of IFC involvement in projects and the obligations of both the borrower and the IFC to ensure the project promotes positive development objectives while protecting local communities and the environment. For high risk projects like this one, IFC has additional requirements it must meet before committing to financing, such as ensuring there is “broad community support” for a project. These safeguards – along with a number of other environmental and social safeguards – were incorporated as binding conditions in the IFC’s loan agreement for the Tata Mundra project.

From the outset, the IFC recognized the Tata Mundra project was a “high risk” project that would cause significant harm to surrounding communities, particularly if the project was not well-managed and the risks were inadequately mitigated. Despite this, the IFC provided a critical $450 million loan without taking steps to ensure sufficient safeguards were put in place to prevent the very harms it predicted.

EarthRights works closely with MASS and the Centre for Financial Accountability in India. At the U.S. Supreme Court, lawyers and law students from the Stanford Supreme Court Litigation Clinic joined the case, as well as lawyers from the law firm O’Melveny & Myers LLP

The Jam case presents several important questions concerning the scope of international organizations’ immunity from suit. The first is whether U.S. law provides absolute or more limited immunity. The International Organizations Immunities Act (IOIA) provides that organizations like the IFC have only the “same immunity from suit. . . as is enjoyed” by foreign states. Several D.C. Circuit cases had held that this means that organizations are entitled to absolute immunity, because immunity was absolute when the IOIA was enacted in 1945. Foreign governments now are entitled only to “restrictive” immunity under the Foreign Sovereign Immunities Act (FSIA), which contains a number of specific exceptions to immunity, including cases arising out of a foreign government’s “commercial activities.” The Supreme Court held in this case that international organizations are entitled only to the same immunity that foreign governments currently enjoy.

Now, the key legal issue is whether this case qualifies for an exception to immunity under the FSIA. We are arguing that the case falls under the exception for lawsuits “based upon a commercial activity carried on in the United States,” because the IFC conducts its lending from Washington, D.C. Although the district court originally ruled that IFC committed the tortious acts in India, after plaintiffs presented further facts showing that IFC’s conduct was based in the U.S., the district court changed its ruling and held that the claims were not “based upon” IFC’s conduct at all: “IFC’s conduct is not what the suit is based upon.” Instead, the court ruled that the claims were based on the construction and operation of the power plant, acts that IFC did not carry out itself. The D.C. Circuit affirmed on this basis, and we have asked the Supreme Court to review this issue.

We believe that the D.C. Circuit’s decision conflicts with every other relevant decision on the commercial activity exception, because courts always look to the defendant’s own acts to determine what the lawsuit is “based upon.” As long as those acts constitute commercial activity in the United States, there should be no immunity. The D.C. Circuit’s approach of examining whether a third-party’s acts more directly injured the plaintiffs would result in immunity for international organizations, foreign governments, and state-owned enterprises in a variety of contexts where they carry on business in the United States and act in concert with others to cause harm.
Another important issue is the scope of the IFC’s waiver of immunity from suit. IFC’s charter document – its Articles of Agreement – contains a provision broadly waiving immunity from suit and reserving immunity only from suits brought by member nations. But the D.C. Circuit has interpreted this to mean that immunity should only be waived where – in the court’s opinion – waiver would result in a “corresponding benefit” to the organization, such that the lawsuit “would further the organization’s goals.” ERI has argued that this lawsuit would further the IFC’s goals because the IFC needs communities’ trust, but also that the waiver should be interpreted broadly, in line with an earlier D.C. Circuit case that interpreted the IFC’s waiver literally.

In a separate opinion issued with the D.C. Circuit’s first decision in this case, Judge Nina Pillard wrote that the Court’s waiver precedent was “wrongly decided” and suggested the full court rehear the case. When Plaintiffs first petitioned the Supreme Court to hear this case, the Court only agreed to review the question of whether IFC is entitled to absolute immunity, not whether it waived immunity. In the plaintiffs’ second Supreme Court petition, we are again asking the Supreme Court to consider the interpretation of IFC’s waiver of immunity.

Additionally, this case presents the question of when an international financial institution may be held liable for harms from a project that it finances.

TIMELINE

2008

In April, IFC’s Board approved a $450 million loan for the Tata Mundra project. The loan is for twenty years, making it the longest-tenure loan for IFC. The first disbursement of funds was made in December 2008, following IFC’s first “supervision visit” to the project.

From the beginning, the IFC classified the proposed Tata Mundra project as a “high risk” project “expected to have significant adverse social and/or environmental impacts that are diverse, irreversible, or unprecedented.” The IFC recognized that the project would cause significant harm if sufficient steps were not taken to address critical issues like selection of an appropriate cooling system, impacts on the marine environment and fish, air quality impacts and pollution control measures, and livelihood restoration. The IFC also specifically identified “improper mitigation or insufficient community engagement” as having the potential to trigger “unacceptable environmental impacts.”

2011

MASS filed a complaint with the IFC’s accountability mechanism – the Compliance Advisor Ombudsman (CAO) – raising a number of issues around the project and the IFC’s failure to meet its commitments and its failure to ensure the project complied with the social and environmental conditions of the loan agreement.

2013

Following its investigation, the CAO issued its Audit Report of the project, which harshly criticized the IFC’s role. Among other things, it found IFC’s due diligence process was inadequate and had failed to consider the risks and impacts on local fishing communities. IFC failed to ensure the project met the applicable environmental and social standards necessary for IFC-funded projects, failed to address compliance issues, and failed to adequately supervise the project, despite its authority to do so and despite predicting harmful consequences in the absence of proper mitigation measures.

The IFC responded to the report by rejecting most of the CAO’s findings and ignoring others.

2015

In January, the CAO issued its first Monitoring Report examining the IFC’s response to the Audit. It found the IFC had failed to effectively respond to any of the CAO’s findings, failed to remedy the injuries to local communities, and remained out of compliance with its obligations. The CAO emphasized “the need for a rapid, participatory and expressly remedial approach to assessing and addressing project impacts.” Again, the IFC failed to take any action to remedy the injury.

In April, EarthRights filed suit against IFC on behalf of the plaintiffs in federal court in Washington, D.C., where the IFC is headquartered. The complaint includes claims for negligence, nuisance, trespass, and breach of contract and seeks both damages and injunctive relief.

The complaint describes how construction of the massive intake and outfall channels used to cool the plant contributed to saltwater intrusion into the groundwater, destroying vital sources of water in an area where freshwater is scarce. And by pumping an immense amount of hot water from the plant’s cooling system into the sea, the plant has substantially changed the local marine ecosystem, causing a drastic decline in the fish catch.

A nine-mile-long coal conveyor belt, which transports coal from the port to the Plant, runs right next to local villages and near fishing grounds. Coal dust from the conveyor and fly ash from the plant frequently contaminate drying fish, reducing their value, damage agricultural production, and cover homes and property. Some air pollutants, including particulate matter, are already present at levels dangerous to human health, in violation of Indian air quality standards and the conditions of IFC funding, and respiratory problems, especially among children and the elderly, are already on the rise.

In July, the IFC filed a motion to dismiss the complaint arguing that it is entitled to “absolute immunity” from suit in US courts under the International Organization Immunities Act (IOIA). That statute states that international organizations like the IFC “shall enjoy the same immunity from suit … as is enjoyed by foreign governments.” The IFC also argued that it had not waived immunity from suit, and that plaintiffs did not need to access the courts because the CAO provided plaintiffs “an alternative means of recourse.”

The plaintiffs argued that since the IOIA gives the IFC the “same” immunity as foreign states, the same exceptions to immunity should apply. IFC should not be immune from this suit because a foreign government who engaged in the very same activity would not be immune. Foreign governments only enjoy “restrictive” immunity under the Foreign Sovereign Immunities Act (FSIA), and would not be immune from a suit like this one arising out of their “commercial activities.” The plaintiffs also argued that the IFC had waived immunity from suit in its own Articles of Agreement.

Experts from Accountability Counsel, SOMO, and Crude Accountability, among others, filed declarations in support of ERI’s brief that highlighted the experience of other project-affected communities that had raised complaints about IFC projects through the CAO process. The declarations addressed the institutional limitations of the CAO and particularly its inability to compel the IFC to take any action in response to its findings, leaving communities, like the plaintiffs in this case, without meaningful remedies even when the CAO agrees with all their complaints.

2016

In March, District Court Judge John Bates ruled that the IFC could not be sued. He found that the IFC was entitled to absolute immunity from liability, and had not waived immunity. The judge concluded that his hands were tied based on previous decisions from the U.S. Court of Appeals for the D.C. Circuit. Although the plaintiffs had argued that subsequent Supreme Court decisions had overturned those D.C. Circuit decisions, the judge held that the issue should be heard and decided by the court of appeals.

The plaintiffs appealed Judge Bates’s decision.

2017

The U.S. Court of Appeals for the District of Columbia Circuit heard oral arguments in the case in February. In June, a three-judge panel of the D.C. Circuit affirmed the decision finding IFC immune from suit. Although the panel recognized the “dismal” situation of the Plaintiffs, noting IFC did not deny that the plant had caused substantial damage, it nonetheless found IFC could not be sued based on the Circuit’s previous decisions.

Judge Nina Pillard, however, wrote a separate opinion that criticized IFC immunity. Although agreeing that the court was bound by the earlier cases, she criticized those decisions as “wrongly decided” and wrote that the D.C. Circuit had taken “a wrong turn” when it “grant[ed] international organizations a static, absolute immunity” and in limiting the IFC’s own clear waiver of immunity. She added that those cases had left the law of international organization immunity “in a perplexing state,” and suggested the full court should revisit them.

In July, Plaintiffs filed a petition requesting the full court, which has the authority to change the law in the Circuit, rehear the case – known as “en banc rehearing.” The D.C. Circuit Court ordered the IFC to respond but court ultimately declined to rehear the case en banc.

Additionally, the CAO issued its second monitoring report of IFC’s response in February, stating it was “concerned” that IFC had still not taken meaningful action.

Meanwhile, Tata Power, the company that owns the Tata Mundra plant, began trying to unload a majority of its shares in the project for 1 rupee – less than 2 cents – because of the losses it has suffered and will suffer going forward. The project made no economic sense to begin with and the plant has operated at a substantial loss for its entire existence. The company’s original bid for the project was extremely low because it was based on an assumption of cheap coal that was completely unrealistic. Despite promises that the Project would result in cheap power for India’s poor, the company has repeatedly sought to pass its financial problems on to consumers and has sought (so far unsuccessfully) regulatory permission to increase prices.

On August 2 the D.C. Circuit Court ordered the IFC to respond to a petition filed by Indian communities. The court ultimately declined to rehear the case en banc.

2018

In January, we filed a cert petition asking the U.S. Supreme Court to rectify the U.S. Court of Appeals for the District of Columbia Circuit’s erroneous holding that the IFC had “absolute immunity” and could not be sued.

In May, the U.S. Supreme Court decided to hear this landmark case challenging World Bank group immunity. The case was briefed in the summer of 2018. The U.S. Government submitted a brief arguing against “absolute immunity,” and a number of other organizations and experts filed amici curiae briefs.

On October 31, we argued our case before the Supreme Court. The transcript of the arguments can be found here or you can listen to the arguments.

2019

On February 27, in a historic 7-1 decision, the U.S. Supreme Court decided that international organizations like the World Bank Group can be sued in U.S. courts. The Supreme Court ruled that these organizations can be sued in cases where established exceptions to the immunity enjoyed by foreign nations apply.

The case then went back to the trial court and in June, the IFC filed a new motion to dismiss the case. The IFC argued this time that the exceptions to immunity do not apply to this case, and that it was not responsible for the harms to the communities in India.

In August, we filed our opposition to this motion.

In September, the U.S. Government made a new submission, this time siding with IFC and arguing that the exception to immunity should not apply and that the case should be dismissed.In October, the World Bank Group announced that its Committee on Development Effectiveness (CODE), on behalf of IFC’s Board of Directors, had commissioned an external audit to review IFC’s environmental and social accountability, CAO’s role and effectiveness, and the role of IFC in providing remedy to project-affected communities.

2020

In January, the federal district court held a hearing on the IFC’s new motion to dismiss. At the same time, Indian media reported that the power plant might need to shut down after February 2020 because it was uneconomical to continue operating.

In February 2020, United States District Judge John D. Bates granted the IFC’s motion to dismiss, finding that the IFC is still immune under the facts of this case. The judge ruled that the relevant conduct occurred in India, and immunity applies unless the lawsuit is based upon commercial activity in the United States.

The plaintiffs moved to amend the complaint, showing that IFC actually took all relevant action (including approving the loan) from its headquarters in Washington, DC. But the district court again dismissed the claims in August 2020, changing its reasons to focus on the conduct of other parties that more immediately harmed the plaintiffs (even though this suit is against IFC, based on IFC’s harmful conduct) and holding that even if IFC took all this action in the U.S., “IFC’s conduct is not what the suit is based upon.”

The Plaintiffs filed their appeal with the D.C. Circuit Court of Appeals in September 2020.In August 2020, the IFC’s Board of Directors published the report of the external review of IFC’s Environmental and Social Accountability and CAO’s Effectiveness. The report found IFC’s approach to remedies has been inadequate in numerous respects, and made numerous recommendations for changes. The report also indicated that IFC needed to take a more active role in ensuring remedial action for project-affected communities and recommended that IFC create and implement a remedial action framework in order to facilitate this.

2021

In April, a three-judge panel of the D.C. Circuit Court of Appeals heard oral argument on the plaintiffs’ appeal.

In July, the D.C. Circuit panel issued a decision affirming the district court’s dismissal of the case. Like the district court, the D.C. Circuit ruled that where another party more directly injured the plaintiffs, the IFC could not be sued under the “commercial activity” exception to immunity, despite the fact that the IFC’s conduct that injured the plaintiffs was commercial activity in the United States. Plaintiffs petitioned for review by the full D.C. Circuit, which the court also denied.

2022

In January, we filed a petition asking the U.S. Supreme Court to consider the case again, and overturn the D.C. Circuit’s erroneous holding that a lawsuit against the IFC for commercial acts that it carried out in the United States, such as the power plant loan approval, does not qualify for the immunity exception for commercial activity in the United States. A number of amici curiae briefs were filed in support of the Plaintiffs, including by international development economists and current and former World Bank officials, as well as international law experts, among others.

In April 2022, the U.S. Supreme Court denied the Plaintiffs’ Petition for Certiorari.

In May 2022, the Plaintiffs filed a motion with the D.C. Circuit asking it to recall the mandate and grant rehearing in light of intervening case law that could not be reconciled with the ruling in the Jam case. The D.C. Circuit denied that request in June.

2023

In February, the IFC released its long-delayed proposed “Approach to Remedial Action” and initiated a period for public consultation. The document has been widely criticized. Although published in response to a recommendation made in the 2020 external review of IFC’s environmental and social accountability, it failed to address the external review’s key recommendations on IFC’s role in providing remedy to project-affected communities. It also fails to do anything in cases where harm has already occurred, even in cases currently pending before the CAO like the case of the Jam communities.

In March, EarthRights submitted comments to the UN working group on business and human rights, urging the body to address the issue of development finance institutions acting as if they are above the law and highlighting the sweeping arguments made by IFC in the Jam case as demonstrating the broader problems with such institutions.

DOCUMENTS