Today in the U.S. Supreme Court: Is the World Bank Group Above the Law?

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Today in the U.S. Supreme Court: Is the World Bank Group Above the Law?

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October 31, 2018, Washington, D.C. – The U.S. Supreme Court heard oral arguments today in Jam v. International Finance Corporation (IFC), a landmark lawsuit that will decide if international organizations are absolutely immune from lawsuits in U.S. courts. International organizations like the IFC – the private lending arm of the World Bank Group – have long claimed they are entitled to “absolute” immunity, no matter how illegal their actions or how much harm they cause, in the U.S. or elsewhere.

In 1945, Congress passed a law stating that international organizations like the IFC should get the “same immunity from suit” as foreign governments do. Since the 1950s, however, U.S. law has allowed lawsuits against foreign governments when they harm people in the U.S. or if they carry out commercial enterprises. Nonetheless, the IFC claims that it still retains greater, “absolute immunity.”

At the Supreme Court, some justices expressed skepticism of the IFC’s position. When the IFC’s counsel argued that Congress had intended to give international organizations “virtually absolute immunity,” and not simply the same immunity that foreign governments enjoy, Justice Sonia Sotomayor asked, “Why didn’t Congress just say that?”

The lawsuit involves an IFC-financed, coal-fired power plant in Kutch, India; the plaintiffs allege that improper design and construction has led to devastating impacts on the local fishing and farming communities. They originally tried to resolve these issues through the IFC’s own compliance office, and reluctantly filed suit as a last resort.

The legal principle involved, however, extends beyond this case; absolute immunity would prohibit any suit for negligence at the D.C. headquarters of an international organization, or for injuries from motor vehicle accidents. The U.S. government, which is supporting the plaintiffs at the Supreme Court, pointed this out in its argument. The government has consistently taken the position that international organizations can continue to function perfectly well with the same immunities that foreign governments enjoy.

Prof. Jeffrey Fisher of Stanford Law School’s Supreme Court Litigation Clinic argued the case for the plaintiffs. The plaintiffs are also represented by EarthRights International, which originally filed the lawsuit in 2015, and at the Supreme Court by the law firm O’Melveny & Myers. Assistant to the Solicitor General Jonathan Ellis argued the case for the U.S. government as amicus curiae supporting the plaintiffs.

The case is Docket No. 17-1011. Justice Brett Kavanaugh recused himself from the case, because he was on the D.C. Circuit Court of Appeals when the case was heard there. A decision can be expected by June 2019.

 

Statements

“People in Kutch have already lost whatever they had. Through this case, we want to ensure that future communities will not face what we faced.” – Dr. Bharat Patel, the head of fishworkers’ rights group MASS, one of the plaintiffs in the case

“If the IFC had proactively addressed these issues, we probably would not be in court today. IFC was so emboldened by the immunity it enjoyed, that they ignored the findings and the requests of the people affected by their investment. We hope this case will put an end to that.” – Joe Athialy, Executive Director of the Centre for Financial Accountability, India

“Immunity from all legal accountability does not further the development goals of international organizations. It simply leads them to be careless, which is what happened here. Just like every other institution, from governments to corporations, the possibility of accountability will encourage these organizations to protect people and the environment.” – Marco Simons, General Counsel, EarthRights International

“The commercial activities of international organizations such as the IFC can have a significant impact on lives of Americans and others around the world. It’s therefore critically important for the Supreme Court to reject the notion that these institutions have greater legal immunity for these activities than even foreign countries have.”– Prof. Jeffrey Fisher, Co-Director, Stanford Law School Supreme Court Litigation Clinic

 

Background

From the start, the IFC recognized that the Tata Mundra coal-fired power plant was a high-risk project that could have significant adverse impacts on local communities and their environment. Despite knowing the risks, the IFC provided a critical $450 million loan in 2008, enabling the project’s construction and giving the IFC immense influence over project design and operation. Yet the IFC failed to take reasonable steps to prevent the harms it predicted and failed to ensure that the project abided by the environmental and social conditions of IFC involvement.

As predicted, the plant has caused significant harm to the communities living in its shadow. Construction of the plant destroyed vital sources of water used for drinking and irrigation. Coal ash has contaminated crops and fish laid out to dry, air pollutants are at levels dangerous to human health, and there has already been a rise in respiratory problems. The enormous quantity of thermal pollution – hot water released from the plant – has destroyed the local marine environment and the fish populations that fishermen like Mr. Jam rely on to support their families. Although a 2015 law required all plants to install cooling towers to minimize thermal pollution by the end of 2017, the Tata plant has failed to do so.

The IFC’s own internal compliance mechanism, the Compliance Advisor Ombudsman (CAO), issued a scathing report in 2013 confirming that the IFC had failed to ensure the Tata Mundra project complied with the environmental and social conditions of the IFC’s loan at virtually every stage of the project and calling for the IFC to take remedial action. The IFC responded to the CAO by rejecting most of its findings and ignoring others. In a follow-up report in early 2017, the CAO observed that the IFC remained out of compliance and had failed to take any meaningful steps to remedy the situation.

The harms suffered by the plaintiffs are all the more regrettable because the project made no economic sense from the beginning. Last year, in fact, Tata Power began trying to unload a majority of its shares in the project for 1 rupee (a few cents) because of the losses it has suffered and will suffer going forward. At the moment, the plant is operating at only 1/5 capacity in part because India has an oversupply of electricity.

Against this background, several individuals harmed by the plant, as well as MASS and a local village, filed suit against the IFC in U.S. federal court in 2015. EarthRights International filed the suit in Washington, D.C., where the IFC is headquartered. The federal district court ruled that the IFC had immunity from suit and dismissed the case in 2016; the U.S. Court of Appeals for the D.C. Circuit affirmed the decision in 2017.

The D.C. circuit ruled that the IFC had “absolute immunity” and could not be sued for its role in the project. The court acknowledged, however, the “dismal” situation the project has created for the plaintiffs and their community, including the destruction of their livelihoods, property, and the serious threats to their health, and noted the IFC did not deny those harms. The communities sought review of that decision by the U.S. Supreme Court.

The central legal question the Supreme Court will consider is how to interpret the International Organizations Immunities Act (IOIA), a 1945 U.S. law that gives international organizations “the same immunity” from lawsuits “as is enjoyed by foreign governments.” In 1952, the U.S. government began restricting the immunities given to foreign governments, and in 1976 Congress passed a law that allowed lawsuits for injuries in the United States and commercial activities of foreign states. Congress was motivated in part by the prospect of immunity for traffic accidents and other injuries in Washington, D.C., as well as the fact that foreign states were increasing engaging in operations like commercial lending in the same manner as private banks.

The D.C. Circuit, however, decided that international organizations are entitled to the immunities that foreign states received in 1945, and further ruled that in 1945 that meant “absolute immunity.” This interpretation of the law gives international organizations substantially broader immunity than that of foreign governments.

The plaintiffs have argued – and the Court of Appeals for the Third Circuit has held – that the IOIA should be read to give international organizations only the same restrictive immunity of foreign governments. Since a foreign government would not be immune from this suit, the IFC, which is made up of foreign states, should not be immune either.

The IFC is headquartered in Washington, D.C., along with the rest of the World Bank Group, because the U.S. is by far the largest shareholder in these organizations. The U.S. government, however, has long supported the plaintiffs’ interpretation of the law, that international organizations can be sued for their commercial activities or for causing injuries in the United States. The Departments of Justice and State submitted an amicus curiae brief in support of this position, as did members of Congress from both parties.

The case is Budha Ismail Jam v. International Finance Corp., No. 17-1011.

Please visit our website for more background on the case.