Ruling in IFC pollution case cracks U.S. immunity of organizations

WASHINGTON (AN) — The U.S. Supreme Court has ruled that international organizations should be treated like foreign nations when it comes to immunities: protections from lawsuits under American courts do not extend to commercial activities.

The ruling came in a case brought by villagers who live near a power plant in Gujarat, India that was built with the help of the World Bank Group’s financial lending arm, the International Finance Corporation, or IFC. Justices heard the case last October.

The villagers held IFC accountable for discharges of hot water and coal ash that damaged their fishing and farming livelihoods. The hot water polluted drinking and irrigation water, and coal ash contaminated crops and fish they laid out to dry.

The IFC tried to claim immunity under the 1945 U.S. International Organizations Immunity Act, which Congress approved when the United Nations was founded at the end of World War II. It gave international organizations the "same immunity" that foreign governments had against lawsuits. District and appeals court judges had both ruled in IFC's favor.

But the villagers appealed to the nine-member Supreme Court, arguing that the immunity that foreign governments receive should now be defined by the 1976 U.S. Foreign Sovereign Immunities Act, which changed when immunity was applicable — and specifically said it does not extend to commercial activities.

"The IFC contends that the IOIA [International Organizations Immunities Act] grants international organizations the 'same immunity' from suit that foreign governments enjoyed in 1945. Petitioners argue that it instead grants international organizations the 'same immunity' from suit that foreign governments enjoy today. We think petitioners have the better reading of the statute," Chief Justice John Roberts said in the 7-1 opinion for the villagers. Justice Stephen Breyer dissented; Justice Brett Kavanaugh took no part in the case.

"The International Organizations Immunities Act grants international organizations the 'same immunity' from suit 'as is enjoyed by foreign governments' at any given time," Roberts wrote. "Today, that means that the Foreign Sovereign Immunities Act [FSIA] governs the immunity of international organizations. The International Finance Corporation is therefore not absolutely immune from suit."

In his dissenting opinion, Breyer said U.S. laws recognized international organizations were an important tool for preventing conflict and war and for promoting economic development and commercial prosperity. He said international organizations "expected" full immunity from U.S. laws and Congress "understood" that foreign governments normally have immunity in commercial and non-commercial activities.

"Thus, by granting international organizations 'the same immunity from suit' that foreign governments enjoyed, Congress expected that international organizations would similarly have immunity in both commercial and noncommercial suits," Breyer wrote.

"More than that," he said, "Congress likely recognized that immunity in the commercial area was even more important for many international organizations than it was for most foreign governments. Unlike foreign governments, international organizations are not sovereign entities engaged in a host of different activities."

However, Marco Simons, general counsel for EarthRights International, which supported the Indian villagers, said immunity from all legal accountability does not aid the development goals of international organizations.

"It simply leads them to be careless, which is what happened here," he said. "Just like every other institution, from governments to corporations, the possibility of accountability will encourage these organizations to protect people and the environment.”

Potential for stronger accountability

Though human rights groups cheered the verdict, the case does not necessarily expose multilateral development banks and other international organizations to a wide variety of liability in U.S. courts. Rather, the ruling means that under certain circumstances they can be sued.

More importantly, the ruling may prompt multilateral development banks to beef up their internal accountability and do a better job of investigating claims when communities say they have been harmed.

The 184-nation IFC, one of five organizations in the World Bank Group, was created to promote economic development by encouraging private enterprise particularly among less developed nations. It provides financing for projects that it supervises, but it lacks enforcement authority — and has acknowledged that its lending caused harm at Gujarat.

In 2008, it signed US$450 million in loans for building the coal-fired Tata Mundra power plant in Gujarat at a cost estimated over US$4.4 billion. The lead plaintiff, Budha Ismail Jam, and other villagers complained of respiratory problems from coal dust and said the plant did not follow a new law that requires building cooling towers to minimize thermal pollution.

The plaintiffs said they originally tried to raise their concerns through IFC’s internal grievance mechanism, but when IFC’s leadership ignored the grievance body’s conclusions, they reluctantly filed the U.S. lawsuit.

Now that the Supreme Court established that the World Bank Group can be sued, the case goes back to the lower courts for more litigation. EarthRights International said it also now expects another case against the IFC to proceed in a U.S. district court in Delaware that involves alleged murders and torture of Honduran farmers by paramilitary groups and death squads.

“The commercial activities of international organizations such as the IFC can have a significant impact on lives of Americans and others around the world," said Jeffrey Fisher, head of Stanford Law School’s Supreme Court Litigation Clinic, representing the villagers.