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Unocal Announces It Will Settle A Human Rights Suit:
What Is the Real Story Behind Its Decision?

Monday, Jan. 10, 2005

Last month, Unocal announced that it had agreed, in principle, to settle a long-standing suit that had been brought against it by human rights groups on account of its efforts to build a pipeline in Myanmar. The details of the settlement of the case, Doe v. Unocal, are still being worked out and the lawyers are under a gag order not to discuss it.

The settlement was reported in media accounts as a defeat for Unocal, and a victory for those who want to use American courts to force American corporations to behave better overseas. The real story behind the settlement may be more complicated, however - as I will explain in this column.

The Background: The Origins and Basis of the Suit Against Unocal

The suit has its origins in a pipeline that Unocal attempted to build in Myanmar with a French corporation, Total. Villagers in the region where the pipeline was built have alleged that they were forced into slave labor by the Myanmar Army, and that murder and rape were used to compel them.

The villagers sued Unocal on the theory that it had "aided and abetted" gross violations of their human rights. They say that when Unocal asked the Myanmar Army for help in building the pipeline, it knew the Army would violate the human rights of the villagers in order to help Unocal.

The villagers were aided in their lawsuit by two human rights groups, EarthRights International and the Center for Constitutional Rights, and by lawyers with experience litigating under the Alien Torts Claims Act (ATCA), which I have also discussed in a prior column.

The ATCA gives the federal district courts "original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States." Notably, the tort need not occur within the United States; it can occur abroad, according to case law interpreting the ATCA.

The villagers brought two suits, one in federal court under the ATCA, and one in California state court, asserting state tort claims.

Why Did Unocal Agree to Settle? Some Theories As To What Its Reasoning Might Be

Some observers have explained the timing of the settlement by referring to the state case. In September, the trial judge in that case rejected Unocal's last effort to dismiss the case, and cleared the way for a jury to be empanelled. Unocal may have preferred to settle rather than face trail

Of course, Unocal might have been able to prevail at trial. Moreover, there was an excellent chance, in my opinion, that California's appellate courts would have rejected the plaintiff's novel claims of liability under California tort law and not the ATCA.

But in highly politicized cases such as Unocal, sometimes defendants lose just by going to trial. Indeed, many commentators have argued that the risks to Unocal of bad publicity arising from the testimony of the villagers were so high that a settlement made better sense from an economic point of view.

"Big Corporation Settles to Avoid Trial" is an old story line in American law, and it might be the simplest and best explanation for Unocal and the human rights groups striking a deal.

This analysis assumes, however, that Unocal "caved in" and agreed to settle to avoid an ugly alternative, namely trial. But every settlement involves two sides. No one in the media has even entertained the possibility that the plaintiffs "caved in." It is presumed that by settling the case, the villagers and their lawyers beat Unocal. But is that really the case?

Until We Know the Number Unocal Settled For, It's Impossible To Know Who "Caved"

According to the press release issued by both sides, Unocal "reaffirms" its respect of human rights, and an undetermined amount of money will be paid by Unocal to "compensate plaintiffs and provide funds enabling plaintiffs and their representatives to develop programs to improve living conditions, health care and education and protect the rights of people from the pipeline region."

Of course, one might argue that if Unocal didn't do anything wrong, it wouldn't be paying a penny of "compensation." Taking this view, some human rights activists have argued that the mere fact that Unocal is willing to pay anything at all--no matter how miniscule an amount--proves that they were scared and that they blinked first.

But given the realities of litigation, that is simply not true: In theory, Unocal could simply be paying the "nuisance value" of the suit to the plaintiffs - paying to avoid bad publicity.

The Plaintiffs and Their Lawyers Also Had Faced Setbacks Suggesting Settlement

Indeed, playing devil's advocate, let me ask:

Why is it not equally likely that the plaintiffs--and especially their lawyers--were the ones who blinked? After all, there were events that occurred in 2004 that might have made them think that the future of their litigation did not look so good.

Put the state court suit aside for a moment, and look at what was happening to Doe v. Unocal in federal court. The settlement was announced on the eve of the day when the Ninth Circuit was scheduled to hearing an en banc appeal - that is, an appeal with a larger panel of the same circuit, reviewing a three-judge panel's opinion. The three-judge panel, in an opinion written by Circuit Judge Pregerson, had held in 2002 that the federal ATCA case could go forward. But the plaintiffs' lawyers probably feared the Ninth Circuit, sitting en banc, might hold to the contrary, and stop the suit.

After all, Judge Pregerson's opinion, though very well-reasoned, had been controversial. It was an important victory for the human rights community because it clearly established that in the Ninth Circuit--which covers most of the West--individuals or corporations could be held liable for "aiding and abetting" human rights abuses. An en banc reversal of this holding would, conversely, have been a blow to the human rights community.

The Controversy Created by Judge Pregerson's Opinion

I wrote about the "aiding and abetting" theory of liability in a column in 2002. At that time, a number of cases were being litigated in the United States on the theory that corporations who had partnered with repressive governments should be held partially responsible for compensatory and punitive damages if it could be shown that they "knowingly and substantially assisted" the commission of a crime against humanity, such as slave labor or genocide.

Judge Pregerson's decision--and the concurrence written by Judge Reinhardt in the same case--sent shockwaves through corporate America. Since 2002, corporations and their attorneys have been calling for the "aiding and abetting" rule articulated in Unocal to be reversed by the courts, or by Congress - which could, if it chose, amend the ATCA to plainly exclude any "aiding and abetting" liability.

The controversy, it seems, was not confined to the media; it seems to have split the Ninth Circuit as well. By definition, the decision by the Ninth Circuit to perform an en banc review of the Unocal decision suggests that a significant number of judges felt that there was at least a substantial chance that Judges Pregerson and Reinhardt had gotten the case wrong, and that their result ought to be reconsidered and reversed. Unquestionably solid decisions seldom are subject to en banc review - which is discretionary, rather than mandatory.

From the point of view of the plaintiffs in the case, an en banc reversal would have been disappointing, but not a surprise. They had already lost at the trial level and they knew that they were fighting an uphill battle.

From the point of view of the plaintiffs' lawyers, however, more was at stake. These lawyers are not just interested in this one case--they are engaged in a long-term struggle to shape the law, just like the lawyers for the NAACP Legal Defense Fund who crafted the multi-decade strategy led to Brown v. Board of Education

That is not to say, of course, that the lawyers acted against their clients' interests; it is simply to say that they may have felt that, consistent with their clients' interests, they could also serve long-term justice. And doubtless, their clients hoped, as they did, that others in the future who had been victimized, could bring similar suits.

From a long-term perspective, the Pregerson opinion in Unocal was a very valuable precedent. There was a risk that the Ninth Circuit would reverse it. It would make sense, for the greater good of the human rights movement, to protect that decision by settling with Unocal and ensuring that a good decision stayed on the books to be used in later litigation.

Other Events in 2004 Also Show Why Plaintiffs and Their Lawyers Had Much to Lose If They Did Not Settle

Other events in 2004 also support my theory that the Unocal decision was a precious commodity worth protecting, from the perspective of the plaintiffs - and thus that Unocal was not the only party feeling some pressure to settle.

On November 29, Judge Sprizzo for the Southern District of New York dismissed the South Africa lawsuit about which I had written in my earlier 2002 column. While that dismissal was "only" the opinion of one federal district court judge, when read in context, it helps to fill out the picture about what may have motivated the plaintiffs to settle with Unocal.

Judge Sprizzo's opinion in In re: S. African Apartheid Litig. v. Citigroup, Inc. is interesting for two reasons. First, without ever mentioning the Ninth Circuit's Unocal decision, it clearly rejects its reasoning. Sprizzo flatly concludes that Congress did not intend to include aiding and abetting liability in the ATCA. Thus, he implicitly holds that Judges Pregerson and Reinhardt got it wrong.

Second, Sprizzo draws much of his support for this conclusion from the Supreme Court's 2004 ATCA case, Sosa v. Alvarez-Machain, thus suggesting that, whatever the Ninth Circuit may have thought in 2002 has been rendered obsolete by the Supreme Court.

The lawyers for the plaintiffs in Unocal could find many reasons to ignore Judge Sprizzo's decision in In re S. African Apartheid Litig. Judge Sprizzo has a reputation for being conservative (but, on the other hand, Judges Pregerson and Reinhardt have reputations for being liberal). More significantly, Judge Sprizzo's opinion is deeply flawed in one respect--he based his reasoning mostly on the concurrence in Sosa, not the majority opinion. Yet only the majority opinion has binding force. At best, Judge Sprizzo's reliance on the concurrence simply means he feels it is convincing, or predictive of where ATCA law is likely to go.

As I pointed out in a column reviewing the decisions, the concurrence, written by Justice Scalia, is really a dissent - and as such, is hardly a good indication of what the feeling of a Court majority are likely to be in the future. The only thing that Justice Scalia liked about the majority opinion, written by Justice Souter, is that they both rejected the plaintiff's argument that he had standing to sue under the ATCA. But the reasoning behind the two opinions could not have been more different. Justice Souter wanted to "keep the door open" to claims under the ATCA (just not Alavarez's), while Scalia wanted to shut the door entirely.

In the end, though, the difference between Souter and Scalia's interpretation of the ATCA may be irrelevant from the point of view of the Unocal plaintiffs. Souter emphasized that he did not think that the ATCA covers anything but a "narrow class of international norms." Thus, the best case scenario, if an ATCA case were to work its way up to the Supreme Court, would be that the Court continued to favor Souter's perspective. Is Souter's understanding of the ATCA broad enough to include "aiding and abetting" liability? Understandably, human rights attorneys do not want to gamble on the answer being "No."

Indeed, Sprizzo's core arguments for rejecting aiding and abetting liability in the ATCA could easily have been drawn from Souter's opinion, rather than Scalia's. Sprizzo's main point is that aiding and abetting liability has often been a creature of legislative supplementation - so that Congress could amend the ATCA to expressly add "aiding and abetting claims, but the courts should not construe the statute to implicitly include such claims .

According to Sprizzo, the federal courts have held in securities fraud, conspiracy and racketeering that aiding and abetting liability is a not a natural extension of Congress's police powers, and instead must be explicitly added by Congress. And in Sosa, Souter asked the lower courts to be "vigilant gatekeepers" when interpreting the ATCA. Sprizzo's response to that invitation was that the federal courts should not assume that aiding and abetting liability was part of the ATCA without clear evidence from Congress.

In the end, Sprizzo's interpretation of Souter's argument in Sosa might be wrong. In the end, the Ninth Circuit might have upheld Pregerson's opinion in Unocal. In the end, aiding and abetting liability might have been upheld by the Supreme Court had Unocal been appealed.

But my point is this: There were many uncertainties leading up to the settlement with Unocal for the plaintiffs. It is possible, that, in the end, the lawyers advising the plaintiffs in the case realized that discretion was the better part of valor, and that avoiding the en banc hearing would be worth something--even if it meant accepting a settlement offer from Unocal that might have been smaller than they otherwise would have hoped to receive.

Of course, all this is speculation. If the settlement amount is ever revealed, then some of my arguments might be weakened or strengthened. In the meantime, it is worth remembering that when a settlement takes place, it is because both sides have something to gain by avoiding further litigation.

Put more simply, Unocal blinked, here, but the plaintiffs blinked too. And both, as I have explained, had good reason to blink.

Anthony J. Sebok, a FindLaw columnist, is a Professor at Brooklyn Law School. His other columns on tort issues may be found in the archive of his columns on this site.

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