D.C. Circuit Holds International Finance Corporation Immune From Suit in Lender Liability Action
On July 6, 2021, the D.C. Circuit decided Jam et al. v. International Finance Corp., holding that lending decisions made by International Finance Corporation ("IFC") in the United States when it financed construction of a power plant in India were not the "gravamen" of plaintiffs' claims alleging environmental harms caused by the plant.
The plaintiffs in Jam asserted that the Tata Mundra power plant in Gujarat, India, caused substantial environmental harms. They sued not the plant's owner-operator but one of its lenders, World Bank-affiliated IFC, alleging that IFC negligently failed to ensure compliance with environmental standards included as conditions of the loan.
IFC asserted immunity under the International Organizations Immunities Act ("IOIA"). In a 2019 decision in the same case, the Supreme Court had held that the IOIA is construed in parallel to the Foreign Sovereign Immunities Act ("FSIA"). On remand, the D.C. Circuit considered whether the "commercial activity" exception to FSIA immunity applied to allow the suit against IFC.
The FSIA's "commercial activity" exception applies when a suit is "based upon" domestic commercial activity or domestic actions performed "in connection with" commercial activity abroad. This standard requires courts to identify the "gravamen" of the lawsuit; if it is wrongful activity abroad, the "commercial activity" exception does not apply. The D.C. Circuit held that where the only domestic conduct "consisted of providing funding," the "gravamen" of plaintiffs' claims was tortious activity in India. Immunity therefore applied.
At least two lessons may be drawn from Jam. First, it reinforces that "generic" domestic corporate activity will often not be enough to subject international corporations to suit in U.S. courts. In a concurrence, Judge Randolph noted that Jam is consistent with the Supreme Court's recent decision Nestle USA, Inc. v. Doe, holding that "operational decisions" made by companies in the United States, without more, will not ground Alien Tort Statute jurisdiction.
Second, novel theories of lender liability have yet to gain traction in U.S. courts. The plaintiffs argued that IFC "was no ordinary lender" and that it should be liable based on its alleged "central role" in setting environmental guidelines for the plant's performance. The D.C. Circuit did not reach the merits, but its "gravamen" analysis suggests skepticism toward plaintiffs' theory that the asserted harms flowed from the lender's actions. "Even crediting the allegation that the Plant would not have been built without IFC's funding," it reasoned, "the operation of the Plant is what actually injured [plaintiffs], and the manner of its construction and operation is the crux of their complaint." It remains to be seen, however, how courts will dispose of lender liability claims when they do eventually address the merits.
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