It’s not every day that a trade agreement finds its way into U.S. courts – especially not as a basis to dismiss a tort claim in Missouri.
Tomorrow, the U.S. Court of Appeals for the Eighth Circuit will hear Reid v. Doe Run Resources Corp. In a rather remarkable argument, the defendants claim that the U.S.-Peru Trade Promotion Agreement (TPA) environment chapter precludes U.S. courts from deciding the case.
A Bit of Background
For the investment law enthusiasts among you, you may recognize Doe Run as a sister company and co-complainant of Renco, a corporation that has pursued relief against Peru in two separate arbitrations. An ICSID arbitration concluded in 2016 (the tribunal dismissed on jurisdictional grounds) and another is ongoing at the Permanent Court of Arbitration. Both arbitrations were brought under the investment chapter of the U.S.-Peru TPA.
Like the two investment disputes, the case before the Eighth Circuit concerns environmental harm caused by smelting and refining locally mined minerals at a complex in Peru. The plaintiffs are representatives of Peruvian children living near the complex who were harmed by exposure to toxic substances resulting from the industrial activities there. They brought several cases in Missouri state court making claims under Missouri state law. (Doe Run and other defendants operating the Peru complex are based in Missouri.) The defendants removed the cases to federal court, where they were consolidated, and then asked that court to dismiss them based on international comity, among other grounds. For a detailed description of the U.S. legal procedures and other U.S. legal doctrines raised in this complicated case, Maggie Gardner has a very helpful overview on the Transnational Litigation Blog.
The U.S.-Peru TPA
The defendants’ primary argument at this stage of the litigation is that the environment chapter of the U.S.-Peru TPA demands dismissal of the case as a matter of international comity – an argument that the trial court rejected. They maintain that “adjudicating this case in the United States is fundamentally at odds with the sovereign commitments in the TPA” and that having the case proceed in the United States “is an affront to Peruvian sovereignty in derogation of the TPA.”
Most readers on this forum likely need little convincing that directing U.S. courts not to hear state tort claims involving their citizens’ actions in Peru was not a central purpose of entering into the U.S.-Peru TPA. If we took a poll of trade experts, that would not appear on their brainstormed list of reasons why the United States, or frankly any country, negotiates free trade agreements (FTAs). FTA partners are not in the business of securing litigation buy-outs. But this is the debate in the case before the Eighth Circuit tomorrow. The defendants will argue that private suits concerning a U.S. company’s environmental activities taking place on or affecting the territory of an FTA partner must be dismissed.
Trade experts know that the conventional wisdom dating at least from May 10, 2007 is that Chapter 18 of the U.S.-Peru TPA, like environment chapters in other FTAs, is intended to ensure a level playing field for U.S. companies and to improve environmental standards in Peru. That’s why the chapter is premised on making Peru (and the United States) enhance its environmental standards and enforce those standards – just like FTA labor chapters do. If Peru does not do that, then the United States can raise the matter before a dispute settlement panel. That’s the traditional trade agreement environment and labor two-step: (1) each partner adopts and maintains high-level laws; (2) each partner effectively enforces those laws. When they fail to do so, they risk state-to-state arbitration.
To craft their contention, defendants in the Missouri case have had to interpret the governmental commitments in Chapter 18 as extending to private claims. For example, they argue that “enforcement” includes “adjudication of environmental claims.” Likewise, they claim that hearing a case in Missouri “violate[s] Peru’s sovereign right to ‘establish its own levels of environmental protection.’” They strongly emphasize the chapter’s language about each party having to ensure that persons have access to remedies for violations of that party’s environmental laws, including the right to sue another person. All this, they argue, shows that Peru and the United States agreed to make persons litigate environmental matters only on the territory where the activity occurred. More could be said about how the defendants misconstrue exceptions that are built in to the Agreement (like for the forestry annex) and how their additional arguments relying on the USMCA are misplaced, but these get unnecessarily far into the weeds – and I’m not sure what to do about weeds when talking about an environment chapter.
Framing the Case
More importantly, the defendants raise these readings of the U.S.-Peru TPA to support their framing of the case, which is, unsurprisingly at odds with the plaintiffs’ framing. Plaintiffs say this is a case about bad things a Missouri company did in violation of Missouri law – those bad things happened to have an impact on a facility in Peru. When viewed that way, it is easy to see that the trade agreement has nothing to say about private plaintiffs exercising their rights against other private parties no matter where they are. Defendants say plaintiffs are asking a Missouri jury to opine on the application of Peruvian environmental standards and thereby infringing Peru’s rights and obligations to set its own laws and enforce them. When viewed that way, defendants see a hook to all the language in Chapter 18 (which they mistakenly call Article 18) about each party’s right to regulate the environment on its territory. That hook and their related arguments largely reflect a misunderstanding of what trade agreements are all about.
Adding to the confusion is the defendants’ claim that Ambassador Susan Schwab, who was USTR during part of the negotiations of the U.S.-Peru TPA, “agrees that this case conflicts with the TPA.” They’re referring to an amicus brief prepared by Mayer Brown LLP, the firm with which Ambassador Schwab is affiliated, on behalf of the Associated Industries of Missouri (AIM) and the National Mining Association (NMA) which states that the TPA is clear “that each Nation’s environmental standards apply exclusively within that Nation’s borders, and any enforcement of that Nation’s standards must occur in its own courts.” Good thing for plaintiffs that this appeal is not about which environmental standards apply nor is it about Peru enforcing its standards in U.S. courts. The choice-of-law issues are not part of the appeal (the trial court decided that Missouri law governs except for one defense under Peruvian law) and obviously Peru is not a party in the Missouri case. Even if the choice of law were at stake, Chapter 18 of the TPA is of no help. Article 18.1 is plainly not a statement that Peruvian environmental law applies in a judicial dispute in the United States or elsewhere. The AIM & NMA amicus brief gets one thing right, though, where it observes that “[n]othing in the [TPA] negotiating history indicates that the Parties endorsed, or even contemplated, extraterritorial judicial enforcement of environmental standards by private parties.” That’s true, of course. The Parties did not contemplate altering private rights related to environmental harms. That’s why the trade agreement has no bearing on these sorts of claims.
The plaintiffs appropriately point to the U.S.-Peru TPA Implementation Act and to President Bush’s accompanying Statement of Administrative Action, both of which are clear that no state law or its application may be declared invalid as inconsistent with the Agreement and that only the executive branch can resolve a conflict between an application of a state law and the Agreement. So, in addition to the absence of any abstention-related language in the TPA, the law that implements the TPA into U.S. law confirms the TPA does not change U.S. law unless specifically provided for in the Act, and there is nothing close to an abstention provision in the Act – quite the opposite.
What is at stake before the Eighth Circuit is the foreign relations impact of the deal – that’s the defendants’ comity argument. The issue is whether, somehow, the U.S.-Peru TPA symbolically divided up sovereign interests related to the environment on the basis of territory and, with those interests, access to the courts on tort matters. Again, here most international trade law experts would say that’s not what the trade agreement says, nor was that what was intended. First, it is axiomatic in international law that countries have sovereign interests related to their environments with or without FTAs affirming so much. And, second, yes, the TPA makes sure that Peru has a court system that allows private environmental claims but that was because the United States was worried about competition and a race to the bottom; it was not an expression of a foreign policy preference about litigation location.
Conclusion
There are plenty of additional issues in the case, including issues related to the TPA, that are not worth elaborating here. Likewise, space does not permit us to get into the history of the foreign commerce clause and its relationship with federalism that this case indirectly underscores. States are increasingly enjoying the trade agreement spotlight and there is more to be said about that in later posts. To be sure, I have only touched upon one piece of the case in this already long discussion. There may be other comity-related grounds for dismissal (although comity experts say there are not as a matter of U.S. law). There are many further details to be examined on the merits. And, perhaps, as a policy matter, some readers may be opposed to a U.S. court hearing a case brought by foreign plaintiffs about this sort of harm, even against a U.S. defendant. But at least we can be certain that a court exercising jurisdiction over this case in Missouri under Missouri tort law does not constitute a “derogation” by the United States of the U.S.-Peru TPA. Kicking the case on the basis of some expression springing from the TPA of U.S. foreign policy on lawsuits with a connection to Peru would go far beyond the text, context, or purpose of the deal.
