Cecily Zamora
The US Supreme Court has shown a clear retreat from applying federal statutes to extraterritorial conduct, indicating that United States law governs domestically but does not rule the world. This presumption against extraterritoriality stems from the principle that US legislation is meant to apply only within its territorial jurisdiction unless a contrary intent is explicitly stated. This has raised questions about the extraterritorial application of statutes and their effect on cases beyond their specified territorial reach. For example, in the context of employment law, Title VII of the Civil Rights Act of 1964 prohibits employment discrimination based on gender identity, but it does not apply to foreign operations of employers not controlled by American employers. This has led to discussions about whether individuals employed abroad by non-US employers are protected under US law if their contract specifies it. The understanding of extraterritoriality is crucial for global businesses, as it provides clarity on whether US courts will apply their laws to foreign activities.
| Characteristics | Values |
|---|---|
| Supreme Court's presumption | Against extraterritoriality |
| Reason | Conservative majority's strict adherence to the principle that "legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States" |
| Exception | If there is an affirmative intention of the Congress clearly expressed to give a statute extraterritorial effect |
| Statute's focus | If the conduct relevant to the statute's focus occurred in the US, then the case involves a permissible domestic application even if other conduct occurred abroad |
| Civil RICO action | A private plaintiff must allege and prove injury in the US to business or property and cannot recover for non-US injuries |
| Business transactions | May routinely touch the US in some manner |
| US Supreme Court | Has retreated from reflexively applying major federal statutes to extraterritorial conduct |
| Concern for non-US parties | Whether conduct that touches the US in a de minimis manner is enough for a US court to apply its law to those actions |
| US law | Governs domestically but does not rule the world |
| Territorial limitation | A choice-of-law rule that instructs courts to adjudicate a case under the law of another state |
| Choice-of-law rules | Are not binding on the courts of other states |
| US law, in Title VII of the Civil Rights Act of 1964 | Prohibits employment discrimination on the basis of gender identity, but does not apply to persons employed abroad by foreign employers |
| US state law | May not apply in cases beyond the statute's specified scope |
| US courts | Have applied US laws despite extraterritorial aspects of the case, but this trend is reversing |
| Factors considered for extraterritorial application of statutes | Degree of conflict between US and foreign law or policy, nationality of the parties, relative significance of effects in the US, whether the defendant intended to affect US commerce, enforceability of any remedy ordered, availability of a remedy abroad, effect of exercising jurisdiction on foreign relations, US reaction if the roles were reversed, impact of any relevant treaties |
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What You'll Learn
- The Supreme Court's presumption against extraterritoriality
- US civil laws don't rule the world
- The impact of non-extraterritoriality on contractual choice-of-law clauses
- The Full Faith and Credit Clause and a state's decision not to exert legislative authority externally
- The application of US civil laws to multinational businesses
The Supreme Court's presumption against extraterritoriality
The presumption against extraterritoriality is a legal principle that has evolved over two centuries. The presumption against extraterritoriality holds that "legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States." This means that unless there is a clear indication that a statute is intended to have extraterritorial effect, it is assumed to apply only domestically.
The presumption against extraterritoriality originated in the 19th century as an application of the Charming Betsy canon, which required that statutes be interpreted to avoid violating international law. As international law evolved to permit greater extraterritorial regulation, the Supreme Court retained the presumption, justifying it on the basis of international comity and Congress's primary focus on domestic issues.
In the first half of the 20th century, the American Banana version of the presumption focused solely on the location of the conduct in question. However, this approach was inconsistently applied and sometimes ignored in cases where conduct abroad had harmful effects in the United States. After 1952, the presumption fell into disuse for four decades until it was revived in the 1991 case EEOC v. Arabian American Oil Co. (Aramco).
In 2010, the Supreme Court's decision in Morrison v. National Australia Bank Ltd. articulated a new presumption against extraterritoriality. The Court clarified that the presumption was not a "clear statement rule" and that context could be considered to determine whether the presumption applied. Additionally, the Court moved away from relying solely on the location of the conduct, instead focusing on whether the object of the statute's "focus" was found in the United States. This two-step framework for analyzing extraterritoriality issues was formalized in RJR Nabisco, Inc. v. European Community, and has been consistently applied by the Court since then.
The Supreme Court's recent decisions indicate a retreat from automatically applying major federal statutes to extraterritorial conduct. This shift has been welcomed by non-US companies concerned about the reach of US law. However, scholars have criticized the new presumption against extraterritoriality as a "runaway canon," arguing that it should be abandoned. Nevertheless, the Court continues to apply and uphold this presumption in its recent cases.
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US civil laws don't rule the world
US civil laws do not rule the world. This is a clear statement from the US Supreme Court, which has recently retreated from applying federal statutes extraterritorially. The Court presumes that a statute does not apply outside the US unless there is a clear, affirmative indication that US Congress intended it to. This is based on the principle that legislation from Congress is meant to apply only within US territorial jurisdiction.
This presumption against extraterritoriality has a long history in US law, with Justice Holmes's strict notions of territoriality being a traditional approach. This means that the location of the conduct that a law seeks to dictate is the determining factor in whether a law can be applied extraterritorially. For example, in a cross-border shooting incident, the nation where the victim stood could apply its law extraterritorially, but the nation where the shooter stood could not.
However, there have been instances where US courts have applied US laws extraterritorially, such as in United States v. Aluminum Company of America (Alcoa), where the Sherman Act was applied against a cartel of foreign companies producing aluminium outside the US. The cycle then reversed in the 1991 Supreme Court decision in EEOC v. Arabian American Oil Co. (Aramco), which invoked a presumption against extraterritoriality.
The application of US law extraterritorially is a concern for global businesses, especially as business transactions often have some connection to the US. The recent trend of the US Supreme Court provides some comfort to non-US companies, as they can be sure that US courts will not automatically apply US laws to foreign activities.
The non-extraterritoriality of statutes has received less scholarly attention compared to the extraterritorial application of statutes. However, it is an important consideration, especially when a statute's external scope is limited, and the courts of other states may apply their own laws instead.
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The impact of non-extraterritoriality on contractual choice-of-law clauses
The US Supreme Court has shown a clear retreat from applying federal statutes extraterritorially, emphasising that "United States law governs domestically but does not rule the world". This presumption against extraterritoriality stems from the conservative majority's adherence to the principle that Congress's legislation is intended to apply only within US territorial jurisdiction. As a result, US courts are cautious about applying their laws to foreign activities, even in cases with minimal connections to the US.
The non-extraterritoriality of statutes and their effect on cases beyond their specified territorial reach have received less scholarly attention compared to the extraterritorial application. When a choice-of-law rule or a contractual choice-of-law clause directs the application of a state's law, and that state has a statute limiting its external reach, the territorial limitation becomes a choice-of-law rule. However, this provision may be disregarded by courts of other states, leading them to apply the statute's substantive provisions beyond its intended scope.
The Second Restatement treats geographic scope limitations as choice-of-law rules, allowing courts to ordinarily disregard them when a contractual choice-of-law clause selects the law of a state as governing. In contrast, the Third Restatement considers these limitations indistinguishable from internal scope limitations, and other states' courts are obligated to respect them when applying the law of the enacting state. This divergence in understanding leads to significantly different outcomes, impacting the enforceability of contractual choice-of-law clauses.
The distinction between default rules, simple mandatory rules, and overriding mandatory rules also influences the enforceability of choice-of-law clauses. The draft Third Restatement's stance on the unenforceability of choice-of-law clauses in the face of simple mandatory rules has been criticised as unwarranted. The competing understandings of non-extraterritoriality and the treatment of provisions affecting the extraterritorial scope of statutes continue to shape the landscape of contractual choice-of-law clauses.
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The Full Faith and Credit Clause and a state's decision not to exert legislative authority externally
The Full Faith and Credit Clause, outlined in Article IV, Section 1 of the United States Constitution, dictates that states within the US must respect the "public acts, records, and judicial proceedings of every other state". This clause addresses the relationship between states, sometimes referred to as "horizontal federalism", and ensures that each state acknowledges the laws and institutions of its fellow states.
The Full Faith and Credit Clause does not require one state to enforce the laws of another, but it does mandate that they allow claims based on other states' laws to be heard in their courts. This clause is particularly relevant in situations where the laws of two states could both plausibly apply, such as in a car accident between residents of one state that occurs in another. In such cases, the courts of either state could preside over the dispute, provided they have "significant contact or significant aggregation of contacts, creating state interests". Once a judgment has been made, the Full Faith and Credit Clause ensures that it will be respected in every other state, even if it goes against the public policy of that state.
However, the Full Faith and Credit Clause does not supersede state sovereignty. The Supreme Court has recognised a "'public policy exception'", stating that there are limitations to a state's obligation to enforce the judgment of another state if it goes against its own statutes or policies. This exception has been applied in cases involving criminal punishment, where a state is not required to enforce another state's judgment regarding criminal penalties.
In recent years, the most controversial applications of the Full Faith and Credit Clause have involved family law, specifically same-sex marriage recognition. While the Supreme Court's decision in Obergefell v. Hodges (2015) rendered the Defense of Marriage Act obsolete, the issue of same-sex marriage recognition across state lines remains unresolved.
The Full Faith and Credit Clause is distinct from the concept of extraterritoriality, which refers to the application of US laws outside of US territory. The Supreme Court has demonstrated a presumption against extraterritoriality, stating that US legislation is meant to apply only within US territorial jurisdiction unless there is a clear indication otherwise. This presumption reflects the principle of federalism, which grants states the general ability to govern their own territories and establish their own laws.
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The application of US civil laws to multinational businesses
Multinational corporations (MNCs) are businesses that operate across multiple countries and are the main players in the global market. They are responsible for a significant portion of world trade and investment in many countries' economies. The transnational nature of MNCs makes them challenging to regulate using only national laws.
US civil laws are generally presumed to apply only within the territorial jurisdiction of the United States. However, in certain circumstances, US civil laws can have extraterritorial effect on MNCs. For instance, if the conduct relevant to the statute's focus occurred in the US, it would be considered a permissible domestic application, even if other conduct occurred abroad. On the other hand, if the relevant conduct occurred in a foreign country, it would be considered an impermissible extraterritorial application, regardless of any other US connections.
The US Supreme Court has shown a recent trend of retreating from automatically applying major federal statutes to extraterritorial conduct. This means that MNCs can find some comfort in the knowledge that US courts will not reflexively apply US laws to foreign activities. However, it is important to note that MNCs can still be subject to US civil laws if their activities have a substantial connection to the US or if the statute in question explicitly indicates extraterritorial application.
MNCs may also use strategies like seeking "refuge" in secrecy havens or choosing specific ship nationalities with limited legal enforcement to reduce their liability and avoid the application of US civil laws. Nevertheless, the complexity and scope of MNC operations present logistical challenges when attempting to hold them accountable under national laws, highlighting the need for effective international regulations.
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Frequently asked questions
The Supreme Court’s presumption against extraterritoriality is based on the principle that "legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States." In other words, unless there is a clear indication that Congress intended a statute to apply extraterritorially, the Court will presume it only applies within the US.
US courts generally avoid applying federal statutes extraterritorially to avoid international friction and to respect the legislative authority of other states.
Yes, US civil laws can have extraterritorial effect if there is a clear, affirmative indication that Congress intended for the statute to apply extraterritorially. However, this is rare and US courts generally presume that federal statutes do not apply extraterritorially.
