International organizations based in the United States are not completely shielded from legal liability in American courts, the Supreme Court ruled Wednesday.
The 7-to-1 ruling directly involves an arm of the World Bank, which provides loans for projects in poor and developing countries. The decision could have implications for other similar organizations involved in financing overseas development.
The case centers on the Washington-based International Finance Corp., which provided a $450 million loan for the construction of a coal-fired power plant in the state of Gujarat in western India. Farmers, fishermen and a small village went to federal court in 2015 over alleged air pollution and water contamination from the plant.
The lower court and the U.S. Court of Appeals for the D.C. Circuit sided with the international organization, which argued that it was completely shielded from legal liability under a 1945 law.
The Supreme Court rejected concerns from the IFC that allowing certain lawsuits would unleash a flood of litigation in U.S. courts and make it more difficult and expensive for the institution to fund international projects.
“The IFC’s concerns are inflated,” Chief Justice John G. Roberts Jr. wrote in a 15-page majority opinion.
In the aftermath of World War II, Congress extended certain benefits to new international organizations such as the United Nations and the International Monetary Fund, similar to protections granted in the United States to foreign governments, including shielding them from lawsuits.
Foreign governments, under a subsequent law, now are subject to certain legal action in the United States in the area of commercial activity.
The high court found that the law gives the IFC only the same immunity as foreign governments and not “absolute immunity.” The decision means similar institutions are likely also to have limited protection.
“Restrictive immunity hardly means unlimited exposure to [lawsuits] for international organizations,” Roberts wrote.
The lone dissenter, Justice Stephen G. Breyer, said the history of the law from the 1940s makes clear Congress would not have wanted to “reduce significantly the scope of immunity that international organizations enjoyed, particularly organizations engaged in development finance, refugee assistance, or other tasks that U. S. law could well decide were ‘commercial’ in nature.”
Breyer warned that the majority ruling would “create uncertainty for organizations involved in finance,” such as the World Bank, the Inter-American Development Bank, and the Multilateral Investment Guarantee Agency.
Justice Brett M. Kavanaugh did not participate in the case, which originated at the D.C. Circuit, where he previously served for 12 years.
The ruling sends the case back to District Court in Washington.
A spokesman for the IFC said the organization would “work to ensure that this ruling does not interfere with our ability to deliver for our partner countries and does not hinder our mission.”
The IFC’s own audit found the 2010 power-plant project in India that sparked the initial lawsuit did not go smoothly, and it criticized IFC as inadequately supervising the activity. The company did not comply with the environmental and social action plan for the plant, the court noted in its opinion Wednesday.
“The IFC and similar institutions provide billions of dollars to finance development projects that affect the lives of millions of people around the world, and have a profound impact on the environment,” said Marco Simons, general counsel for EarthRights International, which helped represent the plaintiffs.
“Until now, they have done so with impunity, able to ignore any harm they cause to local communities, secure in the knowledge they cannot be sued,” Simons said. “Today’s decision ends that impunity, helping to ensure that development projects do not harm the people whose lives they are supposed to improve.”
The case is Budha Ismail Jam v. International Finance Corp.