US may not want to rule on Turkcell’s MTN case

Alison Frankel.

On February 28, during arguments at the US Supreme Court in an Alien Tort Statute (ATS) suit by a group of Nigerians who accused Shell of complicity in state-sponsored torture, Justice Samuel Alito interrupted the Nigerians’ lawyer, Paul Hoffman of Schonbrun DeSimone Seplow Harris Hoffman & Harrison. “What business does a case like this have in the courts of the US?” Alito said.

Enough justices agreed with Alito that days after the argument in the case, called Kiobel v Royal Dutch Petroleum, the Supreme Court decided it was more interested in the extraterritorial application of the ATS than in the nominal issue in Kiobel, which concerned corporate liability under the ATS. In an extraordinary post-argument order, the justices called for additional briefing from both sides of the question of “whether and under what circumstances the ATS allows courts to recognise a cause of action for violations of the law occurring within the territory of a sovereign other than the US”.

Whoever defends the MTN Group in a federal court in Washington is going to be very interested in the answer the Supreme Court delivers to that question. In a 70-page complaint filed on March 28, the Turkish cellular services company Turkcell is asserting the ATS against MTN. According to Turkcell’s lawyers at Patton Boggs, MTN engaged in all sorts of corporate skullduggery, from bribery to peddling votes at the UN, to wrest away Turkcell’s contract to provide private cellphone service in Iran.

Turkcell said MTN’s conduct was a “violation of the law of nations”, and has demanded $4.2 billion (about R32.1bn) in damages. Its allegations were explosive enough to have led to a 6 percent fall in MTN’s share price since the suit was filed.

“MTN used its high-level political influence within the South African government to offer Iran the two most important items that the country could not obtain for itself: (1) support for the Iranian development of nuclear weapons; and (2) the procurement of high-tech defence equipment,” the complaint said. “MTN developed a scheme to trade these items – nuclear votes and illicitly procured arms – for (Turkcell’s) licence. MTN furthered its scheme by bribing and trading in influence with government officials in both Iran and South Africa… MTN went so far as to create a code name for its corrupt scheme – ‘Project Snooker’. Between February 2004 and November 2005, MTN Group worked feverishly to ‘snooker’ its business competitor through these corrupt arrangements.”

I have no idea of the merits of Turkcell’s assertions. But I don’t think the case has much chance of surviving as a cause of action in the US courts, which are increasingly resistant to the idea that they’re an appropriate forum for disputes with little connection to the country.

Turkcell tries hard to make a case for US jurisdiction. MTN, the suit said, was headquartered in South Africa but its shares also trade as American depository receipts, and the company derived significant revenue from sales of phone cards and cell services to US customers. Two of the company’s directors are US residents, according to the complaint, which also said MTN had received financing from US lenders and used US banks. Moreover, according to Turkcell, MTN allegedly breached a non-disclosure agreement it signed in Washington, in the course of settlement talks at the beginning of 2012.

All of that doesn’t change the fundamentals of the litigation, however: this is a Turkish company suing a South African company for allegedly tampering with an Iranian contract through illegal conduct that took place outside of the US.

As ATS expert Hoffman told me on Monday, no court has yet ruled that the ATS doesn’t apply to overseas conduct, no matter how likely it is that the Supreme Court will erect such a bar when it eventually decides on Kiobel. But even if the Turkcell case survived outright dismissal, it would probably be stayed until the Supreme Court issued its Kiobel ruling.

And even if Turkcell manages to clear those hurdles, there’s still the question about its assertion of the ATS in what amounts to a business case. Most ATS cases are brought on behalf of human rights victims, not multinational corporations.

I left messages with Turkcell counsel Read McCaffrey of Patton Boggs and Lanny Breuer of Dilworth Paxson and Tim Coleman of Freshfields Bruckhaus Deringer (the Turkcell complaint said that Breuer and Freshfields represented MTN in settlement talks with Turkcell), but didn’t hear back. – Reuters