2nd UPDATE: US Appeals Court Revives Indonesians' Lawsuit Against Exxon

A federal appeals court on Friday reinstated a lawsuit by Indonesian villagers that seeks to hold Exxon Mobil Corp. (XOM) liable for alleged killings and torture committed by Indonesian soldiers guarding its natural-gas operations in Aceh province.

The U.S. Court of Appeals for the District of Columbia Circuit said in a 2-1 ruling that a trial judge was wrong to dismiss the lawsuit in 2009. The court also reinstated some of the villagers' claims that were thrown out by a different judge in 2005. Among its findings, the appeals court ruled that corporations can be held liable under the Alien Tort Statute, a 1789 federal law that allows foreign citizens to file U.S. lawsuits based on violations of international law.

The law was rarely used for two centuries, but plaintiffs have relied on it in recent years to target companies for alleged complicity in human-rights abuses committed overseas.

Judge Judith Rogers said U.S. law has always recognized that corporations can be held liable for actions committed by their agents. "It would create a bizarre anomaly to immunize corporations from liability for the conduct of their agents in lawsuits brought for shockingly egregious violations of universally recognized principles of international law," Rogers wrote in the court's 112-page opinion.

The dissenting judge, Brett Kavanaugh, said international law doesn't impose liability on corporations, and he warned that allowing the lawsuit to proceed could damage U.S. relations with Indonesia.

The ruling deepens a split in the U.S. courts on whether corporations can be sued under the statute, an issue of concern for the business community. Last year, a federal appeals court in New York ruled that such lawsuits can't proceed, dismissing the claims of Nigerian residents who alleged that subsidiaries of Royal Dutch Shell PLC (RDSA, RDSA.LN) were complicit in crimes against humanity in Nigeria. The Nigerians have asked the U.S. Supreme Court to review that ruling.

The D.C. Circuit Court expressly rejected the New York court's legal reasoning.

Other federal appeals courts are currently considering the same issue in cases involving allegations against Firestone Natural Rubber Co., a subsidiary of Bridgestone Corp. (5108.TO), and Rio Tinto PLC (RIO, RIO.AU).

The Indonesians' lawsuit against Exxon dates back to 2001. A group of villagers alleged that Indonesian soldiers, serving as Exxon's security forces, murdered, tortured, raped and kidnapped local residents. The alleged abuses took place from 1999 to 2001, during a period of civil unrest in the region. The plaintiffs said Exxon had authority over the soldiers and provided them with material and logistical support that aided the alleged abuses.

Not all of the villagers' claims are based on international-law violations. Among other things, they also sued Exxon for wrongful death and assault and battery.

"We hope we can get to trial quickly," said Agnieszka Fryszman a lawyer for the villagers. "The plaintiffs have waited for over 10 years, and they've already shown the court they have the evidence to go forward."

Exxon spokesman Patrick McGinn said the plaintiffs' claims were baseless and the company was reviewing the ruling.

"While conducting its business in Indonesia, ExxonMobil has worked for generations to improve the quality of life in Aceh through employment of local workers, provision of health services and extensive community investment," McGinn said in an email. "The company strongly condemns human rights violations in any form."

The Indonesian government has objected to the lawsuit. It sent a letter to the State Department and the Washington appeals court in January, saying the case intruded on its national sovereignty.

The case has bounced around the U.S. courts for several years.

One Washington trial judge issued a key procedural ruling in 2008 that appeared to clear parts of the case for trial. However, the case was transferred to a different judge, who dismissed the lawsuit a year later.

Friday's ruling didn't revive all of the plaintiffs' claims. The appeals court affirmed the dismissal of claims that the plaintiffs brought under the Torture Victim Protection Act, saying corporations couldn't be sued under that law.

The case is John Doe VIII v. Exxon Mobil Corporation, 09-7125.

-By Brent Kendall, Dow Jones Newswires; 202-862-9222; [e-mail]