Chevron v. Donziger: An Enforcement Action Drama
April 10, 2014
More than 20 years ago, a group of indigenous Ecuadorians from the Lago Agrio region of Ecuador brought suit against Texaco (subsequently acquired by Chevron) in the Southern District of New York. The Lago Agrio plaintiffs (the “LAPs”) alleged that Texaco’s oil drilling operations in their Amazon Basin homeland caused serious environmental and health damage. In the succeeding years, under various names and in various permutations, this dispute has engaged the courts of the United States, Ecuador, and other nations. In perhaps its most remarkable manifestation, Judge Lewis Kaplan has recently issued a 500-page opinion recounting the dramatic story (The Economist called it “John Grisham-esque”)
The original lawsuit in the Southern District of New York was dismissed on forum non conveniens grounds.
Ordinarily, a party who successfully sues an American company in a foreign court would bring that judgment to an appropriate U.S. jurisdiction, and seek recognition and enforcement pursuant to that state’s version of the Uniform Foreign Country Money Judgments Recognition Act. But there is nothing ordinary about this case. According to Judge Kaplan’s opinion, Donziger and his associates made a tactical decision not to sue on the judgment in the United States, but to first bring multiple enforcement actions in other foreign countries. Thus far, they have brought suit in Brazil, Argentina and Canada. The hope was to obtain a series of favorable foreign enforcement judgments, and only then seek enforcement in the United States. The reasons for this decision are not entirely clear. Donziger appeared to believe that Chevron enjoyed some sort of home court advantage in the United States; perhaps, he believed that some foreign jurisdictions would be less favorably disposed to a multinational oil company defendant; perhaps he thought there would be a tactical advantage in first having judgments from countries whose judiciaries have a better reputation for integrity, competence, and independence than that of Ecuador (a sort of judgment-laundering). But this strategy also has costs; it is expensive, complex, and burdensome and Chevron would not necessarily have sufficient assets in these jurisdictions. Moreover, such suits face a formidable legal obstacle: Chevron operates abroad through separately incorporated foreign subsidiaries. Thus, the LAPs would have to “pierce the corporate veil” pursuant to the local law of each forum. Nevertheless, that is the approach that Donziger chose.
From Chevron’s standpoint, a U.S. forum was crucial. Not only would multiple foreign forum litigation be expensive and inherently unpredictable, but Chevron needed the benefit of expansive U.S. discovery in order to validate its suspicions that Donziger had corrupted the Ecuadorian proceedings. Thus, Chevron adopted a two-fold strategy. While the Ecuadorian litigation was pending, Chevron brought a series of U.S. discovery actions under 28 U.S.C. § 1782 in aid of the Ecuadorian case. Subsequent to the Ecuador judgment, it brought a separate case in the Southern District against Donziger and his associates challenging the Ecuador judgment on multiple grounds. Discovery in these cases produced a trove of documents corroborating Chevron’s claims of corruption.
Initially, Judge Kaplan issued a worldwide injunction against enforcement of the judgment, relying on the grounds specified in the Uniform Foreign Country Money Judgments Recognition Act (the “Recognition Act”).
The Recognition Act nowhere authorizes a court to declare a foreign judgment unenforceable on the preemptive suit of a putative judgment-debtor. The structure of the Act is clear. The sections on which Chevron relies provide exceptions from the circumstances in which a holder of a foreign judgment can obtain enforcement of that judgment in New York; they do not create an affirmative cause of action to declare foreign judgments void and enjoin their enforcement.
Moreover, the Second Circuit held that international comity concerns preclude a worldwide injunction of the kind sought by Chevron.
[W]hen a court in one country attempts to preclude the courts of every other nation from ever considering the effect of that foreign judgment, the comity concerns become far graver. In such an instance, the court risks disrespecting the legal system not only of the country in which the judgment was issued, but also those of other countries, who are inherently assumed insufficiently trustworthy to recognize what is asserted to be the extreme incapacity of the legal system from which the judgment emanates. The court presuming to issue such an injunction sets itself up as the definitive international arbiter of the fairness and integrity of the world’s legal systems.
Following the Second Circuit’s reversal, Chevron shifted its legal theory. Instead of relying on the affirmative twist to the Recognition Act, Chevron pursued claims against Donziger and his associates for common law fraud and violations of RICO. It sought (and ultimately obtained) equitable relief in the form of an injunction against enforcement of the Ecuador judgment in the United States, and the imposition of a constructive trust for the benefit of Chevron on any funds or assets acquired by Donziger and his associates as a result of the Ecuador judgment.
As Judge Kaplan notes in his opinion, independent actions in equity, collaterally challenging a prior judgment for fraud, have a long history in Anglo-American law and are expressly preserved by Rule 60(d) of the Federal Rules of Civil Procedure.
Chevron’s RICO claims face distinctive challenges. Two, in particular, are noteworthy. First, the language of the statute is ambiguous about whether equitable relief is available in private civil RICO actions and judicial opinion is divided.
The other hurdle is extraterritoriality. The Second Circuit has held, following Morrison v. National Australia Bank, that RICO does not apply extraterritorially.
Twenty plus years of litigation and certainly more to come. This case will be appealed. The foreign enforcement actions can proceed, unbound by anything happening here (although benefitting from the evidence unearthed here). Additional satellite litigation is inevitable.
Chevron’s success will encourage other corporate defendants who believe that they have been victimized by fraudulent claims to pursue similar aggressive strategies: countersuing for fraud and RICO violations, and using U.S. discovery in conjunction with foreign litigation.