Chevron v. Donziger: An Enforcement Action Drama

April 10, 2014

Rachel Snyder

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”)[1] of the ways in which the LAPs lead lawyer, Steven Donziger, and his associates, corrupted the Ecuadorian judicial system through bribery and intimidation to produce a multibillion dollar verdict in favor of the LAPs. It will be interesting to see how far-reaching the effects of Judge Kaplan’s ruling will be, potentially leading other defendants to adopt some of Chevron's tactics, including counter suing plaintiffs' lawyers for fraudulent claims and using U.S. discovery in support of foreign litigation. But Donziger also illustrates the difficulties that may be encountered.

The original lawsuit in the Southern District of New York was dismissed on forum non conveniens grounds.[2] The LAPs then brought their action in the courts of Ecuador, ultimately resulting in a judgment in their favor for $8.6 billion. We won’t go into the facts in detail here. They are available in Judge Kaplan’s opinion and in the many other opinions in related proceedings – or you can wait for the movie version.[3] Our focus here is more limited. This is an unusual instance of a case in which the losing party to a foreign lawsuit has sued successfully in the United States (at least so far) to enjoin enforcement of the foreign judgment, rather than having to wait for the winning party to bring an enforcement action.

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”).[4] The Second Circuit reversed.[5] The court held that:

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.[6]

Moreover, the Second Circuit held that international comity concerns preclude a worldwide injunction of the kind sought by Chevron.[7]

[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.[8]

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.[9] Collaterally attacking a prior judgment on RICO grounds is necessarily more novel. And successful independent actions on any theory are rare. Petitioners bear a heavy burden and face numerous obstacles.[10]

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.[11] Even within the Southern District of New York opinion is divided.[12]

The other hurdle is extraterritoriality. The Second Circuit has held, following Morrison v. National Australia Bank, that RICO does not apply extraterritorially.[13] But neither the Second Circuit nor the Supreme Court has provided much guidance in distinguishing extraterritorial from domestic application in cases with elements of both. Judge Kaplan held this case to be sufficiently domestic for RICO to apply.

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.[14] And the people of the Lago Agrio region continue to live on their polluted land with no remedy in sight.

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.[15] But Chevron’s success will not be easily replicated. It required extraordinary diligence, persistence, and resourcefulness, and entailed enormous expense – an expense that few clients would be able to bear and that only the biggest cases would warrant. And Chevron was willing to endure a great deal of negative publicity. Furthermore, Chevron appears to have benefitted from Donziger’s hubris in allowing his documentary filmmaker friend virtually unlimited access to the inner workings of his team. This kind of inculpatory evidence would not be available in many cases. Moreover, Donziger’s grossly inflated claims may have persuaded Chevron that efforts at negotiating a settlement would be futile. Thus, whether other parties will be able to repeat Chevron’s success remains to be seen.

[1] Courtroom drama, The Economist, March 8, 2014, at 68.

[2] Aguinda v. Texaco, Inc., 142 F. Supp. 2nd 534, 537 (S.D.N.Y. 2001) aff’d as modified, 303 F.3d 470 (2d. Cir. 2002).

[3] One documentary film, “Crude,” has already been made by colleagues of Donziger’s. Outtakes from this film, uncovered during the discovery process, ironically provided critical evidence in support of Chevron.

[4] Chevron Corp. v. Donziger, 768 F. Supp. 2d 581 (S.D.N.Y. 2011).

[5] Chevron Corp. v. Naranjo, 667 F.3d 232 (2012).

[6] Id. at 240.

[7] Id. at 242-44.

[8] Id. at 242.

[9] 12-60 Moore’s Federal Practice – Civil § 60.81; Restatement 2d of Judgments, § 70.

[10]See e.g., U.S. v. Beggerly, 524 U.S. 38, 46 (1998) (independent actions reserved for cases of gross injustice); Yahoo! Inc., v. La Ligue Contre le Racisme et l’Antisemtisme, 433 F.3d 1199, 1201 (9th Cir. 2006) (en banc) (refusing to entertain challenge to French decree in absence of effort to enforce in the United States, but with no majority opinion; plurality says case not ripe for adjudication; other judges say no personal jurisdiction over French defendants).

[11] 18 U.S.C. § 1964; compare Religious Tech. Ctr. v. Wollersheim, 796 F.2d 1076, 1080-89 (9th Cir. 1986) (no equitable remedies for private plaintiffs) with Nat’l Org. for Women, Inc., v. Scheidler, 267 F.3d 687, 695-89 (7th Cir. 2001) (equitable remedies for private plaintiffs allowed), overruled on other grounds sub nom. Scheidler v. Nat’l Org. for Women, Inc., 537 U.S. 393 (2003).

[12] Compare American Medical Ass’n v. United Healthcare Corp., 588 F. Supp. 2d 432, 444-46 (2008) (no equitable relief in private RICO actions) with Motorola Credit Corp. v. Uzan, 202 F. Supp. 2d 239, 243-44 (2002) (equitable relief allowed), rev’d on other grounds, 322 F.3d 130 (2d Cir. 2003).

[13] See Norex Petroleum Ltd. v. Access Indus., Inc., 631 F.3d 29, 32 (2d. Cir. 2010); Morrison v. Nat’l Australia Bank, Ltd., 561 U.S. 247 (2010).

[14] See Paul M. Barrett, Woes at Patton Boggs Worsen as Chevron Gets Clearance to Press Fraud Claims, Bloomberg Business Week, April 1, 2014, http://www.businessweek.com/articles/2014-04-01/woes-at-patton-boggs-worsen-as-chevron-gets-clearance-to-press-fraud-claims; Paul M. Barrett, Chevron Sues an Online Poker Magnate Who Backed Plaintiffs in Pollution Case, Bloomberg Business Week, March 18, 2014, http://www.businessweek.com/articles/2014-03-18/chevron-sues-an-online-poker-magnate-who-backed-plaintiffs-in-pollution-case.

[15] See Paul M. Barrett, Dole Food's Victory in Pesticide Case Echoes Chevron's Pollution Win, Bloomberg Business Week, March 10, 2014, http://www.businessweek.com/articles/2014-03-10/dole-food-co-dot-victory-in-pesticide-case-echoes-chevron-pollution-win; Paul M. Barrett, Chevron's RICO Victory Provides a Model for Other Companies, Bloomberg Business Week, March 5, 2014, http://www.businessweek.com/articles/2014-03-05/chevrons-rico-victory-provides-a-model-for-other-companies.

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