In the ongoing saga
of the multi-billion Ecuador judgment against Chevron for environmental
pollution, Second Circuit affirms judgment enjoining enforcement of the Ecuador
Judgment in the United States and imposing a constructive trust for Chevron’s
benefit; upholds equitable relief from a foreign judgment under RICO
In
1964, the Republic of Ecuador (“ROE”) granted to a joint venture a concession
to explore for and produce oil in the Oriente (the “Concession”). Half (50%) of
the joint venture was owned by TexPet, a Texaco subsidiary, who was the
operator of the Concession until the early 1990s. In the 1970s, PetroEcuador,
Ecuador’s state-owned oil company acquired a majority interest in the joint
venture. In 1989, PetroEcuador took over operation of the Trans-Ecuador Pipeline,
while in 1990, it took over operation of the Concession drilling operations as
well. In 1992, the Concession expired. TexPet’s interest in the joint venture
reverted to PetroEcuador, who became the sole owner and operator of the
venture.
In
1993, TexPet and Texaco entered into a Memorandum of Understanding (“MOU”) with
the ROE that provided that TexPet would be released from any potential claim
for environmental harm once TexPet performed and agreed-upon remediation in the
area in which it had operated. The Settlement Agreement and Scope of Work
agreement (the “Settlement Agreement”) that the parties executed in 1995, laid
out specific tasks TexPet was required to complete before its remediation and
wind down were complete. According to the Settlement Agreement once the tasks
were completed TexPet would be entitled to a release. ROE issued 52
Certificates confirming that TexPet had complied with its obligations under the
Settlement Agreement, and a final release was signed on September 30, 1998.
Chevron acquired Texaco’s stock in 2001.
In
1993, a group of Oriente residents, represented by New York City lawyer Steven
Donziger (“Donziger”), among others, commenced a class action against Texaco in
the Southern District of New York. They sought billions of dollars in damages,
as well as certain equitable relief within Ecuador, for alleged environmental
damage in Ecuador and injury to the health of the plaintiffs, thus beginning a
lengthy litigation.
In
2003, the Lago Agrio Plaintiffs (the “Lago Agrio Plaintiffs” or “LAPs”) -
Camacho, Piaguaje, and 46 other named plaintiffs residing in or near Lago
Agrio—represented by the Donziger Firm, sued Chevron in Ecuador, seeking to
hold it responsible for extensive environmental damage allegedly caused by
Texaco in the area covered by the Concession (the “Lago Agrio Litigation” or
“Lago Agrio Chevron case”). The beneficiaries of this action were 30,000
indigenous residents of the area. The complaint requested that any money
awarded for performance of the requested remediation—plus an additional 10%—be
paid to the Frente de la Defensa de la Amazonia (“ADF”) for its use in
performing ordered remediation. The ADF was formed and controlled by Donziger
and Luis Yanza to support the Aguinda litigation.
In
February 2011, the trial court in Ecuador entered a judgment in favor of the
LAPs. The court awarded LAPs $8.646 billion in compensatory damages and $8.646
billion in punitive damages unless Chevron issued an apology. The punitive
damages were eliminated on appeal, leaving the judgment against Chevron, as
modified, at $8.646 billion (the Ecuadorian Judgment).
In
2011, Chevron commenced the present action against Donziger, his Firm, and the
named Lago Agrio Plaintiffs, including Camacho and Piaguaje (“LAP
Representatives”). In its complaint Chevron alleged that the LAPs procured the
Lago Agrio Judgment by a variety of unethical, corrupt, and illegal means,
including: making secret payments to industry experts who would submit pro-LAPs
opinions to the court while pretending to be neutral; announcing
multi-billion-dollar remediation cost estimates while knowing them to be
without scientific basis; persuading an expert to sign blank pages that were
then submitted to the court with opinions he did not authorize; employing extortion
to coerce an Ecuadorian judge to curtail inspections of alleged contamination
sites after the experts began to find pro-Chevron conditions at other such
sites; using the same extortionate means to coerce that judge to appoint, as a
supposedly neutral expert court adviser, an expert who was bribed to submit—as
his own opinion—a report written by the LAPs; and providing ex parte to another
judge—or to whoever wrote the $17.292 billion Lago Agrio Judgment—material that
is not part of the record for inclusion in that judgment.
After
a bench trial, the district court entered a judgment enjoining
defendants-appellants from seeking to enforce the Ecuadorian Judgment in any
court in the United States; and imposing a constructive trust for Chevron’s
benefit on any property defendants-appellants have received or may receive
anywhere in the world that is traceable to the Ecuadorian Judgment or its
enforcement, based on the court’s findings that the Ecuadorian Judgment was
procured through, inter alia, defendants’ bribery, coercion, and fraud,
warranting relief against Donziger and his Firm under the Racketeer Influenced
and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-1968, and against all
defendants-appellants under New York common law. Defendants-appellants
appealed.
The
United States Court of Appeals for the Second Circuit affirms district court’s
decision.
One
of the arguments Donziger and the LAP Representatives presented in the appeal
was that the district court’s judgment against them was foreclosed by this
Court’s ruling in Chevron v. Naranjo, 667 F.3d 232. The Court disagreed.
“The
Recognition Act […] governs the ‘[r]ecognition and enforcement’ of foreign
money judgments. See N.Y. C.P.L.R. § 5303. Subject to several exceptions, it
provides that a foreign country judgment ‘is conclusive between the parties to
the extent that it grants or denies recovery of a sum of money, ’id., and
declares such judgments to be enforceable by several means, see id.”
“Chevron’s
Amended Complaint asserted, inter alia, RICO claims against Donziger, his Firm,
Fajardo, and Yanza, and asserted common-law claims against all defendants,
including claims of fraud and unjust enrichment. In Count 9 of the Amended
Complaint, Chevron sought, under the Recognition Act, a declaratory judgment
that the Lago Agrio Judgment was invalid and an injunction against any attempt
by the ADF (which is controlled by Donziger and Yanza) or the LAPs to enforce
that judgment anywhere in the world, ‘argu[ing] that the Ecuadorian judiciary
[wa]s so captured by political interests as to be incapable of producing a
judgment that the New York courts can enforce.’ Naranjo, 667 F.3d at 238. The
district court granted Chevron’s motion for a preliminary injunction on that
basis, and it severed the Count 9 claim from Chevron’s other claims in order to
expedite trial as to the validity of the Ecuadorian judgment.”
“In
Naranjo—the appeal from the preliminary injunction—we vacated the injunction on
the ground that the Recognition Act, while allowing certain defenses against an
attempt to enforce a foreign judgment, did not authorize a judgment debtor to
attack a foreign judgment affirmatively:
Whatever
the merits of Chevron’s complaints about the Ecuadorian courts, . . . the
procedural device it has chosen to present those claims is simply unavailable:
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. Id.
at 240 (emphases added).”
“Nothing
in the language, history, or purposes of the Act suggests that it creates
causes of action by which disappointed litigants in foreign cases can ask a New
York court to restrain efforts to enforce those foreign judgments against them,
or to preempt the courts of other countries from making their own decisions
about the enforceability of such judgments.
Id.
at 243 (emphasis added); see also id. at 242 (‘There is thus no legal basis for
the injunction that Chevron seeks, and, on these facts, there will be no such
basis until judgment-creditors affirmatively seek to enforce their judgment in
a court governed by New York or similar law.’ (emphasis added)).”
“Our
Naranjo opinion also expressed concerns that if the Recognition Act were
interpreted to authorize an injunction against enforcement of a foreign
judgment anywhere in the world, it would implicate principles of international
comity. See id. at 242-44. We concluded, however, that ‘New York undertook to
act as a responsible participant in an international system of justice—not to
set up its courts as a transnational arbiter to dictate to the entire world
which judgments are entitled to respect and which countries’ courts are to be
treated as international pariahs. Id. at 242. Thus, we stated that:
[w]e
need not address here whether and how international comity concerns would
affect a hypothetical effort by a state to vest its courts with the authority
to issue so radical an injunction. There is no such statutory authorization,
for New York has authorized no such relief. To resolve the dispute before us,
we need only address whether the statutory scheme announced by New York’s
Recognition Act allows the district court to declare the Ecuadorian judgment
non-recognizable, or to enjoin plaintiffs from seeking to enforce that
judgment. Because we find that it does not, the injunction collapses before we
reach issues of international comity. Id. at 244 (emphases added).”
“In
light of our interpretation of the Recognition Act and of the fact that there
had been no attempt to enforce the Lago Agrio Judgment in New York, there was
‘nothing further to be addressed on remand with respect to the severed claim.’
Naranjo, 667 F.3d at 239 n.11. We thus remanded Count 9 to the district court
with instructions to dismiss Chevron’s claim for declaratory and injunctive
relief under the Recognition Act. See id. at 247.”
“In
sum, the Naranjo decision held simply that ‘the Recognition Act does not
authorize a court to declare a foreign judgment null and void for all purposes
in all countries, or to issue injunctions preventing parties to foreign
litigation from acting abroad to present issues to foreign courts.’ Id. at 245
(emphases added). Other arguments were ‘either rendered moot by [that]
disposition . . . or . . . pertain[ed] to litigation that [wa]s not properly
before us.’ Id. at 246. We ‘express[ed] no views on the merits of the parties’
various charges and counter-charges regarding the Ecuadorian legal system and
their adversaries’ conduct of this litigation, which may be addressed as
relevant in other litigation before the district court or elsewhere.’ Id. at
247 n.17.”
The
Court concluded that “[…] Naranjo did not foreclose consideration of the
validity of Chevron’s remaining claims under RICO and New York common law or of
the appropriateness of relief other than a declaratory judgment under the
Recognition Act or a global injunction against enforcement of the Lago Agrio
Judgment.”
Upon
considering all of the arguments of Donziger and the LAP Representatives on
this appeal the Court found in them no basis for dismissal or reversal. The
Court thus affirmed the judgment of the district court.
Citation: Chevron
Corporation v. Donziger,833 F.3d 74 (2nd Cir. 2016).
Legal Commentary by Attorney Terik Hashmi,
www.TerikHashmiattorney.com.