Chevron, Donziger to Face Off Over $9.5 Billion Judgement

By Nicole Hong, Wall Street Journal
19 April 2015

Chevron Corp. will go head-to-head in an appeals court Monday with the lawyer who has tried for years to get the oil giant to pay a $9.5 billion environmental-damage award, the latest development in one of the longest-running legal battles in corporate history.

At issue on Monday: a ruling made by U.S. District Judge Lewis Kaplan, who found last year that the multibillion-dollar award New York lawyer Steven Donziger won against Chevron in Ecuador was tainted by bribery and other corrupt misconduct. In a major victory for Chevron, Judge Kaplan ruled that Mr. Donziger and his team couldn't profit from the award anywhere in the world or try to enforce it in the U.S.

Mr. Donziger has denied the allegations of wrongdoing.

Legal experts say the outcome of the appeal could clarify the scope of the federal anti-racketeering law Chevron used to sue Mr. Donziger.

In the past, the Racketeer Influenced and Corrupt Organizations Act, or RICO, has more typically been invoked to bring down mafia bosses and gang leaders in criminal cases. One of the central issues on appeal is whether private parties such as Chevron can use RICO to obtain remedies other than monetary damages – such as the judicial order from Judge Kaplan.

"The appeal will help redefine the use of the RICO statute," said Manuel Gomez, an associate professor at the Florida International University College of Law who has followed the case. "It's being used as a tool to achieve something that was not the original purpose of the statute."

The appeal is another twist in a complex legal battle that has played out for decades across countries and continents. The fight stems from oil drilling by Texaco Inc., which in the 1960s joined with the Ecuadorean government in a production agreement that local farmers say polluted wide swaths of the Amazon rain forest. Residents living in Lago Agrio, a village in northeastern Ecuador, said they were sickened by the pollution, and Mr. Donziger filed a lawsuit on their behalf against Texaco in 1993. Chevron inherited the suit when it acquired Texaco in 2001.

That lawsuit resulted years later in a massive $19 billion judgment that was ultimately affirmed but scaled back by an Ecuadorean high court to $9.5 billion. Because Chevron has denied liability for the environmental damage and has refused to pay, Mr. Donziger and his team have tried to enforce the judgment by going after Chevron's assets around the world. Those efforts will continue in countries such as Brazil and Canada regardless of the outcome in the New York appeal, Mr. Donziger's team says.

However, a win for Chevron in the appeal would bolster the company's efforts to shield its assets from seizure, including in foreign jurisdictions outside the U.S., and potentially set a framework for how multinational companies can use RICO as a weapon to battle similar lawsuits in the future, legal experts say. It may also prompt plaintiffs to think twice before suing a big company for environmental or other damage, they say.

"Chevron has demonstrated that it's going to fight tooth and nail every place it can, so that might have some deterrent effect," said Andrea Bjorklund, a professor at McGill University's law school who specializes in international litigation.

Another legal battle is playing out in an international tribunal under The Hague, where Chevron has accused Ecuador of violating its obligations under a U.S.-Ecuador investment treaty by denying Chevron a fair trial. An arbitration hearing will be held Monday in Washington, D.C., the same day as the oral arguments for the appeal in New York.

Mr. Donziger's appellate lawyer, Deepak Gupta of Gupta Beck PLLC, called Judge Kaplan's decision an example of "American judicial imperialism," saying his ruling to block collection of the judgment overstepped his authority. If the appeals court upholds Judge Kaplan's decision, that could encourage "anyone who loses a case anywhere...to come to New York and seek a do-over," Mr. Gupta said.

"This appeal raises profound questions about whether U.S. courts should be sitting in judgment of foreign court systems," he said.

But Theodore Olson of Gibson Dunn & Crutcher LLP, who is arguing for Chevron in the appeal, says Monday's argument is about whether Mr. Donziger and his team should be allowed to profit from an award that Judge Kaplan has ruled was fraudulently obtained. "You cannot commit a crime and then profit from it," Mr. Olson said.

Mr. Olson wrote in his brief that Judge Kaplan's ruling was within his discretion as a district court judge, saying that without this injunction, Chevron would continue to suffer injuries in the form of high legal fees and harm to its reputation.

After a six-week trial in Manhattan federal court in 2013, which included evidence taken from Mr. Donziger's personal diary and outtakes from a documentary featuring Mr. Donziger, Judge Kaplan concluded that Mr. Donziger and his team fabricated evidence, bribed an Ecuadorean judge to rule in their favor and ghostwrote much of the final verdict in the Ecuadorean trial. In his decision, Judge Kaplan said Mr. Donziger's tactics were "things that normally come only out of Hollywood."

Because of the complexity of the case, lawyers on both sides predict a decision in the appeal could take at least a few months.