Legislation

Chevron's RICO Victory Provides a Model for Other Companies


Protesters demonstrating against Chevron in front of a U.S. courthouse in New York

Photograph by Spencer Platt/Getty Images

Protesters demonstrating against Chevron in front of a U.S. courthouse in New York

For several years, corporate defense lawyers and lobbyists have watched Chevron’s (CVX) experiment with using the federal anti-racketeering statute as an aggressive response to mass-liability lawsuits. Now the results are in—a major victory for the oil company in federal court in New York—and business advocates predict other corporations will follow suit.

U.S. District Judge Lewis Kaplan ruled on Tuesday that a multibillion pollution judgment against Chevron in 2011 by a rainforest court in Ecuador was obtained by means of fabricated evidence, bribery, and other acts violating the Racketeer Influenced and Corrupt Organizations Act (RICO). Kaplan named Steven Donziger, a New York plaintiffs’ lawyer, as the mastermind of a legal campaign that began in 1993 and over two decades evolved into an elaborate shakedown scheme.

The judge barred Donziger and his clients—thousands of poor farmers and indigenous tribe members—from profiting from their ill-gotten Ecuadorian verdict. “Even if Donziger and his clients had a just cause—and the court expresses no opinion on that—they were not entitled to corrupt the process to achieve their goal,” Kaplan wrote in a mammoth 485-page opinion featuring 1,842 footnotes. “Justice is not served by inflicting injustice.”

“Those of us who have followed the case can’t say we’re surprised,” says Darren McKinney, a spokesman for the American Tort Reform Association, a corporate-funded lobbying group in Washington. “We hope it will encourage other defendant companies that have been victimized by fraudulent lawsuits to fight back with RICO suits of their own.”

McKinney and other corporate advocates are urging their constituent companies to take matters into their hands. “Since state bar associations, state attorneys general, and the Department of Justice appear to have little interest in punishing those who perpetrate brazen fraud on our civil courts,” he says, “private-sector companies … are bravely forging a new path, using the RICO statute to pursue just punishment themselves.” He compared the Chevron litigation to separate cases pursued by the railroad CSX (CSX), performance producer Feld Entertainment, and by gasket manufacturer Garlock Sealing Technologies (NPO), all of which have employed variations of the counter-punching strategy used by the oil giant.

The approach of accusing victims’ attorneys of being fraudsters has been honed with particular energy by Los Angeles-based law firm Gibson, Dunn & Crutcher, Chevron’s main outside counsel. Gibson Dunn had success several years ago using similar methods to negate multibillion-dollar pesticide liabilities Dole Food faced in Nicaragua. On its website, the law firm markets its approach as “not just a series of defensive tactics, but rather an affirmative strategy to ultimately end the litigation” against corporate defendants.

In the Chevron case, Gibson Dunn began investigating Donziger long before he won a 2011 verdict in Ecuador holding the oil company responsible for contamination of a large swath of jungle. The Ecuadorian trial court initially imposed a judgment of $19 billion, the largest-ever of its kind. Once Chevron’s attempt to nullify the judgment was well underway, Ecuador’s Supreme Court upheld the finding of liability but halved the damages amount to $9.5 billion. Chevron said all along it wouldn’t pay a dime, and because it lacks any assets to speak of in Ecuador, the plaintiffs have tried to enforce the judgment in third countries where the oil company does have investments, including Canada, Argentina, and Brazil.

Anticipating a defeat in Ecuador, Chevron counter-sued Donziger in federal court in New York in February 2011. Kaplan’s ruling was the culmination of that countersuit. While the judge identified a range of dishonest methods Donziger used to vanquish Chevron in Ecuador, Kaplan seemed most determined to underscore that the American lawyer authorized a plan that allegedly promised $500,000 from a potential plaintiffs’ judgment as a kickback to the Ecuadorian trial judge, Nicolas Zambrano. As part of that arrangement, Zambrano agreed to allow the plaintiffs’ legal team to ghostwrite his ruling against Chevron, Kaplan said. In a foreshadowing of sorts, Donziger had earlier arranged for his paid American scientific consultants to draft a supposedly neutral report by a court-appointed “independent” Ecuadorian technical expert, Kaplan also concluded.

Donziger has denied wrongdoing and vowed to appeal. “This is an appalling decision resulting from a deeply flawed proceeding that overturns a unanimous ruling by Ecuador’s Supreme Court,” he said in an e-mailed statement. “We believe Judge Kaplan is wrong on the law and wrong on the facts and that he repeatedly let his implacable hostility toward me, my Ecuadorian clients, and their country infect his view of the case.”

The sheer volume of Kaplan’s opinion and its extraordinary factual specificity seemed designed, at least in part, to preempt just such a claim by Donziger that the judge bears improper personal animus toward the plaintiffs’ attorney or the Ecuadorians he represents.

Donziger predicted that Kaplan’s ruling won’t influence judiciaries in Canada and other third-party countries in which the Ecuadorians are seeking enforcement of the 2011 judgment. Chevron is betting otherwise. The company plans without delay to translate and export Kaplan’s decision to courtrooms north and south. During a press conference on March 4, Chevron General Counsel, R. Hewitt Pate, said: “No judge in any country that respects the rule of law will now entertain enforcement of this judgment.”

Barrett_190
Barrett is an assistant managing editor and senior writer at Bloomberg Businessweek. His new book, Law of the Jungle, which tells the story of the Chevron oil pollution case in Ecuador, will be published by Crown in September 2014.

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Companies Mentioned

  • CVX
    (Chevron Corp)
    • $127.93 USD
    • 0.44
    • 0.34%
  • CSX
    (CSX Corp)
    • $30.63 USD
    • -0.24
    • -0.78%
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