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For a decade, Chevron (CVX) has been embroiled in an epic legal battle in Ecuador over allegations that the country was used as a dumping ground for billions of gallons of toxic drilling waste. In February the plaintiffs, some 30,000 Amazon Indians and peasant farmers, won an $18.2 billion verdict in a provincial Ecuadorean court. Chevron called the case tainted by fraud and vowed to get the verdict nullified.
Six months later the company has made impressive progress toward doing just that. Lawyers for Chevron, the third-largest U.S. corporation in revenues behind Wal-Mart Stores (WMT) and ExxonMobil (XOM), have persuaded a federal judge in New York essentially to put the Ecuadorean court system on trial for corruption. The company is seeking a far-reaching order that would block the plaintiffs from collecting on their judgment in the U.S.—or anywhere else.
The prospect of establishing a U.S. precedent for extinguishing hostile foreign court verdicts has electrified corporate lawyers and their clients. A coterie of business groups in Washington has weighed in with friend-of-the-court briefs supporting Chevron. The U.S. Chamber of Commerce, the Business Roundtable, the National Association of Manufacturers, and the National Foreign Trade Council argue that the oil company was the victim of crooked proceedings in Ecuador. In their own joint brief, Dole Food (DOLE), Royal Dutch Shell (RDS/A) and Dow Chemical (DOW) say they, too, have been hit repeatedly by mass injury suits abroad.
A Chevron victory could become a powerful tool in fending off judgments in such cases. “Vigilance in ensuring that foreign judgments are rendered in systems that provide due process and impartial tribunals is a matter of growing importance in a world where international commerce will, with increasing frequency, be affected by foreign judgments,” the companies contend.
Environmentalists and the government of Ecuador are siding with the plaintiffs. They argue that Judge Lewis A. Kaplan, who was appointed to the bench by President Clinton in 1994, lacks the authority to issue a worldwide order blocking enforcement of the verdict. In court filings, Ecuador’s American law firm, Winston & Strawn, asserts that “Judge Kaplan’s gratuitous belittlement of the Republic [of Ecuador]’s judicial system is a wholesale condemnation of the judicial systems of the entire Latin American region.”
At the heart of Chevron’s legal predicament is a massive case of buyer’s remorse. The company fought for more than eight years to get the pollution suit moved to Ecuador, believing it would be more likely to prevail there than in the U.S. When it became clear that it would lose in Ecuador, Chevron came back to U.S. courts seeking to undermine the Ecuadorean proceedings. The oil and gas producer maintains that it cleaned up any pollution for which it was responsible and that it has been unfairly targeted.
The lawsuit began back in 1993 when attorneys representing the plaintiffs sued Texaco in federal court in New York, alleging the company had dumped billions of gallons of dangerous drilling fluids into rainforest streams and rivers while extracting oil from the Amazon from 1972 through 1990. Texaco denied wrongdoing and persuaded the New York court to dismiss the case, arguing that it would be more appropriate to try it in Ecuador. In 2001, Chevron acquired Texaco, and with it the pollution case. Two years later the plaintiffs refiled the suit in Ecuador, this time naming Chevron as the defendant, even though Chevron didn’t have operations in Ecuador—and still doesn’t.
Years of protracted hearings overseen by a series of Ecuadorean judges culminated on Feb. 14 in the $18.2 billion judgment against Chevron. Two weeks before the verdict, however, Chevron launched a preemptive counterattack in federal court in New York, alleging in a separate civil suit that American and Ecuadorean plaintiffs’ attorneys, along with Ecuadorean judges and government officials, illegally conspired against the company. Chevron claimed its adversaries falsified evidence, intimidated judges, and even ghostwrote parts of the judicial opinion underlying the multibillion-dollar award. Judge Kaplan issued a temporary order in February forbidding enforcement of the Ecuadorean verdict. He has scheduled a nonjury trial for November on whether Chevron received a fair trial in Ecuador.
Kaplan has signaled strongly where his sympathies lie. He doesn’t disguise his disdain for the lead plaintiffs’ attorney, Steven R. Donziger, whom Chevron has portrayed as greedy and dishonest. During one hearing, Kaplan mused disapprovingly about American attorneys who travel abroad to represent foreign clients suing U.S. companies. “The imagination of American lawyers is just without parallel in the world,” the judge said from the bench. “It’s a sad pass. But that’s where we are, and Mr. Donziger is trying to become the Next Big Thing in fixing the balance of payments deficit. I got it from the beginning.”
On another occasion, Kaplan suggested from the bench that the suit against Chevron was nothing more than a cynical con. “The object of the whole game, according to Donziger, is to make this so uncomfortable and so unpleasant for Chevron that they’ll write a check and be done with it,” Kaplan said. “Put a lot of pressure on the [Ecuadorean] courts to feed them a record in part false for the purpose of getting a big judgment or threatening a big judgment, which conceivably might be enforceable in the U.S. or in Britain or some other such place, in order to persuade Chevron to come up with some money. Now do the phrases Hobbs Act, extortion, RICO have any bearing here?” Chevron subsequently filed civil claims under RICO, the federal Racketeer Influenced and Corrupt Organizations Act, against Donziger and his clients, which are pending. Donziger has denied wrongdoing.
The plaintiffs have asked the federal appeals court in New York to restrain Kaplan—or even remove him from the case. Kaplan, a former partner at the New York corporate law firm Paul, Weiss, Rifkind, Wharton & Garrison who specialized in antitrust and securities cases, has declined to step down, saying that his conduct and comments do not reflect any bias. Chevron and its corporate allies have urged the appellate court to let Kaplan move ahead. The case, the U.S. Chamber of Commerce argues in its brief, “is necessary to prevent vexatious litigation in foreign forums.” The way Chevron’s Ecuadorean adversaries see it, that’s precisely what’s happening to them.
The bottom line: If Chevron prevails, it could establish a precedent for other U.S. corporations looking to nullify verdicts handed down by foreign courts.