Chevron’s Pollution Victory Opens Door for Companies to Shirk Foreign Verdicts

(Bloomberg) -- Chevron wasn't the only winner in Monday's ruling by a federal appeals court over its long-running Ecuadorian pollution litigation. The victory, in which the court affirmed that a lawyer for victims engaged in wrongdoing to secure a $9.5 billion verdict in the South American country, may benefit other corporations seeking to avoid enforcement of foreign judgments they contend are based on corrupt proceedings.

Or, if you're an anti-corporate activist, you can put it this way: “The decision hands well-heeled corporations a template for avoiding legal accountability anywhere in the world.” That's the assessment of Deepak Gupta, the lawyer for Steven Donziger, the controversial New York attorney who's been battling Chevron over pollution liability in Ecuador for decades.

Whichever take one prefers—resisting corruption or avoiding accountability—yesterday's ruling said that an American corporation hit with a big-ticket judgment abroad can come home to the U.S. and use the Racketeer Influenced and Corrupt Organizations Act (RICO) as a weapon to go after the lawyers on the other side of the aisle.

Before elaborating on what might be called the RICO Defense, let's back up. This case began with pollution in oil fields operated by Texaco Inc. in the rain forests of Ecuador in the 1970s and 1980s. In 1993, Donziger and other U.S. lawyers sued Texaco in New York on behalf of villagers and indigenous tribe members. Chevron acquired Texaco and its potential liabilities in 2001. The pollution case was dismissed by U.S. courts and restarted in Ecuador in 2003.

Chevron argued that whatever contamination might have remained wasn't its responsibility to clean up. Eight years later, in 2011, an Ecuadorian trial court disagreed, imposing a $19 billion judgment against Chevron; higher Ecuadorian courts upheld the liability finding but halved the damages to $9.5 billion. 

Chevron refused to pay, claiming Donziger had obtained the Ecuadorian judgment by means of fabricated evidence, coercion, and bribery. Because the company had no assets in Ecuador, there was no way for Donziger's clients to enforce their judgment there. The natural next move might have been to seek justice in the U.S., but Chevron turned the tables on Donziger by filing a RICO lawsuit against the lawyer and his clients in Manhattan federal court.

The racketeering suit led to a 2014 judgment holding that Donziger transformed what began as a pollution-liability lawsuit into a corrupt enterprise relying on bribes of an ostensibly neutral court official and ghostwritten court documents, among many other instances of corruption. It was that 2014 RICO verdict that a three-judge panel of the U.S. Court of Appeals in New York upheld on Monday.

In a technical-sounding portion of that ruling, U.S. Circuit Judge Amalya Kearse wrote that a private party, such as a corporation, may sue under the RICO law in hopes of obtaining only a judicial order, or injunction. Whether RICO provides such a remedy had been disputed, and other federal appeals courts had split over the question. The U.S. Supreme Court has never resolved the matter.

Chevron sought an injunction barring enforcement of the $9.5 billion Ecuadorian judgment. The company did not seek money damages from Donziger and his clients, at least in part because that would have required the RICO case be tried to a jury. And a jury might have had more sympathy with the lone lawyer and his impoverished clients facing off against an enormous corporation.

Interpreting RICO as authorizing a company to seek an injunction in this manner “is consistent with Congress's intent to encourage civil litigation to supplement government efforts to deter and penalize” illegal activity prohibited by RICO, Kearse wrote. “The object of civil RICO is thus not merely to compensate victims but to turn them into prosecutors,” or “private attorneys general.”

The injunction that the federal appeals court upheld said that Donziger and his clients couldn't enforce their tainted judgment in the U.S., and couldn't profit from it anywhere in the world. It seems entirely likely that other corporations that find themselves in similar straits will emulate Chevron and its RICO defense.

A couple of caveats: Donziger, who denies wrongdoing, could still appeal to the U.S. Supreme Court and seek to get yesterday's ruling on RICO reversed. The existence of a lower-court conflict over the RICO-injunction question would argue for Supreme Court intervention. The heft and idiosyncrasy of the 23-year- old record in the Ecuadorian pollution case might encourage the justices to seek another case to use as a vehicle to clarify RICO.

Regardless of what happens in the U.S., Donziger has vowed to seek enforcement of the Ecuadorian judgment in third countries, such as Canada, where Chevron subsidiaries have ample assets and proceedings are scheduled for next month. The Ecuadorian plaintiffs will urge the Canadian courts to respect Ecuador's judicial actions. Chevron will point instead to the U.S. federal courts and their determination that Donziger is a racketeer, with his seeming victory in Ecuador a nullity.

Other companies that do business globally and find themselves hauled before foreign courts will be watching closely.

To contact the author of this story: Paul Barrett in New York at pbarrett17@bloomberg.net.

To contact the editor responsible for this story: David Rovella at drovella@bloomberg.net.