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September 19, 2011 7:16 PM

The Global Lawyer: Chevron's Ecuador Case Veers Off Script at Second Circuit

Posted by Michael D. Goldhaber

A federal appeals court on Monday reversed Southern District judge Lewis Kaplan's preliminary injunction blocking worldwide enforcement of an $18 billion environmental judgment in Ecuador, according to sibling publication the New York Law Journal.

The reversal came just three days after the U.S. Court of Appeals for the Second Circuit heard oral arguments in the case, with counsel for Chevron urging that Judge Kaplan's March injunction remain in place because the Ecuadorian judgment had been procured by a fraud. In its Monday ruling, a three-judge Second Circuit panel vacated the injunction and derailed a November trial on whether to make it permanent, the NYLJ reports.

The Second Circuit decision ( available here) won't come as a total shock for at least some of those on hand for Friday's hearing, American Lawyer senior international correspondent Michael D. Goldhaber among them. Goldhaber filed the following column late Friday.

Since entering the New York courtroom of federal district court judge Lewis Kaplan, Chevron has mostly controlled the narrative of its epic Amazon saga. But on Friday, when the Second Circuit U.S. Court of Appeals held a hearing to review Judge Kaplan's March injunction stopping enforcement of the plaintiffs' $18 billion Ecuadorian judgment against Chevron for polluting the Lago Agrio region, the narrative veered from Chevron's (and Judge Kaplan's) script.

John Keker, who represents embattled plaintiffs lawyer Steven Donziger, colorfully warned that Judge Kaplan is marching toward a November 14 "show trial" on the issue of "whether Ecuador stinks," with the Ecuadorian plaintiffs "tethered to a stick like a goat." Friday's hearing was the goat's last chance to bleat before being tied to the stake during the scheduled trial on the enforceability of the Ecuadorian judgment. Luckily for the goat, it may at last have found a receptive audience in New York.

(For some of my previous coverage of this saga, see here, here, and here.)

The judges surprised everyone by beginning the hearing with ten minutes of argument on the plaintiffs' writ of mandamus to remove Judge Kaplan from this case for showing bias against the plaintiffs. In particular, the plaintiffs point to this remark by Judge Kaplan during a hearing: "The imagination of American lawyers is just without parallel in the world...[We] used to do a lot of other things. Now we cure people and we kill them with interrogatories. 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."

Patton Boggs's James Tyrrell, who appeared for the two Ecuadorian plaintiffs who are the main appellants, argued that these comments showed that Kaplan had already made up his mind that the plaintiffs' U.S. lawyers are playing a game to extort money from Chevron. Chevron's lead lawyer, Randy Mastro of Gibson, Dunn & Crutcher, noted that the Second Circuit has previously called Judge Kaplan's handling of the case exemplary, and dwelled on what he characterized as the overwhelming and substantially uncontroverted evidence of fraud in Ecuador.

It would be highly unusual for the Second Circuit to reassign a judge--especially a judge as generally well-regarded as Judge Kaplan--and for it to remove a judge under a writ of mandamus is almost unheard of, but plaintiffs have placed both options before the court. Although the Second Circuit earlier denied plaintiffs' request for additional briefing on mandamus, the judge's attention to this issue at oral arguments suggests they haven't dismissed it.

Appellate judges Rosemary Pooler, Richard Wesley, and Gerard Lynch spent most of the morning offering the plaintiffs helpful suggestions for positions they might like to take. Most centered on ripeness of issues and subject- matter jurisdiction, which Keker called the judges' "silver bullet."

Judge Lynch in particular questioned again and again the power of a defendant to use New York's Uniform Foreign Country Money-Judgments Recognition Act offensively as the basis for enjoining other enforcement actions around the world--rather than waiting to seek the antisuit injunction as a defense to an actual recognition action brought by the plaintiffs in New York. How would New York courts react, queried Lynch, if a Venezuelan court used Venezuelan law to enjoin a Russian judgment holder from going to New York to enforce it? Should or would New York courts respect it?

Mastro conceded that he knew of no precedent for a defendant to proactively get a foreign antisuit injunction under New York's Recognition Act, as Chevron seeks to do. However, Mastro argued that there is mountainous evidence that the Ecuadorian judgment was procured by fraud, and the act aims to prevent vexatious litigation. He also argued that the Ecuadorian case is unique because, when the Second Circuit dismissed Chevron's predecessor Texaco from an earlier filing under forum non conveniens, the company expressly reserved its defenses under New York's Recognition Act.

On the matter of ripeness, Judge Wesley queried whether the Recognition Act could confer jurisdiction before the Ecuadorian judgment became final. Are U.S. courts simply to presume that Ecuador's appeal process is corrupt? Wouldn't it be a waste of Chevron's money if Ecuador overturned the judgment on the last day of a New York trial?

Mastro argued that if Judge Kaplan's injunction were lifted, Ecuador's intermediate appellate court would issue a final ruling and plaintiffs would seek worldwide enforcement "in a red-hot second." Even now, Mastro said, plaintiffs could seize Chevron assets around Latin America under the Inter-American Convention on the Execution of Preventive Measures. Mastro claimed that plaintiffs were looking for a forum that wouldn't nullify the verdict for fraud, pointing to the so-called Invictus memo by the plaintiffs' lawyers at Patton Boggs. The memo, which explored plaintiffs' enforcement options around the world, informed Judge Kaplan's conclusion that Chevron was in imminent danger of seeing its assets seized.

"I'm proud of the Invictus memo," said Patton Boggs's Tyrrell. Notwithstanding Judge Kaplan's effort to paint the Patton Boggs team as some kind of "Somali pirates," Tyrrell said, "a judgment creditor has the right to seek procedural advantages" consistent with the laws of other countries. Judge Lynch seemed to voice a similar sentiment when he queried whether any plaintiff with a judgment against a multinational might prepare such a strategy memo.

Judge Wesley asked Tyrrell to stipulate that none of the 47 plaintiffs in the Lago Agrio action would seek enforcement until all appeals have run their course. After conferring with the Lago plaintiffs' Ecuadorian lawyer Pablo Fajardo, Tyrrell filed a letter later Friday offering the more limited stipulation that the plaintiffs would not seek enforcement until the intermediate appeal is complete. Tyrrell clarified in an interview that, in plaintiffs' view, the judgment will be enforceable even after the intermediate appeal if Ecuador requires a bond and Chevron does not post one. For this reason among others, the new stipulation is unlikely to satisfy Chevron.

Mastro ended by suggesting that Chevron might later seek a foreign antisuit injunction under its RICO and fraud claims, rather than its declaratory judgment claim, so the Second Circuit can review the issue on a full record. In an aside that must have gladdened the plaintiffs' hearts, Judge Lynch responded that this might leave Judge Kaplan on his own to determine what's appropriate under RICO.

Of course, you can't always presume how judges will rule based on oral arguments. But if their ruling looks anything like their queries on Friday, Chevron's best chance to vitiate the Amazon judgment may not come at a trial in New York--but at the investor-state arbitration filed with the Permanent Court of Arbitration, where Chevron seeks similar declaratory relief against Ecuador.

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