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In 1964, the Republic of Ecuador ("ROE") granted to a joint venture a concession to explore for and produce oil in the Oriente (the "Concession"). Half (50%) of the joint venture was owned by TexPet, a Texaco subsidiary, who was the operator of the Concession until the early 1990s. In the 1970s, PetroEcuador, Ecuador's state-owned oil company acquired a majority interest in the joint venture. In 1989, PetroEcuador took over operation of the Trans-Ecuador Pipeline, while in 1990, it took over operation of the Concession drilling operations as well. In 1992, the Concession expired. TexPet's interest in the joint venture reverted to PetroEcuador, who became the sole owner and operator of the venture.

In 1993, TexPet and Texaco entered into a Memorandum of Understanding ("MOU") with the ROE that provided that TexPet would be released from any potential claim for environmental harm once TexPet performed and agreed-upon remediation in the area in which it had operated. The Settlement Agreement and Scope of Work agreement (the "Settlement Agreement") that the parties executed in 1995, laid out specific tasks TexPet was required to complete before its remediation and wind down were complete. According to the Settlement Agreement once the tasks were completed TexPet would be entitled to a release. ROE issued 52 Certificates confirming that TexPet had complied with its obligations under the Settlement Agreement, and a final release was signed on September 30, 1998. Chevron acquired Texaco's stock in 2001.

In 1993, a group of Oriente residents, represented by New York City lawyer Steven Donziger ("Donziger"), among others, commenced a class action against Texaco in the Southern District of New York. They sought billions of dollars in damages, as well as certain equitable relief within Ecuador, for alleged environmental damage in Ecuador and injury to the health of the plaintiffs, thus beginning a lengthy litigation.

In 2003, the Lago Agrio Plaintiffs (the "Lago Agrio Plaintiffs" or "LAPs")--Camacho, Piaguaje, and 46 other named plaintiffs residing in or near Lago Agrio--represented by the Donziger Firm, sued Chevron in Ecuador, seeking to hold it responsible for extensive environmental damage allegedly caused by Texaco in the area covered by the Concession (the "Lago Agrio Litigation" or "Lago Agrio Chevron case"). The beneficiaries of this action were 30,000 indigenous residents of the area. The complaint requested that any money awarded for performance of the requested remediation--plus an additional 10%--be paid to the Frente de la Defensa de la Amazonia ("ADF") for its use in performing ordered remediation. The ADF was formed and controlled by Donziger and Luis Yanza to support the Aguinda litigation.

In February 2011, the trial court in Ecuador entered a judgment in favor of the LAPs. The court awarded LAPs $8.646 billion in compensatory damages and $8.646 billion in punitive damages unless Chevron issued an apology. The punitive damages were eliminated on appeal, leaving the judgment against Chevron, as modified, at $8.646 billion (the Ecuadorian Judgment).

In 2011, Chevron commenced the present action against Donziger, his Firm, and the named Lago Agrio Plaintiffs, including Camacho and Piaguaje ("LAP Representatives"). In its complaint Chevron alleged that the LAPs procured the Lago Agrio Judgment by a variety of unethical, corrupt, and illegal means, including: making secret payments to industry experts who would submit pro-LAPs opinions to the court while pretending to be neutral; announcing multi-billion-dollar remediation cost estimates while knowing them to be without scientific basis; persuading an expert to sign blank pages that were then submitted to the court with opinions he did not authorize; employing extortion to coerce an Ecuadorian judge to curtail inspections of alleged contamination sites after the experts began to find pro-Chevron conditions at other such sites; using the same extortionate means to coerce that judge to appoint, as a supposedly neutral expert court adviser, an expert who was bribed to submit--as his own opinion--a report written by the LAPs; and providing ex parte to another judge--or to whoever wrote the $17.292 billion Lago Agrio Judgment--material that is not part of the record for inclusion in that judgment.

After a bench trial, the district court entered a judgment enjoining defendants-appellants from seeking to enforce the Ecuadorian Judgment in any court in the United States; and imposing a constructive trust for Chevron's benefit on any property defendants-appellants have received or may receive anywhere in the world that is traceable to the Ecuadorian Judgment or its enforcement, based on the court's findings that the Ecuadorian Judgment was procured through, inter alia, defendants' bribery, coercion, and fraud, warranting relief against Donziger and his Firm under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. [section][section] 1961-1968, and against all defendants-appellants under New York common law. Defendants-appellants appealed.

The United States Court of Appeals for the Second Circuit affirms district court's decision.

One of the arguments Donziger and the LAP Representatives presented in the appeal was that the district court's judgment against them was foreclosed by this Court's ruling in Chevron v. Naranjo, 667 F.3d 232. The Court disagreed.

"The Recognition Act [...] governs the '[r] ecognition and enforcement' of foreign money judgments. See N.Y. C.P.L.R. [section] 5303. Subject to several exceptions, it provides that a foreign country judgment 'is conclusive between the parties to the extent that it grants or denies recovery of a sum of money, 'id., and declares such judgments to be enforceable by several means, see id."

"Chevron's Amended Complaint asserted, inter alia, RICO claims against Donziger, his Firm, Fajardo, and Yanza, and asserted common-law claims against all defendants, including claims of fraud and unjust enrichment. In Count 9 of the Amended Complaint, Chevron sought, under the Recognition Act, a declaratory judgment that the Lago Agrio Judgment was invalid and an injunction against any attempt by the ADF (which is controlled by Donziger and Yanza) or the LAPs to enforce that judgment anywhere in the world, 'argu[ing] that the Ecuadorian judiciary [wa]s so captured by political interests as to be incapable of producing a judgment that the New York courts can enforce.' Naranjo, 667 F.3d at 238. The district court granted Chevron's motion for a preliminary injunction on that basis, and it severed the Count 9 claim from Chevron's other claims in order to expedite trial as to the validity of the Ecuadorian judgment."

"In Naranjo--the appeal from the preliminary injunction--we vacated the injunction on the ground that the Recognition Act, while allowing certain defenses against an attempt to enforce a foreign judgment, did not authorize a judgment debtor to attack a foreign judgment affirmatively:

Whatever the merits of Chevron's complaints about the Ecuadorian courts, ... the procedural device it has chosen to present those claims is simply unavailable: The Recognition Act nowhere authorizes a court to declare a foreign judgment unenforceable on the preemptive suit of a putative judgment debtor. The structure of the Act is clear. The sections on which Chevron relies provide exceptions from the circumstances in which a holder of a foreign judgment can obtain enforcement of that judgment in New York; they do not create an affirmative cause of action to declare foreign judgments void and enjoin their enforcement.

Id. at 240 (emphases added)."

"Nothing in the language, history, or purposes of the Act suggests that it creates causes of action by which disappointed litigants in foreign cases can ask a New York court to restrain efforts to enforce those foreign judgments against them, or to preempt the courts of other countries from making their own decisions about the enforceability of such judgments.

Id. at 243 (emphasis added); see also id. at 242 ('There is thus no legal basis for the injunction that Chevron seeks, and, on these facts, there will be no such basis until judgment-creditors affirmatively seek to enforce their judgment in a court governed by New York or similar law.' (emphasis added))."

"Our Naranjo opinion also expressed concerns that if the Recognition Act were interpreted to authorize an injunction against enforcement of a foreign judgment anywhere in the world, it would implicate principles of international comity. See id. at 242-44. We concluded, however, that 'New York undertook to act as a responsible participant in an international system of justice--not to set up its courts as a transnational arbiter to dictate to the entire world which judgments are entitled to respect and which countries' courts are to be treated as international pariahs. Id. at 242. Thus, we stated that:

[w]e need not address here whether and how international comity concerns would affect a hypothetical effort by a state to vest its courts with the authority to issue so radical an injunction. There is no such statutory authorization, for New York has authorized no such relief. To resolve the dispute before us, we need only address whether the statutory scheme announced by New York's Recognition Act allows the district court to declare the Ecuadorian judgment non-recognizable, or to enjoin plaintiffs from seeking to enforce that judgment. Because we find that it does not, the injunction collapses before we reach issues of international comity.

Id. at 244 (emphases added)."

"In light of our interpretation of the Recognition Act and of the fact that there had been no attempt to enforce the Lago Agrio Judgment in New York, there was 'nothing further to be addressed on remand with respect to the severed claim.' Naranjo, 667 F.3d at 239 n.11. We thus remanded Count 9 to the district court with instructions to dismiss Chevron's claim for declaratory and injunctive relief under the Recognition Act. See id. at 247."

"In sum, the Naranjo decision held simply that 'the Recognition Act does not authorize a court to declare a foreign judgment null and void for all purposes in all countries, or to issue injunctions preventing parties to foreign litigation from acting abroad to present issues to foreign courts.' Id. at 245 (emphases added). Other arguments were 'either rendered moot by [that] disposition ... or ... pertain[ed] to litigation that [wa]s not properly before us.' Id. at 246. We 'express[ed] no views on the merits of the parties' various charges and countercharges regarding the Ecuadorian legal system and their adversaries' conduct of this litigation, which may be addressed as relevant in other litigation before the district court or elsewhere.' Id. at 247 n.17."

The Court concluded that "[...] Naranjo did not foreclose consideration of the validity of Chevron's remaining claims under RICO and New York common law or of the appropriateness of relief other than a declaratory judgment under the Recognition Act or a global injunction against enforcement of the Lago Agrio Judgment."

Upon considering all of the arguments of Donziger and the LAP Representatives on this appeal the Court found in them no basis for dismissal or reversal. The Court thus affirmed the judgment of the district court.

CITATION: Chevron Corporation v. Donziger, 833 F.3d 74 (2nd Cir. 2016).
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Publication:International Law Update
Date:Oct 1, 2016

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