Market News

 June 21, 2017
U.S. Courts Aren't Interested in Chevron's Pollution Case, But Other Nations May Be

 Chevron Corp. won a big victory Monday when the U.S. Supreme Court declined to take up a case that began with an effort to hold the company liable for massive oil pollution in the Ecuadorian Amazon. But the long international war over who's responsible for the degradation of the rainforest is far from over.

Litigation continues in Canada and Brazil. Back in the U.S., the energy giant has asked a federal court to force the lead lawyer for Ecuadorian villagers to pay the company tens of millions of dollar in attorneys' fees. Chevron's legal fee motion can be interpreted as a warning to other plaintiffs' lawyers who might use tactics similar to those employed in the Ecuador case.

To understand this imbroglio, it helps to hear the story chronologically. In 1993, a group of American lawyers sued Texaco in Manhattan federal court over the contamination of a large swath of rainforest in northeast Ecuador. Brought on behalf of poor villagers, the suit was dismissed by U.S. courts and restarted in Ecuador in 2003. (By then, Chevron had acquired Texaco.) In 2011, an Ecuadorian trial court ruled against Chevron and assessed damages, which now stand at $9.5 billion. Chevron, which had no assets in Ecuador, vowed never to pay. The company alleged that any pollution traceable to Texaco had become the responsibility of the Ecuadorian government to clean up---and, in any event, the verdict was tainted by egregious misconduct by the plaintiffs' lawyers, led by Steven Donziger of New York.

In an unusual twist, Chevron sued Donziger in 2011 back in Manhattan, obtaining a U.S. judgment that he'd violated the Racketeer Influenced and Corrupt Organizations Act (RICO) by turning the Ecuadorian suit into the equivalent of an extortion scheme. Last year, a federal appeals court upheld that finding and said Donziger engaged in coercion, fraud, and bribery---allegations he continues to deny. On Monday, the U.S. Supreme Court refused to hear Donziger's appeal, making it impossible for him to seek to enforce the $9.5 billion Ecuadorian judgment in the U.S.

Undeterred, lawyers allied with Donziger have launched separate enforcement actions in other countries where Chevron has assets. In Canada, a judge ruled in January that the Ecuadorian villagers couldn't seize and sell off Chevron's Canadian facilities to satisfy the judgment. The judge reasoned that Chevron's Canadian subsidiary wasn't the defendant in Ecuador and is legally separate from the parent corporation that was.

Donziger said via email that his side expects to win an appeal in Canada to be argued this fall. Chevron, he added, "has a strategy to tie us up in procedural knots so the trial happens as far down the road as possible."

The plaintiffs have also sought to enforce the Ecuadorian judgment in Argentina and Brazil. In a statement, Chevron emphasized that public prosecutors in both countries have urged their respective courts not to recognize the Ecuadorian judgment. Donziger said that his side is pressing ahead in Brazil, but that "Argentina is in a state of abeyance for various reasons."

Finally, there's the question of attorneys' fees. Under the RICO act, a victorious plaintiff---Chevron, in this instance---may seek reimbursement for its legal expenses from a vanquished defendant. Chevron has asked the U.S. trial judge to order Donziger to turn over more than $32 million to cover the company's expenses in the RICO case. In a filing yesterday, Chevron's lead trial lawyer, Randy Mastro, said that in light of the Supreme Court's decision to stay out of the case, U.S. District Judge Lewis Kaplan ought to go ahead and decide the fee issue in the company's favor.

Donziger countered that because Chevron's racketeering suit against him didn't seek money damages and was decided by a judge, rather than a jury, the company has "no legal basis under RICO to collect such fees." He added: "I fully expect to prevail on this issue."

For his part, Chevron Vice President and General Counsel, R. Hewitt Pate said in a statement that the Supreme Court's refraining from reviewing the case constituted "an important step toward bringing this illegal scheme to a final conclusion."

A step, yes, but a true conclusion remains elusive.