On Feb. 14 the Ecuadorian court hearing the epic Amazon pollution litigation against Chevron Corporation rendered a judgment of $18 billion, counting penalties. It was a huge win for the indigenous plaintiffs, but Chevron had already laid the groundwork for a series of defense moves designed to make the victory Pyrrhic.
In the two weeks before the judgment, Chevron raised claims of civil racketeering against the plaintiffs and their lawyers and convinced Manhattan federal district court judge Lewis Kaplan to restrain them from enforcing an Ecuador judgment. While it was making these tactical maneuvers in federal court, Chevron at the same time prevailed on international arbitrators to order Ecuador not to advance enforcement.
FULL COVERAGE: Chevron in Ecuador
Clearly, Chevron is using RICO to stigmatize its foes and publicize its story. The RICO case also asks for damages that the arbitration does not. By alleging a conspiracy in the form of a litigation, Chevron can ask for triple its litigation costs, which must come to hundreds of millions of dollars. Even if the RICO complaint is untested, and the judge prioritizes declaratory relief, the theoretical availability of such damages against the named defendants (and the co-conspirators who might later be named as defendants) puts pressure on Chevron’s foes.
For now, at least, the RICO case has the additional advantage of being heard by Judge Kaplan, who has taken Chevron’s fraud allegations seriously. Indeed, Chevron concludes its complaint by quoting Judge Kaplan back to himself: “Now, do the phrases Hobbs Act, extortion, RICO, have any bearing here?” This is encouraging for Chevron, but Judge Kaplan’s candid comments invite challenges to his impartiality. In fact, John Keker, who represents plaintiffs lawyer Steven Donziger in the RICO action, has suggested he may seek Judge Kaplan’s recusal.
The legitimacy of U.S. judges–and their power to issue broad declaratory relief–is more firmly established than that of international arbitrators, although there is at least one recent precedent for arbitrators enjoining a court case. Here, in the Chevron litigation, the arbitrators rode in the federal court’s slipstream by issuing interim orders the morning after Judge Kaplan’s restraining order (even though the arbitrators held their emergency hearing first).
Having said all that, only the arbitrators have power over Ecuador, because Ecuador signed an investment treaty that empowers them. That fact could become crucial if the Ecuadorian lawyers defy Judge Kaplan. In a teleconference with journalists on February 15, Ecuadorian plaintiffs’ lawyers Pablo Fajardo and Juan Pablo Saenz said that they do not consider themselves bound by Judge Kaplan’s orders, and that they can obtain new lawyers and financiers who are not bound by Judge Kaplan’s orders in any country where they seek to enforce the judgment.
In the end, treaty arbitration is Chevron’s ace in the hole. One remedy that Chevron seeks in arbitration but not the RICO case (where Ecuador is not a party) is an order that Ecuador indemnify Chevron for any damages that plaintiffs collect. Now that an Ecuadorian court has issued its judgment, Chevron can reframe its case as a denial of justice. Roger Alford of Pepperdine University School of Law predicted long ago that the Chevron litigation might end in “who pays” arbitration. He may yet be right.
This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.
WATCH OUR EXCLUSIVE RELEASE OF THE CHEVRON TAPES:
VIDEO I: Planning for the Expert’s Report
VIDEO II: The Morning After
VIDEO III: A Message to the Court: Don’t F— with Us
VIDEO V: ‘Smoke and Mirrors and Bulls—’
VIDEO VI: A Vision of the Future
VIDEO I: ‘Killing the Judge?’
VIDEO II: ‘It’s Dirty … It’s Necessary’
VIDEO III: ‘They’re All Corrupt!’
VIDEO IV: ‘Brute Force’
VIDEO V: Calling for Heads to Roll