Show Them the Assets

Michael D. Goldhaber

Corporate Counsel

2013-01-01 00:00:00.0

The case against Chevron Corporation in Ecuador has already remade the U.S. law of discovery in aid of foreign suits. As the tribespeople who won a multibillion-dollar verdict open ever more enforcement fronts, the world's most intensely litigated case promises also to revamp the law on collecting foreign judgments.

Following their first enforcement efforts in Canada and Brazil, the plaintiffs moved in August against residual assets in their home country of Ecuador. In November they obtained an initial order freezing Chevron's assets in Argentina. (Two days later Chevron's Argentine subsidiaries appealed the decision on the basis of jurisdiction, fraud, and misapplication of law.) At press time the plaintiffs were planning a similar move in Colombia. So far, they say, they've targeted assets worth more than half of the $19 billion judgment in Ecuador. More actions are being weighed in Europe, Asia, and Australasia.

The plaintiffs have had no trouble hiring top-shelf lawyers despite international arbitrators ordering Ecuador not to finalize its opinion, and the conclusion of U.S. District Judge Lewis Kaplan in Manhattan that there is substantial evidence of fraud by the plaintiffs.

The plaintiffs' Argentine lawyer, Enrique Bruchou, says that his enforcement action aims to send foreign investors a signal that they cannot apply different environmental standards at home and in vulnerable communities overseas. Bruchou argues that Argentine and Colombian judges will act swiftly under the 1979 Inter-American Conventions on Execution of Preventive Measures and Extraterritorial Validity of Foreign Judgments. He suggests that Chevron can only challenge the attachments in Ecuadorian court, and responded sarcastically to a question about Chevron's recourse.

"As to the rights of defense," Bruchou says, "I believe they've had the right to defend for 20 years now."

An independent expert consulted by The Global Lawyer, Alejandro Garro of Columbia Law School, says that these treaties have been very seldom used, but the attachments could be appealed in Argentina and Colombia, and the argument of fraud should always be available. Garro also opines that the judgment should not be taken as final under the preventive measures treaty while an appeal is pending in Ecuador. Given the stakes and the history of the case, Garro predicts that it will not move quickly in any enforcing state, whatever treaty may be in place. And while Argentina's courts are not known for independence, Garro says, it's not clear where the sympathies of the executive branch will lie.

Meanwhile, the first enforcement fights are inching forward. While the papers in Brazil had yet to be successfully served, the Ontario Superior Court of Justice was set to hear Chevron's motion to dismiss for lack of jurisdiction in late fall.

Chevron's first defense to enforcement everywhere is the principle of separation between the U.S.–based parent, which has the liability, and its foreign subsidiaries, which have the assets. Plaintiffs lawyers will likely argue at the Ontario hearing that Chevron's corporate veil should be pierced because the parent extensively controls its subsidiaries, owns no direct assets, and pays dividends from its subsidiaries' earnings. Just as opponents of broad discovery fear that Chevron's discovery actions will hurt their cause, the proponents of corporate accountability may fear that Chevron's enforcement defense will undermine their attack on the citadel of corporate separateness.

Thanks to the scale of the litigation, Chevron will leave a heavy mark on many areas of jurisprudence. Whether it will make good law remains to be seen.

Of course, no part of this tangled case may be analyzed in isolation. This fall, international arbitrators under the auspices of the Permanent Court of Arbitration are trying Chevron's claim that Ecuador released it from all liability when Chevron's predecessor left the country. (Ecuador and the plaintiffs have a different interpretation of the exit agreements.) Given the arbitrators' receptivity to Chevron's fraud claims, it seems likely that the tribunal will rule that Ecuador is contractually obliged to reimburse Chevron for any damages collected by the plaintiffs. How this triangle would play out is anyone's guess. Would Ecuador be joined to the enforcement actions? If plaintiffs collect from Chevron, would Ecuador try to stonewall the arbitral award? Or would Ecuador's National Court of Justice make it all go away by vacating the original judgment on appeal?

Next fall Judge Kaplan has scheduled the New York trial of Chevron's RICO and fraud claims against the plaintiffs and some of their advisers. Yes, on the issue of fraud, Chevron already has copious evidence, and the benefit of arbitral orders and U.S. discovery findings. But the fraud evidence seems to have been forgotten in the crush of filings, the discovery findings were preliminary, and the authority of arbitrators is not universally accepted. Could any enforcing court rule for plaintiffs if a final verdict by a U.S. court corroborates fraud after giving a full hearing to the plaintiffs themselves? Chevron thinks not.