In previous columns, I have discussed the challenges faced by foreign plaintiffs seeking relief in U.S. federal courts for environmental damage abroad by U.S. or foreign transnational corporations. (See, e.g., " After ‘Sosa’: Environmental Claims Under the Alien Tort Claims Act-Part II," Oct. 26, 2004; " International Standards for Corporate Conduct," April 30, 2012.) Within the past month, there have been major developments in three unrelated cases—one in the U.S. Supreme Court, one in the U.S. Court of Appeals for the Second Circuit and one in the Southern District of New York—that both narrow opportunities for foreign plaintiffs to seek federal judicial relief for environmental injury abroad and demonstrate why the courts should be more open to at least some of those claims.
On April 17, the Supreme Court issued its long-awaited decision in Kiobel v. Royal Dutch Petroleum, 569 U.S.— (2013), in which the court took a major step backward in the protection of human rights by U.S. federal courts. In an opinion by Chief Justice John Roberts for the five-justice majority, the court held that the 1789 Alien Tort Statute (ATS) is subject to a presumption against extraterritorial application and thus did not create a federal cause of action for foreign plaintiffs injured by the complicity of a foreign corporation, with offices in New York, in environmentally triggered human rights abuses (including torture and murder) by the Nigerian government.
In a lucid concurring opinion for the four other justices, Justice Stephen Breyer challenged the application of the presumption against extraterritorial application to a statute specifically intended, and historically applied, to afford a U.S. remedy to foreign victims of torts in violation of the "law of nations." Instead, he concurred in the judgment because on the facts the defendant’s office in New York was insufficient to establish the requisite U.S. contacts for purposes of the ATS.
On April 16, the Second Circuit in John Patrick O’Neill, Jr. v. Al Rajhi Bank, —F.3d— (2013) dismissed a series of claims, including ATS claims, against foreign banks for allegedly financing Al Qaeda’s Sept. 11, 2001, attacks on the World Trade Center. Since these attacks occurred in New York City, the plaintiffs’ claims presumably would not be affected by the Supreme Court’s Kiobel decision the very next day. However, in an opinion by Judge Jose Cabranes, a unanimous Second Circuit panel affirmed the dismissal of the ATS claims on the astounding ground that "no universal norm against ‘terrorism’ existed under customary law (i.e., the ‘law of nations’) as of September 11, 2001, as required under the ATS." If the premeditated murder of thousands of civilians in another country is not a violation of the law of nations for purposes of the ATS—and I believe it is and was—even severe environmental pollution abroad would not rise to that standard.
With the ATS effectively eliminated as a basis for recovery for environmental damage abroad, foreign plaintiffs may still seek to pursue U.S. corporate polluters on more conventional tort theories or even under the domestic laws of their home countries. Assuming personal jurisdiction over the corporate defendant in the U.S. and full diversity of citizenship between plaintiffs and the defendant, the principal problem for foreign plaintiffs in U.S. federal courts is often the courts’ reluctance to entertain such claims under the doctrine of forum non conveniens. This is best exemplified in the long-running Lago Agrio litigation involving Ecuadorian plaintiffs’ claims against Chevron for widespread pollution of Ecuador’s Amazon region by Texaco Petroleum, which managed a joint venture with Petroecuador, a state agency, from 1964 through 1992, before Texaco was acquired by Chevron.
As discussed in an earlier column on this litigation (" Lessons From Lago Agrio," Sept. 15, 2011), the first chapter of the Lago Agrio saga involved the successful efforts by Texaco to persuade federal district courts in Texas and New York, as well as the Second Circuit, to dismiss the plaintiffs’ environmental claims on grounds of forum non conveniens and require the Ecuadorian plaintiffs to re-file their pollution claims in Ecuador. As part of that effort, Texaco argued vociferously to District Judge Jed Rakoff that Ecuador’s courts were independent, competent and able to afford all parties a fair trial and that Texaco would consent to those courts’ jurisdiction and comply with any judgment that might be rendered against it in Ecuador. Based in part on those representations, Rakoff dismissed the case on forum non conveniens grounds in 2001. The Second Circuit unanimously affirmed.
Chapter two of the Lago Agrio litigation covered the ensuing seven-year effort of the plaintiffs, assisted by a New York lawyer named Steven Donziger, to secure a judgment from Ecuador’s Sucumbios Provincial Court for both environmental and public health injuries resulting from Texaco’s conduct. After the original trial judge was replaced midway through the proceedings, the court’s "independent expert," geologist Richard Cabrera, submitted a report recommending a judgment against Chevron in the amount of $27 billion to reflect environmental damage, remediation costs and public health impacts to the plaintiffs and others in the region from Texaco’s earlier oil exploration activities.
Fearing an imminent judgment by the court in Ecuador, Chevron began an aggressive counter-attack seeking first to persuade the Obama administration to strip Ecuador of its U.S. trade preferences and, when that failed, to portray the forthcoming Ecuadorian judgment as the product of fraud by the plaintiffs and improper interference by Ecuador’s new president, who had called Texaco’s conduct "a crime against humanity."
In chapter 3 of the saga, Chevron counterattacked by returning to the same New York federal district that it had earlier spurned and asking District Judge Lewis Kaplan to compel production (pursuant to 28 U.S.C. section 1782) by Joseph Berlinger, an independent documentary producer, of hundreds of hours of "outtakes" from Crude, a film that Berlinger had made at Donziger’s invitation. These outtakes showed Donziger boasting of his efforts to bribe or intimidate the Ecuadorian trial judge and to secretly write Cabrera’s technical report. Armed with those outtakes, Chevron commenced a new action in the Southern District alleging RICO violations (Racketeer Influenced and Corrupt Organizations Act) by Donziger and his Ecuadorian co-counsel and seeking to enjoin the plaintiffs from enforcing their soon-to-be-issued Ecuadorian judgment anywhere else outside of Ecuador (where Chevron had no assets).
At the same time, Chevron commenced an arbitration in The Hague against the Republic of Ecuador under the U.S.-Ecuador Bilateral Investment Treaty (BIT), alleging that Ecuador’s president had improperly influenced its courts to impose liability on Chevron in violation of both the BIT and a 1994 settlement and release agreement with Texaco. Chapter three concluded in March 2011 with Judge Kaplan, who was clearly (and justifiably) outraged by Donziger’s actions, issuing a temporary injunction against the plaintiffs’ effort to enforce their newly issued judgment for $18 billion against Chevron (less than recommended by Cabrera) and with the arbitral panel in The Hague issuing a parallel "provisional order" to the Ecuadoran government to direct its courts not to enforce or recognize the trial court judgment pending completion of the arbitration.
Chapter 4 of the Lago Agrio dispute has been even more bizarre, as the briefest summary reveals. In September 2011, the Second Circuit refused the plaintiffs’ request to remove Judge Kaplan from the case but vacated his preliminary injunction as an improper attempt to exercise U.S. judicial authority over another nation’s courts. In January 2012, the Second Circuit also dismissed, as premature, Chevron’s request for a declaration that the Lago Agrio judgment was not entitled to recognition in U.S. courts because the plaintiffs had not yet sought to enforce it in the United States. At about the same time, Ecuador’s intermediate appellate court, in de novo review of the trial court record, affirmed the judgment against Chevron (increasing it to $19 billion to correct a "clerical error") in defiance of the Hague arbitrators’ provisional order to Ecuador’s executive not to permit its courts to recognize or enforce the trial court judgment.
Buoyed by these developments and newly armed with politically astute and experienced counsel from Washington’s Patton Boggs law firm (which secured a $15 million litigation funding commitment from Burford Capital in London), the plaintiffs again appeared on the road to victory, notwithstanding Donziger’s misconduct.
Things began to unravel for the plaintiffs in the fall of 2012 and the first quarter of 2013. In November, the original trial judge in Ecuador, Alberto Guerra, submitted a sworn statement in the New York RICO litigation that Donziger and his consultants had threatened his personal safety while he was serving as a judge on the Lago Agrio case, that he later was paid a monthly sum by the plaintiffs’ counsel in Ecuador (including Donziger) to secretly write favorable rulings for his successor judge on the case, Nicolas Zambrano, who also told him that Donziger and his co-counsel had promised Zambrano $500,000 for a favorable judgment. (Zambrano denied this in his response.)
In March 2013, Judge Kaplan, finding "at least probable cause to believe there was fraud or other criminal activity in the procurement of" the Lago Agrio judgment, ordered Patton Boggs to produce a wide array of documents demanded by Chevron under the crime-fraud exception to the attorney work product privilege. The following week, the plaintiffs’ lead environmental consultant, Stratus Consulting (a codefendant in Chevron’s RICO claim), reached a settlement with Chevron in which Stratus admitted, in exchange for a complete release from Chevron, that it had secretly written most of Cabrera’s report and much of a subsequent "cleansing report" that Donziger had orchestrated in order to give Judge Zambrano the ability to say he had not relied on the now-suspect Cabrera report.
The Stratus admission was followed by a declaration by Burford’s chief executive officer on April 17, 2013. In that declaration Burford indicated that, after it realized the extent of Donziger’s misconduct and Patton Boggs’ misrepresentations at the time of its financing commitment, Burford had terminated its role as the chief funding source for the plaintiffs’ lawyers and relinquished any claim it had to share in any future recovery by the plaintiffs. On April 15, 2013, Magistrate Judge James Francis recommended to Judge Kaplan that he dismiss all of Donziger’s counterclaims against Chevron.
In addition to these revelations and rulings in the RICO litigation, the plaintiffs—and the government of Ecuador—are now faced with a serious problem in the Hague arbitration. The arbitral panel’s provisional orders not to issue, recognize or permit enforcement of the Lago Agrio judgment had been ignored by both the trial and appellate courts in Ecuador and repudiated by its government as an infringement of Ecuador’s sovereignty and an inappropriate attempt to interfere with the judicial independence of its courts.
Undeterred by these objections, on Feb. 7, 2013, the panel formally determined that Ecuador had violated its earlier orders by permitting its courts to recognize and permit enforcement of the $19 billion Lago Agrio judgment and ordered Ecuador to show cause why it should not be required to compensate Chevron for any damage resulting from such violations, even though the panel had not yet decided the merits of Chevron’s claims under the U.S.-Ecuador Bilateral Investment Treaty (BIT).
A New Approach
It has now been more than 20 years since Texaco ceased operations in Ecuador, leaving behind a 40-year legacy of pollution that damaged an important tropical rainforest and the public health and habitat of a large number of Ecuador’s poorest citizens, who had no meaningful access during this time either to their own government or its courts. It has been 20 years since some of those citizens first sought relief against Texaco, a U.S. corporation, in the federal courts in Texas, where Texaco had its principal facilities, and almost that long since another group of Ecuadorian citizens sought similar relief in the Southern District of New York, where Texaco had its corporate headquarters.
Both of those lawsuits were dismissed, despite personal and subject matter jurisdiction, under the doctrine of forum non conveniens by responsible district judges whose decisions were either, as in the Texas action, unchallenged or, as in the New York dismissal, made on the basis of a careful review of the status of Ecuador’s courts, concurred in by Chevron, and Chevron’s explicit commitment to submit to the jurisdiction of those courts and comply with its judgments. Both dismissals (particularly Judge Rakoff’s second dismissal of the New York action) accurately reflected federal judicial practice not to assume a role that the courts of other nations were better and more appropriately able to perform in cases arising out of actions in, and subject to the laws, of those nations.
And yet the results, at least in this instance, have been disastrous to any sense of justice or judicial economy. Seven years of trial before two Ecuadorian judges (one accused of significant improprieties), followed by two more years of appellate review based on a record that appears to have been manufactured secretly through ex parte communications by one set of litigants, can hardly command respect either in Ecuador or elsewhere. In the United States, five separate district judges (Black in Texas and Broderick, Rakoff, Sand and, for the past three years, Kaplan in New York) have devoted thousands of hours to a dispute that, as Judge Kaplan recently noted, does not concern the merits of the plaintiffs’ claims against Chevron but the integrity of Ecuador’s judiciary and the conduct of the plaintiffs’ New York (and now Washington) counsel.
During the last two chapters of this dispute, Judge Kaplan alone has issued some 20 substantive opinions on Chevron’s declaratory judgment, RICO and other claims and has now found it necessary to appoint not one but two highly experienced special masters (Theodore Katz and Max Gitter) to oversee future depositions in this matter, even after the dismissal of Donziger’s counterclaims and Chevron’s original declaratory judgment action.
Moreover, the related Hague arbitration—also unrelated to the merits—has raised significant international law questions as to the BIT arbitrators’ authority to order a nation’s executive branch not to permit its courts to render or enforce judgments and, not so incidentally, has the potential to entangle the United States and Ecuador in the very kinds of disputes that forum non conveniens and other judicial doctrines are intended to avoid.
It may be time, therefore, for our federal courts to rethink their reluctance to accept major environmental claims that the courts of other countries are simply not yet able to handle. Had the federal courts in the United States been open to the Lago Agrio plaintiffs, it is clear in hindsight that the plaintiffs would long ago have had a fair trial (and perhaps a reasonable recovery), their lawyers and consultants would not have dared behave as Chevron has alleged, an incipient international dispute would have been avoided, millions of dollars of fees would have been avoided for all parties and the District Court would have been spared the unenviable role in which it has been thrust by the repercussions of litigation that, in retrospect, could never have been confined to Ecuador.
Stephen L. Kass is a partner and codirector of the environmental practice group at Carter Ledyard & Milburn, and an adjunct professor at Brooklyn Law School, Columbia University’s School of International and Public Affairs and NYU’s Center for Global Affairs.