Chevron opinion doesn’t go its way

January 27, 2012

If Chevron was still hoping for a ruling from New York’s federal courts that would make it impossible for Ecuadorean plaintiffs to collect their $18 billion judgment against the oil company, Thursday’s long-awaited opinion by the U.S. Court of Appeals for the Second Circuit puts an end to that strategy. The appellate panel’s 30-page opinion — which explains the court’s Sept. 2011 order lifting the worldwide injunction barring enforcement of the Ecuadorean judgment — gives Chevron the chance to argue once again that the Ecuadoreans can’t collect in New York, under the state’s Uniform Foreign Country Money-Judgments Recognition Act. But in no uncertain terms, the Second Circuit advised that even if Chevron eventually persuades a New York judge that the Ecuadoreans procured their judgment through fraud, that judge cannot bar enforcement of the judgment outside of the United States.

“Nothing in the New York statute, or in any precedent interpreting it, authorizes a court to enjoin parties holding a judgment issued in one foreign country from attempting to enforce that judgment in yet another foreign country,” wrote Second Circuit Judge Gerald Lynch, for a panel that included Judges Rosemary Pooler and Richard Wesley. “The court presuming to issue such an injunction sets itself up as the definitive international arbiter of the fairness and integrity of the world’s legal systems.”

The appellate panel’s ruling is based on what it said was Chevron’s inappropriate attempt to use New York’s Judgment Recognition Act to bar enforcement of a judgment that wasn’t even final at the time Chevron brought its case. The opinion explains that the New York statute is intended to be invoked only after the holder of a judgment attempts to enforce it inside the state’s borders. Chevron tried to get around that issue by asking for the injunction via a declaratory judgment action, in which it alleged that the Ecuadoreans procured their $18 billion verdict through fraud and political machinations. But the Second Circuit said Chevron’s interpretation of the Recognition Act, and U.S. District Judge Lewis Kaplan‘s endorsement of that interpretation, was “a legal misapprehension.” The act may only be used defensively, the panel said, not prospectively. For good measure, the Second Circuit also dismissed Chevron’s declaratory judgment suit.

“Whatever the merits of Chevron’s complaints about the Ecuadorian courts,” the opinion said, “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 first part of the Second Circuit opinion left open the possibility that Chevron could try again to block enforcement when and if the Ecuadoreans attempt to collect in New York. (Lawyers for the Ecuadoreans have said they will never attempt to enforce the judgment in New York.) But in the appellate panel’s discussion of international comity — a major theme of last fall’s oral arguments — the judges made clear their discomfort with a New York court interfering with international jurisprudence. Kaplan’s injunction, the opinion said, would establish New York as an international arbiter of justice, and that’s not what the Judgments Recognition law intends.

“As Chevron’s effort to secure injunctive relief illustrates, permitting such speculative declaratory relief would encourage efforts by parties to seek a res judicata advantage by litigating issues in New York in order to obtain advantage in connection with potential enforcement efforts in other countries,” the opinion said. “Such a regime would unquestionably provoke extensive friction between legal systems by encouraging challenges to the legitimacy of foreign courts in cases in which the enforceability of the foreign judgment might otherwise never be presented in New York.”

James Tyrrell Jr. of Patton Boggs, who represents the Ecuadoreans suing Chevron, welcomed the court’s opinion. “We are very pleased that the Circuit Court not only vacated the injunction, but also dismissed the declaratory judgment action in its entirety, making it clear that a New York court has no authority to decide enforcement of the now-affirmed Ecuadorean judgment for the rest of the world.”

The Second Circuit opinion does not address the merits of Chevron’s fraud argument (nor, for that matter, the fraud allegations that the Ecuadoreans have since lobbed at the oil company), and notes that Chevron’s racketeering suit against the Ecuadoreans and some of their lawyers and experts remains alive in Manhattan federal court. Chevron general counsel Hewitt Pate told me Thursday that the appeals court’s opinion means Chevron’s RICO case can now proceed. (That case, as I’ve reported, includes a motion for pre-trial attachment that could effectively preclude the Ecuadoreans from collecting on their judgment; Kaplan denied Chevron’s first attachment motion but indicated he’d reconsider.) “The Second Circuit’s opinion is a narrow procedural ruling that may change the order in which courts address the fraud being perpetrated in the Lago Agrio case, but it will not affect the ultimate outcome,” Chevron said in a statement. “Chevron will continue to pursue its fraud and racketeering claims against the Lago Agrio plaintiffs and the American lawyers who are perpetrating this fraud.”

As I’ve reported, Chevron has also appealed the Ecuadorean judgment to that country’s highest court, and has asked the arbitration panel overseeing its case against the Republic of Ecuador to block the Ecuadorean government from acting to enforce the judgment. On Wednesday, the bilateral treaty arbiters converted an interim order restricting the Republic into an interim award. Pate said the arbitration panel’s action underscores the Republic’s obligation to stop the Ecuadorean plaintiffs from enforcing the judgment, and enhances arguments Chevron will make elsewhere in the world if the Ecuadoreans try to collect. “It puts us in a more powerful position,” Pate told me. (The Republic has argued that the arbitration panel’s order is an impermissible violation of its separation of powers doctrine.)

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