Opinion

Alison Frankel

Chevron tries, tries again to attach Ecuadoreans’ $18 bln award

By Alison Frankel
March 12, 2012

It’s been all of three weeks since U.S. District Judge Lewis Kaplan of Manhattan federal court lifted a stay on Chevron’s fraud and racketeering suit, which was filed in 2010 against the Ecuadoreans who accuse the oil company of contaminating the Lago Agrio region of the rainforest as well as the Ecuadoreans’ lawyers and advisers. But the two sides in this corollary to the endless litigation that produced an $18.2 billion judgment against Chevron in the Ecuadorean courts have picked up as though they never left off. This week Chevron filed a motion for partial summary judgment and renewed its motion for an attachment order that would effectively block the Ecuadoreans from enforcing their award. Lawyers for the RICO defendants, predictably, have responded with accusations of dirty tricks against Chevron and its counsel at Gibson, Dunn & Crutcher.

Chevron’s summary judgment motion, which asks Kaplan to reject collateral estoppel defenses based on findings in the Ecuadorean courts, is mostly a reformulation of arguments that have become all too familiar to anyone who follows the litigation. So I’ll focus on the new attachment motion, which includes some information we haven’t seen before. In January, you may recall, Kaplan denied Chevron’s request for a highly unusual pretrial order that would essentially have frozen the assets of the RICO defendants in anticipation of a Chevron victory and damages award in the New York case. The judge said that Chevron hadn’t sufficiently specified its alleged damages, aside from citing the $18.2 billion Ecuadorean judgment. “In these circumstances, Chevron has not demonstrated a likelihood of recovering any specific amount of damages,” Kaplan wrote. But he invited Chevron to come back when it had firmer evidence of its potential damages.

Chevron said in this week’s motion that it now has the evidence Kaplan asked for. The company hired two academic economists, Harvard’s Steven Shavell and Stanford’s Steven Grenadier, to determine the current value of the $18.2 billion judgment. Based on “the prices already paid or promised in exchange for interests in the judgment,” the economists opined that at this moment, the $18.2 billion award is worth $200 million. Chevron said that under RICO’s treble damages, it can realistically claim $600 million in a potential award in the fraud and racketeering case.

The company also said that it can recover trebled attorneys’ fees. Chevron’s brief said Gibson, Dunn and other lawyers have racked up fees of at least $60 million in amassing evidence and litigating claims that the Ecuadorean judgment was procured by fraud. (At least $30 million was billed just by Gibson, Dunn.) That added another $180 million to the potential damages Chevron said Kaplan should attach. And since the only significant asset of the RICO defendants is the $18.2 billion judgment, Chevron argued, Kaplan should attach the Ecuadorean award.

The Ecuadoreans’ lawyer, Craig Smyser of Smyser Kaplan & Veselka, told me Friday that Chevron’s new attachment order is as improper as its last one. For one thing, he said, the Ecuadoreans who obtained the $18.2 billion judgment are not accused of racketeering in Chevron’s complaint in Manhattan federal court, so Chevron shouldn’t be trebling its estimate of damages it can obtain against them. Smyser also said the oil company blindsided him and the other New York defense counsel by filing significant motions when the two sides were supposed to be conferring on a case management schedule. “It’s very unprofessional,” Smyser said.

He and John Keker of Keker & Van Nest, who represents Chevron litigation architect Steven Donziger, sent a series of letters this week to Kaplan, accusing Chevron and Gibson, Dunn of duplicity and bad faith. They also asked the judge to strike the oil company’s motions. “To use a military analogy, Chevron’s counsel used the cover of the truce flag to conduct offensive operations,” they said in a March 7 letter. At a minimum, they said in a letter Thursday, Kaplan should not hold them to a hearing next week on Chevron’s motions, but should grant them time to prepare.

Kaplan doesn’t seem inclined to grant that request, considering that he took less than a day to reject the RICO defendants’ claims that Chevron was behaving unethically. In an order attached to Smyser and Keker’s March 7 letter, the judge said their assertion was “without merit.” He said his instruction to meet and confer on a schedule “did not prohibit the filing of (Chevron’s) motions,” and denied the defense request that he strike the attachment and summary judgment motions.

Chevron counsel Randy Mastro of Gibson, Dunn told me Smyser is “flat out wrong” about whether Chevron can seek treble damages against the Ecuadoreans. Though they’re technically not included in Chevron’s RICO counts, Mastro said, they are the beneficiaries of the alleged racketeering scheme, so any damage award against them can be trebled. (I have a feeling we haven’t seen the last of this particular issue.)

The only thing Smyser and Mastro agree on is that the estimate of what Chevron has paid its lawyers is low. The Ecuadoreans’ lawyer said Chevron hasn’t spared a penny to attack his clients and their judgment, positing legal fees of $100 million a year. Mastro said that the $60 million cited in the attachment motion is “conservative,” adding that Chevron will “prove more in attorneys’ fees damages” when the RICO case gets underway. That total, of course, is growing by the day.

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