Alison Frankel

On Monday, Chevron filed a new motion for summary judgment in its fraud and racketeering case against the lawyers and expert witnesses who helped 47 Ecuadoreans from the Lago Agrio region of the rainforest obtain an $18 billion judgment against the oil company from an Ecuadorean court in 2011. The motion discloses what seems to be incredibly powerful evidence that the Ecuadorean judgment was illegitimate: A onetime presiding judge on the Ecuadorean case, Alberto Guerra, submitted a declaration asserting that he acted as the middleman in setting up a $500,000 bribe from plaintiffs’ lawyers to the Ecuadorean judge who entered the judgment against Chevron. Guerra claimed that the plaintiffs actually drafted the 2011 judgment and that he, as a behind-the-scenes ghostwriter, worked with plaintiffs’ lawyers to make it seem more like a court ruling. According to his declaration, filed before U.S. District Judge Lewis Kaplan of Manhattan, Guerra had previously received regular payments from the plaintiffs in the Chevron case to ghostwrite other rulings subsequently issued by the presiding judge. And, to boot, Guerra asserted that Chevron — unlike the plaintiffs — didn’t respond to his solicitation of bribes.

Chevron filed additional new evidence to back Guerra’s declaration, including draft versions of the 2011 judgment found on the former judge’s computer, mail and bank records showing his contacts with the plaintiffs and sworn statements by other witnesses supposedly involved in the bribery scheme. “Guerra’s testimony and corroborating evidence confirm what the extensive overlap between the (plaintiffs’) internal files and the judgment already prove: that the (plaintiffs) corrupted the Ecuadorean court and wrote the $18 billion judgment against Chevron,” wrote the oil company’s lawyers at Gibson, Dunn & Crutcher.

Guerra has some credibility issues, since, by his own admission, he was dismissed from the Ecuadorean court and has been in financial straits. His declaration disclosed a payment of $38,000 from Chevron to compensate him for his time and expenses, including the surrender of his computer, flash drives and cell phones. The Lago Agrio plaintiffs and their allies claimed that isn’t all the former judge received. In a statement, Ecuadorean plaintiffs’ lawyer Pablo Fajardo said that Guerra previously offered to sell his testimony to his clients but they refused to pay. “It always was obvious that Guerra wished to sell himself to the highest bidder, a fact which undermined his credibility and made him a profoundly unreliable witness,” Fajardo’s statement said. The Ecuadoreans also claim (without supporting evidence, from what I can tell) that Chevron is using Guerra’s testimony to cajole and intimidate other former judges in Ecuador.

These latest disclosures are profoundly disheartening, regardless of which side you believe in this case. If you trust Chevron and the documentary evidence, the plaintiffs bought an $18 billion judgment from Ecuadorean judges. If you believe the plaintiffs, former Ecuadorean jurists are for sale to Chevron. Either way, I’m increasingly skeptical that we’ll ever know what happened all those decades ago in Lago Agrio. This case has been under way, in various permutations, in courts in Ecuador and the United States since 1993. There are binary questions at its heart: Either Chevron predecessor Texaco did or did not contaminate the Lago Agrio region and impair the health of its residents. Chevron has been just as adamant in denying liability as the Ecuadoreans have in asserting it. Yet the longer the case progresses, the more elusive an answer seems to be.

Chevron’s bulldog lawyers at Gibson Dunn might disagree. They’d say that with enough time, they will eventually prove all of the misbehavior they suspect of the Ecuadorean plaintiffs and their lawyers. I’d counter that they’ve been going full bore for about three years, using some of the most ingenious and aggressive litigation tactics ever deployed in a civil case. Chevron also makes no secret of its long-running investigation within Ecuador of the Lago Agrio plaintiffs and lawyers. But for all of the resources the company has devoted to discrediting its foes, in court and out, Chevron only recently obtained evidence of Guerra’s supposed bribe-taking and ghostwriting — even though Guerra’s declaration asserts that he twice solicited a bribe from a Chevron lawyer in Ecuador. (The declaration does not reveal what, if anything, Chevron’s Ecuadorean counsel told the company about Guerra’s approaches.)

It’s been relatively easy for district courts to figure out how to apply the U.S. Supreme Court’s 2010 ruling in Morrison v. National Australia Bank in securities cases – unless the defendant is a U.S.-listed company, shareholders are pretty much out of luck in U.S. courts. Post-Morrison racketeering litigation has no such conveniently bright lines. The Racketeer Influenced and Corrupt Organizations Act doesn’t explicitly mention that it applies to overseas conduct, so under Morrison judges must presume it does not. But they’ve struggled to define exactly what constitutes overseas racketeering as opposed to domestic racketeering with an international component.

After all, as U.S. District Judge Lewis Kaplan of federal court in Manhattan noted in a ruling last week, RICO was originally intended to combat international organized crime rings. Kaplan is presiding over Chevron’s RICO case against the U.S. lawyers and experts who helped Ecuadoreans obtain an $18 billion judgment against the oil company. His ruling cites the Southern District’s famous Pizza Connection prosecution, which involved Mafia drug trafficking between Sicily and New York, as a RICO paradigm. “To say that Congress did not intend RICO to apply unless the enterprise in question was purely domestic would be unsupportable,” Kaplan wrote.

But on the other hand, he said, courts have concluded since Morrison that RICO cases involving mainly foreign plaintiffs, foreign defendants and foreign conduct are not viable in U.S. courts. The 2nd Circuit Court of Appeals ruled first, in a case called Norex Petroleum v. Access Industries. U.S. Senior District Judge Jed Rakoff subsequently reached the same result in Cedeno v. Intech (affirmed by the 2nd Circuit in a summary order). Kaplan also cited several other rulings in which courts have focused on “the domestic or foreign character of the alleged RICO enterprise” – mostly, whether defendants are “foreign” – to decide whether cases are barred by Morrison.

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.

In last week’s rejection of Chevron’s attempt to use U.S. courts to block enforcement of the Lago Agrio plaintiffs’ $18 billion Ecuadorean judgment, the U.S. Court of Appeals for the Second Circuit was clearly uneasy at the idea of American judges interfering with foreign jurisprudence. So far, the arbitration panel overseeing Chevron’s case against the Republic of Ecuador has had no such qualms. But with Chevron now relying heavily on the arbitration process to protect it from plaintiffs’ attempts to claim oil company assets, the panel’s power over foreign courts is going to become a key issue — and the Ecuadorean plaintiffs are now calling for the U.S. government to support Ecuador’s sovereignty. Chevron, meanwhile, argues that if anyone has caused harm to Ecuador’s constitution, it’s the Republic and the Lago Agrio plaintiffs, not Chevron and the arbitration panel.

The three-person arbitration panel, appointed under the terms of a bilateral investment treaty between the United States and Ecuador, is presiding over Chevron’s claim that the Republic of Ecuador is liable for any judgment in the Lago Agrio litigation. (The argument is two-fold: Chevron asserts that it has been denied due process, in violation of the investment treaty, and that the Republic signed an indemnification agreement years ago with its predecessor, Texaco.) The arbitrators don’t have jurisdiction over the individual Ecuadoreans suing Chevron, but they do have power over the Republic. Last spring, following U.S. District Judge Lewis Kaplan‘s imposition of a worldwide injunction barring enforcement of the Ecuadorean trial court’s judgment against Chevron, the arbitration panel issued an interim order instructing the Republic to “take all measures at its disposal to suspend or cause to be suspended the enforcement or recognition within and without Ecuador of any judgment against in the Lago Agrio case.”

This month, after an intermediate appeals court in Ecuador affirmed the $18 billion judgment, Chevron went back to the BIT arbitration panel to request emergency relief. Among other things, Chevron asked for a finding that the Republic has not complied with the panel’s interim order. Last week, the arbitrators converted their interim order into a interim award, which Chevron believes will be a big help in its attempts to persuade courts around the world not to permit the Ecuadoreans to take control of Chevron assets. In early February, the panel will hear evidence on Chevron’s allegation that the Republic is helping the Lago Agrio plaintiffs.

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.

On Thursday, the U.S. Court of Appeals for the Second Circuit denied Chevron’s bid to re-impose a worldwide injunction barring Ecuadorean plaintiffs from acting to enforce the $18 billion environmental contamination judgment that an Ecuadorean appellate panel upheld earlier this month. That’s Chevron’s second big rebuff in its U.S. campaign to knock out the Ecuadorean judgment, which the oil company contends was fraudulently obtained. Two weeks ago U.S. District Judge Lewis Kaplan in Manhattan — theretofore a reliable backstop for Chevron — refused the oil company’s motion for an attachment order in its racketeering suit against the Ecuadorean plaintiffs and some of their lawyers and experts.

Chevron counsel Randy Mastro of Gibson, Dunn & Crutcher painted Kaplan’s ruling as a temporary setback, since Kaplan said the oil company could try again for a pre-trial attachment. But it’s impossible to spin the Second Circuit’s order Thursday as anything but bad news for Chevron. The appellate judges, you’ll recall, lifted Kaplan’s injunction on enforcement of the Ecuadorean judgment last September. They also stayed Chevron’s declaratory judgment case before Kaplan, in which the oil company sought to prove its fraud allegations against the Ecuadoreans and their lawyers. At the time of those rulings by the Second Circuit, the $18 billion judgment was still under consideration by the Ecuadorean appeals court, and the Ecuadoreans asserted that there was no need for an injunction because the judgment couldn’t be enforced while the Ecuadorean appellate process was underway. When Chevron went back to the Second Circuit this month, Gibson Dunn argued that since the Ecuadoreans are poised to enforce their judgment, the oil company now needs the injunction.

The Second Circuit’s denial of Chevron’s motion suggests that the U.S. appellate panel (which still hasn’t issued an opinion explaining its September orders) had bigger problems with Kaplan’s injunction than mere timeliness. Although there’s a chance the appeals judges based Thursday’s decision on ripeness, which was one of the issues both sides briefed, it seems likelier — both from the denial of Chevron’s motion and last September’s oral argument — that the U.S. judges are concerned about undercutting the authority of another country’s judiciary. If that’s the case, the Second Circuit simply isn’t going to permit Chevron to use the U.S. courts to block enforcement of the Ecuadoreans’ judgment around the world. Chevron’s racketeering case is still alive and kicking before Kaplan, but without an injunction or pre-trial attachment order, the RICO suit can only provide an after-the-fact remedy. (In an email statement, a Chevron spokesman said the company is “disappointed that the Second Circuit did not grant our motion to lift the stay, and we await the court’s opinion.”)

There was a very interesting paragraph near the end of Burford Capital’s announcement Monday that it has acquired a British litigation insurance provider. Burford, you may recall, is the litigation-finance company that in November 2010 made a controversial $4 million investment in the Ecuadorean litigation accusing Chevron of despoiling the Lago Agrio region of the Amazonian rainforest. Burford put up the money to pay the plaintiffs’ new lawyers at Patton Boggs after Chevron’s counsel at Gibson, Dunn & Crutcher succeeded in driving their longtime lawyer, Steven Donziger, out of the litigation.

Burford’s investment — along with money from other, less conventional litigation funders — kept the Ecuadoreans’ case alive through a megabillions Ecuadorean court judgment against Chevron and into appellate review of the award. It has also permitted the Ecuadorean plaintiffs to battle Chevron’s efforts to block enforcement of the judgment through U.S. courts.

But according to Monday’s press release, Burford is not putting any more capital into the Chevron case, despite a maximum financing commitment of $15 million. “Further developments have led Burford to conclude that no further financing will be provided and thus decide to reduce the commitment level in the special situations portfolio accordingly,” the release said. Burford also disclosed that it hedged its initial $4 million investment by selling a corresponding interest in the case to a third party in December 2010. So at this point, according to Burford, it has no remaining exposure in the Chevron litigation, only upside potential.

We’re less than three months away from Manhattan federal judge Lewis Kaplan’s trial to determine whether an Ecuadorean court’s $18 billion judgment against Chevron for contaminating the Lago Agrio region of the rainforest is enforceable in the U.S. In the declaratory judgment proceeding, Chevron’s lawyers at Gibson, Dunn & Crutcher will argue, as they have for the last 18 months, that the Ecuadorean judgment was the result of political and public relations chicanery, much of it committed by the plaintiffs lawyer who spearheaded the Ecuadoreans’ case, Steven Donziger. But according to Donziger’s lawyers at Keker & Van Nest, Judge Kaplan won’t give them or their client a chance to be heard as the declaratory judgment case races to trial.

On Thursday, Keker filed its third motion asking Judge Kaplan to reconsider a May 31 ruling limiting Donziger’s participation in the case. “The exclusion of Donziger from full intervention in this ‘do-over’ trial has reached the point of absurdity,” Keker partner Elliot Peters wrote in the 11-page Donziger filing. “The trial will be about him, and he won’t be there to defend himself against Chevron calumny.”

“This is ironic, in the bitter sense,” Peters told me in an interview Friday. “The U.S. court is denying due process to a litigant in a case in which the U.S. gets to decide whether the court of a different sovereign nation denied due process.”