Chevron Corp. will go head-to-head in an appeals court Monday
with the lawyer who has tried for years to get the oil giant to pay
a $9.5 billion environmental-damage award, the latest development
in one of the longest-running legal battles in corporate
history.
At issue on Monday: a ruling made by U.S. District Judge Lewis
Kaplan, who found last year that the multibillion-dollar award New
York lawyer Steven Donziger won against Chevron in Ecuador was
tainted by bribery and other corrupt misconduct. In a major victory
for Chevron, Judge Kaplan ruled that Mr. Donziger and his team
couldn't profit from the award anywhere in the world or try to
enforce it in the U.S.
Mr. Donziger has denied the allegations of wrongdoing.
Legal experts say the outcome of the appeal could clarify the
scope of the federal anti-racketeering law Chevron used to sue Mr.
Donziger.
In the past, the Racketeer Influenced and Corrupt Organizations
Act, or RICO, has more typically been invoked to bring down mafia
bosses and gang leaders in criminal cases. One of the central
issues on appeal is whether private parties such as Chevron can use
RICO to obtain remedies other than monetary damages--such as the
judicial order from Judge Kaplan.
"The appeal will help redefine the use of the RICO statute,"
said Manuel Gomez, an associate professor at the Florida
International University College of Law who has followed the case.
"It's being used as a tool to achieve something that was not the
original purpose of the statute."
The appeal is another twist in a complex legal battle that has
played out for decades across countries and continents. The fight
stems from oil drilling by Texaco Inc., which in the 1960s joined
with the Ecuadorean government in a production agreement that local
farmers say polluted wide swaths of the Amazon rain forest.
Residents living in Lago Agrio, a village in northeastern Ecuador,
said they were sickened by the pollution, and Mr. Donziger filed a
lawsuit on their behalf against Texaco in 1993. Chevron inherited
the suit when it acquired Texaco in 2001.
That lawsuit resulted years later in a massive $19 billion
judgment that was ultimately affirmed but scaled back by an
Ecuadorean high court to $9.5 billion. Because Chevron has denied
liability for the environmental damage and has refused to pay, Mr.
Donziger and his team have tried to enforce the judgment by going
after Chevron's assets around the world. Those efforts will
continue in countries such as Brazil and Canada regardless of the
outcome in the New York appeal, Mr. Donziger's team says.
However, a win for Chevron in the appeal would bolster the
company's efforts to shield its assets from seizure, including in
foreign jurisdictions outside the U.S., and potentially set a
framework for how multinational companies can use RICO as a weapon
to battle similar lawsuits in the future, legal experts say. It may
also prompt plaintiffs to think twice before suing a big company
for environmental or other damage, they say.
"Chevron has demonstrated that it's going to fight tooth and
nail every place it can, so that might have some deterrent effect,"
said Andrea Bjorklund, a professor at McGill University's law
school who specializes in international litigation.
Another legal battle is playing out in an international tribunal
under The Hague, where Chevron has accused Ecuador of violating its
obligations under a U.S.-Ecuador investment treaty by denying
Chevron a fair trial. An arbitration hearing will be held Monday in
Washington, D.C., the same day as the oral arguments for the appeal
in New York.
Mr. Donziger's appellate lawyer, Deepak Gupta of Gupta Beck
PLLC, called Judge Kaplan's decision an example of "American
judicial imperialism," saying his ruling to block collection of the
judgment overstepped his authority. If the appeals court upholds
Judge Kaplan's decision, that could encourage "anyone who loses a
case anywhere...to come to New York and seek a do-over," Mr. Gupta
said.
"This appeal raises profound questions about whether U.S. courts
should be sitting in judgment of foreign court systems," he
said.
But Theodore Olson of Gibson Dunn & Crutcher LLP, who is
arguing for Chevron in the appeal, says Monday's argument is about
whether Mr. Donziger and his team should be allowed to profit from
an award that Judge Kaplan has ruled was fraudulently obtained.
"You cannot commit a crime and then profit from it," Mr. Olson
said.
Mr. Olson wrote in his brief that Judge Kaplan's ruling was
within his discretion as a district court judge, saying that
without this injunction, Chevron would continue to suffer injuries
in the form of high legal fees and harm to its reputation.
After a six-week trial in Manhattan federal court in 2013, which
included evidence taken from Mr. Donziger's personal diary and
outtakes from a documentary featuring Mr. Donziger, Judge Kaplan
concluded that Mr. Donziger and his team fabricated evidence,
bribed an Ecuadorean judge to rule in their favor and ghostwrote
much of the final verdict in the Ecuadorean trial. In his decision,
Judge Kaplan said Mr. Donziger's tactics were "things that normally
come only out of Hollywood."
Because of the complexity of the case, lawyers on both sides
predict a decision in the appeal could take at least a few
months.
Write to Nicole Hong at nicole.hong@wsj.com
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