chevron-down Created with Sketch Beta.
May 22, 2014 Articles

Fraudulent Practices and Foreign Judgments: Don't Try This at Home

Guy Kamealoha Noa

In 2011, an Ecuadorian court ruled that one of the largest corporations in the world, Chevron, was responsible for polluting large swaths of land in the Amazon, and ordered it to pay approximately $19 billion dollars in compensatory and punitive damages. As one of the largest awards for environmental pollution, it was considered a landmark decision. Finally, after roughly two decades of litigation, there was going to be some relief for the thousands of native Ecuadorians that lived in and used the land that Chevron polluted. The judgment was likely to be appealed, and it has been by both sides, but at the time it marked a major victory for the "powerless peasants," the native forest tribes, and their attorneys led by American lawyer Steven Donziger. See Clifford Krauss, "Big Victory for Chevron over Claims in Ecuador," N.Y. Times, Mar. 4, 2014, at B1. Nevertheless, Chevron earned a significant victory in March 2014, when Judge Kaplan of the U.S. District Court for the Southern District of New York ruled that the Ecuadorian judgment against the oil giant could not be enforced anywhere in the United States.  Chevron Corp. v. Donziger, No. 11 CIV. 0691 LAK, 2014 WL 815961, at *36 (S.D.N.Y. Mar. 4, 2014).

"The saga of the Lago Agrio case is sad. . . . [W]hat happened here probably means that we'll never know whether or not there was a case to be made against Chevron," wrote Judge Kaplan in his opinion. These words capture the likely effect that Judge Kaplan's ruling will have on the Ecuadorian plaintiffs' rights to enforce the foreign judgment within the United States and abroad. In his 485-page scathing rebuke of the Ecuadorian plaintiffs' rights, Judge Kaplan held that the judgment against Chevron for massive environmental destruction in Ecuador was obtained through bribery, extortion, and fraud, all perpetrated by Donziger and his legal team. See Donziger, 2014 WL 815553, at *1.  The district court barred the Lago Agrio plaintiffs (LAPs) from seeking enforcement of their judgment anywhere in the United States. Donziger, 2014 WL 815961, at *33. Furthermore, to ensure that Donziger "never benefits in any material way from the judgment in the Lago Agrio case," Judge Kaplan imposed a constructive trust for the benefit of Chevron on Donziger's contractual right to fees. Id. at *32.  Furthermore, he ordered Donziger to pay over and assign any payments, benefits, or rights to benefits that he received or will receive as a consequence of the Ecuadorian judgment. See id. at *32–33.

Judge Kaplan based his ruling on evidence obtained from Donziger's personal notebook, outtakes from the documentary Crude—a documentary filmed to cover the Chevron litigation —as well as testimony from judges and attorneys involved in the litigation. Judge Kaplan found that Donziger submitted fraudulent evidence, bribed and coerced a supposedly impartial expert to write a report favoring the LAPs, hired a former Ecuadorian judge to ghost-write an opinion for the Ecuadorian court, and paid the sitting judge to sign off on the opinion and hold it out as his own. Unfortunately when testifying, the former Ecuadorian judge could not remember key portions of the opinion he claimed to have written. All of Donziger's machinations came to light after Chevron filed fraud and racketeering claims against Donziger in New York.

This recent judgment is interesting for several reasons. First, Judge Kaplan based his ruling on the Racketeer Influenced and Corrupt Organizations Act (RICO), and courts are split on whether equitable relief is available under RICO. Donziger, 2014 WL 815923, at *20. Judge Kaplan elected to follow Seventh Circuit precedent that RICO affords equitable relief. See id.; see also Nat'l Org. for Women, Inc. v. Scheidler, 267 F.3d 687, 695–98 (7th Cir. 2001). However, the Second Circuit Court of Appeals could disagree with Judge Kaplan's holding and interpret RICO in accordance with Ninth Circuit rulings that held that RICO's legislative history foreclosed such relief. See Religious Tech. Ctr. v. Wollersheim, 796 F.2d 1076, 1080–87 (9th Cir. 1986). The Second Circuit has already expressed in dicta that it doubted equitable relief was available for private plaintiffs under RICO. See Trane Co. v. O'Connor Sec., 718 F.2d 26, 28–29 (2d Cir. 1983).

Second, the finding of fraud in relation to the LAPs' foreign judgment afforded Judge Kaplan a basis for denying enforcement of the Ecuadorian ruling. See Donziger, 2014 WL 815961, at *11, *16. There is no federal law applicable to enforcement of foreign judgments, and it is actually state law that courts rely on, including federal courts. See Yuliya Zeynalova, "The Law of Recognition and Enforcement of Foreign Judgments: Is It Broken and How Do We Fix It?",31 Berkeley J. Int'l L. 150, 155 (2013). Obviously, 50 different states may have 50 different requirements pertaining to enforcement of foreign judgments. See id. at 156. However, 31 states including New York, have adopted the Uniform Foreign Money-Judgments Recognition Act (UFMJRA). See id.; N.Y. C.P.L.R. § 5301 (McKinney 2014) (regarding foreign country judgments). The UFMJRA is essentially the codification of common-law principles relating to recognition and enforcement of foreign judgments. Id.

Judge Kaplan cited both New York's version of the UFMJRA and Hilton v. Guyot in declaring that courts need not recognize foreign judgments that were rendered in judicial systems that do not offer impartial tribunals or procedures compatible with due-process principles. Donziger, 2014 WL 815961, at *11; see also Hilton v. Guyot, 159 U.S. 113 (1895) (setting the criteria for recognition of foreign judgments). Courts must decide whether foreign procedures "are fundamentally fair and do not offend against basic fairness" and they are not restricted by the rules of evidence when doing so. Donziger, 2014 WL 815961, at *11 (internal quotation marks omitted).

Ironically however, it was Chevron that originally insisted that the case be brought in Ecuador as opposed to the United States, and it was Donziger that was adamant that the Ecuadorian system was corrupt. Accordingly, Judge Kaplan pointed to Donziger's interference in the Ecuadorian proceedings, his team's admissions in Crude outtakes that the Ecuadorian legal system was corrupt, and continued interference by Ecuador's president with the Chevron litigation as proof that the judgment was not rendered by an impartial court—a court that Chevron originally insisted the case be brought in front of. Id. at *11–16. Thus, Judge Kaplan ruled, American courts were not required to extend comity to the Ecuadorian judicial system, even though Chevron previously insisted that the lawsuits be brought in Ecuador.  Id. at *16.

Third, Judge Kaplan enjoined the LAPs from seeking enforcement of their judgment in the United States before they even attempted to do so—Kaplan's injunction against the LAPs arose from Chevron's fraud and racketeering claims. The LAPs intended to seek enforcement first in other countries where Chevron held assets, such as Argentina, Brazil, and Canada. See Mica Rosenberger, "Chevron's U.S. Win in Ecuador Case Looms over Cases Elsewhere," Reuters, Mar. 7, 2014. The attempt to collect was part of a multi-pronged attack on Chevron that was designed to attain favorable judgments in other countries first, with enforcement in the United States as the ultimate goal. See Donziger, 2014 WL 815715, at *34–35. Unfortunately, Donziger and the LAPs may have to resort solely to trying to reach Chevron's assets in other countries should they lose their appeal of Judge Kaplan's ruling.

This brings us to an important question: What effect will the district court's fraud ruling have on the LAPs' chances of enforcing the Ecuadorian judgment in other countries? So far, the decision has not affected any pending enforcement actions abroad, but most commentators believe that the district court's finding of fraud will definitely influence whether foreign courts enforce the Ecuadorian judgment. See, e.g., Krauss, supra.  As Judge Kaplan noted, Donziger's actions "would be offensive to the laws of any nation that aspires to the rule of law, including Ecuador."  Donziger, 2014 WL 815553, at *3.

The Supreme Court of Argentina ruled in favor of Chevron in 2013, suspending a freeze on Chevron's assets in relation to the LAPs' attempt to enforce the Ecuadorian judgment there.  See Jessica M. Karmasek, "Report: Argentina SC Sides with Chevron, Suspends Freeze of Company's Assets," LegalNewsline, June 5, 2013. In Brazil, the LAPs filed an action requesting recognition of the Ecuadorian judgment but the case is still pending. See Eduardo Garcia, "Ecuador Plaintiffs Target Chevron's Assets in Brazil," Chi. Trib., June 27, 2012.

However, a Canadian court of appeal in Ontario ruled that Canada is an appropriate forum to hear the LAPs' request to enforce the Ecuadorian judgment. Yaiguaje v. Chevron Corp., 2013 ONCA 758 (Dec. 17, 2013). That decision, however, is controversial because only a Chevron subsidiary operates in Canada, and the Ontario court ruled that Chevron could be reached through its subsidiary. Martin Bodman, "Enforcement of Foreign Judgments in Canada through an Unrelated Canadian Subsidiary," Canadian Appeals Monitor, Apr. 6, 2014.  However, the Supreme Court of Canada granted an application for leave to appeal the Ontario court's decision, so the battle will continue in Canada.  See id.  To be sure, though, Chevron will fight the LAPs anywhere in the world. See Rosenberger, supra.  As a Chevron spokesman once said, "We're going to fight this until hell freezes over. And then we'll fight it out in the ice."  Id.  Up to this point, Chevron has made good on that promise, even though it is undisputed that it polluted the land that the Ecuadorians lived on.

Will the decision in Chevron Corp. v. Donziger impact the success of enforcing other foreign judgments in the United States? At the very least, U.S. courts will apply more scrutiny in reviewing foreign judgments to be sure that the decisions were not obtained through extortion or fraud. Aside from that, enforcing foreign judgments that are not a product of fraud should not encounter unusual difficulty. In fact, roughly one month after Judge Kaplan issued his ruling against Donziger, the Appellate Division of the Supreme Court of New York held that a criminal court's decision in the Czech Republic ordering a former officer to pay compensation to a victim of a crime was enforceable in the United States. See Harvardsky Prumyslovy Holding v. Kozeny, 2014 WL 1281527, slip op. at 4 (N.Y. App. Div. Apr. 1, 2014). Furthermore, this decision potentially broadened the availability of enforcing foreign judgments.  See id.  The issue was a matter of first impression, the mandate was issued by a criminal court, and New York's version of the UFMJRA does not recognize foreign judgments that are penal in nature. See id. at 1–3.  However, the Supreme Court of New York interpreted the order to pay as compensatory in nature rather than penal and held that it therefore could be enforced in New York.  Id. at 2–3.

Thus, despite the finding of fraud in one of the largest foreign money judgments in history, the ability to enforce foreign judgments should not be diminished. Foreign judgments will, in all likelihood, face more scrutiny in determining whether the judgment was obtained through fraud.  As for the LAPs and the Ecuadorian plaintiffs, they may never recover anything for the environmental damage wreaked on their jungles. Donziger was quoted from his notebook as writing:

I sit back and dream. I cannot believe what we have accomplished. Important people interested in us. A new paradigm of not only a case, but how to do a case. Chevron wanting to settle. Billions of dollars on the table. A movie, a possible book. I cannot keep up with it all.

Donziger, 2014 WL 815869, at *28.

For Donziger and the LAPs, that dream just became a nightmare that may only get worse.  This case provides an example for other plaintiffs' attorneys going forward—with respect to seeking enforcement of foreign judgments—go forward at your own peril.

Keywords: litigation, minority trial lawyer, Chevron Corp. v. Donziger, foreign judgments, enforcement, fraud, Ecuador, Lago Agrio, environmental pollution, RICO

Copyright © 2018, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).