COLUMN-Ecuador's huge win in Chevron case: Frankel

Tue Sep 20, 2011 5:29pm EDT

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-- Alison Frankel writes the On the Case blog for Thomson Reuters News & Insight (newsandinsight.com). The views expressed are her own. --

By Alison Frankel

NEW YORK, Sept 20 (Reuters) - At Friday's oral argument before a three-judge panel of the U.S. Court of Appeals for the Second Circuit, Chevron (CVX.N) counsel Randy Mastro of Gibson, Dunn & Crutcher stuck to the script that has worked magnificently well for him and Chevron over the last two years. "In 30 years of practice and as a former prosecutor, I've never seen a record so shocking (and full) of illegal and improper conduct," Mastro told the appeals court, according to a transcript. He went on to cite allegations that everyone who has followed the Chevron environmental contamination case knows all too well: Lawyers for the Ecuadorean plaintiffs had manipulated the court and political process in Ecuador; had ghostwritten the report of a court-appointed damages expert; and had even ghostwritten the court decision that granted the residents of the Lago Agrio region of the rainforest $18 billion.

It's easy to see why Mastro reached for those familiar arguments. Gibson Dunn's accusations about the Ecuadoreans' lawyers has won Chevron complete insulation from the $18 billion judgment an Ecuadorean court entered last winter. Manhattan federal Judge Lewis Kaplan, in rulings subsequently cited in Chevron discovery actions all over the United States, found enough evidence that the Ecuadorean trial was tainted by fraud that last year he barred the plaintiffs from acting to enforce it anywhere in the world. Kaplan also scheduled a trial, set to begin in November, to decide whether to declare the Ecuadorean verdict invalid for once and for all.

But the 2nd Circuit panel -- Judges Rosemary Pooler, Richard Wesley, and Gerald Lynch -- wasn't interested in Mastro's recitation of the details of the alleged fraud. They took several steps back to consider what Kaplan's injunction meant for international justice. Wesley posed a hypothetical. Presume that this was a judgment by a Canadian court and it was a $12 billion judgment against Chevron, he said to Mastro. "You mean to tell me that a judge in the Southern District, before even an intermediate appeal had been completed, would have the appropriate jurisdiction to ... enjoin those plaintiffs from pursuing that?" When Mastro said yes, the judge continued: "Don't we have some sense of comity to the legitimacy of the process? Are we just to say to the people of Ecuador, 'You're all corrupt and your process doesn't matter to the United States?'"

Lynch asked Mastro if he could cite any precedent that New York law authorizes the kind of injunction Chevron obtained, barring enforcement of a foreign judgment before the Ecuadorean plaintiffs even won a ruling from the Ecuadorean court. Mastro said no. "How do you think the New York courts would react if a Venezuelan court attempted to enjoin a holder of a judgment from Russia?" Lynch said. "Do you think there's any chance that the New York courts would respect such a judgment? Or should respect such a judgment?"

Particularly because the Ecuadorean appellate process has just began, the Second Circuit asked Mastro, why did Chevron need an injunction? (Lynch even asked whether a November trial to decide the legitimacy of a preliminary Ecuadorean award was the best use of Chevron shareholders' money.) James Tyrrell of Patton Boggs, who represents the Ecuadorean plaintiffs, and John Keker of Keker & Van Nest, who represents the Ecuadoreans' onetime lawyer Stephen Donziger, told the panel that the $18 billion judgment can't be enforced until the Ecuadorean high court has reviewed the award, so there's not even a legitimate question for Kaplan to decide at the November trial, nor any final judgment whose enforcement needs to be enjoined. "The silver bullet is that there is no subject matter jurisdiction because there's not an actual controversy before the court," Keker said. "Presumably, at some point, they will make a decision. Either Ecuador will win or they'll say let's do the case again down in Ecuador ... We just don't know. It's completely, purely hypothetical."

Monday's stunning two-page order from the panel gave the Ecuadorean plaintiffs their first victory in two years of battling in federal courts in New York. But it was a huge win. The panel denied the Ecuadoreans' motion to remove Kaplan because he's biased against them. (In the 2nd Circuit, it's not enough to show just that a judge has consistently ruled against one side.) But the appellate judges lifted the injunction and stayed the November trial. The appellate judges said they'd issue an opinion "in due course," but you can be sure the forthcoming opinion will address the danger of rushing to impose U.S. jurisdiction over a foreign court's decision.

Kaplan, meanwhile, seems to have anticipated the 2nd Circuit order. In the case that was to be tried in November (which was severed from the racketeering suit that gave Chevron a vehicle to seek the preliminary injunction), Kaplan entered a three-page sua sponte order Monday. The judge said that he had rushed to schedule the November trial because the Lago Agrio plaintiffs refused to promise to wait to attach Chevron assets. On Friday, Kaplan said, he finally got that assurance from the Ecuadoreans. "This stipulation may put the trial setting in a new light and may warrant a continuance pending the resolution of the appeals pending in Ecuador," the judge said.

Kaplan asked for a new submission from the Ecuadorean plaintiffs pledging not to try to enforce the $18 billion judgment. But with the 2nd Circuit ruling in hand, they won't have to file a thing.

This blog post first appeared here: link.reuters.com/dyj83s

(Reporting by Alison Frankel; Editing by Eileen Daspin)

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