* U.S. appeals court reverses lower court order
* Chevron says $18 billion award was obtained illegally
* Judges to issue opinion at a later date (Adds Chevron statement)
By Basil Katz and Braden Reddall
NEW YORK/SAN FRANCISCO, Sept 19 A U.S. appeals court reversed an order freezing enforcement outside of Ecuador of an $18 billion damages award against Chevron Corp over pollution in the Amazonian rain forest.
The order, issued by the 2nd U.S. Circuit Court of Appeals in New York on Monday, is the latest reversal in a 18-year legal battle that has gone all the way to international arbitrators in Europe, who have also sought to block enforcement of the judgment.
In February, an Ecuadorean judge ordered Chevron, the second-largest U.S. oil company, to pay damages to the plaintiffs, but both the company and the residents appealed, and the case has yet to make its way to the country's highest court.
In anticipation of that judgment, however, Chevron filed court papers asking U.S. District Judge Lewis Kaplan to freeze any possible enforcement of payment anywhere outside Ecuador. Kaplan, presiding over a racketeering case brought by Chevron that is still due to be heard in Manhattan federal court, issued the now-reversed preliminary injunction in March.
"We are very excited that the court has reached this decision," Jim Tyrrell, the attorney who argued for the Ecuadoreans before the 2nd Circuit, said in a statement. "It represents a triumph of the rule of law over the sensationalism created by Chevron's PR department."
Chevron has accused the Ecuadoreans of extortion and fraud in the lawsuit Kaplan is hearing.
Appeals court judges Gerald Lynch, Rosemary Pooler and Richard Wesley also granted the plaintiffs' request to stop a November bench trial before Kaplan, who was to determine whether to extend his injunction.
Chevron said it was "disappointed" about the expedited part of the trial not going ahead. But the company added that the Ecuadorean plaintiffs had promised not to seek enforcement of their judgment until the appeals process in Ecuador was complete, and noted the broader trial would continue.
"Chevron remains confident that once the full facts are examined, the fraudulent judgment will be found unenforceable and those who procured it will be required to answer for their misconduct," the company said in a statement on its website.
The Ecuadorean rain forest residents say Texaco, bought by Chevron in 2001, is responsible for hazardous oil-drilling waste dumped on their land in the 1970s and 1980s.
Chevron says Texaco cleaned up all waste pits for which it was responsible before turning the sites over to state-owned oil company Petroecuador, which still operates in the area.
International arbitrators, under the Permanent Court of Arbitration in The Hague, ordered Ecuador in February to suspend enforcement of any judgment in the case as it decides whether Ecuador violated a bilateral U.S.-Ecuador investment treaty by failing to give Chevron a fair trial.
A separate arbitration tribunal in The Hague last month found Ecuador must pay $96 million to Chevron because Ecuador's courts had violated international law through their delays in resolving commercial disputes involving Texaco.
Chevron has accused the Ecuadoreans and their long-time legal advisor, Steven Donziger, of illegally pressuring the Ecuadorean legal system to render a judgment in their favor.
The oil company has pilloried Donziger for his comments on corruption in Ecuador's judicial system and his purported efforts to intimidate officials. The remarks came to light in an acclaimed documentary, "Crude", and its outtakes, which were subpoenaed in U.S. litigation.
The appeals court order came after the judges heard oral arguments on Friday, when Lynch questioned whether a judge in New York had the authority to halt enforcement of a foreign judgment.
The judges said on Monday they would issue a full opinion at a later date.
The case is Chevron Corp v. Hugo Gerardo Camacho Naranjo, 2nd U.S. Circuit Court of Appeals, Nos.11-1150, 11-1264 and 11-2259. (Editing by Tim Dobbyn, Gunna Dickson, Richard Chang and Steve Orlofsky)