A U.S. appeals court threw out an injunction that Chevron Corp had won to block enforcement of an $18 billion judgment in Ecuador for polluting the Amazon jungle and damaging the health of residents.
The 2nd U.S. Circuit Court of Appeals in New York said Chevron acted prematurely in seeking to block enforcement of the judgment worldwide, given that the residents of Ecuador's Lago Agrio region had not yet sought to enforce it.
Chevron says the Ecuadorean judgment is fraudulent and is appealing it separately.
Thursday's decision overturned a March 2011 injunction issued by U.S. District Judge Lewis Kaplan in Manhattan to block enforcement of the judgment, imposed by an Ecuadorean court in February 2011. The appellate court also directed Kaplan to dismiss Chevron's complaint.
Chevron could challenge the judgment's validity "only defensively, in response to attempted enforcement," which the Ecuadorean plaintiffs "have not yet undertaken anywhere, and might never undertake in New York," Judge Gerard Lynch wrote for a unanimous three-judge panel of the 2nd Circuit.
The panel expressed no view on the merits of Chevron's fraud allegations.
In a statement, Chevron said the decision "may change the order in which courts address the fraud being perpetrated in the Lago Agrio case, but it will not affect the ultimate outcome. In fact, the 2nd Circuit acknowledges the extensive evidence of fraud submitted by Chevron."
James Tyrrell, a partner at Patton Boggs representing the Ecuadorean plaintiffs, said his clients are pleased with the appellate court decision, and added: "The Ecuadorean plaintiffs are not coming to New York to enforce this judgment."
Thursday's decision is the latest in a nearly two-decade conflict between Chevron and the Lago Agrio residents, which Lynch said "must be among the most extensively told in the history of the American federal judiciary."
It stemmed from environmental contamination from 1964 to 1992 by Texaco, which Chevron bought in 2001. Oil companies are watching the case closely because it may affect other cases accusing companies of polluting areas where they operate.
On January 20, Chevron asked Ecuador's Supreme Court to review the $18 billion judgment, after an intermediate appeals court in that country upheld it earlier in the month.
TOO MUCH FRICTION
The judgment against Chevron includes $8.6 billion of environmental damages, a sum that was more than doubled because the San Ramon, California-based company failed to make a public apology.
Chevron had sought protection from the judgment under a New York state law, the Recognition Act, that governs the recognition of money judgments imposed in foreign countries.
Lynch, however, said that granting the type of "speculative" relief sought by Chevron would "unquestionably provoke extensive friction between legal systems" by encouraging challenges in New York to the legitimacy of courts in foreign countries.
"The Recognition Act and the common-law principles it encapsulates are motivated by an interest to provide for the enforcement of foreign judgments, not to prevent them," Lynch wrote.
To rule in Chevron's favor would "turn that framework on its head," he added.
Chevron shares closed Thursday down $1.14, or 1.1 percent, at $106.59 on the New York Stock Exchange.
The case is Chevron Corp v. Naranjo et al, 2nd U.S. Circuit Court of Appeals, Nos. 11-1150 and 11-1264.
(Reporting By Jonathan Stempel; Editing by Maureen Bavdek, John Wallace and Steve Orlofsky)