After years of pre-trial decisions and appeals from a preliminary injunction Judge Lewis Kaplan of the Southern District of New York entered a final judgment in favor of Chevron Corp. and against Steven Donziger, a Harvard law school graduate yesterday in the nation’s most high-profile RICO case. The 500 page opinion goes into painstaking detail about the evidence Chevron produced in its long-running effort to stop Donziger from enforcing the $9 billion judgment he obtained from an Ecuadoran court against Chevron for polluting the environment in a region of that Central American nation known as Lago Agrio during many years of oil drilling. Mr. Donziger began representing Ecuadorans with grievances against Chevron and its subsidiary Texaco shortly after he graduated from law school in 1991 with incredible tenacity.
The case began as a class action in New York, was transferred to Ecuador at Chevron’s request, attracted hundreds of millions of dollars in investor financing and resulted in one of the largest judgments against an American corporation in history- $14 billion. The Ecuadoran Supreme Court later reduced it to $9 billion, and conceivably it could have been enforced against Chevron’s assets all over the world. Now it cannot be. Judge Kaplan has found that Donziger procured the judgment from various illegal schemes including bribing the Ecuadoran judge, ghostwriting an expert report and extortionate tactics tactics designed to coerce Chevron to pay a vast amount of money, far in excess of any actual damages suffered by his Ecuadoran clients.
From a RICO perspective, the case was a stretch. It seemed like most of the illegal conduct occurred in Ecuador making the claim extraterritorial. But Judge Kaplan thinks otherwise, and his analysis of this important issue focuses on the place where the illegal schemes were “hatched” (the U.S.) rather than where they were carried out. This is an important development in the extraterritoriality issue, which is confusing judges across the country. Another problem was that the major RICO violations, trying to extort money from Chevron, were not accomplished. Chevron did not settle the case or actually lose any money from efforts to enforce the judgment (all unsuccessful to date). Rather, the damages it suffered were in the tremendous attorneys’ fees it had to expend in defending the suit. This was attempted extortion, and it was upheld as a pattern of racketeering activity (along with the false mailings and wires that were also used to execute it) to support a RICO claim. The implications for this judgment are significant in RICO. Many corporations are subjected to long-running schemes to coerce settlements or the recognition of a labor union. They have to pay millions in attorneys’ fees to fend off these efforts. Now, there is a RICO precedent for turning the tables on the plaintiffs’ lawyers. (Another such case is now progressing in the District of Columbia against the lawyers who filed and then lost a massive high-profile suit against the corporation that runs the Barnum and Bailey Circus which I have blogged about).
Another significant aspect of this RICO case is the remedy sought, an injunction against Donziger from taking any steps to enforce the $9 billion judgment against Chevron in this country. There has always been doubt as to whether RICO’s civil remedies include the power to enter an injunction against the loser. Judge Kaplan decided it does, and that was the primary relief Chevron was seeking. It did not seek or get a money judgment against Donziger. Presumably it realized Donziger does not have anywhere near the amount of money it was seeking in damages, and so it dropped any money damages claims. But the relief it obtained, a permanent injunction against him from taking steps to enforce the judgment means Chevron will never have to pay the $9 billion. Technically, the injunction cannot stop Donziger’s affiliates from taking steps to enforce it in other countries where Chevron does business, but Chevron is fighting it in those nations too. This decision will likely help Chevron persuade judges everywhere that the judgment was ilegally procured and should not be enforced.
Donziger will certainly appeal to the Second Circuit. He will probably lose on all issues. Although the RICO claim was a stretch, a respected district judge has used RICO liberally, which is his prerogative. Congress specifically intended the law to be “liberally construed.” Most district judges construe it strictly and grudgingly. But the appellate courts have been more generous, and I find nothing here that is so out of line as to be reversible. Donziger’s conduct was so appalling that he invited the Judge to push RICO to its limits. It is decisions like this that create new paths for future RICO cases.