Two years ago, I expressed skepticism that Chevron Corp.’s RICO claim against New York City attorney Steven Donziger and his co-conspirators could survive (March 2011 blog).  I was wrong.  Judge Lewis A. Kaplan of the Southern District of New York has denied Donziger’s motion to dismiss the RICO complaint, alleging he is engaged in a massive scheme to extort vast sums of money from the giant oil company by having procured a $15 billion judgment against it in an Ecuadoran court.  The Complaint reads like a novel, detailing the machinations Donziger undertook to convince an Ecuadoran judge to rule in his clients’ favor (the clients being Ecuadoran citizens whose property had been contaminated by Chevron and Texaco’s pollution over several decades).  The alleged corruption includes influencing the judge, ghostwriting the court-appointed expert’s report which detailed the environmental contamination, organizing protests outside the courthouse, planting false stories about Chevron in the media, etc.  One cannot read it and not believe Chevron has suffered a grave injustice (the judgment has since been affirmed on appeal by the Ecuadoran court system), but is there really a RICO case here?

Ordinarily, absent the staggering sum of money involved here and the attendant publicity, this case would have been dismissed.  First and foremost, Chevron’s only injury to date is the payment of attorney’s fees in having to bring an action to stay enforcement of the Ecuadoran court’s $15 billion judgment.  It successfully did so, meaning it has not paid a dime of it and will not be required to do so until an international tribunal gets to decide if it was procured by fraud.  So has it really been damaged by a RICO predicate offense, as is required?   The courts are divided as to whether the payment of attorney’s fees in order to defend frivolous litigation is “damage” for purposes of 18 U.S.C. § 1964(c), RICO’s civil damages provision.  The Seventh Circuit has held such damage is “speculative, but Judge Kaplan ruled in favor of Chevron on this question without much evident difficulty.”

Secondly, a RICO plaintiff must allege a pattern of racketeering activity in order to state a claim (even though the plaintiff need only be injured by one violation, not the whole pattern).  The pattern in this case is attempted (not actual) extortion from Chevron.  If the Ecuadoran proceedings were such a sham that it amounted to a nonjudicial scheme to extort money from the company, then perhaps the lawsuit would amount to extortion dressed up as the judicial process.  But generally, the courts have held that frivolous lawsuits are not a form of extortion for purposes of RICO.  And the other predicate acts are nothing more than bad-faith litigation tactics which, unfortunately, go in many cases, i.e., manufacturing false evidence and “holding out the [expert] report as independent and neutral when it was not.”  If that is the basis for a RICO suit, then the federal courts may be hearing a lot of disgruntled litigants filing RICO cases to effectively appeal their losses.

Yet, Judge Kaplan saw no particular problem with allowing these tactics to be pleaded as “mail fraud” and used as RICO predicate acts in this case.  Third, RICO cannot be predicated upon “extraterritorial” (foreign) conduct.  Yet, here, too, Judge Kaplan sided with Chevron despite a decision from the Second Circuit which would have allowed him to dismiss the case.

I’m not saying Judge Kaplan’s rulings are wrong.  I am saying he is using every bit of his considerable discretion in Chevron’s favor to allow its RICO case to proceed.  He has also ruled against Donziger on discovery orders, requiring him to turn over some of his correspondence with a law firm that is ordinarily privileged, invoking the “crime-fraud” exception to the attorney-client privilege.  Federal judges are rarely so generous to RICO plaintiffs.  Judge Kaplan plainly believes RICO is appropriately used in this case, despite the fact that Chevron has other legal remedies (it also pleaded common law remedies of fraud, tortious interference with its business and civil conspiracy).  This underscores that discretionary nature of RICO, and other vaguely worded statutes.

All of this goes to show that federal judges can sustain many RICO cases if they believe the plaintiff has been grievously wronged.  Precedents can be distinguished to death, legal rules can be stretched, and consequently, the federal courts will be the forum to hear what otherwise would be big, but fairly typical, state-court litigation.  A RICO lawyer pleading a case should use every opportunity to present his client’s case to make the injustice clear and irresistible.