Chevron wins U.S. ruling calling Ecuador judgment as fraudulent

Chevron has won a U.S. judge’s ruling that a multibillion-dollar pollution judgment issued in Ecuador was procured by fraud, making it less likely that plaintiffs will collect the $9.5 billion award.

U.S. District Judge Lewis Kaplan in Manhattan said today that the second-largest U.S. oil company provided enough evidence that a 2011 judgment on behalf of rain forest dwellers in the country’s Lago Agrio area was secured by bribing a judge and ghostwriting court documents. Kaplan oversaw a seven-week nonjury trial over Chevron’s allegations.

“The decision in the Lago Agrio case was obtained by corrupt means,” Kaplan said in the opinion. “The defendants here may not be allowed to benefit from that in any way.”

Chevron, based in San Ramon, California, was ordered to pay $19 billion to a group of farmers and fishermen by the Ecuadorean court. The award was reduced to $9.5 billion on Nov. 12 by the Ecuadorean National Court of Justice, the nation’s highest tribunal.

The Ecuadorean villagers, and activists working on their behalf, argued the oil producer should be held financially responsible for pollution of the Amazon rainforest by Texaco Inc. from the 1960s through the early 1990s. Chevron, which bought Texaco in 2001, claims the company already paid $40 million to clean up its share of the drilling contamination.

Cases Pending

The Ecuadoreans have sued Chevron in Brazil, Argentina and Canada, where the company has assets that can be seized. The Court of Appeal for Ontario ruled in December that the 47 villagers have the right to pursue Chevron’s Canada assets. The other cases are pending.

The ruling bars the plaintiffs from trying to enforce the ruling within the U.S. but not elsewhere, Kaplan said, noting that Chevron had dropped a request for a worldwide injunction.

“This ruling will be very helpful if the plaintiffs continue to try to seek enforcement of a corrupt verdict that was obtained in Ecuador,” John Watson, Chevron’s chairman and chief executive officer, told reporters at the IHS CERAWeek energy conference in Houston today. “Having a judgment like this from a reputable court in the United States will certainly be helpful in preventing enforcement actions elsewhere. We will continue to defend ourselves in any enforcement actions around the world.”

Bribed Judge

In its racketeering case before Kaplan, Chevron alleged that a U.S. lawyer leading the Ecuadoreans, Steven Donziger, and members of his team engaged in “repeated acts of fraud, bribery, money laundering” and obstruction of justice in pursuit of a multibillion-dollar payout.

The company said that Donziger’s team bribed a judge who issued the decision with a promise of $500,000 from the proceeds, ghostwrote the ruling and arranged to have their own damages estimate submitted as independent findings to the court.

“This trial record proved what Chevron has been saying all along -- that Donziger, who professes merely to be a lawyer representing clients, is, in reality, a liar, con man, and criminal who has headed a racketeering enterprise targeting Chevron as its deep-pocketed victim,” Chevron lawyers said in a memorandum filed Dec. 23.

‘Flawed Proceeding’

Morgan Crinklaw, a Chevron spokesman, said in a statement today that Kaplan’s ruling is “a resounding victory for Chevron and our stockholders.”

“It confirms that the Ecuadorean judgment against Chevron is a fraud and the product of a criminal enterprise,” Crinklaw said. “Any court that respects the rule of law will find the Lago Agrio judgment to be illegitimate and unenforceable.”

Chevron shares were up .85 percent to $115.69 at noon in New York.

“This is an appalling decision resulting from a deeply flawed proceeding that overturns a unanimous ruling” by Ecuador’s high court, Donziger said today in a statement. “We believe Judge Kaplan is wrong on the law and wrong on the facts and that he repeatedly let his implacable hostility toward me, my Ecuadorean clients, and their country infect his view of the case.”

Donziger said he will pursue an “immediate and expedited appeal.”

Donziger has argued that he did nothing wrong in Ecuador and that any aggressive tactics he may have used were no worse than Chevron’s actions. Han Shan, a spokesman for the plaintiffs, described them as being “out-gunned on a profound level” against the oil company.

Corrupt Means

“The court assumes there is pollution in the Oriente,” Kaplan wrote, referring to the region of Ecuador where drilling occurred. “The issue here is not what happened in the Oriente more than twenty years ago and who, if anyone, now is responsible for any wrongs then done. It instead is whether a court decision was procured by corrupt means, regardless of whether the cause was just.”

During the trial, Chevron was represented in the courtroom by 10 lawyers, including seven partners, from Gibson Dunn & Crutcher LLP. Donziger’s team included a group of volunteers and trial lawyers Zoe Littlepage and Richard Friedman, who told Kaplan they were working for discounted fees.

Appellate lawyer Deepak Gupta joined Donziger’s team after the trial concluded. The decision “should be extremely troubling for anybody who cares about the rule of law,” Gupta said in a statement today.

“This court has taken the extraordinary and unprecedented step of appointing itself a worldwide fact-finding commission,” issuing “what is in effect a global anti-collection injunction,” Gupta said.

Financing Firms

Chevron sought to show that its adversaries weren’t lacking in resources, eliciting testimony that they received more than $30 million from sources such as a Pennsylvania trial lawyer, an Internet gambling entrepreneur who was friends with Donziger, and specialty financing firms.

One of the investment firms, Burford Capital Ltd., backed out of a commitment to fund the litigation after learning about fraudulent activities by Donziger, Chevron alleged.

Some celebrities supported the campaign against Chevron, including Trudie Styler, who founded the Rainforest Foundation with her husband, musician Sting, and helped to start a project to make clean water available to forest inhabitants in Ecuador. Styler attended some of the New York court proceedings, bringing her husband to watch Donziger testify.

Public Support

Actress Mia Farrow and actor Danny Glover also voiced support for the campaign, and the case was featured in a documentary, “Crude,” by filmmaker Joe Berlinger. Chevron won access to hundreds of hours of outtakes from the film, which it contended showed Donziger acting inappropriately.

The company said in a Jan. 21 brief filed with the Manhattan court that it spent more than $10 million gathering evidence to build the racketeering case against Donziger.

Donziger, a Harvard Law School graduate, joined the case in a junior role in the late 1990s and gradually rose to a position as a strategist and fundraiser. He contends that Ecuador-based lawyers are now in charge of the case.

Kaplan called the case’s background “extraordinary” and said tactics used by the Ecuadorean plaintiffs “include things that normally come only out of Hollywood -- coded e-mails among Donziger and his colleagues describing their private interactions with and machinations directed at judges and a court-appointed expert.”

Secret Account

The defendants made surreptitious payments to an expert from a secret bank account, a judge who was so inexperienced he used an 18-year old typist to do legal research for his ruling on the Internet in three languages he didn’t speak and a lawyer who invited a film crew to their private strategy meetings, Kaplan said in his ruling.

Kaplan credited Donziger’s initial motives for getting involved in the case, saying he sought “to do well for himself while doing good for others.” However the tactics resulted in a “corrupted” Lago Agrio case,’’ he said.

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