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Chevron Wins U.S. Ruling Calling Ecuador Judgment Fraud

Chevron Corp. (CVX) 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 an opinion that gave Chevron a sweeping victory. “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. That's almost half of its 2013 profit.

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.

Photographer: David Paul Morris/Bloomberg

Chevron Corp., based in San Ramon, California, was ordered to pay $19 billion to a group of farmers and fishermen by the Ecuadorean court. Close

Chevron Corp., based in San Ramon, California, was ordered to pay $19 billion to a... Read More

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Photographer: David Paul Morris/Bloomberg

Chevron Corp., based in San Ramon, California, was ordered to pay $19 billion to a group of farmers and fishermen by the Ecuadorean court.

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.

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.

Kaplan’s ruling bars the plaintiffs from trying to enforce the ruling within the U.S. but not elsewhere. The judge said he will require Donziger and Ecuadoreans involved in the case to pay Chevron “all fees and other payments, property, and other benefits” that they have received or will receive.

Foreign Courts

Kaplan’s bar on profiting from the judgment “applies anywhere in the world,” even though it doesn’t stop Donziger from trying to make his case in foreign courts, Randy Mastro, a lead lawyer for Chevron, said in a conference call today.

“They’re not allowed to put money in their pocket from this judgment,” Mastro said.

Chevron General Counsel R. Hewitt Pate said today that the company plans to share Kaplan’s ruling with judges overseeing proceedings in Brazil, Argentina and Canada.

“In view of the findings here about what really went on in this case, we don’t think any serious court will entertain enforcement of the fraudulent judgment,” Pate said.

John Watson, Chevron’s chairman and chief executive officer, told reporters at the IHS CERAWeek energy conference in Houston today that “having a judgment like this from a reputable court in the United States will certainly be helpful in preventing enforcement actions elsewhere.”

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.

Getting Justice

“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.

The decision “is a vindication of what we have been saying all along,” Mastro said. “This RICO case was always about exposing the truth and getting justice for a U.S. party that was a victim of a travesty of justice in Ecuador. That’s a truth that will now be heard around the world.”

In a statement, Donziger called Kaplan’s ruling “an appalling decision resulting from a deeply flawed proceeding that overturns a unanimous ruling,” by Ecuador’s high court. “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.”

Aggressive Tactics

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, has described them as being “out-gunned on a profound level” against the oil company.

“While the Ecuadoreans respect the rule of law in all countries, they do not accept this court’s jurisdiction nor this ruling,” Shan said in a statement today.

“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.”

Trial Lawyers

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 (BUR) 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.

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.

Junior Role

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.”

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.

The racketeering case is Chevron Corp. v. Donziger, 11-cv-00691, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Christie Smythe in Brooklyn at csmythe1@bloomberg.net; Patricia Hurtado in Federal Court in Manhattan at

pathurtado@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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