Chevron Wins Ruling Ecuador Judgment Was Devil’s Deal

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.

A U.S. judge handed Chevron Corp. a key victory in the energy company’s long-fought battle against a multibillion-dollar pollution lawsuit in Ecuador, ruling the American lawyer leading the case resorted to bribery and fraud.

U.S. District Judge Lewis Kaplan agreed with Chevron yesterday that attorney Steven Donziger had paid off a judge and engaged in money laundering to secure a $9.5 billion judgment from an Ecuadorean court against the global oil giant. The ruling leaves Donziger, who spent the past two decades fighting Chevron, with a slimmer chance of securing compensation for rain forest dwellers in the country’s Lago Agrio area who claimed their land was turned into a toxic dumping ground for foreign oil interests.

The New York plaintiffs’ attorney went over “to the dark side” and made a “bargain with the devil,” to obtain the 2011 judgment from the court in Ecuador, Kaplan said in a 500-page opinion yesterday. He ruled U.S. courts can’t be used to collect the award, cut in half from an original $19 billion by Ecuador’s highest court on Nov. 12.

“The defendants here may not be allowed to benefit from that in any way,” the judge wrote. The ruling may also make it more difficult for Donziger and his clients to collect the Ecuador court’s award by seizing Chevron assets outside the U.S.

Donziger would need to win a reversal of the decision on appeal in order to salvage a payday for himself and his clients after decades of litigation. Kaplan’s detailed findings will make winning an appeal more difficult, said Cassandra Burke Robertson, a law professor at Case Western Reserve University in Cleveland who has followed the case.

“The appellate court would have to conclude that the district court’s finding is clearly erroneous, which is a very hard standard to meet,” Robertson said. “Donziger definitely has an uphill battle to seek reversal.”

Other Countries

Chevron, the second-largest U.S. oil company by market value, has waged a battle across multiple countries to prevent Donziger from collecting the award, which was almost half of its 2013 profit of $21.4 billion. 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 yesterday in a conference call.

Chevron claims Kaplan’s opinion should be respected by courts in other countries, including Brazil, Argentina and Canada, where Chevron has assets and where Donziger and his team have already sued to try to collect on the judgment. 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.

Brazil, Canada

Chevron General Counsel R. Hewitt Pate said yesterday 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.

Ecuadorean villagers and activists working on their behalf had argued that Chevron, based in San Ramon, California, should be held financially responsible for pollution of the Amazon rainforest in the Lago Agrio area by Texaco Inc. from the 1960s through the early 1990s. Chevron, which bought Texaco in 2001, claimed the company already paid $40 million to clean up its share of the drilling contamination.

Secret Account

The case in Ecuador included “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,” Kaplan wrote.

Donziger and his team paid off a supposedly neutral court expert from a secret account, promised $500,000 to a judge handling the case who was so inexperienced he used an 18-year-old typist to do legal research, and wrote the judgment themselves, Kaplan said.

“Donziger began his involvement in this controversy with a desire to improve conditions in the area in which his Ecuadorean clients live,” said Kaplan, who oversaw a seven-week non-jury trial on the judgment. “In the end, however, he and the Ecuadorean lawyers he led corrupted the Lago Agrio case.”

“The length of the opinion gives the parties more ammunition to continue their fight,” said Robertson, the Case Western professor. “I would be surprised if the ruling were upheld in full, but I think the ruling prohibiting Donziger from benefiting financially from the case will likely stand.”

‘Helpful’ Ruling

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

Chevron has also brought an arbitration case against Ecuador over its alleged failure to uphold agreements releasing predecessor Texaco from legal cases over the pollution. The arbitration in The Hague is pending.

The Embassy of Ecuador said yesterday that Kaplan’s ruling “explicitly does not exonerate Chevron from its own legal and moral responsibilities resulting from its decades of contamination of the rainforest that has endangered the lives, culture, and environment of countless poor, indigenous people.”

The embassy said Ecuador isn’t a party in Chevron’s case against Donziger.

In a statement, Donziger called Kaplan’s ruling “an appalling decision.”

Wrong, Wrong

“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,” he said.

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

The lawyer 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. He said that Kaplan “made it clear he would rule against us” well before the trial began by refusing a request to hold the proceeding before a jury.

Appellate lawyer Deepak Gupta, who joined Donziger’s team after the trial concluded, said in a statement that Kaplan “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.”

Appalling Verdict

“This decision also effectively outlaws core activity protected by the First Amendment such as bringing lawsuits, holding protests, issuing press releases, and engaging public officials,” he said, referencing tactics mentioned in Kaplan’s decision. “This is particularly appalling given that this case is about holding a corporation accountable for refusing to clean up decades of toxic pollution in the Amazon.”

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.

He is “intelligent, resourceful, and a master of public and media relations,” Kaplan said in the decision.

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.

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

To contact the reporter on this story: Christie Smythe in Brooklyn at csmythe1@bloomberg.net

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

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