A decade ago, Texaco told Ecuadorean plaintiffs in a U.S. court to file their pollution claim at home. They did, and now the company's successor - Chevron - is fighting an $18 billion foreign judgment.
On the busy streets of Lago Agrio,
a boomtown in the Ecuadorean Amazon, the courthouse isn't easy to find. It's hidden amid cheap storefronts along the main shopping strip where, on a typical afternoon, local teenagers and out-of-town oil workers linger as helmetless motorcyclists buzz past.
Lago Agrio is at the center of Ecuador's oil industry. Before Texaco Petroleum Company acquired an exclusive 1,700-square-mile oil concession here in 1964, it was overgrown jungle. Now it's a bustling, hardscrabble town with pipelines that run along the roadside; oil processing equipment dominates the surrounding landscape.
Its frontier-town ambiance comes complete with a gated compound on the edge of town that displays pictures of scantily clad women on its walls. In Spanish, the compound is called "The House of Appointments."
The court is located on the fourth floor of a nondescript office building that features a casino on its ground floor. Upstairs, a bald man with gold-rimmed glasses that frame piercing brown eyes - provincial Judge Nicolás Zambrano - sits at a plain wooden desk waiting for me. Blue paint peels off the wall behind him.
With the stroke of a pen last year, Zambrano sent a chill through corporate boardrooms across the United States. In a 188-page ruling he held that Chevron Corporation - which acquired Texaco in 2001 - was liable by merger for $8.6 billion in damages for oil-related contamination in the Oriente region of Ecuador. In addition, Zambrano ordered that another 10 percent of that amount should be awarded to the plaintiffs - some 30,000 indigenous people in the Lago Agrio area who were affected by the pollution. And when Chevron didn't immediately apologize for the harm, the judgment imposed punitive damages that doubled the total to $18 billion (Aguinda v. Chevron Corp.
, No. 002-2003, (Prov. Ct. of Sucumbios judgment issued Feb. 14, 2011)).
Beyond the facts of the case, which include claims of attorney fraud and judicial corruption, the Chevron litigation is a high-profile example of a growing trend: U.S.-based plaintiffs lawyers are extending their reach, working with local counsel to file claims against transnational corporations for alleged illegal conduct abroad. And they are winning judgments, altering the balance between foreign plaintiffs and corporate defendants.
But none of that is of concern to Judge Zambrano, who insists he treated the Chevron case like any other matter before him - despite the massive publicity it generated. "There's no doubt it has received attention at an international level," he told me via a Spanish interpreter in a rare interview. "But I haven't felt pressured or affected, because this is what we do on a daily basis."
Attorneys for the plaintiffs first
filed claims against Texaco's Ecuadorean oil operations in 1993 in the Southern District of New York, under the Alien Tort Statute (ATS) (28 U.S.C. § 1350). (See "Panic at the Chamber of Commerce,".) Texaco challenged jurisdiction under forum non conveniens
, the standard defense in which a corporation argues that U.S. courts are not as appropriate or convenient as a foreign venue. After years of procedural delay, Judge Jed S. Rakoff dismissed the case in 2002 when Texaco consented to jurisdiction in Ecuador. (See Aguinda v. Texaco Inc.
, 303 F.3d 470, 473476 (2d. Cir. 2002).)
A year later the plaintiffs' legal team - led by Cristobal Bonifaz, counsel of record in the New York case, Ecuadorean counsel Pablo Fajardo, and Steven R. Donziger, a New Yorkbased consulting attorney - called Texaco's bluff and filed suit in Lago Agrio. Under a successor liability theory, the complaint alleged that Chevron was liable for pollution from Texaco's oil operations, and sought remediation under a recently passed Ecuadorean law permitting a private right of action for environmental damage. Donziger played a central role in advancing the litigation in Ecuador as well as in the United States.
Dozens of preliminary skirmishes and blanket press coverage ensued, and by the close of 2010 both sides had to bring in legal reinforcements. Enter powerhouse firms Gibson, Dunn & Crutcher, representing Chevron, and the corporate defense firm Patton Boggs, appearing on behalf of the plaintiffs. Chevron's lawyers at Gibson Dunn are led by Theodore J. Boutrous Jr., a partner in the Los Angeles office who is outwardly sunny of disposition but merciless in the courtroom, and Randy M. Mastro, a former lieutenant of Rudolph Giuliani, erstwhile mayor of New York. The plaintiffs turned to James E. Tyrrell Jr., a consummate corporate lawyer who defended Monsanto Co. when Vietnam War veterans sued over disabilities associated with Agent Orange, and later New York City against claims by first-responders in the aftermath of the World Trade Center attacks. Tyrrell likes being called "the master of disaster."
The bare-knuckle fight between the two major firms has become a fascinating subplot to a story that has more than its share of twists and turns. Both legal teams were plotting strategy on a global chessboard even before Judge Zambrano issued his opinion last year - each aware that Chevron itself never had assets in Ecuador (Texaco left in 1998). And both sides understood that efforts to enforce any judgment would begin in the United States.
Gibson Dunn and Patton Boggs started butting heads in earnest in the fall of 2010. When the latter firm sought a declaratory judgment that its acquisition of a lobbying shop with past ties to Chevron shouldn't keep it from representing the plaintiffs, Gibson Dunn moved to have the firm dismissed from the case. Patton Boggs responded in kind, accusing Chevron of tortious interference in a contractual relationship with its clients.
In the court filing, Patton Boggs asserted that Gibson Dunn was guilty of "scurrilous attacks" in an attempt "to put pressure on" the firm and force it to withdraw from the case. Boutrous described those claims as "frivolous and misguided." A federal judge in Washington, D.C., later dismissed the suit against Chevron (Patton Boggs LLP v. Chevron Corp.
, 791 F. Supp. 2d. 13 (D.D.C. 2011)). Patton Boggs has appealed, charging in a brief that Gibson Dunn attorneys were attempting "to warn off any other law firm that might dare to oppose Chevron."
By that point, however, Gibson Dunn had made creative use of a federal statute that permits the deposition of individuals in the United States for use in proceedings pending before a foreign court. (See 28 U.S.C. § 1782.) Invoking that provision, its attorneys filed requests in 17 different courts, looking for evidence of misconduct by any of the plaintiffs' U.S.-based consultants and lawyers. Their major target, though, was Donziger, whose invitation to let a documentary filmmaker chronicle his pursuit of Chevron proved to be a gift to defense lawyers. The resulting film - Crude
, released in 2009 - featured scenes in Ecuador that Chevron's lawyers argued show Donziger colluding with expert witnesses and seeking to intimidate the local judiciary.
After reviewing the film, U.S. District Judge Lewis A. Kaplan allowed defense attorneys to depose the filmmaker, Joe Berlinger (In re Application of Chevron Corp.
, No. 10 MC 00001 (S.D.N.Y memorandum order Sept. 7, 2010)). Gibson Dunn also sought discovery of the outtake footage from Crude
, which Berlinger opposed on First Amendment grounds. But the Second Circuit U.S. Court of Appeals ruled that Chevron was entitled to see all outtakes pertaining to the litigation (Chevron Corp. v. Berlinger
, 629 F.3d 297 (2nd Cir. 2011)). The video clips, posted on the Internet, recorded Donziger making disparaging comments about the Ecuadorean courts and holding forth on means by which the plaintiffs might influence the outcome of their case.
"The judicial system is so utterly weak," Donziger explained to the camera. "The only way that you can secure a fair trial is if you do things like ... go in and confront the judge with media around and fight and yell and scream and make a scene. That would never happen in the United States or in any judicial system that had integrity."
Donziger then added, in reference to Ecuadorean judges, "They're all corrupt! It's - it's their birthright to be corrupt."
The plaintiffs argued that Donziger's on-camera comments "show jokes, hyperbole, coarse language, freewheeling brainstorming sessions, and stray personal opinions that are of no legal significance."
But in a November 2010 ruling, Judge Kaplan described Donziger as "the field general of the Lago Agrio plaintiffs' efforts in Ecuador." He ordered waiver of the attorney-client privilege because of "substantial questions as to [Donziger's] possible criminal liability and amenability to professional discipline." (In re Application of Chevron Corp.
, No. 10-MC-00002 (S.D.N.Y. opinion filed Nov. 5, 2010).)
Donziger's lawyers, who include John Keker of Keker & Van Nest in San Francisco, prohibit him from talking to the media and deny any wrongdoing by plaintiffs attorneys in the Lago Agrio litigation.
Worse news was still to come for Patton Boggs and Tyrrell.
Sifting through the documents they obtained
by deposing Steven Donziger, Gibson Dunn's lawyers came upon a document titled Invictus
- "unvanquished," in Latin.
The 32-page memo, each page marked "privileged and confidential attorney work product," was prepared by Patton Boggs for its clients in the summer of 2010. It outlined how plaintiffs might enforce a favorable Ecuadorean judgment in multiple courts around the world, and it explained precisely what the firm's role would be.
"Obtaining recognition of an Ecuadorean judgment in the United States is undoubtedly the most desirable outcome," the memo stated. It also laid out a settlement strategy that included a public relations push and - immodestly - unveiled the "formidable legal team" put together by Patton Boggs. "Chevron's realization that it cannot bully its way to defeating enforcement, and that it faces an adversary with global capabilities and influence, will undoubtedly provide a strong incentive toward settlement," the document asserted.
The client memo might well have been written off as marketing or bravado, but what appeared to upset Gibson Dunn most about Invictus
was a section summarizing which U.S. state courts might be most receptive to enforcing claims regarding Chevron's assets brought even before
Zambrano's judgment became final.
"Consistent with their aggressive approach, Plaintiffs' Team will look for ways to proceed against Chevron on a prejudgment basis, largely as a means of attaining a favorable settlement at an early stage," the memo states. It proposed the same strategy to seeking assets in other countries, identifying "keystone" nations that have reciprocal relations with the United States or are party to a judgment-recognition treaty.
Gibson Dunn set about portraying the memo as proof of a plan to strong-arm Chevron into settlement. But Tyrrell, whose firm routinely seeks to enforce judgments in multiple jurisdictions on behalf of sovereign clients, made no apologies. He compares Invictus
to documents the firm prepares for clients awarded damages in arbitration that explain which of the country's courts are most receptive to enforcement. "It requires a very sophisticated expertise," Tyrrell explains.
Gibson Dunn lawyers are far more alarmed by Invictus
. After having a rare opportunity to peruse an adversary's strategy, Boutrous sounds simultaneously dismissive and worried. "It's a tough strategy for plaintiffs," he says. "If they are allowed to proceed, we will see a lot more of it."
Just two weeks before Judge Zambrano issued his ruling, Boutrous and his partners made their own bold move, filing a conspiracy lawsuit under the Racketeer Influenced and Corrupt Organizations Act (RICO) against the plaintiffs' attorneys, alleging predicate acts of extortion, mail and wire fraud, money laundering, obstruction of justice, and witness tampering, among others (Chevron Corp. v. Donziger
, No. 11-CV-0691 (S.D.N.Y. filed Feb. 1, 2011)). Citing the Invictus
memo and the Crude
outtakes, the complaint painted the entire case as a criminal enterprise to extort money from Chevron by taking advantage of a corrupt judiciary in Ecuador. The plaintiffs' lawyers and other advisors, it alleges, "have brought their pervasive fraud into the courts of this country and have attempted to hide their criminal scheme from Chevron and the courts." It names Patton Boggs as a non-party coconspirator.
Pursuing their central allegation that Zambrano's judgment was procured through fraud, Gibson Dunn's lawyers directly attacked the judge. In an opening footnote sure to raise eyebrows, they stated in a reply brief, "[G]iven this public record and indications in the judgment itself, Chevron suspects that Judge Zambrano received secret 'assistance' drafting the judgment and anticipates requesting discovery on this issue shortly."
Within a week Judge Kaplan granted a temporary restraining order against enforcement of any judgment against Chevron, should such a ruling occur. And as soon as Zambrano issued his opinion, Chevron sought a preliminary injunction barring the plaintiffs attorneys "or anyone else acting in concert with them" from attempting to enforce it in any court outside of Ecuador.
In an extraordinary opinion granting the injunction, Judge Kaplan ruled that Chevron had showed a likelihood of success on claims that the judgment was won through fraud. He found that Donziger had: "attempted to (1) intimidate the Ecuadorian judges, (2) obtain political support for the Ecuadorian lawsuit, (3) persuade the [Government of Ecuador] to promote the interests of the Lago Agrio plaintiffs, (4) obtain favorable media coverage, (5) solicit the support of celebrities (including Daryl Hannah and Trudie Styler) and environmental groups, (6) procure and package 'expert' testimony for use in Ecuador, (7) pressure Chevron to pay a large settlement, and (8) obtain a book deal." (Chevron Corp. v. Donziger
, 768 F. Supp. 2d 581, 600 (S.D.N.Y. 2011).)
The judge concluded: "There is abundant evidence before the court that Ecuador has not provided impartial tribunals or procedures compatible with due process of law." (768 F. Supp. 2d at 633.)
Patton Boggs appealed Kaplan's ruling, arguing that the injunction violated the principle of nonintervention by prohibiting other countries from considering whether to recognize and enforce the Ecuadorean judgment, and that the ruling wasn't yet final. It also asked that Kaplan be removed from the case for bias. Gibson Dunn countered that the principle of nonintervention did not apply, and that antisuit injunctions violate no international law or comity.
Gibson Dunn's strategy of challenging
both the foreign judgment and the plaintiffs attorneys who pursued it appeared to be working. The two firms are now battling in courtrooms around the country as both sides use section 1782 proceedings to obtain additional discovery. Each firm claimed minor wins through much of last year. But with Gibson Dunn apparently on a roll in Judge Kaplan's courtroom, Tyrrell won a victory to savor last September when, just three days after hearing oral arguments, the Second Circuit vacated Kaplan's preliminary injunction against enforcement (Chevron Corp. v. Naranjo
, 2011 WL 4375022 (2d. Cir.)). However, the court declined to remove Kaplan from the case.
Tyrrell says he greased the wheels for the favorable ruling by sending the court a letter after oral argument pledging that the plaintiffs would not seek to enforce Judge Zambrano's ruling as long as the case was on appeal in Ecuador. The decision is vital not just to the Lago Agrio case but also to the ability of future plaintiffs to enforce foreign judgments, he maintains. "The Second Circuit said it's not going to give special favoritism to U.S. companies or to anyone else," Tyrrell says.
In the midst of its contest with Patton Boggs,
Gibson Dunn quietly announced creation of a new practice group: a 27-lawyer bicoastal unit called Transnational Litigation and Foreign Judgments, co-led by Boutrous. According to the firm's press release, the move was prompted by two matters: Gibson Dunn's defense of Chevron against the Ecuadorean lawsuit, and its earlier representation of Dole Food Company in fighting a series of claims that it exposed workers on Central American banana plantations to DBCP, a pesticide that allegedly causes sterility.
It was during the Dole litigation that Gibson Dunn first challenged adverse court judgments in multiple jurisdictions, alleging both fraud by plaintiffs attorneys and corruption in foreign courts. In 2009 it won the reversal of several judgments against Dole.
In introducing the new practice group, Boutrous stated that the firm aimed to develop more than defensive tactics, achieving "an affirmative strategy to ultimately end the [greater threat of] litigation." In an interview, he describes the Dole and Chevron cases as "the first wave of this litigation," adding, "We do see this as an area of potential growth."
Boutrous and others see a need for more aggressive tactics now because forum non conveniens
in many instances is no longer an effective defense. "Forum non conveniens
used to be your get-out-of-jail-free card," says Eric B. Lasker, a Washington, D.C.based partner at Hollingsworth. "Now," he laments," it's your get-into-jail card."
So it seemed in Chevron
, when the plaintiffs successfully refiled their litigation in Ecuador. Still, some U.S. courts have considered arguments that a foreign court is adequate and appropriate for purposes of dismissal, but also inadequate and flawed for purposes of enforcing judgment. Taking a gamble in a foreign court, then - especially one with a judicial system that doesn't guarantee due process - might be worth it, says Montre Carodine, a professor at the University of Alabama School of Law. That way, she says, even if a corporation loses a lawsuit abroad, it can challenge the judgment when the plaintiffs seek to enforce it in the United States.
This seems to be exactly Chevron's strategy in the Lago Agrio case - hoping to exploit widely discussed deficiencies in the local judicial system that have only worsened since leftist President Rafael Correa took office in 2007. According to Carodine, Ecuador "is one of the countries that are easier to pick on - you're not going to see judges pick on French or British judgments."
Boutrous views the dwindling efficacy of forum non conveniens
as a tribute to the creativity of the plaintiffs bar, which he says is "ingenious at coming up with new strategies." Whether cases are filed in the United States or in developing countries, Boutrous insists, it's all "international ambulance-chasing." U.S. plaintiffs lawyers who seek alien tort cases abroad, he says, may fall short of ethical standards, soon finding themselves "knee-deep in fraud." From the defense perspective, he contends, "it's important to put a stop to them."
Tyrrell - hardly an ambulance chaser - is not at all surprised by the globalization of civil litigation. Lawyers, he notes, are perfectly within their rights to pursue a favorable jurisdiction, whichever side they represent. "That's what we should do," he says. "How could Chevron not
expect to get sued?"
Last month a three-judge court of appeal in Ecuador upheld Zambrano's ruling, stating "this court does not find reasons to change what was previously ruled by the lower court." It added that Chevron has "been responsible for incidents that prevented the proceedings of the trial" by challenging the legitimacy of the judges and the legal system. In a statement, Chevron called the ruling "another glaring example of the politicization and corruption of Ecuador's judiciary."
With an appellate ruling in hand and the Second Circuit's lifting of Kaplan's injunction, the Lago Agrio plaintiffs appear free to enforce the judgment. A spokesman for the plaintiffs said the key issue now is whether Chevron will be required to post a bond with the appeals court in Ecuador while it petitions that country's National Court of Justice.
Meanwhile, Gibson Dunn's lawyers have opened a new front in their RICO case by moving to attach the plaintiffs attorneys' assets. In part the move was an attempt to stymie efforts by Donziger to obtain additional outside funding for the litigation. (Most controversially, he won financial support from Burford Capital Ltd., a British investment group at the forefront of third-party financing.)
But the plaintiffs' legal team also has a stake in the outcome of the Lago Agrio case: Patton Boggs was due 12 percent of the 30 percent contingency from any eventual recovery by the plaintiffs, Donziger told Gibson Dunn in deposition. Other firms assisting the plaintiffs made similar arrangements, he testified: South Carolina-based Motley Rice was due 16.5 percent of any fee award, Emery Celli Brinckerhoff & Abady in New York was due 10 percent, and the local counsel in Ecuador were to share another 10 percent. Burford would collect up to 5.5 percent of the fee, and Donziger himself stood to gain the most: 31.5 percent.
Despite all the maneuvering, neither Gibson Dunn nor Patton Boggs call attention to the most likely method for resolving the Chevron matter: international arbitration. The United States and Ecuador are parties to a bilateral investment treaty that allows private parties to pursue claims under rules of the U.N. Commission on International Trade Law. Chevron filed a claim against Ecuador in 2009, seeking an order forcing the government to indemnify it for any damages eventually collected by the Lago Agrio plaintiffs, who are not parties to the arbitration. And although both Gibson Dunn and Patton Boggs employ arbitration experts, neither firm is involved in the case pending at The Hague (Chevron Corp. and Texaco Co. v. The Republic of Ecuador
(Perm. Ct. Arb. Case No. 2009-23)).
Boutrous admits that arbitration will play "an important role in some of [Chevron's] transnational litigation battles." But he sees no parallel between Chevron's tactics at The Hague and Patton Boggs's efforts to enforce the Lago Agrio judgment in multiple jurisdictions. "I think the analogy breaks down here," he says. "Patton Boggs is trying to enforce a fraudulent judgment."
Lobbing a grenade in Tyrrell's direction, Boutrous wonders how Patton Boggs, with its roster of corporate clients, even dared to take on the Lago Agrio plaintiffs. "I don't think this has been a good experience for Patton Boggs," he says. "Other firms would be wary. It's high-risk. It exposes your firm to reputational damage. It's very costly, too."
But Tyrrell sees his firm's involvement as a straightforward business decision. Referring to its September victory, he snorts, "I don't view a crushing win in the Second Circuit as a bad experience." Asked whether Patton Boggs would take on cases similar to the Lago Agrio litigation, however, he equivocates: "It remains to be seen."
Back in the dusty streets of Lago Agrio,
the toxic legacy left by oil industry operations is evident. The plaintiffs drive me to one site near town where a layer of thick crude oil tops drainage filling an open pit. Elsewhere, behind an oil processing facility, rainbow-colored oil slicks glint on the surface of a contaminated creek.
Chevron maintains that it isn't liable for any of this environmental damage. Before Texaco pulled out of Ecuador, it signed a remediation agreement and paid the government $40 million. But despite the 18 years of litigation that followed, very little appears to have been done to address the contamination that remains.
Some in Lago Agrio are dimly aware of the pitched battles taking place in courts around the world. But Judge Zambrano expresses no interest, despite having both his integrity and that of the Ecuadorean judicial system questioned by Gibson Dunn's lawyers, as well as by Judge Kaplan in New York.
Zambrano shrugs. He tells me I am welcome to peruse the 2,067 files in the case to review how it has been managed. "This case is as important as the other cases that this court handles," he says. "We treat all cases with the same attention and depth."
Lawrence Hurley is a Washington, D.C.-based legal reporter for Greenwire and the former U.S. Supreme Court correspondent for the
Los Angeles Daily Journal.