Injunction Against Seeking Recognition of an Ecuadorian Judgment

The long-running controversy over Ecuadorian claims of pollution of the Amazonian rain forest allegedly resulting from petroleum operations conducted between 1964 and 1992 recently took an interesting turn.  

On March 7, 2011, the United States District Court for the Southern District of New York entered an order enjoining a set of “Lago Agrio” plaintiffs from seeking recognition and enforcement of an $18 billion Ecuadorian judgment in any court outside the Republic of Ecuador. Chevron Corp. v. Donziger, No. 11 Civ. 0691 (LAK), 2011 U.S. Dist. LEXIS 22729 (Mar. 7, 2011). By order dated April 6, 2011, the district court refused to grant the Lago Agrio plaintiffs a stay of the preliminary injunction pending appeal.

The district court’s injunctive relief arose against the backdrop of allegations that the $18 billion judgment was obtained by fraud and that the Ecuadorian legal system does not provide impartial tribunals or procedures compatible with due process-both of which are generally grounds in U.S. courts for denying recognition of a foreign country judgment. See, e.g., Uniform Foreign Money-Judgments Recognition Act (UFMJRA) § 4. In addition, the Ecuadorian plaintiffs had loudly stated their intention to initiate simultaneous proceedings in multiple jurisdictions around the world for recognition and enforcement of the judgment, including their intention to seek ex parte attachments and seizures, as a strategy to exert pressure to compel a settlement. Consequently, even before the Lago Agrio judgment had been rendered, Chevron commenced an action that, among other things, sought a declaration as to the non-recognition of the judgment and made RICO claims against the plaintiffs’ lawyer and others, based on their alleged participation in the corruption of Ecuadorian justice.

In issuing a preliminary injunction, the district court found that Chevron had established a likelihood of success on its claims of fraud in the procurement of the judgment-including the submission of forged expert reports and the ghostwriting of a supposedly independent damages assessment-and its claim that the Ecuadorian tribunals are flawed. (The district court acknowledged that the Ecuadorian judicial system “has been plagued by corruption and political interference for decades.”) Chevron Corp., slip op. at 77-84.

The district court concluded that, under all the circumstances, the “balance of hardships tips decidedly toward Chevron” and therefore enjoined the Lago Agrio plaintiffs. Id. at 73.

The Ecuador controversy is somewhat unique in its scope, magnitude, and duration, and the breadth of the injunction is headline-grabbing; however, other cases involving such demonstrable fraud and corrupt judicial systems would just as likely fail under the UFMJRA and common law standards. On the other hand, it is not too difficult to envision future mass toxic tort cases being litigated against U.S. entities in foreign judicial systems that are not as corrupt but that are ill-equipped to handle mass tort cases and sophisticated toxic tort issues. Looking ahead, the evolution of foreign legal systems, the further development of international environmental standards, and the trend among U.S. courts not to permit claims for foreign environmental damages to proceed under the guise of an Alien Tort Statute cause of action might combine to give rise to an increase in such foreign mass toxic tort cases.

There will, no doubt, be closer questions in cases in which the facts are not as egregious as those present in the Ecuador controversy and in cases in which the foreign courts do not overreach. Of note, the National Conference of Commissioners on Uniform State Laws drafted a revised UFMJRA in 2005, which has now been adopted by 14 states. The revised act provides broader challenges to recognition by permitting a challenge to due process in the specific proceeding, rather than challenging the entire foreign judicial system. The revised UFMJRA, for example, allows challenges asserting a lack of judicial integrity in the particular proceeding. These sorts of challenges will be vital tools if foreign mass toxic tort judgments emerge.

In the most recent procedural turn in the Donziger action, the district court, by order dated April 15, 2011, bifurcated Chevron’s cause of action for declaratory judgment on the recognition of the judgment from the other counts in the suit sounding in fraud and violations of RICO.

Reprinted with permission from the May 23, 2011 issue of the American Bar Association – Mass Torts.  All rights reserved.