Second Circuit Issues Two Key Enforcement Rulings

Author:Mr James Berger and Charlene C. Sun
Profession:Paul Hastings LLP
 
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On January 26, 2012, the U.S. Court of Appeals for the Second Circuit issued its long-anticipated ruling in Chevron Corp. v. Naranjo,1 in which it previously vacated an anti-enforcement judgment prohibiting a group of Ecuadorian plaintiffs from seeking to enforce an $18 billion judgment anywhere outside of Ecuador. The Second Circuit's decision in Chevron comes just over a month after its equally significant ruling in Figueiredo v. Republic of Peru,2 in which the Court ordered a proceeding brought under the Inter-American Convention on International Commercial Arbitration (the "Panama Convention")3 dismissed on forum non conveniens grounds. We briefly summarize and analyze each of these significant decisions below.

ANTI-ENFORCEMENT INJUNCTIONS:

Chevron Corp. v. Naranjo, ___ F.3d ___, 2012 WL 232965 (2d Cir. Jan. 26, 2012)

The Second Circuit's decision in Chevron represents the latest development in the legal battle — ongoing for almost twenty years — between citizens of Ecuador and Chevron over alleged environmental harm resulting from oil exploration activities in the Lago Agrio region of the Ecuadorian Amazon. In 1993, a putative class of Ecuadorian citizens (the "Lago Agrio Plaintiffs") commenced an action against Texaco, Inc. ("Texaco") in the U.S. District Court for the Southern District of New York (the "Aguinda" action), seeking billions of dollars in damages as a result of alleged environmental damage that the plaintiffs contended was caused by Texaco, a subsidiary of which had engaged in petroleum exploration and drilling activities between 1964 and 1992.4 Texaco promptly moved to dismiss the Aguinda action on a number of grounds, including forum non conveniens and the plaintiffs' failure to join the Republic of Ecuador ("ROE") and Petroecuador as indispensable parties. The district court dismissed the Aguinda action on forum non conveniens grounds, and the Second Circuit affirmed.5 In connection with the dismissal of the Aguinda action, Texaco agreed to submit to the jurisdiction of the Ecuadorian courts (which it had argued were a more suitable forum for the case) in connection with the Aguinda claims, but specifically reserved its right to contest the validity of any judgment resulting from Ecuadorian proceedings.

Following the Second Circuit's dismissal of the Aguinda case on forum grounds, a group of Ecuadorian plaintiffs (including many of the original Aguinda plaintiffs) commenced suit against Chevron and Texaco in Lago Agrio, Ecuador. The Lago Agrio litigation was characterized by disputes about the propriety of expert reports, allegations of political interference in the proceedings by Ecuadorian officials (including the President of Ecuador), and changes in the makeup and constitution of the Ecuadorian judiciary. The Lago Agrio court rendered its judgment on February 14, 2011. That judgment awarded the plaintiffs a total of over US$18 billion. Of this sum, $8.646 billion was characterized as compensatory damages; an additional amount equal to ten percent of the compensatory award that would be paid to the Amazon Defense Fund ("ADF"), an organization purporting to represent the plaintiffs; and punitive damages equal to the compensatory award, which the Court held would be imposed unless Chevron issued a "public apology" to the plaintiffs within fifteen days, something it did not do.

On February 1, 2011, just prior to the Lago Agrio court's issuance of the judgment, Chevron commenced suit against the Lago Agrio plaintiffs (the "LAPs"), their American lawyer, one of the environmental consulting firms that assisted the plaintiffs in the Lago Agrio case, and four groups affiliated with the plaintiffs (including ADF). Chevron's complaint included claims under the Civil RICO statute, related state tort claims sounding in tortious interference with contract, fraud, civil conspiracy, unjust enrichment, claims against the lawyers concerning their conduct of the case, and a declaration that the Lago Agrio judgment is not entitled to recognition in the United States or anywhere else. In connection with its claim for a declaratory judgment, Chevron sought a preliminary injunction seeking to prohibit the LAPs from enforcing their judgment anywhere outside Ecuador.

Judge Lewis Kaplan granted Chevron's motion in a 127-page decision that held that Chevron was likely to succeed on the merits of its action seeking a declaration that the Ecuadorian judgment was unenforceable under the Uniform Foreign Country Money Judgments Act, and that any enforcement actions undertaken by the LAPs posed a risk of irreparable injury to Chevron.6 As a result, it preliminarily enjoined the LAPs from pursuing any enforcement proceedings outside Ecuador. The district court's grant of the injunction relied extensively on evidence concerning the LAPs' conduct of the Lago Agrio case,7 as well as findings that the LAPs had a strategy of seeking prompt enforcement of the judgment, that such a strategy was specifically intended to coerce Chevron into settling the case quickly in order to avoid harm to its corporate goodwill and business relationships, and that in the absence of an injunction, the LAPs might achieve this goal through asset seizures that would disrupt Chevron's supply chain and cause it to miss deliveries that would damage its goodwill. In considering the potential irreparable injury to Chevron, the district court observed that:

injunctions to restrain a multiplicity of suits [in cases of vexatious litigation] . . . are not only permitted, but favored, by the courts." This is so largely because a multiplicity of suits has in terrorem value — it forces its target needlessly to defend itself in many fora and thus creates settlement pressures above and beyond anything warranted by the merits.8

The LAPs appealed Judge Kaplan's decision.

The Second Circuit vacated Judge Kaplan's order on September 19, 2011, stating that it would issue an opinion at a later time. On January 26, 2012, the Court issued a 30-page decision dismissing Chevron's declaratory judgment cause of action (upon which the injunction was based) in its entirety. The court's decision was based upon its view that New York's Uniform Foreign Money Judgments Act (the "Foreign Judgments Act") — upon which Chevron relied for its request for declaratory and injunctive relief — did not permit a judgment debtor to preemptively challenge a foreign judgment by seeking to establish that judgment's unenforceability. Specifically, the court stated:

Whatever the merits of Chevron's complaints about the Ecuadorian courts, however, the procedural device...

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