Recent Developments: Chevron-Ecuador Dispute

Two notable decisions were issued this month in the long-standing litigation campaign between Chevron Corporation, a group of Ecuadorian plaintiffs alleging environmental injuries from oil exploration and production activities in Ecuador, and the Republic of Ecuador. The decisions, summarized below, touch on several critical issues that arise predominantly in international litigation.

Chevron's epic legal battle with Ecuador concerning the environmental consequences of Texaco's prior activities in that nation has been well-chronicled; it has been the subject of a feature-length film, several books, and a great deal of written commentary.1 While a full description of the case is beyond the scope of this update, some background is in order.

In 1993, a putative class of Ecuadorian citizens commenced an action (the "Aguinda" action) in the U.S. District Court for the Southern District of New York against Chevron Corporation, seeking billions of dollars in damages as a result of alleged environmental contamination to the Ecuadorian rain forest that the plaintiffs contended was caused by Texaco, Inc., a subsidiary of which had engaged in petroleum exploration and drilling activities in the Oriente region of eastern Ecuador between 1964 and 1992.2 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 and Petroecuador as indispensable parties. The district court, relying in part upon pledges made by Texaco to submit to the jurisdiction of the Ecuadorian courts in connection with the plaintiffs' claims and to honor, subject to certain defenses set forth in New York law, any judgment rendered on those claims, dismissed the Aguinda action on forum non conveniens grounds, and the Second Circuit affirmed.3

Two noteworthy developments occurred while the Aguinda action was pending. First, in 1995, Texaco entered into a settlement with the Ecuadorian government and Petroecuador, in which Texaco agreed to undertake environmental remediation activities at the former drilling sites in exchange for a release by the Ecuadorian government from any liability. In 1999, while the Aguinda parties were litigating Texaco's motion to dismiss on forum grounds, Ecuador enacted the "Environmental Management Act," an act that provided private plaintiffs with the ability to bring an action for damages for the cost of remediation of environmental harms generally, even absent proof of any personal injury or property damages to a specific plaintiff. One of the lawyers for the Aguinda plaintiffs later stated that his team had worked with Ecuadorian lawyers to win passage of the law, which he noted was intended to resemble the U.S. Superfund law and was sought specifically in case the Aguinda claims ultimately had to be pursued outside the United States. Unsurprisingly, following the Second Circuit's dismissal of the Aguinda action 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. While the transfer of the litigation from New York to Ecuador resulted in Ecuadorian lawyers taking primary responsibility for the case, the Aguinda plaintiffs' New York lawyer – Steven Donziger – "remained very much involved" and became "the fulcrum of the entire effort to use the Lago Agrio litigation to obtain a very large payment from Chevron."4

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 more than 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 was to be paid to the Amazon Defense Fund ("ADF"), an organization purporting to represent the plaintiffs; and punitive damages equal to the amount of the compensatory award were to be imposed unless Chevron issued a "public apology" to the plaintiffs within 15 days – something it did not do.

In 2009, while the Lago Agrio case was pending in Ecuador, Chevron commenced an arbitration proceeding under the United States–Ecuador Bilateral Investment Treaty, claiming that (a) the Ecuadorian courts' handling of the Lago Agrio case violated Chevron's due process rights, and (b) the Lago Agrio litigation violated the settlement agreement that Texaco entered into with Ecuador and Petroecuador. As discussed below, the Republic of Ecuador sought a stay of this arbitration, claiming that Chevron should be prohibited from prosecuting it on grounds of estoppel and/or waiver.

Finally, on February 1, 2011, Chevron commenced suit against the Lago Agrio plaintiffs (the "LAPs"), Donziger and his law firm, 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 Donziger and his firm under the New York Judiciary Law 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 any judgment rendered in the Lago Agrio case outside of Ecuador.

In addition to impacting the course of these cases and the dispute as a whole, the recent decisions in the Chevron cases touch on a number of issues of critical importance in international disputes. We summarize them below.

CHEVRON V. DONZIGER5

As noted above, on February 1, 2011 – just less than two weeks before the Ecuadorian court issued its judgment in the Lago Agrio action – Chevron filed suit against Donziger, the LAPs, and various other parties; as part of this action, Chevron sought a temporary restraining order and preliminary injunction against the defendants to prevent them from attempting to enforce any Ecuadorian judgment rendered against them outside Ecuador. Judge Kaplan granted Chevron's motion in a 127- page decision that, in addition to providing a comprehensive history of the dispute, contains a thorough analysis of several issues that take on heightened importance in international disputes: the ability to enjoin foreign proceedings, international comity, enforceability of foreign judgments, and service of process.

Service of Process

Chevron effected service on the defendants pursuant to Fed. R. Civ. P. 4(f)(3), which authorizes service of process on aliens "by other means not prohibited by international agreement, as the court orders." Specifically, the district court...