International Business Law Advisor : International Business Lawyer & Attorney : Santiago Cueto Law Firm : Global Business Litigation & Finance Commentary

The arc of the moral universe is long but it bends toward justice

— Martin Luther King, Jr.

The seventeen-year war between Ecuador’s 30,000 class plaintiffs against oil giant Chevron  continues its global odyssey, as the oil giant pulls out every trick in the book to avoid an impending $27 Billion judgment against it in Ecuador for contaminating an immense portion of rainforest and devastating the local population.

Chevron first fought successfully to force plaintiffs to try their lawsuit in Ecuador rather than U.S. courts. Then it sought (unsuccessfully) to win indemnification in U.S. courts from a possible judgment in Ecuador. And now it's filed for arbitration seven thousand miles across the Atlantic in Holland.

Chevron’s latest tactical attempt to escape justice in Ecuador is consistent with its October 2007 press release, in which it promised the plaintiffs “a lifetime” of appellate and collateral litigation if they persisted in pursuing their claims.

Unfortunately for Chevron, it grossly underestimated the resolve of the class plaintiffs to seek justice.  As reported in The Wall Street Journal article, Chevron Plaintiffs Ask U.S. Court for Action, the People of Ecuador just filed a Petition to Stay Arbitration in United States District Court (S.D.N.Y) to enjoin Chevron from proceeding on the baseless international arbitration claim it recently filed in Holland. In December the Government of Ecuador filed its own Petition to Stay Arbitration.

As a litigator, I’m mindful that an attorney's obligation to zealously advocate his clients' interest may involve forum shopping as part of the procedural calculus, however, the obligation must be tempered with a keen understanding of what becomes abusive litigation.

Chevron’s global quest for a favorable forum is a text book example of abusive litigation. To litigate a lawsuit across three continents is a cynical game of musical jurisdictions and takes corporate arrogance and the civil justice system to a new low.  Isn’t it time for Chevron to take a seat when the music stops in Ecuador?

What do you think?

   -Santiago

P.S. This is the third in a series of posts discussing this extremely important case. Be sure to read Chevron Files International Arbitration Claim Against Ecuador: Forum Shopping in the Hague? and Chevron’s Missteps: How Not to Handle Foreign Litigation.

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In an earlier post, I wrote about the Enforcement of Chinese Judgments in the United States and cited a recent California decision enforcing a Chinese judgment in the United States. The case is unique because it is generally believed that United States courts will not enforce Chinese judgments given the lack of a treaty between the two countries on the issue and given that Chinese courts generally do not enforce United States judgments in China.

While the California decision came as welcome news to the plaintiffs, a recent Florida case may serve to temper the hopes of foreign litigants seeking  to liquidate their judgments in U.S. courts.  Earlier this week, as reported in the Wall Street Journal by Ashby Jones in the article Dole on A Roll: Court Declines to Enforce $97M Judgment, a federal judge in Miami refused to enforce a $97-million judgment ordered by a Nicaraguan court. Plaintiffs sought to enforce the judgment under Florida’s Uniform Out-of-Country Foreign Money-Judgments Recognition Act. The judgment handed down four years ago by 150 Nicaraguans who said they suffered injuries from pesticides used at Dole’s banana farms in the 1970s, can’t be enforced because it was based on a law that violates international legal standards, said Judge Paul Huck in Miami Tuesday. Judge Huck’s Order Denying Recognition of Judgment is worth a read.

In the opinion, Judge Huck found:

[T]hat the judgment in this case did not arise out of proceedings that comported with the international concept of due process. It arose out of proceedings that the Nicaraguan trial court did not have jurisdiction to conduct. During those proceedings, the court applied a law that unfairly discriminates against a handful of foreign defendants with extraordinary procedures and presumptions found nowhere else in Nicaraguan law. Both the substantive law under which this case was tried, Special Law 364, and the Judgment itself, purport to establish facts that do not, and cannot, exist in reality. As a result, the law under which this case was tried stripped Defendants of their basic right in any adversarial proceeding to produce evidence in their favor and rebut the plaintiffs’ claims. Finally, the judgment was rendered under a system in which political strongmen exert their control over a weak and corrupt judiciary, such that Nicaragua does not posses a “system of jurisprudence likely to secure an impartial administration of justice.”

Those are strong words coming from one of the country’s most experienced jurists on the subject of foreign judgments--due in part to the Court’s geographical proximity to South America.

Judge Huck concluded:

That Defendants have established multiple, independent grounds under the Florida Recognition Act that compel non-recognition of the $97 million Nicaraguan judgment. Because the judgment was “rendered under a system which does not provide impartial tribunal or procedures compatible with the requirements of due process of law,” and the rendering court did not have jurisdiction over Defendants, the judgment is not considered conclusive, and cannot be enforced under the Florida Recognition Act. FLA. STAT. § 55.605(1)(a)-(c). Additionally, the judgment will not be enforced because “the cause of action or claim for relief on which the judgment is based is repugnant to the public policy of this state.” FLA. STAT. § 55.605(2)(c). The Court, therefore, orders that Plaintiffs’ judgment shall be neither recognized nor enforced.

The Court was persuaded in part by a United States State Department Country Report, which found that in every year from 1999 through 2008, Nicaragua lacked an effective civil law system. The Report is on point, as Nicaraguan courts have issued judgments in 32 such suits for a total of $2.05 billion against Dole and pesticide makers since 2002.  As reported in the article Assailing Nicaraguan Judicial System, Miami Judge Refuses to Enforce $98 Million Judgment in Banana Pesticide Case, authored by Andrew Longstreth in the American Lawyer Litigation Daily, plaintiff’s own expert “’admitted on cross-examination that some judges are not impartial or independent and emphasized the need to improve Nicaragua's judiciary.’"

Although this is a powerful ruling with potentially broad implications, it remains to be seen whether it will be a major deterrent to bringing other verdicts to the United States. This latest ruling is of particular interest to me given, my earlier posts here and here,  on the Chevron litigation currently taking place in Ecuador.

Trend to Watch: Look for Other U.S. Courts to More Closely Examine Foreign Judgments That Reach Their Doorstep. 

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**Update January 15, 2010**: The Republic of Ecuador and the class Plaintiffs have both challenged Chevron's arbitration claim in New York federal court. You can read about it here and here.

First, the United States. Then Ecuador. Now Holland. Chevron's wanderlust knows no bounds, as it recently filed a parallel international arbitration proceeding in the Hague (Holland).

The Arbitration Claim

As reported in this article in the Wall Street Journal and in this article in the New York Times,  Chevron filed an international arbitration claim before the Permanent Court of Arbitration in The Hague under the Rules of the United Nations Commission on International Trade Law (UNCITRAL). The claim is based on Ecuador's alleged violation of investment agreements, international law, and its treaty with the United States--the Encouragement and Protection of Investments Treaty.

Chevron’s claims relate to the Amazon oil lawsuit I wrote about in an earlier post.  In the arbitration filed in the Hague, Chevron alleges that Ecuador’s judicial process is broken and that the South American nation cannot fairly adjudicate the long-running oil pollution litigation.

Through the filing, Chevron seeks to enforce prior settlement and release agreements that the government of Ecuador entered into with Texaco Petroleum when the consortium was terminated, and to hold Ecuador accountable for its obligations under Ecuadorian law and existing international treaties.

Forum Shopping in the Hague Must be Condemned

Chevron's latest move is the litigation equivalent of three card monty and is yet another tactic to divert attention away from the trial taking place in Ecuador. Filing an international arbitration campaign at this point in time smacks of desperation and is a clear example of forum shopping, as Plaintiffs counsel Steven Donziger stated in this Reuters article.

Chevron first fought successfully to force plaintiffs to try their lawsuit in Ecuador rather than U.S. courts. Then it sought (unsuccessfully) to win indemnification in U.S. courts from a possible judgment in Ecuador. And now it's filed for arbitration seven thousand miles across the Atlantic in Holland. 

The Hague is arguably the most hallowed institution for the resolution of high-profile international disputes. Chevron's latest tactic all but mocks the institution's primary mission to administer justice. The Hague must not be utilized to frustrate legitimate legal proceedings taking place elsewhere.

Forum Shopping Creates Broad Incentives for Abuse

As Chevron's arbitration claim illustrates, the opportunity for one party to game the system and manipulate the outcome of a case by choosing a specific forum over another creates broad incentives for abuse. Among other things, forum shopping :

1. creates legal uncertainty (particularly for the defendant);
2. drains resources by imposing substantial additional costs on defendants, who must transport lawyers, documents, and numerous witnesses to the site of the trial – an expense that is multiplied when the trial is located far from the defendant’s place of business.
3. undermines the authority of substantive state law by calling into question the equity of the legal system.

Although under extremely limited circumstances forum shopping may prove a legitimate means to achieve a more just result, it is disproportionately utilized to avoid a just result by exploiting the points outlined above--as Chevron has done.

Conclusion

While an attorney's obligation to zealously advocate his clients' interest may involve forum shopping as part of the procedural calculus, the obligation must be tempered with a keen understanding of what becomes abusive litigation.

Trend to Watch: Given the High Profile Nature of Chevron's Claim, Look for an Increase in Similar Filings in the Hague

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Some of my recent "how to" posts have offered practical advice and tips concerning various areas of international business law. This post is different--it's a "how not to" article based on Chevron's inept and unethical handling of the oil pollution trial currently taking place in Ecuador. While zealous advocacy is critical to any high caliber practice, it must never cross the line into unethical conduct.

The Lawsuit

To put the case into context, Ecuadorean indigenous groups sued Texaco (which Chevron acquired in 2001) in the U.S. District Court in New York in 1993. The suit alleges the company polluted the Amazon rain forest and rivers, causing damage to the environment and their health. Chevron moved to dismiss the case on grounds of forum non conveniens. The U.S. court dismissed the complaint and held that the case should be resolved by an Ecuadorean court. Based on the ruling, the plaintiffs filed a lawsuit in the small jungle city of Lago Agrio.

After expending an exorbitant amount of resources to have the case dismissed to Ecuador (Chevron submitted numerous Affidavits by top legal experts arguing that Ecuador would be the best venue), Chevron is now arguing that a fair trial in Ecuador is not possible and that the matter should be decided in the U.S.

For an excellent overview of the case, you must read Steven Donziger's recent commentary in Forbes Magazine, The Chevron Way: In an Ecuador Legal Battle Oil Giant Gives U.S. Companies a Bad name. Steven is a New York lawyer representing the Ecuadorean Plaintiffs in the suit against Ecuador.

Corporate Codes of Conduct

I first read about the case in a New York Times article over a decade ago. I was so disturbed by the deliberate corporate pollution of the pristine Amazon rain forest that I wrote a lengthy law journal article that was subsequently published in the Florida Journal of International Law. The article is titled Oil's Not Well in Latin America: Curing the Short Comings of the Current International Environmental Law Regime in Dealing With Industrial Oil Pollution Through Codes of Conduct. The article advanced the idea of corporate codes of conduct as a prerequisite to the grant of drilling concessions. Regarded as a cutting-edge proposition, the article was subsequently cited in leading legal textbooks, law review and journal articles.

The corporate codes of conduct I advocated in the journal article would have served Chevron well in conducting its drilling operations in the Amazon basin. Had Chevron implemented such a code, it would have prevented this decade-old public relations maelstrom.

Chevron's Missteps

Although I believe Chevron committed a serious sin of omission in failing to adopt an appropriate ethical code at the forefront, it pales in comparison to the legal pyrotechnics and machinations it has engaged in during the course of this litigation (including its change of heart concerning venue when the trial did not go its way).

To illustrate this point, the Wall Street Journal recently reported that Chevron released recordings showing the presiding Judge speaking about the case and appearing to have established liability against Chevron even though the trial was yet to finish. A second recording allegedly showed a member of the country's ruling party soliciting bribes in exchange for remediation contracts to be awarded after the verdict. Chevron says the videotapes were a "gift" from two men who, acting independently, used a hidden camera to record the Judge.

Chevron's questionable videotaping is nothing compared to the impending investigation  underway against it, as Steven Donziger reported in his article:

 New York Attorney General Andrew Cuomo--at the request of several Chevron shareholders, including the state's pension fund--has launched an investigation to determine whether Chevron is misleading the financial markets about the risk it faces in Ecuador.

Conclusion

Let's see, there's the decades of oil pollution, abuse of the judicial process, clandestine video taping and now an investigation into misleading the financial markets--all in the name of zealous advocacy? The examples of Chevron's inept and unethical handling of the Amazon lawsuit are boundless. At every step of the lawsuit, Chevron sought to manipulate, abuse and undermine the judicial process. Chevron's handling of the case in the past decade is a case study in how not to handle foreign litigation---or any litigation for that matter.

 Trend to Watch: Corporations Will Watch this Case Closely As The Ground Rules for Foreign Litigation Are Further Developed

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