Publish in Perspectives - Monday, August 22, 2016
The 2nd U.S. Circuit Court of Appeals in New York dismissed an appeal of judge Lewis Kaplan’s 2014 ruling finding that Steven Donziger used racketeering to win an Ecuadorian award against Chevron. (Photo: Court)
Chevron wins key victory as Ecuador lawsuit attorneys appear split.
QUITO -- US oil major Chevron recently won a key victory in the long-running saga over environmental damages attributed to the company in the Ecuadorian Amazon in the 1970s and 1980s. The 2nd U.S. Circuit Court of Appeals in New York city dismissed an appeal of judge Lewis Kaplan’s 2014 ruling finding Steven Donziger, the lead US attorney suing the company, used racketeering to win the giant damage award against Chevron in Lago Agrio three years earlier. While Ecuador’s attorney general noted that the decision has no bearing on the Ecuadorian ruling, which has gone through all instances, it heavily influences the crucial financial issue: enforceability, i.e. the ability of the plaintiffs, a group of several dozen Ecuadoreans living in the affected area, to collect a damage award understood by the court of appeals as standing at $8.65 billion (estimates vary).
No contest exists regarding the scale of the original pollution, around 16 billion gallons of oil and formation water dumped into rivers and streams sprinkled over a broad arc of Amazon territory during the first decades of oil production in Ecuador, managed by Texaco and the state oil company, CEPE, now called Petroamazonas. The decades-old case was tried in Ecuador, where Chevron, which bought Texaco in 2000, has virtually no assets. To obtain the damage award, the ruling had to be enforceable outside the country, implying not a fresh trial, but at least a review of the propriety of the Lago Agrio ruling. Here, the plaintiffs’ lawyers stumbled badly, as ruled by Kaplan and confirmed by the court of appeals.
The judges who reviewed the appeal repeated Kaplan’s comment that, even in the case of responsibility by the company, plaintiffs must win the trial fairly. “Even innocent clients may not benefit from the fraud of their attorney,” they wrote, as well as noting that even Donziger’s lawyer had not contested the allegation of criminal wrongdoing, instead using procedural arguments to contest Kaplan’s ruling. The Ecuadorian ruling is “illegitimate” and “unenforceable,” Chevron again said. On his part, “Today’s decision is unprecedented in American law,” said Donziger’s attorney Deepak Gupta. “Never before has a U.S. court allowed someone who lost a case in another country to come to the U.S. to attack a foreign court’s damages award.” While Ecuador’s superior instances have upheld it, the Constitutional Court noted that the judge had overstepped his legal capacity by doubling the indemnity if Chevron didn’t apologize to them. But it didn’t invalidate the ruling as a whole; the CC simply cut the damage award in half.
While the lawyers for the plaintiffs, who have for years been the protagonists in the case, have vowed to fight on, it has even become unclear who is actually in charge. Lawyer Pablo Fajardo, who with Luis Yanza won the Goldman environmental prize in 2008, told El País that the fight would continue before the US Supreme Court, and that Donziger no longer has an active role in the case. But according to Donziger spokeswoman Karen Hinton, “no decision about appeals have been made because the US attorneys representing Donziger and the Ecuadorians are reviewing it,” and that only US lawyers may practice in US courts. “Donziger represents the Frente (de Defensa de la Amazonía), who are the plaintiffs in the case.” On the one hand, according to the Union of People Affected by Texaco, Fajardo continues to participate in the case. On the other hand, the Frente, led by Yanza, issued a statement on August 1 in which it said that it had fired Fajardo after he asked the court to drop an injunction ordering the government to pay a $96 million arbitration award, which had ballooned to $112 million thanks to interest accumulated amid appeals. While Ecuador’s president Rafael Correa applauded the action, which allowed it to comply with a legal deadline as it sought to place $1 billion in international bonds, the Frente took a dim view of the move. “This is an unfortunate situation that appears to reflect a serious error in judgment by Mr. Fajardo, who in our opinion was clearly operating outside the scope of his authority,” said Frente president Carlos Guamán in a statement announcing Fajardo’s replacement by lawyer Patricio Salazar. With the legal team divided and fighting among itself, the outlook for its case is looking ever dimmer.
Fajardo’s filing did provide crucial help for the government, which could not have carried out its latest bond issue for $1 billion as Chevron’s arbitration ruling was meanwhile enforceable; this implied a legal risk of confiscation by the company, as Correa publicly complained once the finance ministry had placed the bonds. In an ironic twist, the administration clearly had to lean on the legal system, in this case the Lago Agrio court via Fajardo, to obtain sorely needed external finance. Butting in the civil trial through its open support for the plaintiffs’ case didn’t just reflect poorly on the government and Ecuador’s judiciary: as the Kaplan ruling and appeal reveal, it damaged the reputation of the plaintiffs’ case as a whole, while pollution still festers in the affected areas.