Second Circuit explains why it vacated injunction in Chevron case

Jessica M. Karmasek Jan. 27, 2012, 10:59am



NEW YORK (Legal Newsline) - A federal appeals court explained why it vacated an injunction blocking enforcement of an $18 billion judgment against Chevron Corp. in a full opinion released Thursday.

The U.S. Court of Appeals for the Second Circuit pointed to New York's Uniform Foreign Country Money Judgments Recognition Act.

"We conclude that the district court erred in construing the Recognition Act to grant putative judgment-debtors a cause of action to challenge foreign judgments before enforcement of those judgments is sought," Judge Gerald E. Lynch wrote.

"Judgment-debtors can challenge a foreign judgment's validity under the Recognition Act only defensively, in response to an attempted enforcement -- an effort that the defendants-appellees have not yet undertaken anywhere, and might never undertake in New York."

Earlier this month, an appellate court in Ecuador upheld the $18 billion judgment against the company for its "intentional contamination" of the country's rain forest.

The adverse ruling was issued by a panel of three temporary judges presiding over the proceedings in the Provincial Court of Justice of Sucumbios in Lago Agrio.

The ruling, which stems from an environmental lawsuit involving Texaco Petroleum Company, confirmed a lower court's ruling last February.

The lower court had found the oil giant liable for dumping billions of gallons of toxic waste into the Amazon, causing an outbreak of disease and decimating indigenous groups.

Chevron, which has vowed never to pay the $18 billion, subsequently filed a racketeering lawsuit in the Southern District of New York, alleging that the Ecuador suit has been used to threaten the oil company, mislead U.S. government officials, and harass and intimidate its employees -- all to extort a financial settlement from the company.

In March, Judge Lewis Kaplan, for the Southern District, had issued an injunction blocking enforcement of the judgment.

In September, the Second Circuit ordered that the injunction be vacated.

"Consistent with our earlier order, we therefore reverse the district court's decision, vacate the injunction, and remand to the district court with instructions to dismiss Chevron's declaratory judgment claim in its entirety," Lynch wrote.

The judge explained, "The LAPs hold a judgment from an Ecuadorian court. They may seek to enforce that judgment in any country in the world where Chevron has assets.

"There is no indication that they will select New York as one of the jurisdictions in which they will undertake enforcement efforts, and if they do, they will have to present their claim to a New York court which will then apply the standards of the Recognition Act before any adverse consequence may befall Chevron."

Lynch said it is "unclear" what is to be gained by provoking a decision about the effect in New York of a foreign judgment that may never be presented in New York.

"If such an advisory opinion were available, any losing party in litigation anywhere in the world with assets in New York could seek to litigate the validity of the foreign judgment in this jurisdiction," he wrote.

"Such a regime would unquestionably provoke extensive friction between legal systems by encouraging challenges to the legitimacy of foreign courts in cases in which the enforceability of the foreign judgment might otherwise never be presented in New York."

The judge cautioned further.

"As Chevron's effort to secure injunctive relief illustrates, permitting such speculative declaratory relief would encourage efforts by parties to seek a res judicata advantage by litigating issues in New York in order to obtain advantage in connection with potential enforcement efforts in other countries," Lynch wrote.

"And while the declaratory judgment might definitively settle the question of enforcement in New York -- a question that in the ordinary course might never arise at all -- it would hardly 'finalize' the larger dispute between the parties about the legitimacy of the Ecuadorian judgment or its enforceability in other countries."

The Second Circuit said Chevron can present its defense to the enforcement of the Ecuadorian judgment in New York if and when the Ecuadorian plaintiffs seek to enforce their judgment in New York.

Karen Hinton, a spokeswoman for the Ecuadorians, said Thursday a "grave injustice" against the country's citizens has been "set right" by the court's ruling.

"It rebukes Chevron's abusive legal tactics of the past two years designed solely to malign the very people who suffer as a result of the company's deliberate poisoning of their homeland, the Ecuadorian rain forest," she said in a statement.

"Once Ecuadorian law allows enforcement of the judgment, it will become even more evident that the only fraud committed in Ecuador in the context of this historic environmental litigation was Chevron's."

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