Federal judge grants Chevron motion to exonerate bond

Jessica M. Karmasek Apr. 5, 2012, 1:59pm


NEW YORK (Legal Newsline) - A federal judge this week granted a motion by Chevron Corp. to exonerate a preliminary injunction bond issued by the court last year in an ongoing racketeering lawsuit over an $18 billion judgment against the company.

The bond was filed last March in connection with a preliminary injunction that eventually was vacated by the U.S. Court of Appeals for the Second Circuit.

The purpose of issuing such a bond is to guarantee payment of costs and damages sustained by a party who is wrongfully enjoined or restrained. However, the proceeds from such a bond may not be applied to compensate for attorneys' fees.

Judge Lewis Kaplan, for the Southern District of New York, explained that the bond requirement of Rule 65 "serves only to guarantee payment of any damages sustained 'during the period (the enjoined party) is prohibited in engaging in certain activities.'"

Kaplan noted that the Ecuadorians had "not shown any basis for supposing that they would be harmed in any quantifiable amount by a delay in the enforceability of the (Ecuadorian) judgment for the period necessary to resolve this case on the merits."

He fixed the amount of the bond at $21.8 million -- reflecting the only sort of potential injury that was claimed, the time value of money, he said.

In his eight-page memorandum opinion Monday, Kaplan said none of the defendants -- or anyone else, for that matter -- submitted to the court any claim for damages against the bond.

Nor could they have properly done so, he said.

"First, the preliminary injunction barred the defendants from enforcing or attempting to enforce the judgment. As the defendants have asserted, however, it was not enforceable throughout the entire period during which the injunction was in effect," Kaplan wrote.

"The preliminary injunction therefore could not have delayed any enforcement actions or caused any injury to the defendants for which they are able to recover."

Second, he said, any claim for attorneys' fees incurred in connection with appealing the preliminary injunction would have been without merit.

"As noted above, attorneys' fees are not recoverable on a preliminary injunction bond even when the injunction is overturned on appeal," Kaplan wrote.

The Ecuadorians argued that the court should not exonerate the bond because certain attorneys who claim to represent some or all of them have brought an action on behalf of their law firm in an attempt to collect on the bond.

"Those attorneys were served with the motion in this case. They have an office in New York. Their lead counsel is a member of the Bar of this court," Kaplan pointed out.

"They even claim, in papers in their New Jersey action, that their 'rights purportedly may be impaired' (by a decision on this motion) as early as March 27, 2011 (sic) the due date for any responses to Chevron's motion. Yet they have not interposed any claim here."

The defendants -- both those who have appeared and those who have defaulted -- had a "perfect right" to respond to the motion by submitting claims for damages, Kaplan said.

"But for reasons sufficient unto themselves, they elected not to do so. They must live with the consequences of their tactical decision to forego that opportunity," he wrote.

The federal judge said the Ecuadorians' suggestion that exonerating the bond -- following the Second Circuit's ruling on the injunction -- is premature is "unsupported by any authority" and "contrary to common sense."

"There is no independent reason to encourage the sort of forum shopping in which the defendants' lawyers so patently are engaged," he wrote.

Even if any of them had much such a claim, Kaplan said it would have been "entirely without merit."

"As noted, the defendants do not claim any injury flowing from the fact that they were enjoined from seeking to enforce the judgment because, by their own admission, they were not free to have done so at any time during which the injunction was in effect," the federal judge wrote.

In January, an appellate court in Ecuador upheld the $18 billion judgment against the oil giant for its "intentional contamination" of the country's rainforest.

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 in February 2011.

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, filed its racketeering lawsuit in the New York federal court, 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.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

More News