Federal judge says Donziger not entitled to damages in Chevron RICO case

By Jessica M. Karmasek | Jul 30, 2013

NEW YORK (Legal Newsline) -- A federal judge ruled Monday that New York attorney Steven Donziger, who is being sued by Chevron Corp. for fraud, is not entitled to damages over alleged misrepresentations.

In his 21-page memorandum opinion, Judge Lewis Kaplan for the U.S. District Court for the Southern District of New York granted Chevron's motion to dismiss Donziger's counterclaims.

Donziger, who represents the indigenous residents who sued Chevron in Ecuador, filed counterclaims against the oil giant for attempted extortion and fraud. Chevron moved to dismiss for failure to state a claim upon which relief may be granted.

Kaplan, in his opinion, pointed to an April 15 report and recommendation in which Magistrate Judge James C. Francis IV recommended that Chevron's motion be granted.

Francis concluded that the attempted extortion claim is governed by New York law and that the state recognizes no such cause of action. He recommended dismissal of the fraud claim on the ground that Donziger has not sufficiently alleged "reasonable reliance" or misrepresentation or omission of material fact.

Donziger objected.

In particular, Donziger alleges that Chevron "knowingly misrepresented" or concealed material facts in various statements to courts, government officials in the U.S. and Ecuador, Donziger himself, the media, supporters and potential supporters of the Ecuadorian plaintiffs who won a $19 billion pollution judgment against the company.

These alleged misrepresentations then were "reasonably and justifiably relied upon" by the U.S. and Lago Agrio courts, he contends.

As a consequence, Donziger alleges he has suffered "pecuniary, reputational and other damages," including damage to his "reputation and goodwill," impairment of his professional relationship with the Ecuadorian plaintiffs, and attorneys' fees and costs.

Kaplan said New York law awards only "out-of-pocket" expenses in fraud cases, entitling plaintiffs to damages solely for their actual pecuniary losses.

Chevron, the judge said, is correct that reputational injury is not compensable in such a case.

"This allegation of injury caused by the alleged fraud is curious in view of Mr. Donziger's concession that he does not complain of any 'actionable representations... to' him," Kaplan wrote. "The assertion here is that the alleged misrepresentations and omissions caused pecuniary, out-of-pocket injury to Mr. Donziger in that he has incurred legal costs in defending allegedly baseless litigation brought against him by Chevron.

"But the counterclaim does not allege that Mr. Donziger was deceived by any of the alleged misrepresentations or omissions, let alone that he suffered out-of-pocket loss by reason of such deception. Rather, the allegation is that Chevron made false allegations against Mr. Donziger in the lawsuits it brought against him, allegations that he knew were false or misleading, and that he defended himself against those allegations."

The judge continued, "Thus, the allegations that Chevron made misrepresentations in lawsuits it brought against Mr. Donziger and that Mr. Donziger, though aware of their alleged falsity, incurred expenses defending those lawsuits does not state a legally sufficient fraud claim. Mr. Donziger does not allege that the defense costs he seeks to recover were incurred because he was deceived by and relied upon Chevron's alleged falsehoods."

Click here to read Kaplan's full opinion.

Kaplan's opinion is the latest blow to the New York attorney in recent weeks.

Nearly two weeks ago, the judge denied a request by Donziger for a trial stay in the fraud case against him and two Ecuadorian rainforest residents.

Donziger filed a motion in June asking Kaplan to grant a three-month stay to prevent the case from "devolving into a mockery of justice and due process."

"The breakneck pace of Chevron's continued legal onslaught since withdrawal of my former counsel is severely prejudicing my ability to defend myself," he wrote in his motion, originally filed June 1.

In May, Kaplan allowed the law firms defending Donziger, Javier Piaguaje and Hugo Camacho to withdraw from the fraud case, filed by the oil giant in the New York federal court in 2011.

Lead attorneys John Keker of San Francisco-based Keker & Van Nest and Craig Smyser of Houston-based Smyser Kaplan & Veselka argued that the judge's ongoing bias in the case and Chevron's litigation tactics have made it impossible for their clients to pay their legal bills.

Keker, who also was the attorney for prominent Mississippi attorney Richard "Dickie" Scruggs during two judicial bribery cases, was representing Donziger in the case.

Without the requested three-month stay, Donziger argued he will not be prepared for trial, his interests will be "severely prejudiced," and he fears "manifest injustice" will result.

Karen Hinton, spokeswoman for Donziger, said of Kaplan's ruling Monday:

"This ruling is the latest of dozens of examples of Judge Kalpan's bias toward the rainforest communities of Ecuador and their attorneys," she said in a statement late Tuesday.

"Judge Kaplan's actions are preventing the real crimes in Ecuador -- the extensive evidence of Chevron's massive contamination of the rainforest and the company's fraud to cover it up -- from coming out in his courtroom."

Donziger and the Ecuadorian plaintiffs have filed a writ of mandamus in the U.S. Court of Appeals for the Second Circuit, asking that the judge be removed from the RICO case for his alleged bias.

In a rare move, the court has asked Kaplan for a legal brief in his defense.

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

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