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International Law

Second Circuit Vacates Preliminary Injunction Entered In Favor Of Chevron against Ecuador Judgment, Staying Portion of District Court Case

By Louis M. Solomon


We have written on District Judge Kaplan's decision earlier this year - a 127-page decision preliminary enjoining enforcement, anywhere in the world, of an Ecuadorian judgment totaling $8.646 billion obtained by Lago Agrio plaintiffs (indigenous peoples in the Amazonian rain forest) against Chevron Corp., which bought the assets directly or indirectly from Texaco, Inc. in 2001 and was treated as the successor in interest.   Chevron Corp. v. Donziger, et al., 11 Civ. 0691 (S.D.N.Y. Feb. 2011) [enhanced version available to subscribers].  The judgment arose out of environmental damage that the Ecuadorian court found had been done by Texaco. The case has been a cause célèbre, full of international practice novelties and learnings.

In entering the preliminary injunction, the District Court ruled:  "In determining whether a foreign legal system "provide[s] impartial tribunals [and] procedures compatible with due process of law," a court considers not only the structure and design of the judicial system at issue, but also "its practice during the period in question".  The District Court also found that the Ecuadorian judicial system "does not provide impartial tribunals and due process".  For this proposition the Court relied on sources internal and external to the litigation.  The District Court did not quantify the other countries of the world as to which the same sources would conclude the same thing.  And in rejecting the argument that international comity would be undermined by a U.S. court's interference with Ecuadorian judicial process, the District Court relied on China Trade & Development Corp. v. M.V. Choong Yong, 837 F.2d 33 (2d Cir 1987) [enhanced version ], which adumbrated the standard for the use of one of the most powerful tools in international practice (see the discussion of enjoining parties from pursuing litigation in non-U.S. jurisdictions in our e-book, International Practice: Topics and Trends).  The District Court found the China Trade factors satisfied but assumed for these purposes that the U.S. court would be rendering a substantive decision on the enforceability of the Ecuadorian judgment itself, not the underlying facts and claims.

Echoing a reluctance to condemn a non-U.S. judicial regime, the Court of Appeals for the Third Circuit went in a different rhetorical direction from the Southern District of New York.  In In re Application of Chevron Corp., Nos. 10-4699, 11-1099 (3d Cir. 25 May 2011) [enhanced version  ], the Third Circuit stated:

In explaining our analysis of the fraud issue, we acknowledge the seriousness of the fraud that the Chevron applicants have alleged has been involved in this litigation. In addition to an Ecuadorian court entering a massive judgment against Chevron, the liberty of two individuals may be at stake.  Yet the circumstances supporting the claim of fraud largely are allegations and allegations are not factual findings.  Furthermore, the Chevron applicants are asking that American courts make a finding that the attorneys in a civil case in Ecuador can control the Ecuadorian criminal justice system. Though it is obvious that the Ecuadorian judicial system is different from that in the United States, those differences provide no basis for disregarding or disparaging that system. American courts, though justifiably proud of our system, should understand that other countries may organize their judicial systems as they see fit.

Comes now the Second Circuit, and, in the appeal from the District Court's preliminary injunction ruling, the Court of Appeals vacated the preliminary injunction, issuing its short-form order now and stating that an opinion addressing the issues will follow "in due course".  Chevron Corp. v. Hugo Gerado Camacho Naranjo, et al., No. 11-1150-cv(L).  The order also denies an application to reassign the case away from the District Court now assigned to the case (Kaplan, J.) but stays for the time being the litigation of Count 9 of the Chevron complaint, which seeks relief precluding the Ecuadorian judgment from being enforced anywhere in the world.

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