Chevron Earns Decisive Victory in Second Circuit Civil RICO Appeal Concerning Corrupt Scheme to Obtain $9.5 Billion Ecuadorian Judgment Through Bribery and Fraud

August 9, 2016

On August 8, 2016, a unanimous panel of the United States Court of Appeals for the Second Circuit affirmed the judgment in favor of Chevron Corporation in Chevron Corp. v. Donziger, Case No. 14-826.  The decision represents a resounding victory for Chevron in exposing what The Wall Street Journal has called the "legal fraud of the century."  The Wall St. J., Legal Fraud of the Century (Mar. 4, 2014). 

The Second Circuit affirmed in full the district court’s 2014 decision that granted Chevron equitable relief under the federal RICO statute and New York common law from a fraudulently procured $9.5 billion Ecuadorian judgment.  Meticulously rejecting every argument the defendants raised on appeal, the Second Circuit’s 127-page decision marks a turning point in one of "the most extensively [chronicled] [cases] in the history of the American federal judiciary."  Op. at 11.  Indeed, within hours of yesterday’s closely watched decision, one commentator concluded:  "One of the most egregious legal frauds in history may finally be over."  The Wall St. J., Chevron Shakedown Rout, Steven Donziger Suffers Another Legal Humiliation (Aug. 8, 2016).  Gibson Dunn represented Chevron at trial and on appeal.

In an opinion authored by Circuit Judge Amalya L. Kearse and joined by Circuit Judges Barrington D. Parker and Richard C. Wesley, the Second Circuit repeatedly underscored that the defendants had not challenged the district court’s extensive factual findings.  The lower court’s decision chronicled how New York plaintiffs’ attorney Steven Donziger and his co-conspirators orchestrated an extortionate scheme by procuring a multi-billion dollar Ecuadorian judgment against Chevron through corrupt means and then attempted to leverage it to extract a massive payment from the company.  Observing that the "record in the present case reveals a parade of corrupt actions by the [Ecuadorians’] legal team" (op. at 85), the Second Circuit noted that the defendants’ wrongful conduct included fabricating evidence, bribing foreign officials in violation of the Foreign Corrupt Practices Act, and even ghostwriting the multi-billion-dollar judgment against Chevron and bribing the Ecuadorian judge to issue it. 

The Second Circuit also affirmed in full the relief granted by the district court, including enjoining Donziger and his Ecuadorian clients from attempting to enforce the judgment in any court in the United States, and placing a constructive trust over any proceeds they manage to collect from the judgment. 

The Second Circuit’s decision addressed several important questions of law, including the ability of private plaintiffs to obtain equitable remedies under RICO.  The decision reaffirms that "'[j]ustice is not served by inflicting injustice’" (op. at 15), and it should have important implications for other companies and individuals faced with similar corrupt shakedown schemes. 

The Lago Agrio Lawsuit and Fraudulent Judgment

The Ecuadorian case against Chevron was filed in 2003 by a group of 48 Ecuadorians (the "Lago Agrio Plaintiffs" or "LAPs") represented by U.S. plaintiffs’ lawyers–including Donziger–alleging environmental harm.  Chevron never operated in Ecuador, but the LAPs asserted the company was responsible for alleged conduct by a Texaco subsidiary that operated in the region from 1964 to 1992.  That subsidiary, TexPet, was a minority partner in a consortium with Ecuador’s state-owned oil company, PetroEcuador.  Although Ecuador received the vast majority of the economic benefits from the consortium and was the majority owner of the consortium, the LAPs did not sue PetroEcuador. 

In February 2011, the trial court in Ecuador entered a $17.2 billion judgment against Chevron–$8.6 billion in compensatory damages and another $8.6 billion in punitive damages for Chevron’s refusal to "apologize."[1] 

Chevron’s RICO Lawsuit in the Southern District of New York

Through discovery in the United States, Chevron uncovered extensive evidence of fraud on the part of the LAPs’ lawyers and agents.  As a consequence, Chevron filed suit in the Southern District of New York and sought, among other things, relief under RICO and New York common law. 

In March 2014, after a seven-week trial, which included the live or deposition testimony of more than 50 witnesses and more than 4,000 exhibits, United States District Judge Lewis A. Kaplan issued a 485-page opinion detailing the defendants’ fraudulent scheme to corrupt the Lago Agrio litigation from start to finish.  As the court put it, the evidence included "things that normally come only out of Hollywood–coded emails among Donziger and his colleagues describing their private interactions with and machinations directed at judges and a court appointed expert, their payments to a supposedly neutral expert out of a secret account, a lawyer who invited a film crew to innumerable private strategy meetings and even to ex parte meetings with judges, an Ecuadorian judge who claims to have written the multibillion dollar decision but who was so inexperienced and uncomfortable with civil cases that he had someone else (a former judge who had been removed from the bench) draft some civil decisions for him, an 18-year old typist who supposedly did Internet research in American, English, and French law for the same judge, who knew only Spanish, and much more."  Chevron Corp. v. Donziger, 974 F. Supp. 2d 362, 384 (S.D.N.Y. 2014). 

The district court found that Donziger and his co-conspirators, in procuring the Ecuadorian judgment by fraud, violated numerous criminal statutes and committed racketeering, extortion, obstruction of justice, witness tampering, wire fraud, money laundering, and violations of the Foreign Corrupt Practices Act.  The court concluded that "[t]he wrongful actions of Donziger and his Ecuadorian legal team would be offensive to the laws of any nation that aspires to the rule of law, including Ecuador–and they knew it."  Donziger, 974 F. Supp. 2d at 386.  The court ordered the defendants to disgorge any profits traceable to the fraudulent judgment, imposed a constructive trust on any future judgment proceeds, and prohibited the defendants from enforcing the judgment in the United States.  The defendants appealed.

The Second Circuit Appeal

After extensive briefing, motion practice, and oral argument, the Second Circuit affirmed the district court’s judgment in full.  Noting that "[n]one of [the facts as found by the district court] is disputed" on appeal (op. at 17), the appellate court recounted the substantial evidence that Donziger and the LAP team corrupted the Lago Agrio litigation from the very beginning:  they touted damages estimates they knew to be false (id. at 18-20), forged expert reports (id. at 21-23), and secretly hired experts to pose as purported "independent monitors" of the court-ordered inspections (23-24), all with the aim of having "an in terrorem effect" on Chevron that would "impel[] [it] to agree to a settlement" (id. at 17). 

When these tactics did not work, Donziger and the LAP team "coerced" the Ecuadorian judge with threats to appoint "Donziger’s choice" as the purportedly neutral global damages expert.  Id. at 24-28.  This expert was far from neutral, however, as Donziger and his team secretly paid him and, in fact, wrote the report to which he simply affixed his name.  Id. at 28-38.  Donziger and the LAP team then secretly came to an agreement with a former Ecuadorian judge–who later testified to this effect at trial in New York–for him to ghostwrite orders for the then-presiding judge.  Id. at 61-62. 

The defendants’ scheme reached its climax when they bribed the judge with a promise of $500,000 and then ghostwrote the multi-billion dollar judgment itself.  Chevron proved this judgment-ghostwriting scheme at trial with a painstaking forensic analysis, comparing the Ecuadorian judgment with unfiled work product from the LAPs’ team’s files; the judgment contained substantial passages and references which are nowhere in the court record, but which appeared verbatim (including with the same typographical errors) in the LAPs’ internal emails and files.  Id. at 51-57.  This forensic evidence was corroborated at trial in numerous respects, including by testimony from the former Ecuadorian judge who facilitated the bribery scheme and edited the judgment before it was issued.  Id. at 60-64. 

In affirming the district court’s judgment, the Second Circuit dispensed with Donziger’s argument that Chevron lacked standing, finding it "without merit" and holding that "Chevron clearly met the requirements for Article III standing when it commenced the present action."  Id. at 75-77.  The court similarly rejected Donziger’s mootness argument and dismissed as "untenable" the assertion that there was no connection between the "corrupt conduct at the trial level" and the judgment.  Id. at 82.  In fact, the court stressed that the multi-billion Lago Agrio judgment is "clearly traceable to the LAPs’ legal team’s corrupt conduct."  Id. at 85.

The Second Circuit likewise rejected all of Donziger’s challenges to the RICO-based aspects of the district court’s decision.  Again noting that there was "no challenge to the sufficiency of the evidence" that Donziger committed a pattern of racketeering (id. at 98), the court concluded that Chevron had proven all the requisite statutory elements of its civil RICO claim.  The court also specifically held that "a federal court is authorized to grant equitable relief to a private plaintiff who has proven injury to its business or property by reason of a violation of [18 U.S.C.] § 1962."  Id. at 103. 

In addition, the Second Circuit held that "New York common law has long recognized that equitable relief may be granted to a person victimized by the procurement of a judgment through fraud that is extrinsic to the gravamen of the cause of action," and that such relief may be granted by a court with personal jurisdiction over the parties, "even through the fraudulent judgment was entered in a different jurisdiction."  Id. at 109.  The court also rejected the defendants’ argument that Chevron had an adequate remedy at law–namely, a money judgment and/or the ability to defend against individual enforcement actions.  Id. at 112-13.  Noting that the defendants’ professed strategy was to "inundate" Chevron with multiple enforcement actions, thereby "forcing it to incur sizeable legal fees," the court held that Chevron’s ability to defend itself in these actions was not an adequate remedy at law.  Id. at 113.

The Second Circuit also dispatched the "international comity" arguments of Donziger, the LAPs, and several amici.  Emphasizing the in personam nature of the relief entered by the district court, the court noted that the injunction was "directed at only three persons . . . over whom the district court has personal jurisdiction" (namely, Donziger and the two appearing LAPs), and that its application was "limited to the United States."  Id. at 114.  The court also noted that there was no risk of "international friction" where the Ecuadorian appellate courts expressly "deferred to the courts of the United States" on Chevron’s allegations of corruption.  Id. at 115.

Finally, the Second Circuit rejected the LAPs’ arguments regarding personal jurisdiction and the appropriateness of enjoining them from enforcing the judgment based on the conduct of their lawyers and agents.  The court affirmed the district court’s sanction against the LAPs–the striking of their personal jurisdiction defense–for their repeated failure to comply with discovery orders, finding their challenges "meritless."  Id. at 121-23.  The court also reasoned that not holding the LAPs accountable for the actions of their lawyers would violate basic lawyer-client principles and "run afoul of the Supreme Court’s warning that fraud ‘is a wrong against the institutions set up to protect and safeguard the public. . . .’"  Id. at 124 (quoting Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 246 (1944)).  The court found "ampl[e]" support for the district court’s conclusion that the LAPs "retained Donziger as their attorney and gave [their Equadorian lawyer] power of attorney," thereby ratifying all of their fraudulent conduct.  Id. at 125.  Assuming for argument’s sake that the LAPs had not been personally involved in the wrongdoing, the court explained, "[e]ven innocent clients may not benefit from the fraud of their attorney."  Id. 

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The decision in Chevron Corp. v. Donziger represents a major victory for Chevron.  It is also a significant victory for the rule of law.  As the U.S. Court of Appeals for the Second Circuit aptly stated, again quoting the district court, "The ends do not justify the means.  There is no ‘Robin Hood’ defense to illegal and wrongful conduct.  And the defendants’ ‘this-is-the-way-it-is-done-in-Ecuador’ excuses–actually a remarkable insult to the people of Ecuador–do not help them."  Op. at 15.   

   [1]   The punitive damages aspect of the judgment was later eliminated on appeal as being contrary to Ecuadorian law.