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Bloomberg Businessweek – Chevron’s RICO Win Is a Potent Weapon Against Ecuadorian Pollution Judgment

Date: Mar 4, 2014

Big day for Chevron (CVX) in federal court in New York: The oil company won a sweeping ruling that a multibillion-dollar judgment against it in Ecuador was procured by fraud—and therefore isn’t worth the paper it’s written on.

This is precisely the legal weapon Chevron requested from U.S. District Judge Lewis Kaplan as the company continues to resist enforcement of a $19 billion verdict imposed by a provincial rainforest tribunal in February 2011. Ecuador’s top court already halved the judgment to about $9.5 billion last fall, and now it’s unclear whether the plaintiffs—thousands of poor farmers and indigenous tribe members—will ever see a dime from Chevron. Their own lawyer’s questionable tactics may turn out to undermine a human rights and environmental campaign that began more than 20 years ago and has attracted support from celebrities such as Sting and Ecuadorian President Rafael Correa.

In response to Chevron’s civil suit, Kaplan ruled that New York lawyer-activist Steven Donziger orchestrated what amounted to a “racketeering” operation that used coercion and falsified evidence to pin blame on the San Ramon (Calif.)-based company for contamination in the jungle dating back to the early 1970s. “The decision in the Lago Agrio [Ecuador] case was obtained by corrupt means,” Kaplan concluded. Donziger and his clients “may not be allowed to benefit from that in any way.”

Chevron executives and lawyers have said that if Kaplan were to issue such a ruling, the company would take it to courts in other countries, where Donziger and his team are seeking to enforce the 2011 Ecuadorian judgment. Enforcement proceedings are underway in Canada, Argentina, and Brazil—all countries in which Chevron has substantial operations and investments. The Ecuadorian plaintiffs have failed to enforce their judgment in Ecuador because Chevron lacks any assets to speak of in the small Andean nation.

Another way Chevron could use its New York victory is as a financial club against Donziger. While Chevron did not seek conventional money damages in its civil racketeering suit—and therefore did not have to try the case to a jury—it does have the option of asking Kaplan for reimbursement of millions of dollars in legal fees. Donziger and his clients have said they do not have the resources to pay Chevron for what doubtless would be considerable expenses. Chevron lawyers have hinted that if Donziger were found to be a racketeer, the company might seek to get his New York law license rescinded.

Donziger has denied any wrongdoing. He responded to Kaplan’s ruling with characteristic bombast and personal invective. “With all due respect to the court,” he said in an e-mail, “this is an appalling decision resulting from a deeply flawed proceeding that overturns a unanimous ruling by Ecuador’s Supreme Court. We believe Judge Kaplan is wrong on the law and wrong on the facts and that he repeatedly let his implacable hostility toward me, my Ecuadorian clients, and their country infect his view of the case.” Donziger added that “well before” the six-week racketeering trial last fall, “Judge Kaplan made it clear he would rule against us.” The plaintiffs’ lawyer tried repeatedly and unsuccessfully to have Kaplan removed from the case because of alleged bias.

Donziger said he would appeal Kaplan’s ruling to the U.S. Court of Appeals for the Second Circuit, ensuring that the legal battle will continue for some time.

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