Supreme Court May Weigh Big Weapon for U.S. Companies Sued Abroad

By Paul Barrett, Bloomberg Businessweek

Can U.S. companies use the federal racketeering law to fend off costly foreign court judgments? For Chevron Corp., the answer was yes — and that saved the oil and gas giant $9.5 billion. Now the Supreme Court will decide whether to hear an appeal by Chevron antagonists, who argue that the company pulled a fast one.

The federal appeals court in New York ruled last August that Chevron, and indeed, any American corporation facing an expensive judgment abroad, may come home and use the civil provisions of the Racketeer Influenced and Corrupt Organizations Act (RICO) as a weapon to go after the lawyers on the other side. The losers in that clash — impoverished Ecuadorian villagers and their New York-based attorney, Steven Donziger — are asking the justices to forbid this use of RICO as unwise and unfair.

Chevron, naturally, wants the high court to stay out of it. The justices are expected to announce their intentions in the coming weeks.

A few facts from a tortuous history: In 1993, Donziger and other lawyers sued Texaco in New York, alleging that the oil company contaminated a large swath of Ecuadorian rainforest in the 1970s and 1980s. Chevron acquired Texaco and its potential liabilities in 2001. The pollution case was dismissed in the U.S. and restarted in Ecuador in 2003. Chevron contended that whatever contamination remained wasn’t its responsibility. In 2011, an Ecuadorian trial court ruled that the American company was liable, with a price tag ultimately set at $9.5 billion.

Chevron refused to pay, claiming that Donziger used fabricated evidence, coercion, and bribery to obtain this victory in Ecuador, where the company had no assets. That’s when Chevron made its inventive move with RICO, suing Donziger in Manhattan federal court.

The company alleged that he’d turned the pollution case into a shakedown. A trial judge agreed and issued an order barring enforcement of the Ecuadorian judgment. Chevron didn’t seek money damages, allowing it to avoid the case being heard by a jury (which might have favored a lone lawyer, however compromised, and his penurious clients against a major corporation). Last August, a three-judge panel of the U.S. Court of Appeals for the Second Circuit in New York affirmed the corruption findings and that a private party may use RICO as Chevron had done.

In their appeal to the U.S. Supreme Court, Donziger and his Ecuadorian clients warn that if Chevron’s unusual use of RICO isn’t undone, “disgruntled litigants from around the world will flock to Manhattan to air their grievances” about foreign court judgments. Moreover, the Chevron foes argue, lower courts are split over whether RICO authorizes private parties to seek judicial orders in cases not heard by juries.

My prediction: The justices ordinarily like to resolve conflicts among lower federal courts, and the New York ruling, while similar to one by a sister court in Chicago, stands opposed to another by a federal appeals court in San Francisco.

But the Supreme Court will refrain from wading into the voluminous particulars of Amazon pollution and attorney misconduct. Resolution of the RICO issue will await a less idiosyncratic set of facts.

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