Cross-posted by at WLF contributor site

Chevron Corp. suffered a setback yesterday in its efforts to prevent enforcement of a $17.2 billion judgment issued by an Ecuadorian court based on charges that Chevron is responsible for environmental damages in the Ecuadorian Amazon. The U.S. Court of Appeals for the Second Circuit in New York issued an opinion explaining its decision to overturn a district court injunction barring enforcement of the judgment outside of Ecuador. But while yesterday’s decision is a setback for Chevron, it still has numerous effective means of resisting enforcement efforts.

Chevron filed suit in federal district court in New York in February 2011, alleging that the Ecuador judgment was the product of a fraud perpetrated by the Ecuadorean plaintiffs and their lawyers and that the Ecuadorian courts are corrupt. Chevron seeks damages from the defendants – who include all of the Ecuadorian plaintiffs; many of their lawyers; and the Amazon Defense Front (ADF), the group slated to collect and administer any funds collected on the Amazon judgment. Chevron charged the defendants with, among other things, fraud and violation of the federal anti-racketeering law. Chevron also included a claim under New York’s Recognition Act. Pursuant to that claim, Chevron sought an injunction barring the defendants from attempting to collect their Ecuadorian judgment.

The district court conducted a lengthy hearing and granted Chevron its requested injunction in March 2011. The district court made numerous, detailed factual findings in Chevron’s favor, the gist of which was that the Ecuadorian judgment was the product of a massive fraud and that Ecuador did not provide an impartial tribunal.

Yesterday’s Second Circuit decision did not take issue with any of those factual findings. Instead, the Second Circuit held that the district court had misinterpreted the scope of the Recognition Act. The appeals court explained that the law was designed as a tool for plaintiffs seeking to enforce foreign judgments, not as a tool for defendants seeking to prevent all enforcement of a judgment entered against them in another judicial forum. It held that Chevron could rely on the Recognition Act in an effort to prevent enforcement of the Ecuadorian judgment in New York courts, but it noted that the Ecuadorian plaintiffs have not sought enforcement in New York. Thus, the Second Circuit ordered dismissal of the Recognition Act portion of Chevron’s lawsuit.

The decision leaves the Ecuadorian plaintiffs free to begin seeking enforcement of their judgment in any country in which Chevron has assets. Countries with highly developed legal systems are unlikely to move quickly to order seizure of Chevron assets in light of the detailed findings that the Ecuadorian plaintiffs engaged in massive fraud. However, all the plaintiffs must do to severely disrupt Chevron’s operations is to find a single judge anywhere in the world willing to seize a Chevron tanker that pulls into a local port.

But the pending district court proceedings provide Chevron with a highly effective counter-weapon. Judge Kaplan of the Southern District of New York has already made preliminary factual findings that are highly damning of the Ecuadorian plaintiffs and their lawyers. He presumably will stick with those findings as Chevron’s claims proceed to trial. The Ecuadorian plaintiffs and their lawyers will have a difficult time getting their hands on any Chevron assets if, as is likely, Judge Kaplan orders them to return to Chevron any assets they are able to obtain elsewhere in the world. In the absence of indications from either side that they are seeking settlement, the litigation is likely to continue at a high pitch for the foreseeable future.