Judge: $9.5 billion Ecuadorian verdict against Chevron was product of bribery
FORTUNE — In a seemingly bulletproof, 485-page, 1,842-footnote ruling, a Manhattan federal judge found on Tuesday that the $9.5 billion environmental judgment entered against Chevron (CVX) in 2011 by an Ecuadorian provincial court was procured by fraud, bribery, and other racketeering acts orchestrated by New York plaintiffs attorney Steven Donziger.
“If ever there were a case warranting equitable relief with respect to a judgment procured by fraud,” U.S. District Judge Lewis Kaplan wrote, “this is it.” (Equitable relief means injunctions, i.e., court orders.)
Donziger had won the judgment against Chevron in Lago Agrio, Ecuador, Kaplan found, by engaging in extortion, wire fraud, obstruction of justice, witness tampering, money laundering, bribery, and Foreign Corrupt Practices Act violations in a pattern of conduct that also amounted to a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO).
The Ecuadorian judgment — reduced last year from $19 billion by the Ecuadorian Supreme Court — was supposed to compensate residents of the Amazon rainforest in eastern Ecuador for contamination allegedly left behind by Texaco, which drilled for oil in the region from 1964 to 1992. (Chevron acquired Texaco in 2001.)
Judge Kaplan expressed no view about the merits of the underlying environmental dispute, which was not the subject of the civil RICO suit before him, which Chevron filed in February 2011. “Even if Donziger and his clients had a just cause — and the Court expresses no opinion on that — they were not entitled to corrupt the process to achieve their goal,” Judge Kaplan wrote. “Justice is not served by inflicting injustice.”
In a written statement commenting on Kaplan’s ruling, Donziger said: “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.”
In a companion statement, a U.S. spokesman for the Lago Agrio plaintiffs wrote: “While the Ecuadorians respect the rule of law in all countries, they do not accept this court’s jurisdiction or this court’s ruling. The affected communities long ago gave up hope that a U.S. court would provide them relief from Chevron’s contamination, which has taken their loved ones, poisoned their lands, and imperiled their cultures.”
Chevron vice president and general counsel R. Hewitt Pate, who attended nearly every day of the six-week trial last fall, and lead outside counsel Randy Mastro, of Gibson, Dunn & Crutcher, basked in vindication during a telephone press conference later in the day.
“A clean, neutral, independent judiciary has now set out the truth,” Pate said, “and no judge in any country that respects the rule of law will now entertain enforcement of this judgment.” (Because Chevron has almost no assets in Ecuador, the Lago Agrio plaintiffs must try to enforce their judgment in countries where Chevron does have assets. So far, they have filed enforcement suits in Canada, Argentina, and Brazil, but none is yet far along. Tuesday’s judgment will not literally bind any foreign court, but could have enormous persuasive impact.)
In response to questions from reporters, Pate also laid out during the call Chevron’s position with respect to the oil contamination that remains in the Ecuadorian Amazon. Texaco was the operating partner of a joint venture that was 62.5% owned by Ecuador’s state-owned oil company, PetroEcuador, he explained. Under a remediation agreement struck in 1994 — two years after Texaco left Ecuador — Texaco cleaned up its proportional share of the joint venture’s oil fields in a process that Ecuadorian officials monitored and signed off on as having been properly completed in 1998. PetroEcuador, however, never did clean up its share of the concession, Pate said, and, in fact, created additional contamination as it continued drilling there.
Though Judge Kaplan found that the Ecuadorian judgment was tainted by a great many frauds, two overarching ones predominated. The first — which was the original basis for Chevron’s filing of the RICO suit in February 2011 — was an elaborate, multiyear charade in which, Kaplan found, Donziger had his expert consultants in Boulder, Colo., secretly ghostwrite in English a key damages report that was then translated into Spanish and signed by a court-appointed special master to the Ecuador court in late March 2008, who repeatedly swore to having written it entirely himself. For years thereafter Donziger and plaintiff team members passed the report off as that of an “independent” special master in statements made to Ecuadorian and U.S. courts, to a select committee of the U.S. Congress, to various federal and state officials, and to countless reporters (including me).
The second, even more audacious scam, which only came to light after Chevron filed its RICO case, was a bribery scheme in which the presiding Ecuadorian judge, Nicolas Zambrano, was allegedly promised $500,000 from the recovery if he would permit the plaintiffs team to ghostwrite the entire 188-page, $18.2 billion judgment itself. Judge Kaplan found Tuesday that this scheme did, in fact, occur and that it had “Donziger’s express authorization.” (Kaplan devoted about 100 pages of his opinion, backed by nearly 400 footnotes — citing emails, diaries, videotapes, bank and courier records, and direct testimony — to delineating the evidence supporting this finding.)
Under the terms of an order Judge Kaplan also issued Tuesday, Donziger and others representing the Ecuadorian plaintiffs are barred from trying to enforce the judgment in the United States. The order does not attempt to bar them from trying to enforce the judgment in other countries, which would have tested the limits of an American judge’s jurisdictional powers.
The order also bars Donziger — and anyone in concert with him — from profiting in any manner from his frauds, and this portion of the order contains no geographic restrictions. The details of what this means are very unclear, and will involve highly sensitive and unsettled questions relating, again, to the limits of a U.S. court’s jurisdiction.
Having presided over Lago Agrio-related cases now since 2010, Judge Kaplan anticipated Donziger’s and the Lago Agrio plaintiffs’ reaction to his ruling — faulting his failure to address alleged contamination there — and took the opportunity to preemptively address it in the opening pages of his ruling.
“Donziger is intelligent, resourceful, and a master of public and media relations,” he wrote. “An extensive public relations and media campaign has been part of his strategy from early days, and it continues … The Court assumes that there is pollution in the Oriente [i.e., the eastern Ecuadorian provinces where Texaco drilled]. On that assumption, Texaco and perhaps even Chevron — though it never drilled for oil in Ecuador — might bear some responsibility. In any case, improvement of conditions for the residents of the Oriente appears to be both desirable and overdue. But the defendants’ effort to change the subject to the Oriente, understandable as it is as a tactic, misses the point of this case.
“The ends do not justify the means,” Kaplan continued. “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. The 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. Indeed, one Ecuadorian legal team member, in a moment of panicky candor, admitted that if documents exposing just part of what they had done were to come to light, ‘apart from destroying the proceeding, all of us, your attorneys, might go to jail.’ It is time to face the facts.”