Cheating in a game of high-stakes legal tactics has backfired in the ongoing Chevron-Ecuador case, potentially leaving villagers with nothing

A favourite weapon of green campaign groups, the class action lawsuit, is under threat after a ruling in the long-running Chevron-Ecuadorian oil pollution case.

Critics call it “greenmail”: using the threat of an extended public relations nightmare and expensive courtroom battle to extort settlement payments from deep-pocketed corporations. Advocacy groups of course see it differently: one of the few ways in which the powerless and aggrieved can tip the uneven scales of power and justice.

These two contrasting narratives were on sharp display in the wake of a recent ruling in New York, where federal judge Lewis Kaplan eviscerated the tactics of class action lawyers in the decade-long Chevron case.

Ecuadorian complainants represented by New York based lawyer Steve Donziger have been contending that Texaco, the company absorbed by Chevron that had operated in the Amazon for decades, had created a petroleum-laced “Rainforest Chernobyl” in the fragile ecosystem.

What makes this case so unusual is that Kaplan was not empowered to rule on the merits of the pollution case; rather he focused on Donziger’s prosecution of it. This case was litigated under what are known as Rico statutes – US racketeering law under which a lawyer’s legal tactics are scrutinised.

In what has been described by legal experts as a “seemingly bulletproof” decision, Judge Kaplan issued a 485-page, 1,842-footnote ruling determining that a $9.5bn judgment entered against Chevron in 2011 by an Ecuadorian provincial court (reduced from $19bn by the Ecuadorian supreme court, which upheld the judgment) was procured by fraud, bribery, witness tampering, money-laundering and other unseemly means. 

A 20-year story

Ethical Corporation profiled what’s now a 20-year saga in two articles three years ago. It’s a messy and complicated story. The class action portion of the battle took flight in 2001, when Chevron bought Texaco, which had been the junior partner in a joint venture drilling operation with Ecuador’s state-owned oil company Petro-Ecuador. As Kaplan elaborated in his summary ruling, years earlier, Texaco cleaned up its proportional share of the oil spills in a process overseen and signed off by Ecuadorian officials. But many locals believed that the cleanup was botched and the oversight officials bought off.

Into the fray stepped New York attorney Donziger. He filed a $113bn class action suit on behalf of residents of Ecuador’s Oriente region, anticipating that the global oil company would rather settle out of court than subject its fate to the vagaries of an Ecuadorian legal system hostile to the multinational, with all the global bad publicity such a fight would produce.

Suing for the moon while embarrassing a corporation in the media is a common legal tactic, often referred to as “ambulance chasing”. Corporations in the ecological spotlight – at least the ones that believe they are unfairly targeted – call it “greenmailing”: legal extortion under the guise of do-goodism.

In this case, Judge Kaplan clearly sided with those who viewed Donziger’s case with suspicion. Chevron had fought Donziger tooth-and-nail until an Ecuadorian judge ruled against the oil company in 2011. In the course of its appeals, Chevron believed it had discovered that the New York lawyer had stepped way over the line in his attempt to force a capitulated settlement. Chevron responded by filing another lawsuit, claiming that Donziger had committed numerous crimes in assembling his evidence. Chevron originally sued for $60bn in damages, but the claim was eventually dropped as the company realised the ruling itself was far more important than any potential financial compensation. 

‘Procured by fraud’

In his ruling, Kaplan says the Ecuadorian judgment was “procured by fraud”. According to Kaplan, Donziger’s team wrote the Ecuadorian court’s judgment themselves and promised $500,000 to the Ecuadorian judge to rule in their favour and sign their judgment.

“If ever there were a case warranting equitable relief with respect to a judgment procured by fraud, this is it,” says Kaplan. “There is no Robin Hood defence to illegal and wrongful conduct … 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.”

The judgment goes on: “Indeed, one Ecuadorian legal team member, in a moment of panicky candour, 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’.”

Some experts believe that the judge’s extraordinarily harsh ruling under the racketeering statutes may serve as a model for companies that believe they are subject to unfair greenmailing.

“Those of us who have followed the case can’t say we’re surprised,” says Darren McKinney, a spokesman for the American Tort Reform Association, a corporate-funded lobbying group in Washington. “We hope it will encourage other defendant companies that have been victimised by fraudulent lawsuits to fight back with Rico suits of their own.”

Plaintiff lawyers had come to believe there is minimal risk in bringing questionable or even potentially fraudulent lawsuits.  Until now, there had been no legal counterbalance to the tactic, they say. In a more perfect world, the court system would show greater interest in investigating and prosecuting litigation fraud, as Kaplan believes occurred in the Chevron case. But with few exceptions, authorities have shown little interest in attacking the problem. 

Enforcing judgment

What happens from here? Because Chevron has no assets to speak of in Ecuador, the plaintiffs have tried to enforce the judgment in third countries where the oil company does have investments, including the US, Canada, Argentina and Brazil. Now with the US judgment, Donziger will be forced to press the case elsewhere. Considering how extensively the apparent fraud was documented by Kaplan, and with those documents sure to be submitted in other countries, Donziger’s hopes for a big payday took a hit.

Kaplan’s ruling may not be the last word in the US. Donziger’s legal team has filed an appeal and asked that the ruling be put on hold while a federal appeals court considers the merits of the challenge, a process that will take months.

“This is an appalling decision resulting from a deeply flawed proceeding that overturns a unanimous ruling by Ecuador’s supreme court,” Donziger says in an e-mailed statement. “We believe Judge Kaplan is wrong on the law and wrong on the facts … The villagers deserve justice and I am confident they will get it despite Chevron’s effort to flout the rule of law.”

The US ruling casts a shadow over the other cases pending in other jurisdictions, with Canada up next. “Basically an Ontario court would have to look at all the evidence again and start at the beginning,” Vaughan Black, a professor at the Schulich School of Law in Halifax, Nova Scotia, tells Reuters.

“I suppose there is always the possibility that they could take a different view of which witnesses were credible, but the New York court didn’t even think it was a close call. So it doesn’t look very promising for the Ecuadorian plaintiffs.”

As argued in a February 2011 Ethical Corporation piece on the case, the legal jousting has left the Ecuadorian villagers as the ultimate losers. The plaintiffs had numerous opportunities over the years to reach a more modest settlement, but rejected that choice in hopes for a huge payout, which now seems unlikely.

“There are real people with real injuries and legitimate claims behind all this,” says Judith Kimerling, an environmental law professor at the Queens College, City University of New York. And, in a further twist, some of them have become annoyed with the way their supposed legal representatives have conducted themselves. Kimerling represents a group of indigenous Ecuadorians now suing Donziger in the New York state court for unjust enrichment, and seeking to recover resources to clean up the polluted area.

“It is a very sad day for the victims and for the environment because it makes it more difficult for them to get remedies.” 

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