Judge Kaplan Dismisses Some Claims Against Donziger

Oil barrels in EcuadorJudge Kaplan issued two decisions in Chevron’s RICO action against Steven Donziger yesterday, and predictably, both sides found a way to spin the decisions as a success.

Recall that the gist of the claim is that Donziger and others orchestrated a scheme to extort money from Chevron by bringing a baseless lawsuit in Ecuador, creating false evidence for use in Ecuador, pressuring Chevron to pay money using the Ecuadoran lawsuit and using public attacks in the US based on false statements about Ecuador, causing US officials to investigate Chevron based on false claims, and making false statements to the US courts and tampering witnesses in US court proceedings.

The motion to dismiss

Chevron’s complaint asserted claims for violations of the RICO statute; fraud; tortious interference with contracts; trespass to chattels; unjust enrichment; civil conspiracy; and violations of the New York statute governing deception of a court or another party. The complaint also asserted a claim for a declaration that the Ecuadoran judgment was unenforceable, but that claim was no longer in the case, as the Second Circuit held that a judgment debtor could not preemptively seek a declaration of non-enforceability but had to await a claim for recognition and enforcement.

The lead claim is the RICO claim. Donziger argued that the claim was barred by the doctrine that US statutes are not to be applied extraterritorially unless there is an indication that Congress intended extraterritorial application. Judge Kaplan agreed that the RICO statute could not be applied extraterritorially, but he rejected Donziger’s argument that Chevron’s claim was based on an extraterritorial application of the statute. The supposed scheme was based in the United States, involved acts in the United States, and involved both Americans and Ecuadorans as participants. The judge also rejected Donziger’s arguments that Chevron had not adequately pleaded predicate acts of extortion and that Chevron had not adequately plead a pattern of racketeering activity.

The judge also denied the motion to dismiss the claim under the New York statute on deceiving courts and the claim for the tort of civil conspiracy on technical grounds.

Donziger fared better on the remaining common law claims. Chevron alleged fraud, namely, that Donziger had made fraudulent misrepresentations to Chevron, the US and Ecuadoran courts, various executive agencies, Chevron investors, and the public in order to obtain favorable rulings, cause the government to investigate Chevron, and in general harm Chevron. In particular, the claim focuses on the disputed Calmbacher and Cabrera expert reports, which I discussed in the questions I posed to the Lago Agrio plaintiffs. This claim was partly faulty because Chevron had not adequately alleged that it relied on Donziger’s supposed misrepresentations. Chevron alleged that third parties had relied on the misrepresentations, and although Judge Kaplan plainly felt that third-party reliance could not be a sound basis for a fraud claim, he felt constrained to hold, on account of some older decisions of the New York state courts, that third-party reliance could indeed support a fraud claim. Thus while the judge did not dismiss the fraud claim, it seems to me to be a weak claim that should not succeed.

The claim for tortious interference with a contract was barred by the statute of limitations. The contracts in question were the 1995 settlement agreement between Ecuador and Texaco and the 1998 final release. The alleged interference began either in 1999, when Ecuador enacted a statute that permitted private causes of action for environmental torts, or 2003, when the Lago Agrio plaintiffs sued. In either case the claim was brought too late.

The claim of trespass to chattels failed because Chevron could assert harm only to its “funds and goodwill.” Money is fungible, and neither money nor goodwill is a chattel for these purposes. In essence, according to the judge, Chevron was trying to shoehorn a claim of vexatious litigation, which New York law does not recognize, into one of the recognized torts.

The claim of unjust enrichment failed because Donziger had not yet received any money on account of his supposed wrongful acts. To the extent Donziger had received money from the financial backers of the Lago Agrio litigation, Chevron had no claim on that money, so Donziger had not been unjustly enriched. The judge was careful to note that the claim was not necessarily faulty, but was only premature.

The motion for an attachment

Judge Kaplan also ruled on Chevron’s renewed motion for an attachment. Recall that Chevron had previously sought an attachment, which Judge Kaplan denied on the grounds that Chevron had not shown that it had been injured in any particular amount. This time around, Chevron presented a better story about the present value of the Ecuadoran judgment as a way of trying to quantify what, in its view, should be attached. But the judge again denied the motion. On the RICO claim, the judge held that Chevron had not shown a likelihood of success against Donziger given the issues about extraterritoriality discussed above, and the Lago Agrio plaintiffs (whose assets Chevron also sought to attach) were not even defendants on the RICO claim. Chevron also sought to attach the Lago Agrio plaintiffs’ assets on an unjust enrichment theory, but this claim failed for the same reason as the unjust enrichment claim against Donziger was dismissed—it was premature.

In a sense the decision on a motion for an attachment is the more significant of the two decisions, because Judge Kaplan expresses serious uncertainty about Chevron’s likelihood of success on the merits of the RICO case. Of course, Chevron has reason to claim success, too—its RICO claim survived a motion to dismiss.

Photo credit: Julien Gomba (license)

About Ted Folkman

Ted Folkman is a shareholder with Murphy & King, a Boston law firm, where he has a complex business litigation practice. He is the author of International Judicial Assistance (MCLE 2012), a nuts-and-bolts guide to international judicial assistance issues, and the publisher of Letters Blogatory, the Web's first blog devoted to international judicial assistance, which the ABA recognized as one of the best 100 legal blogs in 2012.

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