Case of the Day: Republic of Ecuador v. Chevron Corp.

For proprietors of blogs on international judicial assistance, 2011 has been like 1996 for champagne makers–a vintage year when all is right with the world. We’ve been lucky to have new decisions to report on almost every week in the Lago Agrio case. The latest installment is Republic of Ecuador v. Chevron Corp. (2d Cir. 2011), the Second Circuit’s review of Judge Sand’s refusal to stay the BIT arbitration Chevron had brought against Ecuador. Here is a page linking to all of our prior coverage.

The gravamen of the case was Ecuador’s claim that Chevron, when pressing for dismissal of the original American litigation on forum non conveniens grounds, had promised the district court that  it would satisfy any judgment in the plaintiffs’ favor unless the judgment was invalid under the Recognition of Foreign Country Money Judgments Act, and that Chevron had waived its right to challenge the Ecuadoran proceedings and was estopped as well.

The court viewed Ecuador’s waiver and estoppel claims against the federal policy favoring arbitration, particularly in international business transactions. Waiver and estoppel, in the court’s view, were presumptively not questions of arbitrability, that is, not like questions such as whether the parties had made an agreement to arbitrate. Instead, they are presumptively questions that the parties would natural expect the arbitrator, not a court, to decide. Ecuador argued that whatever the presumption, in the instant case its claims of waiver and estoppel were indeed questions of arbitrability. But the BIT, under which Ecuador had agreed to arbitrate, provided for application of the UNCITRAL Rules, and those Rules expressly gave the tribunal “the power to rule on objections that it has no jurisdiction, including any objections with respect to the existence or validity of the … arbitration agreement.”  Thus leaving all presumptions aside, the court held, Ecuador had unmistakably and expressly agreed that issues such as estoppel and waiver, even if they went to arbitrability, were for the arbitrator, not the court.

The court went on to reject the estoppel claims of the Lago Agrio plaintiffs (including a claim of judicial estoppel, which to me seems the most pertinent species of estoppel here) on the grounds that Texaco’s (Chevron’s predecessor’s) promise to “satisfy judgments that might be entered in plaintiffs’ favor” in Ecuador “subject to [its] rights under New York’s Recognition of Foreign Country Money Judgments Act,” on the grounds that Chevron’s challenge to the Lago Agrio judgment was a challenge on grounds that the New York statute expressly permitted, namely, denial of due process of law and lack of impartial tribunals. Nor did the court find any inconsistency between a promise to submit to the jurisdiction of the Ecuadoran courts and a request for an order in the BIT arbitration requiring Ecuador to intervene in the Lago Agrio intervention:

[N]othing that occurred in the United States action limits Ecuador’s freedom to take a position in the Lago Agrio litigation in support of either party. Whether that intervention is wholly voluntary or the result of an arbitral order … makes no difference. If such an order is issued, and Ecuador enters the Lago Agrio litigation in support of Chevron, it will still be for the Ecuadorian courts to determine the effect (if any) of such developments on the case pending before them.

Having found no bar to Chevron’s initiation of the BIT arbitration, the court went on to hold that any challenge based on an inconsistency between the arbitral award (which has not yet entered) and the Lago Agrio judgment (which is not yet final) was premature. The court reasoned that if the BIT arbitration reaches finality before the Ecuadoran proceedings become final, then the Ecuadoran courts will determine the effect of the arbitral award, if any, on the judgment. If they give effect to the arbitral award, or if they reverse the judgment on any other ground, then Chevron will not be in breach of its promise to satisfy the judgment, because there will be no judgment. If, on the other hand, the Ecuadoran courts arrive at a final judgment that is inconsistent with the arbitral award, then the conflict could be resolved in “any resulting proceedings to enforce the judgment,” and the plaintiffs would then be free to argue their estoppel point. The argument might or might not have merit, but it is, as yet, hypothetical.

Note that the court left open the question whether it had the power to stay the arbitration. While that question is open in the Second Circuit, other circuits have found that the FAA gives courts power to stay or enjoin arbitration in appropriate cases.

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 of the chapter on service of process in the ABA's forthcoming treatise on International Aspects of US Litigation, and he is 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, 2014, and 2015.

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