As I noted in a previous post, the Lago Agrio plaintiffs had pleaded—or at least it seemed they had pleaded—res judicata as an affirmative defense to Chevron’s RICO claims, arguing that the Ecuadoran judgment should have preclusive effect and should bar relitigation of Chevron’s claims of fraud. When Chevron sought partial summary judgment on the affirmative defense, marshaling all of its evidence of fraud in Ecuador, the Ecuadorans did not attempt to rebut Chevron’s evidence but instead argued that they were not, in fact, asking the court to give preclusive effect to the Ecuadoran judgment. As I pointed out in the prior post, even if the Ecuadorans’ assertion (which seemed to me implausible) were correct, another defendant, Stratus, had expressly pleaded that the Ecuadoran judgment should be given preclusive effect, and Chevron’s motion for partial summary judgment would proceed against Stratus even if the Ecuadorans were able to rely on the supposed ambiguity in their own pleading to wriggle out from their predicament.

Now Stratus has adopted the same strategy as the Ecuadorans. Rather than attempting to rebut Chevron’s evidence of fraud, it has filed an amended answer—as it had a right to do under FRCP 15(a)(1)(A)—that omits the affirmative defense of res judicata. Its response to Chevron’s motion for summary judgment says simply that the motion is moot in light of the amendment.

Chevron has filed a reply brief that accuses Stratus of improper gamesmanship. I think the key part of the brief is this footnote:

The withdrawal of claims in the face of adjudication is disfavored. See Jones v. SEC, 298 U.S. 1, 20 (1936) (“Having been put to the trouble of getting his counter case properly pleaded and ready, [a party] may insist that the cause proceed to a decree.” (internal quotation marks and citation omitted)); Zagano v. Fordham Univ., 900 F.2d 12, 14 (2d Cir. 1990) (identifying factors for withdrawing claim); D’Alto v. Dahon Calif., Inc., 100 F.3d 281, 284 (2d Cir. 1996) (denying motion to withdraw where “no reason was offered by plaintiffs, and none was sought by the court, as to why venue in the state court would be more favorable.”); Wakefield v. Northern Telecom Inc., 769 F.2d 109, 114 (2d Cir. 1985) (“Weight must also be given to the fact that [defendant] has had to defend this claim, and considerations of fairness require some showing as to the plaintiff’s need to pursue it a second time elsewhere.”); Kapoulas v. Williams Ins. Agency, Inc., 11 F.3d 1380, 1383 (7th Cir. 1993) (affirming denial of motion to withdraw claim where, “upon questioning by the district court, the plaintiffs responded that they intended to refile the case in state court, clearly evidencing an intent to avoid further adverse rulings by the district court”) (emphasis added).

If this footnote is basically right, then given what we know about Judge Kaplan’s view of the Ecuadoran proceedings, I think that Stratus and the Ecuadorans are in great danger of losing this motion. As I argued in the prior post, I think they really have no one but themselves to blame if that happens—if they had no intention of defending the Ecuadoran judgment they should not have pleaded the affirmative defenses they did.

If Judge Kaplan does grant the motion, then things get interesting. Will his decision have issue-preclusive effect in Canada or Brazil? In part, that depends on how quickly the RICO case will go to judgment relative to how quickly the Canadian and Brazilian courts will act. But the Ecuadorans could find themselves hoist with their own petard—having pleaded that the Ecuadoran judgment was entitled to preclusive effect on the question of fraud, they may instead find themselves facing arguments that Judge Kaplan’s judgment on the question of fraud is entitled to such effect. Stay tuned!

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