Lago Agrio: Chevron Files Second Circuit Brief

Chevron has filed its brief in the Second Circuit appeal by Steven Donziger and the Ecuadoran plaintiffs.

The brief is long—183 pages!—and Chevron has filed thousands of pages of a supplemental appendix, too. Needless to say, I haven’t read everything. Here are a few thoughts.

Waiver

Chevron begins with a good argument. The clever approach to distinguishing the Lago Agrio judgment taken by Burt Neuborne (for the Ecuadorans) and Deepak Gupta (for Donziger) has, Chevron says, been waived. It wasn’t really raised below, or was raised only in a cursory way. To some extent Chevron is right about this. I’ve previously noted the dramatic improvement in the quality and creativity of the RICO defendant’s papers once Neuborne and Gupta were handling things. In general, arguments not made below are waived, because the appellate courts sit to correct errors and abuses of discretion, not to hear new arguments. But the rule isn’t invariably enforced. I don’t know what the Second Circuit will do with this, but my hunch is that the issues are so interesting that the judges are going to want to decide them. Maybe I’m just projecting.

The Effect Of Judge Kaplan’s Findings If Chevron Loses

I’ve previously noted that if Chevron loses on jurisdictional grounds, the fight will be over whether Judge Kaplan’s findings of fact are entitled to any deference let alone preclusive effect in foreign courts:

The res judicata effects of a judgment entered by a court that lacked subject-matter jurisdiction have not been captured in any rule or clear statement of controlling policies. The approach to such judgments has instead sought to reconcile two competing perceptions. Res judicata effects have been resisted in order to serve the traditionally strong desire to confine courts within the proper limits of appointed competence. At the same time, it is recognized that the general values of res judicata not only apply but may apply with particular force when the only objection is that correct substantive rules have been administered by a fair procedure in a court that simply lacked subject-matter jurisdiction.

18A Wright & Miller § 4428. If Judge Kaplan had no jurisdiction, do his findings of fact vanish in a puff of smoke?

Chevron, of course, is aware of this problem, and it addresses it in a footnote:

Even if this Court were to find that private plaintiffs may not obtain equitable relief under RICO and vacate the injunction, it should exercise its remedial power to uphold the district court’s detailed factual findings regarding Donziger’s RICO liability. “[F]ederal courts have the power to award any appropriate relief in a cognizable cause of action brought pursuant to a federal statute.” RICO expressly confers broad remedial authority: § 1964(c) authorizes “any person injured” by RICO violations to bring suit, independent of the remedy, and § 1964(a) authorizes district courts overseeing those suits to issue “appropriate orders” not limited to the enumerated examples. In this case, where the centerpiece of Donziger’s ongoing racketeering is and has been a series of falsehoods that culminate in a fraudulent judgment, a freestanding determination of the true facts is more than “appropriate”—it is critical. A declaration of liability here would also preserve Chevron’s right to attorney’s fees under 18 U.S.C. § 1964(c).

I think it’s fair to assume, given what this footnote says and doesn’t say, that there is no precedent for what Chevron is asking the court to do in the event it holds that Judge Kaplan lacked jurisdiction. So the prospects for the argument are unclear.

Comity

One point of particular interest to me is the dispute about whether a US court can hear a collateral attack on an Ecuadoran judgment, assuming for the moment that the Ecuadoran judiciary is what I have called “systematically adequate.” I think this is a reasonable assumption, by the way, because if the Ecuadoran judiciary is not systematically adequate, then the US court should not recognize the judgment in any case. Chevron’s way of thinking is to analogize the US and Ecuadoran courts to sister-state courts, which can indeed consider collateral attacks on each other’s judgments, even in light of the full faith credit clause. This is consistent with one way of thinking about comity: “we respect your decisions so much that we will treat them precisely as we treat domestic decisions, and we respect your decisions so much that we will try to carry out your laws and to refuse recognition to judgments that we think you also would refuse to affirm, under your own law, if asked.”

There’s another way of looking at comity, though. It’s the way that a federal court might treat a state court, say, in a habeas corpus case: “we respect your courts so much that we will defer to you in the first instance, and even if you get it wrong, we will not correct your mistake unless you got it really wrong.” I’ve previously expressed the view that this second way captures something of the courts’ reluctance to act as super-courts, sitting in review of foreign judiciaries. It’s clear that the UFCMJRA allows courts to refuse recognition to judgments that they find were obtained by fraud. But there’s no claim for recognition of the Ecuadoran judgment here. So is it okay for the US courts to pronounce the Ecuadoran judgment an unenforceable fraud when no one is seeking recognition of the judgment in the US, especially where there’s a remedy for fraudulent judgments in Ecuador that hasn’t yet been tried? (The notion of exhaustion of local remedies, which I’m suggesting, goes along with the “habeas” model of comity: in a habeas case, prisoners are required to exhaust their remedies under state law before seeking relief in the federal court).

I suppose one of the main questions on appeal is which view of comity the judges are likely to take. If, as in Naranjo, the main concern seems to be a concern about judicial overreach and infringing on foreign sovereignty, then the result is likely to favor the plaintiffs, even if the decision ultimately is on an unrelated technical ground such as the RICO jurisdictional question. (Naranjo, recall, was decided on a technical issue—the availability of an action for a declaratory judgment under the UFMJRA). If, on the other hand, the main concern is about the substance, things are less clear.

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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