Lago Agrio: Donziger’s Reply Brief

Day two of this week’s Lago Agrio coverage: Steven Donziger has filed his reply brief in the Second Circuit RICO case. I’m not sure why the due date for this brief was later than the due date than the LAP reply brief—I haven’t studied the case calendar. But in any event, it’s another strong brief from Deepak Gupta’s office.

My usual practice is to pick one or two points out from a brief for a comment. I could focus on the brief’s nifty decision tree, which shows in graphical form the issues the court will have to decide, as Donziger sees it. Instead I want to focus on Donziger’s judicial estoppel argument, which has always had appeal for me, and on Ellerman Lines v. Read, the case cited in footnote 10.

Estoppel

The basic argument on estoppel is that, having made stipulations as a condition of obtaining the original forum non conveniens dismissal of the Aguinda lawsuit, Chevron cannot now mount a wholesale challenge to the Ecuadoran judiciary, at least without showing that there was an unexpected change in the judiciary between the time of its stipulation and the time of the Ecuadoran judgment. Here’s what Donziger has to say about this:

Aware that the Second Circuit has rejected these arguments before, Chevron devised—and the district court accepted—a new one: that judicial estoppel shouldn’t apply because the “characteristics of the Ecuadorian courts” have changed since the promise was made. But in order to make that finding without any evidence of corruption in the appellate court or Supreme Court in this case, the district court had to find that the Ecuadorian judiciary, through and through, was—and is—incapable of “provid[ing] impartial tribunals or procedures compatible with due process of law”—a designation that U.S. appeals courts have given only to ayatollah-controlled Iran and war-torn Liberia. The court based its sweeping condemnation of Ecuador’s judiciary almost exclusively on the testimony of partisan Álvarez Grau. The district court cited Álvarez’s testimony more than 50 times in nine pages, and Chevron, in turn, cites those pages 17 times in four pages to show that the record “amply” supports its wholesale attack on the Ecuadorian judiciary.

But even Dr. Álvarez admitted that “it would be irresponsible” for anyone “to generalize that all of the judges and all of the justices, that all of the members of the legal branch are corrupt” based on his testimony. The district court apparently felt more at liberty to generalize.

Recognizing that the district court’s sweeping condemnation of the Ecuadorian judiciary won’t hold up, Chevron tries to occupy the ostensibly more defensible position that Ecuador’s judiciary is only incapable of delivering justice in “highly politicized” cases. But what belongs in Chevron’s category of “highly politicized” cases? Surely, if anything, cases between President Correa’s government and Chevron itself would fit the bill. But did Chevron believe the Ecuadorian courts were incapable administering justice when Texaco won a $1.5 million judgment against Correa’s government in 2007? Or when an Ecuadorian appellate court reversed a lower court’s dismissal of another multi-million-dollar Texaco suit against Ecuador in 2008? What about when an Ecuadorian court dismissed charges against Chevron lawyers in 2011? 1 Chevron seems to have gerrymandered a category of “systemic inadequacy” that includes just one case: “this one.”

To which I basically say: right on. I am not that hopeful that the Second Circuit will go in this direction, since there are easier ways to get to the same result, but it’s long been my pet theory, and I will dare to dream.

The Ellerman Case

Both parties have now cited Ellerman Lines, Ltd. v. Read [1928] 2 K.B. 144, an old English case I hadn’t really noticed before. It may be the only case ever decided that affirms an injunction restraining enforcement of a foreign judgment, so it’s of obvious interest, to me at least. Plus it has picturesque facts.

In November 1924, the steamship Falernian ran aground off the coast of Romania. An aptly-named salvage vessel, the Semper Paratus, happened to be nearby, under the command of Landi, a naturalized British subject. Landi and the captain of the Falernian made an agreement for the salvage of the ship and its cargo. The agreement was that Landi would use his best efforts at salvage and that if successful, he would be paid either a fixed sum or an amount to be determined by arbitration. After completing his work, Landi was required to notify Lloyd’s of the amount of security he required, and if he didn’t, then Lloyd’s itself would determine the amount of the security. Landi also agreed not to arrest the Falernian after salvage unless its owners tried to remove it from port without Landi’s consent before security was given.

Landi’s work was successful, and the Falernian was taken to Constanza and ultimately to Constantinople for repairs necessary before taking her to England or Holland for more extensive repairs. The ship was ready to sail, and the owner of the Falernian, at the request of Landi’s solicitors, deposited an open guaranty with Lloyd’s, which was the security required under the salvage agreement. But Landi went to a Turkish court and had the Falernian arrested. The Falernian’s master appeared in court and sought the ship’s release on the grounds that the owners had provided security, but Landi argued that he had not authorized his solicitors in London to accept the open guaranty as security. The Turkish court ruled that the captain had to prove that Landi had authorized his solicitors to accept the open guaranty and that he could do so by “put[ting] the contractor to his oath.” Landi, however, testified that he had not authorized his solicitors, and the Falernian’s captain then withdrew from the proceedings. The case was heard on the merits in his absence, and a judgment for a sum of money was given for Landi.

The owners of the Falernian then sued for breach of the salvage agreement and sought an injunction to enjoin the enforcement of the Turkish judgmnet. The court granted the injunction pending the outcome of the case. But Landi confessed a judgment in the Turkish court to his brother (apparently collusively), and the Falernian was auctioned to pay this judgment debt.

At trial, the judge found that Landi had “committed a deliberate and shameless breach of contract” by causing the ship to be arrested and that he had lied under oath in Turkey about the security. He also entered a declaratory judgment that the Turkish judgment was obtained by fraud, but he refused to enjoin its enforcement on the grounds that he lacked authority to enjoin enforcement outside of England. The shipowners appealed from the judgment to the extent it refused to enjoin enforcement.

On appeal, the court reversed. Scrutton LJ thought the key point was that the injunction was not meant to enjoin the Turkish court from acting—no English court could do that—but rather to enjoin a British subject who had committed a fraud from proceeding in the Turkish court. “The English Courts have therefore clearly jurisdiction to restrain a person who is subject to the English jurisdiction from taking proceedings in a foreign Court in breach of contract and in fraud.” Landi’s lawyer argued that whatever the rule before the foreign court had entered judgment, the power to enjoin enforcement after judgment. There didn’t seem to be a case on point, but “If there is no authority for this it is time that we made one,” said the judge,

for I cannot conceive that if an English Court finds a British subject taking proceedings in breach of his contract in a foreign Court, supporting those proceedings, and obtaining a judgment, by fraudulent lies, it is powerless to interfere to restrain him from seeking to enforce that judgment. I am quite clear that such an injunction can be and in this case ought to be granted in the terms asked for in the statement of claim.

Atkin LJ agreed, and expanded on the point about the relevance of the foreign case having gone to judgment:

The judgment once obtained, it is said, is sacrosanct, and the party cannot be restrained from enforcing it. That seems to me a remarkable contention. … In my view the English Courts are not so bankrupt of resources as to be incapable of granting a remedy in cases such as those. There is no ground upon which the remedies granted by the English Courts should be so restricted. The principle upon which an English Court acts in granting injunctions is not that it seeks to assume jurisdiction over the foreign Court, or that it arrogates to itself some superiority which entitles it to dictate to the foreign Court, or that it seeks to criticize the foreign Court or its procedure; the English Court has regard to the personal attitude of the person who has obtained the foreign judgment. … It was every-day procedure at one time for the Court of Chancery to restrain a person from proceeding upon a judgment obtained in a common law Court where it was necessary to do so. Therefore I think that the criticism addressed to the claim for an injunction in this case … is unfounded.

It may well be that the case is rightly decided as far as it goes—if the question is the court’s power to enjoin rather than the appropriateness of an injunction in light of comity concerns. I don’t see anything really wrong with the judge’s reasoning, and I think a US court does have the power to enjoin a person subject to its jurisdiction—anti-suit injunctions are in fact somewhat routine. But it seems to me that comity concerns come into play with particular force once the foreign case has gone to judgment, because at that point the US court is in the position of saying that the foreign court got something wrong. And so it doesn’t seem to me that the Ellerman Lines case is particularly important to what the Second Circuit has to do, since it seems to me the main question is not the US court’s power to enjoin Donziger (its power to enjoin the Ecuadorans is less clear), but rather whether it should have enjoined Donziger.

British WWII Mechant Marine Poster
When Britain Really Ruled The Waves
The Falernian, by the way, was finally done in by a German air raid in 1943 off the coast of Portugal while part of a convoy traveling between Gibraltar and Britain, after she had been renamed the Volturno.

Notes:

  1. Compare this with the point I made in my review of the Goldhaber book: “So the theory really is that the Ecuadoran courts as a whole simply fail to provide impartial tribunals or due process. Well, did Chevron feel that way when it won a $1.5 million judgment against the Ecuadoran government in the Ecuadoran courts in 2007, after President Correa’s election? How about in 2008, when the Ecuadoran appellate courts reversed the dismissal of another Chevron lawsuit against the government?”

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 2d ed. 2016), 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.

One thought on “Lago Agrio: Donziger’s Reply Brief

Leave a Reply

Your email address will not be published. Required fields are marked *