Lago Agrio: Settlement Prospects

In a comment to my post on the Second Circuit’s decision in Chevron v. Donziger, Doug Cassel raises the possibility of a settlement: “The best way forward continues to be for all parties to pursue a settlement in good faith.” Now, I have no idea what is going on behind the scenes. But how should we think about the possibility of a settlement in the Lago Agrio case?

There are a few key questions that you have to answer if you want to be able to estimate how much the Lago Agrio judgment is worth.

  • What is the preclusive effect of Judge Kaplan’s findings of fact? Now that the Second Circuit has affirmed Judge Kaplan’s judgment, it’s important to know what the judges in Canada and Brazil who are hearing the recognition and enforcement cases will make of it. The question is complicated by the fact that most of the Lago Agrio plaintiffs did not litigate the case in New York.
  • What is the likely outcome of the investment treaty arbitration between Chevron and Ecuador? I think it is possible that Ecuador will do much better than the LAPs did in seeking to show that the Ecuadoran judgment was not ghostwritten. I also think that if Ecuador can succeed in the arbitration before the Canadian court has to make a decision (which seems unlikely, given that the Canadian trial is scheduled for next month), then the LAPs might have better luck in Canada than they might otherwise. Then the court would have to face the question of the preclusive effect of the arbitral award, and the unusual problem of deciding what to do when two tribunals have reached different conclusions about the facts. Because the arbitral proceedings are not really public, it’s difficult to know whether Chevron has sought to give Judge Kaplan’s findings of fact preclusive or persuasive effect in the arbitration.
  • What corporate law defenses exist? We don’t talk much about it, but one of Chevron’s potentially most promising defenses in Canada, at least, is a corporate law defense that says, first, that Chevron’s indirect Canadian subsidiary can’t be treated as a judgment debtor against which the judgment can be enforced directly, and second, that the shares of the indirect subsidiary may not be liable to execution or other process to satisfy the claim against the parent company.

These are the sort of questions that I think we need to be thinking about in order to understand the likely outcome of the case if there is no settlement—which is, of course, the first step in getting ready to have settlement talks! Part of the difficulty in settling cases is that the parties need to have at least some shared understanding of the range of likely outcomes. If you take the dueling press releases in this long-running case similarly, it would seem that both sides think their chances of victory are 100%. I think it’s fair to read these things with a grain of salt.

Update: a prior version incorrectly stated that a “trial” was scheduled in Canada for next month. In fact, a hearing on a motion for summary judgment is scheduled).

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.

Leave a Reply

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