Lago Agrio: Ontario Superior Court Rules LAPs Cannot Execute The Ecuadorian Judgment In Canada

Oil barrels in Ecuador
Oil barrels in Ecuador. Credit: Julien Gomba

As expected, the Ontario Superior Court has rejected the Lago Agrio plaintiffs’ attempt to seize the assets of an indirect Chevron subsidiary, Chevron Canada Ltd., to satisfy the multi-billion dollar judgment they obtained against the ultimate parent, Chevron Corp., in Ecuador. The court found no basis on which the assets of the indirect subsidiary could be reached on execution (the only tricky part here, in my view, is whether the shares of an indirect subsidiary can be reached, but really that’s not so tricky), and it found no basis for corporate veil-piercing. The practical implication is that barring a successful appeal, the Lago Ario plaintiffs will not be able to collect on their judgment in Canada. (The decision left over the possibility that another Chevron entity could be added to the case, but it is difficult to see why the outcome would be different for that entity than it was for Chevron Canada Ltd.).

The plaintiffs seem to think that equity requires a different result, but in order to make that argument, they have to ignore the whole course of the proceedings in the United States. Remember that they could have sought recognition of the Ecuadoran judgment in the United States, where Chevron Corp., the judgment debtor, has plenty of assets, but if I recall right, they made a decision not to do so. And they then were found to have obtained the judgment in Ecuador by fraud, which prevents them from seeking recognition in the United States now even if they wanted to. They say that equity requires courts in third countries to ignore corporate separateness to allow them to recover, but in light of what happened in New York, where’s the equity in that?

The judge also rejected the LAPs’ motion to strike most of Chevron’s defenses to their claim for recognition and enforcement of the Ecuadoran judgment. I will have an analysis of what defenses survive, what defenses do not, and the court’s rationale later this week. The practical implication, though, is that Chevron will be able to argue that the Ecuadoran judgment was obtained by fraud as a defense to recognition in Canada.

You might wonder why the court bothered to rule on Chevron’s defenses. Isn’t the case over if the LAPs cannot collect in Canada? As I discussed back in September, it seems that the LAPs are trying a strategy of international judgment arbitrage. They think that it will be easier, in the courts of a third country, to obtain recognition of a Canadian judgment recognizing the Ecuadoran judgment than it will be to obtain recognition of the Ecuadoran judgment itself. This is pretty cutting-edge stuff with no clear answer.

A couple of observations. First, long-time readers will know that I am basically sympathetic with one of the LAPs’ main arguments—Chevron, they say, should not be able to litigate issues that it did or could have litigated in Ecuador, as long as there is no systematic (as distinguished from case-specific) challenge to the adequacy of the Ecuadoran judiciary. But we know that my view is not the law in the United States, and it seems it is not the law in Canada, either. Maybe it is not the law anywhere.

Second, while the new decision is a clear win for Chevron, it’s not at all clear how a trial on the fraud issue will come out. Leaving aside issues about issue preclusion—whether it is permissible to relitigate issues that have been litigated elsewhere—we have seen that the Republic of Ecuador and its lawyers were able to do much better in rebutting the testimony of Judge Guerra in the Chevron/Ecuador investment treaty arbitration than the overmatched lawyers were able to in the RICO case. If the LAPs’ lawyers can do as well, then we could be in for interesting times. On the other hand, a victory in the trial could well be Pyrrhic for the plaintiffs’ lawyers, who, I assume, are being paid on a contingency.

About Ted Folkman

Ted Folkman is a shareholder with Murphy & King, a Boston law firm, where he has a complex business litigation practice. Folkman also serves as an arbitrator and is a member of the Commercial and Consumer Panels of the American Arbitration Association. 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 treatise on International Aspects of US Litigation (J. Berger, ed. 2017), 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 and 2014 - 2016.

17 thoughts on “Lago Agrio: Ontario Superior Court Rules LAPs Cannot Execute The Ecuadorian Judgment In Canada

  1. Dear Ted,

    Thanks for this informative update. Two observations:

    First, in cases of interest to the Administration of Ecuadorian President Correa, the Ecuadoran judiciary is indeed systematically lacking in political independence. Persons who read Spanish can consult, for example, the extensive and excellent 2014 report by the distinguished Peruvian expert, Luis Pasara, Independencia judicial en la reforma de la justicia ecuatoriana [Judicial independence in the Ecuadorian judicial reform], done for three widely respected human rights organizations: the Due Process of Law Foundation (based in Washington), DeJusticia (based in Colombia) and IDEELE (based in Lima, Peru). (The Pasara report is accessible on DPLF’s web page).

    More recent evidence in English—of the same sort of political interference and judicial submission detailed in the Pasara report—appears in the September 2016 report, The Role of the Judiciary in the Violation of Human Rights in Ecuador, by the Interamerican Institute for Democracy and the Inter-American Bar Association, for which I wrote an Introduction.

    Second, there is extensive evidence of fraud and other chicanery in the Lago Agrio litigation against Chevron in Ecuador, wholly apart from the credibility or lack thereof of Judge Guerra. The judgment and the plaintiffs’ counsel’s “evidence” were shown to be pervasively phony, well before Guerra belatedly surfaced as a witness. That is precisely why I filed an amicus brief for Chevron years ago. (I have not represented the company for years.) Although you have questioned the evidence of fraud, it is reflected both in the 2014 judgment of the US District Court in New York in the case of Chevron v. Donziger, and in the affirmance of that judgment by a unanimous Court of Appeals in 2016.

    Bottom line: misconduct by some of the plaintiffs’ lawyers has made their Ecuadorian judgement unenforceable in the US, and their effort to stretch corporate law by suing Chevron in Canada is almost certain to fail. A way to pursue justice for the plaintiffs—based on the development of credible evidence, or else on a settlement—must still be pursued, but not on the basis of the fatally flawed Ecuadorian judgment.

    1. Question for Doug:

      Let’s stipulate/imagine that Guerra’s story about a bribe and his involvement therein have been proven false (as, of course, I believe it has been). Let’s further stipulate that Chevron and its attorneys knew this to be the case (or recklessly avoided exposing themselves to this truth) and presented it in the SDNY trial nonetheless. Is it your position that Chevron’s RICO judgment should nonetheless survive this “chicanery” and be allowed to stand on various of its other purported foundations, rather than being thrown out?

      And if this is your position, as it appears to be, are you not bothered by simultaneously taking the position that the the Ecuador judgment must in your view be thrown out for alleged “chicanery” (presumably referring to Cabrera report issues) notwithstanding the fact that those issues were addressed on appeal in Ecuador?

      1. Your hypothetical implies serious allegations about the honesty or probity of Chevron’s lawyers without a shred of evidence to show that they knew Guerra lied about the bribe offer. Your unsupported smear is not worthy of a reply.

          1. They may be, but without more, they do not remotely prove that the Gibson Dunn legal team, or Chevron’s headquarters legal team, knew that Guerra was lying, or acted with reckless disregard.

        1. Chevron’s team of “corporate solutions” operatives were all over Guerra. We see in the documents how they routinely deal with inconvenient facts by just changing Guerra’s story to fit the evidence. The documentary evidence is full of holes — some bank statements are offered, others not, on the explanation that they didn’t think to ask. Chevron operatives have hidden discovery in foreign offices; key witnesses have literally fled the country. Chevron lawyers coached Guerra for 53 days. They got an ethics opinion about what they could and couldn’t offer Guerra; violated it and went back to the professor who wrote it, who gave them a new one sanctifying their conduct and setting new lines; then violated that one and went back to the ever-willing professor for yet a third. They got a forensic report that blows huge holes in Guerra’s story, but have never retracted from his story, never bothered to explain.

          And yet you would think to even engage in a hypothetical that might (hypothetically?) besmirch the reputation of these fine corporate lawyers? If Guerra made the bribe story up, only he knew about it and the poor army of lawyers who meticulously catered his testimony were simply dupes? This is the deep-seated belief I refer to in my blog linked-to above: a faith, really, that our corporate leaders and institutions are fundamentally good and right. So even when they engage in horrendous conduct, there must be some alternative explanation — perhaps some evil greed “plaintiffs lawyer” — that leaves our corporate demigods blameless. The corporate accountability movement will go nowhere until our society breaks free of this trance.

          1. I have asked for the ethics opinions, which I have not seen, and will reply further once I receive them. But even without them, Page’s comment concedes that the ethics expert, in the end, approved of what the lawyers did. Unhappy with this ending, Page implies that the ethics expert, by rendering three successive opinions upon request, was herself (himself?) not reliable. This is simply the latest example of how Page consistently attacks any expert, in any field, who has the temerity to side with Chevron against plaintiffs’ PR machine.

            Page also repeats another of his timeworn tactics: attacking straw men. No one on these pages has placed corporate lawyers on a pedestal of untouchability. The more modest and realistic point is simply that one ought not to make (or imply, as Page often prefers to do) charges of unethical conduct against anyone (even lawyers) without solid evidence. Informing us that an ethics expert has blessed the conduct of Chevron’s lawyers — not once, but three times — is hardly persuasive evidence of unethical conduct on their part.

            1. This started with a request that you answer in the hypothetical. You don’t engage in hypotheticals unless the hypothetical facts are proven, is that your general rule?

              1. No, that is not my general rule. The applicable rule is more specific: I do not answer hypotheticals that amount to thinly veiled, unfounded smears.

  2. Sadly this strikes me as just more instinctive cheerleading for Chevron and anything that might lead to the suppression of the Ecuadorians’ case.

    In an earlier post you completely conflate the requirements of a finding of beneficial ownership with the requirements of veil-piercing. This has been Chevron’s strategy both in court and in the press, but I know you know better. In fact elsewhere you show that you completely understand the difference, comparing the seizure action to a Massachusetts reach-and-apply action. In the latter post, you note that you “don’t know what Canadian law has to say about such issues,” although the LAPs brief you link to in that post pretty much explains it. See also paras. 47-52 of this decision for a summary of the cases. I have offered my own quick analysis of the cases here.

    The cases we cite are on-point with regards to beneficial ownership. They are ignored by the Ontario court. A finding of beneficial ownership can be and often is made under the Execution Act. One need not show fraudulent intent, abuse, undercaptialization, or other veil-piercing requirements. Actual ownership is the inquiry. The Ontario court’s assertion that beneficial ownership isn’t available absent satisfying the the requirement of veil-piercing, or its looking to the Execution Act to somehow establish the property right itself, are wrong or non-sequiturs or both.

    Now if you were digging into the decision and the cases and came to a different conclusion, that would be one thing. But you just pretend like it’s obvious the court wouldn’t find beneficial ownership here. That’s why I am left with the sense that we are not really debating the substance, but cheerleading. If you want to explain in more detail why you think a beneficial ownership finding is not available in the Canada situation, I’d love to hear it.

    1. I don’t think anyone can read my post as “instinctive cheerleading for Chevron,” given that I express sympathy with your legal view on other issues and suggest that the LAPs could win the trial! I don’t know of any independent legal commentator more favorable to the LAPs’ view than I am.

      Look, I own 100 shares of Mutual Fund X, which in turn owns 1,000,000 shares of Acme Corp. You have a judgment against me. I am a beneficial owner—not the sole beneficial owner, of course—of Acme Corp. Can you seize Acme Corp.’s bulldozers to satisfy the judgment? Of course not. Can you seize Mutual Fund X’s shares in Acme Corp.? Of course not. Can you seize my shares of Mutual Fund X? Sure. But Chevron Corp. is not the owner of shares of Chevron Canada Ltd. This all seems very obvious, but maybe I am unduly naive, and as I said, I disclaim real expertise about the Canadian angle.

      1. You almost made it through the analogy.

        If you held your Mutual Fund X shares in a non-operating shell company of which you were the sole shareholder, would I be frustrated from seizing the X shares?

        In the U.S., it might be tougher, admittedly, and it might go into a reverse veil-piercing analysis. But let’s say there was a creditor’s protection statute that expressly allowed me to collect against “any interest or equity of redemption” you have? That (along with numerous cases saying a beneficial interest in stock or trust is exigible under the statute) is what we have in Canada — that’s arguably WHY we’re in Canada.

        1. The problem with your view is that once you start to distinguish my hypothetical from the facts of the case, you get into classic veil-piercing territory. Were the two corporations (or the seven corporations, I guess, in the real case) really separate? Did they have separate boards, did they observe formalities, did they not commingle, etc.? That’s my point. I think what the judge was saying is that it’s not enough just to say, “It’s a holding company! It’s a shell! It’s all really Chevron!”

          1. No that’s all in the brief. They are all wholly owned paper shell entities. There are no independent board members. There is no co-mingling because they have no operations. Even if the companies keep minutes and the board members meet once a year in the American Airlines lounge, is it your opinion that that should be enough to block beneficial ownership in a debt collection context? If it were one company, perhaps you could just go after the company. But this is seven, spread across different jurisdictions. With modern technology, it actually wouldn’t be expensive to make it 100. No difference. So why are we not just dispensing with debt collection entirely (for wealthy corporations that can pay for the maintenance of shell companies)?

            These are the kinds of background and policy questions that I would think an independent observer of this situation would asking. The fact that you say “oh that’s just how it is” and don’t seem remotely bothered by it is what leads to feel like the analysis is ultimately cheerleading for Chevron.

            To be clear, I certainly respect you and your professional intelligence — and your sense of humor — and I am consistently amazed that you even try to stay on top of all this as a non-party. But I think your genial “oh what a funny game this all is” approach often whitewashes the serious injustices at issue. After 24 years, to be told that we may have run another preliminary procedural appeal, perhaps all the way up and perhaps at the expense of another three years, is a travesty. (And note that the judge’s decision relies not at all on any alleged fraud.) These kinds of hits are slowly killing off the notion that legal process offers any hope for corporate accountability.

            1. Well, my basic view is that the reason the situation seems so bleak and unjust to you is that you had a bad outcome in the United States. You know I didn’t agree with all of Judge Kaplan’s analysis (e.g., Guerra) though I agreed with some of it (e.g., Cabrera). But the bottom line is that there was a big pot of money for you to go after, and that the reason you didn’t (I say “you,” but you understand I mean the LAPs) was that you were fending off the fraud allegations, and ultimately you (again, not you) were found to have committed fraud and enjoined. Maybe the finding was right, maybe not, but I don’t think you can look at the justice or the injustice of the overall situation without taking what happened in New York into account. The judge’s findings are what they are, and they weren’t challenged on appeal. And given the New York outcome, what just happened in Canada doesn’t really seem unjust to me in any kind of larger, non-technical sense.

              In terms of the tone of my coverage, I’ll just say that sometimes to a partisan, non-partisan commentary can seem Panglossian. When the revolution comes, the first ones to go will be the New Yorker essayists and the hosts of All Things Considered.

              I should add that you could well be right about what will happen on appeal in Canada, and I could be wrong. I’m not obviously right. But I think you’re not obviously right, either.

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