Court: District Court, S.D. New York; April 25, 2014; Federal District Court
An Ecuadorian court issued an $18.2 billion judgment against Chevron in 2011, known as the Lago Agrio Judgment, in a case initiated by 47 individuals referred to as the Lago Agrio plaintiffs (LAPs). Chevron subsequently sued the LAPs and their attorney, Steven Donziger, alleging that the judgment was fraudulently obtained as part of an extortion scheme. Following a comprehensive trial, the court found that Donziger and the LAPs engaged in fraudulent practices, including submitting false evidence, coercing a judge, and misrepresenting their relationship with a global expert. The court ruled Donziger liable for fraud and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). The LAP Representatives were also found liable for the fraud committed by their agents.
The court granted Chevron narrow relief aimed at preventing Donziger and the LAP Representatives from profiting from their fraudulent actions, imposing a constructive trust on any proceeds related to the Lago Agrio Judgment. The judgment required Donziger to transfer his interests in shares of Amazonia, a company set up to manage proceeds from the judgment, to Chevron. Additionally, it barred Donziger and the LAP Representatives from seeking to enforce the Lago Agrio Judgment in U.S. courts or profiting from it in any manner. In contrast, other LAPs and defendants who did not participate in the trial retain the right to sell or enforce their interests in the judgment.
Despite previously acknowledging that the imposed relief would not cause issues if Chevron were to prevail, Donziger and the LAP Representatives now seek a stay to suspend this relief during their appeal. The court found their request unmeritorious, with a key consideration being whether they would suffer irreparable harm if the judgment remains in effect while the appeal is pending.
Movants failed to demonstrate a credible threat of irreparable injury, relying on unsupported claims and contradictions to existing evidence. No likelihood of appellate success was shown that could alter the relief granted. Consequently, their motion was largely denied, though it was partially granted to modify the requirement that Donziger immediately transfer his Amazonia shares to Chevron, ensuring Chevron does not gain ownership of these shares before the appeal concludes. Until the appeal is resolved, the Clerk of the Court will hold the shares and any proceeds for both Chevron and Donziger's benefit, with voting rights directed by Donziger post-notice, barring contrary court orders.
Four factors guide the decision on a stay pending appeal: (1) the likelihood of success on the merits; (2) the risk of irreparable injury without a stay; (3) potential injury to other parties; and (4) the public interest. A greater likelihood of success can offset lesser evidence of irreparable harm, but the applicant must show more than a mere possibility of both. Donziger's claims of irreparable harm—related to prohibitions on transferring interests in the Lago Agrio Judgment, loss of value in Amazonia shares, and reputational damage—are inconsistent with the case record and do not present a material threat of injury if the New York Judgment remains valid during the appeal process. His assertion that the judgment endangers his law practice is deemed unsubstantiated.
Donziger is not prevented from continuing his work on the Lago Agrio case due to the NY Judgment. The main concern is how the judgment impacts his compensation while the appeal is ongoing and whether this could lead to irreparable harm. The NY Judgment creates a constructive trust on any property Donziger receives that is connected to the Lago Agrio Judgment. However, it is unlikely to affect his law practice or compensation during the appeal. Donziger's compensation structure includes a Monthly Retainer and a Contingent Fee of 6.3% of any recovery from the Lago Agrio Judgment. Monthly Retainer payments are not subject to the constructive trust unless they can be traced to the Lago Agrio Judgment.
Donziger has been able to earn a living without contingent fees for years, suggesting that the potential delay in receiving a Contingent Fee does not pose an immediate threat of irreparable injury. Moreover, there is no substantial evidence indicating that the Lago Agrio Judgment will be collected during the appeal, as enforcement attempts in other countries have been unsuccessful, and the potential for collection in Ecuador is deemed speculative. Consequently, there is no credible basis to assert that the NY Judgment will cause irreparable harm to Donziger or his law practice during the appeal. Additionally, attempts by Donziger to link his situation to paragraph 5 of the NY Judgment, which restricts him from profiting from the Judgment, are unfounded.
Paragraph 5 aims to prevent Donziger and the LAP Representatives from circumventing the constructive trust on assets that would otherwise be proceeds from the Lago Agrio Judgment. This is achieved by restricting their ability to sell, assign, or borrow against their interests in the judgment, thereby mitigating issues of traceability. Donziger acknowledges that paragraph 5 would strip him of interests in a case he has been involved with for nearly two decades, ultimately barring him from profiting from the fraudulent judgment. However, the NY Judgment does not inhibit his work on the case or the receipt of his monthly retainer, rather it aims to prevent him from benefiting at Chevron's expense from assets traceable to the fraudulent judgment.
The judgment does not pose a risk of irreparable injury, as it is unlikely that the Lago Agrio Judgment will be collected significantly during the appeal. Should Donziger prevail in the appeal, he could still benefit from any contingent fee arrangements related to collections. Additionally, the LAP Representatives' claim that the NY Judgment's prohibition on monetizing the Lago Agrio Judgment would hinder their ability to finance an appeal is unfounded. There is no evidence that they contributed to legal expenses in this case or intended to do so in the future. The litigation against Chevron has been financed by investors, raising between $15.99 million and $21 million, with substantial payments made to U.S. counsel.
Furthermore, the LAPs and their allies retain the ability to continue raising funds irrespective of the NY Judgment, and they appear to have sufficient resources to support the appeal. The LAP Representatives have actively litigated against Chevron in multiple jurisdictions and have prominent legal representation. Despite claims of financial hardship, they have not provided evidence of their financial backers' conditions, suggesting that their claims may be tactical rather than factual. This conclusion is reinforced by their ongoing litigation efforts and statements from their lead Ecuadorian counsel, indicating robust funding for their legal endeavors.
In May 2013, the LAP Representatives indicated a need to focus on enforcing a $19 billion judgment globally, dismissing the New York case as a distraction. They argued that their self-created financial constraints do not warrant a stay pending appeal and that they lack significant economic interest in the Lago Agrio Judgment, which primarily benefits the ADF. The judgment includes a provision for individual plaintiffs, but it seems the LAP Representatives have never been entitled to any personal financial benefit from it. Consequently, they have not demonstrated that the New York judgment impedes their ability to appeal or threatens them with irreparable injury.
The judgment also mandates that Donziger transfer his shares in Amazonia to Chevron. Donziger claims this transfer would cause irreparable harm by depriving him of control over his shares and threatening the entity's existence. However, these claims are refuted by the court, which emphasizes that allowing Donziger to retain the shares would unjustly enrich him at Chevron's expense, as the shares represent his equity interest in the Lago Agrio Judgment's proceeds. Transferring the shares to Chevron would prevent potential harm and, if Donziger prevails on appeal, the shares would be restored to him. His ownership of the Amazonia shares corresponds to only a 6.3 percent interest in the Lago Agrio Judgment's proceeds.
Corporate records indicate that Donziger was not a director of the company at the relevant time and there is no indication he is currently one. There is no evidence of any corporate actions requiring shareholder approval before the appeal concludes, meaning Donziger cannot demonstrate irreparable harm from being unable to exercise his shares during the appeal. His assertion that transferring shares to Chevron would grant it control over Amazonia is dismissed, as six percent shareholders without board representation lack such control. The claim that Chevron would gain access to confidential information through the share transfer is also deemed exaggerated, given the majority of directors are aligned with Donziger and opposed to Chevron. Therefore, transferring Donziger's shares to Chevron poses no risk of irreparable harm to him. The primary concern of the court is to prevent Donziger from benefiting from alleged fraud associated with those shares. Consequently, the court modifies the NY Judgment to require that Donziger's Amazonia shares be held by the Clerk of the Court for both Donziger's and Chevron's interests during the appeal.
Additionally, Donziger and the LAP Representatives' claims regarding potential loss of real property due to the NY Judgment are unsupported, as they have not demonstrated ownership of any real property traceable to the Lago Agrio Judgment. The NY Judgment’s provisions regarding parties acting in concert with Donziger do not pose irreparable harm to them, as it clearly states its binding nature on all relevant parties.
Federal Rule of Civil Procedure 65(d)(2) stipulates that the NY Judgment is only binding on those with actual notice. Donziger argues this provision will deter third parties from funding or associating with him, potentially causing him irreparable harm during the appeal. However, this claim is deemed unfounded. The rule is designed to enforce injunctions and does not prevent Donziger from forming associations. Any loss of goodwill he experiences is attributed to established misconduct rather than the judgment itself, and cannot be rectified by a stay.
The NY Judgment does not restrict efforts to enforce the Lago Agrio Judgment outside the U.S. It only limits Donziger and the LAP Representatives within the U.S., allowing other LAPs and associated parties to pursue funding and litigation against Chevron without significant hindrance. Therefore, paragraph 8 does not pose a credible threat of irreparable injury to the movants.
Moreover, Donziger and the LAP Representatives have not demonstrated a substantial likelihood of success on appeal, as their claims of irreparable injury are insufficient. Their argument regarding Chevron's standing, based on Chevron's pre-trial decision to withdraw its damages claim, is also unlikely to succeed on appeal. Legal precedent indicates that standing is assessed at the beginning of the lawsuit, and changes in circumstances after filing do not affect standing but may render the case moot. An example from the Second Circuit supports this principle, illustrating that a plaintiff's ongoing desires do not alter their standing once the suit has commenced.
In Azim v. Vance, the Circuit Court addressed the standing of plaintiffs, who were licensed taxi drivers challenging the City’s use of GPS devices and related charges. The initial complaint was dismissed due to lack of standing, as one plaintiff had settled with the City and another no longer wished to pursue his former job. The Second Circuit affirmed this dismissal, clarifying that the focus should be on mootness rather than standing, given that the plaintiffs lost their tangible interest after the complaint was filed.
Chevron's case was differentiated, as it maintained standing despite seeking narrower relief than originally demanded. The court found that Chevron had a tangible interest in the litigation's outcome, and thus, the case was not moot. Chevron had established Article III standing by demonstrating it suffered injuries from the movants' conduct, which included imminent threats from a fraudulent judgment.
Movants' argument that Chevron's standing was undermined by the absence of the Lago Agrio Judgment at the time of the complaint was rejected. The court noted that Chevron's injuries were traceable to the movants’ misconduct, including bribery and fraud, regardless of the timing of the judgment. The court reaffirmed that Chevron would benefit from the relief granted, countering movants' claims about the irreparability of their injuries.
Lastly, while the court acknowledged the open question of injunctive relief availability under RICO, it clarified that Chevron's relief was also supported by state law due to the fraudulent procurement of the Lago Agrio Judgment, thus sustaining the granted relief irrespective of RICO considerations.
Equitable relief under RICO was deemed unnecessary because the Court would grant similar relief due to Donziger's fraudulent procurement of the Lago Agrio Judgment. Uncertainty regarding private injunctive relief under RICO does not justify a stay of Chevron’s relief against Donziger. The LAP Representatives were not sued under RICO, so any relief against them is independent of that statute. Movants' claims that the NY Judgment raises comity concerns similar to those in Chevron Corporation v. Naranjo are inadequately explained, especially since Naranjo dealt with declaratory relief, while the Court granted coercive relief based on different liability theories. The Court clarified that the constructive trust and injunction do not nullify or impede the enforcement of the Lago Agrio Judgment in foreign jurisdictions; they only restrict the three defendants from profiting within the United States. The Court’s judgment does not interfere with foreign enforcement efforts by the LAPs or other parties. Movants failed to substantiate their claims regarding this issue. The relief granted is consistent with Naranjo as it is specifically designed to prevent the three individuals from benefiting from their fraud.
Regarding judicial estoppel, the Court determined that Donziger and the LAP Representatives' arguments claiming Chevron is estopped from relief are unlikely to succeed on appeal. Key reasons include: (a) past assertions by Texaco regarding Ecuador’s courts are irrelevant to the current context; (b) Chevron did not merge with Texaco; and (c) movants misrepresented the record concerning Texaco's conditional promise to satisfy judgments. Even accepting movants’ claims, the judicial estoppel argument would still fail since a promise to satisfy a judgment under certain conditions would not affect Chevron’s rights. Chevron retains the right to contest the Lago Agrio judgment based on issues of impartiality, fraud, and procedural agreements, and this reservation allows Chevron to assert defenses under New York’s Recognition Act without restriction.
Movants have not demonstrated a likelihood of success on appeal regarding personal jurisdiction. The LAP Representatives argue that the court lacks personal jurisdiction over them, but this argument is flawed. The court previously sanctioned the LAP Representatives by striking their personal jurisdiction defense due to their failure to produce relevant documents. This sanction is unlikely to be reversed, as it is grounded in established legal principles. Chevron has established personal jurisdiction based on findings that Donziger acted as the LAP Representatives' agent in New York for nearly twenty years, which satisfies the requirements of New York’s long-arm statute. Donziger’s actions, intended to benefit the LAP Representatives, cannot be dismissed under the adverse inference exception, as he did not entirely abandon their interests.
In assessing whether to grant a stay pending appeal, the court emphasizes the critical nature of the movants' likelihood of success and potential irreparable harm. The movants have not satisfied these requirements, and the court finds that a stay would likely cause irreparable harm to Chevron, as any benefits derived from the Lago Agrio Judgment during the appeal process may be permanently lost. The court notes that defendants have taken measures to ensure that any funds recovered are inaccessible to U.S. or Ecuadorian courts, further complicating potential recoupment by Chevron. Furthermore, the movants' assertions regarding the absence of imminent enforcement actions against Chevron are considered irrelevant to the broader context.
Movants have not disclaimed their right to file domestic enforcement actions despite efforts to reduce their likelihood. The Court has determined that the LAPs plan to pursue enforcement in the U.S. when strategically beneficial, leading Chevron to establish the potential for irreparable harm if the current relief is stayed. The request for a stay is not in the public interest, as allowing Donziger and the LAP Representatives to profit during the appeal undermines the integrity of the judicial process and harms Chevron, which would have no realistic recourse if the Court's ruling is upheld.
The motion for a stay pending appeal is partially granted, modifying the Judgment's third paragraph. Donziger must transfer his shares in Amazonia to the Clerk of the Court, who will hold these shares and any proceeds until the appeal is resolved. Upon Donziger's request, the Clerk will vote his shares as directed, unless otherwise ordered by the Court. Donziger and the LAP Representatives are required to execute any additional documents requested by Chevron or ordered by the Court to implement this Judgment. The motion is denied in all other respects.
The ruling includes the Court's findings of fact and conclusions of law. The Lago Agrio Judgment amount was later reduced to approximately $8.646 billion. Chevron also initiated a lawsuit against Donziger’s law office, and references to Donziger encompass his legal practice. Chevron did not pursue RICO claims against the LAP Representatives, who are collectively referred to as "movants" for this motion.
In Mohammed v. Reno, the court emphasized that a movant must demonstrate irreparable injury to obtain a stay, referencing various cases for precedent. A retainer agreement from January 5, 2011, indicated that prior arrangements existed, and although Donziger's share of the Lago Agrio Judgment may have been slightly diluted to accommodate new investors, this did not significantly affect the case. A forensic accountant was unable to fully verify Donziger's financial records due to poor documentation, noting he received approximately $958,000 in monthly payments from 2004 to 2009. Efforts by the Lago Agrio Plaintiffs (LAPs) to enforce the Judgment against Chevron in Argentina were dismissed without piercing the corporate veil, and similar attempts in Brazil and Canada faced legal hurdles. The Canadian Supreme Court is currently reviewing an appellate decision regarding the LAPs’ enforcement efforts. The court noted that Donziger was bound by his own assertions and did not claim that certain provisions would prevent him from earning a living or impact his law practice. Finally, it was highlighted that courts could impose a constructive trust on both stolen property and property traceable to misappropriated assets.
Victims are entitled to recover damages from a thief regardless of how the thief has altered the stolen property. In the context of a legal case, substantial payments totaling at least $4.8 million were made to the law firm Patton Boggs and approximately $396,000 to Emery, Celli, Brinckerhoff, Abady LLP. The record lacks details on payments to Smyser Kaplan due to a discovery cut-off, and the identity of the payer(s) remains unclear, as a representative from Smyser Kaplan indicated uncertainty about the funding source. Patton Boggs recently appealed on behalf of its clients in the Fourth Circuit. The ongoing enforcement actions are taking place in Brazil, Argentina, and Canada, with plans for further litigation globally, as local judges are not obliged to follow Judge Kaplan's rulings. Additionally, in 2012, the LAP Representatives established a trust deed, contributing initial assets and agreeing to transfer future compensation from litigation damages, except for a 10 percent portion specified in the agreement. This contribution appears to include all rights to damages awarded by the Lago Agrio Judgment, excluding the specified 10 percent, which is allocated to the ADF. Donziger's equity interest in the LAPs' claims is also highlighted.
6.3 percent of the Total Contingency Fee Payment corresponds to 31.5 percent of the total funds collected, which is itself 20 percent of the overall amount. Donziger testified he was unaware of his Amazonia share ownership but indicated it correlated with the contingency fee interest prior to its establishment. A list from January 29, 2013, identifies the directors of Amazonia Recovery Limited, including Fajardo, Chavez Parra, Yanza, and Jarvis, with GT Fiduciary Services Limited as Secretary. Legal references note Chevron’s control over Amazonia and outline the limitations imposed on Donziger and the LAP Representatives, specifically a constructive trust on any proceeds linked to the Lago Agrio Judgment. The court evaluates the likelihood of success on appeal, indicating that movants do not meet the required standard for either "better than negligible" or "substantial possibility." The discussion includes references to equitable relief and the mootness of cases, citing that Chevron initially lacked standing for injunctive relief due to the absence of a binding Ecuadorian judgment. Movants express ongoing intent to enforce the Lago Agrio Judgment in various jurisdictions, asserting confidence in favorable outcomes against Chevron in Brazil, Argentina, and Canada.
No judges in the relevant jurisdictions are required to follow Judge Kaplan’s ruling. Efforts are underway to initiate additional legal actions globally, alongside proactive case preparations. Communities affected are actively pursuing the collection of a judgment against Chevron. In a referenced court case, it was noted that Kaplan's ruling does not diminish the risk Chevron faces regarding the enforcement of the Ecuadorian judgment. The enforcement threat arises directly from attempts to uphold the Lago Agrio Judgment in the U.S. The document references multiple legal precedents and rulings, highlighting challenges in proving personal jurisdiction, especially when parties fail to comply with discovery orders. It also emphasizes that for a case to fall within an exception concerning agent-principal relationships, the agent must have completely abandoned the principal's interests. The court found that Chevron could face irreparable harm without the relief sought.
