Federal Court Issues Anti-Suit Injunction Against Ecuador Plaintiffs

by Roger Alford

On March 7, a federal court in New York issued an anti-suit injunction order enjoining Ecuador plaintiffs from enforcing the $9 billion Ecuador judgment against Chevron. The injunction applies to all Ecuador plaintiffs and their counsel, including “directly or indirectly funding, commencing, prosecuting, advancing in any way, or receiving benefit from any action or proceeding, outside the Republic of Ecuador, for recognition or enforcement of the judgment.” (p. 125)

The most interesting part of the injunction is the Court’s analysis of international comity. It is, of course, a significant issue of international comity for a court in the United States to enjoin parties with respect to their litigation conduct in other jurisdictions. Applying Second Circuit precedent of China Trade v. M.V. Choong Yong, Judge Kaplan concluded that there were five comity factors in determining whether to issue an anti-suit injunction:

(1) frustration of a policy in the enjoining forum; (2) [whether] the foreign action would be vexatious; (3) [any] threat to the issuing court’s in rem or quasi in rem jurisdiction; (4) [whether] the proceedings in the other forum prejudice other equitable considerations; or (5) [whether] adjudication of the same issues in separate actions would result in delay, inconvenience, expense, inconsistency, or a race to judgment.

In analyzing those criteria, the Court found that an injunction was appropriate:

The first threshold requirement is met here because there is “substantial similarity and affiliation” between the parties currently before this Court and the parties that necessarily would be involved in any enforcement actions in other jurisdictions. Courts generally have not applied the identity of parties prong literally, but instead found it to be satisfied where “even though not all parties to the two actions were identical, . . . ‘the real parties in interest are the same in both matters.’” Here, the real parties in interest necessarily would be the same in any foreign enforcement actions that might be filed. Chevron obviously would be the defendant in any such action, and the LAPs and the ADF, who are defendants here, are the beneficiaries of the judgment and hence are the parties entitled to sue for enforcement. In addition, the other defendants on this complaint are closely affiliated with the LAPs and their lawsuit and are named in connection with their advocacy of their interests….

The second requirement is satisfied also. A decision by this Court holding that the judgment is unenforceable and enjoining its enforcement would bind all of the parties that potentially could enforce the judgment and therefore should foreclose even the filing of foreign enforcement suits. Moreover, even if enforcement actions were to be filed abroad in violation of an injunction, a decision by this Court with respect to the enforceability of the Ecuadorian judgment likely would be recognized as sufficiently persuasive authority – if not binding on the parties – to dispose of the question of enforceability in the foreign fora. Under New York law, the question of enforceability turns on whether the Ecuadorian judgment was rendered by a system so fundamentally unfair and impartial that the judgment should not be recognized or a product of fraud. This is a very common standard for determining whether to recognize foreign judgments. A careful factual and legal determination here that the Ecuadorian judgment is not entitled to enforcement on either ground ought to dispose also of any foreign enforcement actions that might be filed….

Having found the two threshold conditions to be present, the Court turns now to the remaining factors…. Here the second, fourth, and fifth factors strongly counsel in favor of an injunction. The contemplated foreign actions would be vexatious, designed in part to harass and coerce Chevron into settling with defendants more quickly and at a higher price than otherwise might occur on the basis of the merits of the judgment alone. Adjudication of enforceability of the judgment in multiple foreign actions likely would result in delay, inconvenience, expense, inconsistency, and a race to judgment.

Important public policies support injunctive relief as well. “An anti-suit injunction may . . . be appropriate when a party seeks to evade important policies of the forum by litigating before a foreign court.” Here, defendants intend to pursue multiple enforcement actions around the globe in an effort to pressure Chevron with respect to settlement and to enforce the judgment in fora that would not look closely at what occurred in Ecuador. If the LAPs were allowed to enforce, or attempt to enforce, the judgment in this manner, they would be evading the U.S.’s strong interest in protecting its citizens from judgments entered in systems that do not accord their litigants the essentials of due process or as a result of fraud, particularly fraud organized and conducted in part within the United States. In this respect, enforcement of the judgment appears also to threaten this Court’s jurisdiction in that it would “undermine federal jurisdiction to determine whether [the judgment] should be invalidated on the bas[e]s” advanced by Chevron.

In all the circumstances, the China Trade factors support the requested injunctive
relief. [pp. 102-106].

It is a remarkable order, one that will dramatically influence events in the Chevron/Ecuador saga for the foreseeable future. The Ecuador plaintiffs’ freedom of mobility to enforce the $9 billion judgment is now sharply curtailed.

http://opiniojuris.org/2011/03/09/federal-court-issues-anti-suit-injunction-against-ecuador-plaintiffs/

11 Responses

  1. Response…
    Wow!  Talk about “judicial legislation,” “just making it up,” “political” decisionmaking by judges!  Where is the outcry in terms of the “rule of law” and “justice”?

  2. Roger,

    I know nothing about this area of law, so can you please explain to me what possible authority a U.S. court has to tell other countries not to recognize a judgment issued by a court in Ecuador?  How would the U.S. respond if, say, an American corporation won a lawsuit in the U.S. against a German corporation and a German court issued a judgment that the lawsuit was vexatious and enjoined its recognition anywhere in the world?  Wouldn’t the U.S. go ballistic?

  3. Kevin,

    They are not ordering courts in other countries to do anything.  They are enjoining individuals within the court’s jurisdiction from taking any action to further enforcement of the award.

    Roger

  4. If the evidence of fraud in the Ecuadoran proceedings is so strong, I do wonder why courts in other counrties wouldn’t reach that conclusion also and refuse recognition or enforcement on the same grounds that a U.S. court might refuse recognition or enforcement. In other words, is there a realistic risk of imminent and irreparable harm to Chevron?

    It’s also interesting to note that the parties continue to seek U.S. discovery even after the Ecuadoran judgment. In the most recent iteration, Ecuador itself was on the offensive (generally it is Chevron that has been seeking discovery here).

  5. Roger,

    Thanks for the clarification.  But I still have the same question: what authority does a U.S. court have to tell plaintiffs in Ecuadorian proceedings what they can and can’t do outside of the U.S.?

  6. Kevin,

    The injunction arises in the context of a civil RICO suit that Chevron filed against the Ecuador plaintiffs alleging fraud and such.  The injunction is an attempt to prevent any action in furtherance of the fraud.  Judge Kaplan concluded that Chevron was likely to succeed on the merits of its case, but ordered Chevron to post an $18 billion (!!) bond in case Chevron loses its RICO case.

    Roger

  7. There are some good info above but I looking for information about framework of Anti suit injunction. I want to know this sort of judicial order is possible to issue in country that have civil law system? upon my search there were no such a judgement restricting other courts to do something. as Mr.roger said if it is for individuals to be prevented from doing something how it can be obeyed in foreign countries.

  8. Isa,

    I’m not sure the answer to your question.  I do know that in the arbitration context, both civil and common law countries will occasionally issue anti-suit injunctions preventing a party from pursuing litigation that is inconsistent with the contractual commitment to arbitrate.  But beyond that context, I’m not aware of such anti-suit injunction.

    Just to emphasize, the federal court is not restricting other courts from doing anything.  It is restricting parties within its jurisdiction from pursuing litigation elsewhere in furtherance of a likely fraud.

    Roger

  9. Response…Isn’t there a World Court that could and SHOULD be deciding issues of this kind.  For the New York court to affirm it’s own previous decisions and to set up it’s own rules for judgment, this seems unjust, like a conflict of interests and putting your nose in a matter that isn’t yours to decide.

  10. I agree Charles, it is ridiculous for the Ecuadorean Courts to have set up their own rules in this matter and decide issues affecting a US party with minimal presence in Ecuador.

    Or, shorter form, get over it already.

    To support Roger, this is a very common part of multinational litigation. They are a very conventional part of a court proceeding. One of the grounds required to grant an injunction, typically, is the undertaking as to damages – in effect, as an injunction is only a pre-trial relief, the Court has asked Chevron to put aside the money required to  compensate the Ecuadorean parties if they win on the substantive issues. The Court has correctly in my view judged that the only possible damages are the costs of the US action (which are not awarded, afaik, in US courts) and the time value of the Ecuadorean judgment debt, i.e. the interest on the $18billion that they are not able to collect whilst the US case proceeds.

    Please note, too, that the bond is thus for six months interest on $18b, i.e. only $18million (see p119-120).

    I encourage you all to read the judgment, every question above is answered therein. KJH, you should walk down the hall and ask Richard Garnett!
     

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