A Question for Readers

by Kevin Jon Heller

I think there is little doubt where I stand on the merits of the Chevron litigation, so I am not going to get into the substance of the dispute here.  But I have an honest question that I am hoping someone will answer.  Let’s assume, for sake of argument, that Chevron is correct to argue that the $18 billion judgment was procured by fraud and corruption.  Let’s also assume that the appellate decision is affirmed by the highest court in Ecuador.  Under what legal theory does the Second Circuit have the authority to “stay enforcement” of the judgment outside of the United States?  (It obviously could prevent the plaintiffs from recovering from Chevron inside the U.S.)  The Second Circuit was skeptical that any such theory existed, as reported by Law.com:

Judge Lynch in particular questioned again and again the power of a defendant to use New York’s Uniform Foreign Country Money-Judgments Recognition Act offensively as the basis for enjoining other enforcement actions around the world—rather than waiting to seek the anti-suit injunction as a defense to an actual recognition action brought by the plaintiffs in New York. How would New York courts react, queried Lynch, if a Venezuelan court used Venezuelan law to enjoin a Russian judgment holder from going to New York to enforce it? Should or would New York courts respect it?

Mastro conceded that he knew of no precedent for a defendant to proactively get a foreign anti-suit injunction under New York’s Recognition Act, as Chevron seeks to do. However, Mastro argued that there is mountainous evidence that the Ecuadorian judgment was procured by fraud, and the act aims to prevent vexatious litigation. He also argued that the Ecuadorian case is unique because, when the Second Circuit dismissed Chevron’s predecessor Texaco from an earlier filing under forum non conveniens, the company expressly reserved its defenses under New York’s Recognition Act.

This is not my area of law by any stretch, so readers’ thoughts would be most appreciated.

http://opiniojuris.org/2012/01/05/a-question-to-readers/

11 Responses

  1. Kevin,
    Apologies if I’m missing the force of your question. The anti-suit injunction, which the Second Circuit has vacated but which Chevron now wants it to revive, is not aimed at the foreign court and does not “stay” the foreign judgment. Instead, it simply orders a party before the US court not to take specified actions, on pain of a contempt sanction. It’s an accepted use of the court’s equitable powers. This case is novel not because an action in another court is enjoined, but because the action that’s enjoined is an action for recognition and enforcement of a judgment of the courts of a third country.
     
    As I’ve already said, I think the injunction in this case was a bad idea, because Chevron did not show a risk of irreparable harm and because the judge did not adequately take comity concerns into account. But that’s not to dispute the judge’s power to enter the injunction. I think there may also be an issue as to whether the Lago Agrio plaintiffs were subject to the personal jurisdiction of the New York court. If not, then of course the court exceeded its powers.

  2. Ted,

    Chevron wants the Second Circuit to order the plaintiffs not to seek to enforce the Ecuadorian judgment in non-U.S. courts. I’m asking where the Second Circuit gets the power to do that. I don’t see how the Second Circuit could hold the plaintiffs in contempt for seeking to enforce the judgment abroad, given that the Second Circuit doesn’t have the authority to order them not to. All the Second Circuit can do, it seems to me, is prevent the plaintiffs from trying to enforce the judgment in the U.S. — and to hold them in contempt if they do. Am I missing something?

  3. Kevin,
    If I hear you right, the issue is the extraterritorial nature of the order. It seems to me that it’s well established that because “equity operates in personam”, as the hoary maxim goes, a court with personal jurisdiction over the defendant can make orders that require the defendant to act in other jurisdictions. Just to take an example, suppose you come to the United States for a visit and are made defendant in an action involving real property in Australia, and suppose there’s no question about the US court’s exercise of personal jurisdiction over you. It seems to me that the court could order you to convey the property, even though the property is located in Australia. See Hertz System, Inc. v. McIllree, 168 N.E.2d 468 (Ill. Ct. App. 1960) (which involved a registered business name rather than real property).  I picked Hertz as an example just because it was the first case I saw that featured Australia, but I think this is a pretty common issue. There’s no difference in principle, it seems to me, between a case like this and the Chevron case, at least with regard to the court’s power, but I think it’s quite likely that I haven’t hit your concern dead on.
     

  4. I am thinking out loud here, and am happy to be corrected if I am wildly off base.  Perhaps the idea is to get a U.S. federal court to say that the judgment in Ecuador was procured by fraud, and that it would be inappropriate to enforce that judgment in any U.S. or foreign court.  If obtained, then Chevron could seek recognition of the U.S. judgment in response to any attempt by the plaintiffs to seek recognition and enforcement of their Ecuadorian judgment.  In other words, Chevron is not asking the Court to make a judgment that is necessarily legally binding on the plaintiffs anywhere in the world, only to make one that requires a foreign court to choose between recognizing a U.S. or Ecuadorian court judgment.  The only other reason would be the one Ted mentions, to provide a basis for a contempt sanction if plaintiffs seek enforcement of the Ecuadorian judgment.

    If either of those is the strategy, then it seems to me that the biggest hurdle Chevron faces is that it seeks this remedy under a New York state law.  Assuming for the sake of argument that the law contemplates or supports the type of injunction requested — not a given at all — how can a sub-national law even arguably bind the actions of an entity outside the State of New York, let alone outside of the United States.  Although this is a “uniform” law adopted by the several states of the U.S., it is still a state law, not a federal law.  In other words, what would give the State of New York jurisdiction to prescribe this remedy against a foreign plaintiff not otherwise subject to its laws?  It certainly may provide for recognition or non-recognition of a foreign judgment in New York’s courts, but how could it possibly do so outside of New York?  (This seems to be why Law.com believes Chevron has a stronger case if the Permanent Court of Arbitration states that the Ecuadorian judgment was obtained by fraud.)

    Kevin seems to have framed the issue as involving the jurisdiction/power of a federal court to adjudicate and enforce its judgment on the plaintiff’s conduct abroad.  That is a fair question.  However, I would frame the main issue as involving the jurisdiction to prescribe the remedy sought. It seems to me, at bottom, a conflict of laws question as to how this New York law could possibly provide a remedy for an entity’s actions outside the State of New York.  The federal court could only apply the New York law if it finds that it is the proper law to be applied in the case after a conflict of laws analysis.  I don’t see how the court could possibly reach that conclusion in this case given the underlying facts and the nature of the relief requested.

  5. Ted, further to my thoughts above, in your Australia example isn’t it U.S. law that provides the authority to issue the affirmative injunction on the basis of in personam jurisdiction, and Australian law that provides the underlying legal (subject-matter) basis for it to do so?  On the other hand, in this case, isn’t Chevron seeking to use New York law for BOTH the basis for non-recognition of the judgment AND the requested remedy.  If I wasn’t clear enough above, that seems to be the critical distinction to me.

  6. Chevron has sued certain individuals in New York alleging fraud and civil RICO.  The basis of the claim is that they illegally procured an $18 billion judgment through a fraudulent scheme and did those acts in a manner that subjects them to New York court jurisdiction.  The result of the fraud is an Ecuadorian court judgment.  Chevron is seeking an injunction until such time as the RICO claim is resolved.  That is the basis of the antisuit injunction.  As others have said, it is not an injunction against the foreign court.  It is an injunction against individuals who allegedly have engaged in fraud from engaging in further action to perpetuate the fraud.  That’s the theory anyway.  Obviously some of the Ecuadorians allege that the New York courts have no jurisdiction over them, and cannot prevent them from attempting to enforce the judgment abroad. The RICO Complaint can be found here, spelling out the argument in great detail.

  7. And if legislation is obtained protecting Chevron via corruption, bribery and fraud [or simply vast campaign contributions to pliable legislators], what recognition should be given to the legislation? Once ‘corruption’ in obtaining ‘rights and duties’ comes into play. What prevents similar examination of legislative and/or executive branch actions/inaction?

  8. Steve,

    Corporations are routinely subject to prosecution for engaging in bribery under the Foreign Corrupt Practices Act.  If a company bribes foreign officials to get lucrative contracts or favorable legislation then it will be subject to severe penalties.  Most famously, in 2008 Siemens paid $800 million in penalties for engaging in foreign bribery in numerous countries.  A summary of FCPA developments in 2011 is here.

    Roger Alford

  9. Thanks Roger.  They make a clever and interesting argument.  I am not sure how I feel about it at the moment.   Something doesn’t sit right.  I think it is the fact that RICO has both criminal and unique, U.S. public civil components (i.e. treble damages), and those aspects raise my Morrison hackles.

  10. Response…
    Is there an applicable treaty for enforcement of foreign judgments between the U.S. and Ecuador?  If so, how should it be interpreted in this instance and should it trump inconsistent domestic laws, bind the fed. cts., etc.?

  11. Response…  The SC has never resolved the analogous issue of enforcing prosecution of a related matter in another state.  The leading opinion is James v Grand Trunk Western RR, 152 NE 2d 858 (1958).  In Baker v GM, 522 US 222 (1998), the SC wrote about the duty to respect an injunction issued by another state. 

    Those opinions are useful as analogies but they involve the Full Faith and Credit Clause, which, of cousre, does not apply to foreign actions.  Good luck in figuring it out (We Conflicts scholars would love to see another opinion in the area.)

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