Chevron and the Rise of Arbitral Power: An Introduction by Michael D. Goldhaber
[Michael D. Goldhaber serves as Senior International Correspondent and “The Global Lawyer” columnist for The American Lawyer and the ALM media group. His writes widely on human rights and corporate accountability, international arbitration, and global multiforum disputes. His e-book on Chevron will be published next year by Amazon.]
The ongoing media circus surrounding the Chevron v. Donziger trial in New York federal court makes it easy to forget that the arbitration between Chevron and Ecuador may be the main event in resolving the $19 billion environmental judgment entered against Chevron in Lago Agrio.
The unique willingness of arbitrators to check the power of a foreign judiciary came into sharp relief on Jan. 25, 2012, when the Chevron v. Ecuador tribunal issued interim orders that the Republic (including its courts) take all measures at its disposal to suspend enforcement of the judgment. The very next morning, the U.S. Court of Appeals for the Second Circuit vacated a worldwide injunction against enforcement of that same judgment by the Ecuadorian plaintiffs. In a striking choice of words, the Second Circuit declined to serve as “the definitive international arbiter of the fairness and integrity of the world’s legal systems.”
Early this year, I had the privilege of moderating an NYU Law School panel titled “Arbitrators v. Judges: The Latent Tension of Investor Arbitration Rises to the Surface,” featuring some of the world’s leading arbitrators. Two weeks later I attended a Stanford Law School conference titled “Lessons From Chevron.” The Stanford Journal of Complex Litigation has published a magnificent set of conference papers — including Judith Kimerling on indigenous rights, Stacie Strong on 1782 discovery, Howard Erichson on forum shopping, Manuel Gomez on international enforcement, Chris Whytock on transnational litigation, and Catherine Rogers on global legal ethics. Full text may be found online here.
I was struck at Stanford by how odd arbitration appears to U.S. scholars, who are mostly stunned by powers that arbitrators take as elemental. I was struck at NYU by the lack of a framework, within the arbitration community, to analyze the growing exercise of authority over national courts by investment arbitrators.
My resulting article — “The Rise of Arbitral Power Over Domestic Courts“ – will be the subject this week of an Opinio Juris mini-symposium. As geography is no object online, the three distinguished commenters represent three continents and an equally wide range of opinion. Christoph Schreuer of Vienna is an eminent arbitrator, perhaps best known for the Chevron precursor of Saipem v. Bangladesh, and a prolific scholar, perhaps best known for the definitive commentary on the ICSID Convention. Anthea Roberts of Columbia Law School, by way of Australia, is widely hailed as one of the brightest young stars in arbitration scholarship. Muthucumaraswamy Sornarajah of National University of Singapore is among the most eloquent and radical critics of investor-state arbitration. I am honored by their participation.
My article is the first to identify and document the “The Rise of Arbitral Power Over Domestic Courts” on both an interim and a final basis. I conceptualize and evaluate two distinct phenomena, which might provocatively be called Arbitral Suspension of Judicial Action and Arbitral Review of Judicial Action.
First, investment arbitrators are regularly suspending judicial proceedings through antisuit injunctions — or rather, attempting to suspend them — with Chevron being only the most spectacular example. On pages 376 to 383, I track the historical evolution of the anti-suit injunction in different legal orders, and I discuss exactly how the Chevron interim orders are either typical or unique.
Second, arbitrators are increasingly reviewing judicial proceedings in their final awards through the doctrine of Denial of Justice or its proxies (pp. 383-94). Again, Chevron’s disputes with Ecuador provide a leading example. In a survey of the jurisprudence, I chronicle the transformation of Denial of Justice into new forms that Jan Paulsson did not envision in his classic work on the subject. Like the Nile, Denial has many tributaries. I critique them for achieving the same ends without that doctrine’s safeguards.
In my normative discussion (pp. 394-416), I find a valid legal basis and policy rationale for Arbitral Power over Domestic Courts — and I forcefully defend the Chevron interim orders. However, I find that political objections counsel prudence, and reinforce general critiques of investment arbitration. If arbitrators wish to assert power over judges, then they need to honor judicial standards of transparency and independence. (For a further critique of the investor-state system, please see my essay “Arbitration Without Legitimacy.”)
Having reimmersed myself in the U.S. litigation over the past few weeks, I have a few fresh thoughts to offer on the contrast between U.S. law and international investment law when it comes to controlling a foreign court dispute. Perhaps a fuller title for this brief introductory essay would be: “Chevron v. Ecuador and Chevron v. Donziger: A Comparison of U.S. and Arbitral Power Over Foreign Court Litigation.”
When U.S. appellate judges vacated the preliminary injunction of the Ecuador litigation on Jan. 26, 2012, they inadvertently put their fingers on a key difference between U.S. and international law. To American eyes like theirs, “anti-foreign-suit injunctions… bear at most a passing resemblance to the injunction that Chevron seeks” because, in the U.S., such orders are imposed only “where the same parties attempt to litigate the same underlying dispute.” Chevron v. Naranjo, at 22. But in arbitration, while the parties to the two matters are “ordinarily” identical (see p.383 n.40 of my Article), this is not strictly required for an antisuit injunction to issue. (See, e.g., CSOB v. Slovak Republic, discussed on p.380). Internationally, an antisuit injunction is often conceived more broadly as an order to preserve the status quo between the parties, rather than an order to protect the tribunal’s jurisdiction. (See pp.378 and 382). This may help to explain why the Chevron v. Ecuador tribunal was not startled by Chevron’s request — and why the oil giant got what it wanted in arbitration the day before it came up empty in U.S. court.
It’s safe to say that arbitrators claim wider power over foreign courts than U.S. courts would ever dare to, because U.S. courts would never enjoin a foreign court (as opposed to a foreign party). However, it would be an oversimplification to say that U.S. courts have abdicated all authority to control the Ecuador litigation. Injunctive relief, and conceivably declaratory relief, remain very much at issue in Chevron v. Donziger.
Although the Second Circuit heaped on the comity rhetoric, it only invoked comity as an “additional” reason for its decision, and clearly grounded its vacatur in a narrow reading of New York’s Recognition Act. See Naranjo at 20, 24-25 (“To resolve the dispute before us, we need only address whether the statutory scheme announced by New York’s Recognition Act allows the district court to declare the Ecuadorian judgment non-recognizable, or to enjoin plaintiffs from seeking to enforce that judgment. Because we find that it does not, the injunction collapses before we reach issues of international comity.”). In short, the Second Circuit’s comity homily falls into the category of strong dicta. Chevron’s counsel concluded its oral argument to the Second Circuit (in response to hostile questioning) by stating that Chevron had every right to go back and ask for final injunctive relief under its RICO and common law fraud theories. Chevron has done just that. In fact, an injunction is now Chevron’s sole requested relief — both because neutering the judgment has always been its paramount goal, and because keeping its damages claim would have meant facing a jury. (Aside from being unpredictable, a jury verdict in a civil case might have undermined the main goal by confusing enforcement courts outside the U.S.)
Just to keep us on our toes, Chevron has kept alive another form of U.S. court control over the Ecuador litigation. The parties in Chevron v. Donziger continue to spar on the subtle question of whether the defense has reintroduced the Ecuadorian judgment into the New York case by invoking its affirmative defense of collateral estoppel. On this basis among others, Chevron may again seek a declaration of unenforceability.
Donziger and the Ecuadorians are sure to argue in the final U.S. appeal that any injunction — or if relevant declaratory relief — would violate the letter and spirit of the Second Circuit’s guidance in its vacatur opinion. They are also likely to question the availability of any injunctive relief under RICO.
Among the joys of this dispute for a commentator is that, notwithstanding Burt Neuborne’s good advice on settlement at Stanford, the parties show every sign of litigating until every theoretical uncertainty is fully worked out. One day we may be able to compare the efficacy of the judicial and arbitral final relief. One day we may even be able to say which was the main event, the U.S. litigation or the international arbitration.
Until then, two things are certain. First, as my article shows, arbitrators claim significantly greater legal powers over foreign courts. Second, as my journalism shows, the U.S. courts are a lot more transparent. Of course, in a case that has always been more about PR than law, publicity may be the most important power of all.
For full-text of the author’s law review Article, please see: Michael D. Goldhaber, The Rise of Arbitral Power Over Domestic Courts, 1 Stan. J. Complex Litig. 373 (June 2013).
Please click here for the complete proceedings of the “Lessons from Chevron” conference.
Please click here and scroll down for links to The American Lawyer’s exhaustive coverage and commentary on Chevron in Ecuador.