January 31, 2012

Second Circuit Explains Decision to Vacate Chevron’s Global Anti-Enforcement-of-Judgment Injunction

Last year Chevron, as judgment debtor for a $17.2 billion environmental damages judgment issued by an Ecuador court, convinced a US district judge in New York to issue a global anti-enforcement injunction preventing the Ecuadorean parties from seeking enforcement of that judgment anywhere.  Late last year the US Second Circuit Court of Appeals issued an order vacating that injunction, but its written opinion, explaining why the injunction was improper, was not issued until now.

 

As you will see

http://www.ca2.uscourts.gov/decisions/isysquery/83c7e33b-75ca-4735-acec-95593be09f03/2/doc/11-1150_op.pdf

, the Court states that New York’s statute providing for recognition of foreign country money judgments cannot be invoked affirmatively by the judgment debtor to prevent the foreign judgment creditor from seeking enforcement of the judgment, whether in New York or elsewhere.  The Court’s position is that, under New York’s statute, the judgment debtor may only raise issues of unfairness, lack of due process, fraud, corruption, etc., in regard to the judgment-issuing court, as a defense to enforcement in New York – if and when the judgment creditor seeks enforcement of the judgment in New York.

 

What will be the next chapter in the Chevron-Lago Agrio saga is unclear.  This opinion reports that on January 3, 2012, the intermediate appellate court in Ecuador rejected Chevron’s appeal of the judgment, that as a consequence the judgment is now enforceable, but that if Chevron elects to appeal to Ecuador’s highest court, that court could possibly grant a stay of enforcement, subject to the posting of a bond by Chevron.

 

Chevron presumably is considering whether a hospitable forum other than the US exists in which Chevron could obtain personal jurisdiction over some of the judgment creditor parties, and persuade the court to consider the enforceability of the judgment – and hence address the merits of Chevron’s attacks on the integrity of the Ecuador trial court proceedings – before any of the judgment creditors have initiated an enforcement case in that forum.  The findings of fact made by the US District Court concerning the unfairness of the Ecuador court proceedings have presumably lost any potential collateral estoppel effect in view of the entire vacatur of the district court’s judgment. Those findings were made in regard to the probablility-of-success branch of the US courts’ traditional preliminary injunction formula. But the Second Circuit has ruled that the district court had no legal basis to engage in such analysis, as injunctive relief was not in any case available under the foreign money judgments recognition statute of New York.  

 

Chevron presumably is also considering the relationship between potential enforcement proceedings and its pending BIT arbitration against Ecuador, in which Chevron claims that the judicial proceedings leading to the judgment violated (inter alia) its right to fair and equitable treatment. Chevron could take the position, in any court where recognition and enforcement is sought, that proceedings should be stayed for a period of time to permit the BIT arbitration to be concluded, and that the BIT arbitration is the most appropriate forum for an adjudication of the fairness of the Ecuadorean judicial process.

 

In that event, one would suppose Chevron would invite the court seised of the enforcement case to draw an analogy to Article V(1)(e) of the New York Convention, which permits a court to stay recognition and enforcement proceedings in regard to a foreign arbitration award if there are pending proceedings to set aside the award in a court at the seat of arbitration (or in the State whose arbitration procedural law governed).  The analogy is imperfect of course, as the Lago Agrio judgment creditors presumably would not be collaterally estopped by any conclusions drawn against Ecuador in the BIT case.   But if Chevron prevails in the BIT case, then under what US lawyers would regard as subrogation principles, Ecuador would in effect be the judgment debtor of the Lago Agrio plaintiffs.

 

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