March 12, 2014

Chevron Case Shows Why We Must Police Lawsuit Fraud

by Lisa A. Rickard
President, U.S. Chamber Institute for Legal Reform

Terms like “racketeering,” “extortion,” “money laundering” and “wire fraud” are typically more associated with the Mafia than plaintiffs’ lawyers. But in a landmark ruling last week, a New York federal judge used these terms to describe conduct by a lawyer.

In an extensively documented, 497-page decision, U.S. District Court Judge Lewis Kaplan accused plaintiffs’ attorney Steven Donziger and his associates of engaging in massive fraud in order to obtain a $19 billion verdict against the Chevron oil company in an Ecuadorian court. In short, Donziger pulled off what the Wall Street Journal called the “legal fraud of the century.” The case demonstrates the need for judges and policymakers to be vigilant and proactive in supervising litigation and ensuring fairness and due process are protected.

Judge Kaplan’s ruling chronicles Donziger’s scheme in voluminous detail. Among the highlights (or lowlights):

  • Donziger blackmailed an Ecuadorian judge (by threatening an ethics complaint on unrelated personal issues) into naming an environmental damages consultant who was “not even remotely independent. He was recruited by Donziger. He was paid under the table [by Donziger] out of a secret account above and beyond the legitimate court-approved payments. He was promised work on the remediation for life if the plaintiffs won. The plaintiffs gave him an office and life insurance, as well as a secretary who was a girlfriend of one of [Donziger’s associates].” The consultant then submitted a slanted report (ghostwritten by a Colorado firm hired by the plaintiffs’ lawyers) to the court on Chevron’s culpability for oil spills in Ecuador.
  • Donziger eventually agreed to pay $500,000 to a different Ecuadorian judge if he ruled against Chevron and issued a ruling ghostwritten by the plaintiffs’ lawyers. Certain passages in the ruling are identical to passages in internal documents subpoenaed from Donziger’s team. As for the judge who “authored” the ruling, Judge Kaplan noted that under questioning by lawyers for Chevron, the judge “was astonishingly unfamiliar with important aspects of [the ruling’s] contents. He repeatedly contradicted himself when attempting to explain how he wrote the Judgment, whether he received any assistance, and what materials he relied upon in doing so. The testimony he gave at trial was markedly different from that which he gave at his deposition just days before. And his responses and explanations at trial varied from one minute to the next.”
  • Throughout the duration of the litigation, Donizger and his associates pursued a wide-ranging campaign to pressure Chevron. It included threats of criminal indictments in Ecuador, attempted seizure of Chevron assets in Canada, Brazil and Argentina, and public relations efforts aimed at mobilizing shareholders, policymakers and the public against the company.

Donziger’s goal was simple — pressuring Chevron into a multi-billion dollar payout. As Judge Kaplan noted, all of the “dishonest and corrupt steps in the litigation — coercion, bribery, ghostwriting, and so on—were intended to communicate threats to Chevron. Their purpose was to instill fear of a catastrophic outcome in order to increase the amount Chevron would pay to avoid the worst.” It was a shakedown, pure and simple.

This case is truly extraordinary. As Judge Kaplan noted, it’s a story more likely to come out of Hollywood than a courtroom. But it only came to light because Donziger and his associates were astonishingly careless in exposing their wrongdoing—whether through countless emails, entries in Donziger’s personal journal or outtakes from the pro-plaintiff documentary film Crude. In other cases, similar corruption would be much more difficult to discover and prove.

That is why we need more judges like Judge Kaplan who will scrutinize the activity of lawyers to ensure that the proceedings are fair and that due process is protected. This is particularly important when enforcing judgments issued by foreign courts, which, as we’ve seen in Ecuador, sometimes lack any pretense of fairness or impartiality.

One helpful tool would be a fair, uniform federal standard for enforcing foreign judgments. The U.S. Chamber Institute for Legal Reform proposed such a standard last year that would require federal judges to reject enforcement of judgments that violated the U.S. Constitution’s standards for due process or undermined the foreign policy interests of the U.S.

Judge Kaplan should be commended for his bold and important ruling. As he noted in his decision, Donziger’s actions “would be offensive to the laws of any nation that aspires to the rule of law, including Ecuador.” Let’s hope there are other judges and policymakers willing to follow Judge Kaplan’s lead to ensure that the rule of law is protected and justice is served.

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