October 15, 2012

Next steps in the fight against fraudulent judgements

Trial lawyers seeking to enforce an ill-gotten $18 billion foreign judgment against Chevron today might feel one step closer to carrying out their plan to enforce the fraudulent judgment here and abroad, after the U.S. Supreme Court on Tuesday left in place a narrow, procedural ruling from a lower court. But the trial lawyers shouldn’t start counting their dólares just yet – those who respect the rule of law still have a number of arrows in the quiver to challenge one of the most blatant examples of “tort tourism,” ever.

As a quick refresher, here’s how Chamber CEO and President Tom Donohue recently explained this case to Investors Business Daily:

In 2003, Chevron Corporation was sued in Ecuador for environmental damage allegedly caused by Texaco’s oil operations a decade earlier, even though Texaco — which Chevron acquired in 2001 — had ceased operations in Ecuador in 1992 and had settled any outstanding claims for environmental cleanup with the Ecuadorian government in 1994.

Nevertheless, in February 2011, an Ecuadorian judge ordered Chevron to pay $8.6 billion in damages. Incredibly, the judge increased that amount to $18.6 billion because the company refused to publicly apologize within 15 days of the judgment. It is the largest award ever by a foreign court against an American company.

Chevron has no assets in Ecuador, so the plaintiffs’ lawyers engaged in some tort tourism. They devised a plan to collect the judgment wherever Chevron did business.

First stop — the United States. Chevron, with ample evidence that the Ecuadorian judgment had clearly been procured by fraud, won an injunction from a federal court in New York that would have, among other things, prevented collection of judgment in the United States. That injunction was overturned by a higher court [the U.S. Court of Appeals for the Second Circuit].

The Second Circuit’s decision basically required Chevron to wait to raise its arguments against enforcement of the ill-gotten $18 billion judgment until after the plaintiffs affirmatively attempt to enforce it. Last June, the Chamber’s litigation arm, the National Chamber Litigation Center, asked the U.S. Supreme Court to overturn the Second Circuit’s ruling, but yesterday, the U.S. Supreme Court “denied certiorari,” or declined to review the case.

There’s no doubt that the plaintiffs will move forward, full-steam, with their efforts to carry out a plan (which they have dubbed “Invictus”) to attempt to enforce the Ecuadorian judgment in foreign courts, and once they do, Chevron will have an opportunity to challenge

Nonetheless, this latest chapter in the soap-opera-like-lawsuit once again underscores the need for meaningful and timely relief for Chevron and other companies who are the victims of “tort tourism.” Tort tourism is a relatively recent trial lawyer strategy that involves filing lawsuits abroad against U.S. companies in countries with very little respect for the rule of law. The trial lawyers then hop from global jurisdiction to global jurisdiction attempting to enforce the foreign judgments. When I’m a tourist, I generally bring home t-shirts and mugs as souvenirs – trial lawyers bring home multi-billion-dollar judgments.

What can we do about this? The solution will require an effort on all fronts to fight fraud: the courts, Congress, you name it. The business community must continue to support efforts in the courts to prevent enforcements of fraudulent judgments. An important next step in the fight against tort tourism, such as the Ecuador case,  should be federal legislation to eliminate the patchwork of inconsistent , permissive and conflicting state laws that currently govern recognition of foreign judgments.  We need a single federal law that is clear, uniform, and modern — one that recognizes foreign judgments only when arrived at in a fair, reasonable and legal manner.

Tort tourism comes with tremendous costs – and not just those born by defendant companies and their shareholders. A fraudulently obtained $18 billion judgment in the pockets of trial lawyers means $18 billion that can’t be spent on adding value to the company, creating and maintain jobs, and other worthwhile investments. Another troubling cost of tort tourism is that it will only serve to further erode respect for the rule of law, a fundamental cornerstone of an effective and respected legal system – which is absolutely essential for companies around the globe to be able to conduct business.

Tuesday’s Supreme Court decision is another eye-opener to awaken all of us to the threats posed by tort tourism.


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