2nd Circuit May Slow Down Chevron Trial

MANHATTAN (CN) - A federal appeals panel signaled Tuesday that Chevron may not be able to skate through proceedings to block a multibillion dollar judgment awarded to a group of Ecuadoreans for oil contamination.

For 18 years, dozens of Ecuadorean natives have battled with the oil giant and its predecessor, Texaco, to remediate their homeland, left ravaged after decades of oil drilling.

For its part, Chevron says the state-owned oil refinery is the true culprit, and that Texaco already paid $40 million to settle environmental claims.

Unimpressed, a court in Lago Agrio, Ecuador, held Chevron liable in February and ordered it to pay an $18.2 billion penalty.

By that point, the "adverse judgment," as Chevron called it, had loomed heavy on the horizon for years. Two weeks earlier, Chevron filed a federal lawsuit in Manhattan to invalidate it pre-emptively. The complaint accused the Lago Agrio plaintiffs - and their former lead attorney Steven Donziger - of running an extortion scheme to seize their assets worldwide.

Chevron's animated lead attorney, Randy Mastro of Gibson, Dunn & Crutcher, has told multiple courts about the imminent havoc the Ecuadoreans could allegedly wreak, claiming in one hearing, "The Sword of Damocles is not just hanging over our heads, it's touching our foreheads."

At the center of Mastro's conspiracy narrative is a legal document code-named "Invictus," authored by Washington, D.C.-based firm Patton Boggs to strategize how the Ecuadorian plaintiffs can file lawsuits in more than 100 countries and flex political muscle to pressure Chevron into a favorable settlement.

That document, which Chevron obtained in a massive discovery action last year, helped convince U.S. District Judge Lewis Kaplan to grant Chevron a temporary restraining order, preliminary injunction and speedy trial set for November to declare the judgment unenforceable.

Donziger and the Lago Agrio plaintiffs have accused Kaplan of bias in two motions that unsuccessfully sought to transfer the case to another judge.

On Monday, Kaplan refused to step down for the second time, and noted how the 2nd Circuit has affirmed his rulings and praised his stewardship in the past.

By Tuesday, however, a three-judge panel in the same circuit seemed inclined to limit two of his rulings. The panel convened to consider motions to stay the November trial and ease restrictions on the preliminary injunction.

One motion states that Kaplan's "unprecedented" injunction, blocking the collection of a foreign judgment anywhere in the globe, smacked of "judicial imperialism."

"Such judicial imperialism should not be permitted; a single district judge cannot appoint himself as the world's judgment police," lead author James Tyrrell of Patton Boggs wrote.

Tyrrell also pulled few punches in his oral arguments, saying that his firm is being "bled dry" by the injunction's provisions barring legal assistance to their indigenous clients.

He added that the injunction scared off international traders who previously had funded their legal battles.

"Our clients have stopped paying our bills," Tyrrell said. "There's no reason for us to hemorrhage blood we don't have."

Patton Boggs made the same argument last month in a federal lawsuit against Chevron and Gibson Dunn in Washington. It was one few new arguments in a complaint that otherwise mirrored an earlier incarnation of the lawsuit that the same court threw out just one week earlier.

Mastro said that Patton Bogg's authorship of the "Invictus" memo showed that they should not benefit from the "fraud" in Ecuador.

U.S. Circuit Judge Rosemary Pooler replied that she "can't believe" that Chevron does not have a "mirror image" of that document. She said the difference was that the Lago Agrio plaintiffs had been forced to turn over their documents, and Chevron had not.

Mastro countered that Donziger and the Ecuadoreans had their attorney-client privilege waived in a decision that the 2nd Circuit affirmed.

Judge Pooler also pressed Mastro for blasting the Ecuadorean judicial system, when Texaco pushed to move the proceedings there after Chevron acquired it in 2001.

"Counsel, you were the one that wanted to try the case in Ecuador," Pooler replied.

U.S. Circuit Judge Barrington Parker added that he was a district judge in White Plains when it happened, and remembered the oil company pushing for dismissal.

Mastro replied that the political situation in Ecuador has changed since then, alluding to the presidency of Rafael Correa. He claimed that its judicial system is now ranked lower than Iran and North Korea.

A voluble speaker, Mastro spoke beyond the time allotted to him. He asked to finish his sentence, and spoke several more before being interrupted by Pooler.

She said the panel would issue a ruling on the motions soon.

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