Chevron Must Prove Ecuador Fraud Claims

MANHATTAN (CN) - A New York judge indicated that Chevron must present proof of its extortion claims if it wants him to grant a district-wide injunction blocking an Ecuadorean court's $18.2 billion judgment for environmental devastation to the Amazon.

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In 1993, residents of the rainforest region of Lago Agrio filed a federal lawsuit in Manhattan against Chevron's predecessor, Texaco, over petroleum spills that allegedly exposed thousands to life-threatening disease, contaminated the groundwater and left oil pits oozing across the rainforest.

Eight years later, Chevron acquired Texaco and convinced a New York appellate court to dismiss the case in favor of litigating it in Ecuador.

Once inside an Ecuadorean court, Chevron immediately contested the jurisdiction of the new venue, denied any proven link between living near crude oil and cancer, questioned the basis of the data and blamed any pollution on the nationalized Petroecuador.

Since poor record keeping in the destitute Amazon communities complicates precise statistics on health and environmental data, Chevron cast doubt on the empiricism of the Ecuadoreans' evidence.

Before losing these arguments, Chevron returned to New York with allegations that its courtroom adversaries tainted the Lago Agrio trial to extort a fraudulent judgment.

The crux of Chevron's allegations, though wide-ranging, revolves around claims that lawyers for the Ecuadoreans ghostwrote portions of court-appointed expert Richard Cabrera's report outlining the existing data and estimating the damages.

U.S. District Judge Lewis Kaplan, who quickly found the claims credible, ordered the Ecuadoreans' lawyers to expose once-privileged communications and made filmmaker Joseph Berlinger turn over outtakes from his documentary, "Crude," investigating the issue.

Chevron used the documents and footage to craft a federal anti-racketeering lawsuit seeking to an injunction invalidating Ecuador's looming verdict.

Kaplan granted that injunction weeks before a Lago Agrio judge ruled against Chevron and pushed forward a trial to block the multibillion-dollar award permanently.

Lawyers for the Ecuadoreans, and editorials in Spanish-speaking newspapers, accused Kaplan of "judicial imperialism," and called upon the 2nd Circuit Court of Appeals to reverse these decisions.

While it allowed Kaplan to keep presiding over the case, the appellate court struck down his "radical" injunction, which purported to override any other court's determination about whether the award was collectible.

Lawyers for the Ecuadoreans have since pursued collection efforts in Canada and Brazil.

Meanwhile, Chevron has not backed down on its campaign to discredit the award through international arbitration and in Judge Kaplan's court.

On Tuesday, Kaplan took a cautious step toward a narrower injunction blocking the award's collection in the Southern District of New York, but he ruled that he would not hand Chevron a victory before the case got to trial.

The 105-page decision recaps the evidence against the Cabrera report.

According to the order, evidence shows that lawyers for the Ecuadoreans seized upon a sex scandal involving Lago Agrio's Judge German Yanez to pressure him to appoint Cabrera and cancel remaining judicial inspections of test sites.

While Yanez recused himself in 2009, his replacement, Nicholas Zambrano, relied in part on Cabrera's findings in his final verdict two years later, the order states.

The parties dispute how much weight Zambrano gave this evidence, over Chevron's own data.

But Kaplan called the existing evidence of how it may have tainted the Lago Agrio proceedings "disturbing."

"It perhaps would justify a trier of fact in inferring conclusions broader than is appropriate on this motion," Kaplan wrote in the order. "Moreover, additional evidence may emerge as the case develops. On the present record, however, the ultimate materiality of the taint that indisputably has been established thus far remains a genuine issue."

Karen Hinton, a spokeswoman for the Ecuadoreans, interpreted Kaplan's unusual reluctance on this issue as a victory for her clients.

"Kaplan's refusal to grant Chevron's request that the Ecuador judgment be rendered unenforceable on summary judgment is yet another rebuke to the oil giant's fabricated fraud charges - this time by a judge favored by Chevron who has shown a consistent bias against the indigenous and farmer communities," Hinton wrote in a statement.

Chevron spokesman Kent Robertson highlighted that Kaplan's ruling stopped attorneys for the Ecuadoreans from arguing that New York could not retry issues that were settled in Lago Agrio.

"This ruling clears the way for Chevron to challenge the enforceability of the judgment in the Southern District of New York," Robertson stated. "It also recognizes, amongst other things, that the evidence raises 'serious questions concerning the preparation of the judgment itself.'"

Whatever happens in Judge Kaplan's court, the findings may not impact the Ecuadoreans' other lawsuits to collect billions from Chevron elsewhere around the globe.

"We remind observers that the proceedings before Judge Kaplan are and will be irrelevant to the enforcement proceedings now underway in Canada, Brazil, and other countries where such actions might be filed," Hinton's statement concluded.

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