Tables May Turn Against Chevron|in Fight to Upend $18.2B Ruling

MANHATTAN (CN) - The 2nd Circuit seemed doubtful Friday of the jurisdiction claimed by a New York federal judge who prevented Ecuadorean natives from enforcing an $18.2 billion verdict against Chevron for environmental damage.

Chevron has spent the better part of a decade fighting claims that its predecessor, Texaco, dumped billions of gallons of toxic oil waste into Ecuador's water supply. A provincial Lago Agrio court held Chevron liable to the tune of $18.2 billion in February, but Chevron has decried the trial as an extortionate fraud.

Seizing on the Recognition Act, the Delaware-based oil giant looked to the Southern District of New York to stop the Lago Agrio case in its tracks.

Over the last 16 months, U.S. District Judge Lewis Kaplan in Manhattan has ordered the Ecuadoreans to turn over nearly two decades of once-privileged documents, allowed Chevron to pursue a federal anti-racketeering lawsuit, blocked the Ecuadoreans from enforcing their judgment with a preliminary injunction, and fast-tracked a trial to permanently block the judgment anywhere in the world.

Dubbed "Chevron's greatest ally" by public relations for the Ecuadoreans, Kaplan has faced down attempts at recusal over his alleged bias. The Ecuadoreans also say Kaplan should not even be in a position to preside over the case since New York allegedly lacks jurisdiction.

The federal appeals court met Friday to weigh these jurisdiction claims for the first time. A ruling favoring the Ecuadoreans could remove the biggest obstacle standing in the way their multibillion dollar judgment.

One of the attorneys fighting against the RICO suit called subject matter jurisdiction the "silver bullet in this appeal," aimed at the heart of Chevron's case.

The Ecuadoreans say that Judge Kaplan and Chevron have misapplied New York's Recognition Act, which they say allows parties only to defend against the collection of the judgment.

Chevron used it to take the offensive and prevent any other court from recognizing Ecuador's judgment.

U.S. Circuit Judge Gerard Lynch pressed Chevron's attorney to cite a precedent for using the statute this way, and then answered his own command. "There is no such case," Lynch said.

The Ecuadoreans also say that the Recognition Act is moot because they have stipulated to never seek enforcement in New York.

Judge Lynch used this information to pin Chevron attorney Randy Mastro, of Gibson, Dunn & Crutcher. "You're not concerned about the judgment in New York," Lynch said. "You're concerned about the enforcement in - to pick one out of a hat - Venezuela."

Lynch added that having a New York court make that kind of decision could hurt international comity.

Mastro claimed that the unprecedented scope of the alleged fraud gave the New York court a basis to extend its reach.

A former mob prosecutor, Mastro insisted, "I've never seen a record so shocking of illegal and immoral conduct," and repeated accusations that the Ecuadoreans intimidated the Ecuadorean judge and planned an international conspiracy to "shake down" the oil giant in courts around the world.

U.S. Circuit Judge Rosemary Pooler treated Mastro's accusations with skepticism, saying that the parties were meeting to discuss whether the Ecuadoreans had received a fair hearing.

"We're a little off-topic," Judge Pooler said, pointing out that the debate concerns the attempt to recuse Judge Kaplan.

The panel became impatient as Mastro continued to argue about the alleged fraud in Ecuador past his allotted time.

"You might want to take notice of the fact that the presiding judge told you to sit down," Judge Lynch said.

Though the hearing put Chevron on the defensive, the judges reserved decision, leaving the fate of November's trial to block the judgment uncertain. U.S. Circuit Judge Richard C. Wesley served as the third member of the panel with Lynch and Pooler.

Opposing counsel John Keker, with Keker & Van Nest, urged the judges to make their decision before the upcoming "show trial" in November, in which he said the Ecuadoreans will be "tethered to the stake like a goat."

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