Antitrust Law Daily Wrap Up, RICO—2nd Cir.: Injunction preventing domestic enforcement of $8.6B judgment against Chevron affirmed, (Aug 9, 2016)

By Mark Engstrom, J.D.

A federal district court did not err in granting Chevron Corp. an injunction that prevented Steven Donziger from enforcing an $8.646 billion Ecuadorian judgment in the United States, the U.S. Court of Appeals in New York City has ruled. The district court found that equitable relief was warranted because Donziger had violated RICO during his prosecution of an environmental action against Chevron in Ecuador. Because the appellate court found that RICO permitted equitable relief, that the ruling of the district court did not violate the principles of international comity, and that Chevron had established a redressable injury and proximate cause, the judgment of the district court was affirmed (Chevron Corp. v. Donziger, August 8, 2016, per curiam).

Lawsuit. Chevron brought RICO claims against Donziger, his law firm, and several other defendants. According to Chevron, Donziger orchestrated multiple bribes, extortions, and frauds that led to a multi-billion dollar judgment against Chevron—in Ecuador—for environmental damage that Texaco had caused in the Lago Agrio region of Ecuador before Texaco’s stock was acquired by Chevron. Chevron withdrew its request for damages, but it continued to seek equitable relief under RICO.

The district court found that the judgment in Ecuador was procured through fraud, corruption, and Donziger’s RICO violations, which included a pattern of bribery, extortion, money laundering, wire fraud, obstruction of justice, and violations of the Travel Act. The district court granted equitable relief to Chevron, under RICO, and enjoined the defendants from seeking the enforcement of their "Lago Agrio" judgment in a U.S. court. In addition, the district court imposed a constructive trust for Chevron’s benefit on any judgment-related property that the defendants had received, or might receive, anywhere in the world.

On appeal, Donziger argued that: (1) Chevron failed to establish a quantifiable, redressable injury and proximate cause; (2) RICO did not authorize equitable relief for private plaintiffs; and (3) the judgment of the district court should be set aside based on international comity.

Injury, proximate cause. Donziger argued that an injury from the Lago Agrio judgment could not be redressed. The Second Circuit disagreed. Significantly, the constructive trust that the district court imposed on Donziger for the benefit of Chevron—requiring Donziger to pay Chevron everything that he had received, or would receive, from the Lago Agrio judgment—provided sufficient compensation. The fact that Chevron would not be fully compensated did not provide Donziger a basis for retaining proceeds from a judgment that resulted from his corrupt conduct, the court explained.

Donziger argued that his acts of racketeering did not proximately cause Chevron’s injury because the appellate decisions in Ecuador had broken the chain of causation. Donziger repeatedly referred to the decision of Ecuador’s Appeal Division as a "substitute" judgment of the appellate court, but "substitute" was a label that was unsupported by substance, the Second Circuit concluded. In reality, the Appeal Division did not alter the Lago Agrio judgment in any way, aside from acknowledging a "harmless error" in mercury levels.

Ultimately, the district court found that the decision of Ecuador’s Appeal Division was "not truly" the independent action of a third party, and thus concluded that the appellate decision did not break the chain of causation between the racketeering activity at issue and the $8.646 billion judgment debt of Chevron. The Second Circuit found no error in that conclusion.

Equitable relief. Donziger argued that the judgment of the district court was improper because RICO did not authorize equitable relief to a private plaintiff. The Second Circuit disagreed.

Neither the Supreme Court nor the Second Circuit had previously determined whether equitable relief was available to a private plaintiff under RICO, the court observed. Although the Seventh Circuit found that equitable relief was authorized by RICO, the Ninth Circuit found that it was not. The Second Circuit agreed with the Seventh Circuit. A federal court was authorized to grant equitable relief to a private plaintiff, the Second Circuit decided, if the plaintiff proved an injury to its business or property by reason of a defendant’s violation of RICO.

The Second Circuit noted that RICO §1964(a) provided that U.S. district courts "shall have jurisdiction to prevent and restrain violations of section 1962 … by issuing appropriate orders, including, but not limited to … imposing reasonable restrictions on the future activities … of any person." The court read that subsection as "expansively authorizing federal courts to exercise their traditional equity powers." Unless a statute expressly restricted a court’s jurisdiction in equity, or restricted that jurisdiction by a necessary and inescapable inference, the court would infer that all of the inherent equitable powers of the district court were available for the "proper and complete exercise of that jurisdiction."

Ultimately, the Second Circuit concluded that §1964(a) was not merely a jurisdictional section because the section provided a non-exclusive list of the remedies that district courts were empowered to provide.

Donziger unsuccessfully argued that equitable relief was unavailable because the amount of the Lago Agrio judgment was not certain. Court statements that a private RICO plaintiff could not recover without a "quantifiable" injury were relevant in cases involving treble damages, the court explained, because a factfinder had to know the amount of damages before those damages could be trebled. Moreover, Chevron’s injury—its liability on the $8.646 billion judgment that was obtained through a pattern of racketeering activity—was "clear and definite." The inability to predict whether the entire judgment would be collected from Chevron did not affect the amount of the liability that was imposed. And the difficulty in calculating the amount of money damages that was needed to redress an entire loss was a common basis for granting equitable relief.

For those reasons, the Second Circuit rejected Donziger’s contention that RICO did not authorize the grant of equitable relief to a private plaintiff that proved an injury to its business or property from the defendant’s violation of RICO.

International comity. Donziger argued that the judgment of the district court violated the principles of international comity. The appellate court disagreed. On the claims of corruption, the district court’s grant of equitable relief did not invalidate the Lago Agrio judgment. Moreover, the Ecuadorian courts had expressly disclaimed jurisdiction over the corruption claims and had preserved the matter for adjudication in U.S. courts. For those reasons, international comity was not an obstacle to the district court’s judgment.

The cases are Nos. 14-0826(L) and 14-0832(C) .

Attorneys: Andrea Ellen Neuman (Gibson, Dunn & Crutcher, LLP) for Chevron Corp. Richard Henry Friedman (Friedman Rubin Law Offices) for Steven Donziger.

Companies: Chevron Corp.

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