Appeals judges skeptical of the need to intervene in Chevron's RICO caseSeptember 26, 2013: 3:28 PM ET
Leaders of the Amazon Defense Front had hoped to derail the oil giant's lawsuit and kick the judge off the case. After this morning's argument, however, neither seems likely.
By Roger Parloff, senior editor
Update: Just after this article appeared, the appeals panel denied the defendants all the relief they sought; the four-sentence order is available here.
FORTUNE -- At an oral argument this morning, a federal appeals panel in Manhattan seemed unlikely to derail Chevron's civil racketeering suit against leaders of the Amazon Defense Front, which won a $19 billion environmental judgment against the company in Lago Agrio, Ecuador, in 2011.
In the case argued today, scheduled to go to trial on October 15 in Manhattan before U.S. District Judge Lewis Kaplan, Chevron alleges that the Ecuadorian judgment was procured through bribery, fraud, extortion, witness tampering, and obstruction of justice committed by the Front's leaders, including its lead U.S. strategist and attorney, Steven Donziger. (Donziger has denied any wrongdoing.)
At the U.S. Court of Appeals for the Second Circuit this morning, Donziger and the Front's lawyers sought to stay that trial, toss Kaplan from the case, and reverse several of Kaplan's pretrial rulings. The case was not technically an "appeal" but, rather, a rare, emergency proceeding called a "mandamus action," which is supposed to be granted only when a trial judge has, essentially, run far off the rails.
The linchpin of the Front's case, argued by Patton Boggs's James Tyrrell, Jr., is that such extraordinary relief is required because Judge Kaplan's pretrial rulings revealed that he was violating a January 2012 ruling (or "mandate") of the Second Circuit. In that ruling, it had vacated a preliminary injunction Kaplan had entered in March 2011 that blocked the Amazon Defense Front from attempting to enforce its judgment anywhere in the world outside Ecuador. Kaplan had based his injunction on a New York law forbidding enforcement of fraudulent foreign judgments. In the January 2012 ruling, the Second Circuit found that the New York state law could not be used in that fashion.
Today, however, none of the circuit judges seemed to see the inconsistencies that Tyrrell saw regarding the appeals court's earlier ruling, which had concerned only that New York state law, and had not purported to decide what relief Chevron might be entitled to if it could ultimately prove state and federal fraud violations after a full trial. (Chevron's charges against Donziger are being brought under the federal Racketeer Influenced and Corrupt Organizations Act, known as RICO.) Judge Barrington Parker read to Tyrrell, for instance, the passage from that Second Circuit's earlier ruling in which it said it was "expressing no views" on issues raised by the case other than those relating to the New York state law on recognition of foreign judgments. (Judge Kaplan had dutifully dismissed the count in Chevron's complaint based on the New York foreign judgments law within five days of the Second Circuit's ruling.)
"I'm having trouble seeing how the letter or spirit of our [January 2012] mandate has anything to do with" Judge Kaplan's subsequent rulings on the RICO and state-law fraud counts of the case, said Circuit Judge Debra Ann Livingston. "The prior panel said, 'We're not reaching this.'"
The judges also seemed skeptical of any need to invoke the emergency tool of a "mandamus" rather than simply allowing the defendants to appeal after trial if mistakes are made—the ordinary approach.
"What makes this so extraordinary that it needs to be decided today?" asked Livingston. Tyrrell's answer was that Kaplan was violating the Circuit's earlier ruling.
The judges also appeared to be concerned that Tyrrell's broad reading of the Circuit's earlier ruling might hamstring a court from taking meaningful action even if Chevron was able to prove at trial its highly disturbing accusations of wrongdoing.
Judge Parker and Judge Peter Hall, who was participating in the case through a video hookup, each asked Tyrrell, for instance, to assume for the sake of argument that Chevron was ultimately able to prove its accusation that the Front's lawyers bribed the Ecuadorian judge to let them ghostwrite the Ecuadorian court's opinion themselves. "Is it beyond the authority of a court," asked Parker, "to enjoin the person who paid the bribe from benefiting from the judgment?"
"Yes and no," Tyrrell answered. "It's not appropriate to declare that judgment unenforceable anywhere in the world."
Chevron was represented at the argument by Ted Olson of Gibson Dunn & Crutcher, who is one of the most eminent appellate lawyers in the country. In 2000, Olson famously argued Bush v. Gore in the United States Supreme Court against David Boies, and last term he argued the California gay marriage case, Hollingsworth v. Perry, where Boies was his co-counsel. (In an apparent attempt to suggest that Chevron was running scared, Tyrrell devoted the first sentence of his argument to highlighting the fact that Chevron was substituting Olson for his partner Randy Mastro, who has been leading the RICO case at the trial level.)
Olson began his argument by reading a recent pretrial order in which Judge Kaplan clarified that Chevron "does not seek to have this court set aside" the Ecuadorian judgment itself—one of the accusations Tyrrell had made about Kaplan.
Olson did go on to acknowledge, however, that if and when Chevron wins its case at trial, Chevron does have every intention of seeking injunctive relief preventing the RICO defendants from benefiting from their fraudulent conduct, including "disgorgement" of any recoveries obtained under the Ecuadorian judgment.
No judge voiced concern about this prospect, and at least a couple noted, in any case, that if Kaplan overstepped at that hypothetical stage, the Second Circuit could review what he'd done through the ordinary appellate channels at that time.
Judge Parker was appointed to the bench by President Bill Clinton in 1994, and then promoted to the Second Circuit by President George W. Bush in 2001. Judges Hall and Livingston were appointed directly to the Second Circuit by President Bush in 2004 and 2007, respectively. For more background on this appeal, see here.