A federal judge's ruling that a U.S. trial lawyer led a conspiracy again Chevron over alleged oil pollution in Ecuador sends a powerful message to plaintiffs' attorneys everywhere: Legal shakedowns do not always work, and fraud has consequences.

The blistering 485-page decision by U.S. District Court Judge Lewis Kaplan of the Southern District of New York found that the lawyers behind the anti-Chevron lawsuit (New York attorney Steven Donziger and two Ecuadorians defendants) violated federal racketeering (RICO) statutes by having committed, among other crimes, coercion, bribery, wire fraud, witness tampering and money laundering.

[Donziger] and the Ecuadorian lawyers he led corrupted the Lago Agrio case. They submitted fraudulent evidence. They coerced one judge, first to use a court-appointed, supposedly impartial, “global expert” to make an overall damages assessment and, then, to appoint to that important role a man whom Donziger hand-picked and paid to “totally play ball” with the [Ecuadorian plaintiffs]. They then paid a Colorado consulting firm secretly to write all or most of the global expert’s report, falsely presented the report as the work of the court-appointed and supposedly impartial expert, and told half-truths or worse to U.S. courts in attempts to prevent exposure of that and other wrongdoing. . . . If ever there were a case warranting equitable relief with respect to a judgment procured by fraud, this is it.

Kaplan ruled that none of the defendents could profit from a $9 billion fine handed down by an Ecuadorian judge against Chevron in 2011, meant to punish the company for pollution that Texaco, later acquired by Chevron, caused during the decades it drilled for oil in the Amazon. (Texaco was working in a consortium with the state-owned oil company, PetroEcuador, an arrangement that ended in 1990.) The entire saga could fill a book -- in fact, Bloomberg's Paul M. Barrett is writing one -- but suffice it to say, any legal claim was suspect. With its exit from the consortium, Texaco remediated the sites it was responsible and the government of Ecuador released the company from any future legal responsibility. There is certainly oil pollution in Ecuador's jungles, but evidence points directly to PetroEcuador's continuing operations as the source. 

Nevertheless, Steven Donziger filed a lawsuit, ostensibly on behalf of Amazonian Indians who were suffering from pollution-caused illnesses. As Kaplan's ruling makes clear, he then orchestrated a campaign against Chevron that drew in environmental activist groups -- some financed by Donziger -- a documentary filmmaker, politically connected PR consultants, celebrities like Sting and Daryl Hannah, a bevy of law firms and deep-pocket funders. Sympathetic media reports helped the cause along. (Unfortunately, but not surprisingly, the same media have ignored this week's ruling against Donziger et al. See Newsbusters, "Evening News Shows Ignore Chevron's Win: Ecuador Ruling Fraud.")  Ultimately, Donziger's goal was to pressure Chevron into settling out of court.

But Chevron fought back, refusing to settle and ultimately filing suit against Donziger and his partners under the Racketeering Influenced and Corrupt Organization Act. Led by Gibson, Dunn & Crutcher, an aggressive team of attorneys pursued numerous, often inventive legal strategies and eventually unveiled the racket. Chevron proved dogged.

In a statement after Kaplan's decision, Chevron's vice president and general counsel, Hewitt Pate, laid out the company's strategy [our emphasis]:

Today's decision is unequivocal: The Ecuadorian judgment against Chevron is a fraud and is the result of criminal acts by a handful of corrupt lawyers looking to enrich themselves. Chevron's reputation was taken hostage and held for a multibillion-dollar ransom. Rather than give in and pay these criminals off, Chevron exposed the truth. Chevron is pleased with today's judgment. We are confident that any court that respects the rule of law will likewise find the Ecuadorian judgment to be illegitimate and unenforceable.

So, a successful, if extraordinarily expensive, legal strategy, one that other companies could well follow if hit by similar shakedown lawsuits. As Bloomberg's Barrett writes in a post, "Chevron's RICO Victory Provides a Model for Other Companies":

For several years, corporate defense lawyers and lobbyists have watched Chevron’s (CVX) experiment with using the federal anti-racketeering statute as an aggressive response to mass-liability lawsuits. Now the results are in—a major victory for the oil company in federal court in New York—and business advocates predict other corporations will follow suit.

In a Wall Street Journal op-ed today, Tiger Joyce, president of the American Tort Reform Association, points to similar hard-hitting responses to lawsuits coming from companies like the railroad CSX, performance producer Feld Entertainment and gasket manufacturer Garlock Sealing Technologies. 

Admittedly, a few headline-grabbing RICO lawsuits against personal-injury lawyers, clients and witnesses accused of lying and cheating do not yet constitute a robust new trend. But if bar associations and government prosecutors won't investigate and punish obvious corruption and fraud, companies with the means to do so must take action themselves. The RICO statute was originally enacted in 1970 as a powerful tool for prosecutors to go after organized crime. Today it could become a powerful tool in the hands of companies that are tired of lawsuit shakedowns.

Donziger vows to appeal, and the anti-Chevron trial lawyers are still trying to collect on the Ecuadorian judgment in other countries where Chevron has assets, e.g., Canada and Brazil. Chevron believes that Kaplan's ruling, including its voluminous accounting of all the crimes committed, will make those collection efforts much more difficult.

No matter how this legal drama plays out, Chevron has struck a blow against litigation fraud, lawsuits meant not to punish bad actors or recoup legitimate damages, but only to force a company to settle by threatening its reputation. Other companies facing these kind of shakedown suits are surely taking notice.

For more on the litigation, including the ruling, legal filings, news coverage and more, see Chevron's blog, The Amazon Post.

UPDATE (Monday, 2:45 p.m.): "Dole Food's Victory in Pesticide Case Echoes Chevron's Pollution Win"

On March 7, the California Court of Appeal in Los Angeles affirmed dismissal of one of a series of suits filed against Dole, alleging that the company poisoned banana workers in Nicaragua in the late 1970s, leaving workers sterile. In all, these suits resulted in billions of dollars in judgments against Dole.

 

The case at issue in the latest ruling, known as Tellez, went to trial in 2008 and produced a multimillion-dollar verdict for workers. That verdict was thrown out when Dole’s attorneys proved that many of the plaintiffs never worked for the company and weren’t, in fact, sterile. Witnesses and investigators were intimidated in Nicaragua, and plaintiffs were coached to concoct false stories. One supposed victim testified that he was instructed to memorize and repeat phony evidence “like a parrot.”