Today, the United States Second Circuit Court of Appeals issued an opinion explaining the rationale of its prior order vacating a district court's preliminary injunction that barred enforcement of a $17.2 billion judgment against Chevron (see the September 23, 2011 post in Oil & Gas Law Brief).

 The judgment against Chevron arises from claims made by Ecuadorian citizens that Texaco was one of a consortium of companies that contaminated portions of the Lago Agrio region of the Ecuadorian Amazon during petroleum operations from 1964 to 1992.  The Ecuadorian citizens filed suit against Texaco in federal court in New York in 1993, alleging that they had been harmed by the contamination.  The parties litigated for several years in New York, during which time Chevron acquired Texaco.  Texaco (and then Chevron) argued that the case should be heard in Ecuador, rather than New York, and the New York federal court agreed to dismiss the Ecuadorians' claims on that basis. 

The Ecuadorians refiled their claims in Ecuador, naming Chevron as the defendant, and after several more years of litigation they obtained a $17.2 billion dollar judgment in early 2011.  That judgment was affirmed by an Ecuadorian appellate court earlier this month (see the January 6, 2012 post in the Oil & Gas Law Brief). 

In the meantime, however, Chevron had filed its own suit in federal court in New York against the Ecuadorians and their attorneys, asserting various claims.  In one of the claims, Chevron asked the court to issue a preliminary injunction barring the Ecuadorians from enforcing their judgment against Chevron anywhere in the world except Ecuador itself, where Chevron has no assets. 

Chevron based its claim for injunctive relief on New York's Uniform Foreign Country Money-Judgments Recognition Act, which specifies the circumstances in which New York courts will enforce money judgments rendered by foreign courts.  The Recognition Act provides that New York courts generally will enforce foreign judgments, but the Act provides certain circumstances in which New York courts are prohibited from enforcing foreign judgments, and certain circumstances in which New York courts have discretion not to enforce foreign judgments. 

Chevron argued that it had been denied due process during the Ecuadorian litigation and that Ecuador lacked an impartial judiciary, both of which are bases that would prohibit a New York court from enforcing a foreign judgment.  Chevron also asserted that the Ecuadorian plaintiffs had used fraud to obtain their judgment, an alleged fact which would give a New York court discretion not to enforce a foreign judgment.  On March 7, 2011, District Court Judge Kaplan entered a preliminary injunction as requested by Chevron, barring the Ecuadorians from attempting to enforce their judgment anywhere in the world except Ecuador. 

On September 19, 2011, the Second Circuit entered an order vacating the preliminary injunction and staying the litigation that still was pending before Judge Kaplan.  The Second Circuit stated that it would issue an opinion explaining the rationale for its order at a later date.  The Second Circuit issued its promised opinion earlier today. 

The Second Circuit explained in its opinion that the Recognition Act merely specifies the circumstances in which New York courts will or will not enforce a foreign judgment.  The Act does not provide a basis for a defendant to seek an order prohibiting courts outside New York from enforcing the judgment of a foreign court.   

The Second Circuit stated: "The sections on which Chevron relies provide exceptions from the circumstances in which a holder of a foreign judgment can obtain enforcement of that judgment in New York; they do not create an affirmative cause of action to declare foreign judgments void and enjoin their enforcement."  Elaborating, the court stated: 

Nothing in the New York statute, or in any precedent interpreting it, authorizes a court to enjoin parties holding a judgment issued in one foreign country from attempting to enforce that judgment in yet another foreign country." 

The court added that Chevron would "have its opportunity to challenge the [Ecuadorian] judgment's enforcement under this Act at such time, if any, as judgment-creditors seek to enforce the judgment in New York." 

The Second Circuit instructed Judge Kaplan to dismiss in its entirety Chevron's claim for a declaratory judgment that the Ecuadorian judgment is not enforceable.  Chevron's other claims, which were severed (and now are pending in a separate suit) were not before the Second Circuit.  That litigation, still in its early stages, remains pending before Judge Kaplan.