LITIGATION:

Chevron's RICO lawsuit in pollution case part of wider legal strategy

Chevron Corp.'s racketeering suit filed yesterday against the legal team seeking damages for pollution in Ecuador is likely part of a wider strategy aimed at helping the oil giant reach a more favorable settlement, according to legal experts.

A judge in Ecuador is close to issuing a decision in the long-running case there, but Chevron has been seeking to undermine the plaintiffs in U.S. courts. The company could face billions of dollars in damages, potentially making the case the biggest environmental verdict of all time.

The civil racketeering complaint, filed in the Southern District of New York, names plaintiffs' attorney Steve Donziger, who has spearheaded the legal fight against Chevron for years, as the lead defendant (E&ENews PM, Feb. 1).

Other lawyers involved in the case are also named defendants, along with other non-attorneys associated with the plaintiffs.

The complaint makes several allegations under the Racketeer Influenced and Corrupt Organizations Act, known as RICO, a law originally enacted to target organized crime. The government uses the statute to pursue criminal cases, but private parties can also file civil RICO suits against each other if they believe there is evidence of a conspiracy.

The Chevron suit alleges that the case against the corporation in Ecuador is a conspiracy to commit extortion. The complaint cites as an example an expert's report submitted to the court in Ecuador that Chevron says was "biased and false."

The plaintiffs in Ecuador first filed suit against Chevron in 1993. They now claim $113 billion in damages for alleged pollution caused by Texaco Inc. Chevron took on the litigation when it acquired Texaco's Ecuador operation in 2001.

Experts on civil RICO say such suits can serve multiple purposes.

Douglas Rees, a Chicago-based partner at the Jenner & Block law firm, described the statute as a "blunt instrument" that can be used to encompass a broad array of activity to create "added leverage for settlement negotiations."

Defendants can be hit with treble damages if a case ever goes to trial, which might make them wary of entering into a lengthy court battle unless they have deep pockets.

Such cases rarely do go to trial, however, and often "claims are exaggerated" in the complaint, said David Smith, a defense lawyer at Smith & English in Alexandria, Va.

Due to the statute's history, it also has the added effect of associating defendants with gangsters, Rees noted.

"It packs a punch from a PR perspective," he said.

'A lot of money at stake'

The lawsuit fits squarely within Chevron's strategy of seeking to turn U.S. courts against the plaintiffs.

Chevron has already been making use of a legal procedure that has allowed its lawyers to depose members of their opponent's legal team, including Donziger.

The Donziger deposition took place after Chevron obtained outtakes from a documentary about the Ecuador case, called "Crude," in which Donziger was heard saying the Ecuadorean court system was corrupt and that the only way to succeed was by "pressuring and intimidating the courts."

Although the underlying case is being heard in Ecuador, what happens in U.S. court matters. Chevron no longer has assets in Ecuador, which means if the plaintiffs win they would have to enforce the judgment in other courts, including in the United States.

From Chevron's perspective, the RICO action "might provide a basis to resist enforcement of the judgment" in U.S. courts, Smith said.

It makes sense, he added, to file a RICO suit as Chevron is likely looking at all its legal options due to the nature of the case.

"I'm not surprised because there's a lot of money at stake," he said.

Chevron's vice president and general counsel, R. Hewitt Pate, said in a statement that the company "has no intention of giving these plaintiffs' lawyers the payday they seek."

The aim all along has been "to extort a multibillion dollar payment from Chevron through fabricated evidence and a campaign to incite public outrage," he added.

The plaintiffs have sought to portray the RICO suit as an attempt to divert attention from the Ecuador case.

There remains "overwhelming evidence of guilt in the intentional contamination of one of the most pristine rainforests in the world," plaintiffs' spokeswoman Karen Hinton said.

Click here to read the complaint.