4/28/2014

Chevron’s RICO Victory

Chevron’s RICO victory can provide a model for using RICO to fight fraudulent lawsuits.

By Howard Kaplan

On March 4, 2014, after many years of litigation, Chevron obtained a highly favorable ruling using RICO to fight fraudulent lawsuits. Chevron’s RICO victory, along with other similar cases, can provide a model for other companies to follow in using RICO to fight fraudulent lawsuits.

The Chevron Suit

In 2011, an Ecuadorian court entered an $18.2 billion judgment against Chevron in an action brought by 47 individuals referred to as the Lago Agrio plaintiffs (LAPs). The judgment was reduced to $9.5 billion by the Ecuadorian Supreme Court.

In 2011, Chevron filed a complaint against the LAPs, their lead U.S. attorney Steven Donzinger and his law offices, and others involved in the litigation. Chevron claimed that the Ecuadorian judgment was the product of fraud, extortion, wire fraud, money laundering, and obstruction of justice, which violated RICO.

The RICO and fraud claims rested on the allegations that Donzinger and others substantially executed, largely funded, and significantly directed a scheme to extort and defraud Chevron by, among other things: (1) Bringing the Lago Agrio case; (2) fabricating evidence for use in that lawsuit and corrupting and intimidating the Ecuadorian judiciary in order to obtain a tainted judgment; (3) exerting pressure on Chevron to coerce it to pay money not only by means of the Lago Agrio litigation and judgment, but also by subjecting Chevron to public attacks in the U.S. and elsewhere based on false and misleading statements; (4) inducing U.S. public officials by false representations to investigate Chevron; and (5) making false statements to U.S. courts and intimidating and tampering with witnesses in U.S. court proceedings to cover up their improper activities.

The Ruling

Prior to trial Chevron waived any claim for monetary damages, seeking only equitable relief. In an extensive 485-page decision, the court ruled that RICO had been violated. One of the findings that the court stressed was that a U.S. lawyer had authorized a plan that allegedly promised $500,000 from a potential plaintiff’s judgment as a kickback to an Ecuadorian trial judge. The court initially found that equitable relief is available in private RICO actions. The court noted that this was an unresolved issue with conflicting appellate court decisions.

After finding that equitable relief was available, the court found that Chevron had proved all of the elements necessary for a RICO claim. It granted equitable relief to Chevron by preventing the defendants from benefitting from the fraud. Specifically, the court created a constructive trust for Chevron’s benefit on Donziger’s fees and other assets. The court also enjoined the defendants from enforcing the Ecuadorian judgment in the U.S. The defendants, including Donziger, were prohibited from profiting from the judgment in any way.

It should be noted that the decision in favor of Chevron is a district court decision that likely will be appealed. Additionally, the question of whether equitable relief is available as a private remedy under RICO is an unresolved question of law. Nonetheless, this decision is a road map for further use of RICO to fight fraudulent lawsuits.   



Howard Kaplan is a partner with Bernard, Cassisa, Elliott and Davis. He has been a CLM Member since 2010 and can be reached at hkaplan@bcedlaw.com.

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