The Editors request the reader’s indulgence in commenting on two separate, but important, issues arising from the Chevron case. The very size of the judgment handed down by the Provincial Court of Justice of Sucumbíos on February 14, 2011 would merit speculation on what enforcement steps the plaintiffs might take to collect on their $8 billion judgment. It is a fact, how - ever, that the plaintiffs’ plans for enforcement were laid out quite some time ago. It is also a fact, moreover, that litigation relating to their enforcement strategy began before the judgment was even handed down. Indeed, Chevron anticipatorily challenged, in the context of an action it initiated in a U.S. federal court two weeks before the Ecuadorian judgment was rendered, the enforcement of any judgment plaintiffs might obtain. In doing so, Chevron ventured into the U.S. jurisprudence regarding anti-foreign suit injunctions.
The Plaintiff’s Enforcement Plans
As discussed elsewhere in this issue, Chevron sought and obtained discovery of “outtakes” and other materials from the maker of the film, “Crude,” a documentary regarding the 18-year prosecution of the case in Ecuador. The material disclosed included an internal memorandum, entitled “Invictus— Path Forward: Securing and Enforcing Judgment and Reaching Settlement.” This “Invictus memorandum” set out plaintiffs’ enforcement strategies, including plans to “seize assets, seize boats” wherever Chevron subsidiaries operate starting “in jurisdictions that offer the path of least resistance to enforcement.” With reference to the Invictus memorandum and a large quantity of other materials, Chevron brought suit on February 1, 2011 against various parties associated with the plaintiffs pursuant to the U.S. Racketeering and Corrupt Organizations Act (the “RICO Action”). In the context of the RICO Action, Chevron has sought a preliminary injunction preventing plaintiffs’ enforcement of any judgment they may obtain from the Ecuadorian courts. Whether injunctive relief of the kind sought is appropriate, which would affect the conduct of foreign litigation, is determined with respect to the so-called China Trade Test.
The China Trade Test
Injunctive relief, the Second Circuit Court of Appeals has pronounced, is a remedy to be “used sparingly” and “only with care and great restraint.” Further, the power of the courts to enjoin foreign suits is based upon personal jurisdiction over the parties’ enjoined (whose conduct the court may thus direct), such that any anti-foreign suit injunction would not purport to operate directly against the foreign court. The prerequisite for obtaining an injunction in the United States is a showing by the plaintiff that it is likely to prevail on the merits and that it will suffer irreparable harm (that is, injury not compensable by monetary damages) if an injunction is not granted or, as stated by the Second Circuit, “a clear showing of probable success and possible irreparable injury.”
The test for anti-suit injunctions in New York federal courts was set forth by the Second Circuit in China Trade and Development Corp. v. M.V. CHOONG YOUNG, 837 F.2d 35 (2d Cir. 1987). The claimant, China Trade, brought a substantial cargo loss claim against the shipowner in New York after the grounding of the vessel. Following extensive discovery abroad—over a period of a year and a half—trial was scheduled. Some months prior to the U.S. trial date, the Korean ship owner filed suit in Pusan, Korea seeking a declaration from the Korean court that it was not liable for China Trade’s loss. When China Trade was eventually informed of the Korean action, it immediately requested the New York trial court to enjoin the shipowner from proceeding with its suit in Korea. The trial court pronounced the following threshold test:
- the parties must be the same in both matters; and
- the “resolution” of the case before the enjoining court must be dispositive (i.e., fully determinative) of the foreign action to be enjoined.
The court held that once those two threshold requirements are passed, five other factors should be considered:
- frustration of a policy in the enjoining court;
- vexatiousness of the foreign action;
- threat to the enjoining court’s in rem or quasi in rem jurisdiction;
- proceedings in the other forum prejudice other equitable considerations; and
- the delay, inconvenience, expense, inconsistency, or race to judgment by adjudication of the same issues in separate actions.
China Trade, the trial court held, passed the threshold tests and showed the vexatiousness and the expense, etc., of the shipowner’s “race to judgment” in Korea so as to justify the shipowner’s being permanently enjoined from proceeding with its action there. On appeal, the majority opinion recognized that concurrent jurisdiction in two courts does not necessarily present a conflict or justify an injunction even if the parties and the issues are the same. Although the majority agreed with, and approved the test used, by the trial court, it considered that the court had overly relied on “vexatiousness” and “race to judgment,” whereas the “interests of comity” required greater consideration of:
- whether the foreign action threatens the jurisdiction of the enjoining [U.S.] forum, and
- whether strong U.S. public policies are threatened by the foreign action.
The majority found neither. Neither the Korean Court nor the shipowner had sought to prevent the New York court from proceeding to trial, nor was it clear that the shipowner was seeking to evade any important U.S. public policy. Conse - quently, the injunction was vacated and the “test” established.
The Chevron Injunction
With the legal framework described above as a backdrop, and with the Invictus memorandum and other materials in hand, Chevron sought an injunction against the plaintiffs in the context of its RICO Action, based on, among other grounds, the China Trade test. It claimed that the two threshold China Trade standards had been met and that all the remaining factors of the test had also been satisfied. The proposed attempt “to enforce via multiple enforcement actions around the world,” Chevron claimed, “is invalid under any reasonable system of justice, as it is based on fraud.” And Chevron asserted, the proposed enforcement actions “are the prototype of ‘vexatious’ litigation.”
The U.S. District Court, at least provisionally, has agreed with Chevron, finding evidence that plaintiffs’ intent “may be to create so much disruption to Chevron’s operations as to coerce a settlement without regards to the merits.” Thus, Chevron obtained a temporary restraining order (“TRO”) restraining the Ecuadorian plaintiffs and their lawyers “and all other persons in active concert or participation with any of the foregoing…from funding, commencing, prosecuting, advancing in any way, or receiving benefit from, directly or indirectly, any action or proceeding for recognition or enforcement of any judgment against Chevron [in the Ecuadorian action], or for prejudgment seizure…”. The TRO was extended until March 8, 2011, when a hearing on Chevron’s request for a preliminary injunction will be held.
The Courts’ power to enjoin parties proceeding in parallel lawsuits in foreign jurisdictions (including arbitrations) is far from uniquely American. Indeed, the “race to the courthouse” may very well involve one party seeking to enjoin the other from first obtaining the perceived “home court” advantage. The Chevron decision is, however, interesting in its enjoinder of prospective actions in foreign tribunals. As such, it appears to reflect an accretion to the China Trade test that, as with other rulings from that contest, may be tested on appeal.