Thursday, September 26, 2013

Ontario Court Stays Action to Enforce $17.2 Billion Ecuadorian Judgment against Chevron Corporation

From 1964 to 1992, Texaco Inc., its subsidiaries and various partners engaged in oil extraction activities in the Lago Agrio region of Ecuador's Amazon Basin. The next year, various plaintiffs filed suit in the Southern District of New York against Texaco alleging a variety of environmental, health and other tort claims related to Texaco's extraction activities. The District Court dismissed the plaintiffs' claims, in part because it believed that "the case had everything to do with Ecuador, and nothing to do with the United States".
The United States Court of Appeals, Second Circuit disagreed. It required Texaco to make a commitment to submit to the jurisdiction of the Ecuadorian Courts. After several more years of "legal wrangling", Texaco accepted the conditions established by the Appeal Court but reserved its right to contest the validity of a judgment rendered by a court in Ecuador.
While the litigation was ongoing in the Southern District of New York, Texaco entered into a settlement with the Ecuadorian Government and funded certain environmental remediation projects in exchange for a release from liability for environmental impact which fell outside the scope of the settlement. The settlement was finalized in 1998. Chevron Corporation acquired Texaco in 2001. Ecuador and Chevron continued to litigate the validity and effect of the settlement.
The individual plaintiffs started a lawsuit against Chevron in Ecuador despite the settlement. After seven years of litigation, on February 14, 2011, the trial court found Chevron liable for $8.6 billion in damages.  It ordered Chevron to pay another $8.6 billion in punitive damages unless Chevron apologized within 14 days of the judgment. Chevron did not apologize. Accordingly the pending judgment is for $17.2 billion.
In 2011 Chevron sought and obtained a global anti-enforcement injunction against the plaintiffs in the United States District Court for the Southern District of New York. The Court of Appeal, Second Circuit reversed the injunction initially granted, in part because enforcement proceedings in New York had not yet been sought by the plaintiffs. The Court of Appeal stated "the plaintiffs hold a judgment from an Ecuadorian Court. They may seek to enforce that judgment in any country in the world where Chevron has assets."

On May 30, 2012, the plaintiffs commenced an action in Ontario against Chevron, Chevron Canada Limited and Chevron Canada Finance Limited seeking to enforce the judgment. The plaintiffs pleaded that Chevron  had resiled from Texaco's promise to satisfy the judgment.  In fact, Chevron's general counsel stated, "We're going to fight this until Hell freezes over and then fight it out on the ice." 

On a motion heard by Justice D. M. Brown of the Ontario Superior Court of Justice,  Justice Brown dismissed the defendants' request to set aside the service of the statement of claim against them but granted the defendant's motions to stay the action to enforce the Ecuadorian judgment in Ontario.

The Judge was not prepared to set aside service of the statement of claim on Chevron and ruled that service had been effected pursuant to Ontario's rules of civil procedure.  Nor was he inclined to set aside service against Chevron Canada.  Among other things. that defendant operated a business establishment in Ontario. However, Justice Brown ruled that a stay of the action against the defendants was justified on the bases of mootness.
Justice Brown found that the evidence disclosed that Chevron had no presence, business activity or assets in Ontario or elsewhere in Canada. That had been the case for 86 years and there was no reasonable basis to believe that those circumstances would change.  In addition, the evidence disclosed that Chevron did not conduct any business in Ontario.
The judge held that Chevron Canada was a "seventh generation indirectly-owned subsidiary" of Chevron. The plaintiffs had argued that the assets owned by Chevron Canada are available for execution against Chevron as judgement debtor, because those assets were "beneficially" owned by Chevron. However, Justice Brown held that under Canadian law  a shareholder in a corporation does not posses a legal or equitable interest in the assets of the company. Accordingly the plaintiffs filed a pleading that Chevron beneficially owns the assets of Chevron Canada was inconsistent with the basic principles of Canadian corporate law. The plaintiffs had failed to "pierce the corporate veil" between the two entities.
Justice Brown ruled that Chevron Canada and Chevron Canada Finance were not the judgment debtors.  They were separate legal entities and had nothing to do with Chevron's operations.  He concluded that the plaintiffs had "no hope of success" that the corporate veil of Chevron Canada would be pierced and ignored so that  it assets would be available to satisfy the Ecuadorian judgment.  Accordingly any recognition of the Ecuadorian judgment by an Ontario court would have no practical effect.  As a result, he exercised his discretion to stay the action.



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