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Chevron Corporation v. Steven Donziger

May 9, 2011

CHEVRON CORPORATION, PLAINTIFF,
v.
STEVEN DONZIGER, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Lewis A. Kaplan, District Judge.

MEMORANDUM OPINION

The so-called Lago Agrio plaintiffs*fn1 (the "LAPs") recently obtained a multibillion dollar judgment (the "Judgment") against Chevron Corporation ("Chevron") from a provincial court in Ecuador for alleged environmental pollution by Texaco, Inc. ("Texaco"), the shares of which now are owned, directly or indirectly, by Chevron. Steven Donziger, a New York attorney, has been a lead lawyer for them for many years. The Judgment came after about 18 years of litigation in this Court, in Ecuador, and in other fora, among them a number of U.S. district courts in which Chevron sought discovery pursuant to 28 U.S.C. § 1782 in relation to the Ecuadorian litigation and an international arbitration between Chevron and Ecuador.

At the time this case began, the undersigned had been presiding for months over and had decided the central issues in two of the Section 1782 proceedings. In the first, Chevron sought discovery from a documentary film maker, Joseph Berlinger, who had produced a film about the Ecuadorian litigation. The second sought discovery from Donziger. This Court's rulings granting discovery and denying a motion to quash by Donziger have been affirmed by the Court of Appeals.*fn2

Chevron brought this action against the LAPs, Donziger and others on February 1, 2011. The amended complaint asserts, among other things, that the Ecuadorian judicial system "does not provide impartial tribunals or procedures compatible with the requirements of due process of law"*fn3 and that the Judgment was obtained by fraud by Donziger and others. Chevron seeks, in addition to other relief, a declaration that the Judgment is not entitled to enforcement or recognition and an injunction barring its enforcement outside Ecuador.

Two days later, Chevron sought a temporary restraining order ("TRO") and a preliminary injunction barring enforcement of the Judgment. After hearing both sides, the Court granted the TRO on February 8, 2011, and the preliminary injunction on March 7, 2011. Since then, the two LAPs who have appeared in this action, subsequently referred to as the LAP Representatives,*fn4 and Donziger have appealed from the preliminary injunction, this Court denied a stay pending appeal, and the Court granted Chevron's request to bifurcate for expedited discovery and trial Count 9 of the complaint, which seeks a declaration that the Ecuadorian judgment is unenforceable and unrecognizable.

After participating in the Section 1782 proceedings before the undersigned for many months and unsuccessfully litigating the preliminary injunction motion and the motion for a separate and expedited trial of the declaratory judgment claim in this case, all without seeking recusal, the LAP Representatives now move to disqualify the undersigned, arguing that his impartiality in this case reasonably might be questioned. The motion rests entirely on rulings and events that occurred in the two previous Section 1782 proceedings and on this Court's rulings in this action. There is no claim of any extra-judicial source of bias.

Facts

The background of the litigation is set forth in the Court's prior opinions in the Section 1782 proceedings*fn5 and in this action,*fn6 familiarity with which is assumed. It therefore will suffice to summarize the circumstances in which this case and motion arise.

I. The Aguinda and Lago Agrio Cases

The litigation that led to the Ecuadorian judgment arose out of the activities of a fourth-tier subsidiary of Texaco, Texaco Petroleum Company ("TexPet"), which operated and partly owned a petroleum concession in the Oriente region of eastern Ecuador from 1965 until the early 1990s. In 1990, TexPet turned operations of the concession over to the Republic of Ecuador ("ROE") which, through the state-owned oil company Petroecuador, had owned a 50 percent interest in the concession since 1976. In 1992, TexPet relinquished all of its interests in the concession, leaving it owned and operated entirely by Petroecuador from that point forward.

Donziger and certain other American lawyers took an interest in these events. In 1993, they filed Aguinda v. Texaco,*fn7 a Southern District of New York purported class action on behalf of indigenous Ecuadorian plaintiffs including, it appears, all or most of the LAPs. The Aguinda plaintiffs sought billions of dollars in damages for alleged personal injuries and property damage as well as remediation of alleged environmental harm said to have been caused by the operation of the petroleum concession.

While the Aguinda litigation was pending, the ROE released TexPet from any claims arising out of those operations in exchange for TexPet performing certain remedial environmental work, which the ROE deemed completed in 1998. As the ROE represented at the time that all of the claims asserted in the Aguinda action belonged to it, the release seems to have been intended to put an end to any claims or litigation concerning TexPet's alleged pollution. In 2001, the Aguinda action was dismissed on the ground of forum non conveniens.*fn8 The Second Circuit affirmed the dismissal in 2002.*fn9

After the ROE released TexPet from liability, however, Ecuador enacted the Environmental Management Act of 1999. That statute, among other things, created a new private right of action for damages for the cost of remediation of environmental harms generally, as distinct from personal injuries or property damages to specific plaintiffs. In 2003, after Aguinda was dismissed, the LAPs commenced the Lago Agrio litigation against Chevron, a subsidiary of which had acquired all of Texaco's outstanding shares in 2001. That same year, the Comptroller General of the ROE filed a denuncia, apparently a criminal accusation, against two Chevron (formerly TexPet) lawyers, as well as former ROE and Petroecuador officials, alleging that they had falsified documents and violated Ecuadorian law in connection with the ROE's release of TexPet. Those charges were dropped in 2006 for insufficient evidence but were reactivated in 2008 -- apparently at the urging of Donziger (who remained central to the LAPs' Lago Agrio litigation effort) and his colleagues by the new Ecuadorian administration led by then-recently elected President Correa. Those criminal charges, as far as the Court understands, remain pending. The Lago Agrio litigation ultimately led to the Judgment.

II. The Section 1782 Proceedings

In recent years, Chevron brought more than a dozen Section 1782 proceedings in U.S. courts to obtain evidence for use in the Ecuadorian litigation and an international arbitration it has brought against Ecuador in relation to these events. As noted, two of those cases were brought in the Southern District of New York and are before the undersigned.

A. The Berlinger Section 1782 Proceeding

The first related to the film Crude,the making of which Donziger had solicited and in which Donziger appeared on camera at great length. The film portrayed some of Donziger's activities in and statements about the Lago Agrio litigation. Among other things, the film, as released to the public, depicted:

(1) Donziger pressuring an Ecuadorian judge "to block the judicial inspection of a laboratory allegedly being used by the Lago Agrio plaintiffs to test for environmental contamination. Donziger describe[d] his use of 'pressure tactics' to influence the judge and concede[d] that '[t]his [wa]s something you would never do in the United States, but Ecuador, you know, this is how the game is played, it's dirty,'"*fn10 and

(2) A representative of the LAPs reporting to Donziger that he had "coordinat[ed] everything" with the president of Ecuador, Donziger being embraced and lauded by the president, and Donziger explaining that "President Correa had called for criminal prosecutions to proceed against those who engineered the Settlement and Final Release." Donziger added that "'Correa just said that anyone in the Ecuador government who approved the so-called remediation is now going to be subject to litigation in Ecuador. Those guys are shittin' in their pants right now.'"*fn11

In addition, one version of the film -- in a part edited out of the version released generally at the LAPs' request -- depicted an ex parte meeting involving Donziger, some of the LAPs, and others with an expert who contributed to a supposedly neutral damages assessment by a court-appointed expert.*fn12

This and other evidence led to Berlinger § 1782 I,which was affirmed on appeal and ultimately required the film maker to turn over the outtakes that did not make their way into Crude.*fn13

B. The Donziger Section 1782 Proceeding

The outtakes included, among other things, scenes in which Donziger and others spoke of pressuring the Ecuadorian judiciary to rule in the LAPs' favor, described the Ecuadorian judicial system as "corrupt," traveled to meet ex parte with an Ecuadorian judge, and appeared to be driving the criminal prosecutions of the two Chevron Ecuadorian lawyers. Chevron therefore obtained a Section 1782 subpoena requiring Donziger to produce documents and submit to a deposition. Donziger and the LAPs, separately represented, moved to quash.

At the heart of the motion to quash were Donziger's and the LAPs' arguments that discovery from Donziger would be inappropriate because he was among the LAPs' lawyers and that the attorney-client privilege and work product doctrine in any case precluded production. Chevron rejoined, among other things, that the circumstances warranted discovery notwithstanding that Donziger is a lawyer and that any claim of privilege or work product was overcome by the crime-fraud exception. Donziger responded that nothing in the Crude outtakes revealed anything unlawful and that the crime-fraud exception to the privileges therefore did not apply.

As Donziger and the LAPs refused to cooperate in seeking a stay of proceedings in Ecuador to facilitate consideration of issues raised in this Court, the litigation of the motion to quash occurred under extreme time pressure. Chevron was faced with the imminent prospect of an enormous judgment in the Ecuadorian litigation, and the two Chevron attorneys were facing criminal prosecution there with a critical preliminary hearing just a short time away. All sought the evidence for use in defending themselves in Ecuador. Thus, it was apparent that Chevron and the two accused lawyers were in a race against time -- delay served the interests of Donziger and the Ecuadorian plaintiffs because delay of discovery in the Section 1782 proceeding threatened to preclude its use either in the preliminary hearing in the Ecuadorian criminal case or before entry of judgment in the civil litigation.

The Court denied the motion to quash and ordered that Donziger comply with Chevron's subpoena.*fn14 That decision was affirmed on appeal.*fn15 At no point during either of the Section 1782 proceedings did Donziger, the LAPs, or any other party move to recuse the undersigned.

III. This Action

As noted, Chevron filed this action on February 1, 2011. Its core is Chevron's claim

that the Judgment is not recognizable or enforceable. The complaint asserts also claims under the Racketeer Influenced and Corrupt Organizations Act, several state law tort claims, and claims against Donziger for violating legal ethics standards. On February 3, Chevron moved for a TRO and a preliminary injunction barring enforcement of the Judgment.*fn16 The Court scheduled argument on the TRO for February 8, 2011. As will be seen, Donziger and, to an extent, the LAP Representatives, began questioning the impartiality of the undersigned at the outset, entirely on the basis of events in the Section 1782 proceedings.

A. Donziger's Letter of February 8, 2011

On February 8 -- the date on which the Court had scheduled the TRO argument --

Donziger requested an adjournment, claiming that he needed more time to obtain counsel.*fn17 The Court denied the request, noting that TROs, which may be granted without notice, are of limited duration.*fn18 Most of the letter, however, was devoted to Donziger's further assertion that an "overwhelming appearance of impropriety . . . would attach to this Court accepting this case."*fn19 The letter made essentially four arguments, all or most of which have resurfaced in the present motion.

First, it alleged that "the Court has shown antagonism towards [Donziger] and the Aguinda litigation."*fn20 This assertion rested on misleading and out-of-context quotations from the transcripts of arguments in the Section 1782 proceedings.

Second, it asserted that the Court had "urged" Chevron to bring this action, a contention based on the Court's question during the argument of the motion to quash in the Donziger Section 1782 proceeding whether "the phrases Hobbs Act, extortion, RICO, have any bearing here?"*fn21 As will appear, the suggestion that the Court urged Chevron to bring this action is entirely unsupportable.

Third, Donziger claimed that this Court should not preside because Chevron contemplates the undersigned being a witness in this case. Not surprisingly, there is no suggestion either in the letter or elsewhere that the undersigned has any personal knowledge of any facts xtortion. There is evidence also that Donziger retained Mr. Lefcourt as early as December 2010 to represent him in response to any civil complaint or criminal investigation. See DI 298 Exs. 15, 16; Donziger I, 2011 WL 778052, at *45 & n. 405. In addition, he is a lawyer himself and, according to his letterhead, employs two associates. relevant to this action beyond whatever it has learned by presiding as a judge and certainly no suggestion that Chevron (or anyone else) intends to attempt to call him as a witness.

Fourth, the letter alleged that the Court had made a number of remarks about Donziger's conduct during proceedings in the Section 1782 proceedings that indicated that it had "reached conclusions as to numerous of the ultimate issues in this case."*fn22 As will be seen, this allegation is without merit.

B. Donziger's Motion to Reassign the Case

Approximately three weeks after the February 8 letter and approximately four weeks after Chevron filed this action, Donziger, joined by the LAP Representatives,*fn23 moved to transfer this case from the undersigned to the Honorable Jed S. Rakoff -- who had presided over the Aguinda action -- under the related case provision of the Southern District's Rules for the Division of Business Among District Judges (the "RDB").*fn24 That application was entirely baseless for reasons set out in the Court's decision denying it.*fn25 But it was notable also for two additional reasons.

First, in seeking reassignment to Judge Rakoff, neither the LAP Representatives nor Donziger disclosed that the LAPs in 2000 had moved unsuccessfully to recuse Judge Rakoff in the Aguinda case*fn26 or that the Crude outtakes contained footage of Donziger calling Judge Rakoff "corrupt," "totally biased against us," and "a dishonest judge."*fn27

Second, although the subject had no proper bearing on whether the RDB had been abused by Chevron, as Donziger and the LAP Representatives claimed, much of the transfer motion repeated and expanded upon the assertions that the undersigned had demonstrated bias in favor of Chevron. Those contentions now form a substantial part of the basis for the present motion.*fn28

C. This Motion

Notwithstanding the allegations contained in Donziger's letter and the transfer

motion, this is the first application by any party to this case or the Section 1782 proceedings to recuse the undersigned. It was made nearly two months after the transfer motion, more than two and a half months after Donziger's letter, nearly three months after Chevron filed this action, and more than one year after this Court began presiding over the related Section 1782 proceedings.

The motion largely echoes the arguments and allegations of Donziger's letter and the transfer motion. The LAP Representatives repeat the arguments that the undersigned (1) encouraged Chevron to bring this suit, (2) views the Lago Agrio litigation effort as a "game," (3) has prejudged the merits of this case, (4) has questioned the LAPs' existence by calling them the "so-called Lago Agrio Plaintiffs," (5) is antagonistic towards the government and courts of Ecuador, and (6) may be called as a witness in this action. To this they have added complaints about the substance of the Court's rulings on and in connection with the preliminary injunction and bifurcation motion and its denial of a stay pending appeal. In the last analysis, however, the motion rests almost entirely on criticism of and disagreement with the Court's rulings and reasoning in this case and in the Section 1782 proceedings.

Discussion

I. Recusal Under Section 455(a)

The LAP Representatives argue only that the undersigned should be recused because his impartiality might reasonably be questioned.*fn29 The relevant statute therefore is Section 455(a) of the Judicial Code,*fn30 which provides that "[a]ny . . . judge . . . shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned." That statute makes disqualification a matter addressed to the district judge's discretion,*fn31 subject to review only for abuse.*fn32 Moreover, it has both procedural and substantive components.

A. Timeliness

A motion for recusal under Section 455(a) must be made "as soon as the facts on which it is premised are known to the parties."*fn33 The LAP Representatives protest in large part the Court's remarks and rulings from the Section 1782 proceedings, which occurred months and, in some instances, approximately one year before this motion. Yet the LAP Representatives never moved to recuse the undersigned in those cases. Nor did they do so for nearly three months of litigation in this action. Instead, they waited until after this Court had ruled on the preliminary injunction and bifurcation motions in this case.In all the circumstances, this motion is untimely and, quite possibly, so untimely that the LAP Representatives impliedly have waived their right to seek recusal.*fn34 At a minimum, it is untimely insofar as it relies upon anything that transpired in the Section 1782 proceedings and through the argument of the preliminary injunction motion in this case.

B. The Substantive Standard

The substantive standard that governs this motion is plain: "It is axiomatic that a judge may not preside over a case when his impartiality might reasonably be questioned. In deciding the sensitive question of whether to recuse a judge, the test of impartiality is what a reasonable person, knowing and understanding all the facts and circumstances, would believe.

* * * "[T]he test to be applied is an objective one which assumes that a reasonable person knows and understands all the relevant facts. See Pepsico, Inc. v. McMillen, 764 F.2d 458, 460 (7th Cir.1985); United States v. Ferguson, 550 F. Supp. 1256, 1260 (S.D.N.Y.1982). * * * Like all legal issues, judges determine appearance of impropriety -- not by considering what a straw poll of the only partly informed man-in-the-street would show -- but by examining the record facts and the law, and then deciding whether a reasonable person knowing and understanding all the relevant facts would recuse the judge."*fn35

Moreover, recusal under Section 455(a) typically is appropriate only in cases of bias or prejudice stemming from an extra-judicial source.*fn36 Here, however, no one has contended that the Court harbors a bias or prejudice stemming from such a source. Rather, the argument is based on colloquy between the Court and counsel during arguments and substantive rulings.

The Court's comments from the bench on various occasions, all or most in the Section 1782 proceedings, upon which the LAP Representatives rely -- which, as discussed below, are wholly innocuous when read in context -- were germane to the issues presented, based on the evidence, and made on the record in proceedings over which the Court was presiding. As the Supreme Court made clear in Liteky v. United States, comments based on evidence adduced before a judge are not a basis for recusal even where they reflect a disposition with respect to a litigant:

"The judge who presides at a trial may, upon completion of the evidence, be exceedingly ill disposed towards the defendant, who has been shown to be a thoroughly reprehensible person. But the judge is not thereby recusable for bias or prejudice, since his knowledge and the opinion it produced were properly and necessarily acquired in the course of the proceedings, and are indeed sometimes (as in a bench trial) necessary to completion of the judge's task. As Judge Jerome Frank pithily put it: 'Impartiality is not gullibility. Disinterestedness does not mean child-like innocence. If the judge did not form judgments of the actors in those court-house dramas called trials, he could never render decisions.' [citation omitted]. Also not subject to deprecatory characterization as 'bias' or 'prejudice' are opinions held by judges as a result of what they learned in earlier proceedings. It has long been regarded as normal and proper for a judge to sit in the same case upon its remand, and to sit in successive trials involving the same defendant."*fn37

The Court continued: "[J]udicial remarks during the course of a trial that are critical or disapproving of, or even hostile to, counsel, the parties, or their cases, ordinarily do not support a bias or partiality challenge. . . . Not establishing bias or partiality . . . are expressions of impatience, dissatisfaction, annoyance, and even anger, that are within the bounds of what imperfect men and women, even after having been confirmed as federal judges, sometimes display. A judge's ordinary efforts at courtroom administration -- even a stern and short-tempered judge's ordinary efforts at courtroom administration -- remain immune."*fn38

To be sure, there may be cases in which "[a] favorable or unfavorable predisposition can also deserve to be characterized as 'bias' or 'prejudice' because, even though it springs from the facts adduced or the events occurring at trial, it is so extreme as to display clear inability to render fair judgment."*fn39 But this quite clearly is not such a case. Not only do the Court's comments and questions, taken in context and in full, fail to support any claim of bias, prejudice or inappropriate prejudgment, but this Court -- unlike several others that have decided related Section 1782 proceedings*fn40 -- has declined to rule on Chevron's contention that Donziger's activities come within the crime-fraud exception ...


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