Chevron Corporation v. Donziger et al

Filing 459

MEMORANDUM OPINION: Chevrons motion to exonerate the preliminary injunction bond issued by this Court [DI 423] is granted in all respects. The bond is exonerated and discharged. (Signed by Judge Lewis A. Kaplan on 4/2/2012) (ft) (Main Document 459 replaced on 4/2/2012) (ft).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------------x
CHEVRON CORPORATION,
Plaintiff,

-against-

11 Civ. 0691 (LAK)

STEVEN DONZIGER, et al.,
Defendants.
--------------------------------------x

MEMORANDUM OPINION
(Corrected)
Appearances:
Randy M. Mastro
Andrea E. Neuman
Kristen L. Hendricks
Scott A. Edelman
William E. Thompson
GIBSON, DUNN & CRUTCHER, LLP
Attorneys for Plaintiff
John W. Keker
Elliot R. Peters
Christopher J. Young
Jan Nielsen Little
Matthew M. Werdeger
Nikki H. Vo
Paula L. Blizzard
William S. Hicks
KEKER & VAN NEST, LLP
Attorneys for Donziger Defendants

Julio C. Gomez
GOMEZ, ATTORNEY AT LAW LLC
Tyler G. Doyle
Craig Smyser
Larry R. Veselka
Christina A. Bryan
Garlard D. Murphy, IV
SMYSER KAPLAN & VESELKA, L.L.P.
Attorneys for Defendants Hugo Gerardo,
Camacho Naranjo and Javier Piaguaje
Payaguaje

2
LEWIS A. KAPLAN, District Judge.
This matter, which has a lengthy history, is before the Court on the motion of plaintiff
Chevron Corporation (“Chevron”), to exonerate the preliminary injunction bond filed last March in
connection with a preliminary injunction that eventually was reversed by the Court of Appeals.

Facts
This case relates to a lawsuit brought in Ecuador against Chevron for alleged
environmental damage that has resulted in the entry in that nation on February 14, 2011 of a judgment
for more than $18 billion (the “Judgment”).1 The validity and enforceability of the Judgment beyond
the borders of Ecuador are hotly contested.
In early 2011, Chevron commenced this action seeking a declaration that the Judgment
was neither recognizable nor enforceable outside Ecuador and an injunction restraining its
enforcement.2 On March 7, 2011, the Court granted Chevron’s motion for a preliminary injunction
and restrained enforcement of the Judgment pending the resolution of this action.3 In so doing, it noted

1

The background of the litigation is amply set forth in prior decisions of this Court including:
In re Chevron Corp., 709 F. Supp. 2d 283 (S.D.N.Y. 2010), aff’d sub nom., Chevron Corp.
v. Berlinger, 629 F.3d 297 (2d Cir. 2010); In re Chevron Corp., 736 F. Supp. 2d 773
(S.D.N.Y. 2010); In re Chevron Corp., 749 F. Supp. 2d 135 (S.D.N.Y. 2010), fuller opinion,
In re Chevron Corp., 749 F. Supp. 2d 141 (S.D.N.Y. 2010), on reconsideration, 749 F.
Supp. 2d 170 (S.D.N.Y. 2010), aff’d sub nom., Lago Agrio Plaintiffs v. Chevron Corp., Nos.
10-4341-cv, 10-4405-cv (CON), 2010 WL 5151325 (2d Cir. Dec. 15, 2010); Chevron Corp.
v. Donziger, 768 F. Supp. 2d 581 (S.D.N.Y. 2011) (“Donziger I”) (granting preliminary
injunction), rev’d, 667 F.3d 232 (2d Cir. 2012); Chevron Corp. v. Donziger, 800 F. Supp.
2d 484 (S.D.N.Y. 2011) (granting separate trial and expedited discovery on claim for
declaratory judgment) (“Donziger II”).
2

DI 1, at 144-45.
3

Donziger I, 768 F. Supp. 2d at 660.

3
that the bond requirement of Rule 65 “serves only to guarantee payment of any damages sustained
‘during the period [the enjoined party] is prohibited in engaging in certain activities.’”4 Noting that
the LAP Representatives had “not shown any basis for supposing that they would be harmed in any
quantifiable amount by a delay in the enforceability of the [Ecuadorian] judgment for the period
necessary to resolve this case on the merits,” the Court fixed the amount of the bond at $21.8 million,
a figure reflecting the only sort of potential injury that was claimed, the time value of money.5 The
bond, consistent with the Court’s order, was conditioned to:
“pay to the Defendants, so enjoined, such damages and costs not exceeding the sum
of TWENTY-ONE MILION [sic] EIGHT HUNDRED THOUSAND AND 00/100
($21,800,000.00) DOLLARS as they may sustain by reason of the Preliminary
Injunction, if the Court shall finally decide that the Plaintiff was not entitled thereto.”6
As this Court found in March 2011,7 and as counsel for the defendants repeatedly
represented to the Court of Appeals, the Judgment was not enforceable under Ecuadorian law “at least
until the intermediate Ecuadorian appeals court renders its decision.”8 Indeed, at oral argument before
the Circuit, counsel for the LAP Representatives stated that “[t]he [Ecuadorian] judgment cannot be
enforced until the final disposition of the Ecuadorian intermediate court and a decision by Chevron not

4

Id. at 657 (quoting 11A CHARLES ALAN WRIGHT
PROCEDURE: CIVIL 2D § 2954, at 292 (1995)).

ET AL.,

FEDERAL PRACTICE

AND

5

Id.
6

DI 198.
7

Donziger I, 768 F. Supp. 2d at 621 (“Under Ecuadorian law, a lower court’s judgment is
stayed during the pendency of an initial appeal.”).
8

Chevron Corp. v. Naranjo, No. 11-1150, DI 159, at 54; see also Chevron Corp. v. Naranjo,
No. 11-1150, DI 163, at 54 (“[T]he Judgment is . . . non-final and unenforceable in Ecuador
while the appeal . . . is pending.”).

4
to appeal further or, if a bond is required, not to post the bond.”9
On September 19, 2011, the Second Circuit entered an order vacating the preliminary
injunction.10 In the event, the intermediate appellate court in Ecuador did not render its decision until
January 3, 201211 and did not declare the Judgment final and enforceable under Ecuadorian law until
March 1, 2012.12 In consequence, the Judgment was not enforceable from the date it first was entered
in the trial court in February 2011 until March 1, 2012. But the preliminary injunction of this Court
was entered on March 7, 2011, and it was vacated on September 19, 2011. Thus, throughout the entire
period during which the preliminary injunction was in effect, the Judgment was not enforceable under
Ecuadorian law.

Discussion
The purpose of a preliminary injunction bond “is to guarantee payment of costs and
damages sustained by a party who is wrongfully enjoined or restrained. However, the proceeds from
such a bond may not be applied to compensate for attorney’s fees.”13

9

DI 355, Exh. 1014, at 7.
10

DI 351.
11

DI 417, Exh. A.
12

DI 414, at 4; DI 416, at 3.
13

13 JAMES WM. MOORE ET AL., MOORE’S FEDERAL PRACTICE § 65.50[3], at 65-100 (3d ed.
2011); see also Nokia Corp. v. InterDigital, Inc., 645 F.3d 553, 560 (2d Cir. 2011) (adhering
to the “well established” rule that “‘[a]ttorney’s fees are not recoverable as damages in an
action on an injunction bond’”) (quoting Matek v. Murat, 862 F.2d 720, 734 (9th Cir. 1988));
Fireman’s Fund Ins. Co. v. S.E.K. Const. Co., 436 F.2d 1345, 1351 (10th Cir. 1971) (same);
13 MOORE ET AL., supra, § 65.53, at 65-104; 11A WRIGHT ET AL., supra note 4, § 2954, at
287 n.1.

5
In this case, none of the defendants nor, for that matter, anyone else has submitted to
this Court any claim for damages against the bond. Nor could any properly have done so.
First, the preliminary injunction barred the defendants from enforcing or attempting
to enforce the Judgment. As the defendants have asserted, however, it was not enforceable throughout
the entire period during which the injunction was in effect.14 The preliminary injunction therefore
could not have delayed any enforcement actions or caused any injury to the defendants for which they
are able to recover.15
Second, any claim for attorneys’ fees incurred in connection with appealing the
preliminary injunction would have been without merit. As noted above, attorneys’ fees are not
recoverable on a preliminary injunction bond even when the injunction is overturned on appeal.16
The LAP Representatives argue that this Court should not exonerate the bond because
14

Ecuador is a party to treaties with other Latin American countries, including Columbia,
under which the LAPs would have been able to seek prejudgement measures – such as
freezing or attaching Chevron’s assets – before the intermediate Ecuadorian appellate court
rendered its decision in the absence of the preliminary injunction. See Donziger I, 768 F.
Supp. 2d at 629-31. The LAPs nevertheless were unable, under Ecuadorian law, to enforce
or collect any part of the judgment at any point during which the preliminary injunction was
in effect. Id. at 621; see sources cited supra notes 7-9 and accompanying text.
15

See, e.g., Medafrica Line, S.P.A. v. Am. W. African Freight Conf., 654 F. Supp. 155, 156
(S.D.N.Y. 1987) (“[A] defendant who has been wrongfully enjoined is only entitled to
recover damages shown to have been proximately caused by the injunction.”) (citing Factors
Etc., Inc. v. Pro Arts, Inc., 562 F. Supp. 304 (S.D.N.Y. 1983)); see also 11A WRIGHT ET AL.,
supra note 4, § 2973, at 464 (“If, however, a bond is posted, the liability is limited by the
conditions expressed in the surety agreements or in the order of the court that required the
posting.”); cf. Osage Oil & Ref. Co. v. Chandler, 287 F. 848, 851 (2d Cir. 1923) (“The
general principles for measuring damages ordinarily apply in actions for wrongfully suing
out injunctions; and the damages allowed are those which are the actual, natural, and
proximate result of the wrong committed.”).
16

E.g., Nokia Corp., 645 F.3d at 560; Matek, 862 F.2d at 734, abrogated on other grounds by,
Koch v. Hankins, 928 F.2d 1471 (9th Cir. 1991); Fireman’s Fund Ins. Co., 436 F.2d at 1351;
13 MOORE ET AL., supra note 13, § 65.50[3], at 65-100; 11A WRIGHT ET AL., supra note 4,
§ 2954, at 287 n.1.

6
certain attorneys who claim to represent some or all of the LAPs have brought an action on behalf of
their law firm in the District of New Jersey in an attempt to collect on the bond on behalf of the law
firm.17 Those attorneys were served with the motion in this case. They have an office in New York.
Their lead counsel is a member of the Bar of this Court. They even claim, in papers in their New
Jersey action, that their “rights purportedly may be impaired [by a decision on this motion] as early
as March 27, 2011 [sic], the due-date for any responses to Chevron’s” motion.18 Yet they have not
interposed any claim here.
The defendants in this case, both those who have appeared and those who have
defaulted, had a perfect right to respond to this motion by submitting claims for damages. The law
firm that sued in New Jersey could have done so as well, at least subject to the availability of a right
or leave to intervene. But for reasons sufficient unto themselves, they elected not to do so. They must
live with the consequences of their tactical decision to forego that opportunity.
In any event, the LAP Representatives’ suggestion that exonerating a preliminary
injunction bond (1) following an appellate ruling on the preliminary injunction and (2) after all secured
parties have been afforded notice and an opportunity to make claims is premature19 is unsupported by
any authority20 and is contrary to common sense. There is no independent reason to encourage the sort
17

DI 454, at 1-2.
18

Patton Boggs LLP v. Chevron Corp., No. 2:12-cv-00901-ES-CLW, DI 10-2, at 3.
The date March 27, 2011 listed in the brief is incorrect. The due date for any response to
Chevron’s motion to exonerate the injunction bond was due March 27, 2012. DI 426.
19

DI 454, at 1-3.
20

The LAP Representatives rely principally in Buddy Sys., Inc. v. Exer-Genie, Inc., 545 F.2d
1164 (9th Cir. 1976). That case expressed the view that the district court there erred in
exonerating a preliminary injunction bond when (a) the case was decided on its merits after

7
of forum shopping in which the defendants’ lawyers so patently are engaged.21 But there is a still more
important consideration – if any of them had made such a claim, it would have been entirely without
merit.
As noted, the defendants do not claim any injury flowing from the fact that they were
enjoined from seeking to enforce the Judgment because, by their own admission, they were not free
to have done so at any time during which the injunction was in effect.22 Moreover, the plaintiff law
firm in the New Jersey action has no legally sufficient claim on the bond – either there or here –
because the bond runs in favor only of the defendants in this action.23 As the Ninth Circuit has

trial in favor of the party that had obtained the preliminary injunction but (b) before the
losing party had had an opportunity to appeal. The district court’s action there thus had
foreclosed recovery on the bond in the event the appellate court held that the preliminary
injunction had been erroneous. Here, on the other hand, the appellate process has concluded.
The defendants who were secured by the preliminary injunction bond have had notice of this
motion and an opportunity to make a claim on the preliminary injunction bond. Buddy
Systems, Inc. therefore is not pertinent here.
21

Although several circuits have concluded that 28 U.S.C. § 1352 gives district courts
jurisdiction over “any action on a bond executed under any law of the United States,”
including injunction bonds issued under Rule 65, the Second Circuit has held that even
proven damages may be disallowed for a good reason such as, but not limited to,
unreasonableness or the failure to mitigate damages. Nokia Corp., 645 F.3d at 558-59. At
least two circuits have stated also that “[t]he awarding of damages pursuant to an injunction
bond rests in the sound discretion of the court’s equity jurisdiction.” H & R Block, Inc. v.
McCaslin, 541 F.2d 1098, 1099 (5th Cir. 1976); see also State of Kan. ex rel. Stephan v.
Adams, 705 F.2d 1267, 1269 (10th Cir. 1983). Thus, at least some level of discretion exists
in determining whether to allow plaintiffs to recover under the bond even proven damages.
And even though other district courts possess jurisdiction over actions on Rule 65 injunction
bonds under 28 U.S.C. § 1352, the district court that issued the bond and that is presiding
over the remainder of the case has the greatest familiarity with the case and is in the best
position to exercise any such discretion in deciding which damages, if any, are justified and
should be awarded.
22

See sources cited supra notes 7-12 and accompanying text; see also Medafrica Line, S.P.A.,
654 F. Supp. at 156; 11A WRIGHT ET AL., supra note 4, § 2973, at 464.
23

DI 198.

8
observed, “[i]f a bond is posted, liability is limited by the terms of the bond or the order of the court
that required the posting.”24 In any event, attorneys’ fees may not be recovered against an injunction
bond.25
Conclusion
Chevron’s motion to exonerate the preliminary injunction bond issued by this Court
[DI 423] is granted in all respects. The bond is exonerated and discharged.
SO ORDERED.
Dated:

April 2, 2012

24

Buddy Sys., Inc., 545 F.2d at 1168.
25

See sources cited supra note 13.