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Federal Appeals Court Issues Important Decision Upholding Procedures For Enforcement of Foreign Money Judgments in New York

09/07/2012 | Fall 2012 Newsletter
A recent court decision by the federal appeals court for the Second Circuit, Chevron v. Naranjo, confirms that parties seeking to enforce or to challenge a foreign money judgment in New York must follow the procedures outlined in New York’s Uniform Foreign Country Money-Judgments Recognition Act, which was intended to encourage the efficient enforcement of New York judgments abroad, and to assure foreign jurisdictions that their judgments would receive streamlined enforcement in New York.

The underlying dispute in Chevron v. Naranjo, which resulted in the foreign judgment award, related to allegations of extensive environmental pollution in Ecuador by Texaco, which Chevron bought in 2001. In 1964, Texaco began exploring and extracting oil in the Lago Agrio region of the Ecuadorian Amazon. After Texaco ended operations in 1992, citizens of Ecuador, following dismissal of their suit in the Southern District of New York, filed suit in Ecuador against Chevron alleging environmental, health, and other tort claims related to the extraction operations. In return, Chevron alleged fraud, illegality, a lack of impartiality in the litigation, and unethical procedures, including threats by the plaintiffs’ lawyer against the Ecuadorian judiciary. On February 14, 2011, the Ecuadorian trial court found Chevron liable for $8.6 billion of environmental damages, a sum that was more than doubled to $17.2 billion because Chevron refused to make a public apology. The decision was subsequently upheld by an Ecuadorian appellate court. 

Before the Ecuadorian plaintiffs could file suit to enforce the judgment outside of the country, Chevron filed suit in the Southern District of New York seeking a global injunction to prevent the enforcement of the judgment anywhere outside of Ecuador, which was granted on March 7, 2011.

The Ecuadorian plaintiffs appealed the injunction soon afterwards, and the Court of Appeals for the Second Circuit held that New York’s Uniform Foreign Country Money-Judgments Recognition Act did not allow for a preemptive global injunction against the enforcement of a foreign money judgment, and the Court dismissed Chevron’s claim in its entirety.

The Court’s decision did not even attempt to resolve the issues of fraud, illegality and the other merits of the dispute. It simply determined that Chevron could not invoke the Recognition Act because it applied only when the creditor brings a New York action based on the foreign judgment. It allows the judgment debtor to argue certain defenses to the suit, such as that the judgment was fraudulently obtained or that it came from a corrupted court system as alleged by Chevron. According to Circuit Judge Gerard Lynch, Chevron could challenge the judgment “only defensively, in response to attempted enforcement,” which the Ecuadorean plaintiffs “have not yet undertaken anywhere and might never undertake in New York”.

In addition, the Court cited “International Comity Concerns” and explained that granting the global injunction sought by Chevron would constitute a violation of principles of comity, because it would amount to telling every other court system in the world that they cannot enforce the Ecuadorean judgment. Moreover, the decision noted the potential risk that foreign courts might feel entitled to exercise an equally global power with their own injunctions, purporting to bind New York courts. Granting the type of “speculative” relief sought by Chevron, Judge Lynch wrote, would “unquestionably provoke extensive friction between legal systems” by encouraging challenges in New York to the legitimacy of courts in foreign countries.

Thus, the Court’s holding in Chevron Corp. v. Naranjo — that a preemptive global injunction sought by a judgment-debtor, where no enforcement action has yet commenced, cannot be upheld under New York’s Recognition Act — provides important confirmation that New York’s Recognition Act was intended to encourage the efficient enforcement of New York judgments abroad by assuring foreign jurisdictions that their judgments would receive streamlined enforcement in New York.