CVX Chevron Corporation

A federal appeals court in Manhattan upheld a decision preventing Ecuadorean plaintiffs from enforcing a multibillion-dollar award against Chevron Corp., a significant win for the oil giant in a legal dispute that has lasted decades.

Monday's decision affirms a lower-court ruling by U.S. District Judge Lewis Kaplan, who found in 2014 that the $9.5 billion environmental-damage judgment won by New York lawyer Steven Donziger and his Ecuadorean plaintiffs against Chevron was obtained through fraud and corruption. Judge Kaplan ruled Mr. Donziger couldn't enforce the judgment in the U.S. or profit from the award anywhere in the world.

Mr. Donziger has denied wrongdoing, and his lawyers appealed the ruling on a variety of legal grounds. One of their central arguments was that the federal anti-racketeering law Chevron used to sue Mr. Donziger couldn't be used to obtain remedies other than monetary damages, such as the judicial order from Judge Kaplan.

Mr. Donziger's lawyers also argued that Judge Kaplan's decision not to recognize an Ecuadorean judgment could spark tension in legal systems around the world. His lawyers said U.S. courts shouldn't decide whether judgments from foreign courts are worthy of enforcement.

On Monday, a panel of three appeals judges sided with Judge Kaplan's 2014 ruling, finding that he did have the authority under the anti-racketeering statute to bar Mr. Donziger from profiting from the award.

R. Hewitt Pate, Chevron's general counsel, said Monday's decision "leaves no doubt that the [Ecuadorean] judgment against Chevron is the illegitimate and unenforceable product of misconduct."

Monday's ruling is unlikely to mark the end of this legal saga, one of the longest running in corporate history. The appeals judges wrote that although the $9.5 billion judgment can't be enforced in the U.S., their ruling does not stop the plaintiffs from taking action to enforce the judgment elsewhere.

A spokeswoman for Mr. Donziger, Karen Hinton, said the legal team is exploring all options for further appeal and will continue to try to seize Chevron assets outside the U.S. For instance, the sides are expected to go to trial in Canada over whether the award can be recognized in that country.

If those efforts succeed, it remains an open question whether the Ecuadorean plaintiffs can actually collect the money. In response to arguments that Mr. Donziger's alleged misdeeds shouldn't prevent the plaintiffs from enforcing the judgment, the appeals court wrote: "There is no authority suggesting that a party ignorant of its attorney's fraudulent actions may enforce a fraudulently procured judgment."

Deepak Gupta, the lawyer representing Mr. Donziger on appeal, called Monday's decision "unprecedented."

"Never before has a U.S. court allowed someone who lost a case in another country to come to the U.S. to attack a foreign court's damages award," he said.

The legal battle began more than 20 years ago. In 1993, Mr. Donziger represented a group of Ecuadorean plaintiffs who sued Texaco Inc., arguing that Texaco's oil drilling caused pollution that sickened villagers in the Amazon rain forest. Chevron inherited the lawsuit when it acquired Texaco in 2001.

A court in Ecuador awarded a record $19 billion judgment to the plaintiffs, which was later scaled back to $9.5 billion. Chevron has denied liability for the environmental damage and has not yet paid any of the judgment.

Chevron struck back by suing Mr. Donziger in Manhattan federal court, saying he fabricated evidence and committed fraud to obtain the $9.5 billion award in Ecuador. Judge Kaplan ruled in Chevron's favor in 2014.

Chevron has also filed claims against Ecuador in an international tribunal under The Hague, accusing the country of denying Chevron a fair trial. Those proceedings are still ongoing. The appeals court in Manhattan said it didn't need to address the "institutional adequacy of the [Ecuadorean] judicial system."

Analysts said Monday's ruling represents another signal to investors that the case is moving in Chevron's favor. Previous developments, either for or against the company, have failed to move its share price, showing that investors don't anticipate it having a material impact.

"The broader investment community is signaling that at the end of the day, this will go away," said Brian Youngberg, an energy analyst at Edward Jones. "Investors are assuming that ultimately, Chevron will pay nothing."

Bradley Olson contributed to this article.

Write to Nicole Hong at nicole.hong@wsj.com

(END) Dow Jones Newswires

August 08, 2016 16:15 ET (20:15 GMT)

Chevron (NYSE:CVX)
Historical Stock Chart
From Mar 2024 to Apr 2024

Chevron (NYSE:CVX)
Historical Stock Chart
From Apr 2023 to Apr 2024