King for a day

One of the world’s premier law firms is helping reshape our civil justice system.

Back in March, I wrote about the efforts of Renco Group / Doe Run (a U.S. mining company) to derail a civil lawsuit in Missouri state courts. The Missouri case was being brought on behalf of a group of Peruvian children who experienced severe health damages, allegedly caused by claimed damage to their health from the Missouri-based company’s operations in La Oroya, Peru.

Around the same time, I wrote about Chevron’s attempts to derail a major civil lawsuit in Ecuadorian courts.

In both cases, the companies were using little known U.S. international treaties to get ahead of a domestic legal kerfuffle. In the Renco case, this took the form of launching an international treaty claim in order to move the Missouri case from state to federal courts (on the theory that the linkage of the case to international law gave federal courts “federal question” jurisdiction). Advocates connected to the case told me that the state courts would be likely to have a more favorable jury pool for the Peruvian children, since some Missourians claim health damages from the company’s Missouri operations. In the Chevron case, this took the form of launching an international treaty claim in order to bar Ecuadorian courts from finalizing a punitive damages claim against the company.

Another interesting coincidence: the law firm King & Spalding represents both claimants in these treaty cases. The firm and its top legal talent (like Ed Kehoe and Caline Mouawad, who are working both cases) are showing that new structures of global governance are creating opportunities for corporate claimants to shape where and how they are held accountable for alleged wrongdoing.

The strategeries seem to be working. Last week, an arbitral tribunal of Horacio A. Grigera Naón, Vaughan Lowe, and V.V. Veeder doubled down on its order of last year to have Ecuador block a class action case successfully brought by a group of Ecuadorian indigenous plaintiffs.

Wrote the panel:

As regards the Respondent, these orders and awards were directed not only to the Respondent’s executive branch but to all branches and organs that make up the Respondent as a State, including its judiciary and legislature. Neither disagreement with the Tribunal’s orders and awards on interim measures nor constraints under Ecuadorian law can excuse the failure of the Respondent, through any of its branches or organs, to fulfil its obligations under international law imposed by the Treaty, the UNCITRAL Rules and the Tribunal’s orders and awards thereunder, particularly the First and Second Interim Awards on Interim Measures.

The Tribunal determines that the Lago Agrio Judgment was made final, enforceable and subject to execution within Ecuador by the Respondent no later than 3 August 2012 (upon its judiciary’s certifying the Lago Agrio Judgment’s enforceability), in violation of the Tribunal’s First and Second Interim Awards requiring the Respondent, respectively, “to take all measures at its disposal” and “to take all measures necessary” to suspend or cause to be suspended the enforcement and recognition both within and without Ecuador of that Lago Agrio Judgment.

Thereafter, the status accorded by the Respondent to the Lago Agrio Judgment led directly to what the Tribunal was seeking expressly to preclude temporarily by its orders and awards on interim measures, namely the attempted enforcement and execution of the Lago Agrio Judgment against the First Claimant (with its subsidiary companies) by persons acting in the name of the Lago Agrio plaintiffs not only within but also outside Ecuador, currently in the state courts of Canada, Brazil and Argentina and possibly in the near future also in the state courts of other countries.

Accordingly, the Tribunal requires the Respondent to show cause to this Tribunal why the Respondent should not now compensate the First Claimant for any harm caused by the Respondent’s violations of the First and Second Interim Awards in regard to the Lago Agrio Judgment’s enforcement and execution, both within and outside Ecuador. The Tribunal intends presently to establish a further procedural timetable to address such compensation (including any issues as to causation and quantification) in consultation with the Parties, by a further procedural order.

Moreover, from its perspective under international law, this Tribunal is the only tribunal with the power to restrain the Respondent generally from aggravating the Parties’ dispute and causing irreparable harm to the Claimants in regard to the enforcement and execution of the Lago Agrio Judgment. Such restraint has not been achieved by any state court (including courts in the USA); nor could it be in the circumstances of this most unusual case. The Tribunal therefore confirms and declares, as a matter of international law, that the Respondent has a continuing obligation to ensure that the commitments that it has given under the Treaty and the UNCITRAL Rules are not rendered nugatory by the finalisation, enforcement or execution of the Lago Agrio Judgment in violation of the First and Second Interim Awards. [emphasis added]

This may be one of the most muscular assertions of international judicial power that I know of. Most investment treaty arbitrations do not attempt to get states to do anything, just to pay money after the fact for perceived international law violations. Here, the order couldn’t be clearer, claiming “the power to restrain” a sovereign government. I also know of no instance where an arbitral tribunal directed itself to a country’s legislature and judicial branch, rather than just the executive (usually the go-to in international affairs in most countries).

Now, it’s much more common for an arbitral tribunal to attribute most anything that happens within a state’s borders to the state (i.e. theory of state responsibility). While this seems automatically odd to anyone who knows the reality of how countries (both developed and developing) actually work, it is a fairly common legal practice. But the arbitral panel goes even further, attributing (at least indirectly) to Ecuador the actions of a private group in other countries like Brazil.

This is a fascinating turn in a case that never seems to end. Major score for the folks at King & Spalding on behalf of Chevron.

There’s also been developments in the Renco case. In November, Judge Benton of the U.S. Court of Appeals, Eighth Circuit, determined that the Missouri damages case would stay in federal court for now. Accordingly, Benton writes:

The parties agree that the arbitration agreement falls under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Doe Run removed this case under the Convention, which allows for removal “[w]here the subject matter of an action or proceeding ․ relates to an arbitration agreement or award falling under the Convention.” 9 U.S.C. § 205….

this court holds that a case may be removed under § 205 if the arbitration could conceivably affect the outcome of the case. Here, the issues in the arbitration could conceivably affect the outcome of this case. As the district court noted, the outcome of the arbitration could impact disputes at issue in this case, such as whether the pollution occurred when the defendants owned the facility, and whether the pollution caused children’s injuries. Also, depending on the outcome of the arbitration, Peru might be a party in this case.³ While the children contend that the cases are completely independent and unrelated, either party could conceivably inject portions of the arbitration into this case. For example, if the arbitration panel found Renco completely liable for all environmental damage and injuries, the children could conceivably introduce that finding.”

In other words, the treaty case (which apparently has not advanced) was a great way of getting out of Missouri state courts. Renco is being represented by the law firms Lewis & Rice and Williams & Venker in the Missouri case, but one has to wonder how much strategery is going on with the international arbitration practice at King & Spalding.