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Chevron's own lawyers jeopardize fate of Chevron-Ecuador RICO lawsuit

Chevron probably isn’t too happy with Randy Mastro and the rest of its dream team at Gibson Dunn & Crutcher right now. Gibson Dunn represents Chevron in its “sue the victims” case against a group of Ecuadorian villagers and their attorneys. The Ecuadorians won a $9.5 billion judgment in Ecuador against the company for massive pollution, and Chevron retaliated by filing a law suit under the Racketeering and Corrupt Organizations Act (RICO), claiming the Ecuadorian judgment was obtained through fraud.

Last week, however, in a completely separate case, Gibson Dunn may have shot the Chevron case in the foot, arguing to the Second Circuit Court of Appeals that a private party can’t seek an injunction under RICO. This is the opposite of the argument they’ve made in Chevron’s RICO lawsuit in the district court in New York.

In that case, Chevron is seeking an injunction to prohibit the Ecuadorians from collecting on the Ecuador judgment. (The company initially sued for money damages as well, but dropped the damages claims on the eve of trial to avoid a jury trial.) Donziger and the Ecuadorians have argued that private parties like Chevron aren’t allowed to seek injunctions under RICO, while Gibson Dunn, on behalf of Chevron, has repeatedly argued the opposite. Judge Kaplan has indicated that he thinks this question is open to debate.

If it is indeed an open question, it may not be open for much longer.

Last Friday, in Sykes v. Mel Harris, Gibson Dunn urged the Second Circuit to “confirm that private RICO claims for injunctive relief fail as a matter of law” – in other words, private plaintiffs cannot seek injunctions under RICO. If Gibson Dunn wins that argument, the decision will control Chevron’s case against Donziger and will doom Chevron in the lower court.

Has Gibson Dunn run afoul of the New York Rules of Professional Conduct? While Rule 1.7 allows lawyers to take inconsistent legal positions in different tribunals on behalf of different clients, commentary to this rule expressly notes that a conflict of interest exists “when a decision favoring one client will create a precedent likely to seriously weaken the position taken on behalf of the other client.” That certainly sounds like what could happen here.

If, however, Chevron agreed that Gibson Dunn could make this argument in its other case, then there isn’t technically a conflict of interest for the lawyers. Given that Chevron has reportedly paid the firm well over $1 billion since 2009, I imagine they would have ran it by the oil giant. But why would Chevron – which has redefined “no holds barred” in its legal assault on the Ecuadorians and their advocates – agree that its lawyers could undermine its own legal position? If, in fact, Chevron didn’t give Gibson Dunn the green light, then the next phase of this never-ending litigation may see Chevron suing its own lawyers.