By Thomas J. Donahue
Plaintiffs' lawyers are nothing if not innovative. Their latest scheme to win big paydays involves a new form of abusive litigation. It works like this:
Plaintiffs' lawyers file tort lawsuits abroad in order to secure large awards against U.S. companies in weak or corrupt foreign courts. The lawyers then seek to collect those judgments in the United States under liberal American rules favoring recognition of foreign judgments. Call it "tort tourism."
Examples are growing. In recent years, Nicaraguan courts have awarded judgments for billions of dollars against U.S. companies under a special Nicaraguan law designed to limit the companies' defenses.
Although U.S. courts have refused to enforce the Nicaraguan judgments because of due process violations, the possibility of enforcement hangs over the heads of those businesses like Damocles' sword, creating massive uncertainty and discouraging investment and hiring, not to mention generating huge legal bills.
Tort tourism has reached its apex in a case against Chevron.
In 2003, Chevron Corporation was sued in Ecuador for environmental damage allegedly caused by Texaco's oil operations a decade earlier, even though Texaco — which Chevron acquired in 2001 — had ceased operations in Ecuador in 1992 and had settled any outstanding claims for environmental cleanup with the Ecuadorian government in 1994.
Nevertheless, in February 2011, an Ecuadorian judge ordered Chevron to pay $8.6 billion in damages. Incredibly, the judge increased that amount to $18.6 billion because the company refused to publicly apologize within 15 days of the judgment. It is the largest award ever by a foreign court against an American company.
Chevron has no assets in Ecuador, so the plaintiffs' lawyers engaged in some tort tourism. They devised a plan to collect the judgment wherever Chevron did business.
First stop — the United States. Chevron, with ample evidence that the Ecuadorian judgment had clearly been procured by fraud, won an injunction from a federal court in New York that would have, among other things, prevented collection of judgment in the United States. That injunction was overturned by a higher court. The case is now before the Supreme Court.
With this new tactic, plaintiffs' lawyers could establish an unwelcome precedent that might bankrupt hundreds of companies with overseas operations, undermine our economy and subvert the rule of law. What's to be done?
First, we need federal legislation to eliminate the patchwork of inconsistent, permissive and conflicting state laws governing recognition of foreign judgments. States have different rules, but most of them show great deference to foreign courts — and most are based on legal standards from more than a century ago before our modern age of global commerce, rampant litigation and jackpot justice.
Ending 'Tort Tourism'
We need a single federal law that is clear, uniform, and modern — one that recognizes foreign judgments only when arrived at in a fair, reasonable and legal manner.
In 2010, Congress effectively addressed another form of global forum shopping known as "libel tourism." Plaintiffs had secured libel judgments against U.S. authors from foreign courts and then sought to have the judgments recognized in the United States.
Congress unanimously passed legislation that allows American defendants to block enforcement of foreign libel judgments that do not comply with the free speech requirements of the First Amendment. Congress should tackle tort tourism the same way.
Second, the U.S. Supreme Court should hear the Chevron case and rule that when there is evidence that a foreign judgment has been procured by fraud or corruption, the victim of the ill-gotten reward should have the right to preemptively block recognition and enforcement of the award in U.S. courts.
The U.S. Chamber filed a friend-of-the-court brief urging the Supreme Court to do just that. American companies should not have to wait for years under the specter of a multibillion-dollar judgment without any ability to challenge it preemptively in U.S. courts.
A favorable Supreme Court ruling would send a message to plaintiffs' lawyers that they should tear this abusive tactic out of their playbooks.
U.S. courts should continue to respect and enforce the decisions of foreign courts in appropriate cases. But the Supreme Court and Congress must ensure that judges have the necessary tools to protect American businesses from plaintiffs' lawyers who try to take unfair advantage of American legal hospitality.
That would be good for business, the economy and the American people.
• Donohue is president and CEO of the U.S. Chamber of Commerce.