The most recent installment of the U.S. proceedings involving Chevron Corp., the $8.646 billion judgment against it for environmental damage rendered in Ecuador, and Chevron’s efforts to stay or avoid that judgment by proceedings here in the U.S. takes us again to the Third Circuit, In re Application of Chevron Corp., Nos. 10-4699, 11-1099 (3d Cir. 25 May 2011).  For other postings on these proceedings in the Second Circuit, see here and here.

The decision reverses the District Court’s grant of Section 1782 discovery, which as have discussed recently (here and here), permits broad discovery in the U.S. in aid of non-U.S. proceedings.

The Third Circuit’s decision is significant to international practice for several reasons:

First, as with several prior § 1782 applications involving Chevron, this one asserted that the attorney client privilege had been waived and that broad discovery should ensue.  The waiver, it was claimed, and the District Court found, occurred on the public disclosure of meetings between attorneys and the press during the filming of Crude in the “presence of strangers”.  The Third Circuit reversed the finding of waiver on the ground that the presence of strangers in the relevant communications precluded the earlier communications from being privileged in the first place.  Because they were not privileged, their disclosure did not waive any privilege.  As the Third Circuit said:

Inasmuch as we hold that the communications filmed for Crude and its outtakes were not covered by the attorney-client privilege when made due to the presence of the filmmakers at the time of the communications, we will reverse the District Court’s orders [finding waiver and ordering discovery] because the public disclosure of non-privileged communications does not lead to a subject matter waiver of the attorney-client privilege for communications covered by the privilege.

In this regard the Court of Appeals distinguished its own earlier Third Circuit ruling, which we discussed here, holding that the disclosure to an expert of actually privileged communications waived the privilege.

Second, the Court of Appeals remanded the case to the District Court to determine whether there were other grounds available to compel disclosure:  namely the crime-fraud exception to the attorney-client privilege.  As to this the Court stated that “it is not clear that the Chevron applicants have met their burden of establishing a prima facie case that the exception is applicable”.

Third, echoing a sentiment previously expressed on this blog (here), the Court of Appeals  stated:

In explaining our analysis of the fraud issue, we acknowledge the seriousness of the fraud that the Chevron applicants have alleged has been involved in this litigation. In addition to an Ecuadorian court entering a massive judgment against Chevron, the liberty of two individuals may be at stake.  Yet the circumstances supporting the claim of fraud largely are allegations and allegations are not factual findings.  Furthermore, the Chevron applicants are asking that American courts make a finding that the attorneys in a civil case in Ecuador can control the Ecuadorian criminal justice system. Though it is obvious that the Ecuadorian judicial system is different from that in the United States, those differences provide no basis for disregarding or disparaging that system. American courts, though justifiably proud of our system, should understand that other countries may organize their judicial systems as they see fit.