South Carolina Journal of International Law and Business Volume 9 Article 4 Issue 2 Spring 2013 Some Legal Considerations for E.U. Based MNEs Contemplating High-Risk Foreign Direct Investments in the Energy Sector After Kiobel v. Royal Dutch Petroleum and Chevron Corporation v. Naranjo Jeffrey A. Van Detta John Marshall Law School Follow this and additional works at: https://scholarcommons.sc.edu/scjilb Part of the International Law Commons Recommended Citation Van Detta, Jeffrey A. (2013) "Some Legal Considerations for E.U. Based MNEs Contemplating High-Risk Foreign Direct Investments in the Energy Sector After Kiobel v. Royal Dutch Petroleum and Chevron Corporation v. Naranjo," South Carolina Journal of International Law and Business: Vol. 9 : Iss. 2 , Article 4. Available at: https://scholarcommons.sc.edu/scjilb/vol9/iss2/4 This Article is brought to you by the Law Reviews and Journals at Scholar Commons. It has been accepted for inclusion in South Carolina Journal of International Law and Business by an authorized editor of Scholar Commons. For more information, please contact [email protected]. SOME LEGAL CONSIDERATIONS FOR E.U.- BASED MNES CONTEMPLATING HIGH- RISK FOREIGN DIRECT INVESTMENTS IN THE ENERGY SECTOR AFTER KIOBEL V. ROYAL DUTCH PETROLEUM AND CHEVRON CORPORATION V. NARANJO Jeffrey A. Van Detta* INTRODUCTION In a two-year span, two major multinational enterprises (MNEs) in the energy-sector—Chevron and Royal Dutch Petroleum—have experienced the opposite ends of a similar problem: The impact of civil litigation risks on foreign direct investments.1 For Chevron, it was the denouement of a two-decade effort to defeat a corporate campaign that Ecuadorian residents of a polluted oil-exploration region waged against it since 1993 and its predecessor, Texaco, first in the U.S. federal courts, then in the Ecuadorian courts.2 After putting all of its litigation resources into ousting the jurisdiction of U.S. courts through a forum non * Professor of Law & Associate Dean for Scholarship, Atlanta’s John Marshall Law School (AJMLS), Atlanta, Georgia. Associate Dean Van Detta teaches courses in both International Business Transactions and International Civil Litigation. He expresses his appreciation to the Miami Business Law Review for permission to adapt for this article portions of his article, Politics and Legal Regulation in the International Business Environment: An FDI Case Study of Alstom, S.A., in Israel, 21 MIAMI BUS. L. REV. 1 (2013). He also expresses his appreciation to the incredibly talented Michael Lynch, Mary Wilson, Mark Durbin, Morteza Parvin, and Susan Risher of the Michael J. Lynch Library at AJMLS, whose tireless reference, acquisition, and inter-library loan assistance to faculty is invaluable. The author dedicates this article to the memory of the late Dean John E. Ryan (1937–2008). 1 See, e.g., Christopher A. Whytock, The Chevron-Ecuador Case: Three Dimensions of Complexity in Transnational Dispute Resolution, 106 AM.SOC’Y INT’L L. 425 (2012). 2 Judith Kimberling, Indigenous Peoples and the Oil Frontier in Amazonia: The Case of Ecuador, Chevron-Texaco, and Aguinda v. Texaco, 38 N.Y.U. J. INT’L.L. &POL. 413 (2006). 162 SOUTH CAROLINA JOURNAL OF [Vol. 9.2 INTERNATIONAL LAW &BUSINESS conveniens dismissal conditioned on Chevron submitting to litigation in Ecuador, 3 Chevron’s odyssey through the Ecuadorian court system resulted in a $19 billion judgment, 4 which Chevron has fought as hard against in the Southern District of New York as it once did in that same court to get into Ecuador5—only to have the Second Circuit rebuff Chevron’s effort to use New York’s enactment of the Uniform Foreign Money Judgment Recognition Act (UFMJRA)6 as a sword rather than a shield and the U.S. Supreme Court decline to take up the case.7 3 Jeffrey A. Van Detta, Justice Restored: Using a Preservation-of- Court-Access Approach to Replace Forum Non Conveniens in Five International Product-Injury Cases, 24 NW.J.INT’L L. & BUS. 53, 96–98 (2003); Jennifer K. Rankin, Note, U.S. Laws in the Rainforest: Can a U.S. Court Find Liability for Extraterritorial Pollution Caused by a U.S. Corporation? An Analysis of Aguinda v. Texaco, Inc., 18 B.C. INT’L & COMP.L.REV. 221, 223–24 (1995). As another commentator described the impact of oil exploration and exploitation: The boom of the petroleum industry was also not without environmental and human costs, which have led to the instant lawsuit. Estimates place pipeline spills at 16.8 million gallons of crude oil emptying into the Amazon River Basin. Additionally, almost 30 billion gallons of toxic by-products of the petroleum extraction were released into the environment. Lisa Lambert, Case Note, At the Crossroads of Environmental and Human Rights Standards: Aguinda v. Texaco, Inc. Using the Alien Tort Claims Act to Hold Multinational Corporate Violators of International Laws Accountable in U.S. Courts, 10 J. TRANSNAT’L L. & POL’Y 109, 113 (2000) (footnotes omitted) (noting that “an unpublished study's preliminary findings state the overall rate of cancer in the Oriente [where oil exploration and exploitation occurred] is 2.3 times higher than residents of Ecuador's capital, Quito”). 4 Charles N. Brower & Diane Brown, From Pinochet in The House of Lords to the Chevron/Ecuador Lago Agrio Dispute: The Hottest Topics in International Dispute Resolution, 26 PAC.MCGEORGE GLOBAL BUS.&DEV. L.J. 1, 27–31 (2013). 5 Compare Jota v. Texaco, Inc., 157 F.3d 153 (2d Cir. 1998), and Sequihua v. Texaco, Inc., 847 F. Supp. 61 (S.D. Tex. 1994), with Chevron Corp. v. Donziger, 768 F. Supp. 2d 581 (S.D.N.Y. 2011), rev’d sub nom., and Chevron Corp. v. Naranjo, 667 F.3d 232 (2d Cir. 2012), cert. denied, 133 S. Ct. 423 (2012). 6 N.Y. C.P.L.R. §§ 5301–5309. While New York’s law is an enactment of the Uniform Foreign Money Judgment Recognition Act (UFMJRA), promulgated by the Uniform Law Commissioners in 1962, the 2013] SOME LEGAL CONSIDERATIONS FOR EU-BASED 163 MNES CONTEMPLATING HIGH-RISK FOREIGN DIRECT INVESTMENTS IN THE ENERGY SECTOR AFTER KIOBEL V.ROYAL DUTCH PETROLEUM AND CHEVRON CORPORATION V.NARANJO For Royal Dutch Petroleum, a litigation odyssey started after victims and families of victims of torture, extrajudicial—and even judicially-sanctioned—killing in the Niger delta filed lawsuits in the U.S. federal courts. It all but came to an end—simply awaiting transmission of the appellate mandate—after the U.S. Supreme Court ruled that 28 U.S.C. § 1350 (the Alien Tort Statute) did not apply extraterritorially to alleged torts “in violation of the law of nations” that are alleged to have transpired “outside the United States.”8 These cases hold lessons for both outside and in-house corporate counsel, yet they also deserve further scrutiny and integration into the business decision-making process that underlies foreign direct investments. This is particularly true for companies located in the euro zone today, which are challenged truly to “think outside of the box” 9 —and outside of the European Union 10 —in structuring New York Legislature in 1970 denominated the law as the “Uniform Foreign Country Money-Judgment Recognition Act,” which is in fact the title of a new 2005 uniform law that New York has yet to adopt. Compare Uniform Law Commission, Foreign-Country Money Judgments Recognition Act, available at http://www.uniformlaws.org/ActSummary.asp x?title=Foreign-Country%20Money%20Judgments%20Recogniti on%20Act, with Naranjo, 667 F.3d at 234, 239–40 and N.Y. C.P.L.R. § 5301 (captioned “Recognition of Foreign Country Money Judgments”), § 5309 (“This article may be cited as the “Uniform Foreign Country Money- Judgments Recognition Act.”). Unfortunately, the usually astute Professor David Siegel did not comment upon this anomaly in his PRACTICE COMMENTARIES, N.Y. C.P.L.R. § 5301, C53101:1 (2013), and even the astute Chief Judge of the New York Court of Appeals has not picked up on the anomaly. See Galliano, S.A. v. Stallion, Inc., 15 N.Y.3d 75, 79–80, 904 N.Y.S.2d 683, 930 N.E.2d 756 (2010). 7 Chevron Corp. v. Naranjo, 133 S. Ct. 423 (2012). 8 Kiobel v. Royal Dutch Petroleum, 133 S. Ct. 1659, 1660 (2013). 9 See Patrick R. Hugg, Redefining the European Union's Position in the Emerging Multipolar World: Strong Global Leadership Potential, Restrained by Asymmetry of Power and Dissonant Voices, 20 TUL.J.INT’L & COMP. L. 145 (2011); Inese Vaidere, The Impact of Regional and Cohesion Policy on the Economic Development of the EU, ISSN 1822–8402 European Integration Studies, No. 5 (2011), available at http://www.eis.ktu.lt/ index.php/EIS/article/view/1092/1168; Daniel Daianu, Euro Zone Crisis and EU Governance: Tackling a Flawed Design and Inadequate Policy 164 SOUTH CAROLINA JOURNAL OF [Vol. 9.2 INTERNATIONAL LAW &BUSINESS international growth from a now suddenly unstable home base. 11 Thus, the time is ripe to re-consider how E.U.-based multinationals might modify their decision-making templates for identifying and undertaking opportunities for foreign direct investment (FDI), 12 while tempering that perspective with an analysis of the potential for litigation over certain kinds of FDI—whether in the courts of the United States or in tribunals elsewhere. Effective evaluation of FDI requires more than the application of business modeling and economic theory. 13 It requires critical evaluation of legal issues raised not only under the regulatory environment of the host state, but also under the legal system of the FDI investor’s home state, and third-states to which the FDI investor has substantial connections. This inquiry is both inductive and Arrangements, CASE Network Studies and Analyses No.