WSJ: Chevron’s Ecuador Morass by Mary O’Grady

May 14, 2012 12:57 pm0 commentsViews: 3

Chevron Corporation went to U.S. federal court in Miami on May 4 seeking the records of eight accounts at Banco Pichincha in Ecuador. The oil company maintains that these records could prove that an Ecuadorean geological engineer, who was hired by the court to be an independent expert in the case of Maria Aguinda y Otros vs. Chevron,was bribed by plaintiffs lawyers. Both the expert and the plaintiffs lawyers deny the charge.

Thus continues Chevron’s long-running struggle against Ecuadorean jurisprudence

Chevron bought Texaco in 2001. In 2003, 48 Ecuadoreans sued the company in Ecuadorean court, alleging that Texaco, which operated in Ecuador from 1972 through 1992, damaged public lands in the Amazon jungle. In February 2011, the court ruled in favor of the plaintiffs and assigned damages and penalties totaling a whopping $18.2 billion, including $8.6 billion in punitive damages because Chevron failed to apologize

Of course it is possible that the $40 million that Texaco spent in a cleanup when it left Ecuador was inadequate, even though the government inspected it and in 1998 signed off on the remediation. But state-owned, environmentally challenged PetroEcuador, the company that assumed Texaco’s Ecuador assets 20 years ago, now puts the cost of cleaning up its operations at $70 million. So naturally the sheer magnitude of the judgment invites scrutiny.

Chevron charges that the case was fraught with fraud, both on the part of plaintiffs lawyers and the Ecuadorean court. It has filed a RICO (racketeering) suit in the New York Southern District Court against the Amazon Defense Coalition (ADC)—a nongovernmental organization that advocates on behalf of the lawsuit—as well as the plaintiffs and some of the plaintiffs lawyers and consultants.

One of Chevron’s allegations is that geological engineer Richard Cabrera, the court-appointed “independent” expert who would assess the rain forest damage, was working secretly for the plaintiffs lawyers. It cites outtakes from the ADC film “Crude” that show the two sides meeting together before his appointment and documents secured through discovery in U.S. courts to support that allegation. Chevron also claims that documents prepared by the plaintiffs lawyers became part of the Ecuadorean court’s judgment, which it says casts doubt on the court’s neutrality.

ADC spokeswoman Karen Hinton says that Mr. Cabrera’s report contains identical language as a report prepared by the plaintiffs lawyers because their findings were the same, and that plaintiffs lawyers met with Mr. Cabrera “consistent with court rules.” As to the plaintiff documents found in the court’s judgment, Ms. Hinton argues that they were there legitimately because they “were submitted into the record.”

Chevron has gone to U.S. federal court more than 20 times trying to show that fraud was committed by certain plaintiffs lawyers and their consultants and thereby obtain documents that it believes will demonstrate that the case was rigged. In nine instances U.S. courts have sharply criticized the Ecuadorean court proceedings.

In one instance, addressing Chevron’s claim that the plaintiffs’ representatives “ghostwrote” Mr. Cabrera’s report, the U.S. District Court for the Western District of North Carolina observed that “While this court is unfamiliar with the practices of the Ecuadorian judicial system, the court must believe that the concept of fraud is universal, and that what has blatantly occurred in this matter would in fact be considered fraud by any court. If such conduct does not amount to fraud in a particular country, then that country has larger problems than an oil spill.” Patton Boggs, which is acting on behalf of the plaintiffs, says the various courts’ statements about fraud were “made in the narrow context of determining whether there was a basis for waiver of the attorney-client privilege based upon the crime-fraud exception”—in other words, to justify Chevron’s getting access to the documents.

Chevron has also raised questions about who benefits from the huge judgment. The Ecuadorean court ordered that an ADC-established trust handle roughly $8.7 billion of the payout for environmental remediation, clean water, public health and community projects. It also ordered a 10% award for the ADC. But individual plaintiffs seem to get nothing, and the court’s supervisory role over the trust in a country not famous for judicial integrity is hardly reassuring.

This leaves an amount roughly equal to the punitive damages of $8.6 billion unassigned. Chevron says that documents it has secured in discovery indicate that at the time of the judgment more than $5.7 billion of the payout was spoken for by interests outside the Indian community. They included Patton Boggs and the U.K.-based investor Burford Group, which does “litigation financing.” Burford has admitted that it had invested $4 million in the case but sold its interest to a third party. It now only has a “residual interest in the outcome.” Patton Boggs says it does not comment on fee arrangements with clients.

ADC spokeswoman Karen Hinton denies that outsiders are big winners. “The lion’s share of the payment will go back into the rainforest and for the people,” she insists. Perhaps a U.S. court can get to the bottom of it all.