Tuesday, September 24, 2013

Chevron General Counsel Distorts Arbitration Ruling to Hide $19 Billion Ecuador Liability

Reporters Get Sucked In By Chevron’s Spin

R. Hewitt Pate, Chevron’s General Counsel, faces a series of cascading problems relating to the company’s $19 billion Ecuador liability.   That might explain his irrational exuberance last week over an inconsequential ruling in favor of Chevron issued by a private investor arbitration panel that bizarrely purports to exercise authority over Ecuador’s entire public judicial system.

It is indisputable that Pate made misleading comments in a press release about the panel’s decision when he said it means “the game is up” and the ongoing 10-year-old litigation in Ecuador has essentially ended.  Reporters such as Fortune’s Roger Parloff and Businessweek’s Paul Barrett (and many others) got duped when they regurgitated Pate’s press release in their stories without investigating what the decision actually means.

That Pate would even call the Ecuador litigation a “game” is a telling indication of how Chevron’s top brass view the illnesses and deaths of innocent people and the destruction of the pristine Amazon environment by his company’s dumping, as reported by 60 Minutes and countless other independent journalists like William Langewiesche at Vanity Fair and the acclaimed Argentine journalist Jorge Lanata. 

As background, the very existence of this three-person panel of private lawyers – who by rule exclude from their proceeding the Ecuadorian villagers who won the lawsuit – is hugely controversial.  Many prominent organizations, among them the Andean Commission of Jurists, question whether the panel has any legitimacy whatsoever given its conflicts of interest and lack of due process.  We will get to that shortly.  What is most interesting is how even this pro-investor panel gave Chevron virtually nothing in its recent ruling.

Chevron's ultimate goal is to have the arbitration panel find the government of Ecuador liable for Chevron's pollution in Ecuador, and then shift the massive cost of clean-up from the company's own shareholders to Ecuador's taxpayers.  Chevron's scheme is to orchestrate a public bailout of its recklessness to be financed by its impoverished victims.  That's the kind of bailout that would make AIG blush.

Hold your nose and bear with us, because this gets a bit legalistic.

The arbitration panel decided that a 1995 release granted by Ecuador’s government to Chevron’s predecessor company Texaco now absolves Chevron from any liability for “collective” environmental clean-up brought by individuals under a later 1999 law in Ecuador called the Environmental Management Act (EMA).   Putting aside the arrogance of three foreigners who believe they can rule in private on Ecuadorian law issues already ruled on by Ecuador’s public courts, the problem for Chevron and Pate is that the Ecuadorians did not use the EMA to obtain their judgment. 

They actually sued Chevron under provisions of Ecuador’s civil code dating back to 1861 (Articles 2214 and 2229) that the panel expressly said (in paragraph 110) that it was not commenting on.  Those provisions allow people with individual harm to sue on behalf of the community and they were not (and could not be under Ecuador’s Constitution) extinguished by any release signed by Ecuador’s government. 

The ruling of the arbitration panel can be read here.

The arbitration panel emphasized in its ruling that it was making a limited decision and that it was not deciding “the full effect” of the 1995 release agreement as it relates to the rights of the Lago Agrio plaintiffs to bring their case. Thus, Pate’s sweeping comment in Chevron’s press release (“the game is up”) is clearly inaccurate.  What’s doubly crazy is that Ecuador’s trial and appellate courts already ruled against Chevron when the company tried to claim the 1995 release barred the lawsuit.  Thus, by even addressing the issue the private panel was purporting to rule on a decision already made in a public court where the real parties in interest (the villagers and Chevron) actually participated.

We know it's crazy, but it gets worse.

Chevron had the original environmental lawsuit  – filed in 1993 in U.S. federal court against Texaco -- removed to Ecuador in 2001 on the theory that the country’s courts were a better forum.  At the time, Chevron lauded Ecuador’s courts as transparent and fair.  But once in Ecuador and out of the view of U.S. courts, Chevron manufactured a theory that the 1995 “release” (given after a clearly fraudulent remediation) somehow could be interpreted to bar all of the claims of the villagers that the company promised U.S. courts it would litigate in Ecuador.   This is an example of Chevron's subterfuge at its best.

No public court in the world ever has recognized as valid Chevron’s “theory” that the 1995 release bars the lawsuit.   Chevron never even argued the point when it was pleading with U.S. courts in the late 1990s to send the case to Ecuador.  One U.S. federal district judge in New York (Leonard B. Sand) was on the verge in 2007 of ruling against Chevron on the issue until the oil giant withdrew its petition at the last minute.  

That said, no matter what the arbitration panel decides (even if it gets it right) it won't much matter.  Its rulings not only will be ignored by Ecuador's government on the grounds they violate Ecuador's Constitution and international treaty obligations, but courts the world over in charge of enforcing the judgment will scoff at Chevron's transparent attempt to impose its brand of private justice on the world.  

No self-respecting country, least of all the United States, would ever let a private panel of arbitrators tell their independent courts how to enforce their own laws.   The idea is preposterous and not even Pate can possibly believe it.
There are other reasons why observers believe the arbitration panel as convened in this particular case lacks legitimacy and violates international law.  (See this background document for more detail.) 

The panel was convened by Chevron under the U.S.-Ecuador Bilateral Investment Treaty to settle supposed “disputes” between investors like Chevron and host country governments.  The matters over which it can properly assert jurisdiction pertain to disputes between foreign investors and governments, not private parties in a civil litigation as is the case here.
Ecuador did not even enter into the investor treaty with the United States until 1997, five years after Chevron had left the country with its billions of gallons of toxic waste still on the ground.  Yet the panelists get to determine their own jurisdiction.  To earn their exorbitant fees (they charge close to $1,000 per hour), the panelists stretched jurisdiction beyond the breaking point by concluding with scant basis that the ongoing Ecuador lawsuit qualifies as an “investment” under international law. 

The panel is accountable to nobody.  Not only are the Ecuadorian villagers and their lawyers prohibited from appearing, but briefs are filed in secret.  Hearings are in secret.  Decisions generally are kept secret.  There is no right of appeal.  Despite these fatal shortcomings, the panelists claim the outrageous power to override decisions of any public court system of a sovereign nation.   

Further undermining the credibility of the panel in Chevron’s case is that one member, the Argentine Horacio Grigera Noan, has an ongoing business relationship with Chevron’s lead lawyer, Doak Bishop of the American firm King & Spalding.  Grigera Noan has reaped enormous fees after being appointed by Bishop to various investor panels on behalf of Bishop’s corporate clients.  Grigera Noan invariably rules for Bishop’s clients, which almost always leads to more appointments and more fees for Noan.   (We note Grigera Noan moonlights as a professor at the Washington College of Law at American University, known ironically as a bastion of human rights advocacy.)

We are not the only people perturbed by this corrupt state of affairs.  The Andean Commission of Jurists and various international law experts have joined a growing chorus of critics targeting Chevron’s use of the arbitration panel to evade the Ecuador judgment.  See here, here, and here.  See this academic article exposing even more details of the “club” of 40 or so lawyers worldwide (none of them women) who have a monopoly on the lucrative private corporate arbitration market.

Journalists like Barrett of BusinessWeek and Fortune’s Parloff passed off their reliance on Pate’s press release as independent reporting.  Barrett wrote that the panel ruled the Ecuador case lacked a proper “legal foundation”.   Barrett needs to correct his story to explain Pate’s misleading comments.   He might also explain why respected observers believe the arbitration panel lacks any credibility no matter how it rules.

Parloff made the same mistake as Barrett.  We predict that Manhattan will be under water from global warming before Fortune prints a correction. (The pro-Chevron Parloff repeatedly has refused to print a letter to the editor critiquing one of his earlier “analyses” of the litigation, which as usual left out some critical context.  See here for the censored letter and here for a general critique of Parloff’s record of bias in his coverage of the case.)

Pate probably got a quick high out of his one-day fake press fix.   He needs it.  Not only is Pate busy navigating Chevron CEO John Watson’s conflict of interest and sworn deposition testimony related to the Ecuador case, he is also trying to beat back a shareholder revolt, fend off requests for an SEC investigation, and explain how his own lawyer Andres Rivero was caught handing a suitcase full of cash to one Ecuadorian judge while floating a $1 million bribe offer to another. 

Pate is also dealing with enforcement lawsuits in foreign courts while trying to run away from Chevron’s billion-dollar RICO case against the Ecuadorians and their counsel.  With a trial date nearing, Chevron is now prepared to drop all damages claims just to avoid a jury. 

For these and many other reasons, the “game” obviously is not up as Pate claims.  For Chevron, the truth always has a way of catching up to the lies and spin of its management team.