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.