Tuesday, July 16, 2013

Judge Lewis A. Kaplan Socks Ecuador Indigenous Groups With Huge Bills for His “Special Master” Friends

The Disturbing Story of the Secret Invoices of Max Gitter and Theodore Katz

Just when you thought Judge Lewis A. Kaplan’s maneuverings in favor of Chevron in the Ecuador case could not get any worse, they just did.  

The controversial judge, who was unanimously reversed by an appellate court in an earlier phase of the case when he tried to impose an illegal injunction blocking the Ecuador judgment, now appears to be openly running a “pay-to-play” courtroom right in the heart of Manhattan.

The latest evidence: Judge Kaplan has socked impoverished indigenous groups in Ecuador with the exorbitant and secret bills of two “Special Masters” he appointed to oversee depositions in the case.  The Special Masters, Max Gitter and Theodore Katz, are longtime friends and professional colleagues of Kaplan.  Gitter was his former law partner and Katz served for many years as the chief magistrate judge on the court where Kaplan sits before opening a lucrative private mediation practice.

Hang on to your seats for this one.

When Judge Kaplan floated the idea several months ago of appointing Gitter and Katz at Chevron’s request, the Ecuadorians and their longtime U.S. lawyer, Steven Donziger, objected strenuously.  See this letter from famed trial lawyer John Keker for details.  Not only did Gitter have a track record of blatant bias against Donziger, the fees were way beyond what the Ecuadorians – two rainforest residents named Hugo Camacho and Javier Piaguaje -- could afford.  Further, there was obviously no need for the Special Masters other than to assist Chevron in gaming the depositions and further sapping the limited resources of the defendants.

True to form, Judge Kaplan appointed Gitter and Katz anyway.  He then ordered Donziger and the Ecuadorians to split the fees of these high-end lawyers with Chevron.  Chevron grossed $247 billion last year; company CEO John Watson received about $30 million in compensation.  Mr. Donziger is a human rights lawyer who works out of his small apartment in Manhattan; the Ecuadorians live in the rainforest and in a good year might make $1,000 in income.

That should give you a good feel for Judge Kaplan’s personal notion of fairness:  a canoe operator in the Amazon rainforest (one of the Ecuadorian defendants) and the nation’s third largest corporation should split the fees of high-priced U.S. Special Masters evenly.

Things then went from the bizarre to the surreal.  Gitter informed the parties that he would bring along his young associate from Cleary Gottlieb to all of the depositions and bill him out at a “discounted” rate of  $630 per hour.  The associate, Justin Ormand, recently was spotted sipping drinks with Katz in the first class cabin on a flight from Newark to Peru after Judge Kaplan ordered Ecuadorian witnesses to be deposed in the U.S. embassy in Lima.

(Judge Kaplan’s decision to force Ecuadorians to travel to Peru to be deposed because of fake “security” concerns is yet another illustration of his xenophobia and disdain for the country of Ecuador.  See here for details.)

Later, something very curious happened.  Both Gitter and Katz refused to send the bills for their time and expenses to the Ecuadorians and Donziger.  Instead, without disclosing the amount of their bills, they asked Judge Kaplan for “guidance” about what they should do in light of the defendants stated refusal to not be able to pay.  See this letter.

Julio Gomez, a solo practitioner from New Jersey who now represents Messrs. Camacho and Piaguaje after their previous counsel withdrew in May, asked the Special Masters for a copy of their invoices so he could respond to the letter to the court.  Ormand, no doubt billing at his “discounted” rate of $630 per hour, wrote back a cryptic email asserting that the Special Masters were refusing to turn over the bills to Donziger and the Ecuadorians.  See that email exchange here.

Gomez and Donziger then filed a complaint with Judge Kaplan about how the entire situation seemed at least a tad bit improper.  No, make that dreadfully improper if not downright unethical.  This is where it really gets interesting.

Rather than order Gitter and Katz to disclose their secret bills to the defendants, Judge Kaplan concocted a plan to get them paid in full while at the same time allowing Chevron to exert added leverage over the Ecuadorians and Donziger in the underlying case.  This plan is so dazzling that only a judge as smart as Kaplan could possibly come up with it.

Judge Kaplan’s extraordinary order, which can be read here, requires Chevron to pay 100% of the fees of the Special Masters.  It refuses to order Gitter and Katz to disclose their secret bills.  And, amazingly, it invites Chevron to sue the Ecuadorians and Donziger so he can enter a judgment for the oil giant for 50% of the amount of the bills that are supposedly their responsibility.

In other words, Judge Kaplan’s scheme guarantees his friends will get paid what are surely exorbitant bills.  And it cleverly leaves Chevron the option of not suing Donziger and the Ecuadorians if it concludes it would be too embarrassing for Judge Kaplan, the Special Masters, or the oil company for the amounts of the bills to be disclosed.  This is one way that pay-to-play justice goes down in Judge Kaplan’s courtroom.

There is precedent for how fancy Manhattan lawyers can exploit the plight of the Ecuadorian rainforest villagers to generate enormous billings for their law firms. It has been reported that Gibson Dunn & Crutcher is using at least 114 lawyers and billing Chevron an estimated $400 million annually to help the company evade the $19 billion judgment in Ecuador.  This has caused all sorts of problems for Chevron shareholders, who have asked the SEC to investigate company management for failing to properly disclose the risk related to the Ecuador liability.  It also has put intense pressure on CEO Watson, who recently was forced to testify under oath about the litigation and answer questions from Donziger.

As for Gitter and his secret bills, we have seen the same script before.

In 2011, Judge Kaplan appointed Gitter as Special Master to oversee depositions in several discovery actions initiated by Chevron related to the Ecuador case, including that of Donziger.   Gitter mistreated Donziger to such an extent that he forced him to testify for 16 days – a likely record for an active lawyer on a case – and often tag-teamed with Chevron’s lawyers when posing hostile questions.  Donziger said at times it felt like being a defendant in the Salem witch trials.

During the marathon 16-day deposition spanning 2011 and 2012, Judge Kaplan ordered Donziger to pay one-third of the fees of Gitter and Ormand.   (Given Gitter’s hostile behavior, that’s like ordering someone to pay for the bullet of his executioner.) Yet Gitter never sent Donziger a bill for his “services”.  Why wouldn’t a high-end corporate lawyer like Gitter try his best to get paid?

We suspect it’s the same reason Gitter won’t disclose his bills to the defendants now.  He likely was embarrassed for the world to know how much he was making from Chevron to help crush impoverished rainforest residents under the guise of being a neutral “Special Master”.   We suppose Gitter did send out his earlier bill to Chevron and the company paid it.  It is indisputable he never copied Donziger nor asked that he pay his portion as ordered by Judge Kaplan.

A few weeks ago Donziger’s counsel asked Gitter for a copy of that old bill.  The idea was to use it as possible evidence to argue Gitter should not be appointed because of his liberal billing habits, lack of transparency, and obvious sympathies for Chevron.  Gitter never provided the bill to Donziger, which remains secret to this day.

The sordid story of the billings of Gitter and Katz and the behind-the-scenes puppeteer role of Judge Kaplan is part of a larger and disturbing pattern.  Judge Kaplan is trying to rig Chevron’s retaliatory “fraud” case such that the truth cannot come out and Chevron will cruise to victory in a show trial.  Chevron hopes to use any judgment to try to block lawsuits targeting its assets that are pending in countries around the world.

We have reported for weeks how Judge Kaplan is encouraging Chevron to use its overwhelming resources to win by might what it cannot win through merit.   See this powerful letter exposing Judge Kaplan’s efforts sent by Craig Smyser, a prominent Houston lawyer who formerly represented the Ecuadorians.  The oil giant has used at least 60 law firms, 2,000 legal personnel, and 180 investigators to help it evade the Ecuador judgment.

We now understand better why over the course of weeks of depositions in May and June Gitter and Katz often delighted in making rulings limiting questioning of Chevron witnesses so as to hide the company’s attempts to corrupt the Ecuador trial and spy on adversary counsel.  See these complaints filed by Donziger for details.

It is well-documented that Kaplan has made what appear to be xenophobic comments while presiding over the case. He has called the Ecuadorians the “so-called plaintiffs” who are “said to reside” in the rainforest.  He also famously said the Ecuador case was not “bona fide” litigation and was part of a “giant game” designed to by U.S. lawyers to rectify the balance of payments deficit.  All in all, these comments do not reflect the kind of temperament that Americans expect from their judges.

We also reported how Judge Kaplan has jumped through hoops to block the Ecuadorians from being able to mount a meaningful defense.  He ruled that they cannot mention the overwhelming scientific evidence used to find Chevron liable for massive contamination.  He also ruled that Chevron’s illegal spying operation that has targeted Donziger and his family is off limits, as are company videos that show Chevron scientists laughing at the pollution left in the rainforest and discussing ways to hide it from the court.  Kaplan also has allowed Chevron to bury embarrassing documents by designating them “confidential” -- including emails outlining a long-term strategy to “demonize” Donziger and to bribe Ecuador’s government to illegally quash the environmental case.

Donziger has protested repeatedly and asked Judge Kaplan for all sorts of procedural protections, but to no avail.  

Donziger also accused Chevron of  interfering with his right to counsel by suing numerous lawyers for the Ecuadorians and one of their funders for “fraud” so as to discourage lawyers from entering the case.  Judge Kaplan did nothing to allow Donziger the necessary time to secure new counsel after Keker’s withdrawal in May.  Judge Kaplan also has refused to allow Donziger to proceed with counterclaims against Chevron that outline a chilling picture of the oil giant’s illicit dumping in Ecuador, obstruction of justice, attempts to bribe the government, commit fraud on the court, and lie about the context of video outtakes.  See here for a copy of the counterclaims.

“Judge Kaplan has made it abundantly clear that he will not allow me nor my Ecuadorian colleagues a fair trial in his courtroom,” Donziger said in a statement in early May.

Well said and abundantly true.  The way Judge Kaplan has been using the Special Masters is just one more damning piece of evidence to support Donziger’s view.

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Monday, July 8, 2013

Chevron Suffers Major Setback In Ecuador Case as Court Freezes $96 Million In Assets

CEO Watson Forced To Testify Under Oath

That Fourth of July party at Chevron’s headquarters must have been a real dud.

Just before the holiday, news quietly surfaced in Latin America that $96 million in Chevron assets have been frozen in Ecuador at the behest of the indigenous and farmer communities who hold a judgment against the company.  The communities want to use the funds to begin a long-awaited clean-up of their ancestral lands as ordered by Ecuador’s courts, which imposed a $19 billion judgment against the oil giant in 2011.

The asset freeze represents a major setback for Chevron, which has refused to pay the Ecuador judgment even though it promised to do so when it fought to move the trial to the South American nation. The order also came just days after Chevron’s John Watson suffered the ultimate CEO-humiliation by being forced to testify under oath about his company’s malfeasance in Ecuador, exposing him to potential perjury charges.  (More on that below.)

Diverting funds from Chevron to the Amazon – if it actually happens -- might qualify as one of the more inspiring triumphs of indigenous groups over Big Oil in history.

The Associated Press reported that an Ecuador court froze a debt in the amount of  $96 million that Ecuador’s government owes Chevron from an unrelated international arbitration.  If the communities get the money, they could use it not only to start the desperately-needed clean-up but also to hire teams of lawyers around the world to target Chevron assets to collect the full amount of the judgment.  That would allow a comprehensive remediation to take place over an area equivalent to the U.S. state of Rhode Island.

(For background, see here for a video about how Chevron used substandard operational practices and then tried to corrupt the trial; here for a 60 Minutes segment documenting Chevron’s deliberate pollution; and here for a summary of the court evidence against Chevron.).

Given Chevron’s refusal to pay the judgment, which was unanimously affirmed on appeal, the rainforest communities have the legal right to seize Chevron assets wherever they can find them – similar to laws that allow a mother to pursue child support from the assets of a deadbeat father.  For legal purposes, Chevron is now in the same category as a deadbeat debtor and thus is being chased to pay what it owes.

Thus far, the communities have hired top-rated litigators to file seizure lawsuits targeting Chevron assets in Canada, Brazil, and Argentina. Those actions are pending.

The $19 billion judgment came down in 2011 despite incessant efforts by Chevron to corrupt and sabotage Ecuador’s court system and intimidate judges over the course of the eight-year trial.   See this affidavit by Ecuadorian lawyer Juan Pablo Saenz for the chilling details on Chevron’s improper efforts to block the judgment, a summary of which can be read here.

The real danger for Chevron is not that the rainforest communities will begin to remediate the company’s ecological catastrophe.  That clean-up is absolutely critical to save lives.  But the far greater danger for Chevron is that the funds will unleash a torrent of new legal actions around the world.  Such actions would likely bring to fruition the prediction of Chevron Comptroller Rex Mitchell that the Ecuador case will cause “irreparable harm” to the company’s business operations on a global scale.

The Ecuador freeze order was handed down by Dr. Wilfrido Erazo, the presiding judge in the provincial court in the Oriente region of Ecuador where Chevron (under the Texaco brand) operated 378 wells and separation stations from 1964 to 1990.  Erazo’s decision lays the groundwork for the funds to be diverted to a trust fund set up under court order to pay for a clean-up.

Pablo Fajardo, the lead lawyer for the affected communities, told the AP that a further court decision on the final disposition of the funds can be expected in the coming weeks.  Fajardo said the rainforest communities hope to use the funds to clean some of the 916 open-air toxic waste pits left by Texaco when it fled Ecuador in the early 1990s.  (BP’s $40 billion liability for the far smaller Deepwater Horizon disaster is a relevant benchmark for the cost of a clean-up.)

At the time it left Ecuador, Texaco’s internal audits conducted by two environmental consulting firms painted a devastating picture of the nasty impact of the company’s operations – including extensive toxic contamination at 100% of the well sites inspected and an utter failure to implement environmental controls.  Records show that in Ecuador Texaco executives rejected spending even modest sums of money to line its hundreds of open-air toxic waste pits so that they wouldn’t contaminate soils and groundwater.  It also ordered, in a clear act of obstruction of justice, the destruction of documents relating to its many oil spills.

Robert F. Kennedy Jr. visited the disaster zone in the latter stages of Texaco’s operations and wrote a powerful essay describing scenes “reminiscent of war” with rivers running black with oil and toxic waste pits dotting the landscape.  Almost two decades later, Congressman Jim McGovern visited and found the same horrid conditions, as can be seen in this letter that he wrote at the time to President-elect Obama.

In the 1990s, as it faced mounting liability from the original lawsuit filed by the affected communities in the U.S., Texaco attempted a woefully inadequate clean-up that encompassed only 16% of its oily waste pits.  That effort was a fraud pure and simple, as found by the Ecuador court and as confirmed by dozens of independent journalists who have visited the region.

Essentially, Texaco “remediated” by running dirt over a few waste pits to hide their existence and leaving others untouched by claiming that they were being used for fishing by local residents.  See this recent picture of a waste pit to understand what Texaco’s original pits look like today after its so-called “remediation”.  The Ecuador court found that the abandoned pits continue to contaminate soils, groundwater, and surface water – putting at risk the lives of tens of thousands of people who rely on natural water sources for their survival.

The freeze order is not the only bad news of late for Chevron on the Ecuador case.

We reported last week that the crown jewel of Chevron’s defense to the Ecuador judgment – its retaliatory  “fraud” lawsuit against the Ecuadorians and their lawyers -- is now in jeopardy because of the odd rulings of a U.S. federal judge who seems to openly favor Chevron and who has made comments from the bench that the Ecuadorians consider xenophobic.

An appellate court recently ordered Chevron and the judge to submit briefs explaining several rulings in the case that appear to defy established legal authority.  The Ecuadorians and their lawyers are seeking to remove the judge, Lewis A. Kaplan; two of their petitions outlining his bias and outlier rulings can be read here and here.

The appellate court already unanimously reversed Judge Kaplan in 2012 when he tried to impose an illegal injunction purporting to block enforcement of the Ecuador judgment anywhere in the world.  That injunction led to a fair amount of international scorn being heaped on the American judiciary.

The latest setbacks also come on the heels of a furious critique by many large Chevron shareholders of CEO Watson’s mishandling of the Ecuador litigation (see here and here).  Watson was the executive at Chevron in charge of mergers when the company acquired Texaco in 2001 for $36 billion.  Watson clearly did not take into account Texaco’s Ecuador liability in the purchase price, a fact which haunts him to this day and has prompted calls for an SEC investigation.

In what can only be described as a humbling experience for a man surely used to being treated like royalty, Watson was forced to answer questions under oath posed directly by his longtime nemesis, Steven Donziger.  Donziger is a human rights lawyer who with local Ecuadorian counsel spent almost two decades building the case against Chevron.  Chevron now targets Donziger as part of a vicious corporate retaliation campaign that includes surveillance of himself and his family.   Read this affidavit to get a feel for Chevron’s creepy tactics.

See here for how Donziger has sued Chevron for trying to use the New York “fraud” case to cover up its environmental wrongdoing, fraud, and attempted bribes in Ecuador that stretch over several decades.  The existence of Donziger’s claims (even though Judge Kaplan predictably has tried to block them) is a chilling reminder of the ugly truth that Chevron tries to sweep under the rug through distracting litigation and a deceptive corporate advertising campaign.

The transcript from Watson’s deposition has been sealed, at least for now. Given what’s gone on in Judge Kaplan’s courtroom, we cannot say we are surprised.

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