Tuesday, September 8, 2015

Six Reasons Why Chevron's Ecuador Disaster Just Became A Company Nightmare In Canada

Chevron's Ecuador environmental disaster -- called "The Amazon Chernobyl" by its indigenous and farmer victims in the rainforest -- has now spread to Canada in what is fast becoming a business and legal nightmare for company management.

For Chevron CEO John Watson, the news that the company will face a trial in the respected courts of Canada over its toxic dumping in Ecuador could hardly have come at a worse time. Due to the drop in oil prices and other structural problems in the company, Chevron has lost a whopping $100 billion in market value just in the last 12 months. (See here for background.)

Now, Watson must face the frightening fact that seven justices on Canada's respected Supreme Court ruled unanimously last week that Ecuadorian villagers can try to seize $10 billion of Chevron assets in the country to pay for their environmental clean-up as mandated by the very courts in Ecuador where Chevron insisted the trial be held. While legal hurdles remain -- the case now goes back to a trial court in Toronto -- the villagers plan to use any funds collected to remediate what experts believe is the worst man-made oil disaster on the planet.

This is a huge and much-needed legal victory for the affected indigenous and farmer communities and for human rights victims worldwide. It is also the latest in a series of stinging courtroom defeats in the case for Chevron under Watson's leadership.

This is the second time that a respected Supreme Court has ruled unanimously against Chevron's attempts to block the Ecuador judgment. Ecuador's National Court of Justice, in a 5-0 decision in 2013, affirmed the oil company's liability for the deliberate dumping of billions of gallons of toxic waste into the rainforest when it operated hundreds of wells (under the Texaco brand) from 1964 to 1990. That dumping caused a massive outbreak of cancer affecting tens of thousands of people.

There are now four separate appellate courts -- two in Canada and two in Ecuador -- issuing unanimous rulings against Chevron on important aspects of the case. (Intermediate appellate courts in the respective countries each issued separate 3-0 decisions against Chevron.) In Canada, the villagers have gone 10-0 against the oil company before appellate judges; in Ecuador, they have gone 8-0.

The latest decision is not Chevron's only bad news. Just recently, in a related investor arbitration between Chevron and Ecuador's government, the oil company suffered a devastating setback when the three international arbitrators tossed out its main legal defense. (For more, read this.)

The latest Canada ruling is a powerful example of how Chevron's vicious attacks against the very indigenous tribes it poisoned  -- in a strategy orchestrated by Watson and former Bush Administration official and Chevron General Counsel R. Hewitt Pate -- continue to backfire. It seems that the more the money the company spends to fend off the Ecuadorians, the more it ends up chasing its own tail.

Here are six main reasons why Watson and Pate -- despite having spent an estimated $2 billion of shareholder funds to pay 60 law firms and 2,000 lawyers to carry out the company's scorched-earth strategy -- are facing a growing nightmare north of the border:

**Canada has a judicial system respected throughout the world. When Chevron loses in Canada, it cannot attack the credibility of the country's courts as it has unfairly done for years in Ecuador. Nor can it strip its assets from the country, as it sneakily did in Ecuador. Chevron's litigation strategy of gamesmanship and intimidation simply won't work in Canada.

**Chevron will be forced to face its environmental crimes in public. Watson and Pate likely will have to deal with the merits of Chevron's horrific environmental pollution and the cancer fallout before company shareholders and a global audience -- something they and their predecessors have been trying to avoid for two decades.

**Chevron has a critically important pool of assets in Canada. Estimated to be worth $15 billion, these assets can pay for the entirety of the Ecuador judgment. That's a huge business problem for Chevron as Canada is one of the leading energy producers in the world and the source of an estimated $3 billion in annual profits for the company.

**For the villagers, the cost of litigation just got way lower. Given that the entire Ecuador judgment can be recovered in one country, for the villagers the case just became much more viable. Also helping is that any issues that might be raised already have been litigated. Chevron's massive resource advantage is no more.

**Because of interest payments, Chevron's liability is growing. Canada allows interest to run on uncollected judgments. This will severely tax Chevron if it tries to employ its usual strategy of obstructionism. The villagers estimate accrued interest in Canada on the judgment already has cost Chevron an additional $500 million, increasing its Ecuador liability to $10 billion.

**One of the  top trial lawyers in Canada represents the villagers. The highly respected Alan Lenczner has been litigating for 40 years and has argued roughly 20 cases before the Canada Supreme Court. (A leading Canadian newspaper just published this fascinating profile of Mr. Lenczner's extraordinary career.)

Other than Chevron, the big loser from the Canada decision seems to be increasingly isolated New York trial judge Lewis A. Kaplan. Kaplan, who maintains highly questionable personal investments in Chevron and let the company block any airing of the environmental evidence, is Watson's favorite activist jurist. While literally dozens of trial and appellate judges in three countries have now rejected some or all of Chevron's defense claims, Kaplan is the only judge in the world who has embraced Chevron's discredited "fraud" narrative.

The larger point: if Watson thinks Kaplan will be able to bail him out in Canada (or anywhere else for that matter), he should think again. Kaplan's preposterous and arrogant opinions condemning the entire Ecuadorian judiciary based on the testimony of a single political pundit will backfire against Chevron before any fair tribunal and are likely to be reversed on appeal. (For details on Kaplan's personal conflict and his open hostility toward the villagers, read this legal petitionthis analysisthis appellate brief and this article.)

Watson and Pate have other problems. A new computer forensic analysis has destroyed their manufactured allegation that the Ecuadorian judgment was the product of bribery. The forensic analysis demonstrated that Chevron's star witness, the discredited Alberto Guerra, has been lying under oath (after being coached by Chevron lawyers for an astonishing 53 days) about the supposed bribe. Chevron had greased Guerra and his family with roughly $2 million, including a Mafioso-style $38,000 in bills out of a suitcase, for his "cooperation" (i.e., false testimony) in violation of the ethical rules and possibly federal law. For more of the disturbing details, read here.

The options for Chevron are narrowing as shareholders grow ever more furious at the mishandling of the litigation and the unsavory tactics being used. Watson and Pate also has been criticized for using the notorious "transnational practice group" at the controversial law firm Gibson Dunn to help Chevron undermine the rule of law by falsifying scientific evidence, coaching the corrupt Guerra to lie, filing motions to harass its critics, and trying to intimidate judges in Ecuador with the threat of jail time. (See below for details.)

New evidence also emerged recently that Chevron tried to defraud Ecuador's courts by ordering its scientists to engage in an elaborate scheme to hide toxic contamination during the underlying trial, as these whistleblower videos demonstrate.

With Chevron's defenses fraying and the bad news coming in torrents, the more intelligent approach for Watson and Pate would be to respect the Supreme Court ruling in Ecuador and work with rainforest community leaders and their lawyers to solve the pollution problem. Instead, in an era of industry uncertainty produced by low oil prices, Pate and Watson squander precious resources in an all-out litigation war that increases the company's business risk and does nothing to save the many lives that are being lost on Chevron's watch in the forest.

In the end, these two and others associated with Chevron could very well face personal exposure over the Ecuador liability given the unethical, dubious, and potentially illegal tactics being used.

As the enforcement action in Canada proceeds and interest on the judgment runs, we suspect neither Canada's judiciary nor the financial markets will be impressed with Chevron's approach.

(For a summary of some of the gross misconduct from Chevron and Gibson Dunn, see this sworn affidavit from Ecuadorian lawyer Juan Pablo Saenz. Some of the Gibson Dunn lawyers involved in the conspiracy to present false testimony via Guerra include Randy Mastro, Avi Weitzman, Reed Brodsky, William Thomson and Andrea Neumann. In another incident, the High Court of London recently sanctioned a Gibson Dunn lawyer for presenting false witness testimony to try to frame a political enemy of one of the firm's clients, the African government of Djibouti. In the Ecuador case, the firm has been sanctioned by a U.S. federal judge and criticized for using discovery motions to harass Chevron's critics and present false testimony about the case to the U.S. Congress.)

(For a summary of the evidence against Chevron in Ecuador, see here. For a summary of the cancer problem in Ecuador created on Chevron's watch, see here. For photos of the people in Ecuador Chevron says don't matter, see this essay in The Huffington Post. For a 60 Minutes segment on Chevron's pollution in Ecuador, see here.)