After being forced by Chevron to litigate for an astonishing 24 years, Ecuadorian indigenous villagers fighting for their own survival are now set to seize the company's assets in Canada to pay for a court-mandated clean-up of what is probably the world's worst oil-related environmental disaster.
But Canadian trial judge Glenn Hainey, either through ignorance or by making an old-fashioned mistake of corporate law, has just put up a potential roadblock in this historic campaign. In so doing, he inadvertently has damaged the cause of human rights and helped smooth the way for corporate polluters like Chevron to obtain impunity for their environmental crimes.
In a decision last week, Hainey allowed the Ecuadorian villagers to try to seize Chevron's assets in Canada to force the company to pay for its $12 billion environmental judgment in Ecuador. That's a huge victory for human rights. But oddly, Hainey also ruled that the assets in the oil giant's wholly-owned subsidiary in Canada were off-limits to collection.
Given that most of Chevron's estimated $25 billion worth of assets in Canada are held in the company's subsidiary (called Chevron Canada), that could be a big problem for collection if allowed to stand. We believe this part of Hainey's decision will be swiftly reversed, as was a previous trial judge's decision in favor of Chevron on similar grounds.
As background, Chevron has admitted to abandoning 1,000 toxic waste pits on indigenous ancestral lands in the Ecuadorian rainforest. Five indigenous groups have been decimated and are fighting for survival. The company also confessed that it deliberately dumped billions of gallons of toxic oil waste (known as "production waters") into streams and rivers of Ecuador, causing an outbreak of cancer in the affected area as confirmed by several independent health evaluations.
Hainey's decision has dramatic and even terrifying implications for the Ecuadorian villagers and all human rights victims. The thinking behind it explains why all too often the fossil fuel industry feels it can run roughshod over the planet while externalizing the costs of pollution to taxpayers without ever being held accountable in a court of law.
For context, Chevron has 1,500 wholly-owned subsidiaries around the world. Most of these subsidiaries, like many of those the company has set up in Canada, have no operations but are used for tax avoidance purposes and to avoid liability. Hainey ruled that all Chevron and other corporate polluters have to to do to avoid liability is to stuff their high-value assets (like oil fields, refineries, and pipelines) into a paper subsidiary and leave it at that.
Under Hainey's stunning theory, communities like those in Ecuador that win court judgments over environmental pollution are left out in the cold even though they adhere to the rule of law and fight for decades to win court judgments that get upheld on appeal.
What's really crazy about the logic behind the ruling -- and extremely unfair -- is that Chevron gets to keep all the profits from its subsidiaries, but the subs themselves are not allowed to be used to pay the company's debts. Chevron Canada pays about $3 billion annually in dividends to its sole shareholder Chevron yet is immune from any effort to collect a debt against its patron.
American law professor Aaron Marr Page recently published a brilliant deconstruction of the Hainey decision in the Huffington Post that should be a must-read for those who want to understand how such an unjust result can emerge from an apparently well-meaning judge.
After pointing out that Chevron has engaged in many years of forum shopping, judicial sabotage, and falsification of evidence to evade paying for its pollution in Ecuador, Professor Page writes:
The real issue that Hainey missed is that there is a $12 billion judgment against Chevron based on voluminous record evidence documenting in great detail the company's pollution in Ecuador. The decision was affirmed unanimously by Ecuador's Supreme Court in the country where Chevron accepted jurisdiction. Chevron is a scofflaw debtor and no different than a parent who owes child support and flees to another state to evade paying.
The issue before Hainey was simple: Chevron Canada is a Chevron asset that obviously can be used to seize a debt owed by Chevron under basic legal principles adhered to by all civilized nations and codified in Canada's Execution Act. It's no different than a court ordering the seizure of the car or bank account of a parent to force payment of court-ordered child support.
Instead of adhering to this bedrock principle of law -- creditors have the right to seize a debtor's assets to satisfy a debt -- Hainey took Chevron's bait and went on a radical tangent by engaging in a "pierce the corporate veil" analysis which has no applicability to this enforcement action. He then bailed out Chevron by claiming Chevron Canada is a "separate" company even though it is totally owned and controlled by Chevron and 100% of its revenues flow up to Chevron as dividends.
But even under the incorrect "pierce the corporate veil" analysis, Hainey still got it wrong. In the modern globalized world, it is preposterous to think a company can avoid liability in one country by moving its assets to a paper subsidiary in another that it totally controls and then claim it is a "separate" company.
Hainey never should have succumbed to Chevron's pressure and used the "pierce the corporate veil" analysis. That analysis should apply only when there is a judgment against a subsidiary that has insufficient assets, forcing the creditor to go after the parent. In the Ecuador case, we have the opposite situation. There is a judgment by the villagers against a parent (Chevron) that refuses to pay and is a scofflaw. The subsidiary is simply one asset of the parent that could be seized to satisfy the judgment and force the parent to respect the rule of law.
When one understands Chevron's quarter-century of abuse of the civil justice systems in Ecuador and the United States, Hainey's decision becomes even more bewildering.
One wonders if he was cowed by the 30 or so Chevron lawyers from powerful law firms who showed up in his court during a four-day motions hearing last September. Most of them stared him down while only four or so of the lawyers actually did the argument.
The tab in legal fees to Chevron for what appeared to be a four-day exercise in judicial intimidation was an estimated $500,000. But that's nothing compared to the $2 billion Chevron has paid to hire 60 law firms and 2,000 lawyers to fight the villagers since the inception of the case in 1993.
While the affected villagers make around $500 per year on average tilling contaminated land courtesy of Chevron, Chevron grosses about $250 billion per year and is the third largest corporation in the U.S. Chevron CEO John Watson takes home around $30 million per year -- or 60,000 times as much as each of his victims in the rainforest.
Hainey might remember that Chevron originally fought for ten years to avoid jurisdiction in the United States. The company filed 14 sworn affidavits before U.S. courts praising Ecuador's courts as fair and accepted jurisdiction in Ecuador as a condition of the change of venue. But once the scientific evidence mounted against it in the Ecuador trial, Chevron sold its assets in the country and started to attack the court system it had previously praised.
Hainey's reasoning no doubt will be recognized as extremely disturbing by Canadian appellate courts, which have a long history of being open to the claims of human rights victims. A previous trial judge tried to block the enforcement trial in 2013 only to be unanimously overturned by two Canadian appellate courts, including the country's Supreme Court.
While Hainey closets himself behind mechanical arguments, human rights victims the world over rightly shudder at his reasoning. Courts like those in Ecuador make valiant efforts to advance the rule of law to hold polluters accountable. To be undermined by a trial judge in a faraway land is both demoralizing and a blow to civil society institutions everywhere.
People actually die from pollution as a result of delays produced by incorrect legal decisions.
As said, Canada's Supreme Court already blocked Chevron's earlier attempt to stop the Ecuadorian villagers from launching what in the commercial context would be considered a routine asset seizure action. Canada's appellate courts should order Chevron to defend itself in a speedy enforcement trial that will have zero tolerance for further litigation abuse.
But Canadian trial judge Glenn Hainey, either through ignorance or by making an old-fashioned mistake of corporate law, has just put up a potential roadblock in this historic campaign. In so doing, he inadvertently has damaged the cause of human rights and helped smooth the way for corporate polluters like Chevron to obtain impunity for their environmental crimes.
In a decision last week, Hainey allowed the Ecuadorian villagers to try to seize Chevron's assets in Canada to force the company to pay for its $12 billion environmental judgment in Ecuador. That's a huge victory for human rights. But oddly, Hainey also ruled that the assets in the oil giant's wholly-owned subsidiary in Canada were off-limits to collection.
Given that most of Chevron's estimated $25 billion worth of assets in Canada are held in the company's subsidiary (called Chevron Canada), that could be a big problem for collection if allowed to stand. We believe this part of Hainey's decision will be swiftly reversed, as was a previous trial judge's decision in favor of Chevron on similar grounds.
As background, Chevron has admitted to abandoning 1,000 toxic waste pits on indigenous ancestral lands in the Ecuadorian rainforest. Five indigenous groups have been decimated and are fighting for survival. The company also confessed that it deliberately dumped billions of gallons of toxic oil waste (known as "production waters") into streams and rivers of Ecuador, causing an outbreak of cancer in the affected area as confirmed by several independent health evaluations.
Hainey's decision has dramatic and even terrifying implications for the Ecuadorian villagers and all human rights victims. The thinking behind it explains why all too often the fossil fuel industry feels it can run roughshod over the planet while externalizing the costs of pollution to taxpayers without ever being held accountable in a court of law.
For context, Chevron has 1,500 wholly-owned subsidiaries around the world. Most of these subsidiaries, like many of those the company has set up in Canada, have no operations but are used for tax avoidance purposes and to avoid liability. Hainey ruled that all Chevron and other corporate polluters have to to do to avoid liability is to stuff their high-value assets (like oil fields, refineries, and pipelines) into a paper subsidiary and leave it at that.
Under Hainey's stunning theory, communities like those in Ecuador that win court judgments over environmental pollution are left out in the cold even though they adhere to the rule of law and fight for decades to win court judgments that get upheld on appeal.
What's really crazy about the logic behind the ruling -- and extremely unfair -- is that Chevron gets to keep all the profits from its subsidiaries, but the subs themselves are not allowed to be used to pay the company's debts. Chevron Canada pays about $3 billion annually in dividends to its sole shareholder Chevron yet is immune from any effort to collect a debt against its patron.
American law professor Aaron Marr Page recently published a brilliant deconstruction of the Hainey decision in the Huffington Post that should be a must-read for those who want to understand how such an unjust result can emerge from an apparently well-meaning judge.
After pointing out that Chevron has engaged in many years of forum shopping, judicial sabotage, and falsification of evidence to evade paying for its pollution in Ecuador, Professor Page writes:
Judge Hainey essentially ruled that a multinational fleeing a valid court judgment that hides its assets in a maze of paper subsidiaries can completely insulate itself from paying its obligations, while losing nothing in terms of profit or control... The decision stands as a dangerous precedent for the many other corporate accountability claims that are currently underway in Canadian and other courts.Professor Page continues:
[Hainey] says to those claims that even if you prevail at the jurisdiction and the merits/liability stages, even if you sustain your victory on appeal, here is yet another barrier that could prevent you from merely collecting on a successful judgment. The chill this could cast more broadly on efforts to enforce human rights norms is obvious.Professor Page also underscored that Hainey's fundamental error was that he used the wrong legal analysis of the corporate separateness defense raised by Chevron.
The real issue that Hainey missed is that there is a $12 billion judgment against Chevron based on voluminous record evidence documenting in great detail the company's pollution in Ecuador. The decision was affirmed unanimously by Ecuador's Supreme Court in the country where Chevron accepted jurisdiction. Chevron is a scofflaw debtor and no different than a parent who owes child support and flees to another state to evade paying.
The issue before Hainey was simple: Chevron Canada is a Chevron asset that obviously can be used to seize a debt owed by Chevron under basic legal principles adhered to by all civilized nations and codified in Canada's Execution Act. It's no different than a court ordering the seizure of the car or bank account of a parent to force payment of court-ordered child support.
Instead of adhering to this bedrock principle of law -- creditors have the right to seize a debtor's assets to satisfy a debt -- Hainey took Chevron's bait and went on a radical tangent by engaging in a "pierce the corporate veil" analysis which has no applicability to this enforcement action. He then bailed out Chevron by claiming Chevron Canada is a "separate" company even though it is totally owned and controlled by Chevron and 100% of its revenues flow up to Chevron as dividends.
But even under the incorrect "pierce the corporate veil" analysis, Hainey still got it wrong. In the modern globalized world, it is preposterous to think a company can avoid liability in one country by moving its assets to a paper subsidiary in another that it totally controls and then claim it is a "separate" company.
Hainey never should have succumbed to Chevron's pressure and used the "pierce the corporate veil" analysis. That analysis should apply only when there is a judgment against a subsidiary that has insufficient assets, forcing the creditor to go after the parent. In the Ecuador case, we have the opposite situation. There is a judgment by the villagers against a parent (Chevron) that refuses to pay and is a scofflaw. The subsidiary is simply one asset of the parent that could be seized to satisfy the judgment and force the parent to respect the rule of law.
When one understands Chevron's quarter-century of abuse of the civil justice systems in Ecuador and the United States, Hainey's decision becomes even more bewildering.
One wonders if he was cowed by the 30 or so Chevron lawyers from powerful law firms who showed up in his court during a four-day motions hearing last September. Most of them stared him down while only four or so of the lawyers actually did the argument.
The tab in legal fees to Chevron for what appeared to be a four-day exercise in judicial intimidation was an estimated $500,000. But that's nothing compared to the $2 billion Chevron has paid to hire 60 law firms and 2,000 lawyers to fight the villagers since the inception of the case in 1993.
While the affected villagers make around $500 per year on average tilling contaminated land courtesy of Chevron, Chevron grosses about $250 billion per year and is the third largest corporation in the U.S. Chevron CEO John Watson takes home around $30 million per year -- or 60,000 times as much as each of his victims in the rainforest.
Hainey might remember that Chevron originally fought for ten years to avoid jurisdiction in the United States. The company filed 14 sworn affidavits before U.S. courts praising Ecuador's courts as fair and accepted jurisdiction in Ecuador as a condition of the change of venue. But once the scientific evidence mounted against it in the Ecuador trial, Chevron sold its assets in the country and started to attack the court system it had previously praised.
Hainey's reasoning no doubt will be recognized as extremely disturbing by Canadian appellate courts, which have a long history of being open to the claims of human rights victims. A previous trial judge tried to block the enforcement trial in 2013 only to be unanimously overturned by two Canadian appellate courts, including the country's Supreme Court.
While Hainey closets himself behind mechanical arguments, human rights victims the world over rightly shudder at his reasoning. Courts like those in Ecuador make valiant efforts to advance the rule of law to hold polluters accountable. To be undermined by a trial judge in a faraway land is both demoralizing and a blow to civil society institutions everywhere.
People actually die from pollution as a result of delays produced by incorrect legal decisions.
As said, Canada's Supreme Court already blocked Chevron's earlier attempt to stop the Ecuadorian villagers from launching what in the commercial context would be considered a routine asset seizure action. Canada's appellate courts should order Chevron to defend itself in a speedy enforcement trial that will have zero tolerance for further litigation abuse.
