Monday, November 19, 2012

Gibson Dunn, Chevron Suffer Another Devastating Setback In $19 Billion Ecuador Case

The U.S. law firm Gibson Dunn & Crutcher is getting hit with a new round of hurt because of its bungling of Chevron’s Ecuador environmental case.

The recent order in Argentine to freeze roughly $2 billion in Chevron assets to help pay for the $19 billion Ecuador judgment is a monumental failure for Gibson Dunn’s defense strategy and a personal setback for its self-described “dream team” of litigators.   These lawyers -- Randy Mastro, Ted Boutrous, Scott Edelman, and Andrea Neuman – prematurely tried (in a stunning display of arrogance) to create an entire practice group off the Ecuador case.

The freeze order in Argentina is a potent setback, not just in one country but throughout Latin America and maybe beyond.  Company officials are ever closer to having to write checks to the very indigenous groups they decimated with their reckless, criminal, and even racist operational practices in the rainforest.

Gibson Dunn probably did not know that International treaties in the region allow for the reciprocal enforcement of foreign judgments.  The Ecuadorians already have seizure actions pending against Chevron in Brazil and are planning to file one soon in Colombia, said Pablo Fajardo, their lead counsel.  Venezuela and Panama are also potential targets.  In Ecuador, Fajardo’s team is in the process of seizing an estimated $200 million in Chevron assets

The recovered Ecuador assets can be used to fund even more seizure actions against Chevron around the world, including in Asia, Africa, and Europe.   Chevron thus faces the prospect of a far more constricted reality where its global investment opportunities begin to choke off, little by little.  Countries where Chevron should be considering investments on equal footing with its peers are falling off the map because of the added risk created by Gibson Dunn’s utter failure to contain the Ecuador liability.

In Canada, a key strategic country in the oil industry where the Ecuadorians have an enforcement action pending, Chevron may have as much as $12 billion in assets.  The same goes for Argentina.  In that country, Chevron produces roughly 30,000 barrels of crude daily but has plans to invest another $1.8 billion to drill 120 new wells over the next three years, according to Platt’s Oilgram News.

Ecuador is clearly off the map to Chevron while other international companies vie to buy the drilling rights to numerous oil fields in the Amazon.

This downward Chevron trend line could be a case study in how a top U.S. law firm can lose sight of the big picture while it obsesses over minute details of a satellite (and baseless) “fraud” case in New York. Gibson Dunn keeps billing huge fees to landscape Chevron’s front yard without realizing the house is on fire.

Gibson Dunn has now lost at least 10 major legal actions since entering the case in 2009, including before the U.S. Supreme Court in an appeal headed by none other than Ted Olson, the former Solicitor General of the United States. Olson has probably won more U.S. Supreme Court arguments than any person alive.  But not even he could figure out a way to put lipstick on Chevron’s pig. 

Chevron hired Mastro and the GDC dream team in 2009 to “rescue” it from the impending liability in Ecuador.  Two years later, the Ecuador court – despite eleventh-hour efforts by Chevron to bribe and threaten judges – found the oil giant liable and imposed a $19 billion damages award.  It was based on overwhelming evidence that Chevron deliberately dumped billions of gallons of toxic waste into the environment, poisoning the water supply of indigenous groups and causing an outbreak of cancer and other oil-related health problems.

Courts also found Mastro and his colleagues committed ethical violations on behalf of Chevron, including using lawsuits as weapons of intimidation designed to suppress the First Amendment rights of the company’s critics.

Evidence also emerged that Chevron might be deceiving shareholders about the degree of risk it faces over the Ecuador liability, as documented in great detail in a report by Canadian securities lawyer Graham Erion.  A U.S. Congresswoman and a group of institutional investors have called on the SEC to investigate the company.

This blog by Kevin Koenig of Amazon Watch clearly explains the misrepresentations and hypocrisy radiating out of Chevron’s corporate headquarters in San Ramon.  Even some analysts, most of whom are still in the thrall of the industry, are catching on to the extent of Chevron’s problems in the Ecuador case.  

Gibson Dunn is of course reaping a financial windfall to help Chevron evade responsibility for the destruction it has caused.  Mastro recently trooped into U.S. federal court in New York with 11 lawyers in tow for a minor hearing at which one person spoke.  He has admitted to using more than 60 lawyers from his firm on the Chevron case.   The firm’s profits rose by 20% the year after Chevron hired it.

The Gibson Dunn/Chevron losing streak in Ecuador highlights Chevron’s utter lack of corporate governance. Chevron General Counsel R. Hewitt Pate, for example, was given an obscene 75% raise last year (to $7.8 million) after he lost the Ecuador case. In granting the raise, Chevron’s Board actually praised his handling of the matter.  Taking care of insiders -- that’s how aging dictators act as the winds of change start to sweep over the palace.

Pate and notoriously short-fused Chevron CEO John Watson need independent oversight, but none exists.  The conflicted Watson is both Chairman of the Board and CEO, making him his own boss.  He was also the main Chevron executive who vetted the purchase of Texaco in 2001 and at the time failed to account for the massive Ecuador liability.  By all accounts, he is emotional and unrepentant when talking about the Ecuador case – telltale signs of a man who suffers from an acute conflict of interest.

There will be more international enforcement actions filed against Chevron soon.  The company’s investment map will get smaller.  In the meantime, expect more delusion, denial, and deceit as long as Watson and Pate are leading the company.

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