Tuesday, September 30, 2014

Chevron Faces Rising Business Risk From Ecuador Judgment

Inside Counsel, a magazine for corporate lawyers, recently published an article by New York attorney Steven Donziger outlining Chevron's rising global business risks stemming from its $9.5 billion Ecuador environmental liability.

Donziger writes that Chevron's scorched earth litigation strategy in the Ecuador matter should serve as a "cautionary tale" for corporations facing major environmental liabilities.

Risks faced by Chevron include diplomatic resistance to the company by several governments in Latin America; an open political war with Ecuador's government, an OPEC-member nation; enforcement actions targeting strategic assets of the company in three overseas jurisdictions, including in Canada where Chevron's asserts are worth an estimated $15 billion; the likelihood that more enforcement actions will be filed against the company; and an expected reversal next year of the flawed RICO ruling by controversial U.S. Judge Lewis A. Kaplan, who admitted corrupt evidence and was openly  hostile to the Ecuadorian villagers.

Chevron CEO John Watson and General Counsel R. Hewitt Pate -- despite hiring some 60 law firms and 2,000 legal personnel to battle the villagers -- have done little other than waste shareholder funds in a doomed campaign to evade their legal obligations, said Donziger.  The judgment against Chevron was affirmed by Ecuador's Supreme Court last November in a 5-0 decision.

Watson also suffers from a major conflict of interest given that he vetted the purchase of Texaco in 2001 as a top-level Chevron executive.  However, he failed to recognize the enormous potential liability. For more on Watson's conflict, see the post "Way Down Watson" by Amazon Watch.

"Watson is still chasing his tail as a result of his utter failure to understand Texaco's horrific behavior in Ecuador when Chevron made its purchase," said Donziger. "As a result, Chevron paid far more for Texaco than it should have. The only way Watson thinks be can erase this major blot from his record is through endless litigation against impoverished indigenous groups. But that is producing a wave of additional risk for the company that continues to multiply across jurisdictions."

In the article, Donziger makes it clear that claims by Chevron that the corporation is in the clear because of a favorable decision by Kaplan are misguided. Kaplan never had the legal authority to issue his ruling against the Ecuadorians or their counsel.  The case had many other legal and factual flaws; Chevron had so little confidence in its own evidence that it dropped billions of dollars of potential damages on the eve of trial to avoid a jury of impartial fact finders.  (See this document for background on Kaplan's flawed decision and here for Donziger's appellate brief that addresses all of Chevron's arguments.)

 In sum, Donziger asserts that Chevron faces the following risks:
  • Enforcement actions filed by Ecuadorian rainforest communities are targeting billions of dollars of company assets in Canada, Brazil, and Argentina. In Canada, the company is in particular trouble with a likely trial next year that could result in the recovery of 100% of the liability.
  • Chevron's hardline approach to the litigation is causing major diplomatic fallout and increased business risk in Latin America. Several countries -- including oil-producing Venezuela, where Chevron maintains its largest investment in the region -- have joined with Ecuador's government to condemn the American company for flouting the Ecuador court judgment.
  • The villagers have been able to recruit some of the most prominent litigators in the world to seize Chevron's assets. They include Alan Lenczner in Toronto, Sergio Bermudes in Rio de Janiero, and Enrique Bruchou in Buenos Aries.
The article in its entirety can be read here.