Tuesday, December 19, 2017

2017: Chevron Had A Bad Year In $12 Billion Ecuador Litigation

For Chevron and its CEO John Watson, 2017 was a very bad year for the company's campaign to evade paying a $9.5 billion environmental liability (now $12b with interest) in Ecuador.

Watson in 2017 not only suffered a major legal setback in the Ecuador case in Canada, he also was severely criticized by major investors who lashed out over his "material mishandling" of the litigation. Chevron has spent huge sums (at least $2 billion on 60 law firms) in an increasingly futile attempt to try to get the impoverished indigenous peoples and farmer communities to "give up" and become obedient subjects of corporate power. That obviously isn't happening.

If 2017 taught us anything about the Ecuador litigation, it is that the affected communities and their supporters will keep coming and coming no matter what massive level of resources Watson throws at them. It is becoming increasingly clear that Chevron is spending and wasting massive amounts of shareholder funds to attack the rule of law in Ecuador. That effort has earned the company a new criminal referral to the U.S. Department of Justice and increased risk for shareholders.

It bears remembering that three layers of courts in Ecuador, in the venue where Chevron insisted the trial be held, affirmed the company's liability. That includes a unanimous decision from the country's Supreme Court. Yet Watson and his team repeatedly have threatened the communities they poisoned with a "lifetime of litigation" if they persist.

Here are some of 2017's lowlights for Chevron and CEO John Watson in the Ecuador litigation:

**In October in Canada, Chevron suffered another unanimous defeat (that's three in a row) before an appellate court in a case where the Ecuadorians are trying to seize company assets to recover their judgment. A panel from the Ontario Court of Appeal found that Chevron was illegally trying to impose an exorbitant $1 million costs order on the indigenous groups as a way to end the litigation.

**In Ecuador, the national indigenous federation (CONAIE) signed a political alliance with Canada's national indigenous group (the Assembly of First Nations) -- which represents 634 chiefs and is considered the world's most powerful indigenous federation -- to hold Chevron accountable for its environmental destruction and violations of indigenous rights in both countries.

**Chevron shareholders furious with Watson's failure to resolve the Ecuador litigation dominated and disrupted the company's annual meeting in May. A resolution that cited Watson's "material mishandling" of the Ecuador litigation and rebuked him personally received a whopping 39% of shareholder support. It is no coincidence (see below) that Watson was pushed into "retirement" a few weeks later.

**In a related development, Chevron unceremoniously announced that Watson (who is only 62) will be leaving Chevron in January of 2018. One reason, according to informed sources familiar with the thinking of Chevron's Board, is that he and General Counsel R. Hewitt Pate grossly overspent on the Ecuador litigation. One Chevron law firm, Gibson Dunn, reportedly bilked the company out of more than $1 billion in fees. That firm is now under scrutiny for engaging in potential criminal acts on behalf of Chevron.

**Chevron's highly flawed "racketeering" judgment from a severely compromised U.S. trial judge is now backfiring against the company (see here and here). Evidence emerged that Chevron illegally paid its star witness, Alberto Guerra, at least $2 million in cash and benefits and coached him for 53 days before he presented false testimony. The witness later admitted under oath that he perjured himself (see this excellent blog by Paul Paz y Mino of Amazon Watch) while a new forensic report demonstrates unequivocally that Chevron's lawyers fabricated evidence to try to taint the Ecuador judgment.

**Chevron and some of its executives have gone so far into the gutter on Ecuador that they now face a potential criminal probe from the U.S. Department of Justice. The Ecuadorian communities sent a referral letter to the DOJ demanding an investigation to determine whether the company's obstructionist tactics have crossed over into criminality. Worse, it appears that none other than Chevron lobbyist and former Trump campaign manager Paul Manafort was in Ecuador in May to do some dirty work for for the company just prior to his arrest in the Mueller investigation.

**The indigenous groups also picked up some key allies during the year that are starting to hound Chevron. Rex Weyler, the legendary co-founder of Greenpeace, visited the affected area in Ecuador and accused Chevron of committing "ecological crimes" and showing "disrespect" to the communities where it operated. Phil Fontaine, the thrice-elected leader of Canada's national indigenous federation, said it was  "unconscionable" that the company has been allowed to get away with its environmental atrocities for so long.

Chevron notched a Pyrrhic victory of sorts when it used its army of lawyers to pressure individual judges in Argentina and Brazil to temporarily deny, on purely technical grounds, enforcement actions filed by the villagers. That was after Chevron officials engaged in highly suspicious "contacts" with local authorities that have the odor of corruption wafting in the air.

In Argentina, CEO Watson flew personally on his corporate jet to Buenos Aries to meet with the President. Suddenly, a new "investment" was announced. Five days later, Argentina's Supreme Court dismissed the enforcement action on technical grounds. Coincidence? In Brazil, a judge under pressure from the company denied a separate action after Chevron presented the false Guerra testimony.

No fewer than 21 appellate judges in Ecuador and Canada have sided with the villagers, while not a single appellate judge in either country has sided with Chevron. That's not a good track record for Watson in the two most important countries in the litigation.

Another sign of Watson's desperation is that Chevron is now seeking to recover $33 million in legal fees personally from the American human rights and environmental lawyer Steven Donziger. Donziger, a stalwart fighter for social justice who has worked with the affected communities in Ecuador for more than two decades, seems to be more than the company's 60 law firms and 2,000 legal personnel care to handle. Watson's attempt to silence Donziger and intimidate the communities will not work.

Carmen Cartuche, who heads the Front for the Defense of the Amazon (the non-profit group that brought the case) had this to say: "Chevron's CEO can literally go to hell. Attacking our lawyers only makes him look weak and it will not work. We will never give up and ultimately Chevron will pay for the crimes it committed on our precious lands. In the meantime, Chevron's shareholders need to wake up to the fact that their company is being run by a greedy man with no long-term vision for Ecuador other than to attack those people who his company has poisoned."

Watson has turned his back on those in Ecuador to whom Chevron owes a major responsibility. This hard-line posture undermines Chevron's moral integrity and cuts into its bottom line by casting a cloud over the ability of the company to operate on a global scale without community-based resistance.

Here's hoping that 2018 is the year Chevron's incoming CEO, Mike Wirth, takes the necessary steps to address the company's Ecuador risk in a balanced manner. Imitating John Watson's scorched-earth approach would be a very bad move indeed.