Chevron’s Latest “Defense” In Ecuador Case: Hide Assets In Subsidiaries

After a dreadful series of legal setbacks, it sure didn’t take long for Chevron to come up with a new tricked-up defense to evade the $19 billion Ecuador environmental judgment.

Like Chevron’s many other failed defenses in the Ecuador case, this one won’t wash either.

Let’s review how we got here.

The company’s first line of defense in the 1990s was we didn’t really dump billions of gallons of toxic waste into the rainforest.  That lie was put to rest by multiple courts around the world based on overwhelming scientific evidence, as confirmed by numerous independent media outlets such as 60 Minutes.

Then, Chevron tried to claim that the devastated communities in Ecuador sued the wrong party.  According to Chevron, they should have sued Texaco, the company that operated in Ecuador.  That argument was rejected out of hand by appellate courts in Ecuador and the U.S.

Then the company blamed Petroecuador, Ecuador’s state-owned oil company and Texaco’s former partner in Ecuador.  But various courts rejected that defense after evidence surfaced that Chevron’s predecessor company was the exclusive operator of the oil concession in Ecuador.

When that defense failed, Chevron tried to claim Ecuador’s government released it from any clean-up obligations.  But courts found this so-called “release” did not cover the private claims of the rainforest communities, and in any event was a product of fraud.

Left with virtually no options, Chevron then tried to coax New York federal Judge Lewis A. Kaplan to enjoin the villagers from enforcing the Ecuador judgment anywhere in the world.  This unprecedented action caused an international furor, and a U.S. appellate court quickly reversed Kaplan.

When Chevron hired the respected litigator Ted Olson to appeal that setback to the U.S. Supreme Court, the company was rejected yet again.   By this point, nobody seemed to be able to put lipstick on Chevron’s pig.

So what’s left?

Well, now Chevron claims that its 73 revenue-producing subsidiaries around the world should be off-limits to the Ecuadorian villagers as they try to collect on the $19 billion judgment.

Consider the absurdity of Chevron’s latest gambit.  The company discloses in its annual report that almost all of its revenues are generated from subsidiaries around the world which are managed by the parent company from its global headquarters in California.

So according to Chevron, if you win a lawsuit against the parent company it simply won’t pay up.  Yet at the same time, its subsidiaries are off limits because their assets are not really owned by Chevron or connected to its activities in Ecuador.   Chevron already stripped almost all of its assets from Ecuador.

The order by the Argentine court last week to freeze Chevron assets in that country – a shareholder shocker if there ever was one -- was met with an apoplectic response at the company’s headquarters. “The plaintiffs' lawyers have no legal right to embargo subsidiary assets in Argentina," huffed spokesman James Craig.

Yes they do, James.  Hiding behind subsidiaries to avoid paying liabilities is now considered an antiquated notion in the legal world.  It rarely if ever works, particularly when the judgment is out of the country where you wanted the trial held and where you promised to pay up if you lost.

There’s another reason Chevron spokesman Craig is out of sorts.

Chevron discloses that about 80% of its annual revenue comes from subsidiaries outside of the U.S. Chevron’s subsidiaries in Canada and Argentina, two countries where the affected communities have filed seizure actions, produce an annual revenue stream of $2 billion to $3 billion for the parent company.   The rainforest communities can collect the full amount of their judgment in a few years just be diverting those funds to a clean-up.

The arithmetic Chevron-style works like this: when it comes to counting $240 billion in annual revenue collected from subsidiaries around the world, Chevron is as proud as a peacock.  Every penny counts.  But when it comes to paying out its environmental liabilities, there is nothing in the piggy bank.

We now get it. Under Chevron’s twisted logic, after fighting in court for almost two decades, the Ecuadorian who are suffering from cancer and birth defects now have no place to collect their winning judgment.  This is how a large oil company convinces itself that it is entitled to impunity for its human rights crimes.

It is well-documented that Chevron’s management team, led by CEO John Watson and General Counsel R. Hewitt Pate, is mired in conflicts of interest when it comes to Ecuador. Watson gave Pate a 75% raise last year – for a total compensation of $7.8 million -- after he lost the Ecuador case.  The company has admitted under oath that it faces “irreparable harm” from the Ecuador judgment but outside court it claims the risk is no big deal.

Any court in the civilized world that hears this case will not allow Chevron to manipulate the corporate form in this fashion.  The company is acting like a Deadbeat Dad fleeing a jurisdiction to avoid a child support payment.

The day of reckoning for Chevron management is fast approaching.

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Court Grants Ecuador Villagers First Big Victory Against Chevron Assets

Rainforest villagers from Ecuador scored their first significant collection victory against Chevron’s assets this week in their attempt to enforce the historic $19 billion judgment against the oil giant after it was found to have caused cancers and environmental damage to ancestral lands in the Amazon.

An Ecuador court this week issued an order for the plaintiffs to obtain approximately $200 million in Chevron assets in the South American country – a significant sum given that the oil giant tried to strip all of its assets from the country in anticipation of losing the litigation.   In a statement released in Ecuador’s capital of Quito, the villagers also reiterated their goal of collecting the entire $19.04 billion damages award by seizing Chevron assets in countries around the world.

Among the assets ordered turned over are a $96.3 million debt Ecuador’s government owes Chevron, monies in various bank accounts held in Ecuador by Chevron and its subsidiaries, and licensing fees generated by the use of Chevron trademarks in the country.  The total amount in assets could generate an estimated $200 million for the plaintiffs, who won their case in 2011 after an eight-year trial, said lawyers for the communities.

“This is a huge first step for the rainforest villagers on the road to collecting the entire $19 billion judgment,” said Pablo Fajardo, the lead lawyer for the communities. Fajardo said the assets would be used to begin to fund a clean-up of the ecological disaster left by Chevron, consistent with the mandates laid out by the Ecuador trial court.

“Indigenous people and farmers in Ecuador continue to suffer disease and death because of Chevron’s refusal to respect the rule of law in Ecuador,” said Fajardo.  “This is the first example of how Chevron is losing assets as courts force it to comply with its obligations.”

Chevron trademarks affected by the court order include Texaco, Ursa, Havoline, Doro, Geotex, Meropa, Motex, Multigear, Regal, Toro, Texathern, Thuban, and others.  All are used in Ecuador under licensing arrangements with local distributors, said Fajardo. Also ordered frozen are all bank accounts related to Chevron, Texaco, and any subsidiary in the country.

The $96 million debt stems from an international arbitration award in favor of Chevron related to numerous commercial disputes between the oil giant and Ecuador’s state-owned oil company, Petroecuador.  Those funds will have to be transferred by the government to the rainforest villagers as part of the collection effort, Fajardo said.

Chevron operated in Ecuador from 1964 to 1992 under the Texaco brand.   In February 2011, an Ecuador court found Chevron liable for deliberately dumping billions of gallons of toxic waste into the Amazon, causing an outbreak of cancer and devastating the natural habitat relied on by thousands of villagers.  Numerous independent studies have found thousands of people have died or are likely to die due to Chevron’s pollution.  See here, here, and here.

A video on the case can be seen here; a written summary of the evidence can be read here; and a 60 Minutes segment on the case can be viewed here.

Chevron has the right to oppose the order, which was issued ex parte to prevent Chevron from selling or removing its assets before they could be frozen.   If Chevron opposes the order, the trial has to either modify or ratify his original ruling.  That job is considered largely ministerial given that the judgment from the long-running lawsuit has been affirmed on appeal and Chevron refused to post a security bond preventing enforcement of the judgment, said Fajardo.

Separately, the Ecuadorian villagers in May and June filed seizure actions in Canada and Brazil targeting billions of dollars worth of Chevron assets, including refineries, offshore oil platforms, and oil production facilities.  The Canadian court, located in Ontario, has scheduled an initial hearing for late November.

The environmental trial was held in Ecuador at Chevron’s request after the company filed 14 sworn affidavits in U.S. federal court attesting to the fairness of the nation’s judicial system.

The court order, signed by Judge Wilfrido Erazo in the Sucumbios Provincial Court, continues a downward trend for Chevron in the legal case since it hired the U.S. law firm Gibson Dunn & Crutcher in 2009 to “rescue” it from the impending Ecuador liability.

In recent weeks, the U.S. Supreme Court denied its attempt to block enforcement of the judgment; several shareholders with an estimated $580 billion in assets under management urged the company to settle the case; and, a U.S. Congresswoman and other large shareholders asked the SEC to determine whether Chevron CEO John Watson and General Counsel R. Hewitt Pate are lying about the Ecuador case to investors. See here, here and here.

Chevron also has suffered a series of devastating courtroom setbacks in the U.S. over the last two years. Its own Deputy Comptroller admitted in open court that the seizure actions likely will cause "irreparable harm" to the company’s operations.

The Ecuadorian rainforest villagers plan to file additional seizure actions against Chevron in other countries in the coming weeks, said Fajardo, the recipient of the CNN “Hero” Award for his work on the case.

He added that key Chevron targets are located in countries in Latin America, Africa, and Asia.

Become a follower of The Chevron Pit.

Also follow us on Twitter at @ChevronPit and like us on Facebook.

Visit and watch a video on ChevronToxico.com to find out more.

Support Amazon Watch and Rainforest Action Network.

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Ecuador Appellate Court Says Ecuadorians’ Human Rights Take Precedent

Chevron’s secret arbitration panel has demanded that Ecuador do the oil giant’s bidding and stop enforcement of the $18 billion judgment against the company. Chevron has tried to convince journalists covering the case that the panel has the authority to tell another country’s court system what to do.

Prestigious international jurists have said nonsense. Human rights and trade groups in the U.S. have said nonsense.

Now the Ecuador court system has weighed in, too.

“A simple arbitration award, although it may bind Ecuador, cannot obligate Ecuador’s judges to violate the human rights of our citizens. That would not only run counter to the rights guaranteed by our Constitution, but would also violate the most important international obligations assumed by Ecuador in matters of human rights.”

“…this Division finds that no court in Ecuador has power or legal foundation that exceeds Article 11 of the Cassation Act on which to support the possibility of suspending the processing, hearing, or enforcement of any legal proceeding without incurring severe, even criminal, liability with respect to the parties.”

Exactly, and enough said.

Now watch a video that tells the true story about Chevron in Ecuador at www.chevrontoxico.com

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