Reposted from The Chevron Pit
Even the three members of a controversial pro-corporate investor arbitration panel – which meets in secret and we believe sits illegitimately – appear to be turning against Chevron in the company's longstanding campaign to evade paying its $10 billion Ecuador pollution liability. Is the company's Ecuador strategy beginning to crumble, or what?
For Chevron CEO John Watson and General Counsel R. Hewitt Pate, who convened the investor arbitration in 2010 thinking it would help the company, the latest decision must come as very bad news indeed.
The stunning setback suffered last week by Chevron before the secret panel – which nullified a key plank of the oil major's defense -- underscores the extent to which Watson and Pate have misled shareholders about the company's growing risk. Because Chevron refuses to pay the judgment, the affected villagers are attempting to seize strategic company assets in Canada and Brazil.
It's become a big mess for Chevron that promises to get worse in the coming months – not just for the company, but for Watson and Pate personally. When pro-corporate arbitrators start ruling against Chevron on top of the three layers of courts in Ecuador that have done the same, the company's prospects must be far more dim than many realized.
Indigenous and farmer communities in 2011 won their judgment in Chevron's chosen forum of Ecuador after an eight-year trial. The decision was based largely on 105 techical evidentiary reports and 220,000 pages of evidence. Chevron executive Rodrigo Perez Pallares admitted during the trial that for 25 years Chevron (operating under the Texaco brand) had systematically discharged billions of gallons of oil waste into Amazon waterways that local communities relied on for their drinking water, bathing, and fishing. Cancer rates in the area predictably have skyrocketed.
Ecuador's Supreme Court in 2013 affirmed the trial court judgment in a 222-page decision that meticulously documented the extensive and life-threatening levels of oil pollution at dozens of former Chevron well sites in the jungle. That decision can be read here. In all, eight appellate judges in Ecuador reviewed the evidence against Chevron and affirmed the judgment.
Pate is the mastermind behind Chevron's increasingly reckless counterattack strategy. Chevron executives have promised to fight the indigenous villagers "until hell freezes over" and then "fight it out on the ice" if necessary. These comments are highly unprofessional coming as they do from a large public company, but Chevron is not used to being held accountable by vulnerable victims in far-off forests. Pate, who has deep ties to the Federalist Society and is a former official in the Bush Administration, seems to enjoy using the Ecuador litigation as a vehicle for what has become an industry-sponsored crusade against contingency-fee lawyers and human rights activists.
Pate's personal problems with the Ecuador liability cut deep. Back in September 2013, Pate flat out lied when he exulted in a Chevron press release that the Ecuador case was over – "the game is up" were his exact words – after the investor arbitration panel released an "interim" ruling. At the time, the panel determined that a 1995 settlement agreement between Chevron and Ecuador's government absolved the oil company from liability even though the villagers never signed off on the agreement.
Our position is that the arbitration panel did not have the right to make that or any other of its rulings. No private investor arbitration panel can sit as an appellate court over a sovereign nation's judiciary, as the panel convened by Chevron is attempting to do with Ecuador. The 2013 decision by the arbitrators contradicted rulings from three layers of Ecudorian public courts in the very forum where Chevron insisted the trial be held. All of those courts had rejected Chevron's bogus defense that it was "released" from the private claims of the villagers by virtue of its settlement with Ecuador's government.
Pate published his "game is up" statement in 2013 even though at the time the arbitration panel cautioned the parties that its decision was interim and that it had yet to rule on the question of whether individual claims (as distinct from collective claims) were barred. Last week, Pate found out just how interim it was. The panel ruled that the individual pollution claims filed by indigenous persons were valid under Ecuadorian law and were not covered by the Chevron-Ecuador settlement agreement.
Of course, any first-year law student could have figured out that Chevron's defense on this point was preposterous from the get go. The 1995 settlement agreement expressly excluded the claims of private citizens. The villagers never signed the agreement and thus could not be bound by it in any event. Further, Chevron never even raised the settlement agreement as a defense when it fought for years in U.S. federal court (where the case was originally filed in 1993) to move the trial to Ecuador.
In reality, the settlement defense was manufactured post hoc by Chevron lawyers after they realized they stood a good chance of losing the Ecuador case on the merits. For years, the investor arbitrators obliged Chevron by breathing oxygen into the bogus claim in their illegitimate proceeding. They asked for hundreds of pages of briefing on the issue. They held mutiple hearings attended by dozens of lawyers who charged millions in fees. In so doing, the panel gifted Chevron years of additional time so its "lifetime of litigation" strategy could take root.
How did this happen? Aside from the obvious pro-investor bias of the panel, one reason is money. The three arbitrators – V.V. Veeder (England), Vaughn Lowe (England), and Horacio Grigera Naon (Argentina) – bill close to $1,000 per hour. Each has reaped millions in fees since the action commenced. And the American law firms representing the parties also have charged huge sums for their "service" in furthering the unnecessary litigation.
The more issues the Chevron lawyers can manufacture for the secret panel, the more litigation there is and the more money the three arbitrators make in fees. It resembles a shakedown racket with Chevron's victims in Ecuador – taxpaying citizens – footing a good portion of the bill paid by their government. (The fees of the arbitrators are split evenly between the parties.)
To give one a sense of the money involved, Chevron's top outside lawyers bill more than $1,200 per hour. Chevron paraded 29 lawyers to a recent procedural meeting convened by the arbitration panel. That's on top of the 60 law firms it has used to defend itself on the Ecuador matter and its ancillary litigations.
Back to that 2013 Chevron press release put out by Pate, available here. The release was a brazen if clumsy attempt by Chevron's top lawyer to snooker the markets into thinking the company was off the hook in Ecuador. Pate has done nothing since to correct his utterly misleading information.
The bigger picture for Chevron is getting far more complicated than the company lets on to its shareholders. As mentioned, because Chevron refuses to pay the Ecuador judgment the affected villagers are pursuing company assets in Canada and Brazil. They could go to other countries if needed. A key decision from Canada's Supreme Court – in a country where Chevron owns $15 billion of assets – is due within weeks. We are confident Chevron will be forced to pay the entirety of the judgment in full.
Chevron has another problem brewing in New York. Its retaliatory racketeering case against human rights lawyer Steven Donziger – the main target of the company's demonization campaign – appears to be tottering, with oral argument slated for next month in a federal appellate court. Read Donziger's appellate brief to get a sense of how Chevron distorts facts, uses corrupt evidence, and conjures up illegitimate litigations to delay its day of reckoning.
Sadly, the investor arbitrators continue to lie in wait for more opportunities to examine issues and publish "interim rulings" in what has fast become a key driver of Chevron's perpetual litigation model. To keep the lucre flowing, the panel recently scheduled a three-week "trial" to begin in April to determine whether the legal process in Ecuador that held Chevron accountable violated due process. Expect more than 50 lawyers to take part in the closed-door proceedings.
After more than two decades of arduous litigation on their underlying claims, that's just what the affected rainforest communities don't need – more litigation over litigation. But it's obviously what Chevron wants. If Mssrs. arbitrators had any moral sensibility, they would donate their exorbitant fees to the environmental clean-up in Ecuador and close up shop immediately.
More bothersome is how the arbitrators indulge Chevron's jurisdictional shell game.
The underlying trial was held in Ecuador at Chevron's request. Yet Chevron sold off its assets in Ecuador after the trial started. It now claims its assets in Canada and Brazil are immune from seizure because they are held by wholly-owned subsidiaries. But Chevron operates outside the United States only through its wholly-owned subsidiaries. Under Chevron's theory, the villagers never will be able to collect the first dollar of their judgment anywhere.
And if that part of Chevron's subterfuge fails, Pate and Watson no doubt believe the investor arbitrators will try to shift the entire liability for the pollution problem to Ecuador's government in what would (at least on paper) appear to be the mother of all taxpayer-funded bailouts for Big Oil. Pate is living a pipe dream if he thinks it is going to work, but it must sound clever to Chevron's Board of Directors.
The investor panel's decision to sit as an appellate court over Ecuador's entire judiciary is an affront to international law. It would never be tolerated by the United States government if it were to happen here. Sadly, Ecuador's government (for whom we have great sympathy given the abuse it too has suffered at the hands of Chevron) has been played for a fool for being sucked into a charade that offers no benefit to its own citizens but great riches to its American lawyers. With these problems, it is no wonder that prominent jurists have blasted the investor panel before the United Nations for acting illegitimately.
The members of the arbitration panel are refusing to allow the villagers to attend their upcoming proceedings. They desperately want to keep away the farmers and hunters devastated by Chevron's pollution. Chevron's lead lawyer in the arbitration, Doak Bishop, once told the panel that the villagers were simply "irrelevant" to the proceedings and did not actually exist for legal purposes. A more honest statement reflecting Chevron's venality has scarcely been uttered.
Getting back to Pate, we have some advice for U.S. regulatory authorities.
The SEC might use the latest arbitration ruling to launch an investigation of Pate and his cohorts at Chevron for trying to spin the markets about the company's Ecuador liability. It needs to be determined whether Pate and Chevron CEO John Watson – who have invested an estimated $2 billion in various retaliatory litigations – have run afoul of securities laws. (In the process, they might also be asked about the high cancer rates where the company operated in Ecuador and what they plan to do about it.)
In the meantime, Mssrs. Grigera Naon, Lowe, and Veeder should disclose their fees. The lack of tranparency in the arbitral process is just one of many reasons their work has no credibility.