Tuesday, October 9, 2012

U.S. Supreme Court Squelches Chevron Appeal on Ecuador Case

Reposted from The Chevron Pit

The U.S. Supreme Court today rejected Chevron's latest attempt to block global enforcement of a historic $19 billion environmental judgment from Ecuador's courts, removing another hurdle for rainforest indigenous groups as they continue their efforts to seize billions of dollars of Chevron assets around the world.

Chevron's losing petition was prepared and signed by Ted Olson, one of the top Supreme Court litigators in the country and the former Solicitor General of the United States under the last Bush Administration. Olson works at Gibson Dunn & Crutcher, Chevron's lead outside law firm on the Ecuador matter and itself the subject of judicial rulings that it has committed ethical violations on behalf of the oil giant.

Jim Tyrrell of Patton Boggs and John Keker of Keker & Van Nest signed papers for the Ecuadorian rainforest communities and their counsel.

The Supreme Court decision represents the latest of numerous courtroom setbacks for Chevron as the company tries to evade paying the Ecuador judgment, which was issued in early 2011 after an eight-year trial found that the oil giant deliberately dumped more than 16 billion gallons of toxic waste into the Amazon. A three-judge appellate panel in Ecuador later affirmed the decision, criticizing Chevron harshly for threatening judges and filing frivolous motions to delay the proceedings.

Several pro-business groups who are funded in part by Chevron, including the U.S. Chamber of Commerce and National Association of Manufacturers, had weighed in on the oil giant's behalf before the Supreme Court.

When Chevron refused to pay the Ecuador judgment, lawyers for the 30,000 affected villagers this summer hired prominent law firms to file seizure actions targeting billions of dollars of Chevron assets in Canada and Brazil. They have promised to file more seizure actions soon in other countries, potentially creating significant operational problems for the oil giant, according to Chevron's own court filings. See here.

Chevron's use of substandard operational practices in Ecuador – it operated there from 1964 to 1992 under the Texaco brand – decimated indigenous groups and caused an outbreak of cancer that has killed or threatens to kill thousands of people, according to findings of the court. A summary of the evidence against Chevron can be found here, a video about the case can be seen here, while a summary of the cancer deaths can be found here.

Independent journalists, such as 60 Minutes and a prominent Australian news show, also have confirmed Chevron's extensive pollution in Ecuador.

Chevron had asked the Supreme Court to salvage an unprecedented injunction imposed in March 2011 by New York federal judge Lewis A. Kaplan purporting to bar worldwide enforcement of the Ecuador judgment. That injunction provoked outrage in much of the legal community and was overturned unanimously in September 2011 by the Second Circuit Court of Appeals, the ruling the Supreme Court declined to review.

Over the last two years, federal courts at every level in the United States – trial courts, intermediate appellate courts, and now the Supreme Court – have now rejected Chevron's attempts to block or undermine the Ecuador judgment. The oil giant claims the judgment was procured by fraud, a charge the villagers and their lawyers say is a smokescreen invented by Chevron to cover-up its own criminal behavior in Ecuador as found by various courts.

"Chevron's latest loss before the Supreme Court is an example of the company's increasingly futile battle to avoid paying its legal obligations in Ecuador," said Aaron Marr Page, a lawyer for the Ecuadorians.

"Chevron is running from justice while its toxic dumping continues to create an imminent danger of death to indigenous peoples in Ecuador," said Page.

Chevron's losses in U.S. courts on the Ecuador case are mounting fast.

In the last two years, 18 U.S. trial courts and four appellate courts have either rejected or declined to consider Chevron's campaign to paint the Ecuador judgment as a product of "fraud", according to an analysis of court data by representatives of the rainforest communities. That analysis can be read here.

Even Judge Kaplan, who has been subject to withering criticism for his biases against the Ecuadorians, further gutted Chevron's strategy when he dismissed or stayed three of Chevron's fraud claims and its unjust enrichment claim against the rainforest communities in a racketeering case pending against them in New York.

In its public relations materials, Chevron continually tried to claim U.S. courts have found "fraud" in the Ecuador proceedings. In reality, three different Ecuadorian courts have heard Chevron's allegations and rejected them, while no U.S. court has found fraud on the merits after an evidentiary hearing or trial.

In the handful of courts where judges made such a preliminary finding, it was done in the context of simple discovery proceedings and later was overturned by federal appellate courts.

A panel of federal appellate judges in Philadelphia, for example, blasted Chevron for attacking Ecuador's courts – calling its comments "disparaging". Another federal judge in New Orleans accused the oil giant of using "hyperbole" and trying to make "a mountain out of a molehill." See here.

This was the second time in the long history of the Ecuador lawsuit that the Supreme Court declined to hear a Chevron petition for review. In 2009, the court declined to review a decision that denied Chevron's attempt to force Ecuador's government into a private arbitration over who should pay for the clean-up in Ecuador.

For that petition, Chevron used high-profile lawyer Paul Clement, another former U.S. Solicitor General. Clement argued the losing side in the famous case last year over the Obama Administration's health care law.

Just last week, the Gibson Dunn law firm was criticized for overbilling Chevron by sending 11 lawyers to a relatively minor court hearing.

Thursday, October 4, 2012

From Assets to Liabilities

Are CVX shareholders ready for global cat and mouse?

Reposted from Eye on the Amazon

Mr. Watson: What Will You Do About Ecuador?

Earlier this week, we reported on the extraordinarily vulnerable position that Chevron is in due to CEO Watson's poor oversight and mismanagement of multiple crises threatening the company's shareholder value. The Richmond refinery debacle. Millions in fines and suspended operations in Brazil. And a $19 billion damage award in Ecuador that has made Chevron a global fugitive, running from the law while its assets are hiding in plain sight.

Watson's bungling of these issues has caused major ripples among his own shareholders. At this year's Annual General Meeting, Watson faced a shareholder revolt spurred by the $19 billion guilty verdict and asset seizure efforts now underway by the Ecuadorian indigenous and farmer communities.

And understandably so. A report on the Ecuador litigation by prominent corporate accountability strategists details an eyebrow-raising web of financial and operational risks posed by the lawsuit – which seem to be either highlighted or downplayed depending on the company's audience.

In court filings in New York, representatives of Chevron gave sworn testimony that the case presented "irreparable injury to [its] business reputation and business relationship" and was a major threat to the company. However, its 10-K statements filed with the Security Exchange Committee (SEC) continue to downplay it. So which is it Watson? The company's doublespeak is misleading either the New York judiciary or its stockholders. Either way, executives are flirting with felonies or perjury charges, and an SEC investigation seems right around the corner. In fact, both shareholders and Congresswoman Jan Schakowsky (D-IL.) recently sent letters to the SEC asking the institution to determine whether Chevron is violating securities laws related to the court finding that it deliberately dumped billions of gallons of toxic waste into the Amazon rainforest. None of the above is good for business.

Another report documents Chevron's deceit of its own shareholders and outlines the misrepresentations that the company has made in its public findings.

At the company's annual stockholders meeting last May, shareholder resolutions requesting a separation between CEO and Chairman of the Board received 38%, and New York State Comptroller Thomas P. DiNapoli joined with 39 other investors, with a combined total of $580 billion in assets under management, in calling on Chevron to settle its two-decade-long legal battle in Ecuador.

Who would expose its company and its shareholders to this kind of risk? Why is CVX so entrenched? While the board may be guilty of turning a blind eye, it's elementary what's really going on here. Watson's dug in not to protect his company or its investors, but to protect his legacy and cover up his ignorant and/or arrogant botch of the Ecuador issue. The Ecuador liability is all on Watson. And he could have made it go away years ago for a lot less, or at least done his due diligence and discounted it from the inflated price he paid for Texaco. But instead, Watson chose to cover it up, cover his trail, and try to convince everyone that he's the smartest guy in the room. Ken Ley and Bernie Madoff would be proud.

Here's the backstory. Texaco came with what was originally seen as roughly a $1 billion liability – legacy issues in the Ecuadorian Amazon where the company designed, built, and operated an oil extraction system for close to three decades that led to the systematic contamination of the region and decimated local indigenous peoples and farmers.

The lawsuit, Aguinda v. Texaco (now Aguinda v. Chevron), was first filed in New York courts within a year after the company's departure from Ecuador where the company's headquarters in White Plains, New York, where the company made the criminal decision to use sub standard, cheap technology that had been outlawed in the United States since the early 1940s.

But, Texaco, who by all means was seen as the industry scoundrel, balked. It argued that Ecuador was the more proper forum, its courts transparent and independent, and that Texaco – now Chevron – would be bound by any decision rendered in Ecuador.

Fast forward to a warm, spring day at the downtown Los Angeles Marriot in 2001. The Executive Director of Amazon Watch and I physically handed Watson, as head of M & A, two massive binders filled with documentation of over 500 toxic sites left by Texaco. We warned Watson and the company that they were buying a problem. It's now a $19 billion problem. Oops.

While repo men have yet to descend upon the company's headquarters and start hauling out the furniture, one has to ask: Is the company really ready for a global game of cat and mouse? Chevron has been able to abuse to Ecuadorian legal system and thumb its nose at verdict and jurisdiction because it has no assets here. But it's a different ball game when the plaintiffs, armed with a verdict from a court of Chevron's own choosing and based on much of the company's own evidence, head to countries where the bulk of Chevron upstream assets are – which account for the great majority of the company's revenue stream. What were once major assets in 120 countries around the world are now liabilities, hidden in plain sight. Offshore, onshore, well sites, bank accounts, refineries. And the plaintiffs only need to win once, while Chevron must bat a thousand.

And that doesn't even get at competitive advantages issues, where Chevron is risking losing out to other companies on new opportunities (back to Drucker's Five Business Sins) not only because of its reckless treatment of Ecuadorian indigenous people and farmers, but for its abusive litigation and dragging Ecuador – the host country – to arbitration hearings and trying to pass the $18 billion clean up price tag on to the state. This could be incredibly damaging for future Chevron prospects. As Watson's predecessor, former Texaco CEO Peter Bijur said, "If you're not drilling now, you're bankrupt in ten years."

Chevron investors should be hoping that the Wall Street scrutiny that has befallen Jaime Dimon and Bob Diamond spreads to San Ramon. Certainly, the thousands of farmers and indigenous people that continue drink poison water and live amidst one of the worlds worst oil disasters are hoping for the same. Chevron has stated that they will fight the case until hell freezes over, and then fight it out on the ice. Doesn't seem a very strategic attitude when Chevron assets and bank accounts are what are on the verge of being frozen. Watson seems to be more interested in protecting his own hide than shareholder value, feeding the liability and starving opportunities. If Watson can't let go, maybe it's time shareholders let Watson go.

– Kevin Koenig

Monday, October 1, 2012

Way Down Watson

Reposted from Eye on the Amazon

Wanted: John Watson

Bad two weeks for Chevron and its head-in-the-sand CEO John Watson. First, last week the San Francisco Chronicle reported that Chevron is under criminal investigation by the EPA for intentionally flaring contaminants and deceiving regulators. No accidental discharge, Chevron literally built a separate pipeline designed to circumvent monitoring equipment, belching contamination into the airspace above the densely populated city of Richmond, CA.

Then, as the Chronicle reported, the initial investigation expanded. And both of these aren't even related to the Aug. 6 refinery fire, which has already produced civil suits, and sparked a new probe from California legislators.

To top it off, Chevron got hit with an injunction by Brazilian courts on Sept. 27 ordering the company to stop operations within thirty days until the investigations of two oil spills off the coast of Rio de Janeiro are resolved. The oil giant was forced to pay $17.3 million in fines last week, and still faces up to $22 billion in potential civil suits.

But the sand is only so deep. Normally, when an executive makes a major mistake that threatens shareholder value and the financial health of the company, they get fired. Just ask the former head of JP Morgan Chase's chief investment office after losing $2 billion in a May trading loss. And now that the loss is ballooning towards $9 billion, some are calling for CEO Jamie Dimon's head. We also saw the resignation of Barclay's chief executive who succumbed to intense shareholder and political pressure over an interest rate setting scandal, with questions about the bank's corporate culture in the daily headlines.

But, far from the cutthroat world of Wall Street in the idyllic valley of San Ramon, CA, things are apparently done differently. Here, at the Chevron Corporation (NYSE: CVX) if you make an $18 billion mistake, you get a promotion. What?

Just look at John Watson, Chevron CEO. Watson rose through the ranks of the US's second largest oil company, cutting his teeth as vice president charged with mergers and acquisitions. He orchestrated and oversaw what was thought to be a major coup for his career ascension and potential pillar of his legacy – the purchase and integration of Texaco for $36 billion.

But what Watson overlooked, underestimated, or outright ignored, was the ongoing litigation against Texaco brought by Ecuadorian indigenous people and settlers for egregious environmental crimes and rights abuses. With its purchase of Texaco, Chevron inherited this liability. And now, under Watson's watch as CEO, this legacy has turned into a $19 billion judgment against Chevron, with asset seizure efforts underway in Canada and Brazil, and potentially more to come.

Chevron management, entrenched as ever, has lost control of the case. The guilty verdict against the company has gone global, leaving the confines of a small Amazonian courtroom in Ecuador's rainforest (where Chevron has no assets) to countries critical to its existing production and upstream growth. Chevron's global reach has always been touted as an advantage, but the company suddenly seems very exposed as the rainforest residents contemplate actions in any number of the 120 countries where Chevron has assets. And yes, that's $19 billion – roughly half of what Chevron paid for Texaco. Talk about buyer's remorse.

You'd think someone like Watson would be familiar with Peter Drucker's "Five Deadly Business Sins." Drucker, who BusinessWeek dubbed the "man who invented management", lays out five business mistakes that can sink even the mightiest of companies. Sin #5 has Watson written all over it: Feeding problems, starving opportunities.

Watson, perhaps in a vain attempt to cover up his egregious error in not factoring in the litigation to Texaco's sale price and gross mismanagement of the case along the way, has doubled down. During his tenure, Chevron has employed some 39 law firms on the Ecuador issue – billing what one can only guess is in the hundred of millions a year, cutting checks to the tune of $75 million a year to DC lobbyists deployed to Capital Hill to persuade lawmakers to punish Ecuador and strip it of its unique trade preferences with the U.S. for allowing the case to proceed. The latter failed spectacularly.

In the meantime, experts have started to chime in. Fidel Gheit, the top energy analyst for Oppenheimer – after years of silence on the issue – has started to speak out. He made a personal visit to Chevron's San Ramon headquarters to meet with Watson. Speaking about recently setbacks the company has faced in the case, Gheit commented, "[Watson's] not a happy camper right now. It's not great news for Chevron..." Gheit also stated that he thought Chevron should seek to resolve the litigation through a settlement, because it has become a "distraction" and drag on Chevron's stock price. A New Yorker blog entitled "Why Chevron Will Settle in Ecuador" suggested the same. And, an influential investor website suggests a "hold" on Chevron stock due in part to its failure to resolve the issue.

What does this mean for CVX shareholders? Stay tuned for Part II...

– Kevin Koenig