Publish in Perspectives - Wednesday, June 12, 2013
Chevron Panel: Jodi Hanson Bond, John Price, Simon Strong and Glen Waldman. (Latinvex collage of images from OAS, AMI, Tenacitas and Hellman Waldman)
Latinvex asks leading experts about Chevron’s Ecuador lawsuit.
BY LATINVEX STAFF
In February 2011, a court in Lago Agrio, Ecuador sentenced Chevron to pay a $18 billion fine for what it alleged were environmental damages in the country when the US company’s Texaco unit operated there between 1964 and 1990 in a joint venture with Ecuadorian state oil company PetroEcuador.
Chevron has increasingly proven that the original lawsuit and subsequent verdict was based on fraud. Can this case dissuade other "frivolous" lawsuits against US multinationals in Latin America? What does Chevron's growing success at proving fraud done to the image of Ecuador's judiciary? Are there any other cases where a US multinational in Latin America has spent so much money and resources to fight a lawsuit?
Latinvex asked four leading
experts. Our panel:
Jodi Hanson Bond, Vice President for the Americas, U.S. Chamber of Commerce.
John Price, Managing Director, Americas Market Intelligence
Simon Strong, President, Tenacitas International
Glen Waldman, Managing Partner, Heller Waldman.
Latinvex: Chevron has increasingly proven that the original lawsuit and subsequent verdict was based on fraud. Can this case dissuade other "frivolous" lawsuits against US multinationals in Latin America?
Bond: The conclusion that the Ecuadorian lawsuit against Chevron was fraudulent has been well documented, and it has been confirmed in the judgment of the international investment community, which sees now that Ecuador is not a safe place to invest. Ecuador in 2012 received less foreign direct investment as a percentage of GDP than any other country in the region [see link]. Ecuador has languished near the bottom of these rankings for several years even as FDI in Latin America has boomed in countries that respect the rule of law, such as Mexico, Colombia, and Chile. Recent developments in the case should also be a deterrent to the participation of third party litigation funders, investment companies that finance lawsuits in exchange for a portion of the judgment, in frivolous and fraudulent cases. The Chevron case was funded in part by one such company which entered into the financing arrangement after some of the fraud findings had been made in various courts, but later withdrew its participation and ultimately settled with Chevron. The financing company is now suing the claimants’ law firm.
Price: Let’s hope so. This
case is laden with hyperbole, beginning with the award granted by the judge in
Ecuador, the largest ever of any arbitration case in Latin America. There is no doubt that the actions of Texaco, which Chevron
subsequently bought, wrought damage to some of Ecuador’s natural habitat but an
award of [$18 billion] in an economy whose annual GDP is $75 billion is
ridiculous by anyone’s yardstick. As economic risk in Latin America fades
into history thanks to high resource prices, low global interest rates and
strong foreign reserves, one of the most worrisome growing risks is that of
legal and regulatory risk. In many Latin American jurisdictions, judicial
bodies are both independent and corruptible, a potentially dangerous
combination for foreign investors. Chevron found itself at odds with some
powerful interest groups in Ecuador, groups that proved capable of winning
judicial favor using allegedly dubious methods. Many foreign investors
are quietly cheering on Chevron’s efforts to uncover the truth behind the
questionable legal judgments they have faced in Ecuador. If their efforts
help dissuade other opportunists form pursuing frivolous legal cases against investors,
then the future of foreign investment and technology transfer into Latin
America will be much brighter.
Strong: Whether or not it is true that the original Ecuadorian suit and verdict was based on fraud, I very much doubt that the case will dissuade other plaintiffs in Latin America from filing suits against multinationals in the US for environmental, human rights or any other offenses. The potential court rewards are so substantial that there will always be attorneys prepared to offer services on a largely contingency basis. And the cases garner a great deal of media attention which is a nightmare for the corporation and an added strategic bonus for the attorneys and the plaintiffs.
Waldman: The very nature of a frivolous lawsuit is that it cannot be successfully discouraged. But the Chevron case does not seem to have been a totally frivolous one. Texaco did real environmental damage in Ecuador and undertook a real environmental clean-up effort there. The question that the lawsuit presented was whether Chevron, which had acquired Texaco, ought to have shouldered further liability for environmental damage related to Texaco’s oil drilling, or whether Chevron could not be held liable for this damage because the Ecuadoran government had fully released Texaco from any further liability upon its completion of the clean-up. The lawsuit began to unravel when Chevron’s lawyers discovered that Donzinger’s team had ghostwritten an expert’s environmental report that the Ecuadoran court relied on in making decisions. This is a clear no-no. But it happens all too often. Recently, our firm represented one of several defendants in a multi-million dollar lawsuit involving construction defects that led to mold and other environmental issues at a large housing complex. At the deposition of the plaintiff’s damages expert we learned that the plaintiff’s lawyers had added and cut language from the expert’s report, to better suit the story that the plaintiff wanted to tell. It destroyed the expert’s credibility and seriously hurt the plaintiff’s case. The best lawyers are willing to take the facts as the experts find them and maximize the advantage that the facts provide, while minimizing the damage. Donzinger probably had plenty of good facts that he could have used to make his case, but he was trying it in the media, rather than in court. Using the media can be very powerful in gaining leverage in litigation, but you can’t undermine the fundamentals of your case in the courtroom. This case will not deter other lawsuits against U.S. multinationals for four reasons: first, each case is its own animal, with its own facts; second, while Donzinger and the plaintiffs have not collected on the judgment that they won in Ecuador, they still won an $18 billion judgment that’s yet to be overturned; third, a corporation capable of writing massive checks will always be a target of litigation; and fourth, courtrooms all over the U.S., if not all over the world, are filled with egotistical litigators who believe that they will be able to outperform the last guy, even against incredible odds. The chance of winning a multi-billion dollar outcome will always attract someone to take a shot at the brass ring.
What does Chevron's growing success at proving fraud done to the image of Ecuador's judiciary?
Bond: It’s telling that jurists in other countries have shown little regard for the ruling of their Ecuadorian peers. Just last month, a Canadian court declined to enforce the award handed down in Ecuador against Chevron. Further, Argentina’s Supreme Court on June 4 lifted a freeze on Chevron’s assets in that country, rejecting a tie to the Ecuador case. These and other rulings — including in the United States — are a remarkable condemnation of this miscarriage of justice in Ecuador.
Price: I’m not sure that image of
Ecuadorian judiciary has suffered much, given that it was quite low to begin
with. More accurately, the Chevron case has served to reinforce an
already jaded view of jurisprudence in Ecuador.
Strong: Sadly, I doubt that many observers held it in high esteem to start with. Judicial corruption and, perhaps to put it more politely, arbitrariness, are still endemic to the country and, to a greater or lesser degree, the region.
Waldman: U.S. coverage of the case has not been flattering to the Ecuadoran legal system, but the Chevron case has done more to shine the light on things like unethical lawyers and the new trend of investors, like hedge funds, financing large class action lawsuits. One thing that the case makes clear is that choosing the right forum for a lawsuit matters. Texaco and later Chevron actually fought to have the lawsuit moved to Ecuador after it was first filed in federal court in New York. They reasoned that the Ecuadoran judiciary would be friendly to their interests because of the influence that the oil industry in general held over the Ecuadoran economy. Then the government changed and they got a new judge, who proved to be less friendly to their interests. At that point, they started to litigate matters about the case, including Dozinger’s doctoring of the expert’s report, in the U.S. Stateside, the judge presiding over your case can change, too, usually due to reassignment or retirement. Dealing with that here, however, is usually a matter of educating the new judge as to what has happened in the case prior to her arrival, rather than, well, dealing with the consequences of a regime change. Or at least you hope it will be. Most lawyers who are in the know about legal systems in South and Central America have never had a very positive opinion about how those systems operate. For all its twists and turns, the Chevron case neither improves, nor detracts from this general belief.
Are you familiar with any other cases where a US multinational in Latin America has spent so much money and resources to fight a lawsuit?
Bond: This must be the costliest fight of its kind, but it’s part of an unfortunate trend of the U.S. plaintiffs’ bar trying to “go global.” In Nicaragua, the government passed a law in 2000 that created conditions under which American companies, sued in cases arising from exposure to a pesticide used on banana plantations, were certain to lose the lawsuits. U.S. lawyers got involved in the litigation in Nicaragua, and judgments have been entered against the companies that now total over $2 billion. But there has been good news on this front. To date U.S. courts have viewed the law as a significant deprivation of due process, and they have declined to enforce these judgments. And a court in California, ruling on cases that had been brought by the same lawyers directly into U.S. courts, found that many of the underlying personal injury claims were false and riddled with fraud. Finally, the Supreme Court’s April ruling in Kiobel v. Royal Dutch Petroleum rejected a scheme by class action trial lawyers to use the Alien Tort Statute of 1789 to make U.S. courts a legitimate forum for legal claims abroad even when no U.S. actors are involved.
Price: Another recent case that
comes to mind is the legal case waged by ExxonMobil against PDVSA that received
a lot of press early in 2012. (See, for example, this Bloomberg piece from
January 2nd, 2012).
Strong: Without knowing the full amount they have spent, I doubt any other US multinational in Latin America has come anywhere near what Chevron has spent on attorneys, investigators and media consultants. But Chevron is on the hook for an enormous sum and the current Ecuadorian government has its friends. I think it very unlikely the Ecuadorians' claim will prosper in the US but some countries - look at Argentina - view it sympathetically and will pressure their courts accordingly to freeze Chevron assets. So Chevron has had no choice but to fight what has become a global battle, on all fronts.
Waldman: The expense of this lawsuit and the intensity of Chevron’s defense may very well be unprecedented. But it is not uncommon for firms to expend incredible resources litigating in two different locales, with one case pressing on in Latin America and another moving forward in the U.S. I have had to argue Nicaraguan law before a judge in Miami, and our firm has helped multinationals attempt to enforce the judgments that they’ve won in places like the Caribbean by suing parents companies headquartered here in the U.S. We have gotten pretty good at using U.S. courts to help our clients get satisfaction in a matter that isn’t panning out in a less predictable justice system. The extra effort can be worth it. In a situation like this, a defendant like Chevron is pursuing two parallel objectives. On the one hand, it wants very badly to win the lawsuit and avoid the possibility of a massive, share price altering judgment against it. One the other hand, it also wants the rest of the world to understand that if you come after Chevron, the response you receive will be an overwhelming one. This company will go at you ever way possible, including attacking your lawyers. The idea is to make it so difficult to prevail against them that you will decide to target someone else. Of the two objectives, this second is the more important one over the long haul.
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