Chevron’s road to redemption

By Alison Frankel
April 16, 2013

The last time I wrote about the Chevron environmental contamination litigation, after Chevron revealed a declaration from an Ecuadorean judge who swore that he acted as the middleman in setting up a $500,000 bribe from plaintiffs’ lawyers to the Ecuadorean judge who entered a $19 billion judgment against Chevron, I said it was profoundly disheartening that alleged misconduct by lawyers for the Ecuadoreans who claim to have been injured by drilling in the Amazon might prevent a final answer to the question of whether they’ve actually been harmed. But Chevron’s latest stunning revelations - a pair of declarations in which scientific consultants for the Ecuadorean plaintiffs disavow their work in the case in Ecuador – cast a deep, dark shadow over the plaintiffs’ claims.

Douglas Beltman and Ann Maest of Stratus Consulting now say that the damages report by a purportedly neutral court-appointed expert in the Ecuadorean proceeding was actually written by Stratus, working under the direction of then lead plaintiffs’ lawyer Steven Donziger. Stratus even drafted the expert’s supposed response to the plaintiffs’ comments on the initial report, effectively answering their own questions about their own report, and in the process boosting the expert’s damages assessment from $19 to $27 billion. That seems bad, but what’s worse (at least in my view) is that Beltman, who was the public face of the Ecuadoreans’ scientific claims, admitted to systemic flaws in the testing process. Stratus was supposedly directed, for instance, not to attribute any contamination to Ecuador’s state-owned oil company, which has ongoing operations in the region, even though samples from those sites showed some of the highest levels of petroleum. Stratus’s assessment of soil remediation, according to Beltman’s new declaration, depended on unverified information from Donziger as well as a contamination standard dictated by the plaintiffs’ lawyer. Beltman also said that the surveys Stratus relied upon to assess cancer rates in the region were “flawed,” and that any finding of excessive cancer in the oil-production region is “invalid and unsupported.”

“I now believe the (damages) process was tainted … and not supported by reliable scientific bases and therefore I disavow the (expert) report and (expert) response,” Beltman said.

The Ecuadorean plaintiffs and one of their current lawyers, Craig Smyser of Smyser Kaplan & Veselka, contend that Chevron bullied Beltman and Stratus into submission via a fraud and racketeering suit in federal court in Manhattan that named them as defendants, in addition to Donziger and the lead Ecuadorean plaintiffs. In an email, the Ecuadoreans’ representative said that Stratus’s testing revealed contamination at “every single well site and station that was sampled,” and that the plaintiffs are confident their experts will stand by their work.

Bullies or not, Chevron and its lawyers at Gibson, Dunn & Crutcher seem headed for a favorable result in the company’s fraud and racketeering suit in New York. In his most recent substantive opinion in the case, U.S. District Judge Lewis Kaplan last month found probable cause that representatives of the Ecuadoreans engaged in fraud and obstruction and ordered the production to Chevron of certain documents from plaintiffs’ lawyers at Patton Boggs. Even the plaintiffs seem to expect to lose before Kaplan, whom they’ve once again asked the 2nd Circuit Court of Appeals to remove from the case.

The New York litigation is Chevron’s route to redemption from the $19 billion Ecuadorean judgment and from any lingering doubt about the cleanup carried out by its predecessor, Texaco, in Ecuador. On Tuesday – before Chevron lead counsel Randy Mastro of Gibson Dunn headed to court for a hearing before Kaplan in which Chevron is seeking sanctions for Steven Donziger’s supposed failure to turn over discovery materials – I asked Mastro about the company’s objective in New York. “We want a judgment and findings that the Ecuadorean proceeding was a fraud,” he said. “This will have been full and fair litigation that exposes the sham that went on in Ecuador.”

In practical terms, Chevron intends to use findings from the New York suit to oppose efforts by the Ecuadoreans to attach its assets in countries other than the United States and Ecuador (where Chevron has no assets). That’s really Chevron’s best hope to escape the Ecuadorean judgment, which has already been affirmed, despite Chevron’s fraud arguments, by an intermediate appellate court in Ecuador. The judgment is now on appeal to Ecuador’s National Court of Justice, but in the meantime, lawyers for the Ecuadorean plaintiffs have begun attachment proceedings in Argentina, Canada and Brazil. In Argentina, which has a friendly treaty with Ecuador, Chevron assets that the Ecuadoreans say are worth $2 billion have been placed in escrow; in Canada, where Chevron has no assets but subsidiaries do, the oil company has moved to dismiss the attachment claim on jurisdictional grounds.

As the Ecuadoreans continue their enforcement efforts, a decisive ruling that the Ecuadorean judgment was tainted, along with detailed findings of fact, would have “powerful ramifications wherever the plaintiffs go to enforce the judgment,” Mastro told me. “No country in the world should enforce a judgment procured by fraud.” (Mastro also noted that Chevron’s bilateral treaty arbitration against the Republic of Ecuador, which has been under way for years and has generated interim rulings against the republic, could be “another powerful potential remedy.”) A Chevron spokesman added: “It’s one thing for Chevron to say it’s fraud. It’s another for a federal court to say it.”

Mastro said that if Chevron obtains a ruling that the Ecuadoreans and their lawyers engaged in fraud and racketeering, it may seek an injunction related to enforcement of the Ecuadorean judgment, but that’s “down the road.” The 2nd Circuit has already held, in no uncertain terms, that a New York court does not have authority ”to enjoin parties holding a judgment issued in one foreign country from attempting to enforce that judgment in yet another foreign country.” That ruling, you may recall, came when Donziger and the Ecuadoreans appealed a preliminary injunction issued by Kaplan, who attempted to bar them from acting to enforce their $19 billion judgment. In the mandamus petition they filed in March, the Ecuadoreans claim that Judge Kaplan is improperly attempting to circumvent the appe2nd Circuit’s ruling. The mandamus case is set for a hearing next month; the Ecuadoreans maintain that any ruling from Kaplan will have no bearing on attachment proceedings elsewhere since they hold a final judgment in the Ecuadorean case.

One could certainly argue that Chevron deserves its fate in the Ecuadorean courts, since it was the oil company that first insisted on litigating the plaintiffs’ environmental claims there rather than in New York, where the original case was filed way back in 1993. But the evidence Gibson Dunn has obtained in the company’s fraud and racketeering suit is increasingly disturbing, particularly when it addresses not just the conduct of lawyers and judges in Ecuador but the bedrock merits of the Ecuadoreans’ claims. Trial in the fraud and racketeering case is slated to begin in June, so we’ll have to wait and see how successfully Donziger and the Ecuadoreans can counter Chevron’s evidence about ghostwritten court orders and compromised scientific claims.

But if Chevron’s allegations hold up, Mastro is right: Courts around the world must pay heed to what happened in Ecuador. Blithely attaching assets on the basis of a misbegotten judgment is not just.

For more of my posts, please go to Thomson Reuters News & Insight

Follow me on Twitter

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/