By Alison Frankel, The American Lawyer
12 September 2008
Chevron's Ecuadorian quagmire got deeper and dirtier today, with the announcement that two longtime lawyers for the company have been indicted by the Ecuadorian government. In-house lawyer Ricardo Reis Veiga and outside counsel Rodrigo Perez Pallares are accused of being part of a conspiracy to fraudulently certify that Chevron predecessor Texaco had completed the cleanup of more than 100 mines in the Ecuadoran rainforest in the 1990s. The government released Chevron from liability on the basis of those certifications.
Chevron, which is stuck in a potentially devastating environmental tort case in Ecuador, claimed this afternoon that the indictments are related to that multibillion-dollar civil litigation.
"The politically motivated indictments mark a renewal of the Ecuadorian state's attempts to disavow contractual obligations owed to Chevron from contracts signed in 1995 and 1998, the company said in a statement."Recent events in Ecuador leave no doubt that there is improper collaboration between the government and plaintiffs lawyers [in the civil case]."
But a lawyer for the Republic of Ecuador, C. MacNeil Mitchell of Winston & Strawn, told The Am Law Daily that the government is not involved in the environmental tort litigation--and that Chevron's attempt to link the indictments to the environmental suit is part of the company's strategy to discredit the Ecuadorian courts.
"Chevron isn't stupid," said Mitchell. "We may look at individual things they do and say, 'That doesn't make sense.' But they have an overall game plan. They know there's going to be a big judgment against them in Ecuador. They want to avoid paying it. One way to do that is by saying the Ecuadorian system is corrupt and their rights were trampled."
Mitchell said that if Chevron is hit with big damages in the civil suit, the company will likely file an international arbitration claim to void the judgment. "The more fire and smoke they can raise about the [Ecuadorian] government controlling the courts, the better their argument," he said.
The civil litigation in Ecuador, which has been spearheaded by New York lawyer Stephen Donziger and bankrolled by Philadelphia plaintiffs firm Kohn Swift & Graf, has been a fiasco for Chevron. Its predecessor, Texaco, fought to have the case, which was originally filed in federal district court in Manhattan in 1993, tried in Ecuador. Texaco lawyers from King & Spalding insisted in motions to dismiss the U.S. action that the Ecuadorian courts were adequate to hear the plaintiffs' claims of environmental damages.
But since the civil case was filed in Ecuador in 2003, public opprobrium has rained down on Chevron. And more importantly, in March, a court-appointed special master found that Chevron's liability to residents who lived near the mines is between $7.2 and $16.3 billion. The judge is expected to issue a ruling on damages by the end of the year.
Chevron claims, however, that the Ecuadorian government indemnified Texaco from environmental liability--not only to the government but to third parties as well--in its cleanup agreements with Texaco in the 1990s. After the environmental tort litigation began in Ecuador, Chevron filed suit in federal district court in Manhattan, seeking to compel arbitration of its agreements with Ecuador. In claiming that Ecuador had indemnified it from environmental liability, the company, represented by Jones Day, cited not only the 1990s cleanup deal but also a 1978 contract between the government-owned oil company and Texaco.
Last summer, Judge Leonard Sand ruled that Ecuador had not signed the 1978 contract and was thus not bound by its terms. Chevron's appeal of his ruling is scheduled to be argued before the U.S. Court of Appeals for the Second Circuit on September 29. Judge Sand did not rule on any indemnification offered by the 1990s agreements.
Chevron contends that the indictments announced today are an additional attempt by the Ecuadorian government to evade the indemnification it says the government agreed to. "By persecuting Chevron's counsel and collaborating with the plaintiffs to undermine Chevron's legal rights," the company said in its statement, "the Ecuadorian state continues to call into serious question the legitimacy of its judiciary."
Plaintiffs lawyer Donziger said Chevron is misrepresenting the facts. "They're going to claim the indictment is occasioned by our case [but] it isn't," he said. "Be careful not to buy into Chevron's line that this is all political. It isn't. The evidence is clear, and they have a serious problem."