Chevron in Ecuador

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Chevron CEO's Plan to Evade $18b Ecuador Liability Falters As Courts Slam Oil Giant

Analysis of Litigation Offered to Company Shareholders by Leaders of Indigenous Groups

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Contact: Karen Hinton at +1.703.798.3109

New York, NY – U.S. courts are showing increasing hostility toward Chevron and its CEO John Watson over the company's $18 billion Ecuador liability as the oil giant's plan to quash the landmark case continues to falter in the hands of American law firm Gibson Dunn & Crutcher, said representatives of the Amazon indigenous groups who offered an analysis of the 18-year case to its shareholders and industry analysts.

Leaders of the indigenous groups in Ecuador – who last year won the largest environmental court case in history – are presenting their analysis because Watson misled company shareholders about the case in an earnings call last Friday. Watson failed to disclose his own conflict of interest in that he was a key Chevron executive who drove the purchase of Texaco in 2001 without properly vetting the company for its massive Ecuador liability, said Karen Hinton, the U.S. spokesperson for the Ecuadorians.

In the earnings call, Watson charged that the Ecuador case is part of an elaborate "fraud" to extort money from Chevron – a false statement that directly contradicts court findings based on scientific evidence, including evidence provided by Chevron itself, said Hinton.

"Watson uses rhetoric as a device to hide his failed leadership on the Ecuador case," said Hinton. "His comments about the Ecuador liability on the earnings call were misleading and should be treated with extreme skepticism by shareholders."

For a more accurate analysis of the risks facing the Ecuador case than that Chevron is making in its quarterly calls or in its disclosures to the SEC, Hinton said shareholders should reference a report on the Ecuador case by Simon Billenness and Sanford Lewis that was published in May of last year prior to the company's annual meeting. Both point out risks that Chevron has not completely disclosed, including the likelihood of standard collection actions against Chevron assets in various countries that are critical to the company's operations.

Watson's comments on the earnings call omitted key information that has emerged recently, as follows:

  • After eight-year trial, the Ecuador court in February 2011 found the company liable and imposed damages of $18 billion. The court found Chevron itself proved the company discharged billions of gallons of toxic waste into the environment, decimating indigenous groups and poisoning rivers and streams that local inhabitants rely on for drinking water. See here and here.
  • On January 3, an Ecuador appellate court affirmed the trial court judgment and blasted Chevron for its "abuse of the judicial process" in Ecuador by filing frivolous motions and threatening a judge with jail time. The court also upheld a punitive damages sanction against the company.
  • The U.S. Court of Appeals in New York last week rejected a Chevron attempt to seek a worldwide injunction blocking the Ecuadorians from enforcing their judgment, essentially nullifying the centerpiece of the U.S. component of the oil giant's legal strategy. See here and here.
  • Chevron's lead outside law firm, Gibson Dunn & Crutcher, has created even greater risk for Chevron shareholders by bungling key aspects of the litigation. See here and here.
  • Since the firm took over the matter in 2009, Chevron lost the underlying case; lost at the appellate level; lost a motion to attach assets of the Ecuadorians in the U.S.; seen its plan to block enforcement overturned by the U.S. federal appellate court; and been exposed to potential criminal liability for trying to bribe Ecuador's government,
  • Documents recently obtained via U.S. discovery actions shows that Chevron engaged in extensive acts of corruption and fraud in Ecuador. Chevron doctored soil samples to mislead the Ecuador court and used a secret lab to hide evidence of toxic contamination; paid $2.2 million in hush money to a man who threatened to expose the company's corruption in the Ecuador trial; tried to entrap an Ecuadorian judge with secret video recordings, and used U.S.-based experts to lie to the Ecuador court about the company's deceptive field sampling.
  • U.S. and Ecuadorian courts have sanctioned Chevron for the use of unethical litigation practices done at the behest of Gibson Dunn and its lead partner, Randy Mastro. Several U.S. and Ecuadorian judges sanctioned Chevron for harassing witnesses, filing a frivolous lawsuit, and abusing the judicial process. See here.
  • Recognizing it could not win the lawsuit on the merits, Chevron recently tried to bribe Ecuador's government with a "donation" to an environmental project in exchange for the "settlement" of the legal case without the involvement of the plaintiffs, according to sources within Ecuador's government. Chevron never denied the reports of the attempted bribe, which might violate criminal laws in both Ecuador and the U.S.
  • Chevron also suffered a major setback in a U.S. federal appellate court in Philadelphia when Mastro was harshly criticized for seeking the case file of an American lawyer who represented the Ecuadorians. The panel unanimously overturned a trial court order secured by Mastro. See here.
  • Chevron faces potential criminal and civil liability for orchestrating a video scandal to entrap the Ecuador trial judge in a trumped-up bribery scandal. Several lawyers working for Chevron, including Robert Middlestadt of Jones Day, have been deposed or face potential depositions in the matter.
  • One of Gibson Dunn's investigators on the Ecuador matter, San Anson, was caught trying to pay an American journalist to spy on the plaintiffs.
  • The Gibson Dunn strategy also includes fomenting open conflict between Chevron and Ecuador's government, a tact considered grossly impolitic for an oil major. Chevron is already facing likely criminal charges in Brazil – a country with enormous reserves coveted by the company – for lying about its recent spill off the coast of Rio province.

Mastro, the mastermind of Chevron's increasingly shaky legal strategy, was laughed at as he was unable to answer basic questions posed by the New York appellate panel that issued its order last week. One judge even asked whether Chevron's legal expenditures on the case was a good use of shareholder money.

Hinton said shareholders needed full information to be able to understand the risks facing the company.

"With these numerous setbacks over the last several months, it is even more apparent that John Watson and Gibson Dunn have brought Chevron's shareholders to the edge of the proverbial cliff," said Hinton.

"No matter what Watson does, Chevron simply cannot change the fact its horrific contamination in Ecuador is visible to the naked eye and has been confirmed by journalists and courts the world over," she added. "The evidence is so overwhelming that no amount of trickery can save the day for Chevron at this point.

"It is also becoming increasingly obvious that Gibson Dunn has sold Chevron's management a bill of goods for which it has charged hundreds of millions of dollars over the last two years," added Hinton. "If this management team doesn't monitor the situation more carefully, some additional and very unpleasant consequences for the company's shareholders could be in store."