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    September 09, 2013 Articles

    The Contamination of the World's Largest Pollution Judgment

    The $19 billion judgment against Chevron is unraveling.

    By L. Mark Walker – September 9, 2013

    For now, it is still the world's largest pollution judgment: the $19 billion Ecuadorian judgment against Chevron for pollution of the Amazon rainforest. But the pollution judgment is unraveling—the victim, it seems, of contamination—contamination by fraud and corruption. The latest shocking revelations may be the judgment’s death knell. But first some background.

    A Long and Tortured History
    In 1964, the Republic of Ecuador granted an oil-and-gas concession to Texas Petroleum Co. (TexPet), a fourth-tier subsidiary of Texaco, Inc. Over time, beginning in 1974, Ecuador's state-owned oil company, Petroecuador, became a co-owner in the concession. In 1990, Petroecuador became the operator of all of the wells and in 1992 became their sole owner. Over 400 wells were drilled while TexPet owned an interest in the concession.

    In 1993, a group of Ecuadorian indigenous inhabitants of the Amazon rainforest filed a lawsuit against Texaco in federal court in New York. Styled Aguinda v. Texaco, Inc. (Aguinda I), the case was brought as a putative class action on behalf of 30,000 Ecuadorian nationals claiming that TexPet's operations had polluted the Amazon rainforest and rivers. The lawsuit sought billions of dollars for remediation and cleanup.

    Texaco promptly moved to dismiss on grounds of forum non conveniens. In response, theplaintiffs argued that Ecuador's judiciary was corrupt and, therefore, that Ecuador was an inadequate forum. Although it would later rue the day, Texaco countered by praising the Ecuadorian courts and insisting that Ecuador would provide an adequate forum. Almost nine years later, in 2002, Texaco got what it wanted—its motion to dismiss was granted. In the meantime, several important events had transpired.

    In 1995, TexPet entered into a comprehensive settlement agreement with the Ecuadorian government. In the settlement, Ecuador represented that all of the claims asserted inAguinda I belonged to the government and that the government was releasing all of them in exchange for TexPet's performance of specified environmental remediation. TexPet spent three years and $40 million to conduct the agreed cleanup. In 1998, Ecuador agreed that all of the required remediation work had been fully performed and, thus, that all claims against TexPet and its related companies were released.

    In 2003, after Aguinda I had been dismissed, the plaintiffs refiled their lawsuit in Ecuador (Aguinda II). Chevron was now named as a defendant by virtue of its acquisition of Texaco in 2001.

    In 2005, Steven Donziger, the lead American lawyer for the plaintiffs, solicited award-winning filmmaker Joseph Berlinger to make a documentary film about Aguinda II. Berlinger was given virtually unlimited access to the plaintiffs' attorneys and experts. In shadowing them, Berlinger was allowed to film conversations among plaintiffs' counsel about trial strategy and to record what would have otherwise been privileged communications and attorney work product.

    The end result was a documentary entitled Crude: The Real Price of Oil, which premiered in 2009 at the Sundance Film Festival. The film may ultimately be the undoing of the $19 billion judgment. In 2010, Chevron sought discovery in several U.S. courts under 28 U.S.C. § 1782 in aid of its defense in the Ecuadorian lawsuit. It was through these proceedings that Chevron obtained "outtakes" from Crude—that is, footage that did not make it into the final cut of the film—as well as the deposition testimony of some of plaintiffs' experts and attorneys, including Donziger. The section 1782 discovery began to expose the fraud and corruption underlying the judgment.

    Brazenly Bribed by Plaintiffs
    Since 2003, a number of different Ecuadorian judges have presided over Aguinda II. Amazingly, most of them have either been forced to recuse themselves or have since been removed from the bench for alleged corruption in one form or another.

    For example, Judge Juan Nuñez withdrew in 2009 after a series of videotapes suggested that he was to share in a proposed $3 million bribe to be paid by a contractor in exchange for some of the court-ordered remediation work that would result from Nuñez's anticipated ruling against Chevron.

    Another judge, Judge Nicolas Zambrano—the judge who actually issued the judgment against Chevron—was removed from the bench in 2012 for improperly releasing drug dealers from jail. Another previously presiding judge, Judge Leonardo Ordoñez, was also removed from the bench in 2012 on similar charges.

    In a recently filed affidavit, Judge Alberto Guerra, who had also presided over Aguinda II, admitted that he and Judge Zambrano colluded with the plaintiffs to arrive at the $19 billion judgment against Chevron. See Affidavit of Alberto Guerra Bastidas, Chevron Corp. v Donziger, No. 1:11-CV-00691-LAK-JCF (S.D.N.Y. Feb. 2013). Under the described deal, Judge Zambrano and Judge Guerra were to share a $500,000 bribe in exchange for allowing the plaintiffs to draft the judgment. Judge Guerra readily concedes that the plaintiffs did, in fact, author the judgment and that he, as Judge Zambrano's "ghostwriter," implemented minor changes to make it more closely resemble one prepared by an Ecuadorian court. Judge Guerra admits this was in violation of Ecuadorian law.

    Chevron had for some time been complaining that the plaintiffs had drafted the judgment because documents obtained through the section 1782 proceedings showed that lengthy passages from these confidential records, which had never been filed with the court, appeared verbatim in Judge Zambrano's final order of judgment. Judge Guerra's affidavit confirms Chevron's suspicion.

    Judge Zambrano has now submitted an affidavit of his own in which he denies any bribery or complicity with the plaintiffs or Judge Guerra. Affidavit of Nicolas Augusto Zambrano Lozada, Chevron Corp. v. Donziger (Apr. 4, 2013). So how does he explain away the mysterious appearance of the plaintiffs' confidential language in his judgment? In Judge Zambrano's words, "occasionally documents related to the case that were not incorporated into the process were left at the door of my office. . . . This was relevant information that, as I read it, I realized it could be of use in my decision." Really?

    Plaintiffs' Experts Admit Deception and Disavow Their Own Reports
    Early on in Aguinda II, the court ordered the parties to investigate and report on the environmental condition of a number of former TexPet sites. Each side retained its own expert. In 2004, the plaintiffs filed reports signed by Dr. Charles Calmbacher that identified extensive environmental damage at two former TexPet sites. As a result of the section 1782 proceedings, however, Chevron was able to depose Dr. Calmbacher in 2010. In his deposition, Dr. Calmbacher admitted that someone forged his name to the reports—that he had not written the reports and that he had never concluded that remediation was required at either site or that any site posed a health or environmental risk.

    In 2006, the plaintiffs asked the court to appoint an independent expert to conduct a global assessment of environmental damage. At the time this request was made, the presiding judge was under investigation for trading jobs for sex. The plaintiffs prepared a draft complaint against the judge, and threatened to file it to persuade the judge to appoint an "independent" expert. Chevron Corp. v. Donziger, slip op. at 5 (Mar. 15, 2013). In 2007, the court appointed Richard Stalin Cabrera to fill this role.

    The Crude outtakes contain footage of discussions between the plaintiffs' attorneys and experts that strongly suggest that the plaintiffs intended to ghostwrite Cabrera's expert report and conceal this from Chevron. In recently filed witness statements,  two of the plaintiffs' environmental experts, who were employees of Stratus Consulting, acknowledge that their team ghostwrote virtually the entire expert report for Cabrera and deliberately hid their involvement from Chevron and the public.Witness Statements of Douglas Beltman and Ann Maest, Chevron Corp. v. Donziger (Apr. 12, 2013). Thus, the damage assessments in the Cabrera report were the work of plaintiffs' experts, not an independent third-party neutral.

    To further conceal their involvement, the plaintiffs' experts filed a response to the Cabrera report in which they generally approved of the Cabrera report but claimed that the recommended damages were billions too low, evidencing a bias by Cabrera in favor of Chevron. Stratus was, in other words, criticizing its own work to create the false impression of Cabrera's independence. The experts have admitted that they acted at the direction of Donziger, and their witness statements conclude by disavowing their environmental damage assessments as tainted and unsupported by scientific evidence.

    Financial Backer Claims It Was Misled and Renounces Interest in Lawsuit
    On April 17, 2013, litigation financier Burford Capital, which had helped finance Aguinda II to the tune of $4 million, renounced all interest in the lawsuit and judgment. Declaration of Christopher Bogert, Chevron Corp. v. Donziger (Apr. 17, 2013). Burford claims it was misled into investing in the lawsuit. In particular, in performing its due diligence in deciding whether to invest, Burford expressed concern to the plaintiffs about Chevron's allegations regarding the Cabrera report that were then surfacing. Burford says that the plaintiffs' lawyers assured Burford that the contacts with Cabrera were both limited and lawful. Upon later learning that Stratus had ghostwritten the Cabrera report, however, Burford advised the plaintiffs that

    we believe that you and particularly your US representatives engaged in a multi-month scheme to deceive and defraud in order to secure desperately needed funding … all the while concealing material information and misrepresenting critical facts in the fear we would have walked away had we known the true state of affairs.

    Burford was particularly concerned about an email from the plaintiffs' Ecuadorian counsel, Julio Prieto, to Donzinger, in which Prieto expresses fear that the truth about Stratus's involvement would become public, emphasizing not only that this could destroy the plaintiffs' lawsuit but also that "all of us, your attorneys, might go to jail." Burford has now concluded that the relationship between the plaintiffs' representatives and Cabrera was both "illegal and violated Ecuadorian law."

    Burford also asserts that Donziger misrepresented the reason that his former financial backer, Kohn, Swift & Graft, had stopped funding of the lawsuit. Kohn had previously advised the plaintiffs that it would cease funding because it was "shocked by recent disclosures concerning potentially improper and unethical, if not illegal, contacts with court-appointed expert, Mr. Cabrera." Like Burford now, Kohn had claimed that the contacts with Cabrera were irreconcilable with numerous assurances by the plaintiffs' counsel to the contrary. Yet according to Burford, Donziger claimed that Kohn simply did not have the money to continue funding.

    Current Status of Proceedings
    Chevron lost its appeal to the lower appellate court in Ecuador. It has now appealed to the nation’s highest court, but this does not operate to stay the judgment. This has paved the way for the plaintiffs to initiate collection proceedings, which they have done in Ecuador, Argentina, Brazil, and Canada. Earlier this year, a Canadian court held that the plaintiffs cannot proceed with their collection efforts against Chevron's Canadian subsidiary.

    In March 2011, Judge Lewis Kaplan entered a preliminary injunction in Chevron's Racketeer Influenced and Corrupt Organizations Act (RICO) lawsuit against the plaintiffs in Aguinda IIand their attorneys, prohibiting the enforcement of the Ecuadorian judgment, and preliminarily finding it to be rife with fraud. Chevron Corp. v. Donziger, 768 F. Supp. 2d 581 (S.D.N.Y. Mar. 7, 2011), rev'd on other grounds, 667 F.3d 232 (2d Cir. Jan. 26, 2012). The Second Circuit vacated the injunction, holding that Chevron cannot preemptively seek to have the judgment declared fraudulent and unenforceable where the plaintiffs are not seeking to enforce the judgment in the United States. Chevron's underlying RICO claims are soon proceeding to trial, however, and Chevron may obtain relief that completely offsets the $19 billion judgment. Meanwhile, the plaintiffs persist in their efforts to have Judge Kaplan removed from the case on claims that he is biased against them.

    Then there is the proceeding at The Hague. Chevron filed an arbitration there, alleging that the Aguinda II judgment violates the Bilateral Investment Treaty between Ecuador and the United States. Among other things, Chevron maintained that the failure of the Ecuadorian courts to uphold the prior settlement between Texaco and Ecuador violates the treaty.

    In February 2012, the arbitral tribunal issued an order requiring Ecuador to take all necessary measures to suspend enforcement or recognition of the judgment both inside and outside Ecuador. So far, Ecuador has refused to comply. On February 7, 2013, the tribunal held that Ecuador was in violation of its prior order by refusing to enjoin the plaintiffs' enforcement efforts in Canada, Brazil, Argentina, and Ecuador, and ordered Ecuador to show cause why it should not be sanctioned as a result.

    Closing Observations
    By any standard, the $19 billion judgment appears to be a complete travesty of justice. It is, "alas, worthy of a banana republic." Editorial, "Ecuadorian President Rafael Correa's Assault on Media Freedom," Wash. Post, Jan. 11, 2012. But what can be done—start over in a judicial system that has proven itself corrupt? Maybe the Permanent Court of Arbitration can put an end to the madness. Or perhaps Chevron will eventually obtain a large enough RICO judgment that it can prevent enforcement through setoff. In the meantime, the scope of this contaminated justice continues to spread.

     

    Keywords: energy litigation, Ecuador, Chevron, Texas Petroleum, Petroecuador, Aguinda

     

    L. Mark Walker is a director at Crowe & Dunlevy, P.C., in Oklahoma City, Oklahoma.

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