DOW JONES REPORT SHOWS JUDICIAL BIAS AGAINST CHEVRON IN ECUADOR LAWSUIT

Evidence Is Starting to Show Plaintiffs, Donziger
Have Rigged Against Oil Company

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BY PAT MURPHY
Sentinel Editor & Publisher
Copyright © 2008

Dow Jones News Service is reporting the struggles that San Francisco Bay Area-based Chevron Corporation is facing in trying to get a fair trial in Ecuador over alleged pollution charges in the Amazon.

The evidence is mounting that there is no way Chevron can get a fair trail in a country in which “judges fear ruling in any way that could be seen as going against Correa,” according to the news story by Dow Jones reporter Isabel Ordonez.

Ecuador President Rafael Correa is forcing Ecuador to slide back into a socialist banana republic. He is a strong supporter of the plaintiffs’ case against Chevron, going so far as to appear with the plaintiffs and having his government assist them at every stage of the case. It’s clearly a great country to be a plaintiff in–especially when you can manipulate the government and the judiciary to ensure your victory in court.

Now, President Correa is fighting for his political life by promoting a new constitution to give him unlimited power until 2017. And, in a throwback to the worst of Latin American dictatorships, he recently seized control of some of the nation’s televisions stations and now is tightening his control of the press. Even if you are a popular Cuban chef like María Carlota Valdés, you dare not break the media censorship rules of Correa regime.

The plaintiffs’ are led by Steven Donziger and are backed with money from the plaintiff’s law firm of Kohn Swift & Graf of Philadelphia. It is unlikely that Ecuadorians are aware that their government is being manipulated by Donziger and Kohn Swift and Graf. A real irony here is that Correa has tried to appear independent from the U.S. and American influence, but he is clearing being manipulated by American attorneys who see a big pay day for themselves and the government should they succeed.

Chevron and the U.S. Chamber of Commerce are fighting back here in the U.S. against the lopsided judicial system of Ecuador. They are opposing the extension of Ecuador’s participation in the Andean Trade Preference Agreement

In the coming month, it is likely that a report will come out from the Ecuadorian court that hits Chevron for $16 billion in damages for a variety of environmental allegations. The original case was filed in the U.S. where it was thrown out of court and the attorneys representing the Ecuadorians were fined by the American courts for fabricating health issues that did not exist in his clients. The lawyer then refilled the same case against Chevron in Ecuador, where clearly there is no rule of law and no fairness for Chevron, Americans or even now Ecuadorians as an authoritarian government seizes the media and manipulate the courts to its will.

Chevron has indicated that it sees no way to win in Ecuadorian courts and believes that any fine will not stand up in international courtrooms. The Chevron spokesman in the Dow Jones report said the lawsuit could go on “for generations” and with a unwholesome justice system in Ecuador that prediction seems spot on.

AMAZON OIL ROW: Chevron Struggles With Toxic Claim In Ecuador

By Isabel Ordonez – DOW JONES NEWSWIRES, August 6, 2008

(This is the first of a three-part series that examines a legal dispute between oil company Chevron Corp. and indigenous groups in Ecuador over who’s to blame for polluting the country’s Amazon jungle decades ago.)

SHUSHUFINDI, Ecuador (Dow Jones)–Activist Donald Moncayo hacks his way to a petroleum-crusted pond on the edges of the Amazon jungle. He grabs a branch and pulls a chunk of sludge from blackened water.

“I’d like to see Chevron paying for this,” said Moncayo, 34, who blames the pollution for his mother’s death. He works for the Amazon Defense Coalition, a group of environmental organizations based in Ecuador that supports the thousands of indigenous people who are suing the San Ramon, Calif.-based oil giant over damage to the environment here.

Among other things, they want Chevron to clean up hundreds of ponds like the one Moncayo visited, which they say are the result of decades of oil extraction by Texaco, which left Ecuador in 1992 and was acquired by Chevron Corp. (CVX) in 2001.

The next milemarker in the legal battle is set for Sep. 18, the deadline for Chevron and indigenous groups to respond to a report prepared in March in which an Ecuadorian court-appointed expert concluded the oil giant should pay up to $16 billion. This sum includes damages and penalties for contaminating water and soil and harming indigenous culture.

Chevron says it’s being targeted for its deep pockets and contends the legal system in Ecuador has fallen under the influence of politics. The company said it will ask the judge to reject the report and name another expert, but company officials concede there is little hope it can win the case. It says it won’t honor any unfavorable verdict.

“It’s a legal absurdity, but it’s real to say that in this instance we are going to lose,” said Rodrigo Perez, Chevron’s legal representative in Ecuador. “I don’t see a lot of future in appealing either.”

A decision could come as soon as next year.

Chevron’s pessimism after a five-year legal battle here underscores how the tables have turned since the 1990s, when the company successfully argued that the case, which was initially filed in federal court in New York, should instead be heard in Ecuador.

Texaco’s Legacy

In the 1960s, Texaco discovered oil in this lush and resource-rich corner of northern Ecuador. It became partners with Petroecuador, Ecuador’s state-owned oil company, in 1974.

Production from the operation peaked at over 220,000 barrels of oil per day with most of the crude being exported to the U.S.

Texaco left the country in 1992 and turned all operations over to Petroecuador, which is still producing oil here. Petroecuador declined repeated requests to comment for this article.

The area, one of the world’s most sensitive ecosystems, was badly polluted after the two firms dumped millions of gallons of untreated oil waste into more than 400 open pits. For years, the waste has been filtering into rivers and streams.

When Texaco left the country, it brokered a deal with Petroecuador to split clean-up duties.

Texaco spent $40 million cleaning about 163 of the sites from 1995 to 1998. Some of these sites are now indistinguishable to the naked eye from the rest of the jungle.

In September 1998, Ecuador said Texaco “totally executed” its part of the agreement, according to a document signed by Ecuador’s then-energy secretary. The document released Chevron from future claims by the government but indigenous groups say it doesn’t shield the company from private claims.

Several pits that were supposed to be treated by Petroecuador remain open sores.

Indigenous people and their supporters admit the national oil company is partially responsible for the pollution, but insist Texaco and therefore Chevron should be held accountable for cleaning up all the sites because they allege it taught Petroecuador the oil extraction technique that produced the waste.

“Chevron was the company that built all the well sites, all the production stations and employed a system that had as a waste disposal mechanism of dumping this water in the Amazon waterway,” said Steven Donziger, a New York lawyer who serves as legal advisor to Ecuadorian indigenous groups.

The technique is no longer considered to be an acceptable practice among the world’s large multinational companies. Indigenous groups also argue Chevron’s clean-up was inadequate and that areas that appear clean are still polluted.

But the U.S. oil giant rejects the notion it should be held accountable for cleaning all the polluted sites, which it said are Petroecuador’s responsibility.

“It is intellectually dishonest to put blinders on and blame everything on a company that left 17 years ago,” said Chevron spokesman Kent Robertson during a recent visit to this jungle. “It is as if you gave me a car 17 years ago, and I put no oil it and did no maintenance and came back to you and said, ‘You owe me a new car.’”

Court Of Public Opinion

If indigenous activists win the case in Ecuador, they plan to ask a U.S. court to enforce payment of penalties because Chevron doesn’t have any assets left in Ecuador.

“Once we get a judge’s ruling we are not going to wait for the appeals, we are going to collect the money through a U.S. court,” said Donziger.

Were it faced with an unfavorable ruling, Chevron plans to exhaust its appeals through the Ecuadorian courts and could then challenge the impartiality of a local ruling through international arbitration.

Some equities analysts who follow Chevron don’t see the litigation as a serious risk even if the company loses the case in Ecuador. They don’t foresee the company being ultimately liable for billions in damages as the case could get bogged down in appeals for many years.

Among the arguments Chevron plans to use to make its case is an examination of how that $16 billion penalty figure came about.

Chevron said the expert who calculated it, Ecuadorian geologist Richard Cabrera, was unqualified and worked mostly in secrecy with unnamed teams, preventing the company from observing most of his work. Cabrera didn’t respond to various requests for comment.

Cabrera’s report estimated environmental damage at $8.3 billion, and said Texaco saved around $8 billion by scrimping on its clean-up efforts, by using poor technology and having bad environmental practices.

“They thought the case will never end, and it’s going to,” Donziger said. “I think we will get a favorable judgment out of here next year.”

Chevron claimed a video, viewed by Dow Jones Newswires proves Cabrera’s lack of independence. In the video, Cabrera is seen collecting evidence of the pollution in the company of plaintiffs’ supporters including activist Moncayo.

The judge presiding over the case can choose to accept or reject partially or fully the findings of Cabrera’s report. The judge also could could name another expert.

Apart from the legal process, Chevron hasn’t fared well in the court of public opinion. In April, indigenous activist and lawyer Pablo Fajardo was awarded the prestigious 2008 Goldman Environmental Prize for protecting the Ecuadorian Amazon. Chevron, in turn, blasted the award in full-page newspaper advertisements.

Even Democratic presidential contender Barack Obama, who was Donziger’s classmate at Harvard Law School, has weighed in. In a 2006 letter, Sen. Obama, D-Ill., along with Sen. Patrick Leahy, D-Vt., urged the U.S. government not to use the leverage of the Andean Free Trade Agreement to eliminate the legal claim against Chevron in Ecuador, a stance he maintains as the presumptive Democratic nominee.

“Senator Obama continues to believe that this is a matter for the Ecuadorian judicial system to adjudicate in a fair, impartial, and independent manner,” said Wendy Morigi, Obama’s campaign spokeswoman.

AMAZON OIL ROW: US-Ecuador Ties Influence Chevron Amazon Dispute

By Isabel Ordonez – DOW JONES NEWSWIRES, August 7, 2008

(This is the second of a three-part series that examines a legal dispute between oil company Chevron Corp. and indigenous groups in Ecuador over who’s to blame for polluting the country’s Amazon jungle decades ago.)

QUITO (Dow Jones)–Though rooted in the legal system, the long-running dispute between Chevron Corp. (CVX) and indigenous groups over responsibility for pollution in Ecuador’s Amazon jungle has been heavily influenced by political tides.

Thousands are suing the energy giant, of San Ramon, Calif., which is accused of environmental contamination caused by Texaco, a company Chevron purchased in 2001. Texaco began producing oil in northern Ecuador soon after discovering it in 1967. Over time the company partnered with Ecuador’s state-owned oil company, Petroecuador, before exiting the country in 1992.

Most recently, an expert appointed by a court in Ecuador concluded Chevron should pay up to $16 billion in damages and penalties. Chevron, which contends it’s being unfairly blamed, has until September to challenge this recommendation.

The report is something Chevron probably never expected after it fought hard in the 1990s to have the case removed from a court in New York and sent to Ecuador. Back then, the government of Ecuador was still a close ally of the U.S. But as Ecuador has undergone several regime changes amid growing anti-Americanism in Latin America, the case isn’t progressing favorably for Chevron.

The U.S. oil giant left Ecuador in 1992, turning all of its operations over to Petroecuador, which still produces oil in Ecuador’s Amazon region. A year after Texaco left the country, a group of residents sued the company, claiming its practices had wrecked their environment and contending the local community has high rates of cancer and infant mortality due to the pollution.

In the 1990s, when the case was heard in New York, the indigenous group contended that Ecuador’s courts were corrupt, inefficient and influenced by pro-American politics. They also argued that Ecuador’s military, which had ruled the country through the 1970s, could interfere in favor of Texaco if the case was heard in Ecuador, according to a 1994 court filing. But U.S. courts sided with Texaco, which said Ecuadorian courts were the best place for the case, court documents show.

Chevron is now backpedaling and hoping a U.S. court will some day disqualify the process in Ecuador. Indigenous activists, meanwhile, take pride in the job Ecuador’s courts have done and President Rafael Correa, who opposes a free trade pact with the U.S., is using the court fight as a nationalistic rallying point.

“We will be more than happy to come to a real court in the U.S. and expose the case’s irregularities,” said Rodrigo Perez, Texaco’s legal representative in Ecuador.

Battles Become Harder

Protracted legal battles are nothing new for energy companies, who in their search for hydrocarbons bump up against governments empowered by oil wealth. It was just in June that the U.S. Supreme Court ruled on the 1989 Exxon Valdez oil tanker disaster, which spilled millions of gallons of oil into Alaska’s Prince William sound 19 years ago in one of the largest environmental accidents in U.S. history.

But as concerns about environmental sustainability grow more prominent and developing countries assert their rights, oil companies may find that their battles become harder and more expensive to fight. Observers say Exxon Mobil Corp. (XOM) was lucky when the Supreme Court reduced punitive damages for the spill from $2.5 billion to $507 million.

“What we are seeing now is a collision between a much higher level of political and social sensibilities and older legal regimes,” said Sheldon Leader, law professor at the University of Essex in the U.K. “This has made companies like Chevron potentially liable under local laws.”

Whether the pollution is as serious as local residents say is a matter of debate that intensified when President Correa stood on the edge of a polluted pit last year and proclaimed to a gathering of journalists that the weight of his government would be behind those suing the American company.

“Although the government can’t interfere in the judicial matter, we totally support the claim of our compatriots,” said Correa. “The world needs to know what this company (Texaco) did.”

Correa was elected in 2006 after more than a decade of instability in this small Andean nation, which has had 10 presidents in the past 11 years – three of whom were overthrown by popular uprisings. The country faced a severe economic crisis in 2000, when the local currency was replaced with the dollar. Ecuador has since transformed itself from a U.S.-friendly, free-trade welcoming nation into one with a populist bent.

Correa, as his ally Venezuela President Hugo Chavez has already done, is working to strengthen the state’s grip on natural resources. He is renegotiating the terms of exploitation contracts with international oil companies to include more governmental control.

In the latest sign of deteriorating relations with the U.S., the Ecuadorean government on July 30 officially notified the U.S. Embassy in Quito of its decision to terminate an agreement that allows the U.S. military to use a base in the Andean nation for anti-drug operations. Correa argued the base, the location of which was negotiated in 1999 with then-President Jamil Mahuad, compromises Ecuador’s sovereignty.

Chevron is using Correa’s remarks and other turns in the litigation to denounce the legal process, which the company says has been rendered a “farce” by Ecuador’s ever-changing political landscape. Indigenous groups dismiss these criticisms of Ecuador’s judicial system, but some observers don’t.

“Judges fear ruling in any way that could be seen as going against Correa,” said Arturo Torres, editor of the judicial section of El Comercio, an independent Ecuadorian newspaper. “They know they can lose their position and that they can be called traitor to the country.”

Presiding Judges Changing

Judge Efrain Novillo, the latest of three judges to preside over the case since it was filed in 2003, said he hasn’t felt pressure.

“For us, what the press and public opinion say doesn’t exist,” Novillo said in an interview in his office located in a small office building in Lago Agrio, an oil town in northern Ecuador where the case is being heard. “And whatever other authorities say is just an opinion.”

Novillo won’t likely be the judge who issues a ruling as the case will soon shift to yet another colleague, but his current actions could significantly weigh in the process.

In Ecuador, there are no juries or courtrooms. Witness testimony and evidence are submitted in writing for a judge to read and evaluate privately. Further complicating matters, under Ecuador’s law, judges are changed regularly.

“The court, despite being Ecuadorian, has the freedom to resolve according to what the judge considers is fair,” said Ecuador’s Attorney General Diego Garcia. But he added the Correa administration’s position on the case is clear: “The pollution is result of Chevron’s actions and not of Petroecuador.”

-By Isabel Ordonez, Dow Jones Newswires; 713-547-9207; isabel.ordonez@dowjones.com

AMAZON OIL ROW:Out-Of-Court Deal Unlikely For Chevron,Ecuador

By Isabel Ordonez – DOW JONES NEWSWIRES, August 8, 2008

(This is the final installment of a three-part series that examines a legal dispute between oil company Chevron Corp. and indigenous groups in Ecuador over who’s to blame for polluting the country’s Amazon jungle decades ago.)

QUITO (Dow Jones)–Opposing sides in the long-standing legal battle between Chevron Corp. (CVX) and Ecuadorean indigenous groups have held informal settlement talks over the years, but they appear far from agreement.

Indigenous groups in Ecuador’s Amazon region are suing Chevron for environmental damage they claim was wreaked by Texaco, which Chevron acquired in 2001. The saga has stretched for 15 years in courts in the U.S. and Ecuador.

Ricardo Reis Veiga, managing counsel for Chevron Latin America said the company has had “several discussions” with attorneys for indigenous groups in the past few years. But calling these meetings “settlement” talks would be an exaggeration, he said. Chevron’s general counsel has said the suit would drag on “for generations.”

Plaintiffs’ attorney Pablo Fajardo also downplayed prior discussions, saying the U.S. oil giant has discussed sums that wouldn’t come close what is needed to restore the Amazon. Fajardo said his clients would accept $8 billion to settle the case.

In these talks, Chevron has expressed interest in spending millions of dollars building a hospital and a drinking-water system for the community in exchange for the plaintiffs shifting blame to Ecuador’s government for the pollution and health problems, according to people close to the indigenous groups. But plaintiffs rejected the proposal.

“What we want is a remediation process well done and an integral health system,” Fajardo said.

Indigenous groups contend communities have high rates of cancer and infant mortality due to the pollution. Plaintiffs also claim that at the same time Texaco was employing a highly polluting technology in Ecuador to cut costs, it used more environmentally benign technology in the U.S., where there are stricter regulatory standards.

Chevron denies such accusations. It has filed in court statistics from the Ecuadorean government showing that the percentage of deaths from cancer in the country’s Amazon region is comparatively lower than in other parts of the country.

Despite the tough legal battle, Chevron’s Reis Veiga said the company is open to finding an amicable solution that would mean negotiations with indigenous groups, not outside law firms.

Throughout the lengthy litigation, Fajardo and other Ecuadorean lawyers have been supported by Philadelphia law firm Kohn, Swift & Graf, P.C., which is working on a contingency basis.

Competing Cost Estimates

Chevron officials have dismissed as “absurd” the $16 billion penalty figure included in a recent analysis by independent consultant Richard Cabrera.

“What they are trying to do is to inflate the number to force a deal,” said Rodrigo Perez, Texaco’s legal representative in Ecuador.

Cabrera’s report estimated environmental damage at $8.3 billion and said Texaco saved around $8 billion by scrimping on clean-up efforts in using poor technology and having bad environmental practices.

Cabrera’s $16 billion figure topped an earlier estimate made by David Russell, an Atlanta-based toxics specialist hired by plaintiffs. He visited the area in 2003 to survey the pollution. Back then, Russell reported the clean-up would cost $6 billion and that the pollution in Ecuador’s Amazon was larger than that from the 1986 Chernobyl nuclear disaster in the former Soviet Union.

But now Russell contends the figure exaggerated the damages, because it included some very broad and pessimistic assumptions about the level of contamination in the streams and groundwater. He said he realized his error when he received laboratory results of the samples he collected in the Amazon.

Despite his admitted miscalculation, Russell said the Amazon’s pristine ecosystem remains badly marred by oil pollution. He blames both Texaco and Ecuador’s state oil company, Petroecuador, which has been sole operator of Ecuador’s Amazon oil production since 1992.

Russell left the case at the end of 2004 and said in an interview he was barred from elaborating further on the matter and on the current cost estimate due to a confidentiality agreement with the plaintiffs’ attorneys.

Steven Donziger, the plaintiffs’ attorney in the U.S., said Russell spent a limited amount of time evaluating the damages in Ecuador and that the $6 billion figure he used was a “very preliminary” assessment.

Donziger said Russell’s report didn’t include some categories that Cabrera assessed in the new report, such as health problems and the cultural impact on indigenous groups.

Russell quit his job as a plaintiff’s consultant because he was weary of traveling back and forth to Ecuador and running his Georgia consultancy, according to both Russell and Donziger.

See Related: ENERGY SUPPLY

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PAT MURPHY
Sentinel Editor & Publisher
In his youth, Pat Murphy worked as a General Assignment reporter for the Richmond Independent, the Berkeley Daily Gazette, and the San Francisco Chronicle. He served as Managing Editor of the St. Albans (Vermont) Daily Messenger at age 21. Murphy also launched ValPak couponing in San Francisco, as the company’s first San Francisco franchise owner. He walked the bricks, developing ad strategy for a broad range of restaurants and merchants. Pat knows what works and what doesn’t work. His writing skill has been employed by marketing agencies, including Don Solem & Associates. He has covered San Francisco governance for the past eleven years. Pat scribes an offbeat opinion column of the human family. Email Pat Murphy at SanFranciscoSentinel@yahoo.com.

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