Chevron's Views
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The Ecuador Lawsuit.

Agora Financial – The $113 Billion Smoking Gun: The Chevron Witch Trial and an Environmental Bernie Madoff

Date: Sep 22, 2010

This piece describes the Chevron Ecuador lawsuit as “baseless,” a “transnational criminal enterprise” and an “outrageous scandal” :

By Byron W. King
www.agorafinancial.com

In the past, I’ve written about what I call the “Chevron Witch Trial.” That is, Chevron is involved in a frustrating — “frivolous” is a better word — lawsuit in Ecuador, concerning alleged “environmental damage” by Texaco back in the 1970s and 1980s. Chevron merged with Texaco in 2001, so the litigation against Chevron followed the merger. There’s big money involved — $113 billion, as I’ll describe below.

I don’t own Chevron stock, nor do I list Chevron in the model portfolio of this newsletter. But I respect Chevron. It’s a well-run energy and technology firm.

I’m following this case because it illustrates the dangers that threaten even the largest companies. Across the world, there are people whose goal in life is to take down and rip off Western resource developers. The pirates off East Africa come to mind, with their assaults on oil tankers. Or the rebels in Nigeria, who bomb oil pipelines.

“Lawfare” and Transnational Crime

Sometimes, however, the bad guys use less violent means, such as by bringing baseless lawsuits and demanding large financial settlements. This kind of “lawfare” can severely harm companies, as well as add years of delay to development projects. Thus, we need to understand what’s happening.

Indeed, it turns out that the litigation against Chevron in Ecuador is, at root, a massive, transnational criminal enterprise.

Recent developments are shocking. There’s a wide-ranging conspiracy of U.S. and Ecuadorean lawyers, consultants and other players all working to fabricate a baseless — and astronomical — damage claim against Chevron. The goal is to co-opt the Ecuadorean legal system to impose a punishing financial verdict against an American company.

As crimes go, this action against Chevron makes the billions that Bernie Madoff stole look like peanuts. This case is doubtless among the largest financial crimes in history.

Background to the Ecuador Case

Here’s the background. Starting in the late 1960s, Texaco drilled for oil in Ecuador. Texaco worked there until its operations were fully nationalized in the early 1990s. For most of the time — starting in 1977, to be precise — the state-owned oil company, Petroecuador, set policy.

When Texaco departed from Ecuador in the early 1990s, it made a deal with Petroecuador and the Ecuadorian government to remediate numerous oil sites. Texaco cleaned up the sites, left Ecuador and received a “release” from the national government.

So far, so good? Not quite. In 1993, a U.S. lawyer named Steven Donziger — fresh out of Harvard Law School, Class of 1991, same as a certain Barack H. Obama — sued Texaco in New York federal court. The claim was for “environmental justice,” a novel legal concept that mostly appears in law review articles at places like Harvard.

Case Dismissed?

After much legal sparring, the case against Texaco was dismissed in the late 1990s. The federal court allowed as how attorney Donziger and his clients could still file suit in Ecuador. But on the merits, the basic case against Texaco went away in the U.S.

Using local counsel, Mr. Donziger refiled the lawsuit in Ecuador against Chevron. But this time, the plaintiffs added a long list of claims, things that weren’t part of the original U.S. case. In essence, the new Ecuadorean lawsuit asserted an almost endless string of charges against Texaco-Chevron, with a seemingly bottomless calculation of damages.

Big Money In Play

After a couple years of litigating in Ecuador, things got super-complex. The Ecuadorean judge appointed an “independent expert” named Richard Cabrera to advise the court on the merits of the claims and to calculate damages. In November 2008, Mr. Cabrera came back with a report stating that Chevron ought to pay over $27 billion of “damages” for environmental and related impacts in Ecuador.

Wow, $27 billion? That’s no typo. But that was just the beginning. In mid-September 2010, the Ecuadorean plaintiffs raised the ante to $113 billion!

In comparison, $113 billion is over twice the annual gross domestic product (GDP) of Ecuador. Under the worst nightmare scenario, could Texaco have caused that much damage? The answer is that Texaco did NOT cause any such damages, and — more importantly — the Ecuadorean “expert” is not so “independent.”

Fraud, Fraud, Fraud

In the past two months, it’s come to light that Mr. Cabrera is a con artist and his “report” is a ghostwritten fabrication. Furthermore, Mr. Cabrera was selected as an “independent expert” by the Ecuadorean court despite having a close, improper relationship with the mastermind of the case, New York attorney Donziger.

It’s an outrageous scandal in every respect. Mr. Cabrera was supposed to be an impartial, arms’-length, fair-minded adviser to the court. Except he was in Mr. Donziger’s pocket from almost the start. Indeed, Mr. Cabrera’s “expert” report was prepared — “ghostwritten” is the term that one U.S. federal judge recently used — by an environmental consulting firm that is directly in cahoots with Mr. Donziger.

As with all conspiracies, in order to make it look good, everyone had to follow a script. That is, after Mr. Cabrera submitted his ghostwritten report to the Ecuadorean court, Mr. Donziger’s environmental consulting colleagues wrote up a series of nominal “objections” to the very report that they had prepared. It made for good theater, I suppose.

The idea behind the earlier $27 billion “damage” calculation against Chevron (now raised to $113 billion) was to give the Ecuadorean court plenty of wiggle room on the downside. In other words, the Ecuadorean court would review the staggeringly large claim. Then it could assess huge damages, but at a lower number.

Next step? The reliable propaganda mills of the global left-wing media would refer to how Chevron, in essence, “got off easy” because the company didn’t get slapped with the $27 billion claim — let alone the recent $113 billion amendment.

It’s All on Tape

The scope of wrongdoing is so vast that it’s hard to wrap your brain around it. Think of this entire Ecuadorean lawsuit as a crime scene, with the dirty deeds orchestrated by a dirty New York attorney named Steven Donziger.

Indeed, Mr. Donziger is an environmental law version of Bernie Madoff, the psychopath and rip-off artist who stole nearly $10 billion from his clients under color of “investing” on their behalf. Here, Mr. Donziger is wrapping himself in the cloak of “environmental justice” to try to nick Chevron for multiple times the Madoff take.

How do I know all this? Well, in a bizarre version of the television series The Smoking Gun, it’s on tape.

A Movie Star Wannabe

In 2006, attorney Donziger invited an independent filmmaker named Joseph Berlinger to make a movie about the Chevron lawsuit. Strange, don’t you think? A lawyer making a movie about his lawsuit while it’s in progress? Yes, it’s bizarre.

Mr. Berlinger hauled his cameras from New York to Ecuador and had carte blanche to film Mr. Donziger and his conspiring pals. Eventually, in 2009, Mr. Berlinger released a movie titled Crude, starring a certain actor-wannabe named Steven Donziger. The film is, at root, a heavily biased tirade against Texaco and Chevron, telling the Ecuador “story” from Mr. Donziger’s fantasy standpoint.

Not to put too fine a point on it, but Crude is just another piece of predictable, leftist, anti-business propaganda. Of course, the U.S. Constitution’s First Amendment protects free speech, even for leftist, anti-business propaganda. Fair enough.

But there are a few scenes in Crude that are suspicious. The movie gives strong hints that attorney Donziger, or his agents, met with Mr. Cabrera and a group of environmental consultants, apparently before Mr. Cabrera was appointed by the court as the “independent expert.” Whoops.

Racketeering on Tape

Based on these clues, Chevron went to federal court in New York and demanded that Mr. Berlinger release hundreds of hours of outtakes that he didn’t use in the movie Crude. After a series of contested hearings, and an appeal to the Second Circuit Court, a federal judge ordered Mr. Berlinger to release the outtakes.

When the Chevron attorneys reviewed the tapes, it was a jaw-dropping experience, from what I hear. The outtakes include backroom and dinner-table discussions, in which Mr. Donziger and colleagues explain their motives and actions. Basically, Mr. Donziger and his band of merry men admit — on film — that their lawsuit is a massive concoction intended to shake money out of Chevron. It’s about as self-incriminating as you can get.

In essence, Mr. Donziger and his cohorts have rigged the Ecuadorean lawsuit against Chevron. This case was wired from the beginning. The idea was always to slap Chevron with a gigantic damage claim in Ecuador and then negotiate a sweet settlement with plenty of money for everybody who… umm… “helped.”

This lawsuit is a legalistic form of fraud, blackmail and racketeering. There appear to be prima facie violations of the U.S. Foreign Corrupt Practices Act as well as federal bribery, racketeering and conspiracy laws. The Crude film outtakes show Mr. Donziger violating a few of the Federal Rules of Civil Procedure (Rule 11 comes to mind), as well as the Canons of Ethics that govern New York lawyers.

That, and much more. It’s all there on video, live and in color. Mr. Donziger is looking at disbarment, if not criminal indictment. (Where’s the U.S. Justice Department when you need it?)

“On the Corrupt Side”

So far, it’s mainly the attorneys in the case, and senior Chevron executives — plus a few U.S. federal judges — who have seen the actual Crude film outtakes. But it’s not like these outtakes are state secrets. They’re public records, on file in a number of U.S. courthouses.

Chevron has litigated the proceedings in several federal courts, in an effort to force the U.S.-based perpetrators to submit to depositions. As you can imagine, the perps do NOT want to be questioned under oath. But Chevron wins all the cases, because the evidence is overwhelming. (Maybe the perps should just take the Fifth?)

Court pleadings include extensive, transcribed excerpts from the Crude movie outtakes. In both open court and in written decisions, several federal judges have described what’s going on in — shall we say — unflattering judicial terms. The judges use terms like “fraud,” “outrageous,” “shocking” and “on the corrupt side.”

Consider this comment, from Magistrate Judge Lorenzo Garcia, from the U.S. District Court for the District of New Mexico:

“The release of many hours of the outtakes has sent shock waves through the nation’s legal communities, primarily because the footage shows, with unflattering frankness, inappropriate, unethical and perhaps illegal conduct. In the film itself, attorney Donziger brags of his ex parte contacts with the Ecuadorian judge, confessing that he would never be allowed to do such things in the United States, but in Ecuador, everyone plays dirty. The outtakes support, in large part, [Chevron’s] contentions of corruption in the judicial process.”

“It’s a New Era”

Or consider what Federal Magistrate Judge Joseph Brown of the U.S. District Court for the Middle District of Tennessee had to say about the times in which we live:

> “I’m amazed at what parties will get themselves (into), paint themselves into corners by discussing litigation and everything else with moviemakers that are putting it on Facebook or Twitter or something else. It’s a new era.”

Indeed, it’s a new era. It’s a time when life imitates art, sometimes even following the formula of the television series The Smoking Gun.

Then again, $113 billion is a lot of money to try to steal. As I said above, this is one of the largest financial crimes in history, unfolding before us.

That’s all for now. Thanks for reading…