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Wall Street Journal Editorial – Shakedown in Ecuador; The comedy of legal errors against Chevron

The Wall Street Journal writes about the Chevron Ecuador judgment:

Woody Allen made “Bananas” in 1971 about a South American banana republic, but as a slapstick comedy it’s hard to beat this week’s $8.6 billion judgment against Chevron by a provincial court in Ecuador. The only thing more preposterous than the case is that the plaintiffs want more.

The suit, filed in an Ecuadorian court in Lago Agrio in 2003, charges that Texaco (since merged with Chevron) failed to clean up oil spills from wells it drilled in the 1970s, and thus should be liable for as much as $113 billion. The fact that Texaco cleaned up its sites and was released from liability by the government of Ecuador and state oil company PetroEcuador didn’t stop the plaintiffs, led by attorney Steven Donziger, from concocting a case through legally dubious tactics.

Consider the tale of Richard Cabrera, an ostensibly “neutral” expert for the Ecuadorian court tasked with writing a report to estimate the potential cost of environmental damages for which Chevron could be held accountable, a figure he ventured at $27 billion. (The figure was later inflated further.) Chevron has produced evidence that his findings were shaped in collaboration with Stratus, a Colorado-based environmental consulting firm that was working for the plaintiffs.

Exhibit B is a vast archive of shady remarks in clips and outtakes from “Crude,” a documentary on the case that captures potential misconduct by both the plaintiffs and the government of Ecuador. At one point in the film, Mr. Donziger calls all Ecuadorian judges corrupt and notes that “The only language that I believe this judge is going to understand is one of pressure, intimidation and humiliation. And that’s what we’re doing today.”

In the U.S., four federal courts have already said there is evidence that the behavior of the plaintiffs amounted to fraud. While many corporate defendants settle to avoid headline risk, Chevron has fought back, most recently with a RICO suit against the attorneys and consultants who have been its tormentors.

According to Chevron’s complaint in federal court in New York, the plaintiffs falsified evidence in an attempt to extort a settlement. Egged on by American NGOs that know they can’t prevail in U.S. court, the plaintiffs’ PR campaign targeted investors with scare tactics about Chevron’s potential foreign liability. They demanded investigations by the Securities and Exchange Commission and reached out to the Department of Justice and New York Attorney General Andrew Cuomo to intervene on their behalf. Mr. Cuomo obliged, writing a letter to Chevron CEO David O’Reilly in May 2009.

Last Tuesday, New York federal district judge Lewis Kaplan issued a temporary restraining order that bars the RICO defendants, including Mr. Donziger, from collecting monetary damages anywhere in the world. An arbitration panel at the Hague followed on Wednesday, instructing the Ecuador government to bar enforcement of any judgment pursuant to its Bilateral Investment Treaty with the U.S.

There’s more at stake here than one company’s bottom line. The Ecuador suit is a form of global forum shopping, with U.S. trial lawyers and NGOs trying to hold American companies hostage in the world’s least accountable and transparent legal systems. If the plaintiffs prevail, the result could be a global free-for-all against U.S. multinationals in foreign jurisdictions.

Chevron has no assets in Ecuador and the stock market gave the judgment a collective yawn on Monday, suggesting that few investors expect the plaintiffs will ever pocket the far-fetched billions bestowed by the Ecuador court. We hope the company’s refusal to surrender to lawyers in league with a banana republic sends a message to other aspiring bounty hunters.

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