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Wall Street Journal – Shakedown in the Rain Forest – The attempt to loot Chevron for $27 billion is falling apart

The Wall Street Journal’s take on the Chevron Ecuador trial,  where the “whole tale is falling apart” and the “mess [was] almost certainly created by the government’s own oil company, PetroEcuador, which has presided over 1,200 spills in the past decade alone”…

What do you get if you cross a South American republic and crusading environmental groups with an American oil company?

If that sounds like a joke, consider Ecuador, where American plaintiff attorneys and green activists are trying to wring Chevron for the biggest environmental verdict in history. In a case that’s before an Ecuadorian court, Chevron faces a possible $113 billion verdict—it was a mere $27 billion until last week—to clean up a mess almost certainly created by the government’s own oil company, PetroEcuador, which has presided over 1,200 spills in the past decade alone.

The drama began in the 1970s, when Texaco and government oil company PetroEcuador drilled some 321 wells in Ecuador. In the early 1990s, Texaco decided to end its operations and worked out an environmental remediation plan with the government that assigned Texaco responsibility for 133 sites—proportional to the company’s share in the project. The company spent $40 million on the cleanup, and in 1998 the government and PetroEcuador legally released Texaco, which merged with Chevron in 2000, from further claim or liability.

So much for that. Environmental group Amazon Defense Front, an NGO formed in Ecuador and the sole (listed) financial beneficiary of the lawsuit, has been leading a relentless campaign against Chevron in Ecuador courts and the Western media. Actress Darryl Hannah had herself photographed dipping her hands into a fresh oil slick, supposedly evidence of Texaco’s malfeasance. The suit also enjoys the none-too-subtle support of Ecuadorian President Rafael Correa, a Hugo Chávez clone who’s blasted Texaco for its “atrocities.” Ecuador’s prosecutor general has said that the government would take 90% of any payout by Chevron.

Now, however, the whole tale is falling apart under intense legal scrutiny in multiple jurisdictions. In May, U.S. District Judge Lewis Kaplan granted a request by Chevron demanding the release of hundreds of hours of additional footage from the 2009 documentary “Crude,” which purports to be an even-handed account of the legal battle but is closer to a piece of pro-plaintiff agitprop. He also granted discovery relating to plaintiffs attorney Steven Donziger, the scope of which Mr. Donziger will ask Judge Kaplan to limit in a hearing today.

“The released version of ‘Crude’. . . depicts interactions which suggest the possibility of misconduct on the part of both plaintiffs’ counsel and the GOE [Government of Ecuador],” the judge wrote in May, adding that “it is likely that the outtakes will be relevant to significant issues in the prosecutions.” The makers of “Crude” are appealing the decision. A September 13 order by U.S. Magistrate Judge Lorenzo Garcia in the U.S. District Court in New Mexico said the footage shows “inappropriate, unethical and perhaps illegal conduct” and called the outtakes “sufficient to establish a prima facie case of attempted fraudulent activity by attorney [Steven] Donziger.”

Among those outtakes—the publicly available transcripts of which we have reviewed—is a scene in which Mr. Donziger says, in regard to the quality of evidence about the extent of the alleged contamination, that “at the end of the day, this is all for the Court just a bunch of smoke and mirrors and bull—. It really is. We have enough, to get money, to win.”

There’s also a conversation between Mr. Donziger and two Ecuadorian associates in which they discuss (though it’s not clear just how seriously) whether they can hire local people to keep watch outside the courthouse. Readers can judge for themselves from the quote what they had in mind for this group. “It’s called an army, but it’s like . . . a specialized group . . . for immediate action,” says one of the associates. Mr. Donziger did not respond to requests for comment.

Nor are the outtakes the only inconvenient disclosures about the plaintiffs’ behavior. In sworn testimony earlier this year, U.S. biologist Charles Calmbacher, whose assessment of toxins at two sites was used to estimate Chevron’s liability, said the conclusions submitted in his name by Mr. Donziger did not reflect the 2005 report he prepared. In his real report, Mr. Calmbacher recalled, he did no estimates of costs or remediation amounts. “I concluded that I did not see significant contamination that posed immediate threat to the environment or to humans or wildlife around it.”

That wasn’t the answer Mr. Donziger was looking for, Mr. Calmbacher explained. “He wanted the answer to be that there was contamination and people were being injured . . . Because it makes money. That wins his case.” When the subpoena arrived for his testimony in March, Mr. Calmbacher says, Mr. Donziger called to discourage him from participating in the deposition.

Mr. Donziger has not addressed Mr. Calmbacher’s allegations in his filings, but in a motion to quash Donziger’s subpoena, plaintiffs called Mr. Calmbacher “a disgruntled former expert, who had a very minor role in the Lago case, and who threatened to sue plaintiffs for unpaid fees.” Plaintiffs spokeswoman Karen Hinton has also called Mr. Calmbacher’s testimony “bewildering.”

The tactics may be less shocking in Ecuador, where the courts are notoriously, er, unreliable. In the Chevron trial, one Ecuador judge, Juan Nunez, recused himself at the request of Prosecutor General Washington Pesantez after videos surfaced suggesting Judge Nunez may have been implicated in a $3 million bribery scheme involving people who identify themselves in the video as officials of Ecuador’s ruling party.

In February, the case took another farcical turn as Richard Cabrera, the court-appointed author of the original “independent” report suggesting Chevron should pay $27 billion for its transgressions, was discovered to have a potential financial stake in any verdict. Mr. Cabrera, who owns a majority stake in an oil remediation company that is on PetroEcuador’s approved list of vendors, concealed that relationship from the court by denying he had any conflict of interest. Chevron has alleged in court that he also backdated photos from the early 1990s and 2001 to appear to implicate Texaco for oil pits done after the company left the country.

More recently, Chevron has filed a case in a Colorado District Court alleging that Mr. Cabrera’s report was written in close consultation with Boulder-based Stratus, an environmental consulting firm hired by the plaintiffs, and which, Chevron claims, has been withholding evidence of improper contacts with Mr. Cabrera. In an emailed statement, Stratus Executive Vice President Doug Beltman told us that because of privilege asserted by the plaintiffs, the firm “cannot provide more information at this time other than to deny the allegations against us of fraud and other wrongdoing as false and to characterize them as part of Chevron’s ongoing media campaign against the plaintiffs.” Mr. Cabrera has not responded to the allegations.

Mr. Cabrera’s $27 billion damages estimate was an exercise in imaginary math trumped only by last week’s new plaintiffs’ figure of $113 billion. Though Texaco estimates it earned some $490 million over the project’s lifespan, Mr. Cabrera’s report suggested the company owes $8.4 billion for “unjust enrichment” while the plaintiffs’ new “conservative figure” estimates that between $18.26 billion and $37.86 billion would be appropriate. For remediation costs, Mr. Cabrera’s report assigns $2.743 billion for a job that would cost some $18 million if it were done by PetroEcuador. Mr. Cabrera assessed $9 billion for cancer victims, without any medical documentation of their existence. The plaintiffs’ new estimate is $69.7 billion.

The astronomical numbers have always been a lever to coerce Chevron into settling, but the company has so far fought back. In March, U.S. District Judge Leonard Sand in New York ruled the company could proceed with an international arbitration claim against Ecuador for violating its due process rights in the trial underway in Ecuador. The appeal is now pending on the Second Circuit Court of Appeals. Through arbitration, Chevron will likely be able to defer the payout of any whopper verdict from the Ecuador court. And if the court does not throw out the two reports by Mr. Calmbacher, any verdict could be challenged as based on fraudulent evidence.

Perhaps the definitive verdict on the case was delivered by one of the plaintiffs’ attorneys, Joe Kohn of the Philadelphia firm Kohn Swift & Graf, who told the makers of “Crude” that “a lot of my motivation is, at the end of the day, is that it will be a lucrative case for the firm.” And that’s not even in the outtakes.

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