Companies & Industries

Chevron's $19 Billion Day in Court


Protesters demonstrate against Chevron in front of a federal courthouse in New York on Oct. 15

Photograph by Spencer Platt/Getty Images

Protesters demonstrate against Chevron in front of a federal courthouse in New York on Oct. 15

High-stakes corporate liability litigation is changing. Rather than just defending themselves in court on the merits, big companies increasingly are taking the offensive against plaintiffs’ lawyers who sue them. On Oct. 15, for example, Chevron (CVX) launched a civil racketeering lawsuit in federal court in New York against a New York environmental attorney who won a $19 billion oil pollution judgment against the energy giant two-and-a-half years ago in a local court in Ecuador. Beyond the money at stake (serious cash, even for a mammoth multinational such as Chevron), the case will test the emerging strategy of seeking to discredit corporate gadflies—while possibly destroying the professional reputation of their lawyers in the process.

“Companies are watching the Chevron suit because they’re sick and tired of unfair mass-tort verdicts,” says Darren McKinney, a spokesman for the corporate-backed American Tort Reform Association. “Chevron is providing a model for how to fight back.”

The target of Chevron’s suit, plaintiffs’ attorney Steven Donziger of New York, has fought for 20 years in courts in the U.S. and Ecuador to vindicate the rights of thousands of Amazonian Indians and farmers who blame U.S. oil interests for ruining a large swath of the rain forest east of the Andes. Directing a team of Ecuadorian lawyers, Donziger won the record-setting pollution judgment in a jungle courthouse in February 2011.

Chevron, which has few assets in Ecuador, has refused to pay up. The company contends that the Ecuadorian verdict represents years of fraud, bribery, and fabrication of evidence, all orchestrated by Donziger from his home office on Manhattan’s Upper West Side. Unless Chevron succeeds in branding him a racketeer, “it will be open season on U.S. corporations in foreign jurisdictions,” Randy Mastro, Chevron’s main outside lawyer, said in his opening remarks Oct. 15. If U.S. District Judge Lewis Kaplan, who is presiding over the nonjury trial in New York, agrees, Chevron intends to use his determination to block enforcement of the $19 billion judgment—and to seek tens of millions of dollars from Donziger to reimburse the company for some of its legal expenses.

Donziger and his lawyers deny he’s a fraudster. They say that Chevron’s suit reflects an incipient trend of attacking attorneys who bring ambitious suits against corporations. “The plaintiffs’ bar needs to stand up against this new strategy,” one of Donziger’s lawyers, Zoe Littlepage, told reporters in a call before the trial got under way.

Chevron’s law firm in the case, Gibson, Dunn & Crutcher, has in recent years been marketing its specialty in “transnational litigation.” On its website, the 1,000-attorney law firm declares: “When faced with significant non-U.S. and cross-border litigation, especially if it involves plaintiffs from jurisdictions lending themselves to fundamentally unfair, abusive, or corrupt claims, members of the Transnational Litigation Group work with their clients to respond to these often massive and multifaceted assaults with more than a series of defensive tactics, but rather an affirmative strategy to ultimately end the litigation.” In other words, Gibson Dunn sees a strong offense as the best defense.

In addition to the Chevron suit, the law firm’s website refers to its success several years ago in extricating Dole Food (DOLE) from a multibillion-dollar pesticide liability it faced in Nicaragua. Gibson Dunn blocked enforcement of the Nicaraguan judgments in U.S. courts by proving a scheme by plaintiffs’ attorneys to recruit and train supposed victims who hadn’t actually been injured by Dole.

The table-turning corporate strategy needn’t involve international disputes. In September, a federal judge in Wheeling, W.Va., tripled a jury award to nearly $1.3 million in a racketeering suit filed by CSX Transportation (CSX) against two Pittsburgh plaintiffs’ lawyers and a radiologist who had collaborated on asbestos suits against the railroad company. The asbestos injury claims were subsequently shown to be fraudulent. The judge in Wheeling could still require the plaintiffs’ attorneys to pay CSX millions of dollars it says it spent to defend against the bogus claims.

CSX invoked the same federal statute Chevron is using against Donziger: the Racketeer Influenced and Corrupt Organizations Act. Created in 1970, the criminal RICO law was designed to combat mob conspiracies; it also has civil provisions that private parties can use. “Bringing RICO suits against plaintiffs’ lawyers isn’t an ideal solution, but if prosecutors don’t crack down on fake claims, companies will do it for themselves,” the tort reform association’s McKinney says.

The contamination in Ecuador is not “fake.” Pools of waste oil are visible, and streams from which poor Amazonian residents draw drinking water remain polluted. The question is who bears responsibility for the contamination and whether the pollution can be linked to human illness.

The Ecuadorian judiciary held Chevron liable because in 2001 it acquired Texaco, which had operated in Ecuador from the 1960s to 1990. Chevron contends that Texaco fulfilled its contractual obligations to clean up certain waste oil sites and that most of the pollution still afflicting Ecuadorians has been caused either by the country’s state oil company, Petroecuador, or by faulty sanitation systems. According to the company, Donziger and his team corrupted Ecuadorian judges and court-appointed experts, going so far as ghostwriting an independent official’s scientific report and, possibly, the February 2011 judgment itself.

In a series of pretrial rulings, Judge Kaplan has signaled that he takes Chevron’s accusations seriously. Complicating Donziger’s RICO defense will be a parade of former allies—fellow plaintiffs’ lawyers, scientific advisers, and financiers—who have all said under oath that Donziger misled them and committed fraud.

Donziger’s side insists that the lawyer’s conduct shouldn’t distract from the oil industry’s culpability. Referring to Donziger’s behavior in Ecuador, another of his attorneys, Richard Friedman, conceded in an opening argument: “A lot of it was unseemly. A lot of it was rude.” The rules in Ecuador, however, are looser, he said, and Donziger’s acts were permissible. Chevron, he added, also engaged in rough tactics—an accusation the company denies. In a trial expected to last at least a month, Judge Kaplan will decide whether Donziger’s contention that he merely fought fire with fire constitutes a legitimate defense.

The bottom line: If Chevron succeeds in its civil racketeering complaint against a lawyer for Ecuadorians, others may copy its tactics.

Barrett_190
Barrett is an assistant managing editor and senior writer at Bloomberg Businessweek. His new book, Law of the Jungle, tells the story of the Chevron oil pollution case in Ecuador.

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Companies Mentioned

  • CVX
    (Chevron Corp)
    • $115.91 USD
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