Here’s Chevron’s Legal Maneuver to Avoid a $19B Charge


Often, when a ruling is reached, legal wrangling comes to an end. But in the case of a 2003 class action suit filed in an Ecuadorian court accusing Texaco, now owned by Chevron (NYSE:CVX), of polluting the environment surrounding its Lago Agrio oil field from 1964 to 1992, judgement was the end of just one chapter in the case’s convoluted history.

In 2011, 10 years after Chevron purchased Texaco, New York lawyer Steven Donziger engineered a $19 billion pollution verdict against the U.S. oil company, Business Insider reports. At the time, the ruling was the culmination of 18 years of litigation that took place in both the U.S. and Ecuador, and the verdict was the biggest of its kind.

Even before Chevron launched a lawsuit of its own that same year, accusations of fraud had been made by both sides, and this second suit was no different. By accusing Donziger of using bribes and intimidation to secure the judgement, the company has attempted to discredit the lawyer, which would then hinder his ability to enforce the verdict. The 2011 suit against Donziger and his Ecuadorian clients was filed under the federal anti-racketeering statute.

In what appears to be another twist, Chevron filed a motion Monday in federal district court in Manhattan, in which the company informed the presiding judge that it many drop damages claims worth up to tens of millions of dollars against Donziger.

Donziger has long maintained that he is not guilty of any wrongdoing, presenting himself as a human rights lawyer who sought compensation for the 30,000 residents affected by the widespread contamination of the Ecuadorian rainforest in the 1970s and 1980s. In his defense, the lawyer claims the lawsuit is Chevron’s only option to avoid liability.

On the surface, the fact the Chevron has decided to drop damages claims bodes well for Donziger. But in reality, the oil giant is merely streamlining its case. By dropping the claims, the suit will be effectively be converted into into a bench trial, depriving Donziger of a key asset: his ability to to appeal to jurors.

Even though damages could amount to as much as $100 million in attorneys’ fees and other expenses, money was never really the ultimate objective, especially since $100 million is a mere fraction of the $26 billion Chevron earned in profits last year. The primary goal is injunctive relief — if Chevron wins the liability portion of the case, it could ask for an order barring Donziger and his colleagues from enforcing the Ecuadorian judgement in the United States or anywhere the company has assets.

Because Chevron has virtually no assets in Ecuador, the Ecuadorian judgement is worthless, meaning authorities cannot seize any of the company’s assets if it does not pay up.

The Amazon Defense Front, the organization that brought the original lawsuit on behalf of Ecuador’s indigenous residents, has filed enforcement petitions in Canada, Argentina, and Brazil, where Chevron does have assets. The cases were dismissed in Canada and Argentina, but the organization is appealing.

Already, U.S. District Judge Lewis Kaplan, who is handling the case, has found “at least probable cause” to believe that Donziger and the Amazon Defense Front engaged in wire fraud, extortion, witness tampering, obstruction of justice, money laundering, and bribery in the process of securing the Ecuadorian judgment, reported Fortune.

Many of those crimes were allegedly plotted or carried out in the United States. The judge also found probable cause to believe that an Ecuadorian judge allowed part or all of the 188-page, $19 billion verdict to be ghostwritten by the plaintiff’s legal team, allegedly in exchange for a $500,000 fee.

The motion, acquired by Fortune, said Chevron would likely decide whether to official drop the damages claims by the end of this month. The decision was delayed because of “unfolding events and [the] resolution of outstanding issues may potentially bear on that decision,” according to a court document.

That event will likely be a hearing scheduled for September 26, at which point the U.S. Court of Appeals for the Second Circuit will hear oral arguments in an appeal Donziger and other defendants have brought in response to the racketeering charges. That appeal will be their sixth attempt to have Kaplan removed and replaced with a judge who is unfamiliar with the case’s convoluted, 20-year history.

The petition claims Kaplan is biased, and they are alleging the judge “thumbed [his] nose at” the appeals court by disregarding an earlier ruling it made regarding the case, reported CNN’s Roger Parloff. The racketeering case is scheduled to go to trial in Manhattan on October 15.

Follow Meghan on Twitter @MFoley_WSCS

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