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Litigation Without End: Chevron Battles On in 28-year-old Ecuador Lawsuit

The giant U.S. oil company objected last June when Washington proposed allowing duty-free rose imports from the world’s poorest countries, including Ecuador.

A decade earlier, an Ecuadorean court had blamed Chevron for oil pollution and told it to pay $9.5 billion in damages, one of the largest-ever penalties of its kind.

Chevron had since proved the verdict fraudulent, it told the U.S. Trade Representative. But Ecuador refused to render it unenforceable despite an order to do that from an international arbitration tribunal. Letting Ecuador save money on flowers after blatant “acts of defiance” would tell the world the U.S. rewards bad behavior, the oil company said.

Chevron lost the war of the roses. But it still hasn’t paid a cent of the Ecuadorean judgment, and says it won’t stop legally battling until it can ensure that it never has to.

“We’re going to fight this until hell freezes over, and then we’ll fight it on the ice,” a former Chevron general counsel,

Charles James,

said before his retirement in 2010, a remark that became a watchword at the company.

His successor,

R. Hewitt Pate,

said this spring that “only the government of Ecuador could deliver a final resolution of this case,” by nullifying the verdict.

Big companies that see lawsuits against them as unfounded often reach a point, after losing a court ruling or two, when settling seems the sensible course. Chevron never did. Twenty-eight years after the Ecuador case was filed, 10 years after it came to a verdict and seven years after Chevron got a different court to find egregious misbehavior by a plaintiffs’ lawyer, Chevron fights on—pressing to make sure that lawyer doesn’t profit from the case, hiring attorneys in countries where it operates and where plaintiffs might try to collect, trying to force Ecuador to pay its legal costs and, as with the roses, asking the U.S. government to penalize Ecuador in the trade arena.

Chevron’s opponents also refuse to back down, making the case what appears to be the oil industry’s longest-running legal slugfest. Aspects of it have been heard by some 100 judges in 36 courts in seven countries. By Chevron’s estimate, it has cost the company nearly $1 billion, including 1.5 million hours of its staff, advisers’ and attorneys’ time. Executives and lawyers who worked on the case have retired or died since it began.

Although the oil industry’s era of global power seems to have peaked, for Chevron part of that era—costly, intractable environmental-pollution litigation—continues unabated. The Ecuador legal fight has lasted even longer than the one that followed the

Exxon

Valdez oil spill in Alaska.

Well before Chevron lost the damage verdict in 2011, it set out to turn the tables on the litigants. It subpoenaed or sued dozens of people who had helped the plaintiffs’ side, legal records show, and unearthed damaging video clips about the plaintiffs’ legal team’s activities from documentary-film outtakes. Chevron’s lawyers obtained the personal notes of the lead plaintiffs’ lawyer,

Steven Donziger,

and used his own words against him.

The company scored a seminal victory in 2014 when a federal judge in New York found that Mr. Donziger and others on his team had offered a bribe to a judge in Ecuador and had ghost-written the court verdict.

Mr. Donziger’s New York law license was revoked. He faces a criminal contempt-of-court trial this month over his refusal to turn over records to Chevron as ordered. His bank accounts were frozen. He has been under house arrest for nearly two years, unable to leave his Manhattan apartment without court permission, an ankle bracelet tracking his every move.

Attorney Steven Donziger spoke from his New York apartment window on Dec. 18 to supporters gathered to mark his 500th day of house arrest.



Photo:

Anthony Behar/Sipa/Reuters

In December, Mr. Donziger shouted out his window to supporters gathered below to mark his 500th day of detention. “What is happening to me is a sign of our success,” he said, using a bullhorn: “This is a corporate playbook that is designed really by Chevron and the entire fossil-fuel industry to silence advocacy.” Below his window hung a sign saying “SOS Free Steven!”

The company’s strategy “is to pulverize me personally, to criminalize me,” Mr. Donziger said in an interview. “This idea they’ve won and I’ve lost is their view, not my view.”

Chevron is asking the tribunal that ordered Ecuador to void the verdict—a panel of the Permanent Court of Arbitration at The Hague—to also order nearly $800 million of Chevron’s legal costs to be paid by Ecuador, a country whose gross domestic product is about half of Chevron’s stock-market value.

Íñigo Salvador Crespo,

an Ecuador justice official whose agency represents the country in the dispute, declined to comment, saying to do so could compromise its legal strategy. A newly elected president of Ecuador who hasn’t yet taken office,

Guillermo Lasso,

didn’t respond to requests for comment on the dispute.

Chevron officials say they have punched back so hard, for so long, because they found fraud in the litigation and because Ecuador in the 1990s granted a release from liability after a cleanup.

“This was never for Chevron one of these things where we added up potential liability and said we have to fight this because the number is too much,” Mr. James, the former general counsel, said in an interview.

To some longtime observers of the case, it looks more like a grudge match with Mr. Donziger, who has refused to concede anything despite a series of court losses. “They’re making an example of him,” said

Ted Folkman,

an attorney who has closely followed the legal battle. As the years go on, he said, “it’s not being done for reasons that look rational.”

Chevron’s Mr. Pate said the company has no choice but to continue defending itself because the “perpetrators of the fraud” refuse to acknowledge court and arbitration findings.

Chevron’s defense and Mr. Donziger’s personal case have overshadowed the original plaintiffs, natives of the forested northeast of Ecuador, who say their drinking water and quality of life remain damaged by oil drilling.

“Chevron wants to talk about the injustices they have suffered. Steven wants to talk about the injustice he is suffering. Who is talking about the people on the ground and how they’ve been affected?” said

Judith Kimerling,

a professor of environmental law and policy at the City University of New York’s Queens College, whose research in Ecuador inspired the original lawsuit.

Chevron inherited the already eight-year-old dispute in 2001 when it acquired Texaco Inc., which operated in Ecuador from the 1960s to 1990 in partnership with government-run Petroecuador. They drilled in an area of the Amazon occupied only by native people and migrant farmers, and gave it the name Lago Agrio.

Texaco spent $40 million on local cleanup and obtained a liability release from Ecuador’s government in the 1990s. Chevron says that means any remaining pollution is the responsibility of its state-owned former partner.

A group of Amazonians sued Texaco in 1993 in federal court in New York, saying they were sickened by water and air polluted from the oil operations. Texaco said the suit belonged in Ecuador, a judge agreed, and a new suit was filed there in 2003. This suit took advantage of a newly passed Ecuadorean law that allowed individuals to sue not only for harm to themselves but also for damage to the environment.

Mr. Donziger, a former public defender fluent in Spanish, joined the plaintiffs’ team early on and became the face of the case in Ecuador, with a strategy that relied heavily on swaying public opinion. He rallied activists in front of the Lago Agrio courthouse. A documentary film crew followed him as he barged into judges’ offices to make demands.

Mr. Donziger spoke to Huaorani women in October 2003 during the trial of the suit filed by Ecuadorean indigenous people who said oil drilling poisoned their homeland.



Photo:

Dolores Ochoa/Associated Press

A judicial inspection in Ecuador in 2006.



Photo:

Dolores Ochoa/Associated Press

The plaintiffs’ side brought journalists to villages where residents lived alongside drilling waste in unlined pits. Chevron put on counter-tours to sites reflecting Texaco’s cleanup.

Around 2009, Chevron adopted a strategy of trying to show that plaintiffs’ lawyers were acting improperly. It hired Gibson, Dunn & Crutcher LLP, a law firm that had helped Dole Food Co. defeat litigation by Nicaraguan banana farmers who claimed to be left sterile by Dole pesticides; Gibson Dunn convinced a U.S. judge lawyers had recruited plaintiffs who weren’t sterile or didn’t even work on a Dole banana property.

For Chevron, a Gibson Dunn team led by

Randy Mastro,

once a top aide to

Rudy Giuliani

when he was New York City mayor, probed every aspect of the plaintiffs’ case. Using an obscure court process called Section 1782, which allows parties to seek evidence in the U.S. to help with foreign lawsuits, Gibson Dunn gained access to troves of internal documents from people who had worked with the plaintiffs.

Attorney Randy Mastro, seen in a 2008 photo, has led Gibson Dunn’s defense of Chevron.



Photo:

Marc A. Hermann/Press Pool

Chevron secured the outtakes of a documentary film on the case and turned up clips such as one where Mr. Donziger recounted a favorite quote to colleagues: “Facts do not exist. Facts are created.”

It also amassed evidence that Mr. Donziger and his team had pressured Ecuadorean judges to rule in their favor and secretly wrote the bulk of the report of a court-appointed outside expert who said Chevron should pay $27.3 billion.

Mr. Donziger said the plaintiffs’ activities followed Ecuadorean court customs.

In a conference room in lower Manhattan in 2010, Gibson Dunn pitched federal prosecutors on the idea of criminally prosecuting Mr. Donziger. They declined, figuring this was a squabble between a corporation and well-funded adversaries that wasn’t worth their limited resources, said a person familiar with the meeting.

Chevron then civilly sued Mr. Donziger and his team under the Racketeer Influenced and Corrupt Organizations Act, a federal law often used against mobsters. It filed the RICO suit on Feb. 1, 2011.

Two weeks later, a judge in Ecuador handed down the verdict against Chevron, then doubled the damages to $19 billion after Chevron refused an order to apologize. It was later reduced back to $9.5 billion but otherwise upheld by the Ecuadorean courts.

With Chevron refusing to pay, and having no assets in Ecuador, the plaintiffs tried unsuccessfully to collect in places where the oil company operated, such as Argentina, Brazil and Canada. Chevron hired lawyers around the world to resist such efforts.

Its strategy was vindicated in March 2014 when, after a civil trial in New York, a federal judge issued a 485-page opinion concluding that Mr. Donziger and his team had submitted false evidence in Ecuador, paid off a court-appointed expert and ghost-written much of his opinion, and promised $500,000 to an Ecuadorean judge to rule in their favor. Even if they sought to help native people, Judge

Lewis Kaplan

wrote, “they were not entitled to corrupt the process to achieve their goal.”

Chevron General Counsel R. Hewitt Pate, seen in 2004 when he was a Justice Department official, said only Ecuador’s government could provide a final resolution of the case.



Photo:

Thierry Charlier/Associated Press

The ruling came with ramifications: Mr. Donziger couldn’t try to enforce the Ecuadorean judgment in the U.S. and he couldn’t profit from it; he had to relinquish his 6.3% interest in any payout.

Mr. Donziger appealed the ruling and lost. “I believe it is invalid, though I recognize courts have found otherwise,” he said.

Chevron lawyers filed motions every time they thought Mr. Donziger might be violating the judge’s orders. An example was when he asked a hedge-fund firm to finance efforts to collect the damages in return for a share of them.

A portfolio manager at Elliott Management Corp. said Mr. Donziger told him the plaintiffs had raised $33 million, and 15% to 20% of the damage award was committed to investors and others. Elliott turned him down, the portfolio manager said in a sworn affidavit. A spokesman for Elliott declined to comment.

Chevron also told the court Mr. Donziger had hired an executive coach and agreed to pay him 0.007% of whatever was collected from Chevron, out of Mr. Donziger’s share. Chevron said that violated the ban on his profiting from the verdict.

He argued it didn’t, but in May 2019, Judge Kaplan found Mr. Donziger in civil contempt of court. The judge said he violated orders by not turning over all of his electronic devices and email accounts for imaging, for failing to relinquish his stake in the damage award and for his deal with the executive coach.

U.S. District Judge Loretta Preska was assigned to handle a criminal contempt of court case against plaintiffs’ attorney Mr. Donziger.



Photo:

Carlo Allegri/Reuters

Two months later, Judge Kaplan ordered a trial to determine whether Mr. Donziger should be held in criminal contempt of court for continuing to ignore the orders.

The Manhattan U.S. attorney’s office, to which the judge referred the criminal matter, declined to pursue it. In an unusual procedure, Judge Kaplan then appointed a private lawyer to serve as prosecutor and assigned another U.S. district judge,

Loretta Preska,

to handle the case, which is set for trial starting May 10. It was Judge Preska who put Mr. Donziger under house arrest, deeming him a flight risk.

A state appellate court had already suspended Mr. Donziger’s law license. He requested a public hearing on that. There, 15 witnesses testified about the honest human-rights lawyer they said they knew, among them Pink Floyd frontman

Roger Waters,

a co-founder of Greenpeace and an indigenous Ecuadorean leader. Chevron sent a team to observe.

British singer Roger Waters, in black, visited a former Texaco drilling site in the Ecuadorean Amazon in November 2018. Behind him is Mr. Donziger.



Photo:

Jose Jacome/EFE/Zuma Press

An oil-company expert checked a water sample in 2004 during the trial in Ecuador.



Photo:

Dolores Ochoa/Associated Press

A New York judicial official found Mr. Donziger posed no threat to the public and recommended letting him keep his license. Describing him as “often his own worst enemy,” the official said: “The extent of his pursuit by Chevron is so extravagant, and at this point so unnecessary and punitive.”

The opinion wasn’t binding. New York state’s appellate court said the official was too dismissive of the severity of the misconduct, and it disbarred Mr. Donziger last August. He is seeking an appeal of the decision.

For years, Chevron separately pursued an international arbitration case. It argued that Ecuador’s government had violated an investment treaty with the U.S., both by not upholding the liability release granted in the 1990s and later by allowing a fraudulent court verdict to stand.

In 2018 the international arbitration panel sided with Chevron. It ordered Ecuador to wipe out all consequences of the court verdict and preclude anyone from enforcing it, on grounds it was obtained fraudulently.

Though Ecuador hasn’t done this, Chevron officials point to instances where, they say, its representatives have admitted the verdict was fraudulent.

In one, Ecuador’s ambassador told the U.S. Trade Representative in a letter last July that Ecuador had been in touch with authorities in countries where plaintiffs sought to enforce what she called “the fraudulent Lago Agrio judgment.”

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The letter from the ambassador,

Ivonne Baki,

added that Ecuador didn’t know what steps it could take to satisfy the arbitration order, saying its laws and international law constrained it from intervening in the court system. Efforts to reach Ms. Baki for comment were unsuccessful.

Chevron CEO Michael Wirth



Photo:

Andrew Harrer/Bloomberg News

Investors in Chevron appear to have largely ignored the judgment’s potential financial impact. But its chief executive,

Michael Wirth,

continues to face questions about the case.

At a virtual shareholders’ meeting in May 2020, the actor

Alec Baldwin

told the CEO Chevron was using shareholders’ money to personally attack Mr. Donziger. Mr. Wirth called Mr. Baldwin’s summary of the case false and offensive, saying: “Mr. Donziger is an adjudicated racketeer.”

There have been no settlement discussions since 2012. At a meeting that year, held while the damage award was temporarily doubled to $19 billion, Mr. Pate walked out after the plaintiffs’ side proposed a nearly $10 billion settlement, according to Mr. Donziger. Chevron didn’t dispute that account.

Said

Dylan Mefford,

a California attorney who worked on the case as a Gibson Dunn associate: “Both sides genuinely felt the others were criminals.”

Write to Sara Randazzo at sara.randazzo@wsj.com

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