An inconvenient forum: Thoughts on the Chevron-Ecuador Case

by Nicholas A. Fromherz

As a student of environmental law, resident of the Andes, and former clerk for two federal judges, I have followed the Chevron-Ecuador case with increasing interest—and, of late, increasing concern.  No matter which side we believe, it is clear that the people and ecology of Ecuador’s Lago Agrio region have been affected by the operations of Chevron (or, perhaps more accurately, those of predecessor Texaco and the state-owned Ecuadorian firm Petroecuador).

But that will always be the case with extractive industry—more important factors for purposes of litigation are to what extent and what, if anything, was done in the way of prevention and/or mitigation. This post will not attempt to answer those questions.  More informed individuals and groups have offered a range of answers as to these very points (see here and here), and my own speculation on the matter would only add to what has become a morass of conflicting information.

Instead of analyzing the merits of the case, I would like to discuss two issues that have received less than complete coverage: (1) the unintended and unlikely consequences of Chevron’s effort to remove the case from U.S. federal court on grounds of forum non conveniens; and (2) the institutional and socio-political factors that must be considered when analyzing Chevron’s claims of judicial corruption by the Ecuadorian courts.

How Forum Non Conveniens backfired for Chevron

When non-U.S. plaintiffs file suit in federal district court, U.S. defendants have a very handy doctrine at their disposal:  forum non conveniens.  In a nutshell, this doctrine instructs U.S. courts to dismiss lawsuits brought by foreign plaintiffs when the deference normally paid to the plaintiff’s choice of forum is vastly outweighed by considerations of convenience.

As I have argued elsewhere, even though a foreign plaintiff’s choice of forum should still receive some deference under the literal terms of the doctrine, this is often not the case.  With the combination of (a) heavy docket-loads, (b) procedural rules that encourage early evaluation of FNC motions, and (c) a lenient standard of appellate review, U.S. courts have a natural and structurally-amplified incentive to dismiss cases on forum non conveniens.   And even though courts should only dismiss matters on FNC when there is an “available and adequate” alternative forum in another country, this hurdle has traditionally been quite easy to overcome.  Unless the alternative forum is truly horrendous, it will usually pass muster.

Wait, you might be thinking, who cares where the litigation occurs, as long as it occurs?  That is the “rather fantastic fiction” that has driven FNC jurisprudence all these years.  The fact is, it matters a whole lot, because, in practice, cases dismissed on FNC do not end up being litigated in the alternative forum.  They disappear or settle for a fraction of what they might have fetched in U.S.-based litigation.

Accordingly, the standard playbook for international civil litigation has dictated that a U.S. defendant file a motion for FNC whenever possible, almost as a matter of course.  That’s what Chevron did, and no doubt that seemed like the smart move.  Statistically speaking, it was right on the money.

But this time it backfired.  Chevron won the motion alright—the case got booted back to Ecuador in 2001—but the matter didn’t go away or fade into the background.  It grew and grew, until Chevron got hit with a $17 billion judgment in February 2011. The reasons for this result—recognizing, of course, that the situation is still fluid—are the subject of much debate.  Possible explanations include collusion between plaintiffs’ counsel and the Ecuadorian judiciary, fraud on the part of the court, arrogance and unwillingness to compromise by Chevron, and, lest we leave out the obvious, the possibility that the merits of the case called for such a result.

One thing is for sure:  Chevron was not expecting this.  In hindsight, there may be many reasons to doubt the wisdom of Chevron’s decision to remove the case to Ecuador.  To name just one, Ecuadorian President Rafael Correa has been fairly adamant from the start that his administration would protect the environment and not be bullied by transnational corporations.  But hindsight is hindsight, and the political scene in Ecuador looked much different when Chevron filed its motion in 2001.  As I said, Chevron called the play according to the book, and this time it just got burned.

Or is Chevron’s experience the sign of a trend?  Does the playbook need updating?  Even if we see past the reactionary rhetoric, there may be something to the idea that foreign-based litigation is, from the perspective of U.S. corporations, not as tame as it used to be.  Consider for instance SCOTUS Blog on the U.S. Supreme Court’s upcoming case considering the limits of the Alien Tort Statute. Or the Institute for Legal Reform on “The New Breed of Transnational Litigation: Abusive Foreign Judgments”. Or the testimony of John B. Bellinger III before the U.S. House of Representatives Committee on the Judiciary on “Recognition and Enforcement of Foreign Judgments”.  Here’s a snippet:

In the last few decades, there has been a significant increase in the number of actions seeking recognition and enforcement of foreign judgments in the United States.  This increase has been punctuated in the last several years by several high-profile, high-dollar foreign judgments against U.S. companies sought to be enforced in the United States.

Putting Chevron’s Claims of Fraud in their Proper Context

Depending on whom one consults, the situation in Ecuador or is either an ecological disaster caused by a greedy corporation or a miscarriage of justice perpetrated by dishonest plaintiffs’ lawyers and a corrupt judiciary. Given the compelling arguments and evidence on both sides, it is extremely difficult to develop an independent take, let alone choose sides.  My tentative position is that Chevron (or its predecessors) did commit an ecological foul—and a flagrant one at that—but that the plaintiffs’ lawyers and courts in Ecuador have also made serious mistakes—some of them potentially sounding in crime—in their effort to prosecute this matter.

One point that has been lost in the debate, however, is the extent to which cultural and historical factors should be considered in the analysis of the role played by the Ecuadorian judiciary (and, perhaps, in the actions of the Ecuadorian lawyers representing the plaintiffs).

According to Chevron and its sympathizers, the judiciary—and for that matter the entire government—is one big racket.  Even seeing past the over-the-top and at times culturally-insensitive arguments, the accusations cut to the bone.  Here are the highlights as summarized by Professor David Cassel on Opinio Juris:

They [plaintiffs’ lawyers] met clandestinely with the judge on the case no fewer than seven times, in venues such as an abandoned warehouse. Their purpose was to persuade him to select their handpicked expert as the court’s own “independent” expert on damages. They and their consultants then secretly wrote the expert’s report (in English, a language he does not speak, and from which “his” report had to be translated). To buy his silence, they secretly paid him thousands of dollars from “our secret account.” They then publicly defended his “independent” report – until they were caught.

Plaintiffs’ lawyers now excuse their meetings on the ground that there are no rules on ex parte communications in Ecuador. But they knew their actions were wrong. They even developed a code language to conceal their misconduct:

Today the cook [the Judge] met with the waiter [the supposedly independent expert] to coordinate the menu [the plan for the allegedly neutral expert’s report] at the restaurant [the Court].

As their scheme began to unravel, one of them emailed:

Today Pablo and Luis [two of the lawyers] [told us] … that certainly ALL will be made public, … the effects are potentially devastating in Ecuador (apart from destroying the proceeding, all of us, your attorneys, might go to jail) …

Not satisfied with cooking the expert’s report, plaintiffs’ lawyers then cooked the judgment, too. As forensic experts have testified, significant passages in the “judgment” came verbatim from plaintiffs’ internal documents, never filed in the proceeding, and cite plaintiffs’ data, also not in the record. The judgment even incorporates plaintiffs’ errors, idiosyncratic reference citations, and distinctive punctuation styles.

The resulting concoction lacks credibility. For example, even after plaintiffs’ public health expert admitted that he “did not reach the conclusion that the healthcare needs of the population in the Oriente can be tied to any particular environmental damage,” the judgment ordered Chevron to pay $1.4 billion to fund public health programs – with not a word of budgetary justification.

As for the judge whose signature graces the judgment, Ecuador’s judicial council recently removed him from the bench for “inexcusable judicial error” in another case – in circumstances suggesting corruption.

For more on these points, see Chevron counsel’s letter dated December 20, 2011 to the Prosecutor General of Ecuador. As a lawyer—and especially as a former law clerk—I find these accusations both deeply troubling and shocking.  They cover the entire range of judicial taboos:  corruption, partiality, and even lack of competence.  Having spent almost a year now in Bolivia, I am no less quick to condemn these acts (assuming they are true).  I am, however, slower to call it a simple case of bad actors doing bad things.  To be sure, that’s part of it, but there are also institutional, social, and historical factors to keep in mind.

Institutionalized Corruption

Corruption in many developing countries is so widespread that the line dividing legitimate fees from unauthorized requests for a bribe has been blurred almost to the vanishing point.  In Bolivia, for instance, I have witnessed police officers in the police station—not on the street—invite citizens to pay small sums of money to expedite tramites (administrative processes that are required for a dizzying array of ordinary transactions).  Paying the “fee” will ensure that the tramite at issue is put near the top of the list, ahead of others that were filed ahead of time.

These fees aren’t advertised—and if you ask around you learn that they are not authorized by any law or even department rule—but they are so widespread that they have, in effect, become part of the institutional fabric.  This particular example of corruption is perhaps not too disturbing, but of course it’s only the tip of the iceberg, and the perception is that justice can be bought and that following the law is in some sense optional.

Though I have never spent time in Ecuador, the evidence suggests that corruption there is more or less on par with that in Bolivia.  Transparency International’s Corruption Perception Index finds Ecuador at 120 out of 182 countries, just slightly worse than Bolivia’s position of 118.  The other countries at 120 (they all have the same index score of 2.7/10) are Bangladesh, Ethiopia, Guatemala, Iran, Kazakhstan, Mongolia, Mozambique, and the Solomon Islands.

When a country has such pervasive and long-standing issues with corruption, it inevitably affects the societal mentality.  Even people who would prefer to take the high road—and the majority fall within this camp—find themselves under substantial pressure to comply with at least minor bribe requests and unauthorized back-door methods.  Try fighting it, or denouncing every act of corruption you see, and you’ll find yourself with a full-time job and scorn to boot.

As a consequence, many people end up taking a more relaxed view to these matters.  I wouldn’t contend that to be the case with something as serious as the charges leveled at some within the Ecuadorian judiciary, but nevertheless institutionalized corruption works mentality changes that are difficult to understand from a U.S. or European perspective.

And then there is the economic factor.  The subject of a near-coup in 2010, police wages in Ecuador have risen for some but are still low for the majority.  The average salary for a police officer in 2010 was only $700 per month.  Though I was unable to locate data on the average salary of an Ecuadorian judge, using Bolivia as a proxy tells me that the average judge in Ecuador is likely earning enough to get by, but, even discounting for the difference in cost of living, not doing nearly as well as her U.S. counterpart.  Obviously the temptation to stray from the straight-and-narrow increases as the salary decreases.  These aren’t excuses or justifications—or even mitigating factors—but they should be kept in mind when thinking about the Chevron matter.

The Ghost of Colonization

Though Chevron praised Ecuadorian justice in its motion for dismissal on forum non conveniens back in 2001, it’s hard to imagine that the company honestly felt it would receive a warm welcome in Quito.  Like so many other countries in Latin America, Ecuador’s history since the Spaniards arrived has largely been one of conflict, subjugation, and exploitation.  The end of colonization in 1822 didn’t mean the end of its legacy, which played out over the 19th and 20th centuries in the form of a highly unequal socio-economic order and “neo-colonialism” by way of multinational corporations and suspect trade agreements.

The difference with Ecuador—and it’s not entirely unique in this regard—is that the last few years have seen a popular movement give way to a government that is eager to break with the past, especially in terms of its relationship with all things U.S. and its stewardship of the environment.

Since taking office in 2006, President Rafael Correa has declared much of Ecuador’s national debt illegitimate, booted the U.S. from Eloy Alfaro Air Base in Manta, and won approval of a new constitution that gave unprecedented rights to nature. Not exactly the ideal atmosphere for an American oil company with 2011 assets upwards of $200 billion.

And all this comes in the context of a widespread sentiment that the United States and its companies—especially those involved in resource extraction—have pillaged Latin America for centuries.  Written as they were over 40 years ago, Eduardo Galeano’s words still reflect popular sentiment in the region:

Latin America is the region of open veins. Everything, from the discovery until our times, has always been transmuted into European—or later United States—capital, and as such has accumulated in distant centers of power. Everything: the soil, its fruits and its mineral-rich depths, the people and their capacity to work and to consume, natural resources and human resources.

. . . .

For those who see history as a competition, Latin America’s backwardness and poverty are merely the result of its failure. We lost; others won. But the winners happen to have won thanks to our losing: the history of Latin America’s underdevelopment is, as someone has said, an integral part of the history of world capitalism’s development. Our defeat was always implicit in the victory of others; our wealth has always generated our poverty by nourishing the prosperity of others—the empires and their native overseers.

Whether we agree or disagree with Galeano’s assessment, we have to acknowledge that this outlook has broad currency within many countries in Latin America, including Ecuador.  For the leftist government of Rafael Correa, it creates tremendous political pressure to throw the book at Chevron.

This historical-turned-political pressure does not excuse unethical conduct, but it might help to explain why things have happened the way they have.

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9 responses to “An inconvenient forum: Thoughts on the Chevron-Ecuador Case

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  2. You Need to Research more thoroughly

    I guess you have not seen the point by point destruction of Cassel’s letter. You should have read it before posting these comments, b/c it gets eviscerated.

  3. Thanks for the comment. I did see the response to Cassel’s letter on Opinio Juris (assuming that’s the one you to which you are referring), and I found it convincing — to a certain extent. Though I don’t claim to be an expert on this case, everything I’ve read suggests that there has been foul play — or at least less than ideal conduct — on both sides.

    For what it’s worth, I have far more sympathy for the affected communities than I do for Chevron. (If you take a look at my other writings on this and other issues, you’ll find that I’m not exactly a defender of extractive industry.) But I do think this case has been poorly managed on both sides. Even if Chevron has exaggerated many of the claims of fraud, I don’t feel like I can conclude it’s entirely trumped-up nonsense. Perhaps you can point me to some other sources? I’m certainly trying to keep an open mind about all this.

  4. Mr. Fromherz fails to acknowledge the overwhelming evidence relied on by the Ecuador court to find Chevron liable. See here: http://chevrontoxico.com/assets/docs/2012-01-evidence-summary.pdf

    Scientific evidence from experts demonstrates that Chevron has been contaminating an area the size of Rhode Island and taking advantage of indigenous groups for decades.

    Chevron’s lead lawyer in Ecuador, Rodrigo Perez Pallares, admitted under oath that the company dumped 16 billion gallons of toxic waste into the Amazon out of pure greed.

    Now, Chevron is promoting a twisted and inaccurate story line (using paid consultants like Doug Cassel) to try to sabotage a nine-year legal proceeding as part of its campaign of distraction and delay to evade accountability.

    Mr. Fromherz repeats Chevron talking points by citing Mr. Cassel, whose own arguments have been handily rebutted by the Ecuador legal team and whose weak scholarship on the issue has been laid bare for the academic community. See here: http://tinyurl.com/d7jvvra

    The reality is that the Ecuador court bent over backwards to accommodate Chevron’s due process concerns. It was Chevron that tried to undermine the trial by filing frivolous motions, threatening judges with jail time, spying on the plaintiffs, and trying to bribe Ecuador government officials to kill off the case. In response, the indigenous and farmer communities of Ecuador have waged — and continue to wage — a courageous battle for justice that has attracted global attention. For more information, go to http://www.chevrontoxico.com

    Ecuador’s judicial system also outranks those of most of other Latin American countries — and in fact Chevron itself has won multiple cases in recent years in Ecuador against the country’s state-owned oil company. Chevron operates in numerous countries around the world — countries such as Venezuela and Khazakstan — that have severely flawed judicial systems that are far inferior to the system in Ecuador. Yet Chevron only complains about a country whose independent judicial system is strong enough to resist its political pressure and bribes to rule on the facts and the law, which is what the court in Ecuador did.

    Karen Hinton
    U.S. Spokesperson for the Ecuadorians suing Chevron

    • Thank you, Ms. Hinton, for the very thoughtful comments. I have checked out the ChevronToxico site to which you link, and it certainly seems like Chevron did very bad things in Ecuador. But that is something I have never disputed.

      It just seems to me that, even if Chevron is more at fault in this case, the accusations of foul play by the plaintiffs’ lawyers and courts can’t be dismissed out of hand. Now, it could be that Chevron is exaggerating the actions of the other side while downplaying its own, but that doesn’t mean we should ignore everything it says (even if we should take it with a jar of salt).

      I think we have to be very careful to separate our evaluation of the merits from our evaluation of the litigation. From I what I have read and seen, I agree that Chevron should have to pay–and pay big–for its actions in Ecuador. The plaintiffs win on the merits.

      As to who has the cleaner hands in terms of the process of the litigation, however, I think it’s a much trickier analysis. Using negligence law as a point of reference, we might approach this matter using “modified comparative fault.” http://www.the-injury-lawyer-directory.com/negligence.html That is, even if Chevron’s defense of the case has been “dirtier” than the plaintiffs’ prosecution of the matter, we can’t simply ignore what may be the “lesser” harm.

      At any rate, thank you very much for your thoughts. I really do appreciate them.

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  6. Thank you for this thoughtful analysis. I wanted to gain a quick understanding of this case and the issues surrounding it, but don’t have time to read everything about it now. Human capacity for rationalization is high and it plays into both sides. On the side of the corporate lawyers for Chevron, they are highly paid and well-trained and will make sure they don’t do anything outright illegal. They will have a PR defense for anything they do to make it sound good even if the motivation is greed and the effect is environmental harm. Large corporate systems have the effect of separating the different stages of the production of goods from the end product. Very few people would know when a delicate and beautiful jungle, or waterway, or indigenous way of life is harmed by the need to have cars, gasoline, or other goods in industrialized society.

    The perspective of how South American resources have been exploited by U.S corporations is a valid point that you touch on. The fact that Ecuador probably had no strong environmental laws in place to prevent this and other exploitation when the exploitation started gives the Corporations strong legal grounds to avoid paying for environmental cleanup. But ethically it does not excuse them (or us, the consumers of Chevron’s goods) at all.

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