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An Analysis of the Financial and Operational Risks to Chevron Corporation from Aguinda V. ChevronTexaco (May 2012)

From the Executive Summary of this report:

  • Chevron is facing significant financial and operational risks stemming from enforcement of an $18 billion adverse judgment in Ecuador.   On March 12, 2012, an Ecuadorian appellate court declared the $18 billion judgment for the company’s contamination of soil and water final and enforceable, giving the plaintiffs the right for the first time to collect on the judgment.  Chevron itself has admitted in a sworn legal statement that the company is at risk of “irreparable injury to [its] business reputation and business relationships” that “would not be remediable by money damages” from potential enforcement of the Ecuadorian court judgment.
  • The enormous breadth of Chevron’s global business operations makes the company particularly vulnerable to enforcement.  There are many jurisdictions around the world in which the plaintiffs could seek court recognition and enforcement of the judgment, including many where Chevron has substantial reserves and that are strategic importance.
  • Chevron’s defenses to enforcement actions have greatly narrowed. The U.S. Second Circuit vacated in its entirety a preliminary injunction from a U.S. District Court that purported to bar the Ecuadorian plaintiffs from enforcing the judgment against Chevron’s assets anywhere in the world.  The Ecuadorian courts have rejected awards by an arbitral panel seeking a halt to enforcement of the $18 billion judgment against Chevron.
  • Shareholders of Chevron are increasingly demanding more transparency of the risks and an alternative to the company’s litigation strategy.  In May, 2011, shareholders of Chevron – representing $156 billion of assets under management – called upon Chevron “to fully disclose to shareholders the risks to its operations and business from the potential enforcement of the Aguinda verdict” and “reevaluate whether endless litigation in the Aguinda case is the best strategy for the Company and its shareholders…”  Separately, Trillium Asset Management formally requested the Securities and Exchange Commission “to review whether Chevron has appropriately disclosed to shareholders the scope and magnitude of the financial and operational risk” from the judgment.
  • Chevron shareholders are demanding better corporate governance. Citing management’s handling of the case in Ecuador, shareholders are questioning Chevron’s generous executive compensation packages and have proposed overhauls of the company’s corporate governance.  Despite losing the landmark $18 billion judgment in Ecuador, Chevron awarded its General Counsel R. Hewitt Pate a 75% raise in 2012 to a staggering $7.8 million salary and even went so far as to praise “his outstanding management of Ecuador” ahead of the company’s annual “say on pay” vote.    In 2010 and 2011, a significantly large percentage of Chevron’s shareholders supported a resolution calling for the appointment of a director with expertise in environmental liabilities.  In addition to re-filing this resolution, shareholders have filed two additional new resolutions for Chevron’s 2012 annual meeting calling for corporate governance reforms, one asking that Chevron separate the positions of Chief Executive Officer and Chair of the Board and the other asking that Chevron lower the thresholds for calling a special meeting of shareholders.

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Defending Our First Amendment Rights From Chevron

In an unprecedented legal move, 17 U.S.-based civil society organizations – among them Amnesty International, Amazon Watch, Rainforest Action Network, and Friends of the Earth – have just filed an amicus brief in federal appeals court defending their First Amendment rights from attack by Chevron.

Let me back this story up by about 18 months.

In November 2012, Chevron subpoenaed me.

The subpoena server knocked on the front door of my home. He handed me the 40-page subpoena from Chevron’s law firm, Gibson Dunn. I learned subsequently that my subpoena was one of several that Gibson Dunn served on not just non-profit advocacy organizations but also Chevron’s own shareholders, including Trillium Asset Management.

This subpoena was in connection with the anti-racketeering – or RICO – lawsuit brought by Chevron against the Ecuadoran villagers and their lawyers who successfully won a $9.5 billion judgment against Chevron for its oil pollution in the Ecuadoran Amazon. Chevron contends that the judgment was fraudulently obtained. Chevron has also implied – falsely – that my advocacy work and that of Amazon Watch, Rainforest Action Network, and Trillium Asset Management – on this issue is part of this supposed fraud.

In my subpoena, Gibson Dunn demanded all of my documents and all of my emails concerning my shareholder advocacy work at Chevron.  What was demanded of me was every detail of my communication with not only Chevron shareholders but also the press and government agencies, including the Securities and Exchange Commission (SEC).

In essence, Chevron demanded extensive and intimate information on my First Amendment-protected rights to speak out regarding oil pollution in Ecuadoran communities. In its subpoena, Chevron also demanded extensive information regarding my efforts to organize Chevron shareholders and petition US government agencies.

Clearly Chevron did this to me, Amazon Watch, and Rainforest Action Network to harass and intimidate us for advocating for the people of Ecuadoran Amazon affected by the company’s oil pollution.

Once I secured the services of EarthRights International as my pro-bono lawyer, I spoke out against Chevron’s retaliatory legal tactics to the press and my fellow shareholders.  I went public deliberately to demonstrate to Chevron that I refused to be intimidated by them.  That quickly led to articles in the New York Times and also Grist, which even published my entire subpoena.

I was determined to make Chevron’s attempt to intimidate me backfire on the company.  I reckon that I succeeded.  The press articles exposed Chevron’s bullying tactics. Moreover, one month after serving the subpoenas, shareholders of Chevron filed resolutions at the company on its liability in Ecuador in greater numbers than ever before.

Chevron gained little to no information of value from its subpoenas. Amazon Watch and Rainforest Action Network had their subpoenas quashed. Thanks to the dogged work of my fine lawyers at EarthRights International, I have not to date been compelled to hand over any information to Chevron.

Nevertheless, the U.S. federal court judge Lewis Kaplan ruled in Chevron’s favor. Both the Ecuadoran villagers and their lawyers have filed in U.S. federal appeals court to have Judge Kaplan’s ruling overturned.

With their amicus brief, the 17 NGOs outline the case in stark terms.  In the amicus brief, the NGO’s state:

Amici Curiae (“Amici”) are organizations dedicated to advancing environmental protection, human rights, corporate accountability, and economic justice. Amici regularly engage in First Amendment-protected activities similar to those that the district court found to be predicate acts under RICO. Amici bring, participate in, and support strategic litigation intended to help achieve important societal goals In conjunction with such litigation they seek to educate the public and to influence public opinion and government and corporate behavior through public relations campaigns, websites and blogs, press releases about ongoing litigation, corporate shareholder resolutions, public demonstrations, and letter-writing campaigns to government or corporate officials. If the district court’s finding of a RICO violation based on just such activities is upheld, Amici’s exercise of their First Amendment rights of free speech, association, and petitioning government will be severely chilled by the very real possibility that they will have to mount costly defenses to retaliatory litigation brought by deep-pocketed corporate defendants.

Under the regime augured by this case, other Amici may expect similar consequences as they pursue their organizational missions through constitutionally protected activities. Amici are also threatened by overreaching issuance of subpoenas that seek to compel those organizations to turn over internal planning and strategy documents and the identities of their supporters, thus exposing their supporters to further risks.

This is a critical case for advocates of all kinds. If corporations, such as Chevron, succeed in branding First Amendment activities of advocacy organizations as a conspiracy, then corporations will have secured another powerful cudgel with which to threaten and intimidate those who organize to seek redress for corporate abuses of human rights.

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