More on the Doug Cassel Post

Notre Dame Law School
Notre Dame Law School
On March 17 I commented on Doug Cassel’s post at Opinio Juris. Professor Cassel is one of the authors of an amicus brief Chevron filed with the Inter-American Commission on Human Rights. While I frequently get reactions to my Lago Agrio posts from partisans on one side or the other, this was the first time that partisans on both sides complained about what I wrote. Rather than simply saying that since both sides are unhappy I must have done something right, I thought it would be worth another post to discuss the points various folks have made to me off-line.

Chevron’s Criticisms

First, let’s look at the criticisms I’ve received from Chevron’s side. From the Chevron perspective, the problem with my post was that I conflate Chevron with Texaco, the entity that won the forum non conveniens dismissal of the original lawsuit in New York. I think Chevron would point to Judge Kaplan’s remarks from his decision granting the (now vacated) preliminary injunction against the Lago Agrio Plaintiffs:

As a matter of U.S. law, the assertion that Chevron succeeded to Texaco’s liabilities by merger is incorrect. As appears in official public documents, a remote subsidiary of Chevron named Keepep Inc. merged with and into Texaco. Texaco was the surviving corporation. All of the pre-merger shares of Texaco were cancelled and those of Keepep, which had been owned directly or indirectly by Chevron, were converted into new shares of Texaco, making Chevron the direct or indirect holder of 100 percent of Texaco’s shares. Thus, Chevron did not succeed to any liabilities of Texaco by virtue of the merger itself. See William J. Rands, Corporate Tax: The Agony and the Ecstasy, 83 NEB. L. REV. 39, 51 n.76 (2004) (“[T]he reverse triangular merger prevents inchoate liabilities from flowing into an acquiring corporation”; because “the target is kept alive,” “it is responsible for its own liabilities.”). Texaco, indeed, today is a Delaware corporation, as it has been since 1926.”

I have regularly noted the distinction between Texaco and Chevron (e.g., in my post on the BIT tribunal’s third interim award, my post on the Naranjo decision, and elsewhere), though I did not do so in the post on the Cassel article. But isn’t one answer to Chevron’s point that it was for the Ecuadoran courts to decide whether Chevron was liable, particularly in light of Texaco’s strenuous and successful efforts to get the case heard in Ecuador? I don’t know the first thing about Ecuador’s conflict of laws rules and thus I am not certain that in Ecuador, as in, say, Massachusetts, it would be proper to look to the law of the state of incorporation to decide such issues. Assuming that that’s so, maybe the Ecuadoran court got the question right and maybe it got the question wrong, but it it seems to me that it was a question for the Ecuadoran court to decide.

On the issue of estoppel that I’ve raised on a number of occasions, I’d simply add that the doctrine is really an equitable doctrine. I am not persuaded that in the circumstances of this case, it is equitable to say that Chevron should not be estopped even if Texaco could be estopped to assert corruption in Ecuador as a basis for refusing recognition and enforcement of the judgment on the basis of the technicalities of a reverse triangular merger. But I am not sure I have seen a fully developed argument one way or the other on that question.

The Plaintiffs’ criticisms

From the plaintiffs’ perspective, the main criticism that I have heard is that Professor Cassel was a hired gun working for Chevron and therefore not credible, and that Professor Roger Alford, who came to Professor Cassel’s defense on Opinio Juris, is a colleague of Professor Cassel who is also in Chevron’s pocket. As an initial observation, I would like to point out that I did not adopt Professor Cassel’s position in my post, and indeed, I have said a few times (for example, in my overview post from February 23) that it is difficult for outside observers to come to a firm conclusion about the merits of Chevron’s allegations of corruption in Ecuador. I don’t think it makes much sense to try to evaluate what Professor Cassel has to say by trying to figure out how much Chevron paid him for his work on the amicus brief, any more than I think it makes sense to try to evaluate what, say, Steven Donziger says by trying to figure out the value of his interest in the Ecuadoran judgment. I do think that both Professor Cassel and Profesor Alford have a significant amount of credibility as scholars (I can’t believe I just wrote that—it’s not as though I’m the Zagats of legal scholarship), which is why I wrote that I thought that his perspective was “worth serious consideration.”

The plaintiffs’ team has prepared a response to Professor Cassel’s report. I think the most useful part of the report is the section that asserts that some of what Professor Cassel found objectionable was in fact standard operating procedure in Ecuador’s system of justice. Maybe that is right and maybe that is wrong—I don’t know enough about Ecuador’s system of justice to know whether the ex parte communications with the judges that apparently took place in this case are par for the course or not. The report’s outright attack on the BIT arbitration is to my mind less helpful. I don’t find the attack on the arbitrators’ supposed financial bias persuasive, as one of the three arbitrators was appointed by Ecuador. Nor do I think that the complaint that the Lago Agrio plaintiffs were not permitted to participate in the proceedings carries much water; as far as I know they never sought to submit an amicus brief or to participate, and I speculate that they probably would not have wanted to participate even if they could have done so, for fear of lending legitimacy to the proceedings that they are now able to deny. On the substance, I have previously given my reasons why the plaintiffs’ arguments that “nobody in their right mind could possibly conceive that the U.S. government would be expected to abide by any decision by an international body that purported to force it to override a decision made by its independent courts” is unpersuasive: the United States was in precisely in this situation in the Medellín case, and in my view anyway, the US acted wrongly by ignoring the ICJ judgment.

I think the plaintiffs would also point to a 2011 report by Prof. Joseph L. Staats, their own expert witness, opining that Ecuador provides impartial tribunals and procedures that are compatible with the requirements of due process of law. This report is important reading, though it only addresses half of the issue. The two relevant questions in a recognition and enforcement proceeding, I think, are (1) whether the courts overall are impartial, and (2) whether there was corruption in the case at hand. The Staats report goes to question (1) but not to question (2). I am sympathetic to Professor Staats’s view for the reasons I gave in my post on Judge Zambrano’s dismissal:

There are two kinds of corruption Chevron may seek to prove. One is corruption in the Chevron/Ecuador case itself, the other is corruption in the Ecuadoran judiciary overall. I think the news about Judge Zambrano may actually weaken the case that Ecuador’s judicial system itself does not “provide impartial tribunals or procedures compatible with the requirements of due process of law” (UFCJRA § 4(b)(1)). No one would say, for example, that the United States judiciary does not provide impartial tribunals, even though there have been rare cases of judicial corruption. In part this is so because we also have mechanisms for rooting out judicial corruption, just as it appears that Ecuador has mechanisms for rooting out judicial incompetence.

But I will note that the report is not really a ringing endorsement of the Ecuadoran courts: Professor Staats argues that “judicial systems in developing democracies, wherever located, have higher degrees of corruption and susceptibility to outside pressure than judicial systems in first-world developed democracies.” He points to the 2010 Human Rights Report for Ecuador, which states:

While the constitution provides for an independent judiciary, in practice the judiciary was at times susceptible to outside pressure and corruption.

He focuses on the qualifying language (“at times”), as compared with unqualified statements to similar effect in the case of, say, Nicaragua. So it may well be that the Ecuadoran courts provide a higher quality of justice than the courts of Nicaragua, but again, this is hardly a ringing endorsement.

What is somewhat surprising to me about these criticisms from the plaintiffs’ partisans is that I have been more or less an advocate for saying that corruption in Ecuador, if it existed, shouldn’t necessarily mean that they lose, given the forum non conveniens dismissal.

This is not the New York Times

One last thought. Letters Blogatory is a blog, not a newspaper, and I am a lawyer and interested bystander, not a journalist. To all of the folks who communicate with me about this case (you know who you are): I am happy to have email exchanges with you, and I appreciate the PDFs of documents and pointers to recent developments that you provide. But if you think I’ve gotten something wrong, I invite you to comment on my posts on the blog rather than, or in addition to, by email!

Photo credit: Sueswim03

About Ted Folkman

Ted Folkman is a shareholder with Murphy & King, a Boston law firm, where he has a complex business litigation practice. He is the author of International Judicial Assistance (MCLE 2012), a nuts-and-bolts guide to international judicial assistance issues, and the publisher of Letters Blogatory, the Web's first blog devoted to international judicial assistance, which the ABA recognized as one of the best 100 legal blogs in 2012 and 2014.

3 thoughts on “More on the Doug Cassel Post

  1. Ted, The Second Circuit Court of Appeals, which vacated Judge Kaplan’s preliminary injunction, had this to say about Chevron’s purchase of Texaco and its resulting liabilities:

    “Chevron Corporation claims, without citation to relevant case law, that it is not bound by the promises made by its predecessors in interest Texaco and ChevronTexaco, Inc. However, in seeking affirmance of the district court’s forum non conveniens dismissal, lawyers from ChevronTexaco appeared in this Court and reaffirmed the concessions that Texaco had made in order to secure dismissal of Plaintiffs’ complaint. In so doing, ChevronTexaco bound itself to those concessions. In 2005, ChevronTexaco dropped the name “Texaco” and reverted to its original name, Chevron Corporation. There is no indication in the record before us that shortening its name had any effect on ChevronTexaco’s legal obligations. Chevron Corporation therefore remains accountable for the promises upon which we and the district court relied in dismissing Plaintiffs’ action. Throughout this Opinion, we use the various corporate names that Chevron Corporation has employed during the course of this litigation only for purposes of clarity. In so doing, we do not attribute any legal significance to the nomenclature used….

    “Texaco had been trying to convince the district court that Ecuador would serve as an adequate alternative forum for resolution of its dispute with Plaintiffs. As part of those efforts, Texaco assured the district court that it would recognize the binding nature of any judgment issued in Ecuador. Doing so displayed Texaco’s well-founded belief that such a promise would make the district court more likely to grant its motion to dismiss. Had Texaco taken a different approach and agreed to participate in the Ecuadorian litigation, but announced an intention to disregard any judgment the Ecuadorian courts might issue, dismissal would have been (to say the least) less likely. We therefore conclude that the district court adopted Texaco’s promise to satisfy any judgment issued by the Ecuadorian courts, subject to its rights under New York’s Recognition of Foreign Country Money Judgments Act, in awarding Texaco the relief it sought in its motion to dismiss. As a result, that promise, along with Texaco’s more general promises to submit to Ecuadorian jurisdiction, is enforceable against Chevron in this action and any future proceedings between the parties, including enforcement actions, contempt proceedings,
    and attempts to confirm arbitral awards.”

    Case: 10-1020 Document: 282-1

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