Lago Agrio: More on the Ontario Hearing
Posted on April 24, 2018
While there still is no transcript or recording of the hearing in the Court of Appeal last week, the Lago Agrio plaintiffs have issued a press release that, even after putting aside all the things that should be put aside, casts some light on what happened at the hearing. It seems that both Chevron Corp. (the US parent) and the indirect Canadian subsidiary were set to argue separately. When Chevron US’s lawyer got up to argue, the LAPs say, he was winding up to deliver In Catilinam, but the judges stopped him right away. They indicated they didn’t want to hear about the fraudulent Ecuadoran judgment. The lawyer sat down, much sooner than he had planned according to the LAPs.1
I asked Chevron for comment, and its spokesman told me the press release was “inaccurate and misleading,” without disputing any particular point. If the LAPs’ account is accurate, I think the court was right to act as it did. The issue on appeal, as I understand it, is whether the LAPs could pierce the corporate veil assuming the Ecuadoran judgment is entitled to recognition. So Chevron wasn’t going to do itself any good by spending time arguing that the judgment was not entitled to recognition. Indeed, rhetorically, the right thing to do is to say, “let’s assume that the Ecuadoran judgment is perfectly valid; it’s still not right to seek to enforce it against a distant subsidiary. The LAPs should seek to enforce it against the judgment debtor, and they can’t make out a case for application of the extraordinary remedy of veil-piercing.” Of course, if that’s the strategy, then there’s really no good reason for Chevron US to be arguing at all.
This was dramatic, but has it altered the calculus on appeal? I’ve suggested before that I think the veil-piercing argument was not very strong. But the LAPs tell me that they moved for leave to offer new evidence, specifically, evidence about Chevron and Chevron Canada’s tax arrangements. Apparently Canada taxes oil profits at a more favorable rate than countries such as Nigeria, Indonesia, Ivory Coast and the UK. According to the Guardian: “Chevron used to run its Nigeria and Indonesia projects out of the U.S., but after allegations that they evaded billions in taxes, their operations were moved to Canada.” The LAPs suggest that this new evidence supports their veil-piercing case.
From a procedural perspective, an appeals court in the United States wouldn’t consider this kind of argument. You would have to seek to set aside the judgment in the lower court first, and you would have to have a good reason. The question for the appellate court is whether the lower court erred given the record it had before it; there is no “do-over.” I don’t know whether that’s so in Canada, and I don’t know what reason the LAPs have given for offering the new stuff only now. And leaving aside procedural issues, I’m not sure what the new evidence shows that is helpful to the LAPs. But the LAPs, at least, seem very positive about the new argument. We will have to see whether it has any effect on the ultimate decision.
So after the hearing, what is the overall status of the case in Canada? The court will soon decide the veil-piercing issue. Whoever wins, we can expect an appeal to the Supreme Court of Canada. If the LAPs prevail at that stage, then the case will be remanded. Perhaps there will have to be a trial on veil-piercing, perhaps not. But if there is a remand, there will have to be further proceedings on Chevron’s defenses to recognition of the Ecuadoran judgment. The first question in that case would likely be the preclusive effect, if any, of Judge Kaplan’s findings of fact. If the LAPs can get over that hurdle, then there would be a trial on the merits of the defenses. The LAPs would try to show that the claims of ghostwriting and the Guerra corruption allegations are false—I’ve said before that I think they have a real shot at this. They would also have to show, I think, that there was nothing to the Cabrera fraud. There I think their chances are much weaker. Or else the LAPs would have to show that even if there was fraud in the Ecuadoran court of first instance, it should have been for the Ecuadoran appellate courts to remedy. That argument is persuasive for reasons I’ve given from time to time, but it wasn’t persuasive in New York. So buckle up; we have a ways to go in Canada before it’s all over.
- Yes, I get that the famous picture of Cicero and Catiline in the Senate at the top of the post doesn’t really work given what I’ve just written. I suggested that Chevron’s lawyer, Larry Lowenstein, was in the role of Cicero but that the judges told him to sit down. But in the picture, it’s Catiline who sits alone and dejected, while Cicero thunders on. I still like the picture.