Stunning Fall from Grace for Former High-Level U.S. Government Official
Law Enforcement Probes of Chevron in Two Countries
Amazon Defense Coalition
01 March 2010 - FOR IMMEDIATE RELEASE
Contact: Karen Hinton at +1.703.798.3109
Quito, Ecuador – Chevron's curt announcement last week that former general counsel Charles James is set to retire is due largely to his mishandling of the oil giant's "legal and public relations disaster" over a potential $27 billion environmental liability in Ecuador, representatives of the Amazon Defense Coalition (ADC) said today.
The departure of James, known as a hard-right ideologue who worked in the Department of Justice under John Ashcroft, follows the surprise retirement of CEO David O'Reilly last year. Both James and O'Reilly were running the Ecuador legal case when it ballooned into a major public relations disaster and a potential $27 billion liability that threatens to eat up one-fifth of Chevron's market value.
During his tenure, James ran into numerous problems with law enforcement authorities. In 2007, Chevron was forced to pay a $30 million fine to the U.S. Department of Justice because of a violation of the Foreign Corrupt Practices Act in Iraq. The company also was rebuked by the U.S. Department of the Interior for failing to cooperate with a corruption probe involving Chevron employees. Separately, two Chevron lawyers working closely with James on the Ecuador case were indicted for lying about the results of a purported environmental clean-up.
James also is being investigated by Ecuador's national prosecutor after he and other Chevron lawyers engineered a "sting" operation against an Ecuadorian judge to undermine and delay the environmental trial. The man who conducted the sting had ties to Chevron and was caught on tape offering a bribe.
James, 56, is taking an adjunct faculty position at the law school of Arizona State University. In an interview, he said he planned to focus on charitable work and tinkering with his motorcycles; Chevron's press release on the departure was only three paragraphs compared to nine when he was hired amid great fanfare in 2004.
Representatives of the ADC, which is suing Chevron in Ecuador for the deliberate dumping of billions of gallons of toxic waste onto their ancestral lands in the rainforest, called the departure of James a "stunning fall from grace."
"Charles James masterminded a legal and public relations strategy for Chevron in Ecuador to hide contamination that is destroying lives, decimating indigenous culture, and devastating the company's reputation globally," said Pablo Fajardo, the lead lawyer in the case for the plaintiffs in Ecuador and the winner of the Goldman Environmental Prize, considered the "Nobel" of the environment.
"James created a culture of permissiveness and excessive risk-taking that permeates Chevron's legal department to this day," he added.
The plaintiffs filed the class action lawsuit in U.S. federal court in 1993, alleging that Texaco deliberately discharged more than 18 billion gallons of "production water" into the rainforest to cut costs when it operated a large oil concession from 1964 to 1990. Chevron purchased Texaco in 2001 for $31 billion.
Texaco and then Chevron had argued in the U.S. court that the case should be tried in Ecuador, submitting 14 sworn affidavits praising the fairness and competency of that country's courts. Chevron also stipulated that it would submit to jurisdiction and abide by any judgment in Ecuador.
As a result of Chevron's representations, the case was transferred to Ecuador where a trial began in 2003 that produced evidence that quickly pointed to the oil giant's culpability.
Given the troubling evidence, James abdicated on Chevron's earlier promises to the U.S. court and hired six public relations firms and numerous lobbyists to discredit Ecuador's judicial system. Chevron also lobbied the U.S. government to cancel Ecuador's trade preferences as punishment for letting its own citizens sue Chevron in their courts, despite Chevron's earlier promise that it wanted the trial in Ecuador.
Chevron's lobbying failed to cancel the trade preferences, but not before 26 congressmen signed a letter protesting the strategy. Rep. Linda Sanchez (D-CA) accused the oil giant of "extortion."
In addition to losing control of the Ecuador trial, James has entangled Chevron in a series of embarrassing situations that have angered institutional shareholders. Among his questionable calls:
- Chevron in 2004 launched what turned out to be a fruitless three-year litigation odyssey to force Ecuador's government to pay for the Ecuador clean-up. In a stunning rebuke, a New York federal judge rejected Chevron's bid. An appeals court affirmed the decision and the U.S. Supreme Court denied Chevron's petition for review.
- In 2008, after refusing multiple opportunities to settle the case, Chevron was hit with a damages assessment in Ecuador's court for $27.3 billion. The company had to stave off virtual shareholder revolts over the liability at the last two annual meetings.
- In July 2009, James suffered another setback when Chevron voluntarily withdrew a claim before a U.S. federal court that its legal release – secured by fraud, according to the plaintiffs – absolved of it all clean-up responsibility. Chevron apparently was worried it would lose in a U.S. court where it could not claim it was the victim of bias.
- In Ecuador, James oversaw a bungled legal strategy where the company's local counsel produced soil samples that demonstrated the existence of high levels of contamination at former Texaco sites – essentially proving the claims of the communities, according to a court-appointed independent Special Master.
- James' strategy also caused severe damage to Chevron's brand. Despite hiring large public relations firms such as Hill & Knowlton and Edelman Worldwide, Chevron was embarrassed repeatedly last year with unflattering reports on the Ecuador issue on 60 Minutes and in the Wall Street Journal, New York Times, Washington Post, Politico and in various oil industry trade publications.
"Charles James is a formidable adversary but he led Chevron down a path of unnecessary confrontation," said Steven Donziger, a U.S. legal advisor to the plaintiffs. "His ideological blinders distorted his judgment and played into the hands of the rainforest communities. No amount of Chevron spin can cover up the humanitarian catastrophe in Ecuador due to the company's failure to take responsibility for its actions."
Fajardo added: "It appeared to me that James grossly underestimated the determination of thousands of Ecuadorians and as a result Chevron shareholders face legal risks that no other oil major in the world has on its books."
"These risks, and the human suffering in Ecuador's rainforest, will define the legacy of James," Fajardo added.