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Advocacy & analysis, litigation & arbitration: A response to Roger Alford

My response to Roger Alford’s recent post on Opinio Juris, in which he highlights a letter he wrote with colleagues in response to an earlier letter by other law professors (hosted or published by the Alliance for Justice) on issues of investor-State arbitration in the run-up to upcoming debates about TTP and TTIP/TAFTA.  As I note, the debate itself is an important and urgent one — but Alford’s attempt to elevate himself and his views to some privileged privileged position of truth above “political advocacy” is grating and unconvincing.

While I’m not surprised that the author of one letter thinks his letter is better than his opponents’, I think Mr. Alford goes too far by dismissing what he calls the Alliance for Justice letter as “political advocacy,” while characterizing his own as “a memorandum by scholars offering legal analysis.”  I would say both are 80% the former, 20% the latter.

The “analysis” provided by the Alford letter, as I read it, is that the world of international investment disputes is simple and objective: when a state has acted badly, it will be held liable; when it hasn’t, it won’t.  What’s the problem?

The problem is that litigation is litigation, even when it’s arbitration.  While “objective” facts matter, the system is driven by a competitive inter-subjectivity where the parties’ underlying resources and commitment to the dispute are often (some would say always) determinative of the outcome.  States can be trusted to continue to claim they act in the global public interest; corporations can be trusted to aggressively and creatively package state regulatory actions as arbitrary, discriminatory, etc.  The “truth” can be trusted to continue reside somewhere in between.

The case Alford et al choose to highlight as an example, S.D. Myers, is an example indeed.  Alford et al suggest that this is an easy case of state discrimination, asserting that the objective truth is that “Canada’s goal in imposing the [PCB export] ban was not to protect the environment, but to protect Canada’s PCB waste disposal industry, as acknowledged by Canada’s Minister for the Environment in a speech that she gave to the House of Commons.”

In fact, the ban was the product of more than a decade of deliberation by numerous Canadian authorities involving numerous complicated factors and considerations, including as just one example whether the ban was required for compliance with the Basel Convention.  The gloss in Alford’s letter would throw all this out this window in favor of a “truth” purportedly revealed when a cabinet minister, who was obviously not solely responsible for the ban, responded to a question during a parliamentary session with the off-the-cuff summary that “it is still the position of the government that the handling of PCBs should be done in Canada by Canadians.”  I’m not saying this remark was not a legitimate piece of evidence, but playing it for its “ah ha” value, as Alford et al do and as the claimant did in the arbitration, is an example of litigation — and advocacy — that should remind us that we know this process (and its relation to truth) all too well.

And in fact, even accepting the “in Canada by Canadians” position as the government’s official position doesn’t turn the case into a simplistic story of greedy nationalism.  That policy, to the extent it played a role, was substantively justified by the state’s legitimate interest in maintaining capacity and control in an area critical to citizen and environmental health and safety, especially in light of the possibility that the U.S. disposal facilities might become unavailable or were the border to be closed, which had happened  in the past.

The Alford letter tries to take the AFJ letter to task for focusing on what “might” happen.  It’s response, apparently, is to tell us with resounding confidence, is a standalone paragraph, what ”will” happen:

“Corporations cannot and will not gain victory simply by arguing reduced investment value. Rather, legitimate government conduct will be upheld as a proper exercise of sovereignty.”

Great!  We’re done then.  Or perhaps not quite, because how do we know this will happen.  It actually does tend to happen this way in the United States with respect to takings claims under the U.S. Constitution, but that’s because we have a strict interpretation of the takings clause by the highest court in the land, which interpretation is binding on all other (federal) courts, i.e. Tahoe/Lucas/Penn Central and the requirement that only “permanent obliteration of value” can result in a finding of regulatory taking.  Not only is there not a similar doctrine in international investment law, but the disaggregated system as currently established would be incapable of developing and enforcing it.  It could be included in the text of any upcoming treaty, but the leaked treaty texts see the them going in the other direction, setting up a system where regulatory acts will be evaluated according to their “legitimacy” – again, in a disaggregated system where each panel decides for itself, expressly not bound by any larger system of jurisprudence  or higher authority.

This is one of the reasons the AFJ letter complains of the lack of an appeals process.  The Alford letter respond that at least in the ICSID context there is the annulment process.  But  it acknowledges that annulment is available only where the arbitrators have “manifestly exceeded their authority or departed from a fundamental rule of procedure.”  This is akin to the standard for issuance of the writ of mandamus in the common law.  If we were to ditch the availability of appeal in this country and say, let’s just use mandamus to correct the most egregious cases, I doubt people would be satisfied with this as sufficient due process.

It’s also worth noting the details of the Alford et al assurance that states will have to pay foreign corporations for exercise of state regulatory functions “only if their acts are arbitrary, discriminatory, or otherwise violate the investment guarantees to which states have previously agreed.”  Pay attention to that last clause.  Countless tribunals have read “umbrella clauses” into investment treaties, meaning that any violation of even a purely domestic contract by the state thus gives rise to international liability under the treaty.  So we end up back in the realm on typical commercial contract litigation – except, as the AFJ letter notes but the Alford letter ignores, it’s a one-way street, because system only allows corporations to sue states, not vice versa.

We cannot blind ourselves to the fact that litigation often has a strategic dimension. Companies file lawsuits to pressure their opponents to settle, or to improve their negotiating position in ongoing and evolving relations.  Indeed settlement is probably the dominant feature of commercial litigation, where cases almost never go to trial.  Corporate claimants are certainly aware of this, and have particularly powerful leverage in the form of the system’s built-in sky-high costs and fees.  Remember, in arbitration you’re not just paying for counsel, you’re paying for the judge – in fact for three of them, and typically around $1,000 an hour.  The tribunal wants to hold a motions hearing?  That’s probably $20,000 just to get started, not counting travel and other expenses.   A two-week trial?  Do the math.  And while the U.S. has a fantastic in-house lawyers teed up and ready to litigate these cases, most countries don’t, and end up having to go to the club of elite law firms who specialize in this work and charge correspondingly elite-level fees for the privilege.

The issue of settlement raises particular concerns in the sovereign context because it goes beyond the issue of states using taxpayer money to pay off potentially meritless corporate claims.  States will often be tempted to “settle” a claim by revising the challenged regulation to suit the claimant.  The Alford letter faux-naively suggests that the regulatory taking concern is limited because “nothing in investment treaties requires states to change their domestic regulations” – instead, they can just pay damages.  Come on.  The idea that states are free to keep regulations on the books and just happily pay off private parties (at whatever damages figures those parties’ lawyers can sell to private tribunals) for the privilege is ridiculous.   The budgetary issue will almost always be determinative – by law, every regulation in the US is rigorously evaluated for its budgetary impact – and corporations know it.

As to a number of other issues in the AFJ letter, the Alford letter just ignores them.  The controversial cases such as Philip Morris’ tobacco labeling challenges or the gold-mining cases in El Salvador?  No comment.  The rotating lawyer/arbitrator system, in which a tiny club of individuals sit on panels and represent parties before those panels?  No comment.  The fact that arbitration often allows corporations to bypass domestic court systems?  No comment – except that the letter cites (for a different proposition) the BG Group case, where it was eventually decided that arbitrators were within their rights to relieve a claimant of the requirement to exhaust domestic remedies, even though that requirement was expressly stated in the treaty.

Alford is right that these battle lines are not new.  But his suggestion that he and his colleagues are not part of the fray, or are somehow above it – that his letter is “legal analysis” while his opponents only offer “political advocacy” – is unconvincing.  Just like litigation is litigation, advocacy is advocacy – it’s the butter on the bread of public discourse and Alford is more than welcome to spread it as thick as he likes.  But I for one can’t believe it’s not butter.


Cracks In Chevron’s “Fight On The Ice” Strategy

Nearly a decade ago, Chevron Corporation issued a public statement warning the Ecuadorian communities who were plaintiffs in a massive environmental case against the company in Ecuador that they would face “a lifetime of appellate and collateral litigation” if they continued to vigorously pursue their claims.  A few years later, perhaps thinking they hadn’t been understood, Chevron sharpened the message, telling a reporter on record that regarding the claims, which demanded compensation sufficient to remediate hundreds of pond-sized pits of oil sludge and the effects of the 18 billion gallons of wastewater that even the company admits it dumped during 25 years of operations in the Ecuadorian Amazon, the company would “fight until hell freezes over . . . and then we’ll fight it out on the ice.”

I’ve worked with the Ecuadorian communities on the plaintiffs’ side of the case for over a decade now.  Though I was on a sabbatical of sorts when Chevron first made these promises, I was aware of them but didn’t think much except that it confirmed my beliefs that the company was fundamentally piggish and brutal and would need to undergo deep reforms before it would do the right thing.

Looking back, I see things more clearly.  For Chevron, hell froze over on February 14, 2011, the day a small provincial court in Ecuador—the sort of country Chevron in its heyday used to treat like a private hacienda—issued a massive environmental verdict against the company.  The “ice,” which had been gathering for a year or so as Chevron saw the verdict coming, then followed.  The scale itself is impressive, epochal: dozens of lawsuits against the Ecuadorians’ lawyers and consultants (including myself); lawsuits against every funder of the Ecuadorians’ effort, including in faraway jurisdictions like Gibraltar; a “racketeering” lawsuit against the case’s leaders that the company pushed all the way through a seven-week federal court bench trial in New York; a decade of ferocious litigation against the government of Ecuador itself, under the U.S.-Ecuador Bilateral Investment Treaty, claiming a “denial of justice” in the refusal by Ecuador’s executive branch to quash the case.  All this advanced by a team that included, Chevron told a federal judge a few years back, several dozen law firms and literally thousands of lawyers and operatives.

But the “ice” was more than that—colder, more biting, and more isolating than I could have imagined.  It was, at bottom, a wrenching recasting of the global public narrative about the Ecuador environmental case, framing the life-long social justice activists who led the case as a greedy and villainous fraudsters, the affected communities themselves as either “irrelevant” (as Chevron has described them) or criminally complicit, and Chevron itself as the true victim of the whole situation.

Chevron’s success in propagating this counter-narrative (a fundamentally false one in my view, for reasons I’ll get to) was either stunning or inevitable, depending on what you think about the depth of corporate influence in our society.  Admittedly it was sped along its way by some mistakes and some hubris by the Ecuadorian team—although nothing that couldn’t be, and in fact was, “cured” by appropriate processes in the environmental case itself, and certainly nothing in comparison to what even Chevron’s staunchest supporters admit in private that you’d likely find if you were allowed to scrutinize its private files to the same extent as was allowed as to the Ecuadorian side.  Chevron’s success, while certainly propagated in “traditional” means by Chevron’s juggernaut public relations and government lobbying efforts, really hit its stride through innovative deployment of private institutions not traditionally associated with public narrative processes, such as white shoe law firms like Gibson Dunn & Crutcher, and, through them, its successful deployment public institutions including and no less than the court system itself.

I recognize this is a striking claim.  The court system did not just roll over for Chevron—plenty of courts pushed back, rejecting Chevron’s “crime-fraud” claims against the Ecuadorians and even calling out the problematic First Amendment implications of Chevron’s counter-attack.  But Chevron’s deployment of overwhelming resources changed the usual calculus of courts in the public debate.  The company filed so many lawsuits that it was able to use its massive PR machine to highlight its successes and spin away its losses.  It filed so many lawsuits it was able to “audition” literally dozens of judges, so that when it found a winner—such as the New York judge who began a preliminary hearing by railing against the “giant game” he thought the Ecuadorians were playing and bemoaning the influence of “imaginat[ive]” plaintiffs lawyers on the national character (“You know, we used to do a lot of other things [in this country]”)—it could double-down and throw resources in that direction.  A source close to the company estimated two years ago that the lawsuit that Chevron subsequently initiated in front of that New York judge was costing $400 million per year in legal and related fees.

In 2009, Chevron’s lead strategist noted in an internal email that the company’s “long-term strategy” in responding to the Ecuador case was to “demonize” its opponents, in particular Steven Donziger, my longtime colleague and a social justice activist who has dedicated much of his career to the Ecuadorian cause for over two decades now.  If you review the media coverage of the case and Donziger in the last five years, it’s hard not to come to the conclusion: job well done.  I’ve had a lot of support from friends and family over the years I’ve worked on the case, but most of the people who support me, and who I know otherwise support the Ecuadorians in their struggle for justice, don’t even follow it anymore.  They know the contamination is still there, the human suffering is still there.  They just don’t recognize the headlines.  And from some people who used to support the case, or who I would have thought would support the case, there is an icy silence.

But the ice may, finally, be cracking.

A huge driver of the thaw, if it comes, will be what the federal Court of Appeals for the Second Circuit does with the Ecuadorian’ pending appeal from the “racketeering” judgment against them entered by the aforementioned New York judge last year.  The U.S. media and the public generally, for generally good reasons, has a deep faith in the federal court system.  If the Second Circuit lets the racketeering judgment stand, I and my colleagues, knowing all the facts that the New York judge blocked from coming into the record during the fall 2013 bench trial, will know it as a travesty of justice.  But the rest of the country will see it as a duly considered matter—case closed.  (What courts in the rest of the world would think is an open question.)

But conversely, if the Second Circuit vacates the racketeering judgment—and oh my does it have plenty of good reasons to do so—the significance of Chevron’s racketeering case pivots.  It still remains relevant, but not as a question of what the Ecuadorians did or did not do in Ecuador.  It becomes a question of what Chevron did, on a global scale and at mind-boggling cost, in responding to its Ecuador liability not by taking responsibility but by instigating a massive retaliation campaign against its own victims based in large part on distorted, even invented evidence.  This is not an overstatement: as has been discussed elsewhere and will be detailed in future blogs, Chevron literally paid cash to “fact” witnesses for key testimony that it must have known could not be true, and that emerging evidence may conclusively prove to be untrue.

Our federal courts’ and our society’s willingness to embrace Chevron’s counter-narrative, even temporarily, raises important further questions.  In my view, it speaks to our persistent longing to believe that our society’s most powerful private institutions—not just oil companies and white shoe law firms, but, in other contexts, big banks, media conglomerates, technology companies—are “too big to lie,” are fundamentally good at heart, or otherwise can somehow be trusted to protect the public interest even as they pursue their private ones, without the draining exercise of regulation, enforcement, and constant public vigilance.  It is a longing that gets us into trouble again and again.

The Second Circuit will hear argument in the case on April 20.

There are very good reasons why, just on legal issues alone, the Second Circuit it likely to reverse the racketeering judgment.  After boasting for three years that it would take its racketeering case to a jury, Chevron dropped all its money damages claims on the eve of trial, allowing it to submit the case for decision solely to the “we-used-to-do-things-in-this-country” judge, not a jury.  But dropping damages left Chevron asking for a civil racketeering verdict based on forms of alleged injury more like hurt feelings than the sort of things that federals courts say are necessary for a plaintiff to have “standing” to proceed.  Chevron argues that because it asked for damages at the beginning of the case, it should get a pass on standing even though it later changed its mind.  That one’s not going to work.  Another glaring problem for the Second Circuit is that if Plaintiff Chevron is allowed to use the civil RICO statute as it has, an army of more typical big-money plaintiffs lawyers would use the precedent to bring actions against corporations without the hard work of proving damages, because under RICO they can recover triple attorneys fees even where no damages can be found.  The Second Circuit would turn into a haven for racketeering cases.

The law on this and a ton of other issues is so bad for Chevron that even it has started positioning itself for defeat.  As I noted in an earlier blog, Chevron recently pleaded for the Second Circuit, even if it reverses, to leave a portion of the judgment in place as a “freestanding determination of the facts,” even without legal consequence.  A nice idea—but completely unconstitutional, so long as the normal standards are being applied.  Also very unlikely in light of new developments in the form of new evidence, admittedly outside of the trial court record , which appears to conclusively show that Kaplan got the facts wrong.  Kaplan “found” that Ecuadorian judge Nicolas Zambrano did not author the Ecuadorian trial judgment but took a bribe to put his name on a judgment authored by the plaintiffs.  But a forensic analysis of the Ecuadorian judge’s hard drives apparently shows him writing the judgment, day by day, over the course of the months.  Even though Chevron is likely adapting its fraud theories to the new information as we speak, it is devastating to the company’s counter-narrative across the board.

What’s more, in Chevron’s massive international arbitration directly against the government of Ecuador, it has gotten everything it has asked for from the panel of arbitrators—until last week.  The arbitrators (who are convened by corporate investor complaints, even if they are sometimes appointed by States, meaning that they generally have an incentive to enhance the effectiveness of the arbitration forum for corporations by ruling in their favor) issued a pre-trial decision analyzing what has been Chevron’s primary defense/argument not just in the arbitration but in collateral litigation around the globe—in Ecuador, in New York, in Gibraltar, and in enforcement courts in Canada, Brazil, and Argentina.  The arbitrators concluded that the defense—that the Ecuadorians could not pursue their claims because they were barred by the terms of a 1995 release agreement Chevron worked out with the Ecuadorian government—was lacking.  The result is devastating for Chevron; the arbitration that was started as a way of bolstering its position and influencing the national-court jurisdictions that actually matter, has now turned into a liability in and of itself.  An arbitration trial on Chevron’s “fraud” facts—which as noted, are unraveling—is set to start April 20 before the same arbitrators.

Finally, there are rumors that the Supreme Court of Canada may soon authorize the Ecuadorians to begin a full-bore enforcement effort against Chevron in Canadian courts.  Other efforts to enforce the Ecuadorian environmental judgment in various countries that have been stuck in the ice the last five years are likely to break free and start moving too.

I’ll have more to say on these and other developments as we head into these important dates in April and beyond.


“Laughability”

I don’t want to come across as some humorless oversensitive human-rightsy type, but I have to say that the glibness of Michael Goldhaber’s latest column on the Chevron/Ecuador case is rather sickening.  Goldhaber’s columns are published behind a strict paywall, making them semi-private missives to a largely corporate audience inclined to pay sky-high annual subscription fees to American Lawyer Media. They are almost never freed-up even early in the news cycle, as WSJ articles often are for example. The only reason the rest of can even see this one is that it was republished (with permission?) by Chevron on its anti-Ecuador blog The Amazon Post. His columns are invariably sycophantic to his audience’s worldview — but this one just goes too far.

The column is an extended flogging of an analogy (or something) between the Mad Men tv show and the Chevron/Ecuador dispute.

“It was on the same day that Mad Men announced that it would split its final season in half that arbitrators in Chevron v. Ecuador split their latest decision in half in 2013. . . . Herewith, a guide to the next season of the world’s longest-running legal dramedy, which debuts April 20 with the split-screen airing of the Chevron v. Donziger appeal and the Chevron v. Ecuador arbitration trial.”

Etc.  Pretty thin gruel.  And more than a bit ironic for someone who has for years joined the chorus trying to tar-and-feather the Ecuadorians’ US lawyer Steven Donziger for daring to bring a show-biz sensibility–e.g. a documentary, celebrity involvement–to a human rights case. But not really all that offensive by itself.

But then, somehow, it just gets there. By the end, Goldhaber is talking about “the Chevron in Ecuador showrunners keep us guessing as to which season will be their last,” and inquires whether the case will “jump the shark,” as if it were some silly trend that will end by a dwindling of attention or popularity, not by the process of law.  There is no sidebar thrown in to remind readers that, by the way, this is not a fictionalization but a real case based on a real and really terrible situation–real oil and wastewater (billions of gallons) dumped into real pits (hundreds of them) really near real houses and real drinking water sources in the real Amazon region of Ecuador. Goldhaber has seen the photos, the videos–the documentary.  I don’t think he doubts the existence or even the gravity of the underlying environmental and human rights situation.  Wouldn’t this tamp down just a bit on the hilarity of the whole thing as Goldhaber seems to see it?

Elsewhere in the column Goldhaber talks about the “laughability” of the environmental judgment that the affected communities won after 20 years of litigation in the U.S. and Ecuador–an arduous, expensive journey that tested the limits of a poor and somewhat fractured community’s ability to believe in itself and remain in solidarity. The indigenous and farmer communities won; one of the world’s wealthiest corporations lost. The communities are continuing to stand up for themselves by demanding that their judgment be given no less equal treatment by sister foreign jurisdictions than what would be accorded to any other judgment. And while Goldhaber may be pointing and laughing, sister foreign jurisdictions are listening and, I suspect, are going to recognize the Ecuadorians’ call for dignity and give the judgment a fair shot.

Maybe I’m just particularly irked by Goldhaber because he’s written a book called A People’s History of the European Court of Human Rights.  In other words, he pretends to care about things like people and human rights. In his own words he will no doubt continue to protest that he indeed does. But in action, he continues to jump on the easy bandwagon of Chevron’s false “fraud” narrative (which is the process of unraveling, including through stunning new forensic evidence), and continues to dance his little dance, making fun of actual people who are suffering actual human rights violations, all for the amusement of his well-heeled corporate readership.

Goldhaber is certainly laughable, but even at his expense I’m not inclined. At some level he obviously wants to do the right thing, wants to build a meaningful legacy of truth. The fact that he has so determinedly lost his bearing on this case is more sad and food for thought than anything.