Ecuador plaintiffs suffer setback in Chevron case

October 31, 2013: 4:55 PM ET

A lawyer explains why he quit working for the Ecuadorians suing the oil giant in the high-profile environmental case.

FORTUNE -- In dramatic testimony, a New York attorney testified Thursday that he dropped involvement in an environmental case against the oil company after learning that a key "independent," court-appointed expert's report had been secretly ghostwritten by the team's U.S. lawyers and consultants

"It was a shocking event and I remember it clearly," Jeff Shinder testified Thursday at Chevron's civil racketeering suit against Steve Donziger, the environmental lawyer who won a $19 billion judgment against the oil company in Ecuador in 2011.

Shinder, the managing partner of the New York office of Constantine Cannon, a law firm retained by Donziger in March 2010, was describing the day, just one week after formally entering the case, when he interviewed Douglas Beltman of Boulder, Colorado-based Stratus Consulting, who was then Donziger's chief environmental expert for the Ecuadorian case.

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"About an hour and 45 minutes into the interview," Shinder recounted, "Mr. Beltman, in a rather forthright way, pretty explicitly admitted having written significant portions of the Cabrera report" -- i.e., a key damages report that Donziger had, until that point, always described to Shinder (and to countless news organizations, including Fortune) as the work of an "independent," court-appointed expert, Richard Cabrera.

"Once the truth -- or what I take to be the truth -- came out," Shinder continued, he learned from Beltman additional "lurid" details, including the fact that Stratus had filed with the Ecuadorian court "comments" on the Cabrera report, without revealing Stratus's role in having ghostwritten that report to begin with, and then ghostwrote Cabrera's responses to its own comments.

"It was just astounding to me the levels to which this descended," Shinder testified. (This past April Stratus and Beltman renounced all their scientific work in connection with the Lago Agrio case, and Beltman is expected to be called later in this same trial as a Chevron witness, either by deposition or live testimony.)

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Shinder's direct testimony was elicited by Reed Brodsky of Gibson, Dunn & Crutcher, the law firm representing Chevron. Chevron's lead attorney on the case is Randy Mastro.

Though the trial is now in its third week of testimony, it remains unclear the degree to which Donziger's attorneys are still contesting the fraud allegation relating to ghostwriting of the Cabrera report. In July 2012, based on evidence and admissions already contained in pretrial submissions up to that point, U.S. District Judge Lewis Kaplan held that that "fraud" had "unquestionably" occurred.

During opening statements in this trial three weeks ago Donziger attorney Richard Friedman, of Bremerton, Washington, acknowledged that some ghostwriting had occurred and that Donziger had gone to considerable lengths to keep that fact secret. Friedman argued, however, that even assuming that happened, it didn't matter because the 188-page, $19 billion Ecuadorian judgment purports to disregard the Cabrera report, claiming to rely on other evidence. No harm, no foul. (On the other hand, Judge Kaplan has already found that the judgment's claim to have not relied on the Cabrera report is false. In addition, he has found that Chevron has established probable cause to believe that the judgment itself was also ghostwritten by the Lago Agrio plaintiffs lawyers.)

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On cross-examination by defense lawyers Friedman and Julio Gomez of Westfield, New Jersey, Shinder acknowledged that Donziger never sought to prevent Shinder from interviewing Beltman and never interfered with his questioning of him -- suggesting that Donziger had not behaved like someone who had anything to hide. The defense lawyers also elicited from Shinder that he had not researched Ecuadorian law to see whether the odd, secret arrangement Stratus had with Cabrera might be permissible in that country.

Shinder was testifying Thursday pursuant to a subpoena served upon him by Chevron (CVX). U.S. District Judge Lewis Kaplan required Shinder to answer Chevron's questions -- which might normally have been considered protected by the attorney-client privilege -- due to, among other things, an exception to the privilege that applies when there is reason to believe that the ordinarily protected statements were advancing a crime or fraud.

Donziger was not present in the courtroom to hear Shinder's testimony -- the first day of trial Donziger has missed. In a letter filed in court earlier in the day Donziger explained that he would be attending an appellate argument in Canada, where other lawyers on his team are trying to reverse the ruling of an Ontario judge who dismissed a suit they'd brought attempting to enforce the Ecuadorian judgment against Chevron's assets in Canada.

The $19 billion judgment against Chevron was handed down in a case filed in Lago Agrio, Ecuador in 2003 by Donziger and the Quito-based Amazon Defense Front. That case sought damages for contamination allegedly left behind by Texaco after it drilled in eastern Ecuador from 1964 to 1990. Texaco was acquired by Chevron 2001. Since Chevron has virtually no assets in Ecuador, the plaintiffs' team has brought suits seeking to enforce the Ecuadorian judgment against Chevron's assets in other countries, including, so far, Canada, Argentina, and Brazil.

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In February 2011, the same month the Lago Agrio judgment came down, Chevron sued Donziger, the Amazon Defense Front, and the Front's leaders in Manhattan under the civil provisions of the Racketeer Influenced Corrupt Organizations Act (RICO), alleging that they had procured the $19 billion judgment through bribery, extortion, fraud, witness tampering, obstruction of justice, and money laundering. Shinder was testifying in that RICO trial.

If it wins the RICO case, Chevron hopes to win a court order from Judge Kaplan that will prevent Donziger and his colleagues from benefitting from the Ecuadorian judgment and that will -- though any U.S. judge's powers in this respect are limited -- make it less likely that foreign judges will enforce the Ecuadorian judgment in their own countries.

In his testimony Thursday, Shinder said he was first contacted by Donziger in October 2009 about the possibility of helping Donziger's team enforce the Ecuadorian judgment -- which had not yet come down, but which Donziger was anticipating -- in the United States. Shinder said that in nearly every conversation he had with Donziger, Donziger had emphasized that Cabrera, who had recommended an award of more than $27 billion in damages, was a court-appointed, "independent" expert.

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Cabrera's independence was crucial, Shinder said, to his deliberations about whether, as a business proposition, to become enforcement counsel for the Lago Agrio plaintiffs. Shinder said Donziger repeatedly assured him that, contrary to accusations already being made by Chevron, "there was no relationship between Stratus and Cabrera."

By early 2010, however, Chevron had filed two auxiliary lawsuits in the United States -- one in Colorado and one in Georgia -- seeking discovery that would enable it to draw back the curtain on what it claimed had been ghostwriting of the report by Donziger's experts at Stratus. Donziger asked Shinder and his firm to serve as the Lago Agrio plaintiffs' counsel in defending those actions.

At a Sunday breakfast meeting in early March in New York, Shinder testified, Donziger seemed "worried" and "borderline panicked" about Chevron's discovery suits. Shinder asked him, he recalled, "Steven, what am I going to find out?"

Donziger continued to deny Chevron's ghostwriting allegations, Shinder said, but at the same time added, "You have to understand, they do things differently in Ecuador."

Shinder said he decided to represent the Lago Agrio plaintiffs in the two discovery actions as a way of deciding whether to take on the bigger commitment of acting as their enforcement counsel in the United States. But the first thing he wanted to do, he recounted,. was interview Beltman and people at Stratus personally.

On March 16, 2010, he flew to Denver and then drove to Boulder where, he said, Donziger put him up at a "very nice hotel" -- one that struck him as unusually plush, given the plaintiffs' seemingly cash-strapped budget.

"My thought was: Steven's living large," Shinder commented.

The next morning he met with Stratus people all day, culminating with Beltman in the afternoon. Donziger was present during that interview, Shinder said. When Beltman finally made the admissions, Donziger seemed "nonplussed," Beltman recounted, showing "no reaction."

Less than 24 hours later, after consulting with ethics counsel and another managing partner at his firm, Shinder notified Donziger that he was pulling out of the case on "ethical" grounds.  He told Donziger he thought that his conduct had "irretrievably wounded" the underlying case regarding environmental damage.

"It bothered me -- and it still bothers me," Shinder testified, "that we'll never know if there was a case to be made against Chevron."

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