Annex A: Claimants Allegations Of Legal Error Have No Basis In Ecuadorian Law

Transcription

1 Annex A: Claimants Allegations Of Legal Error Have No Basis In Ecuadorian Law 1. Claimants continue to press this Tribunal to act as if it were a supra-national court of appeal. Unleashing a barrage of frivolous complaints about every conceivable aspect of the appellate and cassation proceedings in Ecuador, they obviously hope that at least some of their misrepresentations of Ecuadorian law will move this Tribunal to adopt the illegitimate role that Claimants demand. Chevron s scorched-earth litigation tactics in Ecuadorian courts have included two levels of appellate review of virtually every single finding and procedural decision made in the Lago Agrio Litigation. None of Chevron s claims of legal and/or procedural error withstood scrutiny and all were appropriately dismissed. Similar claims are now pending before both the Constitutional Court in Ecuador and this Tribunal. 2. But international tribunals are not courts of appeals. 1 It is not within this Tribunal s mandate or competence to decide whether it agrees or disagrees with the substantive and procedural rulings of Ecuador s municipal courts applying Ecuadorian law. A finding of denial of justice requires a conclusion of law or fact outside of the spectrum of the juridical[ly] possible, in light of the procedural and substantive law applied by the relevant national court at the relevant time. 2 Claimants cannot clear this high bar. 3. The Republic has demonstrated previously how Chevron developed a synthetic record of purported procedural irregularities in the Lago Agrio Litigation, with the apparent goal 1 See generally Respondent s Track 2 Counter-Memorial 320 et seq. (citing, inter alia, RLA-304, Barcelona Traction, Light & Power Co. Case (Belgium v. Spain), 1970 I.C.J. 3 (Award of Feb. 3, 1970) at *158 ( If an international tribunal were to take up these issues and examine the regularity of the decisions of municipal courts, the international tribunal would turn out to be a court de cassation, the highest court in the municipal law system. ) and RLA-159, Ian Brownlie, PRINCIPLES OF PUBLIC INTERNATIONAL LAW 39 (Oxford Univ. Press 2008) ( Interpretation of their own laws by national courts is binding on an international tribunal. )). 2 R-172, Excerpt from Opinion of Jan Paulsson submitted on behalf of Claimants in Chevron Corp. and Texaco Petroleum Co. v. Republic of Ecuador, PCACase No. AA

2 of laying a foundation for their claims against the Republic. 3 This submission addresses Claimants most recent iterations of their claims of legal error by Ecuador s courts. Once again, the Republic respectfully urges the Tribunal to look beyond Claimants incendiary language and carefully assess each of Claimants allegations against the record evidence (or lack thereof) and applicable Ecuadorian law. A. The Ecuadorian Courts Properly Rejected The Claims Of Corporate Separateness Between Chevron And Texaco And Between Texaco And TexPet 4. Chevron s dominance and control over Texaco in every respect, from its iron grip on Texaco s purse strings to overlapping executive board members, provided the Ecuadorian courts with sound justification for piercing the corporate veil to impute Texaco s actions to Chevron. Similarly, the record reflects Texaco s domination over TexPet during the Concession period, with Texaco exercising complete control over TexPet s day-to-day business activities including minutiae as insignificant as whether to hire a particular caterer. Tellingly, Texaco s executives referred to TexPet as the Ecuadorian division of Texaco. Here, too, solid evidence supports the Ecuadorian courts decision to pierce the corporate veil between these alter egos. 5. None of Chevron s arguments to the contrary withstands scrutiny. First, Chevron is estopped from arguing that the Ecuadorian courts improperly relied on veil piercing to assert jurisdiction over Chevron and to find it liable to the Lago Agrio Plaintiffs. To obtain a dismissal of the Aguinda lawsuit in New York, Chevron (like Texaco) promised the Second Circuit Court of Appeals it would submit to the jurisdiction of the Ecuadorian courts to litigate the environmental claims and would recognize the binding nature of the judgment rendered against it in Ecuador. It was primarily those promises that persuaded the Second Circuit to dismiss the 3 Respondent s Track 2 Counter-Memorial

3 case so that it could be litigated in Ecuador. Having achieved that procedural victory, Chevron is estopped from challenging the Ecuadorian courts reliance on veil piercing to establish jurisdiction and, ultimately, liability. Second, the courts properly applied the governing legal principles to evaluate the evidence and determine the relevant facts. The courts decisions to pierce the veils between Chevron and Texaco, and Texaco and Texpet, were appropriate, and most definitely fall within the juridically possible. 1. Claimants Are Estopped From Challenging The Ecuadorian Courts Exercise Of Jurisdiction Over Chevron 6. Claimants lead argument is their most offensive: Chevron itself never submitted to jurisdiction in the Ecuadorian courts, nor did it represent to any court or tribunal that the Ecuadorian courts are a fair and impartial forum. It was Texaco Inc. not Chevron that committed to submit to the jurisdiction of the Ecuadorian courts pursuant to the Second Circuit s forum non conveniens dismissal of the Aguinda case. 4 The Second Circuit rejected Chevron s argument, expressly and emphatically: 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 Claimants Track 2 Reply 121 (footnotes omitted). CLA-435, Republic of Ecuador v. Chevron Corp., 638 F.3d 384, 389 n.3 (2d Cir. 2011) (emphasis added). Moreover, the federal appellate court explained that Chevron s contention that the Lago Agrio litigation is not the refiled Aguinda action is without merit. The Lago Agrio plaintiffs are substantially the same as those who brought 3

4 7. The same holds true for the promise to recognize the binding nature of any judgment issued in Ecuador. As the Second Circuit found, 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 The Lago Agrio Appeals Court similarly rejected Chevron s plea to be released from its promises: Nor will this Division be deceived only having to consider that it was the same company sued in this trial, Chevron Texaco Corporation who later changed its name to Chevron Corp. that appeared before the North American court to ratify the promises that Texaco Inc. made[.] 7 The appellate court recognized, moreover, that Chevron s continued refusal to comply with the [Ecuadorian] judgment and therefore its promise to the North American court is an undeniably certain and proven fact[.] 8 9. Even if the Second Circuit had not said so outright, Claimants nevertheless are estopped. It is not the Second Circuit s 2011 opinion that binds Chevron, but rather the promises themselves. As the Second Circuit noted, lawyers from ChevronTexaco appeared in this Court and reaffirmed the concessions that Texaco had made in order to secure dismissal of plaintiffs complaint. 9 So it is no answer to say, as Chevron does, that the Second Circuit s opinion... post-dates the [Lago Agrio] Judgment by a full month. Accordingly, it could not suit in the Southern District of New York, and the claims now being asserted in Lago Agrio are the Ecuadorian equivalent of those dismissed on forum non conveniens grounds. Id. at 390 n Id. at n.4 (emphasis added). C-991, Lago Agrio Appellate Decision at 6. Id. CLA-435, Republic of Ecuador v. Chevron Corp., 638 F.3d 384, 389 n.3 (2d Cir. 2011). 4

5 have served as the basis for the Judgment s finding on this point[.] 10 That all three judges of the Second Circuit who decided Chevron s appeal reached the same conclusion as the Ecuadorian courts confirms, at a minimum, that the Ecuadorian courts decisions comfortably satisfy the international standard. 10. Claimants argue that Chevron succeeded before the Second Circuit i.e. the court held that the conditions of the forum non conveniens dismissal did not preclude Chevron from seeking to arbitrate its claims before this Tribunal. 11 Claimants imply that the fact that it won that issue on appeal renders the court s other findings mere dicta. Even if that were so, the fact that the Second Circuit found in dicta or otherwise that the judicial promises could be enforced against Chevron serves as clear proof that the Ecuadorian courts identical findings are well within the juridically possible. In any event, the Second Circuit s findings are not mere dicta; as shown below, the court instead relied on its findings that Chevron was bound to the judicial promises specifically to reach its holding in the case. 11. As this Tribunal knows, Claimants notice of arbitration sought to prevent an adverse Ecuadorian judgment. The Republic asked the U.S. courts to stay this arbitration on the contention that the very purpose of it was inconsistent with Texaco s and Chevron s promises given in exchange for dismissal of the Aguinda action, that is, that they would abide by any final decision from the Ecuadorian system of justice subject only to the right to defend enforcement actions. 12 In response, Chevron argued, first, that only Texaco not Chevron made the representations, and that Chevron was therefore not bound by them, and second, that even if Claimants Track 2 Reply 122. Id. 123 (emphasis in original). CLA-435, Republic of Ecuador v. Chevron Corp., 638 F.3d 384, 390 (2d Cir. 2011). 5

6 Chevron were bound to the judicial promises, the commencement of the international arbitration was not inconsistent with those promises In deciding the Republic s request to stay the arbitration, the Second Circuit rejected Chevron s first argument that it was not bound by Texaco s promises. It was only because the Second Circuit found against Chevron on this issue that the court then found it necessary to consider Chevron s second argument whether Chevron s (and TexPet s) judicial promises were inconsistent with their decision to commence the international arbitration. 14 While the Second Circuit identified certain potential problems inherent in Claimants commencement of the arbitration, depending on how the arbitration proceeded and the nature of any relief potentially granted, it found that the arbitration itself was not necessarily incompatible with the judicial promises What is clear is that Chevron raised as a defense to the Republic s petition its claim that the judicial representations did not bind the company. The issue was litigated, and the Second Circuit decided the issue, finding Chevron s position without merit: 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 wellfounded belief that such a promise would make the district court See generally CLA-435, Republic of Ecuador v. Chevron Corp., 638 F.3d 384 (2d Cir. 2011). CLA-435, Republic of Ecuador v. Chevron Corp., 638 F.3d 384, 396 (2d Cir. 2011). A conflict may arise if the Ecuadorian courts do issue a final judgment, and the arbitrators subsequently enter an award that is inconsistent with that judgment. Any such conflict, should it arise, could be resolved in any resulting proceedings to enforce the judgment. In such a proceeding, Plaintiffs would be free to argue that Chevron is estopped from refusing to pay that judgment based solely on the force of its release claim. New York's Recognition of Foreign Country Money Judgments Act, which is the sole reserved route for Chevron to challenge any final judgment resulting from the Lago Agrio litigation, provides only limited ways to attack a judgment based on a prior agreement.... At this point, however, we need not address the merits of any such argument. Any conflict between the outcomes of the BIT arbitration and the Lago Agrio litigation remains purely hypothetical. CLA-435, Republic of Ecuador v. Chevron Corp., 638 F.3d 384, 399 (2d Cir. 2011). 6

7 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 The federal appellate court s phrasing ( we therefore conclude ) belies Chevron s contention that what follows in the court s opinion was non-binding dicta. 17 The Second Circuit s conclusion instead establishes collateral estoppel and cannot be reversed by a lower court or a separate juridical body. 18 More fundamentally, the Second Circuit was correct: ChevronTexaco did file a brief in that appellate court in opposition to the Aguinda plaintiffs; it represented therein, unambiguously, that Texaco merged with Chevron Inc., and, in an effort to persuade the court that there was no nexus between the judicial district (in New York) and the merged entity, it further represented that ChevronTexaco was in the process of closing down what remains of Texaco s former offices in White Plains, New York. 19 Unquestionably, the 16 added). 17 CLA-435, Republic of Ecuador v. Chevron Corp., 638 F.3d 384, n.4 (2d Cir. 2011) (emphasis See Claimants Track 2 Reply 123 ( Indeed, the court s statement that Chevron was bound by Texaco s jurisdictional representation in the Aguinda litigation was not necessary to the court s ultimate dismissal of Ecuador s action. ). 18 See, e.g., RLA-591, Newsom-Lang v. Warren Int l, 129 F. Supp. 2d 662, 664 (S.D.N.Y. 2001) ( [L]ower courts in this [Second] Circuit are bound by applicable Circuit precedent. ). Thus, it is irrelevant that the RICO Court has more recently held that Chevron and Texaco did not merge. Claimants Track 2 Supp. Merits Memorial 130. Judge Kaplan s resistance to a higher court s findings may speak more to his pronounced predisposition than it does to established law. In any event, Judge Kaplan s decision is on appeal to the Second Circuit. 19 R-1280, Appellee s Br., Aguinda v. Texaco, Inc., No , 2001 WL , at *10 (2d Cir. Dec. 20, 2001). 7

8 Second Circuit properly relied on Chevron s judicial promises. Having secured the benefit of that judicial promise (forum non conveniens dismissal of the Aguinda action after ten years of litigation), Chevron had no legal basis to seek dismissal of the Lagro Agrio Litigation on jurisdictional grounds in contradiction of its judicial representation. And as a matter of Ecuadorian law, the Ecuadorian courts had a sound legal basis to hold Chevron to its promise to submit to their jurisdiction. Unquestionably, that decision falls within the juridically possible. Consequently, Claimants argument that the exercise of that jurisdiction violated international law is baseless Well-Settled Legal Principles Justified Piercing The Corporate Veil Under These Circumstances 15. Claimants object that the bases for a judgment that imposes US$ 19-billion in liability should certainly be far more than juridically possible. 21 Not so. First, the amount of the Lago Agrio Court s judgment is plainly irrelevant to the question whether its jurisdictional decision is acceptable as a matter of international law. 22 Second, juridically possible is the relevant legal standard, and not, as Claimants would have it, a pejorative comment on the true 20 Moreover, [t]he rule of estoppel has been repeatedly applied by the Supreme Court of Justice of Ecuador. R-1282, Jorge Zavala Egas, La Regla de los Actos Propios y su Aplicación en el Derecho Administrativo Ecuatoriano 25. Under Ecuadorian law, the doctrine of estoppel is based on the principle of good faith and the duty of every citizen to... keep one s own word. Id. 10. Three elements comprise estoppel under Ecuadorian law, all of which are satisfied by Chevron s promises to the U.S. Court of Appeals for the Second Circuit: (1) The conduct (behavior) must further have legal relevance and must generate reliance by a third party ; (2) unity of the legal situation, in that the actions of a new intervening business are produced in the framework of one same legal relationship with respect to the others ; and (3) contradictory conduct [a]dmitting a claim when it contradicts the first relevant behavior is not legally lawful, when it is manifested within the same legal relationship in which it was performed. Id Claimants Track 2 Reply 125. Incidentally, the now US$ 9.5-billion judgment is still only a fraction of the US$ 28-billion British Petroleum has paid already for damages claims and cleanup costs relating to the 2010 DeepWater Horizon Gulf Spill, and it faces the prospect of billions of dollars more in fines. R-1290, Campbell Robertson and Clifford Krauss, BP May Be Fined Up to $18 Billion for Spill in Gulf, NEW YORK TIMES (Sept. 4, 2014). 8

9 quality of the [Lago Agrio] Judgment s analysis. 23 Moreover, Claimant s position is contradicted by their former expert (current counsel) Professor Paulsson: [W]hat international law requires for a finding of denial of justice based on gross incompetence is a conclusion of law or fact outside of the spectrum of the juridical possible, in light of the procedural and substantive law applied by the relevant national court at the relevant time Ignoring the applicable international law, Claimants devote their Reply and Supplemental Memorial to arguing, unconvincingly, that the Judgment s analysis of the relevant corporate-separateness principles is incorrect. 25 Claimants assert that the Lago Agrio Court disregarded the legal and factual realities of Chevron s corporate relationship with Texaco, and that the Judgment s analysis is so deeply flawed that it could only have been the product of bias or corruption. 26 But the Ecuadorian courts decision to pierce the corporate veil mirrors the analysis employed by a U.S. court that reached the same conclusion regarding the same corporate entities on the basis of the same facts. 27 Accordingly, the Lago Agrio Court s findings fall comfortably within the ambit of the juridically possible ; moreover, they were in fact correct in all respects. a. The Ecuadorian Courts Reasonably Applied Ecuadorian Veil- Piercing Law To Impute Texaco s Conduct to Chevron 17. Chevron nowhere disputes that the Lago Agrio Court had discretion to pierce the corporate veils between and among Chevron, Texaco and TexPet. Indeed, the decision to do so Claimants Track 2 Reply 125. R-172, Excerpt from Opinion of Jan Paulsson submitted on behalf of Claimants in Chevron Corporation and Texaco Petroleum Co. v. Republic of Ecuador, PCA Case No. AA (emphasis added) See generally Claimants Track 2 Reply , Claimants Track 2 Supp. Memorial Claimants Track 2 Reply , 126. In making this inflammatory accusation, Claimants ignore that even courts in the United States have dismissed those factual realities and found that Texaco is Chevron s alter ego. See RLA-337, Simon v. Texaco, Case No , Final Judgment, Miss. Cir. Ct. (Aug. 11, 2010). 27 See infra A.2.b. 9

10 was consistent with well-established precedent embodied in Ecuador s Civil Code and Law of Companies, as well as the authorities of other Latin American nations. 28 The Lago Agrio Judgment appropriately referenced settled principles of good faith and protection against abuse of rights, with citation to authority. 29 The Lago Agrio Court explained, correctly, that no one can benefit from bad faith, and established that piercing the corporate veil is an exceptional measure, to be resorted to when a court is faced with abuses of the corporate form. 30 Claimants protestations that neither the Appellate Court nor the National Court addressed the point are unfounded; both courts reviewed and affirmed the bases for the Lago Agrio Court s decision. 31 The National Court specifically explained that the decision to pierce the corporate veil was predicated on Chevron s predisposition to avoid liability by means of the Chevron Corp-Texaco Inc. merger See RE-9, Andrade Expert Rpt. (Feb. 18, 2013) 96. C-931, Lago Agrio Judgment at 14 (citing R-649 Diners Club del Ecuador v. Mariscos de Chupadores CHOPMAR, S.A., S. Ct. Case No (Mar. 21, 2001) ( Given these abuses, we must react to dismiss the legal personality, this means, drawing back the veil that separates the third parties from the real recipients of the results of any agreement until it reaches them, in order to prevent that the company figure be used wrongly as a mechanism to harm others. ). 30 C-931, Lago Agrio Judgment at 13, 14. The Lago Agrio Judgment referred to the basic principle of law that a person cannot benefit from [malicious statements] in accordance with the Law of Companies (art. 17(2)), which provides that [f]or acts of fraud, abuse or other improper conduct committed on behalf of companies and other individuals or legal entities, the following shall be held solitarily liable: Those who obtained benefit to the extent of its value. Id. at Claimants Track 2 Supp. Merits Memorial 127. See C-991, Lago Agrio Appellate Decision at 6-8 ( [I]t can be seen that the defendant seeks to create doubt, through confusion, about the lack of jurisdiction through evasive corporate structures. The purpose... appears with unmistakable tendency to avoid responsibility through the merger between Chevron Corp. and Texaco Inc., hiding behind the corporate veil the company that inherited the assets, leaving behind the obligations for the damages. ); id. at 8 ( [P]recisely in order to prevent [the corporate form] being used as a means to defraud; it is necessary to apply the doctrine of piercing the corporate veil. ); C- 1975, National Court Decision at 59 ( Given the contacts of businesses in the international arena, many corporations, multinationals, and companies generally, have in turn created other companies, sometimes only on paper, to operate in different legal systems, sometimes resulting in legal fraud, abuse, unfair practices, avoidance of liability; these actions thus lead to a piercing of the corporate veil, as Hurtado Cobles explains when citing Niboyet, the figure of a legal personality is reduced to the veil that hides its members, for reasons of legal expediency. ). 32 C-1975, National Court Decision at

11 18. Claimants expert, Dr. Coronel, acknowledged the discretionary authority of the Ecuadorian courts to pierce the corporate veil, the exceptional nature of that doctrine, and the relevance of general legal principles in determining whether Ecuadorian law permits piercing the veil in particular circumstances. 33 Dr. Coronel further identified instances in which Ecuadorian courts have pierced the corporate veil and made no attempt to dispute the various factors that the Lago Agrio Court considered in making its determination. 34 In sum, Dr. Coronel provides no support for Claimants attack on the Lago Agrio Judgment s veil-piercing analysis. 19. As elaborated further below, the Ecuadorian courts findings are sufficiently supported by Ecuadorian law and in line with the law and jurisprudence elsewhere, including in the United States. b. Piercing The Corporate Veils Of Chevron And Texaco Under U.S. Law 20. As the Republic explained previously, a Mississippi state court recently found Chevron liable for Texaco s pre-merger conduct. 35 Claimants contend that that decision, Simon v. Texaco, should be limited to its facts, namely, whether Chevron was either engaged in a joint venture with Texaco or was a success-in-interest with respect to a single automotive service station in Mississippi, U.S.A. 36 But Claimants ignore the facts 37 on which the court and jury 33 See Coronel Expert Rpt. (June 3, 2013) 20 (implicitly accepting the application of the abuse of the law or abuse of rights principle) Coronel Expert Rpt. (June 3, 2013) 20. Respondent s Track 2 Counter-Memorial, Annex G 35-36; RLA-337, Simon v. Texaco, Case No , Final Judgment (Miss. Cir. Ct. Aug. 11, 2010). 36 Claimants Track 2 Reply 130. Chevron also informed the Tribunal that it is currently appealing this jury verdict (which by itself has no collateral effect under applicable Mississippi law) because, inter alia, the plaintiffs failed to prove any facts upon which Chevron could be responsible for Texaco s liabilities. Id. That appears to be highly misleading. Chevron lost its appeal to the intermediate appellate court and on August 15, 2013, the Supreme Court of Mississippi granted an unopposed motion to dismiss the appeal and send it back to the trial court to carry out a settlement agreement between the parties. R-1283, Texaco, Inc. v. Rosalyn Simon, 2010-CA Docket Entry (Miss. 2013). Accordingly, the findings and conclusions established in Simon v. Texaco are indeed relevant precedent with collateral effect under applicable Mississippi law. But even if they were not, the fact 11

12 relied in that case to conclude that Texaco is Chevron s alter ego (justifying piercing the corporate veil between them). Those facts which Claimants nowhere attempt to dispute apply here with equal force: Chevron acquired all of Texaco s capital stock in the companies 2001 reverse triangular merger, and Chevron remains Texaco s only shareholder. Since 2002, Chevron and Texaco have shared at least fifteen officers and directors. Chevron holds Texaco s purse strings: Texaco transfers all of its money daily to one of Chevron s corporate accounts; Texaco thus requires financing from Chevron for any number of purposes (including satisfying judgments); Chevron pays Texaco s U.S. tax liabilities; and Chevron s treasury department handles all wire transfers for both Chevron and Texaco. After the merger, Chevron sold Texaco s former headquarters in New York and moved all operations to its own California facility. Chevron designates Texaco as a non-operating company with no ongoing commercial enterprises. Texaco does not conduct a physical shareholder meeting. 21. As further evidence of comingled funds, Texaco s legal representative signed multiple checks to satisfy Chevron s legal expenses in the Lago Agrio Litigation. 38 that both the first instance and appellate courts found it appropriate to pierce the corporate veil speaks at least to the reasonableness of the decision of the Ecuadorian courts to do the same. 37 See Respondent s Track 2 Counter-Memorial, Annex G 35 (citing authorities); R-1284, Simon v. Texaco, Pls. Resp. in Opp. to Defs. Mot. to Dismiss, Case No , Circuit Court of Jefferson County, Miss. (Feb. 6, 2009). 38 See C-931, Lago Agrio Judgment at 12 ( Also considered is the existence in the case file of various checks... that have been signed by Dr. Rodrigo Perez Pallarez, legal representative of the company Texaco in Ecuador, to satisfy the obligations that the defendant party, Chevron Corporation, has had to pay as part of the expenses generated by this lawsuit. ). 12

13 22. Delaware law (the law of the state where Chevron is incorporated) is fully consistent with the principles applied by the Ecuadorian courts to pierce the corporate veil. For example, if those in control of the corporate enterprise have not treated it as a distinct legal entity have ignored the corporateness of the corporate and have themselves treated it as their instrumentality courts will be less inclined to regard the corporation as an effective limitation on liability. 39 Particularly where the [parent and subsidiary s] boards are substantially if not wholly identical, an inference emerges that the [parent] is operating the [subsidiary] as its instrumentality, an inference [which] is strengthened by [the subsidiary s] resolution to pay its corporate officers from [the parent s] payroll account Delaware courts have articulated several factors relevant to the alter-ego analysis (below in the context of a corporation and its dominant shareholder, but equally applicable to a corporation and its subsidiary), all of which counsel in favor of imputing Texaco s conduct to Chevron: [A]n alter ego analysis must start with an examination of factors which reveal how the corporation operates and the particular defendant s relationship to that operation. These factors include whether the corporation was adequately capitalized for the corporate undertaking; whether the corporation was solvent; whether dividends were paid, corporate records kept, officers and directors functioned properly, and other corporate formalities were observed; whether the dominant shareholder siphoned corporate funds; and whether, in general, the corporation simply functioned as a façade for the dominant shareholder The Lago Agrio Court noted similar factors when it explained that TexPet was undercapitalized in relation to Texaco, as was Texaco in relation to Chevron. The court thus RLA-592, Irwin v. Leighton, Inc. v. W.M. Anderson Co., 532 A.2d 983, 987 (Del. Ch. 1987). RLA-593, Mabon, Nugent & Co. v. Tex. Am. Energy Corp., 16 Del. J. Corp. L. 829, 839 (Del. Ch. 1990). RLA-594, Harco Nat l Ins. Co. v. Green Farms, Inc., 15 Del. J. Corp. L. 1030, (Del. Ch. 1989) (emphasis added) (quoting United States v. Golden Acres, Inc., 702 F. Supp. 1097, 1104 (D. Del. 1988)). 13

14 observed that the capital of the subsidiary company shall be consistent with the amount of business done and the obligations to be met, because it is understood that business people acting in good faith risk in their affairs a capital rationally adequate to face their potential responsibilities. 42 And the Court explained further, consistent with the Delaware law just recited, that [t]he capital of the subsidiary can be considered insufficient if it requires constant authorizations and transfers of funds to proceed with the normal course of business, since in that case, those really making the decisions and exercising control over the activities are the people who provide the authorizations and the funds. 43 The Lago Agrio Court recognized that it must analyze this control by the parent firm over its subsidiary in its context, taking into account also that the Board of Directors of Texaco Inc. also delivered the allocations of money with which Texpet operated, which implies that Texpet lacked not only administrative autonomy, but also financial, since it was Texaco Inc. that controlled not only the decisions, but that also authorized the funds that Texpet needed for the normal course of activities This Tribunal previously has failed to defer to Ecuadorian law and precedent. In this instance, however, even Chevron s own courts have rebuffed Chevron s plea that the courts honor corporate formalities when the companies themselves have failed to do so. c. Claimants Reliance On Decisions Of Other U.S. Courts Is Misplaced 26. Claimants argue that several U.S. courts have reviewed the issue of Chevron s relationship with Texaco Inc. and confirmed the continuing independence of these companies. 45 The cases Claimants cite, however, are not instances of courts confirming the corporate C-931, Lago Agrio Judgment at 19. Id. at Id. at 22. Claimants Track 2 Reply

15 separateness of Chevron and Texaco. Rather, those cases generally have rejected an alter ego finding on procedural grounds because the plaintiffs did not properly plead the theory. In Bonnifield v. Chevron Corp., for example, the plaintiff estate raised alter ego for the first time in an attempt to defeat summary judgment. The appellate court explained: A plaintiff may not rely on unpleaded theories to defeat a motion for summary judgment, without first seeking leave in the trial court to amend the complaint.... As there were no alter ego allegations in the first amended complaint, and the estate does not claim to have sought leave to amend, it may not rely upon their theory now. Further, alter ego was not identified as an issue in the estate s statement of undisputed facts, no facts regarding alter ego appear in the statement, and the estate did not raise this contention in the trial court. Under such circumstances, the estate may not assert this issue for the first time on appeal Long v. Chevron Corp is even further afield. In that case, the court explained that the plaintiff ha[d] not addressed [imputation] in her briefs or at oral argument. 47 What is more, the Long court found that the plaintiff failed to establish a basis for personal jurisdiction over Texaco, making any question of imputation irrelevant Claimants also cite a Canadian case, Yaiguaje v. Chevron Corp., as an example of a court refus[ing] to pierce the corporate veil to attach the assets of a Canadian subsidiary of Chevron in satisfaction of the [Lago Agrio] Judgment. 49 But that court s decision not to pierce the veil between Chevron and Chevron Canada Ltd. illustrates plainly why it is perfectly 46 CLA-389, Bonnifield v. Chevron Corp., 2009 WL , *7-8 (Cal. Ct. App. Apr. 27, 2009) (emphasis added) (citations omitted) CLA-388, Long v. Chevron Corp., 2011 WL , at *10 (E.D. Va. Sept. 2, 2011). See id. at *7 n.5 ( If Plaintiff is arguing that Texaco s jurisdictional contacts should be imputed to Chevron, the analysis [rejecting jurisdiction over Texaco] makes the imputation of those contacts irrelevant. ). At most, these cases stand for the proposition that different courts have reached different conclusions based on the record evidence presented in each particular case. Compare RLA-337, Simon v. Texaco, Final Judgment, Case No , (Miss. Cir. Ct., Aug. 11, 2010), with CLA-387, Kehm Oil Co. v. Texaco Inc., 537 F.3d 290, 300 (3d Cir. 2008). 49 Claimants Track 2 Reply

16 appropriate indeed, necessary to pierce the veil between Chevron and Texaco. The Canadian court explained the following regarding Chevron Canada Ltd.: Chevron Canada operates its business in a fashion which is separate and distinct from that of its parents up the corporate family tree, subject to the direction of its own board of directors, which does not contain any overlapping members with the Chevron board or executive. Chevron Canada employs, trains and directs the activities of its own professional, operational and administrative staff; it pays their salaries and benefits; and it provides Workers Compensation coverage as required. As part of a worldwide family of companies, Chevron Canada is subject to certain family budget reporting requirements and large capital expenditure approval processes, but it initiates its own plans and budgets, it funds its own day to day operations, and the capital expenditures made by it in recent years for [several major projects] were funded from its own operating revenues. Chevron Canada is a fully capitalized corporation which funds its own day to day operations without financial contributions from Chevron Corp. or any other Chevron entity. The corporate structure regarding Chevron and Chevron Canada has been in place since 1966; it was not a recent creation designed to blunt the effect of the Ecuadorean judgment. Chevron Canada files its own tax returns and corporate statements. Chevron Canada operates a business establishment in Mississauga, Ontario. It is not a mere virtual business. It runs a bricks and mortar office from which it carries out a non-transitory business with human means Texaco bears none of these indicators of corporate separateness from Chevron. In fact, on each metric applied by the Yaiguaje court, Texaco is at the polar opposite end of the spectrum from Chevron Canada. As the U.S. Simon court explained, Chevron and Texaco have shared at least fifteen officers and directors since Chevron has designated Texaco a nonoperating company with no ongoing commercial enterprises. Texaco does not even have its 50 C-1627, Yaiguaje v. Chevron Corp., 2013 ONSC 2527, 87, , 102 (Ont. Super. Ct. Justice 2013) (Can.) (emphasis added). 16

17 own corporate headquarters anymore, because Chevron sold that property and moved all of Texaco s operations to Chevron s own facility in California. And Texaco certainly does not control its own finances: It instead transfers all of its money daily into one of Chevron s corporate accounts. Moreover, unlike Chevron Canada, Texaco does not handle its own taxes; rather, Chevron pays all of Texaco s U.S. tax liabilities. 3. The Ecuadorian Courts Properly Treated Chevron And Texaco As They Presented Themselves To The World As A Single Corporate Entity 30. The Ecuadorian courts treated Chevron and Texaco precisely how the companies held themselves out to the public as a single corporate entity. The Republic has explained previously the numerous ways in which Chevron and Texaco professed to be one company. 51 Claimants could not have been any clearer in 2001 when they argued to the Second Circuit that the Aguinda case be dismissed because, among other things, Chevron and Texaco had merged: As generally known (and this this Court may take judicial notice), Texaco merged with Chevron Inc. on October 9, 2001, five months after the District Court s decision, 52 specifically advising the court that they were in the process of closing down what remains of Texaco s former offices in White Plains, New York The Lago Agrio Appellate Court directly addressed and rejected Chevron s objection to any reliance on such public pronouncements: 51 See Respondent s Track 2 Counter-Memorial, Annex G Additionally, for example, a ChevronTexaco History timeline from Claimants own publication notes that in 2000, Chevron and Texaco reached agreement to combine the two companies, and that in 2001, Chevron merged with Texaco Inc. and changed name to ChevronTexaco Corporation. R-1299, ChevronTexaco Annual Rpt. Supp. 63 (2001) (emphasis added). 52 R-1280, Appellee s Br., Aguinda v. Texaco, Inc., No , 2001 WL , at *10 (2d Cir. Dec. 20, 2001) (emphasis added). 53 Id. 17

18 As can be seen, the [trial court s] judgment is based, among other facts, on the verbatim public statements of the highest representatives of both companies (CEO and President of Chevron Corp. and Texaco Inc., respectively), released by the same to all the shareholders and media through their official channels. There is no legal support for stating that these are simple press releases without any credibility. This is the information that the shareholders of Chevron Corp. and Texaco Inc., and the entire world, had knowledge of, and it turns out that it is also the only information that reveals the nature of the true corporate business that took place between Chevron and Texaco..... The trial court s judgment does recognize the demonstrative value of said evidence, and precisely in order to prevent it being used as a means to defraud; it is necessary to apply the doctrine of piercing the corporate veil for which reason it has not been necessary to apply the [Ecuadorian] Corporations Act to a merger carried out abroad, as the defendant claims, but rather, as explained in the clarification of the appealed judgment, and this Division agrees, Ecuadorian law has been simply another factor together with foreign law and doctrine, as well as universal principles of law to be considered in order to evaluate the effects of the mentioned merger Similar Evidence Supports Piercing The Veil Between Texaco And TexPet 32. Claimants observe that the Ecuadorian courts did not adopt wholesale the New York federal district court s findings in the Aguinda litigation, 55 but to do so would have made no sense given that the Second Circuit s decision effectively replaced the lower court s decision. Most significantly, however, Claimants do not seriously contest the facts underlying the Ecuadorian courts findings. According to Texaco s own documents, Texaco considered TexPet C-991, Lago Agrio Appellate Decision at 7. As the Lago Agrio Court explained, it was not bound to adopt the New York court s holding because that holding was based on a more limited collection of evidence than what the Ecuadorian court had before it. Thus, the Lago Agrio Court determined, appropriately, that it could reconsider[ ] aspects of the New York decision in light of the fact, among others, that new evidence that has been presented and that is part of this record pursuant to the referenced norms, must be considered, and must necessarily be taken into account to establish the procedural truth. C-931, Lago Agrio Judgment at

19 its Ecuadorian Division, not an independent, separate entity, 56 and in fact treated TexPet as a mere division. As the Lago Agrio Court noted, [t]he record contains authorizations for everyday matters, of routine administration, such as tenders for catering services and the cleaning of the Consortium s operating sites in Quito and the Oriente region, or the contracting of motion picture entertainment services at the Oriente installations. 57 TexPet employees could neither eat lunch nor watch a movie unless Texaco approved the expenditures. Nor, of course, could they work: Likewise we find an authorization for the contracting of equipment and personnel for pipeline maintenance and construction of bridges in Aguarico and Coca. 58 Texaco s control of TexPet s day-to-day operations is emblematic of corporate sameness. And as with Chevron and Texaco, Texaco and TexPet enjoyed overlapping officers and directors Based on these facts, the Lago Agrio Court properly concluded: In this case, it has been proved that in reality Texpet and Texaco Inc. functioned in Ecuador as a single and inseparable operation. Both the important decisions as well as the trivial ones passed through various levels of executives and decision-making bodies of Texaco Inc., to the extent that the subsidiary depended on the parent company to contract a simple catering service C-931, Lago Agrio Judgment at 20. Id. (citations omitted). Id. (citations omitted). See id. at C-931, Lago Agrio Judgment at 24. Nor was the Lago Agrio Court ignoring business realities. The Court acknowledged that it is completely normal that the Board of Directors of a subsidiary company be made up of some officers from its parent company, and it is also normal that the parent company receive periodic reports on its condition, and take certain decisions that for their importance are beyond the reach of the regular administration. Id. at However, in the case of Texaco Inc. and [TexPet], the role of the Directors transcends roles that might be considered normal, as they received information and made decisions about the great majority of Texpet s deeds and acts regarding everyday matters of the operation of the Napo Oil concession, responding to a well-established chain of command, as has been shown in the record. Id. at

20 5. Claimants Challenges To The Actions Of Enforcement Courts Are Legally Irrelevant And A Result Of Claimants Own Strategy 34. In their latest filing, Claimants also challenge a piercing of the veil with respect to a so-called third level of corporate separateness, namely, between Chevron and its subsidiaries in the enforcement context. 61 Specifically, Claimants assert that the Ecuadorian enforcement court pierced the veil between Chevron and a number of subsidiaries without providing prior notice to Chevron or these subsidiaries, and that it did so based on insufficient evidence and without provid[ing] Chevron or those subsidiaries with an opportunity to defend themselves Claimants raised these allegations for the first time in a letter to the Tribunal dated October 16, As the Republic noted in its response to that letter, the key factual allegations underpinning Claimants protest are demonstrably false. 64 The Lago Agrio Record shows that the court s issuance of an order of attachment was preceded by a highly contentious enforcement proceeding that spanned several months and included multiple submissions by Chevron. 65 No part of the enforcement proceeding appears to have been conducted without providing prior notice to Chevron. 36. Claimants argument suffers from a number of infirmities. First, Claimants demands for compensation for purported losses attributable not to them but to their subsidiaries (in Argentina and Ecuador) evince their own disregard for the separateness of those entities. 66 Because the corporate separateness Claimants seek to assert here is lacking, Claimants Claimants Track 2 Supp. Merits Memorial 127, Claimants Track 2 Supp. Merits Memorial 131. Claimants Letter of October 16, 2012, at 2. Respondent s letter of November 21, Id. (citing R-456 through R-467, Chevron s various submissions in the enforcement proceedings between the months of April and August 2012). 66 Claimants Amended Show Cause Pleading 1-4 (June 12, 2013). 20

21 protestations about a purported third-level piercing of the corporate veil are frivolous. Second, Chevron is barred from asserting claims on behalf of its subsidiaries; it can assert claims on behalf of only itself upon a showing of direct injury to the parent. 67 No such effort has been made in these proceedings. Third, if Chevron s (unidentified) subsidiaries are, as Claimants now allege, separate legal entities, they are not parties in this proceeding and have no standing to assert claims. 68 Fourth and finally, even if Claimants allegations were admissible, they would not be ripe for adjudication in this forum. 69 B. The Lago Agrio Courts Causation Analysis, As Affirmed By The National Court, Is Based On Well-Settled Law And Sound Legal Reasoning 37. Claimants question the National Court s dismissal of Chevron s appeal from the Appellate Court s decision upholding the Lago Agrio Court s purportedly flawed causation reasoning. 70 In their Reply, Claimants argue that the Lago Agrio Court: (1) failed to conduct any coherent causation analysis to establish a sufficient relationship between TexPet s operations and the alleged harm; (2) failed to distinguish between the harms caused by TexPet and those 67 See, e.g., Total, S.A. v. Republic of Argentina, ICSID Case No. ARB/04/01 (Decision on Jurisdiction of Aug. 25, 2006) 81 (distinguishing a shareholder s claim for breach of its own treaty rights from impermissible claims on behalf or in lieu of the subsidiary); RLA-638, Hulley Enters. v. Russia, Yukos v. Russia, Veteran Petroleum v Russia, PCA Case Nos. 226, 227, 228 (Interim Award on Jurisdiction and Admissibility of Nov. 30, 2009) 372 (upholding jurisdiction over claims brought by each Claimant for violation of its own rights under the Energy Charter Treaty, i.e., for the direct loss by each claimant of its shares and their value, not for the rights of the enterprise in which it holds shares.). See also CLA-7, Mondev Award 79 (pointing out the distinction between claims by investors on their own behalf and claims by investors on behalf of an enterprise under NAFTA rules). 68 Any of Chevron s subsidiaries could have moved the enforcement court to vacate any decision affecting a subsidiary s assets in enforcement proceedings against Chevron. See RE-20, Andrade Expert Rpt. (Nov. 7, 2014) 100. No such action appears to have been taken here. Accordingly, even if Chevron s subsidiaries were entitled to assert claims in these proceedings, their failure to exhaust local remedies would preclude consideration of their claims as a matter of international law. 69 As Claimants recognize, th[is] issue was not before the Cassation Court. Claimants Track 2 Supp. Merits Memorial 131 (emphasis added). Even assuming legal error, there has been no attempt to correct it in the Ecuadorian court system and Claimants have made no effort to explain how this purported action of the enforcement court clearly an issue for the municipal courts of Ecuador is ripe for adjudication by this tribunal. Obviously, it is not. 70 Claimants Track 2 Reply ; Claimants Track 2 Supp. Merits Memorial

22 attributable to PetroEcuador; and (3) improperly apportioned all of PetroEcuador s liability to TexPet. 71 Claimants misapprehend (or otherwise ignore) long-standing legal principles, both inside and outside of Ecuador. 38. Contrary to Claimants contention, the Lago Agrio Judgment shows the Court conducted a detailed and extensive causation analysis, applying governing Ecuadorian tort law and well-settled precedent. 72 Part VII of the Judgment ( Civil Liability, The Basis of the Obligation ) sets forth the bases for the Court s determination of Claimants liability, following and quoting extensively from the holding of Ecuador s former Supreme Court in Delfina Torres, a landmark environmental case that involved (and affirmed in part) claims of joint and several liability against PetroEcuador and certain affiliated companies for environmental harm resulting from exploration and exploitation of hydrocarbons activities. 73 Unsurprisingly, Claimants omit any reference to Delfina Torres or to the principles of objective (strict) liability and joint and several liability governing torts arising from hazardous activities. 39. Delfina Torres is the leading Ecuadorian Supreme Court precedent establishing the proper application of the objective (strict) liability test to environmental claims arising from hydrocarbon activities. 74 The Supreme Court there held that: (1) the production, manufacture, transport and operation of hydrocarbon substances constitute inherently dangerous and risky Claimants Track 2 Reply Much like any disgruntled litigant, Claimants simply dismiss the Court s analysis as incoherent and baseless. Claimants Track 2 Reply 97; Claimants Track 2 Supp. Merits Memorial C-1586, Delfina Torres (Oct. 29, 2002). See also RE-9, Andrade Expert Rpt. (Feb. 18, 2013) 53 et seq; RE-20, Andrade Expert Rpt. (Nov. 7, 2014) 13 et seq. 74 See RE-9, Andrade Expert Rpt. (Feb. 18, 2013) 53 et seq.; RE-20, Andrade Expert Rpt. (Nov. 7, 2014) 11 et seq. 22