Litigating the Past
July 17, 2009
There is an old joke that if you want to be competitive with a country like China all you have to do is send over a 1,000 lawyers and let them go to work — the cost of China’s goods will surely rise. The U.S. certainly has lawyers to spare. A decade ago BusinessWeek reported that Japan had only 16,800 licensed lawyers compared to 900,000 in the U.S. In the succeeding decade, the U.S. has produced a couple of hundred thousand more lawyers. With so many lawyers, it’s not surprising that the United States became a litigious society. It’s also not surprising that a percentage of those lawyers see class-action lawsuits as the road to riches. They have been able to convince untold numbers of litigants that there is easy money to be made by suing rich and well-insured businesses. When you look at many settlements, however, the only people who really seem to get rich are the lawyers. I don’t mean to imply that the causes taken up by contingency fee lawyers aren’t important — they are. But most people believe that the primary beneficiaries of such lawsuits should be the victims not the lawyers. When big money is involved, however, the temptation to win at all costs is almost overpowering. That is why BusinessWeek reports that “multinationals have long worried about U.S.-style lawsuits taking root in other countries” [“A Bunch of Fake Claims Against Dole?” 6 July 2009 print issue]. The lawsuit against the Dole Food company in Nicaragua is an interesting case in point.
“In suits against Dole Food, Nicaraguan courts awarded $2.2 billion in damages to workers claiming they were made sterile by exposure to the pesticide DBCP on Dole banana farms in the 1970s. Dole has been battling efforts in U.S. courts to enforce these judgments at the same time it fights thousands of additional Nicaraguan DBCP claims filed in the U.S. In 2007 a handful of plaintiffs won $1.5 million in a trial presided over by Los Angeles Superior Court Judge Victoria Chaney. All of this inspired a documentary, Bananas!, which casts the farmworkers’ legal team in a positive light. But a 60-page ruling released on June 17  by Judge Chaney concludes that many and perhaps all of the DBCP claims are fabricated. … Chaney’s ‘findings of fact’ chronicle a scheme in Nicaragua by attorneys, judges, and others to mass-produce fake cases. Among the findings: Recruiters rounded up men who never worked on a banana farm, providing them with manuals, videos, and ‘field trips’ to make them credible plaintiffs. Nicaraguan medical labs faked test results. ‘An entire industry has developed around DBCP litigation in Nicaragua for the purpose of bringing fraudulent claims,’ wrote Chaney, who authorized an investigation and hearings after Dole raised the issue of trumped-up claims. Chaney identified U.S. lawyers who, she says, ‘actively participated’ in the ‘litigation fraud.'”
Dole may or may not have clean hands in this matter. Historically large corporations operating in developing countries have shown little regard for working or environmental conditions — and those practices are coming back to bite them. The oil industry appears to be on the verge of an era of litigation and the possibility of bogus lawsuits, like the one against Dole, can only send shivers throughout the sector. There have been court cases against Shell in Nigeria, Chevron in Ecuador, and Exxon Mobil in Indonesia [“Oil Industry Braces for Trial on Rights Abuses,” by Jad Mouawad, New York Times, 21 May 2009]. One of the most serious charges being made is against Royal Dutch Shell, which is accused of paying to have a Nigerian author and activist Ken Saro-Wiwa executed by Nigeria’s former military regime. Shell, of course, denied the charges but nevertheless agreed to settle the case for the $15.5 million [“Spilling over,” The Economist, 13 June 2009 print issue].
“Shell denies any wrongdoing. It says the payout was a “humanitarian gesture”; some of the money will go to a new trust fund for the Ogoni. Shell now hopes that it might even resume oil production in the region. But things are unlikely to be that simple. There has been a mixed reaction to the settlement in Ogoniland. Some Ogonis are disinclined to forget years of mistrust and others are in talks to clean up the oil spills that have been left untended, still oozing into farmland and rivers after 15 years. Ogoniland is just a sliver of Shell’s onshore oil fields, and the out-of-court settlement is unlikely to end the company’s longstanding troubles in a volatile part of Nigeria that is even more violent now than it was back in the 1990s.”
Shell was likely willing to settle because the trial that was to be held in New York was going to accuse the company of “crimes against humanity” according to Mouawad. He reports that “the trial [was] the latest in a series of cases aimed at some of the world’s biggest oil companies, asserting misdeeds in developing countries where they were once seen as unassailable. Oil companies are being sued on charges of environmental damage, collusion with repressive governments and contributing to human rights abuses, among others.” According to The Economist, Shell’s settlement is unlikely to end litigation against the company.
“The payout could also spark further court battles invoking the same American law, the Alien Tort Claims Act of 1789, originally intended to counter piracy, under which the Shell case was brought. It has been used to great effect in recent years, first against foreign officials who violated human rights, and later against firms that appeared to abet such acts. Most of the lawsuits against big companies, however, have been settled out of court, setting no clear precedents.”
Mouawad reports that other companies involved in ongoing or past litigation include:
“Chevron [which] could face up to $27 billion in liability in Ecuador for pollution of the jungle. [And] Exxon Mobil [which] is being sued by Indonesian villagers from the province of Aceh who allege human rights violations committed by soldiers hired to guard a natural gas plant. … In 2004, Unocal, a California oil company accused of using slave labor in the construction of a pipeline in Burma during the 1990s, agreed to compensate villagers there. The terms of the settlement were not made public.”
One of the challenges facing leaders of large, multinational companies is ensuring that a system of values is infused through the workforce. The reason that enforcing a value system is so difficult is because ambitious individuals are likely to ignore the values if they believe doing so will advance their careers. I’m a believer, however, that a company must behave ethically and morally and those values cannot be situational. If you care about pollution in your own backyard, you should care about pollution in someone else’s backyard. Good corporate behavior is not just the morally correct thing to do, it is also good business. Just look at the potential ramifications of the case against Chevron in Ecuador [“In Ecuador, High Stakes in Case Against Chevron,” by Juan Forero, Washington Post, 28 April 2009].
“If the judge rules against Chevron, the company could face the largest damages award ever handed down in an environmental case, dwarfing the $3.9 billion awarded against ExxonMobil for the 1989 spill in Alaska. A report by a court-appointed team last year concluded that pollution caused mainly by Texaco’s Ecuadoran affiliate, Texaco Petroleum, had led to 1,401 cancer deaths in this stretch of Amazonian jungle. The team’s leader, Ecuadoran geologist Richard Cabrera, reported finding high levels of toxins in soil and water samples near Texaco’s production sites and assessed damages at up to $27.3 billion.”
Forero reports that “the case has attracted the attention of energy companies worldwide.” Companies are beginning (very slowly) to change their ways according to an article published last year in The Economist [“Strange bedfellows,” 24 May 2008 print edition].
“A survey by Greener World Media, a consultancy, found that although companies made plenty of announcements in 2007, real environmental progress was hard to spot. But firms are keen to form partnerships with environmental groups precisely to avoid being accused of ‘greenwashing’. Besides providing expertise, activists can lend credibility to a company’s environmental programmes. Whether activists are ‘selling out’ when they deal with big firms is the subject of much debate. … Yet alliances between companies and activists are not as strange as they might seem. For bosses planning long-term capital investments, says Michael Lenox, an expert on corporate sustainability at Duke University, ‘uncertainty is more damaging than regulation.’ This puts bosses in the same boat as activists: both want regulators to hurry up and set the rules. ‘We can’t solve these big global challenges without business engagement,’ says Mr Cramer, ‘and business can’t operate without solving these problems. So there is philosophical alignment.’ Even so, there is a limit to how much voluntary action can achieve, says James Speth, dean of Yale’s School of Forestry and Environmental Studies. In a new book, ‘The Bridge at the Edge of the World’, he argues that environmental externalities are an unavoidable feature of capitalism, and that bosses are trapped in a system that requires them to act unsustainably when they have the chance. ‘In the end,’ he says, ‘a responsible company is one that is required to be responsible by law.’ But until regulators act, companies may find that teaming up with activists is the best hedge against uncertainty.”
I’m probably not quite as cynical as Professor Speth. I believe that companies can be responsible without being required to legally act that way. I do agree, however, that regulations help as do standards. Behavior that is measured and monitored is generally improved. The industrial age corporate world is beginning to learn that there is a price to pay for poor performance in the past. Let’s hope that the information age brings with it more informed and better behaved businesses. The lawyers will always find something to sue over, but reducing the number causes they pursue is good for both consumers and business. It just may not be good for the lawyers.
Lest readers think that I’m anti-lawyer, let me set the record straight. I take full advantage of legal protections both personally and professionally. My company’s general counsel is my most trusted advisor and friend. Any business leader who believes that he or she can be successful without good legal advice is acting the fool. When you really need a lawyer, they can be your best friend. Lawyers, unfortunately, have received a bad reputation from the unethical behavior of a small percentage of lawyers. Past abuses by large corporations will continue to be litigated in the courts. Where real abuses have been committed, it is only right that they should be corrected. My focus, however, is on the future and trying to convince companies in emerging market countries to start out doing things right so that they don’t have to look back at some future time and start worrying about getting sued for past misdeeds.