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The Honolulu Advertiser
Posted on: Saturday, November 23, 2002

State hires lawyers for oil taxes case

By Frank Cho
Advertiser Staff Writer

The state has hired Chicago-based Winston & Strawn to represent it in its planned suit of ChevronTexaco for allegedly evading hundreds of millions of dollars in state taxes on imported barrels of oil, Hawai'i Attorney General Earl Anzai said in a statement.

Winston & Strawn has agreed to represent the state on a contingency basis and front all costs related to the suit, meaning there should be no costs to Hawai'i taxpayers, Anzai said.

Still the decision to hire the firm comes less than two weeks before Anzai and the rest of Gov. Ben Cayetano's administration is to leave office, and it is not certain whether Gov.-elect Linda Lingle, who takes office Dec. 2, will want to pursue the case.

"Why would the governor commit the state to this action at the last minute without first allowing the governor-elect to take a look at it?" said Lloyd Yonenaka, a spokesman for the Lingle campaign. "We are talking 12 days (before inauguration). Is this a situation that could not wait 12 days?"

In a written statement last night, Anzai called the arrangement a "bargain" for state taxpayers.

The state used a similar strategy — hiring private law firms willing to foot the bill for an expensive legal battle in hopes of getting a share of any potential settlement — to sue Chevron and Texaco before they merged in 1998, alleging they conspired with other oil companies to fix gasoline prices in Hawai'i.

ChevronTexaco could not be reached for comment.

The 1998 suit, which sought $2 billion in damages, was settled in January for $35 million, with the outside law firm pocketing a large chunk of that, plus expenses covered by the state.

State attorneys have been investigating a report by two accounting professors, Jeffrey Gramlich and James Wheeler, that accused ChevronTexaco of illegally avoiding $3.25 billion in state and federal taxes, including $536 million to the state of Hawai'i, in an oil-pricing scheme.

The professors say ChevronTexaco allegedly paid inflated prices for crude oil through an Indonesian operation from 1970 to 2000 to avoid U.S. taxes.

ChevronTexaco has denied the charge.

Similar allegations were levied against Chevron in the early 1990s by the Internal Revenue Service in San Francisco, where ChevronTexaco is based. The company eventually settled that case by paying a $675 million fine and denied any wrongdoing.

Winston & Strawn is a 150-year-old law firm with 850 attorneys and offices in New York, Washington, D.C., Los Angeles, Geneva, Paris and other major cities. It was selected over 16 other firms that applied.

Reach Frank Cho at 525-8088, or at fcho@honoluluadvertiser.com.