State seeking to again sue Chevron oil giant
By Frank Cho
Advertiser Staff Writer
Just months after settling a multibillion-dollar anti-trust lawsuit against ChevronTexaco Corp. and several other companies, the state is again preparing to sue the oil giant, this time in connection with allegations it evaded hundreds of millions of dollars in state taxes during the last 30 years.
Gov. Ben Cayetano said Monday he had told state Attorney General Earl Anzai to solicit proposals from law firms willing to sue on a contingent-fee basis.
"The state can't do this by itself (because of the cost); we need to look to the private sector," Cayetano said. "It's unfortunate that this information has come to me so late in my term, but a lot of money is at stake, and I am not going to walk away from this."
Legal experts and people within Cayetano's own administration say many hurdles will need to be cleared before the state can take on what could become another massive legal battle with the oil company.
State attorneys are investigating a recent report by two accounting professors, Jeffrey Gramlich and James Wheeler, accusing ChevronTexaco of failing to pay $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.
"These issues were raised some time ago and were fully examined, resolved and the matter closed," said Albert Chee, a ChevronTexaco spokesman.
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, far less than the $1 billion it had set aside to pay any settlements.
Chee said the company was surprised that Cayetano was giving new life to the allegations. He said the IRS had examined the credibility of income taxes the company paid to Indonesia and determined they were appropriate.
But Cayetano, formerly an attorney, said he believes the settlement was motivated more by foreign policy than law.
"If we were to pursue this lawsuit here, then I am sure that other states will join in. The good thing about state government is we don't have foreign policy," Cayetano said.
Prospect of victory
Cayetano said he believed the state could sue ChevronTexaco for violating the federal Overseas Corruption Act, which prohibits U.S. companies from taking any action overseas that would be illegal in the United States. Cayetano also said the state attorney general's office was looking at the company's state tax returns.
The state's statute of limitations on tax evasion mean the state would have to prove Chevron committed fraud before its lawyers could look further than three years back.
"I think that is one reason why the state tax department has been cool about this whole case," said Kurt Kawafuchi, supervisor for the attorney general's tax division, which is investigating the case.
So far, the state has been in contact with two Hawai'i-based law firms that have shown interest in the case and have ties to larger Mainland firms that may be willing to take on the state as a client.
"I assume that they know that we are in a rush," Anzai said. "My concern now is that if anyone is really interested, that they review the case. I don't want to have just our people review the case."
With only months left in office, Cayetano said he hoped to contract a law firm in the next month or two.
Approach used before
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 large share of any settlement — to sue Chevron and six other oil companies in 1998, alleging they conspired to fix gasoline prices in Hawai'i.
The 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.
This time, Cayetano said he does not want the case to cost the state any money. "What we are going to do is we are going to ask the firms to pick up the cost. If we have to give a larger percentage of the settlement, then so be it," he said.
Anzai said the state was asking firms to front all costs related to the suit, and to absorb all expenses if the state chooses to proceed.
Timing tricky
Jeff Ono, a Honolulu attorney who worked on the state's four-year antitrust battle with the oil companies, said his firm had not been contacted by the state. But Ono said he would be interested in the case.
"We may very well put in our bid," Ono said. "I think Professor Wheeler makes a good case against Chevron. What evidence he has, though, I am not really clear on."
Besides the legal merits of the case and the huge financial risk involved, Ono said the fact that the state would have a change in administration, with an agenda that is not yet clear, could scare some firms from bidding on the case.
"Certainly, that is going to play a part," he said. "Anzai is not going to be the attorney general come January, and the new governor might have a different point of view.
"Hopefully you will not have a whole lot invested in the case by that time until you know where the next administration wants to go."
Reach Frank Cho at 525-8088, or at fcho@honoluluadvertiser.com.
Correction: An earlier headline on this story erroneously said the state was suing Chevron again. Officials are now only preparing to take that action.
