Law firms lining up for state's oil lawsuit
By Frank Cho
Advertiser Staff Writer
At least 13 law firms have applied to help the state sue ChevronTexaco in connection with allegations that it evaded hundreds of millions of dollars in state taxes on imported barrels of oil.
State Attorney General Earl Anzai said he had received 13 applications by yesterday's deadline from local and Mainland law firms. Anzai said more firms could be added to the list today if their applications were postmarked on or before yesterday.
Anzai, who declined to name the firms involved, said he solicited the applications after Gov. Ben Cayetano ordered him to pursue a lawsuit against the oil company in connection with a report that Chevron and Texaco — before they merged — bought oil from Indonesia at inflated prices and avoided more than a half-billion dollars in Hawai'i taxes.
ChevronTexaco has denied the allegations. But Anzai said the state is not backing off its plan to sue the oil giant.
"Given the situation that we believe exists, but more importantly the interest shown by these law firms under the stringent conditions we are talking about, it's pretty clear to me that at least 13 firms consider this case a good bet. Most of these firms are very high powered and I don't think they would be taking this case on a lark," Anzai said.
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 potential 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 a total of $35 million, with the outside law firm pocketing a large chunk of that, plus expenses covered by the state.
This time, Anzai said the case will not cost the state any money because he is asking the firms to front all costs related to the suit, and to absorb all expenses if the state chooses to proceed.
"We will whittle them down to a smaller number and talk to them about fees, their resources and their experience. For many of them, they have not had that much of a chance to study the draft report while others have already talked to the professors," Anzai said.
State attorneys are investigating the report by accounting professors Jeffrey Gramlich and James Wheeler that says ChevronTexaco failed 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.
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.
"The tax allegations are without merit," said Albert Chee, a spokesman for ChevronTexaco in Hawai'i. "The professors ignored the fact that both Chevron and Texaco have paid federal and state taxes in accordance with the IRS settlement, including Hawai'i state taxes."
Anzai said he has no deadline to select a law firm to represent the state in its suit, but said he would like to do it "sooner rather than later."
Reach Frank Cho at 525-8088, or at fcho@honoluluadvertiser.com.
