COMMENTARY
Attacks on ChevronTexaco unwarranted

By Dan Case
Chairman of the Case Bigelow and Lombardi law firm in Honolulu

I have known and respected former Gov. Ben Cayetano for a number of years, but I must say that his article published in the The Advertiser on Nov. 30 was very disappointing.

It is clear from the article that Gov. Cayetano views ChevronTexaco as a company that should not be conducting business in Hawai'i. Cayetano is wrong on this and there is no factual basis for his position.

My law firm has represented Chevron in Hawai'i for nearly a century. Over the course of my career, I have found the company to be a caring corporate citizen that contributes to the people and the Hawai'i economy in many positive ways.

The former governor's article refers to the research paper by professors Wheeler & Gramlich published in September 2002. When the paper first appeared, I was astounded — as was the general public — by the "bombshell" allegations of fraud. At that time, it was difficult for me to conceive of ChevronTexaco officials engaging in the fraudulent activities that were alleged. After discussing the case with ChevronTexaco, it was clear to me that the state did not have all of the facts.

For this reason, I contacted Randall Roth, who at the time served as Gov. Linda Lingle's senior policy adviser. I offered to have the ChevronTexaco tax attorneys, familiar with the 1998 IRS case, meet with representatives of the administration and the attorney general's office. The purpose of the meeting would be for ChevronTexaco to provide a full explanation of the matter. The state wrote to ChevronTexaco requesting several documents which were provided prior to the meeting.

In February 2003, such a meeting was held. ChevronTexaco's tax attorneys explained the history of the IRS proceeding and the result that occurred in 1998. Explanatory documents were distributed, and numerous questions were answered. ChevronTexaco offered to meet at a future time to answer additional questions that the state's representatives might have. As is customary, ChevronTexaco did request that confidentiality be maintained by the state's representatives reviewing the case.

At this point, the state had made no claim against ChevronTexaco, no tax assessment had been filed, and no audit proceeding was pending.

Prior to the meeting's conclusion, ChevronTexaco offered to submit additional information in response to questions asked by state officials and such additional information was delivered to the state. After reviewing the materials, the state asked if ChevronTexaco would permit the state to turn over to Winston & Strawn (the law firm hired by the state to file suit against ChevronTexaco) all materials previously delivered by ChevronTexaco to the state.

Although the materials were confidential, ChevronTexaco agreed that this information could be reviewed by Winston & Strawn. ChevronTexaco also agreed to have its tax attorneys meet with the Winston & Strawn attorneys to answer questions. One meeting and numerous telephone conversations between the groups occurred. Winston & Strawn issued its report to the state, as publicly reported by Deputy Attorney General Richard Bissen on July 23, 2003.

Neither ChevronTexaco nor I was surprised to hear that Winston & Strawn concluded that there was no evidence of fraud and that a lawsuit should not be filed against ChevronTexaco. The truth is that no fraudulent activities occurred and that no additional taxes are due.

It is just that simple.

ChevronTexaco's efforts to communicate with the state and its law firm, Winston & Strawn, were undertaken to prevent the filing of a lawsuit before the true facts were understood. It is important to note that the proposed suit urged by professors Wheeler and Gramlich in their research paper, and later urged by Cayetano and the Legislature, would have been in violation of the state Department of Taxation's Hawai'i Bill of Rights.

The Hawai'i Bill of Rights affirms the principles of privacy and confidentiality in all dealings with the Department of Taxation. The bill also affirms the right to a "Proposed Notice of Assessment" to be delivered by the Department of Taxation. The notice enables the taxpayer to understand the basis for the assessment and provides the taxpayer with the opportunity to meet with tax officials to review the matter.

The public should know that no assessment has ever been made in the ChevronTexaco case. Thus, the whole process set forth in the Hawai'i Bill of Rights was ignored by then-Gov. Cayetano in his desire to sue ChevronTexaco. The safeguards outlined in the Hawai'i Bill of Rights were also ignored by the Legislature when it adopted a resolution urging that litigation be pursued.

Despite ChevronTexaco's record as a responsible corporate citizen in Hawai'i, the Cayetano administration initiated three major offensives against ChevronTexaco. Each of the offensives was based on the assumption that ChevronTexaco's actions in the Hawai'i market were illegal. The basis for the alleged illegality was that ChevronTexaco's profits were higher than what the administration and the Legislature believed to be proper.

The three offensives pursued by the Cayetano administration were:

• The antitrust action, filed in 1998 on the basis of collusive action by Hawai'i's oil companies, which action was settled because, as stated in former Gov. Cayetano's article, the state could not show that a conspiracy or other wrongdoing occurred.
• The proposed suit against ChevronTexaco for fraud, as discussed above, was determined by Winston & Strawn, the law firm selected by the Cayetano administration (and lauded by the state Senate and Wheeler and Gramlich as being a very good firm), to be without merit.
• The "Gas Cap" legislation which the 2002 Legislature enacted and Gov. Cayetano signed into law.

Because numerous questions arose as to the potential effects of this legislation, the Legislature engaged Stillwater & Associates to study the issues and make a report. The Stillwater report, dated Jan. 28, 2003, concludes that establishing gas caps, as proposed in the legislation, could actually result in higher gas prices, particularly on the Neighbor Islands.

Isn't it time that the state recognizes that the price of all products in Hawai'i, including gasoline, should be determined by the market, not by the government?

With all of the state's efforts to attract new high-tech business to Hawai'i, can you imagine Microsoft, Intel or any other technology company coming to Hawai'i knowing that the state may require prices to remain at levels acceptable to the state? The very companies that we are attempting to attract will be dissuaded from coming by the government's animosity towards ChevronTexaco and the related actions described in Cayetano's article.

A fundamental principle of our country is that government involvement in the private sector should be limited to assuring compliance with our laws, not in directing private enterprise.

Failure to recognize this, as revealed in the former governor's article, lacks historical perspective and will only be counterproductive.