The American economy faces threats other than stupid lending decisions. The Dow Jones Market Watch reports on an increasing threat to American companies doing business overseas, and it mirrors a domestic threat about which tort-reform activists have warned for years. Vince Vitkowsky reports that trial lawyers around the world have begun exploiting lax evidentiary laws in other nations to extort American companies through massive lawsuits:
Prior to 1992, Texpet, a company that is now a Chevron subsidiary, was a partner with the state-owned oil agency of Ecuador, PetroEcuador. All of its activities were in compliance with existing Ecuadorian laws and regulations, but after the venture ended, a government-supervised audit called for environmental remediation. Texpet conducted a $40 million remediation and public works program, and the government of Ecuador released it from further claims saying it was “formally absolved, liberated and forever freed” from “any claim or litigation by the Government of Ecuador…”
But that final decision did not stop others from using various legal tactics to file more lawsuits. Trial lawyers and activist groups, led by NGO’s like Amazon Watch, swept in. In the U.S. courts, where standards of proof are respected, the plaintiffs were resoundingly unsuccessful. Initially, the same was true in Ecuador. The courts there utilized a preliminary evidentiary phase to look at the evidence. That panel’s initial findings were very favorable to Texpet.
Then, a new judge replaced a five member panel with a single investigator who was receptive to new government policies and the plaintiffs. The new Ecuadorian government offered full support in gathering “evidence.” The new government also turned a blind eye toward PetroEcuador, which continued operating the oilfield operations for the past 17 years despite evidence suggesting the home company was likely responsible for environmental problems in the region — more than 1,000 spills since 2002. The ultimate outcome remains to be seen, but this sequence suggests a disturbing retreat from the established rule of law and a new form of legal and economic nationalism.
The problem exists in the American court system as well. The 1789 Alien Tort Statute allows for private lawsuits against violators of international law to get compensation for actual damages due to piracy and other such crimes. Starting in the 1990s, the law began to be used to sue corporations for doing business in countries like apartheid-era South Africa under the notion that they abetted the human-rights abuses of the regime. The fifty corporations named in the $400 billion lawsuit have appealed to the Supreme Court for relief.
If it doesn’t come, it puts the entire global economy at risk. Just for one point, American companies do business in Saudi Arabia to bring energy to the US. In other cases, we engage economically in order to alleviate poverty and to spur modernization and moderation in otherwise closed societies. If corporations have to put billions of dollars at risk to do so, then we can forget about any kind of economic investments in places like Africa, where most of the regimes could be flagged for abuses. Even Nelson Mandela’s organization conducted “necklacing” as a tactic when it rebelled against apartheid, after all. And most people saluted engagement with Robert Mugabe until just the last few years.
Exactly where do these plaintiffs believe the money will originate? An award of $400 billion has to come from somewhere; as our fathers remind us when we’re teenagers, the money doesn’t grow on trees. Successful lawsuits along these lines will sap stockholders, ruin investments, and severely reduce capital needed for economic expansion. Retirees will have to return to work and flood a job market that would already be constricting.
It’s time to start treating these lawsuits and the plaintiffs that file them for what they are: economic parasites. If people object to economic engagement, then vote for a government that thinks Smoot-Hawley was a brilliant move, and that the isolation of China helped resolve human-rights abuses.