Court Opinion

ID: 6338241
Source: CourtListenerOpinion
Date Created: 2022-05-06 00:00:26.773671+00
Date Added: 2024-06-11T09:25:07.372857
License: Public Domain

Case: 20-20633      Document: 00516308703         Page: 1     Date Filed: 05/05/2022

           United States Court of Appeals
                for the Fifth Circuit                                  United States Court of Appeals
                                                                                Fifth Circuit

                                                                              FILED
                                                                           May 5, 2022
                                   No. 20-20633                          Lyle W. Cayce
                                                                              Clerk

   Juan Carlos Cisneros Guerrero, individually and on behalf of
   others similarly situated; Wilson Fernando Achachi Seileman;
   Miguel Angel Romero Gallardo; Esbar Estalin Paz;
   Norma Gesel Proano Paredes; et al.,

                                                            Plaintiffs—Appellants,

                                       versus

   Occidental Petroleum Corporation; Occidental
   Exploration and Production Company,

                                                          Defendants—Appellees.

                  Appeal from the United States District Court
                      for the Southern District of Texas
                            USDC No. 4:16-CV-465

   Before Higginbotham, Willett, and Duncan, Circuit Judges.
   Stuart Kyle Duncan, Circuit Judge:
          Ecuadorian law has long required private companies to share profits
   with employees. So when Ecuador contracted with foreign oil company
   Occidental to develop an oil-rich region of the rainforest, Occidental paid its
   Ecuadorian employees a sizable portion of its annual profits. Things went
   well for several years until the middle of 2006, when the government
   canceled the exploration contract and expropriated Occidental’s property,
Case: 20-20633       Document: 00516308703            Page: 2     Date Filed: 05/05/2022

                                       No. 20-20633

   leading to massive losses. Profits and profit-sharing abruptly ceased.
   Occidental sought arbitration and, a decade later, received a nearly billion-
   dollar settlement from Ecuador.
          A group of Occidental’s former Ecuadorian employees then sued
   Occidental, claiming the arbitration settlement represented profits they were
   entitled to share. The district court correctly dismissed the employees’
   claims. Under the plain terms of Ecuadorian law, a company’s profit-sharing
   obligation depends on the profits lawfully declared in its annual tax returns.
   Occidental’s tax returns for the interrupted year of 2006 showed not profits
   but losses. As a result, Occidental owes its former employees no shared
   profits for that year.
          We affirm the district court’s judgment.
                                            I.
          In 1999, Ecuador and its state-run oil company Petroecuador
   contracted with Occidental Exploration and Production Company 1
   (“Occidental”) to develop Block 15, an oil-rich region of the rainforest, in
   exchange for a share of the revenue from 1999 to 2019. Occidental invested
   in Block 15’s infrastructure and operations and employed some 320
   Ecuadorian citizens. In May 2006, Occidental sold a portion of its Block 15
   interest without authorization. In response, Ecuador abruptly terminated the
   contract, seized Occidental’s Ecuadorian assets, and nationalized Block 15’s
   operations.
          Occidental fired all Ecuadorian employees, agreeing to individual
   severances known as finiquitos de trabajo. Among other things, these obligated

          1
            This is a subsidiary of Occidental Petroleum Corporation. “Occidental” refers
   interchangeably to both parent and subsidiary, unless otherwise indicated.

                                             2
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                                            No. 20-20633

   Occidental to share with employees its 2006 profits, “if any,” as required by
   Ecuadorian law. 2 Occidental filed an arbitral claim against Ecuador with the
   International Centre for Settlement of Investment Disputes (ICSID) for
   breach of a bilateral investment treaty between Ecuador and the United
   States. Later that year, Occidental reported a “substantial loss” in Ecuador,
   confirmed by Ecuador’s tax agency to be as much as $860 million.
           An ICSID panel awarded Occidental $1.7 billion based on its lost
   profits through the natural end of the contract. The award was reduced on
   appeal to $1.061 billion. In 2015, Occidental successfully petitioned to
   confirm and enforce the award in federal court in New York. In lieu of years
   of installments, Ecuador agreed to settle the matter to the tune of $979
   million “net of any . . . taxes” and full indemnity from related claims brought
   by “any former employee of Occidental.” By early 2016, Ecuador had paid
   Occidental the full $979 million.
           Around the same time, a putative class of Occidental’s former
   Ecuadorian employees sued Occidental in federal court, seeking $265 million
   (15% of the arbitral award) based on Ecuador’s profit-sharing laws and the
   severance agreements. Occidental moved to dismiss the complaint based on
   Ecuadorian law, forum non conveniens, and international comity. After a
   hearing, the district court denied Occidental’s motion but urged re-filing as
   a motion for summary judgment.

           2
             Translated from Spanish, the pertinent text provides: “The only matter that shall
   remain outstanding and unresolved between the parties is the calculation and payment of
   the legal profit sharing percentage, if any, which may be due during the 2006 fiscal year,
   which the Employer is obligated to pay in accordance with the law, no later than April 15 of
   next year.” In the original Spanish: “Únicamente quedaría pendiente de liquidación y pago el
   porcentaje legal de utilidades que, en caso de haberlas durante el ejercicio económico de 2006, el
   Empleador se obliga a pagarías de acuerdo con la ley, hasta el 15 de abril del próximo año.”

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           Occidental did so. The parties submitted tax returns and accounting
   reports, translations of the relevant Ecuadorian legal authorities, and dueling
   declarations of Ecuadorian law experts. Four years later, the district court
   granted Occidental summary judgment. Relying on the company’s tax
   returns, the court concluded Occidental earned no profits in 2006 but instead
   lost money. It also rejected the employees’ argument that the 2015 arbitral
   award or the 2016 settlement could stand in for 2006 profits under the
   finiquito. Accordingly, the court ruled that the Ecuadorian employees were
   not entitled to a portion of the arbitral award. The employees appealed.
                                                II.
           Our review of summary judgments and the content of foreign law is de
   novo. In re La. Crawfish Producers, 852 F.3d 456, 462 (5th Cir. 2017); Access
   Telecom, Inc. v. MCI Telecomms. Corp., 197 F.3d 694, 713 (5th Cir. 1999).
                                               III.
           Since 1945, Ecuador’s Constitution has guaranteed workers the right
   to share in company profits. See Constitución de la República del
   Ecuador [hereinafter, Constitución] Mar. 6, 1945, art. 148(s). 3 The
   current provision, Article 328, provides that “persons working in the private
   sector are entitled to share in the net profits of the companies [they work for],
   in accordance with statutory legislation.” Constitución Oct. 20, 2008,
   art. 328. 4 Article 97 of Ecuador’s Labor Code requires a private employer to
   “allocate fifteen percent (15%) of its realized profits for the benefit of its

           3
              “Workers will participate in the profits of the company, in the form and
   proportion established by law.” Ibid. In the original Spanish: “Los trabajadores serán
   partícipes en las utilidades de las empresas, en la forma y proporción que fije la ley.” Ibid.
   ROA.601.
           4
              “Las personas trabajadores del sector privado tienen derecho a participar de las
   utilidades de las empresas, de acuerdo con la ley.” Ibid.

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                                             No. 20-20633

   employees.” Cód. Trab. art. 97. 5 In turn, Article 104 provides that
   “[c]alculation [of profits] shall be conducted on the basis of the declarations
   or determinations prepared for the payment of Income Tax.” Cód. Trab.
   art. 104. 6 In accordance with these provisions, Occidental distributed over
   $200 million to its Ecuadorian employees from 1999–2005, based on the
   profits reported on its tax returns for those years.
            As noted, though, Occidental’s 2006 tax return showed a loss instead
   of profits, which the district court deemed dispositive. On appeal the
   employees cry foul, maintaining that tax returns are “not the exclusive
   mechanism for determining profit-sharing liability.” They instead claim the
   correct metric is Occidental’s “actual economic profit” in 2006, which they
   say is disputed given the 2016 settlement. That approach lacks any principled
   basis in Ecuadorian law.
            According to the employees’ expert, this “actual economic profit”
   theory arises from various “‘favorability’ and ‘pro-worker’ principles”
   throughout Ecuador’s constitution and labor code. See, e.g., Cód. Trab.
   art. 7 (ambiguities in the labor code are to be given “the interpretation that is
   the most favorable to the worker”). 7 From this premise, the expert deduces
   that profit-sharing is an “inalienable and intangible” right, one “not
   contingent upon certain purely procedural requirements being met.” This
   argument is refuted by the plain terms of Ecuadorian law.

            5
             “El empleador o empresa reconocerá en beneficio de sus trabajadores el quince por ciento
   (15%) de las utilidades líquidas.” Ibid.
            6
              “Para el cálculo [de utilidades] tomarán como base las declaraciones o determinaciones
   que se realicen para el pago del Impuesto a la Renta.” Ibid.
            7
             “En case de duda sobre el alcance de las disposiciones legales, reglamentarias o
   contractuales en material laboral, los funcionarios judiciales y administrativos las aplicarán en el
   sentido más favorable a los trabajadores.” Ibid.

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                                             No. 20-20633

            The interpretive principles required by Ecuador’s Civil Code do not
   sound foreign to us. Courts must honor “the literal letter of [the] terms” of
   statutes “construed in their natural and obvious sense” as informed by
   “[t]he context of [the] law.” Cód. Civ. art. 18. 8 On this point, “the literal
   letter of the terms” of the Ecuadorian Labor Code could not be plainer.
   Article 104 provides that, with respect to profit-sharing:
            Calculation [of profits] shall be conducted on the basis of the
            declarations or determinations prepared for the payment of
            Income Tax.
   Cód. Trab. art. 104. That provision is unambiguous, leaving no room to
   put any “pro-worker” thumb on the interpretive scale. See Cód. Trab. art.
   7. The employees point to no other statutory basis for their “actual economic
   profit” theory, and we have no power to write it into Ecuadorian law.
            Lacking statutory support, the employees retreat to a judge-made
   exception to Article 104. As both sides’ experts agree, in the Cruz decision
   Ecuador’s National Court of Justice instructed that “nothing would be more
   unfair than to refuse . . . the payment of profits to the worker, only because
   they did not appear on the tax declaration that, it has been definitively
   established, was false.” Corte Nacional de Justicia [CNJ] [National Court of
   Justice], 21 enero 1980, “Cruz c. Chagra Norte Cia. Ltd.” Gaceta
   Judicial Serie XIII, No. 7 p.1448. In the employees’ view, the 2016

            8
             “1a.- Cuando el sentido de la ley es claro, no se desatenderá su tenor literal, a pretexto
   de consultar su espíritu. . . . ; 2a.- Las palabras de la ley se entenderán en su sentido natural y
   obvio, según el uso general de las mismas palabras[.]” Ibid. Cf. Sw. Elec. Power Co. v. United
   States Env’t Prot. Agency, 920 F.3d 999, 1023 (5th Cir. 2019) (relying on, inter alia, “text,
   structure, and the overall statutory scheme” to interpret statutes (cleaned up)); La. Civ.
   Code art. 9 (“When a law is clear and unambiguous and its application does not lead to
   absurd consequences, the law shall be applied as written and no further interpretation may
   be made in search of the intent of the legislature.”); La. Civ. Code art. 11 (“The words
   of a law must be given their generally prevailing meaning.”).

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                                          No. 20-20633

   settlement award retroactively rendered Occidental’s 2006 tax returns
   “false,” so they are entitled to circumvent Article 104 and decouple the 2006
   profits from the tax returns. But Cruz is limited to when fraud renders a
   private employer’s tax returns “false.” Ibid. The employees concededly “do
   not dispute that [Occidental] filed a tax return in 2006 and did so with no
   fraudulent intent.” The National Court of Justice’s fraud exception provides
   no refuge. 9
           In sum, the sentido natural y obvio of Ecuadorian law settles this
   dispute. Cód. Civ. art. 18. Occidental’s former employees may share only
   in the profits lawfully reported in Occidental’s 2006 income taxes. Because
   those declarations undisputedly attribute no profit to Occidental that year,
   Occidental owes the employees nothing.
                                                                               AFFIRMED

           9
             The employees also propose another uncodified exception to Article 104—when
   the employer “receives an exemption from reporting profits in its tax documents.” See
   Julio César Trujillo V, Derecho Del Trabajo 456 (Ediciones de la Pontificia
   Universidad Católica del Ecuador ed., 2nd ed. 1986) (“This is not to say that the companies
   or employers who . . . come under special legal exemptions for payment of income tax, are
   not obliged to deliver 15% of their profits obtained before taxes.”). The employees point to
   Ecuador’s granting Occidental a setoff of “Tax and Labor Amounts” in the settlement
   agreement. But the employees failed to raise this argument below, so it is forfeited. Celanese
   Corp. v. Martin K. Eby Constr. Co., 620 F.3d 529, 531 (5th Cir. 2010).

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