May 09th, 2022

US Court of Appeals for the Fifth Circuit Opinions
Cisneros Guerrero, et al v. Occidental Petro, et a

Docket: 20-20633
Opinion Date: May 5, 2022
Judge: Stuart Kyle Duncan
Areas of Law: Arbitration & Mediation, Labor & Employment Law

Defendant, a foreign oil company, contracted with Ecuador to develop an oil-rich region of the rainforest. Defendant paid its Ecuadorian employees a sizable portion of its annual profits. The government canceled the exploration contract and expropriated Occidental’s property, 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. Plaintiffs, 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.

On appeal, the Fifth Circuit affirmed the district court’s dismissal of Plaintiffs' claims holding that Defendant owes its former employees no shared profits for the relevant year. The court reasoned that under the plain terms of Ecuadorian law, a company’s profit-sharing obligation depends on the profits lawfully declared in its annual tax returns. Plaintiffs maintained that tax returns are “not the exclusive mechanism for determining profit-sharing liability.” However, the court held Ecuador's law is clear that the calculation [of profits shall be conducted on the basis of the declarations or determinations prepared for the payment of Income Tax, and Occidental’s tax returns for the interrupted year of 2006 showed not profits but losses.

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