Tuesday, December 10, 2002

State of Hawaii

Lingle recruits Texaco
defense lawyer

Lingle Cabinet takes shape
Lingle says counties deserve share of traffic fines

By Tim Ruel

Honolulu lawyer Mark Bennett, Gov. Linda Lingle's incoming attorney general, has sidestepped a potential conflict-of-interest debate by recusing himself from a pending state investigation into alleged tax fraud by ChevronTexaco Corp.

Bennett, 49, was an attorney for Texaco during the Cayetano administration's $2 billion antitrust lawsuit against Hawaii's major oil companies, which has been settled.

That case is separate from the budding tax case against ChevronTexaco. But while there is no actual conflict, Bennett said it has the appearance of impropriety and poses the most substantial conflict issue he faces heading into office.

The tax case against ChevronTexaco stems from a report by two accounting professors that ChevronTexaco underpaid state and federal taxes in the United States by paying inflated costs for crude oil from a joint venture in Indonesia. The professors have estimated the state of Hawaii is owed $563 million in back taxes by ChevronTexaco. The company, which was formed by the 2001 merger of Chevron and Texaco, has said it settled the tax matter in 1994 by paying $675 million to the Internal Revenue Service.

In the closing days of the Cayetano administration, then-Attorney General Earl Anzai hired Chicago law firm Winston & Strawn to represent the state against ChevronTexaco in the tax matter.

Bennett, a partner with Honolulu law firm McCorriston Miller Mukai MacKinnon, said he will address all cases where his private practice might present a conflict with his new role as state attorney general, as is typical for lawyers who move between public and private roles.

"That's why I wanted to get it out up front, for the very reason that it is clearly an important area, and that's why we highlighted it so that no one would raise any questions about it," Bennett said in an interview yesterday.

In a statement, Lingle said she will be advised in the tax matter by deputy attorneys general who have reviewed the case, as well as her senior policy advisor, Randy Roth, and her as-yet-unnamed tax director.

At a press conference last month, Lingle said her administration will be aggressive in dealing with unpaid taxes, noting she had taken tough stances when she was mayor of Maui.

"I feel very strongly about this because when anybody doesn't pay their taxes, it means that the tax burden is then spread to the rest of us to a greater extent than it would have been otherwise," Lingle said. She identified the ChevronTexaco matter as being among the top five legal issues the state faces. "Basically, the approach I would take is get a briefing from the people in the Attorney General's Office who have been involved with this, but also get a briefing from the private attorneys ... and let them lay out the case, why they feel this is something the state could successfully pursue."

Separately, Bennett declined to talk about the now-settled antitrust lawsuit against Texaco and other Hawaii oil companies. He also did not want to talk about his opinion of a pending law that would regulate Hawaii's high price of gasoline. Anzai, Bennett's predecessor, was a major proponent of the measure when it was passed this year by lawmakers.

Bennett said he does not yet know whether he will recuse himself from dealing with the gas price regulation law. Bennett said his role as a lawyer for Texaco would create no actual conflict in dealing with the gas regulation measure, but again, there could be a question of the appearance of a conflict.

The law, which does not take effect until 2004, has already drawn fire from Lingle, who said she will use a provision to suspend the regulation. State lawmakers are waiting to see what type of alternative plan Lingle will offer before making their next move, said Rep. Ken Hiraki (D, Kakaako).

Hawaii gas prices per gallon are currently 40 cents higher than the national average, according to the Oil Price Information Service. For years the state has investigated why Hawaii drivers pay so much more for gasoline than their counterparts in other cities in the United States, and in 1998 the state went to court. During the proceedings, information from Chevron indicated that the firm got 22 percent of its nationwide refinery profits from Hawaii between 1988 and 1995, even though the state represented only 3 percent of Chevron's sales volume.

The state dropped the lawsuit for a total settlement of $35 million after it became clear that its evidence did not meet a critical court standard. The oil companies have maintained the suit was without merit. But Anzai used information from the lawsuit to make a case for state gas regulation.

State of Hawaii

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