Villagers living in Ecuador’s remote rainforests won a victory in one of the longest-running, most complex environmental lawsuits ever this week. A judge in Ecuador awarded $8.6 billion—with the possibility of another $10 billion or so on top of that—to plaintiffs suing Chevron for polluting the Amazon region during decades of energy exploration. But in a turn of events befitting the tangled web of international environmental law and fights over who should pay for pollution, there’s no guarantee the plaintiffs will actually see that money.
Judge Nicolas Zambrano awarded the $8.6 billion to pay for cleanup and for health care for Ecuadorians made sick by the pollution, plus 10 percent of that total added on top as reparations to the Amazon Defense Coalition. If Chevron doesn’t publicly apologize within 15 days of the ruling—and it isn’t going to—the ruling tacks on another $8.6 billion in punitive damages.
The pollution case itself is full of weird twists and turns. The first thing to know about this mess is that “Chevron” didn’t pollute the region—at least, not under that name.
Chevron does not, in fact, operate in Ecuador today; the American company acquired the lawsuit when it bought Texaco in 2001. Texaco started oil exploration activities with Ecuador’s state oil company Petroecuador back in 1964, and for the next three decades, the 47 plaintiffs say, the company contributed to dumping billions of gallons of waste oil in the region, causing loss of livelihood, widespread health problems and up to 1400 deaths. [TIME]
Texaco paid about $40 million in damages when the company left the region in the early 1990s, but Amazonian communities, unsatisfied, sued for more. Chevron bought Texaco knowing full well this legal action was going on, and has spent the decade since fighting it tooth and nail. That includes arguing that Petroecuador was the majority player who bears most of the responsibility—a tactic that recalls the circle of blame between BP, Transocean, and Halliburton over who was most responsible for the Gulf of Mexico oil spill. And there have been plenty of other legal maneuvers.
Chevron has vowed not to pay, and has persuaded courts in the United States and Europe to issue temporary orders blocking enforcement of the judgment. The company has also filed a countersuit against the plaintiffs in the United States, accusing them of fraud and extortion. [San Francisco Chronicle]
Chevron’s counter-suits aren’t the only thing that might prevent the Ecuadorians from collecting the money. As noted above, Chevron doesn’t operate in Ecuador any longer. So, industry analyst Mark Gilman tells Bloomberg, it’s not as though the courts can seize company assets to force a payment.
“It’s probably unenforceable,” Gilman said yesterday in a telephone interview. “I wouldn’t want to say $8 billion is insignificant in any way, shape or form for Chevron, because it’s not, but given the lack of local assets, Ecuador is going to have difficulty enforcing this.” [Bloomberg]
As a result, Ecuador plans to pursue its options in other countries.
Advisers to the plaintiffs said Brazil, Argentina and Venezuela would be obvious candidates to pursue Chevron assets, but they acknowledged it would not be easy. Venezuela, for instance, is a close Ecuadorean ally and its president, Hugo Chávez, is a frequent critic of the United States. But Chevron has extensive operations in Venezuela and enjoys warmer ties with Mr. Chávez’s government than just about any other American company. [The New York Times]
Chevron not only has powerful friends, it also has deep pockets. Bloomberg reports that Chevron’s near-$200 billion value is triple the size of the entire Ecuadorian economy. So there’s plenty of cash to keep on fighting.
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Image: flickr / Edwård
February 16th, 2011 at 12:47 pm
It may still cost Chevron something, as other countries can now blackmail them and say “play nice, or we seize those assets for Equador”.
February 16th, 2011 at 7:48 pm
@1. Thomas,
It’s only blackmail if the judgement was improper, excessive or unfair. Otherwise it’s called leverage and negotiations.
The locals usually get the short end of the stick in these deals. Everyone banks on their lack of education, on their poverty and their lack of sophistication.
I wouldn’t be surprised if Petroecuador had some culpability in the matter, although whether it is a majority is a matter for the courts. Chevron has an interest in minimizing their role.
Bottom line, when Chevron bought Texaco, they bought the whole package, assets and liabilities both. This is the footnote to the M&A boom. The lawyers, dealmakers and bankers get rich either way.
February 18th, 2011 at 8:46 am
“The Permanent Court of Arbitration in the Hague awarded the oil company $700 million in damages after ruling that Ecuadorian courts violated an international agreement by ignoring seven breach-of-contract lawsuits.
The lawsuits were filed by Texaco Petroleum (which was later bought by Chevron) over a 1998 contract in which Ecuadorian officials certified Texaco’s environmental remediation in drilling operations with the government-owned Petroecuador. Texaco was a minority partner in the venture, which harvested 1.7 billion barrels of oil between 1972 and 1992. The Ecuadorean government got 95 percent of the profits.
Despite the certification, a group of American lawyers led by Philadelphia attorney Joseph Kohn convinced Ecuadorian officials that they could squeeze $27 billion out of Chevron by insisting that Texaco left the North Amazon drilling site a mess, even though this was contrary to their own certification (Ecuador’s energy secretary had signed off on the $40 million clean-up operation). Kohn and his team even wanted Chevron to pay for oil pits that had been constructed and operated solely by Petroecuador.
Ecuador’s claim got even shakier last year when Chevron released undercover videos allegedly showing the presiding judge in the case agreeing to a $3 million bribe to “guarantee” a guilty verdict. Since the Ecuadorean legal system does not use juries, the deck was stacked against Chevron, which was never involved in any drilling operations in Ecuador.
This attempted legal shakedown was stopped in its tracks when Chevron insisted that Ecuador’s refusal to hear the legal challenges filed by Texaco officials was a violation of a bilateral treaty with the U.S. that guarantees both countries a way to assert and enforce their contractual rights. The international arbitration panel agreed.”
April 30th, 2011 at 2:18 am
You made some clear points there. I did a search on the issue and found most persons will agree with your site.
April 30th, 2011 at 6:21 am
Readers should know that they can make up their own minds on Chevron-Texacos’s environmental liability in Ecuador by reading the well argued sentence by Judge Nicholas Zambrano of 14 February 2011. It is available in Spanish and in English translation is several websites, for instance in the Business and Human Rights website.