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.”

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.