Chevron Refutes An Old Inheritance – Analysis

By Gonzalo Turdera

Since initiated in 1993, the environmental class action lawsuit brought against Texaco’s alleged pollution of Ecuador’s Amazon region has been fought before various courts and judges, always under the shadow of dubious impartiality. After the case had already filed, Chevron bought Texaco in 2001 and assumed its liabilities, including Texaco’s defendant status. On February 14, 2011, after 18 years of intense legal battle, Ecuadorian provincial Judge Nicolás Zambrano ruled against Chevron and ordered the successor corporation to pay more than USD 9 billion in compensation for decades of petro-contamination of virgin Amazon jungle.1 In response, Chevron released a statement in which it characterized the Ecuadorian court’s judgment as “illegitimate and unenforceable.” Chevron went on to argue that the judgment is “the product of fraud and is contrary to…legitimate scientific evidence,” and noted the U.S. corporation’s intent to appeal the decision.2 Such an appeal will likely inaugurate an even more protracted round of snarling legal proceedings, as Chevron still holds the option of resorting to two other appellate levels of the Ecuadorian judiciary, therefore exhausting their legal rights.

From Chevron’s side, lawyers announced their decision to appeal the lower court’s verdict. Julio Prieto, one of the defendant’s lawyers, said during an interview with FOXBusiness, “We have appealed Judge Nicolás Zambrano’s ruling and basically asked an increase of the amount to remediate the damages.”3 At this point, the outlook for the plaintiffs is bleak; even if Chevron loses the remaining appeals, it is unlikely that the damages will be paid out, given that Chevron has no remaining assets for Ecuador to attach or any existing drilling operations within the country to be suspended.4 Meanwhile, the severely-damaged Ecuadorian Amazon ecosystem will further deteriorate while Chevron manages to escape justice.

The basic facts related to the Chevron case were not disputed during the trial. Between 1964 and 1990 Texaco and the Ecuadorian national oil company, PetroEcuador, jointly entered into a concession covering 1,700 square miles of Amazon rainforest.5 The companies created a sixty-forty percent partnership, with Texaco being the minority partner but exclusive operator. During those years, Texaco was accused of dumping an estimated 18.5 billion gallons of toxic waste into streams and soil within the limits of the Ecuadorian rainforest. Moreover, over 900 open-air pits were dug into the jungle floor, which eventually were filled with toxins that subsequently ran off into nearby streams and rivers. The company additionally burned and vented millions of cubic meters of natural gas into the atmosphere, again without adequate control.6 All three of these practices violated industry standards, recognized by the U.S. at the time, but not as it was applied within the borders of Ecuador.

The U.S. company’s defense has relied upon a narrow technical argument. In 1990, Texaco agreed to pay USD 40 million in cleanup costs in exchange for being released from any future environmental claims. By this agreement, the company would clean what they considered to be their responsibility for 40 percent of the damage, while leaving the remaining 60 percent shares for PetroEcuador to handle. Although most ecologists at the time agreed that the cleanup was inadequate, Ecuadorian officials validated both partners for their efforts. However, PetroEcuador never acknowledged this nor took any steps to discharge its share of the agreement. Steven Donziger, who represents the Amazon community in the class action suit, argued in a 2009 interview with NBC´s television show “60 Minutes” that the 1990 agreement by no means releases Chevron from liability. Donziger’s clients were not included in the agreement made between the Ecuadorian government and Texaco. Thus, Chevron inherits the responsibility for Texaco’s earlier damages to the Amazon’s ecosystem.7

The disputed USD 9 billion awarded to the plaintiffs by Judge Zambrano is only one third of the USD 27 billion worth of damages done, as estimated in the report that the court-appointed expert Richard Cabrera released in November 2008. These damages cover estimated cleanup costs, health impacts, and an “unjust enrichment” penalty, among other liabilities.8 As a result of this seemingly lenient ruling of USD 9 billion, negotiators are encouraging both parties to “lower the bar and start getting some measure of cleanup plans secured.”9 Unfortunately, any such agreement is unlikely to occur because the Ecuadorian Provincial Court of Sucumbios in Quito accepted appeals from both parties on March 16th.

Economic interests, corruptions, human rights violations, the prospect for environmental disasters, and human dignity are all factors in this legal drama that concerns the whole industry. As John Van Schaik said in a Los Angeles Times interview, a ruling against Chevron in this case “sends a signal to oil companies that, more than ever, they need to be good corporate citizens… and companies need to take environmental concerns seriously.” Especially as its ramifications can be felt from the secluded court room of Lago Agrio to the capital, Quito. But now, the resulting verdict from the appeals process will gain greater precedence because of the elevated position of the new court hearing the matter.

The Amazon—due both to its exhaustible resources and fragile indigenous populations—cannot wait for a judge to enforce this or other rebated rulings in order to recover from years of built-up environmental contamination and damages. While the Ecuadorian government certainly has taken sides in this lawsuit, it has failed to obtain stricter policies to protect the Amazon from further damages. As a result, oil companies spend millions of dollars on cosmetic cleanup campaigns instead of adopting more environmentally safe and equitable practices for the defenseless Amazon. It appears that the only green interest that has prevailed thus far among Ecuadorian officials is that of the U.S. dollar.

References for this article can be found here.

This analysis was prepared by COHA Research Fellow Gonzalo Turdera