Environment

Chevron Fails to Squelch $19 Billion Ecuador Verdict


Oil cleanup in the Ecuadorean jungle, from leftover spills and contamination due to mining

Photograph by Johan Bavman/Moment/Redux

Oil cleanup in the Ecuadorean jungle, from leftover spills and contamination due to mining

You can sometimes tell the potential importance of an appeal to the U.S. Supreme Court by who shows up to cheer from the sidelines. That’s certainly the case with Chevron v. Naranjo. The case concerns an obscure-sounding question of civil procedure yet drew friend-of-the-court, or “amicus,” briefs from two of the largest pro-business trade groups in Washington.

Despite backing from the National Association of Manufacturers and the U.S. Chamber of Commerce, Chevron (CVX) failed to convince the Supreme Court to intervene in a pending pollution lawsuit in which a provincial court in Ecuador in 2011 imposed a landmark verdict against the oil company. The damages assessed against Chevron now total $19 billion, making the judgment the largest of its kind in history.

Without commenting on the merits of the case, the U.S. Supreme Court today let stand a federal appeals court ruling that a New York trial judge exceeded his authority when he blocked a group of Ecuadorean farmers and Indians from seeking to collect the $19 billion award anywhere in the world.

Vowing never to pay a dime, Chevron has accused the plaintiffs’ lawyers of obtaining the gargantuan judgment by means of an elaborate fraud. With the U.S. Supreme Court staying out of the fray for the moment, the fight now continues in courts in New York, Brazil, and Canada.

If this all seems a tad complicated, it’s not you. The case would give Oliver Wendell Holmes a case of vertigo.

It began in 1993, when American lawyers representing residents of the Ecuadorean rain forest sued Texaco in federal court in New York, accusing the U.S. company of turning a large swath of the Amazon into an industrial wasteland in the 1970s and ’80s. Texaco fought the case on procedural grounds for nine years, ultimately persuading the federal judiciary that the dispute belonged in Ecuador. In 2001, Chevron acquired Texaco and stepped into its shoes as the defendant, even though Chevron had not operated in Ecuador and Texaco had departed the Andean country in 1992.

Ecuador did not provide the hospitable legal venue that the oil company anticipated. A sequel case began in a rain-forest courthouse in 2003, leading, eight years later, to the historic verdict favoring the plaintiffs. Chevron, meanwhile, returned to the federal court in New York with what amounted to a counterattack against the plaintiffs’ legal team led by an American solo practitioner named Steven Donziger.

The company filed a civil racketeering suit against Donziger, alleging that he had masterminded a conspiracy involving Ecuadorean judges and court officials, who relied on fabricated evidence to defraud a deep-pocketed American multinational.

Lewis Kaplan, the federal judge in New York presiding over Chevron’s racketeering suit, has made it crystal clear in court that he sympathizes with the oil company and distrusts Donziger. In fact, Kaplan granted Chevron an order that would have blocked the plaintiffs from collecting on their Ecuadorean court victory anywhere in the world. The Second U.S. Circuit Court of Appeals in New York said that Kaplan couldn’t issue such a global order. Chevron appealed the Second Circuit ruling, and today the Supreme Court declined to hear the case.

The justices’ action, although it doesn’t address the substance of the case, effectively eliminates one avenue for Chevron to avoid liability. The company has refused to pay the judgment in Ecuador. Since Chevron does not have any bank accounts or other assets in Ecuador, the plaintiffs have now filed separate collection actions seeking liens against Chevron assets in Brazil and Canada.

Chevron, based in San Ramon, Calif., said in an e-mailed statement that while it was “disappointed that the court denied our petition, we will continue to defend against the plaintiffs’ lawyers’ attempts to enforce the fraudulent Ecuadorian judgment and to further expose their misconduct.”

Donziger and the plaintiffs have denied any wrongdoing. They say Chevron’s racketeering suit is a smoke screen intended to obscure a legitimate verdict issued in Ecuador. Donziger has filed his own fraud claims against Chevron in federal court in New York.

The business groups that supported Chevron’s appeal to the Supreme Court argued in their amicus briefs that the U.S. judiciary does have the authority to protect American companies against allegedly fraudulent verdicts obtained in foreign courts. The injunction barring collection of the Ecuadorean judgment “preserved the ability of U.S. courts to ensure that the international legal system is not tainted and unnecessarily burdened by efforts to enforce an allegedly invalid foreign judgment obtained through an alleged scheme of fraud that originated in the United States,” the National Association of Manufacturers contended in a brief filed by the corporate law firm Sidley & Austin. In addition to NAM and the U.S. Chamber of Commerce, Halliburton (HAL), the large oil-field services company, also filed an amicus brief supporting Chevron. (You can examine the Supreme Court docket here.)

Despite the urging of these outside business interests, the justices decided not to open yet another front in the 19-year battle over who, if anyone, will pay to clean up the Ecuadorean rain forest. Given the stakes, though, it is unlikely that this is the last time the Chevron pollution case will arrive on the Supreme Court’s doorstep.

Barrett, an assistant managing editor and senior writer at Bloomberg Businessweek, is author, most recently, of GLOCK: The Rise of America’s Gun.

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Companies Mentioned

  • CVX
    (Chevron Corp)
    • $117.65 USD
    • -1.67
    • -1.42%
  • HAL
    (Halliburton Co)
    • $62.47 USD
    • -2.04
    • -3.27%
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