Bloomberg News

Chevron Bid to Dismiss $18 Billion Award Rejected in Ecuador

January 05, 2012

(Updates with plaintiff attorney in fourth paragraph.)

Jan. 4 (Bloomberg) -- Chevron Corp. lost its challenge to an $18 billion judgment before an Ecuador appeals court in a lawsuit alleging the company is responsible for chemicals spilled in the Amazon River basin more than 20 years ago.

The decision upholding the lower-court judgment was issued by a panel of three judges in the Provincial Court of Justice of Sucumbios in Lago Agrio, Ecuador, Chevron said in an e-mailed statement yesterday.

Chevron appealed a February ruling that it was responsible for chemical-laden wastewater dumped in jungle land from 1964 to about 1992 by Texaco Inc., which Chevron acquired in 2001.

The appeals court’s decision “gives us the ability to go ahead and enforce the judgment in any part of the world we see legally fit,” Pablo Fajardo, an attorney representing 30,000 Ecuadorean Amazon residents who sued, said in a conference call from Quito. “We will investigate and look at various continents around the world where Chevron has assets.”

Chevron, the second-largest U.S. energy company, has no assets or operations in Ecuador. The plaintiffs must wait until the appeals court makes its decision final, which could take at least a two weeks, before moving ahead with enforcement actions in foreign courts, Fajardo said.

The Ecuador appeals court could require San Ramon, California-based Chevron to post a bond equal to a percentage of the $18 billion judgment, Fajardo said. Bond payment would block the plaintiffs’ ability to enforce the judgment elsewhere pending the outcome of a further appeal by Chevron to the country’s highest court, he said. The bond should be at least $3 billion, Fajardo said; the amount is up to the appeals court.

‘Glaring Example’

The “decision is another glaring example of the politicization and corruption of Ecuador’s judiciary that has plagued this fraudulent case from the start,” Chevron said in yesterday’s statement. The company “does not believe that the Ecuador ruling is enforceable in any court that observes the rule of law.”

The appeals court ratified the February ruling “in all of its parts, including the conviction for moral reparation or its alternative and costs,” according to the decision.

Chevron is still reviewing the ruling and hasn’t decided what it will do next, Kent Robertson, a spokesman for the company, said yesterday in a phone interview. He said the company “has a procedural right to seek clarification and amplification from the court that issued this ruling.”

Chevron’s Options

Chevron can also appeal the decision to the next level of Ecuador’s judiciary, Robertson said.

Karen Hinton, a spokeswoman for lawyers representing the Ecuador residents who sued Chevron, said in an e-mailed statement, “The decision by an independent appellate court is yet further confirmation of Chevron’s extraordinary greed and criminal misconduct in Ecuador.”

Chevron filed a claim in 2009 against Ecuador in the Permanent Court of Arbitration in The Hague seeking orders that it has no liability for the environmental pollution and that PetroEcuador, the state-owned oil company that took over the site, should pay the damage award. In those proceedings, Ecuador was told in February to prevent enforcement of the judgment until further order by the tribunal, Chevron said yesterday.

‘Not Good’

In September, the U.S. Court of Appeals in New York overturned a lower-court decision blocking enforcement of the award by the court in Ecuador.

“This is not good for Chevron, although it was expected,” Fadel Gheit, an analyst at Oppenheimer & Co., said in a phone interview today. “Chevron will exhaust all legal options, which could drag for years.”

Gheit said that he expected Chevron to eventually pay $2 billion to $3 billion.

“We are going to have to watch this play out through the international court system and the U.S. court system,” Brian Youngberg, an Edward Jones analyst in St. Louis, said in a phone interview.

“It is going to be dragged out,” said Youngberg, who rates Chevron shares a “buy” and doesn’t own any.

‘Very Content’

Investors still expect the ultimate outcome won’t “cost the company,” Youngberg said. “There is really very little that Ecuador can go after in the country and Chevron doesn’t really have any material assets there.”

Hinton said that the plaintiffs will seek to enforce the judgment in countries where Chevron has assets.

Ecuador President Rafael Correa said he was “very content” with the ruling.

“I believe justice has been done,” Correa said on public radio station Radio Publica. “More or less it’s like David versus Goliath.”

Chevron fell 16 cents to $110.21 at 3 p.m. in New York Stock Exchange composite trading.

--Editors: Peter Blumberg, Andrew Dunn

To contact the reporters on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net; Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Susan Warren at susanwarren@bloomberg.net


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