The Chevron – Lago Agrio Litigation Saga: The Beginning of the End?

By Daniel Friedrich Behn, Postdoctoral Fellow, PluriCourts


Yesterday, Chevron was handed a victory in relation to its long running environmental tort suit in Ecuador. But it was a victory in US courts and so many may be asking what is the relation between this US court judgment and the Ecuadorian judgment upon which the US case is based.

A bit of background might prove useful. A plaintiff’s attorney from the US, Steven Donziger, has spent the last 20 years fighting a legal battle pitting an indigenous Ecuadorian group against Texaco (and its successor Chevron) for environmental damage caused by negligent petroleum extraction practices in the Oriente (Lago Agrio) region of Ecuador.

While this case was originally filed in US courts in the mid-1990s, it was dismissed on forum non conveniens grounds and made its way to Ecuadorian courts in the late 2000s. The case in Ecuador claimed that Texaco’s drilling practices in Ecuador resulted in massive environmental damage that contaminated the water supply and increased cancer rates among the indigenous population living in the region. After years of legal wrangling, the Ecuadorian plaintiffs were awarded a resounding victory in a decision awarding them approximately 18 billion US dollars for the damage allegedly caused by Texaco.

However, Texaco (now Chevron), has not operated in Ecuador since the mid-1990s and have no attachable assets in that country. Ever since the Ecuadorian verdict was issued in 2011, Chevron has held that it was procured by fraud and therefore unenforceable. Nonetheless, the Ecuadorian judiciary disagreed, and after various appeals in Ecuador had been exhausted and the decision became final, the plaintiff’s attempted to have the award enforced in countries where Chevron does have assets: Argentina, Brazil, and Canada. So far these efforts have not been successful.

This is where the US court case comes into the story. Soon after Chevron realized that the case in the Ecuadorian courts was not going its way, it reversed strategy. Instead of defending itself from the claims of environmental damage, it would go on the offensive and sue the plaintiff’s attorney (a US citizen) in US federal courts under RICO (Racketeer Influenced and Corrupt Organizations Act). The basic claim was that the Ecuadorian court decision was the product of fraud and deceit orchestrated by its lead US attorney, Steven Donziger. The fraud case alleged Donziger and his associates collaborated with the Ecuadorian judicial system to produce a favorable award against Chevron.

After a bench trial heard in the US Federal Court for the Southern District of New York in late 2013 – Judge Kaplan issued a 497 page decision (Chevron Corp. v. Steven Donziger et al., 11-cv-00691, US District Court, SDNY) on March 4, 2014 holding that Donziger could not benefit from the Ecuadorian court case because he had corrupted the process and helped procure a favorable judgment through fraudulent means. Kaplan, in his opinion, summarized the evidence as follows:

“Upon consideration of all of the evidence, including the credibility of the witnesses – though several of the most important declined to testify – the Court finds that Donziger began his involvement in this controversy with a desire to improve conditions in the area in which his Ecuadorian clients live. To be sure, he sought also to do well for himself while doing good for others, but there was nothing wrong with that. In the end, however, he and the Ecuadorian lawyers he led corrupted the Lago Agrio case. They submitted fraudulent evidence. They coerced one judge, first to use a court-appointed, supposedly impartial, ‘global expert’ to make an overall damages assessment and, then, to appoint to that important role a man whom Donziger hand-picked and paid to ‘totally play ball’ with the plaintiffs. They then paid a Colorado consulting firm secretly  to write all or most of the global expert’s report, falsely presented the report as the work of the court-appointed and supposedly impartial expert, and told half-truths or worse to U.S. courts in attempts to prevent exposure of that and other wrongdoing. Ultimately, the plaintiff’s team wrote the Lago Agrio court’s judgment themselves and promised $500,000 to the Ecuadorian judge to rule in their favor and sign their judgment. If ever there were a case warranting equitable relief with respect to a judgment procured by fraud, this is it.”

So what does this US court decision mean in relation to the Ecuadorian judgment, and what comes next in this seemingly never-ending legal saga.

First, the US court decision holds that the Ecuadorian court judgment of 9 billion US dollars (it was reduced from 18 billion to 9 billion in a decision of the Ecuadorian Supreme Court last year) is not enforceable in the US and that Donziger and his associates in the US will be foreclosed from financially benefiting if the Ecuadorian judgment is ever enforced. Kaplan ordered that Donziger put his interest in the litigation in a ‘constructive trust,’ which essentially would hand over any financial gain from the Ecuadorian law suit to Chevron. The judge also ordered that Donziger pay all of Chevron’s legal costs for the RICO litigation. Donziger has said that he will appeal the decision; but in terms of enforcing the Ecuadorian judgment, Chevron appears to be winning. This is not because Chevron ever really feared that a US court would enforce the Ecuadorian judgment, but rather that some other third country where Chevron has assets might. While this is still a concern for Chevron, the chances that another country will enforce the Ecuadorian judgment are unlikely given the amount of evidence now publically available about the validity of that judgment.

Second, even if Donziger and his team is able to get a country to attach Chevron’s assets in fulfilment of the Ecuadorian judgment, Chevron has had an investment treaty arbitration against Ecuador going since 2009 for extra insurance. This case (Chevron Corp. and Texaco Pet. Co. v. Republic of Ecuador, PCA Case No. 2009-23), which is based on the US-Ecuador Bilateral Investment Treaty (BIT), is currently at the merits stage. The outcome of this case is obviously undetermined, but in simplified terms, a successful outcome for Chevron would hold that Chevron was denied justice by the Ecuadorian judicial system and that Ecuador would have to vacate the judgment with prejudice or indemnify Chevron for costs resulting from any future enforcement of the judgment outside Ecuador. While this BIT arbitration is exceedingly complicated and will not be analyzed in depth here, the basic premise is that the BIT provides foreign investors (in this case Chevron) with treaty-based protections that can be arbitrated in the event of a breach by the state hosting the investment (in this case Ecuador). Chevron is claiming, inter alia, that the law suit in Ecuador should never have happened in the first place, and therefore the law suit – which Chevron was compelled to defend – was a denial of justice (a denial of justice claim is part of customary international law and also embedded in the Fair and Equitable Treatment (FET) standard in the BIT).

However, no matter which way this case is ultimately resolved, it is not looking good for the plaintiff’s attorneys. But the real losers continue to be the indigenous population in the Oriente region of Ecuador; and this is the actual injustice. While Chevron may have been able to prove that the Ecuadorian case was the product of fraud (and those attempting to profit from the case should not be allowed to do so), it is also undeniable that there is environmental damage in the Oriente region of Ecuador that was caused by someone other than the indigenous population that continue to live there. And the environmental damage is still there, and those living there are still affected by it. Neither Ecuador nor the oil companies that have worked in this region for decades have cleaned it up. So while Chevron will likely not ever have to clean up the environmental mess in Ecuador (which they actually may not have caused), justice demands that someone does.

Tags: Investment By Daniel Friedrich Behn
Published Mar. 6, 2014 2:45 PM - Last modified July 28, 2018 10:04 PM
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