ChevronTexaco Faces Billion-Dollar Lawsuit In Ecuador

By Mike Esterl, Dow Jones
2 May 2003

New York - A tiny courthouse in an isolated pocket of the Amazon could soon hold the key to a billion-dollar lawsuit against U.S. oil giant ChevronTexaco Corp. (NYSE:CVX - News).

Lawyers representing more than 30,000 indigenous Ecuadoreans will file suit Tuesday in the small town of Lago Agrio, accusing the California-based multinational of having dumped massive amounts of highly toxic wastewater and crude oil on their lands and in their rivers over two decades.

It's the first time the protracted lawsuit will get a hearing on Ecuadorean soil, after winding through the U.S. court system for almost 10 years. The Second Circuit Court of Appeals ruled last August that Ecuador has primary jurisdiction in the high-profile case, but that the ruling would be enforceable in the U.S.

Plaintiffs allege that a unit of Texaco, which merged with Chevron in 2001, dumped 18.5 billion gallons of wastewater into Ecuador's rainforest instead of disposing of it properly while drilling for oil between 1971 and 1992, leaving 350 open waste pits and sickness in their wake.

"There are many damages, unquantifiable and irretrievable," said Luis Yanza, a longtime area resident who in 1994 helped form the Amazon Defense Front, a local activist group.

U.S.-based attorneys who have been spearheading legal strategy, though, have already put a rough number on the damage caused to water sources and local health: $1 billion. They also estimate Texaco dumped at least 50% more oil into the rainforest than the Exxon Valdez tanker spill off the coast of Alaska, which resulted in a $5 billion judgment after a U.S. jury trial.

"That was a contained spill that resulted from an accident. This is deliberate dumping over a 20-year period to save money," said Steven Donziger, a New York- based attorney helping head the lawsuit.

The suit alleges that several indigenous tribes have been forced to abandon their ancestral lands because of polluted rivers. It says one of the tribes, the Cofan, saw its population dwindle to less than 300 people from 15,000 as a result of environmental damage, and that various strains of cancer have skyrocketed in communities where Texaco was active.

ChevronTexaco, which no longer has operations in Ecuador, has repeatedly denied any wrongdoing since the suit was first filed in a New York federal court in late 1993.

The company says it spent $40 million between 1995 and 1998 to close wells and pits, replant lands and rehabilitate contaminated soil - a clean-up project that won a stamp of approval from the Ecuadorean government, which partnered the oil development projects with Texaco and assumed a majority stake in 1977.

"We have not seen over these many years any allegations with any merit or substantive supporting evidence," said Marypat Sexton, a ChevronTexaco spokeswoman in Houston.

She added that the Texpet subsidiary in Ecuador used drilling and disposal methods that were consistent with environmental and industry standards of the time.

ChevronTexaco, the world's fourth-largest oil company, has long argued that the case should be heard in Ecuador, not the U.S.

But a lot has changed in the South American country since 1964, when a military government asked the company to help it develop vast, untapped oil reserves. Roughly half of Ecuador's population of 12 million is indigenous, and local tribes have been gaining political clout in recent years after being shut out for centuries.

Indian groups, backed by the military, helped topple former president Jamil Mahuad in 2000 amid heated protests against his free-market reforms. Lucio Gutierrez, the organizer of that uprising, assumed the presidency in January after winning elections last year and has named several indigenous leaders to his cabinet and inner circle.

"In Ecuador we'll give the case much attention, and be vigilant" to ensure the case gets a fair hearing, said Miguel Lluco, the national coordinator for the pro-Indian Pachakutik party that helped get Gutierrez elected.

Protests against foreign oil companies, which help produce around 400,000 barrels a day of crude in the Andean country, have become routine. A billion- dollar pipeline project headed by a foreign consortium that includes Occidental Petroleum Corp. (NYSE:OXY - News) , Repsol-YPF SA and EnCana Corp. has suffered delays over the past year amid a steady stream of environmental protests, vandalism and kidnappings.

"In every single indigenous mind, any corporation is bad," said Nicolas Chango, an Ecuadorean Indian and a member of the New York-based Defense of Indigenous Ecuadoreans in America.

Yet ChevronTexaco, regarded as the "grandfather" of foreign oil exploration in Ecuador, has long been singled out for the special attention and become a symbol to locals of transnational corporations running amok.

"The impact of Texaco's operations were visible and the cause of environmental destruction," said Yolanda Kakabdase, Ecuador's environment minister in the late 1990s.

Most of the damage, she added, "could have been avoided if (Texaco) used better technology available at the time."

A quick, final ruling on the competing claims of ChevronTexaco and local communities, though, might prove elusive.

It's still not clear if the Ecuadorean court will agree to hear the case, after local authorities requested during the 1990s that the claims be heard in a U.S. court.

Oil is Ecuador's main export and the Gutierrez administration has been lobbying aggressively for new foreign investments in the sector to boost output. An expensive ruling against a foreign multinational probably wouldn't help that effort.

If the Ecuadorean justice system does find ChevronTexaco guilty of misconduct, though, the U.S. company could very well dispute the ruling by throwing into question the local court's competence and impartiality. Ecuador is notorious for corruption, with only Paraguay ranking worse among Latin American countries last year in a survey by Transparency International.

If ChevronTexaco disputes the ruling, the case might then shift back to a U.S. court to review Ecuador's handling of the case before any enforcement would begin. The resulting allegations and counter-allegations could quickly plunge the long-standing case into a new legal limbo.

"We have a global economy but we don't have a global justice system, and that's a problem," said Alejandro Garro, a professor of Latin American law at Columbia University in New York.

In December, a Nicaraguan court ordered three multinational companies to pay 450 local banana workers $489.4 million for exposure to a chemical that was exported to the Central American country even after being banned in the U.S. for causing sterility. The three companies - Shell Oil, an affiliate of Royal Dutch/ Shell Group , Dow Chemical Co. (NYSE:DOW - News) and Standard Fruit, a subsidiary of Dole Food Co. (NYSE:DOL - News) - have refused to pay, citing procedural flaws.

Lawyers targeting ChevronTexaco in Ecuador, though, think they've got a reasonable shot.

Cristobal Bonifaz, one of the lead attorneys, said the local court in Lago Agrio could request both parties to submit written evidence in as little as six days after the suit is filed. A final local ruling, once all appeals have been exhausted on both sides, could emerge within two years, he added.

Bonifaz and Donziger have brought some heavy-hitters on board, including Kohn, Swift & Graf, a prominent class-action law firm based in Philadelphia, and Alberto Wray, a former member of Ecuador's Supreme Court.

And Bonifaz, an Ecuadorean who runs a practice in Massachusetts, says his team has had plenty of time to collect evidence while waiting for a final ruling.

"We know every pit, we know the families that live next to every pit," he said.

© 2003, Dow Jones Business News