By David B. Caruso, San Francisco Chronicle
7 May 2009
New York Attorney General Andrew Cuomo sent Chevron Corp. a letter this week questioning whether the oil company has adequately warned shareholders about the risks it faces in a landmark pollution lawsuit in Ecuador.
The long-running suit could cost Chevron $27 billion in damages and cleanup costs, according to a court-appointed engineer. The presiding judge could render his verdict this year.
But San Ramon's Chevron calls the engineer's damage estimate baseless and has avoided issuing its own. The company has grown increasingly pessimistic about its chances in the trial and has already warned that it will appeal any negative verdict.
In a letter dated Monday, Cuomo asked Chevron to state, in writing, whether it expects to win or lose the case. He also asked the company to provide a damage estimate and state whether it has established a financial reserve to cover those damages, if necessary.
Finally, Cuomo called on the company to explain part of its legal defense, namely, that Ecuadoran courts have no jurisdiction to hear the case. His letter was in response to a request from human rights group Amnesty International, which asked him to determine whether Chevron was misleading shareholders about its potential liability.
"In recent weeks, we have received complaints regarding Chevron's disclosures of the potential litigation risks and Chevron's characterization of available legal defenses," Cuomo wrote. "Given the fact that both New York State and New York City public pension funds hold substantial Chevron shares ... this office has an interest in ensuring that public statements about the litigation are accurate and complete."
Chevron spokesman Kent Robertson said the company will comply with Cuomo's request.
"We have the letter, and we will respond," Robertson said. "We presume the inquiry is a result of a campaign by the American trial lawyers behind this case that seeks to pressure Chevron into a settlement. We have communicated fully with stockholders about the Ecuador case, and we will continue to do so in the future."
The origins of the suit lie in a corner of the Amazon rain forest, near the town of Lago Agrio in eastern Ecuador.
Texaco, which was bought by Chevron in 2001, pumped oil there from 1964 to 1992, working in partnership with the state-owned company Petroecuador. The operations dumped a mixture of water and crude oil into open pits near the wells. When Texaco pulled out of the area, it agreed to clean up a portion of the pits, while Petroecuador continued to operate the wells.
Residents of the area sued Texaco, saying contaminated soil and water were sickening people throughout the oil patch. The residents tried suing Texaco in the United States, but a U.S. judge tossed out the case in 2001, saying it should be tried in Ecuador. Chevron inherited the suit when it bought Texaco.
Chevron's latest annual report filed with the Securities and Exchange Commission discusses the case and includes the $27 billion damage estimate. The annual report also states that Chevron's management does not believe a reasonable estimate can be made at this point.
In legal filings, Chevron argues that Ecuadoran courts lack jurisdiction because Chevron itself never pumped oil within the country, and the company did not, in fact, buy Texaco in 2001. In a 2007 motion seeking dismissal of the case, the company stated, "When ChevronTexaco Corp. (now Chevron) was formed in the fall of 2001, Chevron did not acquire Texaco Inc., as plaintiffs apparently believe. Rather, Texaco Inc. retained its independent legal identity."