Chevron Liability in Ecuador Pollution Case Approaches $27 Billion

Court Judgment Expected this Year

By Shelley Alpern, Trillium Asset Management
18 May 2009

Five years ago, I had the privilege of getting a firsthand look at the evidence in one of the most important lawsuits being heard anywhere in the world. The exhibits are a number of oily pits and ponds scattered throughout the state of Sucumbios, Ecuador, right in the middle of the Amazon rainforest. The contamination is allegedly the work of Texaco, the first petroleum company to break ground in Ecuador in the early 1970s. The court case is being heard in Lago Agrio, a sad-looking town whose many ramshackle buildings look far older than their age due to the ever-present rain and humidity. Poverty is everywhere. Contrasted with the lush jungle surrounding it, the whole town stands out like a very sore thumb.

The lawsuit Aguinda v. Texaco was first filed in 1993. The defendant is Chevron, which acquired Texaco in 2001. The company is charged with polluting hundreds of sites from Texaco’s operations in the 1970s and 1980s. Texaco spent $40 million in the 1990s to clean up contaminated sites per an agreement with the Ecuadorian government, and the two parties declared the site remediated in 1998. But an international team of lawyers is representing thousands of indigenous residents and settlers in a civil suit, claiming that the pollution is responsible for the region’s rising rates of cancer and other serious illnesses, and that the cleanup was sloppy, inadequate and fraudulent.

“This is an epic case,” Sean Hecht, the director of the University of California at Los Angeles’s Environmental Law Center, told the Wall Street Journal in April. “The sheer size of the money involved also explains why a company like Chevron will continue to fight this as long as possible.”

No one disputes the existence of the contaminated sites, but virtually everything else in this case is in dispute - who is responsible for creating them (Chevron blames its former partner Petroecuador), how unclean the sites are, and whether they bear the blame for the health problems in the area. The vitriol between the two sides has played out in the courts, media, and through intense lobbying of non-judicial branches of government.

Advantage Plaintiffs

Chevron has unquestionably greater resources than the defendants, but its deep pockets have thus far failed to secure it any advantage in winning this case. Indeed, Aguinda v. Texaco can only feel like a minor headache that exploded into a migraine.

  • Losing bid for arbitration. In October 2008, Chevron was denied by the U.S. Court of Appeals for the Second Circuit in its motion to force Ecuador out of court and into binding arbitration. Any judgment against Chevron in Ecuador will be enforced in the United States, per the ruling of the U.S. court that decided the venue in 2002.
  • Damages Estimate Increased to $27 Billion. It’s hard to believe that five years ago, when a consultant hired by the plaintiffs estimated that the cost to finish cleaning up the contaminated sites could go as high as $6 billion, the amount seemed shockingly large. The Ecuadorian court’s appointed expert now assesses damages at $27 billion and estimates that the number of cancer deaths from oil contamination to be greater than 1,400.
  • Fraud charge. In September 2008, two Chevron lawyers were indicted in Ecuador for alleged fraud in the remediation effort. The indictment argues that this remediation was not conducted adequately. Chevron maintains that the indictments are politically motivated. Chevron also asserts that it cannot get a fair trial in Ecuador, a point not without merit, given Ecuadorian President Rafael Correa’s open support for the plaintiffs.

A final judgment is expected in 2009. The losing party will have the right to appeal to an intermediate court and then to Ecuador’s Supreme Court. Chevron has pledged to appeal should it lose in this round. However, its refusal to consider settling the case has only backfired in the court of public opinion.

David v. Goliath

Aguinda v. Texaco has taken a sustained toll on Chevron’s reputation. As played out in the media, the case might as well be named David v. Goliath. Hundreds of articles have covered the story worldwide, with long features sympathetic to the plaintiffs in venues as diverse as Vanity Fair and Outside magazine. A documentary about the case, Crude, premiered at the Sundance Film Festival earlier this year, and 60 Minutes featured a segment in May 2009. In large part due to its perceived refusal to take responsibility for Texaco’s misdeeds in Ecuador, professional corporate reputation watchers have found Chevron to be one of the most mistrusted companies in the world. In December, Chevron ranked fourth among five North American companies singled out by the research and consulting firm ECO:FACT for the year 2008. 

Chevron has fought back with its own PR offensive, and is aggressively exerting pressure on the U.S. to revoke Ecuador trade privileges. But it has an uphill political battle to fight with the change in administrations. In 2006, then-Senator Obama and colleague Senator Patrick Leahy wrote to the U.S. Trade Representative:

…seek[ing] your assurances that the U.S. Trade Representative will not allow negotiations over the Andean Free Trade Agreement to interfere with a case involving Chevron…. While we are not prejudging the outcome of the case, we do believe the 30,000 indigenous residents of Ecuador deserve their day in court.

For what it’s worth, the lead American attorney for the plaintiffs played basketball with the president at Harvard Law School. Chevron remains undeterred. One of the company’s lobbyists told Newsweek  ”We can’t allow little countries to screw around with big companies like this.”*

Showdown in San Ramon, Part V

This April, for the fifth year, shareholders will have a chance to weigh in on Chevron’s handling of Aguinda v. Texaco by voting on a shareholder resolution sponsored by the New York City Pension Funds, Trillium Asset Management Corporation, the Pennsylvania Treasurer’s office, the New York State Comptroller and Amnesty International USA. Collectively, the proponents held 14.4 million shares of Chevron stock at the time they filed the proposal. The proposal calls upon the company to prepare a report “on the policies and procedures that guide Chevron’s assessment of host country laws and regulations with respect to their adequacy to protect human health, the environment and our company’s reputation.” In prior years, this proposal has received about 9% of the vote.

Chevron’s annual stockholder meeting in San Ramon, California, routinely draws protestors and celebrities (Bianca Jagger, Darryl Hannah) eager to draw attention to the company’s unresolved environmental and human rights issues all over the globe where it operates. Last year’s meeting drew 75 protestors in hazmat (hazardous material) garb, equipped with brooms to “clean up” Chevron’s pollution in Ecuador and its nearby refinery in Richmond, CA.   The company’s gatekeepers will look for every technical loophole possible to keep unhappy shareholders out of the meeting. Once inside the meeting, CEO Bill Reilly will ruthlessly enforce the two-minute limit for shareholders’ questions and comments - but if past is precedent, the meeting will drag on for hours anyway as the long queue at the microphones gets to have its say. Afterwards, the press will report the resolution as having been ‘resoundingly’ defeated, even though the supportive shares represent multiple billions under management by some of the country’s most prestigious institutions. And we will be left to wonder once more, how many multiples of $27 billion will it take before a critical mass of shareholders becomes concerned?

* Chevron Hires Lobbyists to Squeeze Ecuador in Toxic-Dumping Case. What an Obama Win Could Mean, Newsweek, 26 July 2008.

[ Back to top ]