Supreme Court Rejects Chevron Appeal Against Ecuadorian Oil Co.

By Kristina Peterson, Dow Jones
29 June 2009

WASHINGTON – The U.S. Supreme Court said Monday that it won't decide whether an Ecuadorian oil company can be held partially responsible in a $27 billion case against its former business partner, Texaco Petroleum Co., a unit of Chevron Corp. (CVX).

Texaco had partnered with state-owned Petroecuador from 1974 to 1992 to produce oil in Ecuador's Oriente region. Ecuadorian citizens later sued Texaco's parent company, Chevron, alleging the oil operations had harmed the environment.

An Ecuadorian court hasn't yet ruled on the case but could order up to $27 billion to pay for cleaning and restoring the Lago Agrio area. Texaco argued that its Ecuadorian partner should have to participate in the lawsuit negotiations, despite the fact that it never formally signed a joint operating agreement.

A district court ruled that Petroecuador wasn't liable to the terms of a contract it didn't sign and that Ecuadorian law was too unsettled at the time to create an expectation that Petroecuador implicitly agreed to the pact. The 2nd U.S. Circuit Court of Appeals in New York upheld the district court's ruling.

Texaco argued the appeals court's decision makes it harder for companies to risk investing internationally. "Ecuador is emblematic of the difficulties U.S. investors face in foreign legal systems," the company wrote in asking the Supreme Court to hear its case.

The central question in the appeal rested on whether a state-owned company could be held to terms of a business agreement it never formally signed.

The case is ChevronTexaco Corp. v. Ecuador and Petroecuador, 08-1123.