NYC Judge Allows Chevron Arbitration to Proceed

By Larry Neumeister, Associated Press
12 March 2010

New York – A judge ruled Thursday that Chevron can proceed with an international arbitration claim against Ecuador related to a 17-year-old court battle over rain forest contamination in that South American nation.

U.S. District Judge Leonard Sand in Manhattan rejected an attempt by Ecuador to block the arbitration but also said his decision was limited in scope and left the arbitration panel to decide what, if anything, it will hear and when.

His ruling does not directly affect the lawsuit Chevron is fighting in Ecuador, where a court-appointed expert has recommended the oil company pay up to $27 billion for environmental damages and related illnesses.

The arbitration claim grows out of a case that San Ramon, Calif.-based Chevron inherited when it bought Texaco in 2001.

In September, Chevron filed the claim with a Netherlands-based arbitration panel, a move seen as a last-ditch attempt by the oil company to avert a costly ruling in the lawsuit.

A lawsuit first brought in 1993 in New York federal court on behalf of 30,000 people sought damages from Texaco for environmental contamination and illnesses that allegedly resulted from its operation of an oil consortium from 1972 to 1990 in Ecuador's Amazon.

Texaco successfully argued before the case was refiled in Ecuador in 2002 that it should be heard in the South American nation.

Chevron has long argued that a 1998 agreement Texaco signed with Ecuador after a $40 million cleanup absolves it of any liability in the case. It claims Ecuador's state-run oil company is responsible for much of the pollution in the oil patch that Texaco quit nearly two decades ago.

In his ruling Thursday, Judge Sand said New York state law made clear that the arbitration proceeding sought by Chevron should not be blocked as long as at least one issue qualifies for arbitration.

He said Chevron's claims that it was denied due process in Ecuadorean courts qualified as an issue.

Hew Pate, an attorney for Chevron Corp., said the company was pleased with Thursday's ruling. He said Texaco had completed its share of the cleanup and that parties were now attempting to "extort vast sums of money" from Chevron.

C. MacNeil Mitchell, a lawyer representing Ecuador, said he was disappointed with Thursday's ruling and that his client had not decided whether to appeal.

Another lawyer for Ecuador, Eric Bloom, said a three-member arbitration panel based in the Hague had yet to meet to discuss the merits of the case.

A lawyer for the plaintiffs in the Ecuador lawsuit, Jonathan S. Abady, said it would mean more delays for victims of the contamination and complained that the arbitration dispute allows the second-largest U.S. oil company to raise legal issues related to the environmental lawsuit without the participation of plaintiffs.

Shortly before the judge ruled, Abady called Chevron's arbitration effort "an attempt to extinguish and devour" the case in Ecuador.

The judge said he found it appropriate for the arbitration panel to consider Chevron's claims that two of its lawyers were inappropriately prosecuted and sanctioned in Ecuador and claims that the Ecuadorean government has engaged in a public campaign against Chevron.

"A stay of arbitration is inappropriate and is hereby denied," Sand said.

Steven Donziger, another lawyer for the plaintiffs, sought to discount the significance of the case, saying Chevron's attempt to force Ecuador into arbitration won't make the case against it in Ecuador go away.

He added: "It's unclear whether the arbitration panel will accept jurisdiction."

[ Back to top ]