Chevron Faces Increasing Challenges from Ecuador Judgment

By Steven R. Donziger, Inside Counsel
24 September 2014

Chevron's wave of lawsuits related to the $9.5 billion Ecuador judgment over ecological damage to indigenous villagers have been in the courts of several countries for almost five years. The immediate results of this expensive and perhaps unprecedented litigation strategy – involving at least 60 law firms and 2,000 legal personnel – can now be assessed with a reasonable degree of certainty. The results for Chevron are complicated at best.

If the goal of the company was to defeat its liability in Ecuador, it thus far has failed. Business and legal problems related to the Ecuador judgment, even with a recent ruling by a U.S. judge in favor of the company, show little sign of abating and continue to multiply across jurisdictions as described in detail below.

These risks include enforcement actions targeting strategically important company assets in Canada, Brazil, and Argentina. Chevron's non-jury private RICO injunction likely will be tossed on appeal, thereby damaging the crown jewel of the company's defense strategy and opening up the United States to further enforcement actions by the villagers. (The Second Circuit quickly reversed an earlier iteration of the same injunction in 2011.) Chevron also faces the uncertainty of not knowing when, where, or even whether more such actions will be filed in other jurisdictions.

In short, contrary to what is claimed by the Chevron's lawyers, the Ecuador case can be seen as a cautionary tale for companies that face significant environmental liabilities. Yes, there have been benefits to Chevron in tying up its adversaries with what the company openly touts as the "lifetime of litigation" strategy. Chevron effectively used laws designed to facility discovery for foreign proceedings. And the company no doubt succeeded in damaging me and other lawyers personally, which I believe continues to be one of its main goals.

(For the record, I categorically reject Judge Kaplan's findings that I committed RICO violations; my appeal is pending; eight separate appellate judges in Ecuador disagree with Judge Kaplan and have affirmed the validity of Chevron's liability.)

There are significant detriments to Chevron from its strategy, regardless of my own fate or the ultimate disposition of Judge Kaplan's ruling. Consider:

Chevron lost in its preferred court: The Ecuador trial court ruled against the company in February 2011; a three-judge appellate panel unanimously affirmed in 2012 after a de novo review; and five-judge panel from Ecuador's highest court unanimously affirmed in 2013. Eight separate appellate judges in Ecuador rejected Chevron's legal and factual arguments concerning "fraud". Further, seven U.S. federal appellate decisions also have ruled against Chevron's "fraud" allegations in the context of discovery disputes.

Substantial Chevron assets are in play: Chevron tried to coax Ecuador's government to extinguish the claims of the villagers so the judgment would not become final and therefore enforceable in other jurisdictions. The company even tried to end-run the plaintiffs by floating a $700 million settlement offer to the government. This strategy failed. The communities secured a final judgment and quickly filed enforcement actions, starting in Canada in May 2012. This action in particular is progressing far more rapidly than Chevron is letting on.

Chevron faces payment of 100 percent of the judgment: Chevron now faces a possible enforcement trial in Canada, a country where its subsidiaries hold roughly $15 billion of assets. Canada's Supreme Court will hear argument in December on whether the villagers can proceed to trial. If the villagers prevail, yet other Commonwealth countries like Australia (where Chevron is developing the world's largest offshore natural gas field) will be in play.

Interest is running: As Chevron continues its blocking maneuvers, statutory interest runs on the underlying judgment. It would not be surprising to see the liability surpass $12 billion by end the end of 2015. Further, costs in terms of reputational harm, business disruption, distraction to management, shareholder dissent, and lost opportunities threaten to be a drag on performance.

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