Chevron Loses Huge Environmental Suit, But Will It Ever Pay?

An Ecuadorean court yesterday ordered Chevron to pay $8.64 billion to a group of several dozen plaintiffs acting on behalf of indigenous groups, who suffered ill health effects due to oil exploration in the country's rainforest.

The payout would be the second largest in history for environmental damages, surpassed only by the $20 billion BP agreed to pay into a settlement fund for victims of last year's Gulf oil spill. The case has been going on since 1993 and has been litigated in both the U.S. and Ecuador.

Both the plaintiffs, who feel the award is insufficient, and Chevron plan to appeal.

The environmental damage over a nearly 30-year period was done by Texaco, which Chevron bought in 2000, in partnership with Ecuador's state oil company. Therein lies the dispute. From the New York Times:

The plaintiffs claim that Chevron must be held responsible for damage where Texaco once operated. Chevron, however, argues that Texaco carried out a cleanup agreement with the Ecuadorean government and that much of the damage was done after Texaco left in the early 1990s, actions for which it should not be held responsible.

The seemingly intractable suit, which was filed in 1993, ensnarled filmmaker Joe Berlinger after he produced and directed Crude, a documentary about the case. Trailer here:

A.O. Scott, the Times' movie reviewer, wrote this about the film:

...while Mr. Berlinger’s sympathies clearly lie with the oddly matched pair of lawyers — Steven Donziger, a big, outgoing American, and Pablo Fajardo, a wiry, diffident Ecuadorean — who are consumed by the now 16-year-old suit against Chevron, he is fair-minded enough to include rebuttals from the company’s executives and in-house environmental scientists.

Not fair enough for Chevron, apparently. The company won a lawsuit in which Berlinger was required to hand over certain outtakes that the company says show legal and political manipulation on the part of Donziger. Chevron is using those clips as part of a public relations campaign against the high-profile legal team. (By the way, type in "Chevron Ecuador" into Google, and you'll see the oil giant's text ad linking to its site about the case). Chevron also cited the omitted video recently as part of a countersuit, including federal racketeering claims, against plaintiffs' attorneys. (You can watch some of those outtakes.)

This 2010 article from The American Lawyer describes the impact of one of the clips:

In one of the key outtakes... Donziger remarks:

"We have concluded that we need to do more, politically, to control the court, to pressure the court. We believe they make decisions based on who they fear the most, not based on what the laws should dictate. So, what we want to do is to take over the court with a massive protest... It's a huge effort, it costs money...

Donziger goes on: "This is Ecuador. ... You can say whatever you want, and at the end of the day, there's a thousand people around the courthouse, you're going to get what you want. Sorry, but it's true."

...It's hard to read the transcripts filed by Chevron without concluding that Donziger's intent in doing so was to put political pressure on the court.

Whatever the legal and p.r. tactics on both sides, the key question now is: Will Chevron ultimately have to pay? Legal experts interviewed by the Times, Forbes, and Bloomberg sound dubious. Some quotes:

"It’s probably unenforceable. I wouldn’t want to say $8 billion is insignificant in any way, shape or form for Chevron, because it’s not, but given the lack of local assets, Ecuador is going to have difficulty enforcing this.”
--Mark Gilman, an analyst at Benchmark Co. in New York

“It’s cheaper for Chevron to pay the lawyers than to pay for the lawsuit. It’s a simple business case for them.”
--William Adams, portfolio manager at Resilience AG in Zurich

"Whether any portion of the claims will be paid by Chevron is less clear.”
--David M. Uhlmann, University of Michigan environmental law professor

"It might as well be Monopoly money, given all the respect that Chevron will show it. There is a legal regime for enforcing foreign judgments but there is a lot of discretion for U.S. judges to suspend the enforcement of foreign judgments.”
--Ralph G. Steinhardt, George Washington University professor of law and international affairs

"They could try to seize things on a piecemeal basis around the world, no question about it. But if they take it to the U.S, which I always thought they contemplated as Plan A, they’re going to struggle to get it enforced.”
--Jonathan Drimmer, corporate defense lawyer at Steptoe & Johnson

Daniel Fisher's Full Disclosure blog on Forbes examines Chevron's legal strategy in trying to establish the Ecuador trial as invalid:

Judges in the U.S. will reject a foreign judgment achieved through a process not to their liking. It has to be more than basic differences in court rules, said Ralf Michaels, a professor of international law at Duke University School of Law.

“Showing that the procedure differs, that you dont have a jury system, for example, won’t work,” said Michaels. “You need to show something like undue contact between a party and the judge, proof of bribery or procedural fraud.”

All of which Chevron has methodically tried to establish in proceedings before U.S. courts over the past year. U.S. District Judge Lewis Kaplanhas been particularly receptive to Chevron’s efforts to obtain evidence to support its case, ordering the plaintiffs to turn over internal documents that normally would be behind an armor-plated wall of attorney-client privilege. Those documents show the plaintiffs supplied the bulk of the scientific damages report submitted by a supposedly independent court expert, who was also paid by the plaintiff lawyers.

Read through the filings and interesting tidbits emerge: Why did the oil company’s lawyers at Gibson Dunn spend so much time in one deposition getting plaintiff lawyers to explain why they moved a staffer overseeing the scientific evidence to a separate, private office? Acting in secrecy, some might argue, is evidence of scienter or guilty conscience, a necessary element of fraud. (The plaintiffs say there is nothing wrong, under Ecuador law, with supplying information to a court expert, and the judge reportedly said he didn’t consider the expert’s report in setting damages anyway.)

Still, Fisher puts it this way: "Chevron says it won’t pay a dime, ever. That’s what defendants always say, of course, right up until they settle."

And of course plaintiffs say they will pursue the case to the bitter end.