Chevron's $18 Billion Ecuador Liability: What Happens Next?

Last week an Ecuadoran appeals court upheld an $18 billion ruling against San Ramon-based oil giant Chevron for pollution and ill health effects caused in the country’s rainforest. The decades-old damage stemmed from oil exploration by Texaco, which Chevron bought in 2000.

Lawyers on both sides of the lawsuit clashed yesterday on KQED Radio’s Forum program. Listen to the show here:

Also on the program was Patrick Radden Keefe, an author and journalist who has written a piece on the case appearing in the latest issue of The New Yorker.

Last week, after the decision by the Ecuadoran court, Radden Keefe wrote that he thinks Chevron will settle the case, despite its vow not to pay.

The most likely outcome is a settlement. In fact, according to a source close to the case, this fall Chevron’s general counsel, R. Hewitt Pate, initiated a secret meeting in San Francisco with John Keker, an attorney who represents Donziger, to explore the possibility of settling.

In theory, Chevron has one final appeal in Ecuador, to the country’s Supreme Court. But to proceed with that appeal and stop the plaintiffs from trying to collect on the judgment in the meantime, Chevron would have to post a multi-billion dollar bond, which, given its jaundiced view of the rule of law in Ecuador, it seems unlikely to do. So for all intents and purposes, yesterday’s decision amounts to a green light for the plaintiffs to start collecting.

On Forum, however, Radden Keefe explained the difficulty plaintiffs would have in trying to collect, and also where the case might go from here:

The catch is the plaintiffs could start collecting, in theory, but Chevron doesn’t have any assets in Ecuador. So the plaintiffs will have to go to other places around the world and say there’s this judgment that you need to respect, and in theory they can try to repossess Chevron’s assets in those countries.

Before that, there’s a final level of appeal to the Ecuadoran Supreme Court. But there’s some dispute as to whether Chevron might have to post a multi-billion dollar bond to make that appeal.

Chevron is also trying to undo the judgement or indemnify itself through an arbitration process in the Hague. And Chevron right about the time the $18 billion judgement came down actually sued the lead lawyer for the plaintiff’s, American Steven Donziger, in New York federal court, accusing him of fraud and extortion and saying he was part of a racketeering conspiracy. That case has been suspended for the moment but may continue.

Donziger was a key figure in a 2009 documentary about the case, Crude. (Watch the trailer here.) In 2010, Chevron won a lawsuit in which the film’s director, Joe Berlinger, was required to hand over certain outtakes that the company said show legal and political manipulation on the part of Donziger. Chevron then used those clips as part of a public relations campaign against the high-profile legal team. Chevron also cited the omitted video as part of a countersuit, including federal racketeering claims, against plaintiffs’ attorneys. (You can watch some of the documentary’s outtakes in this short film by Chevron .)

Last week, KQED’s Kelly Wilkinson talked about the case with Cynie Payne, a Rutgers University assistant professor and former UC Berkeley lecturer who specializes in international and environmental law. Here’s an edited transcript:

How significant was the latest ruling?

The most recent ruling by the Ecuador appeals court is one step in the process. US courts are similar to Ecuador courts – first trial, then appeals, then Supreme Court. So there’s one further level of review in this case.

Chevron says it doesn’t believe the ruling is enforceable and basically they have no intention of paying. Is there a point where this gets resolved or does it just keep going?

The normal course would be for Chevron to appeal the ruling in the courts of Ecuador and once that appeal goes to the Supreme Court there they get a final decision. Should the Supreme Court uphold the lower courts’ decisions, Ecuador would seek to enforce that in any country where Chevron has assets.

So it doesn’t need to be in Ecuador…

Yes, the plaintiff can try to recover the judgment in any country where Chevron has holdings. After the initial trial court decision in Ecuador, Chevron went to US courts and sought a ruling that attempts to prevent any country from honoring the decision in Ecuador’s courts. That was overruled by a US Appeals Court, which said it’s not possible for US courts to dictate to courts of other sovereign nations.

Originally, Chevron wanted the trial originally to take place in Ecuador, correct?

That’s one of the peculiar aspects of this case. Originally it was brought by Ecuadoran plaintfiffs in US court and Chevron argued strenuously to a US court that in fact Ecuador was the most appropriate place to try the case. So the US court said fine, bring the proceedings to Ecuador, which the plaintiffs did. But they didn’t the results they had hoped for.

What about this case is making it drag on so long?

Cases like this typically do take a long time. This case was originally filed in the US in one state, was removed to another state, and then it went to Ecuador. That extended the proceedings, and there were also lengthy factual findings and investigations with a court-appointed expert in Ecuador looking at the actual sites where the pollution was alleged to occur.

By comparison, you might think of the Exxon Valdez oil spill, which occurred decades ago but only recently wound up in the Supreme Court.

So could it be one strategy of Chevron to draw out the proceedings?

Chevron has taken a very aggressive litigation strategy in challenging this decision in numerous forums, including in international arbitration that’s based in The Hague. In fact courts that are asked to compel Chevron to pay the Ecuador judgmentwill need to take a look at that Hague arbitration proceeding, too.

This is like a long-running melodrama. There will be another installment. The next step will be the Supreme court of Ecuador – when that decision comes, the plaintiffs will be free to try to collect the judgment. Then there will be much more complicated legal issues to look at because of the multiple places these things are going forward – US courts and international arbitration.

I think there’s an interesting element to this case that may be replicated in other places. The case is all based in facts going back to the middle of the 20th century when there was a kind of free-for-all exploitation of natural resources in the developing world by developed countries. And the understanding and appreciation of the value of the resources and the problem of pollution have changed to some extent, so some of these settlements or agreements made with governments back in the 1960s or 1970s may seem highly inequitable to the current government of the country and to the general public.

That’s the underlying issue of this case: It’s very difficult for the legal system to address that problem.

It may be that these things should not be handled in a litigation context. In light of the Chevron-Ecuador situation and the charges leveled on both sides about procedural misdeeds it seems that this has not been an efficient process that holds any of the parties up in a good light.

In the US we have a very strict Superfund law. So it may be that when you dropped your dry cleaning waste in the water, you didn’t know you were going to pollute it. But nevertheless you and your successor companies are responsible for cleaning it up. That is legislation that has been applied widely to all types of pollutants. A similar approach may be appropriate in this case.