Facing devastating setbacks, Chevron now seeks taxpayer bailout from $18 billion Ecuador judgment

Amazon Defense Coalition | Feb. 1, 2012

Facing devastating setbacks, Chevron now seeks taxpayer bailout from $18 billion Ecuador judgment

Oil giant’s legal options continue to narrow

Facing devastating setbacks in the courts of two countries over its $18 billion Ecuador liability, Chevron is now seeking a taxpayer-funded bailout for the clean-up costs of its environmental catastrophe in the Amazon rainforest, said a lawyer for the Ecuadorians today.

Chevron’s annual revenues (roughly $240 billion in 2011) are five times the GDP of Ecuador, but that has not stopped the oil giant from seeking a private arbitration to force Ecuadorian taxpayers to foot the bill for the clean-up costs of the environmental disaster that the oil giant created in the South American nation, said Pablo Fajardo, the lead lawyer for the Ecuadorian plaintiffs.

"We now have a situation where Chevron, one of the wealthiest corporations in the world, is seeking the same type of taxpayer-funded bailout in Ecuador that distressed companies like AIG and General Motors secured in the United States during the financial crisis," said Fajardo.

"This would be grossly unfair," he added.

Given that the per capita income in Ecuador is only $4,000 per year, the cost of clean-up for each adult Ecuadorian would amount to a one-time $1,200 tax, according to the plaintiffs.

After having lost at the trial and appellate levels in Ecuador and after suffering a stunning setback just last week in a U.S. federal appeals court (see here and here), Chevron is now trying to use the U.S.-Ecuador Bilateral Investment Treaty ("BIT") to shift the cost of clean-up to Ecuador’s government. Such a move violates international law and Ecuador’s separation of powers doctrine, Fajardo wrote in a letter to Ecuador’s Attorney General Diego Garcia Carrion.

See this backgrounder on how Chevron’s attempt to use the arbitration tribunal to evade the Ecuador court decision is illegal.

On February 11, Chevron will ask a panel of three private lawyers named as "arbitrators" under the BIT to nullify the entire nine-year Ecuadorian court process that recently found the company liable for $18 billion in clean-up costs. Chevron is hoping the panel, which meets in secret and refuses to let the Ecuadorian plaintiffs appear, will grant an "order" requiring Ecuador’s government to violate its own laws and quash the case. See letter from Government of Ecuador.

Citing a wide body of scientific evidence — much of it provided by Chevron’s paid technical experts - the Ecuador trial court in February 2011 found the oil giant liable for deliberately discharging more than 16 billion gallons of toxic "water of formation" into Amazon waterways when it operated in the country under the Texaco brand from 1964 to 1992. The dumping poisoned rivers and streams relied on by local inhabitants for drinking water, decimated indigenous groups and caused a dramatic increase in cancer rates, according to the court’s findings.

Fajardo emphasized in his letter that the remedy sought by Chevron before the arbitral panel is illegal.

"The remedy that Chevron is seeking — essentially a total nullification of the decision of a judicial system of a sovereign nation — would be unenforceable in any country that observes the rule of law," said Fajardo, who represents the 30,000 rainforest dwellers who sued the oil giant for clean-up costs.

The panel of arbitrators has come under criticism for its conflicts of interest and for attempting to influence the underlying Ecuador litigation. (An academic article critical of the investor arbitration system can be found here.) Last February, without as much as an evidentiary hearing or access to the complete Ecuador trial record, the panel issued an order requiring Ecuador’s government to take all measures "at its disposal" to prevent enforcement of any judgment in the environmental case until the panel itself could rule.

The arbitrators, who often work as practitioners in the same arbitration system where they sit on panels, stand to reap millions of dollars in fees from hearing the case. Further, the arbitrators seem to believe they have the authority to override decisions by the highest courts of functioning public judicial systems around the world, according to legal commentators.

Fajardo said in his letter that the BIT investor arbitration mechanism could be used appropriately by responsible investors to correct legitimate instances of unfair treatment, but that Chevron’s conduct in this particular case denied the fundamental human rights of the claimants and went well beyond the scope of what the BIT permits.

Chevron, which has admitted using at least 39 law firms to fight the rainforest communities, had the environmental case moved from U.S. federal court to Ecuador in 2002 by submitting 14 affidavits heaping praise on Ecuador’s judicial system. The company reversed course and started attacking Ecuador’s courts once the evidence in the subsequent trial pointed to its culpability, said Fajardo.

Chevron’s problem always has been its inability to come to grips with the overwhelming scientific evidence proving the claims of the rainforest communities, which has been confirmed not only by several firsthand news reports (here, here and here) but also by the Ecuador trial and appellate courts based on a 220,000-page trial record. The trial court cited ample evidence that Chevron provided that helped to prove the claims of the rainforest communities.

Chevron’s legal position in the case has weakened considerably in the last year as the company has lost multiple decisions in both the U.S. and Ecuador. Its main American law firm on the matter, Gibson Dunn & Crutcher, has been sanctioned repeatedly by judges for engaging in unethical litigation practices on behalf of the oil giant.

Out of court, Chevron has fared no better with a series of disastrous revelations suggesting it tried to corrupt the Ecuador court process.

Evidence has surfaced that Chevron offered Ecuador’s government $1 billion to quash the case, potentially violating anti-bribery statutes in the U.S.; that Chevron paid $2.2 million in hush money to a man who threatened to blow the whistle on the company’s corrupt activities in Ecuador; that another witness to Chevron’s corruption suddenly vanished from the U.S after being subpoenaed for a deposition under federal court order; that Chevron used a secret laboratory to hide "dirty" soil samples from the Ecuador court, while its "clean" samples were sent to a court-approved laboratory; that Chevron falsified lab results during a sham remediation in the 1990s; and that the company defrauded Ecuador’s trial court by using U.S. experts to submit misleading testimony about field sampling practices designed to hide the existence of contamination.

Diplomatic cables also came to light that demonstrate Chevron tried desperately to enlist officials at the U.S. Embassy in Ecuador to try to undermine the lawsuit. Separately, a company executive ordered the destruction of all documents related to oil spills.

"Chevron has lost this case in every legitimate public court for almost twenty years because the science does not lie and the facts speak for themselves," said Karen Hinton, the U.S. spokesperson for the Ecuadorians. "Now it wants another bite at the apple in a private proceeding court where it will have no opposition and where the outcome will have no legitimacy."