Chevron in Ecuador

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Chevron Withdraws Key Legal Claim Before U.S. Federal Court Over $27B Ecuador Liability

Facing Adverse Ruling, Company Chooses To Avoid Litigation Over Controversial Legal Release

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New York, NY – Chevron has quietly withdrawn a key legal claim in U.S. federal court against Ecuador's government over a $27.3 billion environmental liability in the Amazon, casting doubt about the company's public statements that it will not pay for a clean-up and raising questions about the effectiveness of its legal strategy, according to court records and lawyers representing indigenous communities in Ecuador.

Chevron's withdrawal of the claim, which resulted in a dismissal of the case recently by a U.S. federal judge in Manhattan, was the fifth consecutive time since 2007 that U.S. federal courts have failed to accept the company's arguments that Ecuador's government is responsible for the clean-up in Ecuador's Amazon rainforest. Experts consider the damage caused by Texaco (now Chevron), which operated a large oil concession in Ecuador from 1964 to 1990, to be the world's largest oil-related remediation project.

Chevron withdrew the claim because it feared a decision would interfere with its political campaign in the U.S. to discredit Ecuador's courts, said Steven Donziger, an American who advises the plaintiffs in a separate civil lawsuit filed against Chevron in Ecuador by an estimated 30,000 rainforest residents. The Ecuador civil lawsuit is where the oil giant faces the $27.3 billion damages claim.

"A negative decision by a U.S. court was too great a risk for Chevron's public relations and lobbying campaign, which is based on the illusion that the company does not have to pay damages in Ecuador because of an earlier clean-up when in fact such a clean-up has been proven to be a sham," Donziger said.

"Chevron now has lost every important legal decision in the U.S. and Ecuador for the last three years over environmental damage in Ecuador," added Donziger. "The company's latest decision to bail out of a U.S. court is a telling indication of how Chevron's lawyers actually feel about the merits of their own case."

With no public announcement or filing with securities regulators, Chevron in late July notified U.S. federal judge Leonard B. Sand that it was withdrawing its claim against Ecuador's government that a release received in 1995 immunized it from liability. The claim asserted that a limited environmental remediation by Texaco in the 1990s, which the plaintiffs have claimed was fraudulent, shifted responsibility for any further clean-up to Ecuador's government.

In effect, Chevron is giving up on its strategy to use a U.S. federal court to try to trump an expected adverse decision in the civil case in Ecuador, said Donziger. If Chevron had won before Judge Sand, it could have used the U.S. court decision as a defense to any enforcement action in the U.S. of an expected multi-billion dollar Ecuador judgment. Chevron has announced it will not pay any judgment in Ecuador, even though the company agreed to jurisdiction in the country as a condition of getting the case transferred there from U.S. federal court in 2002.

In the civil lawsuit in Ecuador, which has been ongoing since 2003 and is expected to end later this year, Chevron's primary defense also is that Texaco's purported remediation and release immunizes it from liability. The plaintiffs also assert the release does not apply to their claims, as they never signed off on it.

Chevron's withdrawal of the legal claim over the release from U.S. court means that Ecuador's courts alone will determine the issue. To this point, no court in either the U.S. or Ecuador has accepted Chevron's interpretation of the release, despite multiple rulings dating to 1995.

Donziger characterized Chevron's withdrawal of the legal claim as a "major setback" for the company's prospects.

"Chevron's voluntarily withdrawal of its main claim suggests company lawyers recognize privately that their case has serious deficiencies, despite public statements to the contrary," said Donziger. "If Chevron's defense over the release had merit, Chevron's lawyers would be thrilled for a U.S. court to hear the claim.

"What is increasingly risky for Chevron is that respected U.S. federal courts are starting to agree with the very Ecuador trial courts that Chevron is trying to discredit," said Pablo Fajardo, the lead Ecuadorian lawyer for the plaintiffs. "This suggests that Chevron's claims about bias in Ecuador's courts are being contrived in anticipation of an adverse decision."

The five instances that Chevron's claims have failed before U.S. federal courts include two instances before a U.S. federal judge, two instances before a federal court of appeals, and one instance when the U.S. Supreme Court denied Chevron's petition for review. In each instance, Chevron had presented arguments designed to make Ecuador's government the responsible party.

Chevron claims that between 1995 and 1998 Texaco remediated a small portion of the 916 waste pits it built in Ecuador. Yet scientific evidence in the Ecuador trial demonstrates that the so-called remediated sites are extensively contaminated, with several containing cancer-causing toxins at levels hundreds of times higher than U.S. and Ecuadorian laws allow, according to a Special Master report on liability and damages.

The Special Master report also found that hundreds of other waste pits built and operated by Texaco – but not included in the purported clean-up – are leaking toxins into soils, groundwater and streams relied on by the local population for drinking water.

Texaco is accused of dumping 18 billion gallons of toxic waste into Amazon waterways from 1964 to 1990, poisoning an area the size of Rhode Island and leading to dramatic increases in cancer rates and other oil-related health problems on ancestral indigenous territory. The class action lawsuit was originally filed in New York federal court in 1993, but was transferred to Ecuador at Chevron's request in 2002 after the company filed 14 sworn affidavits praising that country's courts.

Once the trial in Ecuador began in 2003 and the scientific evidence pointed to Chevron's culpability, the company launched a strategy to avoid paying any adverse judgment. It recently hired several lobbyists – among them former Clinton Administration officials Mickey Kantor and Mac McLarty – to convince the Bush and Obama Administrations to cancel Ecuador's trade benefits on the basis of the release that it just withdrew from consideration by Judge Sand.

Four U.S. Senators, in a June letter to the United States Trade Representative, criticized Chevron's lobbying strategy and said the plaintiffs in Ecuador deserve their day in court without outside interference. Both the Bush and Obama Administrations have continued Ecuador's trade preferences.

Separately, Chevron is under investigation by the New York State Attorney General for misleading shareholders over the Ecuador liability. Two Chevron lawyers and seven former Ecuadorian government officials also are under criminal investigation in Ecuador for lying about the clean-up results.

If accepted by the Ecuador trial court, the $27.3 billion in damages would amount to roughly 20% of Chevron's market value and could exert significant downward pressure on the company's share price, according to several analysts who cover the oil industry.