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February 15, 2011 10:40 AM

Ecuadorian Court Issues $8 Billion Judgment Against Chevron; Chevron Calls Judgment 'Illegitimate'

Posted by Michael D. Goldhaber

By Alison Frankel and Michael Goldhaber, The Am Law Litigation Daily

On Monday, a court in Ecuador finally issued a ruling in the 18-year-old case accusing Chevron predecessor Texaco of contaminating soil and groundwater in the Lago Agrio region of the Ecuadorian rainforest. After receiving a series of expert reports placing Chevron's maximal damages at $16 billion, $27 billion, and, most recently, $113 billion, the Provincial Court of Justice of Sucumbíos ordered Chevron to pay damages of at least $8 billion. Plaintiffs spokesperson Karen Hinton confirmed the amount, reported by Bloomberg and Reuters, in an e-mail to the Litigation Daily. Here's the 118-page ruling, albeit in Spanish.

Hinton e-mailed us a statement on behalf of lead Ecuadorian plaintiffs lawyer Pablo Fajardo. "We believe today's judgment affirms what the plaintiffs have contended for the past 18 years about Chevron's intentional and unlawful contamination of Ecuador’s rainforest," it says. "Until we have had a chance to review the lengthy decision, we will not be able to comment in detail. As a general matter, the plaintiffs provided the court with a great quantum of scientific and documentary evidence that Chevron deliberately and in violation of all industry norms discharged billions of gallons of toxic waste into the rainforest and into the water supply relied on by thousands of Ecuadorian citizens."

Chevron spokesman Kent Robertson said the company has not been able to quantify the Ecuadorian court's damages assessment. "Based on an initial read, it is unclear exactly what the award is," he told us in an e-mail. "We can say, however, that the judgment is a product of fraud and is contrary to the legitimate scientific evidence."

Chevron has also announced it will appeal the ruling in Ecuador. "The Ecuadorian court's judgment is illegitimate and unenforceable," the oil company said in a statement. "Chevron does not believe that today's judgment is enforceable in any court that observes the rule of law."

An $8 billion award may sound small relative to the plaintiffs' widely reported final demand of $113 billion or to the $27 billion damages estimate in the now-disputed report by the purportedly neutral court-appointed expert Richard Cabrera. But for perspective, one might consider how much the plaintiffs were willing to accept in a settlement with Chevron, and how much they privately expected. In a 2006 e-mail Chevron has since cited in its recently filed racketeering suit against the Lago Agrio plaintiffs and some of their lawyers, former lead U.S. plaintiffs counsel Steven Donziger wrote to cocounsel: "As a concept, I ask, do we ask for much more than we really want as a strategy? Do we ask for eight [billion dollars] and expect three, so that [the judge] says, 'Look, Texaco, I cut down the largest part?'"

And in a March 2007 diary entry subsequently produced to Chevron in court-ordered discovery, Donziger suggested that plaintiffs ask for $3 billion in settlement negotiations and accept no less than $1 billion. Donziger stressed in an unpublished outtake from the documentary Crude that any judgment in the billions would be pathbreaking. "We need to get the country ready to deal with the idea that a judge can actually impose a multibillion-dollar judgment on an American company," he said.

As we've reported in exhaustive detail (most recently here), Chevron has engaged in an intense, year-long campaign to discredit any judgment issuing from the Ecuadorian court. The oil company's attack has been two-pronged: a bilateral investment treaty arbitration against the Republic of Ecuador under the auspices of the Permanent Court of Arbitration in The Hague; and discovery actions in 15 federal district courts across the U.S. intended to uncover evidence of fraud underlying the action in Ecuador.

The Chevron campaign raises the distinct possibility that the Ecuadorian plaintiffs, who filed suit in Ecuador in 2003 after Chevron had a parallel Manhattan federal district court suit dismissed on forum non conveniens grounds, will have a hard time enforcing the $8 billion judgment. Last week Manhattan federal district court judge Lewis Kaplan granted Chevron a temporary restraining order that bars the Lago Agrio plaintiffs or any of their Ecuadorian or U.S. lawyers from acting to enforce judgment anywhere in the world. Kaplan has scheduled a Feb. 18 preliminary injunction hearing.

The day after Judge Kaplan's TRO ruling, the BIT arbitrators issued a similar "interim measures" order, calling for the Republic of Ecuador to "take all measures at its disposal to suspend or cause to be suspended the enforcement or recognition within and without Ecuador of any judgment" against Chevron, pending further arbitral proceedings.

The plaintiffs have taken issue with the arbitrator's interim measures order. "This order has been issued by a private arbitration panel that prohibited the Ecuadorian plaintiffs from presenting their case," spokesperson Hinton told us in an e-mail. "For this body to order, at the eleventh hour, that a sovereign nation violate its constitution and interfere with an ongoing trial is inappropriate. We have confidence that the voluminous, scientific evidence before the court in Chevron’s preferred forum of Ecuador will lead to a final judgment that will command international respect and will finally provide a remedy to the thousands of indigenous people and farmers who have suffered for decades because of contamination created by Chevron."

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