The U.S. Supreme Court’s decision last week to not consider Ecuador’s challenge to a $96 million arbitration award issued to Chevron Corp. is just one element of a much larger dispute that has spanned three continents and proceeded over decades.
The high court’s decision leaves in place a D.C. Circuit decision finding that the South American nation owed Chevron $96 million following a dispute stemming from a 1973 agreement with Chevron subsidiary Texaco Petroleum Co., which Chevron acquired in 2001, under which TexPet agreed to develop Ecuadorean oil fields in exchange for providing below-market oil to the country for domestic use.
The Supreme Court’s decision is noteworthy enough for the court’s affirmation of the D.C. Circuit’s decision affirming jurisdiction over the country under the arbitration provision in Ecuador’s bilateral investment treaty with the U.S., even though the agreement between TexPet and Ecuador had expired when it came into effect. But according to Milbank Tweed Hadley & McCloy LLP partner Michael Nolan, this case has attracted attention not just because of the legal questions it poses.
“Of course, Chevron v. Ecuador presents some interesting legal issues, relating for example to the fact that the investment as such was no longer being pursued when the BIT came into effect, but jurisdiction was nonetheless found based upon the ongoing lawsuits and the like,” he said. “But the matter attracts attention mostly because of the sheer spectacle of the thing. It is a long-running, multipart drama.”
Here, Law360 looks at the major events and legal decisions that have shaped this dispute and resulted in shocking revelations of the type more typically associated with Hollywood than a New York federal court.
The Beginnings
The relationship between Ecuador and TexPet began in 1964, when the company was granted a concession by Ecuador to explore for and extract oil in the Oriente region, also known as the country’s Amazon region. In 1973, TexPet and Ecuador signed another agreement allowing TexPet to develop Ecuadorean oil fields in exchange for providing below-market oil to the Ecuadorean government for domestic use.
In the years that followed, Ecuador’s state-owned oil company, EP Petroecuador, gradually increased its interest in a consortium formed between TexPet and Ecuadorian Gulf Oil Co. until 1976, when Petroecuador acquired Ecuadorian Gulf Oil’s remaining interest to bring its share in the consortium to 62.5 percent.
In the early 1990s, it became clear that the area where the consortium had operated would need environmental remediation. Meanwhile, the 1973 concession agreement was set to expire in 1992, and the parties were unable to agree to an extension.
TexPet filed several breach of contract suits against Ecuador in the country’s courts, alleging that the Ecuadorean government had overstated its true domestic consumption needs and taken additional barrels of oil that belonged to TexPet and exported them.
In May 1995, Ecuador, Petroecuador and TexPet signed a settlement, under which TexPet agreed to undertake the remedial environmental work in exchange for being released from further liability for any environmental impact arising out of the consortium’s operations. The deal provided for the continuation of TexPet’s pending lawsuits.
Thereafter, Chevron says that TexPet spent $40 million on the environmental remediation and received a complete release from Ecuador’s national, provincial and municipal governments.
Meanwhile, Texaco Inc. had been hit with a putative class action lawsuit in New York’s Southern District in 1993 by a group referred to as the Aguinda plaintiffs, claiming to represent 30,000 people from the Oriente region of Ecuador. They claimed that TexPet had “improperly dumped … toxic byproducts of the drilling process into the local rivers” and constructed a pipeline that “leaked large quantities of petroleum into the environment,” causing both personal injuries and catastrophic environmental damage.
Things Start Heating Up
The Second Circuit affirmed the dismissal in 2002 of the Aguinda suit after Texaco agreed to face the plaintiffs’ claims in Ecuador, which “a different but overlapping” group of Ecuadorean plaintiffs refiled in Lago Agrio a year later, according to Chevron.
In 2006, Chevron initiated international arbitration before a three-member tribunal based out of The Hague, claiming that Ecuador had violated its bilateral investment treaty with the U.S. by failing to resolve its breach of contract lawsuits in a timely fashion. The arbitration was administered by the Permanent Court of Arbitration under United Nations Commission on International Trade Law arbitration rules.
Three years later, in September 2009, Chevron initiated separate arbitration before a different tribunal administered by the Permanent Court of Arbitration in The Hague in relation to the Lago Agrio litigation, claiming that any judgment issued against it would violate the terms of TexPet’s previous 1995 settlement agreement with Ecuador. Moreover, Chevron said, the Ecuadorean government improperly interfered with the Lago Agrio proceedings by publicly announcing its support for the plaintiffs.
The company also sought a declaration that they have no liability or responsibility for environmental impact arising from the TexPet concession.
Enter Chevron’s Suit Against Steven Donziger
2011 was a big year for Chevron, which initiated its now-infamous attack on attorney Steven Donziger in New York’s Southern District under the Racketeer Influenced and Corrupt Organizations Act that February.
In the suit, Chevron claimed that Donziger and his cohorts in Ecuador, who represented or otherwise worked on behalf of the Lago Agrio plaintiffs, engineered the lawsuit through a host of illegal acts, including paying thousands in bribes for favorable court orders and offering the presiding judge a cut of the eventual award in exchange for passing off a ghostwritten judgment as his own.
Later that month, the company was dealt a huge loss when a court overseeing the Lago Agrio case issued an approximately $18.2 billion award, in part for soil remediation, health care considerations for the local population and groundwater remediation, which was later reduced to $9.5 billion.
But the company’s fortunes changed in August 2011, when the Permanent Court of Arbitration tribunal overseeing the 2006 arbitration awarded the company the $96 million award after finding in a March 2010 award on the merits that Ecuador had breached its BIT with the U.S. by allowing Chevron’s breach of contract suit to languish in the Ecuadorean courts.
In March 2014, Chevron’s efforts in the New York court paid off. In an exhaustive, 497-page opinion, U.S. District Judge Lewis A. Kaplan declared the $9.5 billion Amazon pollution judgment against Chevron to be the product of an “egregious fraud” by Donziger, and he enjoined the Lago Agrio plaintiffs from instituting any enforcement proceedings in the United States.
The judge concluded that Donziger and his cohorts had used coded emails to describe their private interactions with judges and a court-appointed expert, as well as their payments to a supposedly neutral expert out of a secret account and an Ecuadorean judge who purportedly wrote the multibillion-dollar decision “but who was so inexperienced and uncomfortable with civil cases that he had someone else (a former judge who had been removed from the bench) draft some civil decisions for him, an 18-year-old typist who supposedly did internet research in American, English and French law for the same judge, who knew only Spanish.”
Judge Kaplan’s decision is currently on appeal.
Other Courts Start Weighing In
In September 2015, the Supreme Court of Canada ruled that the plaintiffs seeking to enforce the $9.5 billion judgment in the country could proceed. Chevron had challenged the suit on jurisdictional grounds, saying it has no connection to the country except through an indirect subsidiary. But the high court found that the only prerequisite to establishing jurisdiction to recognize and enforce a foreign judgment is that the foreign court has to be substantially connected to the litigants or the subject matter in dispute.
This past January, the District Court of The Hague rejected efforts by Ecuador to nullify several interim awards issued in the 2009 arbitration, including an award in which the tribunal rejected Ecuador’s arguments that the tribunal lacked jurisdiction over the dispute and required that the country take all measures to suspend the enforcement or recognition of the $9.5 billion award.
In a fourth award issued in February 2013, the tribunal concluded that Ecuador had violated the previous awards by attempting to enforce the judgment in Canada, Brazil and Argentina.
Thereafter, Ecuador said it would appeal the District Court of The Hague’s decision.
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