The Meaning of Chevron’s Oil-Pollution Case in Ecuador

This morning, the New York Times offers a colorful profile of plaintiffs’ lawyer Steven Donziger, the man who in February 2011 won a record-setting $18.2 billion pollution verdict against Chevron (CVX) in Ecuador. The article adds to a considerable literature on Donziger and his two-decade-old case, including magazine accounts in Vanity Fair, the New Yorker, and Bloomberg Businessweek. Acclaimed documentary filmmaker Joe Berlinger chronicled the case in 2009, as did 60 Minutes.

Why do this man and his lawsuit get so much attention? The short answer is that on one level, Aguinda v. Chevron seems to present a timeless David vs. Goliath tale in the form of a bold American plaintiffs’ lawyer speaking truth to corporate power. On the broader scale, it’s the most important environmental case of the 21st century. Before I explain why, here’s a quick recap:

In the 1970s and ’80s, Texaco pumped crude in the rainforest in northeastern Ecuador, producing profits for itself, much larger profits for the Ecuadorian government, and an ecological fiasco in the formerly pristine jungle. In 1993, Donziger and other American plaintiffs’ attorneys filed suit in New York on behalf of Ecuadorian Indians and farmers living near the oil operations. Texaco fought for nine years to get the case moved to Ecuador, whose judicial system the company insisted was perfectly capable of resolving the dispute. In a textbook illustration of the ancient jurisprudential principle of Be Careful What You Wish For, Texaco won the venue fight and ended up in a provincial Amazonian courthouse. There, Donziger’s penchant for guerrilla legal warfare gave him an advantage. In 2001, Chevron acquired Texaco and inherited Donziger as a foe.

Forced to address the merits in the Ecuadorian trial court, Chevron argued that Texaco had mopped up some of the waste oil; the Ecuadorian national oil company, Petroecuador, was actually responsible for any pollution that remained; and Donziger manufactured bogus evidence of contamination and human illness. The Ecuadorian judiciary sided with Donziger—to the tune of $18.2 billion (since bumped up to $19 billion). Chevron, which doesn’t have assets to speak of in Ecuador, immediately vowed never to pay Donziger’s clients a dime. Instead, the company brought the conflict back to the U.S., suing Donziger in the same federal court in New York where the case had started in 1993. In its civil-racketeering action, the company asserts that Donziger orchestrated a conspiracy to extort Chevron shareholders. He denies wrongdoing. A federal judge has set a trial date in October.

Here’s why all this matters:

• Donziger’s case poses the vital question of whether mass litigation can resolve complicated socioeconomic challenges such as the harmful side effects of industrialization in developing countries. The pollution in the rainforest has as much to do with Ecuadorian government neglect and centuries-old class divisions as it does with Texaco’s actions. By framing the oil company as the sole villain, however, Donziger gave Ecuadorian politicians and industrialists an unwarranted pass. This kind of distortion arises in many social-reform suits against multinational corporations. The failure of class action lawyers and human-rights activists to acknowledge, let alone address, the distortion helps explain their limited success in actually improving conditions in places like Ecuador.

• On paper, Donziger’s Ecuadorian court victory is the largest of its kind. Yet it has done nothing to clean up waste oil in the rainforest or provide medical care to impoverished tribe members or farmers. The questionable tactics Donziger employed (examples here and here) have enabled Chevron to portray itself as the victim of a massive fraud and attack the legitimacy of the Ecuadorian judicial system. An ends-justify-the-means ethos has produced a legal morass that perversely mirrors the ecological mess.

• Despite superficial appearances, the case is not really a clash of David vs. Goliath. Mass litigation rarely is. For years, Donziger was backed by a deep-pocketed plaintiffs’ class action law firm in Philadelphia. That firm fronted him millions of dollars as an investment in a potential multibillion-dollar judgment or settlement. After Donziger and the firm had a bitter falling out, he convinced wealthy investors and a British-based hedge fund to invest in the case—again, for a share of the proceeds. Donziger has called this a “new business model” for promoting human rights. We’ll see whether his entrepreneurial approach to litigation in fact provides a new template for seeking corporate accountability. Count me skeptical.

• Still, for all his flaws and misdeeds, Donziger has illuminated the corporate tendency to fumble away opportunities to do the right and reasonable thing in the first place—and thereby avoid liability traps. For a relatively modest expense in the 1970s and ’80s, Texaco could have lined its Ecuadorian waste oil pits and more safely disposed of “production water” discharged into jungle streams. In the 1990s, Texaco rebuffed settlement overtures that began at $140 million and almost certainly could have been negotiated down to half that amount, or even less. By speeding past these off-ramps from litigation, Texaco delivered to Chevron a legal case that has tainted Chevron’s reputation, distracted its top management, and cost it hundreds of millions of dollars in legal bills over just the last several years.

Chevron and its lawyers at Gibson, Dunn & Crutcher contend that by battling Donziger, they are fighting fraud. And it’s true that most of Donziger’s key legal and scientific comrades have abandoned the cause and/or disavowed their past work on behalf of the Ecuadorian plaintiffs. But these novelistic twists and turns don’t do anything to build Chevron’s business, enrich its shareholders, or improve the unfortunate lives of innocent Ecuadorians. To fully appreciate all the facets of this intriguing case, someone should write a book about it.

By Paul M. Barrett-Bloomberg, Businessweek, July 31, 2013

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