Ecuador and the Texaco – Chevron Case

By Professor Harry Sachse, Partner, Sonosky, Chambers, Sachse, Endreson and Perry, LLP, Adjunct Professor of Law, Georgetown University Law Center

Deep Oil often comes up accompanied by highly toxic water. In the United States, producers are required by state and federal laws to drill “disposal wells” and pump the toxic water back into the formation it came from, where it hurts no one and even aids production.

In 1967, Texaco and its Ecuadorian partners made a major oil discovery in the Amazon in Ecuador near the Columbian border, in an area where the Sarayaku indigenous people live.  There was no law in Ecuador requiring it to drill disposal wells, so Texaco simply dumped the water in the local rivers. The result was high cancer rates and miscarriages, amounting the destruction of village life for the Sarayaku.

An Ecuadorian lawyer, not trusting Ecuadorian courts and feeling that the United States should hold its companies to some minimal standard when they do business abroad, sued Chevron, which by then had bought Texaco in federal court. The court held it had no jurisdiction over Chevrons’ actions abroad. But should not the United States require some standards of decency for American corporation operating abroad?

Years passed, and politics in Ecuador changed. The plaintiffs hired Ecuadorian and United States attorneys to sue in Ecuadorian courts. Chevron also hired United States and   Ecuadorian attorneys. In the end, the court awarded damages of approximately $13 billion against Chevron. This was substantially upheld on appeal.

Chevron claimed it was the victim, its property was being confiscated, and sought United Nations arbitration. This did not result in a settlement.

Then Chevron sued in Federal Court in New York to enjoin enforcement of the judgment. It attacked the plaintiffs’ attorney for having a United States expert write the expert report signed by the Ecuadorian expert and for having a movie produced to help his side of the case.  It worked. The court held that the judgment could not be enforced in the United States.

The Second Circuit reversed the district court on the technical ground that the judgment could not be enjoined until the plaintiffs actually seized property and tried to execute on the judgment. But its telling of the story indicated that the Second Circuit did not see Chevron as the victim. So, 47 years after the drilling began the litigation continues.

But there is good news too. The Inter-American Court of Human Rights (IACHR) in  Sarayaku v. Ecuador, June 27, 2012,  held forcefully that  Ecuador must consult with the indigenous peoples affected before allowing oil and gas production on their lands and must require that the land be protected. Had this been done with Texaco, the destruction and the litigation might have been avoided. Since there was no prior consultation in the Sarayaku case, the Court ordered Ecuador to repair the environmental damage and pay damages to the indigenous peoples. The case was won through the efforts of the Sarayaku and organizations supporting the rights of indigenous peoples working together.