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The devil’s black gold

  • Roger Meiners
  • “Chevron Guilty of Polluting the Amazon” reported Greenpeace on its website in February. Chevron was ordered by a court in Ecuador to pay $9.5 billion in damages for injuries imposed on people and the environment in Ecuador from its oil operation.

    Does Greenpeace think “justice” is likely in Ecuador? It is one of the most corrupt nations in Latin America, coming in at #127 (out of 178 nations) in the Transparency International rankings, tied with Syria and Belarus.

    This case goes way back. As a federal court explained in Phoenix Canada Oil Co. Ltd. v. Texaco (1988), under a 1965 agreement with Ecuador, Texaco, which later became Chevron, searched for oil, found it, and in 1972 began transporting oil to the coast via a 318-mile pipeline that cost $108 million—back when that was real money. Seeing the bonanza, the government of Ecuador jacked up the royalty rate in 1969 from 6 to 11 percent.

    The next government raised the royalty rate to 17 percent in 1975, declaring that all hydrocarbons “belong to the inalienable and imprescriptible patrimony of the State.” In addition, the size of Texaco’s exploration area was cut. Texaco asked for compensation, but was refused by the militarybased government, which stated that payment was “inconsistent with the petroleum policy of the ‘Nationalistic and Revolutionary Government of the Armed Forces.’”

    Ignoring many other legal squabbles that help make this story a non-hydrocarbon gusher for lawyers, Texaco was sued in 1993 in federal court in New York by communities in Ecuador that claimed that contamination killed many people, sickened more, and caused massive environmental damage in the Amazon Basin. After Texaco was merged into Chevron in 2001, a federal appeals court agreed that the case should be tried in Ecuador. The case bounced around as Chevron and Ecuador squabbled over where and how to deal with the matter.

    Finally, in 2009, Chevron forced arbitration. It did this based on the Bilateral Investment Treaty (BIT) between the United States and Ecuador that promised to honor arbitration clauses in contracts. Chevron argued that Ecuador had agreed to a release from liability years before when Texaco funded environmental remediation projects. Ecuador denied that position and pressed ahead in local court in Ecuador. Chevron protested, contending that the court was a stooge of the government and that, in any event, arbitration was required.

    Contemporaneously, Ecuador had sued in U.S. court to stop the BIT arbitration. A federal court denied the request to stay arbitration. That view was upheld by the Second Circuit Court of Appeals (Republic of Ecuador v. Chevron, 2011), which found arbitration as consistent with U.S. policy favoring arbitration—especially one based on a bilateral treaty between nations.

    This case gets even messier with Chevron suing experts and journalists for conspiring with the Ecuador plaintiffs while that litigation was in process. Filmmaker Joseph Berlinger was ordered by the Second Circuit to let Chevron see all footage from the “journalistic investigation” that was used in the making of a documentary called “Crude.” Berlinger’s claim of journalistic privilege did not carry the day. Similarly, over in the Third Circuit, Chevron prevailed in its request that defendants must produce work products (200,000 pages and 63,000 chemical samples) of “environmental consultants” who worked for the Ecuadoran plaintiffs. Chevron claims their behavior could violate criminal fraud statutes.

    Self-proclaimed environmental authority Robert Redford wrote “The Filmmaker as David Against Chevron’s Goliath” for the Natural Resources Defense Council’s OnEarth Magazine. He also promoted the documentary that David (a.k.a. Berlinger) made about the Chevron matter at his Sundance Film Festival. Environmental “justice” for Goliath Chevron soon followed in Ecuador court. U.S. courts appear to have another view of the matter.


    Written By
    • Roger Meiners
      • Senior Fellow

      Roger Meiners is Goolsby Distinguished Professor of Economics and Law at the University of Texas at Arlington and a senior fellow at PERC.

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