Issue of the week: Chevron’s $27 billion nightmare

It’s a legal victory that Chevron must now wish it had never won, said Michael Orey in BusinessWeek. In 2003, the U.S. oil giant persuaded a federal judge to dismiss a 10-year-old class action filed in New York by tribes indigenous to Ecuador’s oil-rich rain forest and to transfer the case to Ecuador. The suit alleged that Texaco, which Chevron acquired in 2001, had done massive environmental damage to the rain forest and should pay the tribes billions in cleanup costs. (Chevron denies any wrongdoing.) Choosing a course followed by most big U.S. companies when sued over their overseas operations, Chevron preferred a foreign venue—since plaintiffs in the U.S. typically have a greater ability “to gather extensive evidence and win high verdicts.” Once cases like this one are transferred, plaintiffs often give up.

But the Ecuadorean plaintiffs didn’t give up, said Ben Casselman in The Wall Street Journal, and Chevron could face a judgment of up to $27 billion when a verdict comes down in November. The company now says it can’t get a fair hearing in Ecuador and insists it won’t pay any damages. To bolster its stance, Chevron this week released secretly recorded videotapes on which the Ecuadorean judge handling the case seems to acknowledge that he has already decided against the company, even though testimony is still being taken. The tapes also appear to capture foreign businessmen offering bribes to the judge and other officials to decide against Chevron. But even if Chevron avoids paying damages, “a record-setting judgment could tarnish Chevron’s image at a time when it had been trying to establish itself as environmentally friendly.”

Chevron might well bear no responsibility for Texaco’s prior acts, especially since Texaco in 1998 paid Ecuador $40 million to settle all damage claims, said the Los Angeles Times in an editorial. That settlement makes the very existence of the class action look dubious. But evidence that has emerged in the case leaves little doubt that in the 1960s and ’70s, Texaco did terrible harm to Ecuador’s rain forest and the people who live in it. Entire communities “have been plagued with devastating illnesses as a result of oil waste in their drinking and bathing water.” And the rain-forest natives still bitterly resent the American oilmen who, they say, “mocked and shamed them and raped more than just their lands.” Aguinda vs. Texaco, then, isn’t just a complaint against one company. It’s a protest against decades of Yankee “paternalism and arrogance.”

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What nonsense, said The Washington Times. This case is nothing more than “a rigged shakedown of millions of American small investors,” sanctioned by Ecuador’s leftist President Rafael Correa, who has publicly sided with the plaintiffs. The videotapes reinforce Chevron’s argument that Ecuador’s courts can’t be considered fair arbiters of justice and that the verdict is foreordained. The company is right to refuse to honor a “corrupt” and “crooked” decision.