Talk of Settlement Reflects Dwindling Legal Options After Court Expert Finds Damages in Billions

Quito, Ecuador (August 18) – Chevron's surprise announcement on Friday that it would be open to talks to resolve a possible $16.3 billion liability for environmental damage in Ecuador reflects the company's dwindling legal options in a long-running lawsuit over who pays for the clean-up of what even Chevron now acknowledges is a huge disaster.

It also reflects how boxed in Chevron has become by a series of questionable legal and operational decisions made years ago by Texaco, a company Chevron bought in 2001 eight years after the Ecuador case had been filed in U.S. federal court.  Even though it had never operated in Ecuador, Chevron has assumed defense of the case and will bear any liability.

Chevron voluntarily subjected itself to jurisdiction in Ecuador in 2002 as a condition of the case being transferred out of the U.S. court, and is likely bound by any ruling there.

Chevron's statement on Friday – that it would be open to "a fair and complete resolution" to the Ecuador lawsuit if Ecuador's government also meets certain conditions – was a marked departure from previous statements made by company management that rejected all possibility of an out-of-court settlement.  It came after Ecuador's President, Rafael Correa, said in a speech that the government would be willing to mediate talks between the Amazon plaintiffs and Chevron.

Correa said Chevron had approached his government about trying to resolve the case, which went to trial in 2003 in the town of Lago Agrio in Ecuador's Amazon region.  .

Representatives of the 30,000 Amazon plaintiffs said they welcomed Chevron's statement but said they were fully focused on the actual trial, which is expected to result in a judgment in 2009.  A court-appointed Special Master recently fixed damages at between $7.2 billion and $16.3 billion.

Although Chevron claims it is the victim of an unfair judicial process – a charge disputed by the plaintiffs, who blame the company for years of delays and political interference in the trial -- there is much more to Chevron's problems in the Ecuador case than the company has let on publicly.   For example:

• The evidence in the trial increasingly points to Chevron's guilt.  The court's special master reviewed more than 70,000 chemical sampling results and concluded that three different entities -- Chevron, the plaintiffs, and his own court-appointed technical team – had separately verified extensive levels of toxic contamination in soils and waters at 100% of Texaco's former well sites in Ecuador inspected by the court.   Some of the sites operated exclusively by Texaco contained toxins thousands of times higher than the maximum amounts permitted by law.  Chevron, in other words, has helped to prove the case against itself.

• Texaco's original decision in the 1960s to dump highly toxic "produced water" into Amazon waterways instead of re-injecting it into underground wells is now haunting Chevron.  All told, Texaco dumped 18.5 billion gallons in just over two decades – in the process, killing off much aquatic life and poisoning groundwater that the population relies on for drinking.  The practice was not considered customary in the industry at the time and it had never been done in the Amazon rainforest, considered a highly delicate ecosystem.

• Texaco's decision in 1995 to try to end-run the pending lawsuit brought by Amazon communities in U.S. courts and pay $40 million to Ecuador's government for a so-called clean-up and release has backfired.  Not only did the clean-up fail to address most contaminated sites, but trial results demonstrate that the sites that were "remediated" still have extensive levels of contamination.  Texaco was given a "release" before any work was done.  Two of Chevron's representatives are now being investigated for fraud and corruption

• The release Texaco received for the so-called clean-up has caused problems for Chevron in various courts.  The release specifically carved out the claims of private citizens who were not a party to the agreement, and no court has accepted Chevron's expansive interpretation of the release.  Yet Chevron hinges almost its entire defense on this document.

Finally, Texaco's lawyers made what it is widely considered another critical error in seeking to shift the case from U.S. federal court to Ecuador.  For almost ten years – from 1993 to 2002 -- Chevron submitted several sworn affidavits to various U.S. courts praising Ecuador's court system as impartial and transparent.  Now that most of the evidence is in and those same courts are ready to rule, Chevron is having a hard time arguing that it is the victim of an unfair process.

"Chevron seems to be opening itself up to other possible solutions because when one looks at their evidence and defenses there's not much to lean on at this point," said Luis Yanza, the Ecuadorian who has been coordinating the case for 80 communities and five indigenous groups.

"The reality is that Texaco's legacy in Ecuador is now severely limiting Chevron's options," he added.  "Clearly they recognize that."