July 1999 Vol. 220 No. 7  Exploration

Perry A. Fischer,  Engineering Editor

The U.S: Court of last resort? Maybe, but it’s the pits

The landmark legal battle against Texaco continues as judges bounce the case around the courts. The plaintiffs, roughly 30,000 Amazonian rainforest inhabitants, are represented by the Committee for the Defense of the Amazon, an Ecuador-based environmental group. A recent ad in the New York Times read: Warning to Chevron shareholders: Texaco comes with a lot of assets. And one huge liability. A connection to the now-defunct Texaco / Chevron merger, if any, is weak.

Plaintiff’s position. The group alleges the company saved $3 to $4/bbl — nearly $6 billion spanning a period of more than 20 years — through surface disposal of E&P associated wastes as opposed to underground injection. The wastes (oily produced water), says the group, were deposited into rivers and more than 300 large (up to 15 acres), open pits.

State-owned Petroecuador continues to operate wells in the region. Ongoing disposal practices include burning the accumulated waste oils in the pits, which produces a "black-soot rain," and spreading the oils on dirt roads (the government gives gasoline to the natives to wash their blackened feet). Long-term use of both roads and contaminated surface water has led to health problems, including deadly cancers, skin lesions, birth defects and massive die-off of plants and animals, claims the group.

Damages are estimated at more than $1 billion, with the potential for much greater punitive damages. No one, except possibly Texaco, says that Ecuador’s courts are capable of hearing the case. Its legal system does not provide for class-action lawsuits, so only 73 landowners could sue. It would take forever for 73 (and certainly 30,000) cases to be tried. The group’s president, Luis Yanza, said, "This is an environmental crime that never would have been allowed in the United States."

Texaco’s position. In 1964, the Ecuadorian government invited TexPet (a Texaco subsidiary) as a partner in E&P in the Amazon region. Petroecuador was the majority partner, while TexPet had a 37% stake and was operator. In 1990, TexPet transferred operatorship to Petroecuador, which ultimately became 100% owner in 1992. During the 26 years TexPet operated in Ecuador, government statistics show that life span and infant mortality has improved dramatically.

Three lawsuits were then filed: Sequihua, August 1993 (later dismissed), Aguinda, 1993 and Peruvian plaintiff Jota, 1994. Although two independent consulting firms found "no lasting or significant environmental impact from its former operations, Texaco nonetheless agreed to remedy any impact from its operations." Included in the remediation contract, signed by Petroecuador’s president and the Minister of Energy and Mines, was "the release from all obligations, liability and claims following negotiations with government officials representing the interests of indigenous groups in the [Amazon] Oriente."

Begun in 1995, the $40-million remediation project was completed three years later. It included pit and contaminated-soil remediation for some sites, modifications to produced-water systems and replanting of cleared lands. Texaco built three waste-water injection systems and provided funds to Petroecuador for 10 more injection systems (according to the opposition, exactly where those funds went is unclear).

Texaco refutes the group’s claims. "These operations were conducted in compliance with Ecuadorian law, international petroleum-industry environmental standards and, most importantly, by employees (90% of whom were Ecuadorian) who value the health and well-being of their own community." Texaco also says that there is no credible evidence for the natives’ health maladies.

Further, Texaco says that Ecuador received about 98% of all the monies generated by the E&P consortium in the form of royalties, taxes and revenues. Collectively, this represented more than 50% of Ecuadorian GNP during the period. About 3,000 Ecuadorian families benefited from direct employment, as well as thousands more from the supply of goods and services. Texaco also funded social and health systems, such as medical dispensaries, sewage and potable-water systems and contributions to various institutions of higher learning.

A back-and-forth history. Beginning in 1993, several initial motions to dismiss the Aquinda case were rejected by Judge Broderick, who ordered the parties to proceed with discovery. Broderick subsequently died and the case was eventually transferred to Judge Rakoff, who reversed Broderick’s previous decision and dismissed the case. Upon appeal, the Second Circuit Court unanimously reversed Judge Rackoff’s decision and sent the case back to him to decide in what country the case should proceed. In addition, the appellate court seemed to indicate that the case should be tried in the U.S. if Ecuador’s courts could not provide a suitable judicial forum.

What’s important. The plaintiff’s lawyers have used the arcane Alien Tort Claims Act, a 1789 law, to pursue Texaco on its home turf. Largely intended to permit prosecution of pirates who sought refuge on U.S. shores, this law has been successfully revived in recent years. Additionally, for the past 50 years, a series of international treaties and declarations have introduced the idea that the guaranteeing of human rights is part of international law — and, therefore, U.S. law. But no one has tried to equate environmental rights with human rights — until now.

Judge Rakoff now has a tough decision. Should he decide to let the case proceed in the U.S., it may become the World’s Court of First and Last Resort. What’s important here is not the outcome of the case(s), although that is paramount to the parties involved. Rather, it is the jurisdictional precedent it sets for U.S. oil companies and, to some extent, any U.S. company operating internationally. Cases could be tried for alleged wrongdoing by foreign governments that have contracts with U.S. corporations. A decision is expected soon.

Further information can be obtained at: www.texaco.com/shared/position/docs and at: www.texacorainforest.org.

Copyright © 1999 World Oil
Copyright © 1999 Gulf Publishing Company