Chevron's Ecuador problem: Oil giant vows to fight $9 billion environmental ruling

Chevron is vowing to fight Monday's ruling by a court in the Ecuadorean jungle town of Lago Agrio. The ruling fines the oil giant $9 billion for environmental damages caused in the Amazon region in the 1970s and 1980s.

"The Ecuadorean court's judgment is illegitimate and unenforceable," said Chevron, in a press release Monday. "It is the product of fraud and is contrary to the legitimate scientific evidence."

Watched closely by environmentalists around the world, the ruling is the largest damages award ever handed down in an environmental case – exceeding the initial $5 billion award against ExxonMobil for the 1989 Alaska oil spill – and could set a precedent for future lawsuits against oil companies. But both sides said they will appeal, meaning that the long-awaited ruling is only one more twist in a 17-year legal drama worthy of a Hollywood film filled with secret recordings, private investigators, diary excerpts, and Amazonian tribes who claim their fishing grounds were decimated.

The plaintiffs, who represent approximately 30,000 residents of Ecuador's Amazon region, claimed that US oil company Texaco (owned since 2001 by Chevron) knowingly polluted an estimated 1,700 square miles of rain forest, creating health problems such as cancer and birth defects. They argued that Texaco dumped 18 billion gallons of toxic waste water and spilled 17 million gallons of crude oil in the Lago Agrio area, in northeast Ecuador.

But Chevron argued that Texaco, which operated around Lago Agrio from 1964 to 1990, complied with Ecuadorean law and already spent $40 million cleaning up any damage in the 1990s. The defense argued that the responsibility falls entirely on Petroecuador, the state-owned oil company that took over Texaco's Ecuador operations in the 1990s.

Award is big, but plaintiffs say not big enough

The initial lawsuit against Texaco was filed in 1993 in New York City, but the case was later moved to Lago Agrio. According to Judge Nicolás Zambrano's 188-page ruling issued Monday, Chevron must pay $8.6 billion, plus 10 percent of the damages (about $860 million), to the Amazon Defense Coalition, the group formed to represent the plaintiffs.

Moreover, if Chevron fails to publicly apologize within 15 days, the ruling says that the damages amount will be doubled to more than $17 billion.

Divided between the 30,000 residents said to be affected, the damages would correspond to about $280,000 per person – far short of the total $27 billion initially recommended by a court-appointed expert, say the plaintiffs. More recent assessments made by their lawyers brought the damages up to $113 billion.

“This is an important step, but we're going to appeal this sentence because we think that the damages awarded are not enough,” says Pablo Fajardo, lead lawyer for the plaintiffs.

What comes next?

Since both parties have promised to appeal, it is unclear what exactly happens next. Also, a recent flurry of suits and counter-suits between the plaintiffs and Chevron have further complicated Monday's ruling. Both sides are backed by large legal firms in the United States.

1 | 2

Next