Christina Weston, the Enforcement Loophole: Judgment-recognition Defenses as a Loophole to Corporate Accountability for Conduct Abroad

• Citation: Vol. 25 No. 1
• Publication year: 2010

THE ENFORCEMENT LOOPHOLE:

JUDGMENT-RECOGNITION DEFENSES AS A LOOPHOLE TO CORPORATE ACCOUNTABILITY FOR CONDUCT ABROAD

INTRODUCTION

After a major oil spill such as the most recent one in the Gulf of Mexico, many are left with a lingering question: will the contaminator be held accountable? Yet, despite the breadth of news coverage in 2010 focusing on BP, the oil contamination in the Gulf pales in comparison to the “Amazon

Chernobyl,” commonly regarded as the worst oil contamination in history.1

The “Amazon Chernobyl” refers to the oil contamination suffered in Ecuador and Peru due to the dumping of billions of gallons of waste byproduct from drilling into the rivers and streams of the Amazon.2 After eighteen years of litigation and an $8.6 billion judgment against Chevron, the Amazon

Chernobyl is now not only the world’s worst oil contamination, but it has also led to the largest judgment ever issued in an environmental case.3

Texaco began drilling in the eastern areas of Ecuador in 1964.4 For approximately twenty-six years, Texaco allegedly contributed to the Amazon Chernobyl by dumping over sixteen billion gallons of toxic waste from its oil wells into streams and rivers that thousands of people relied on for drinking

water.5 In addition to causing widespread contamination in an area equal to the

size of Rhode Island, cancers and other oil-related medical problems continue to plague the indigenous population.6 Yet, after Chevron purchased Texaco in

1. Bob Herbert, Disaster in the Amazon, N.Y. TIMES, June 4, 2010, http://www.nytimes.com/2010/06/05/ opinion/05herbert.html.

2. Amazon Defense Coalition, Chevron CEO’s Legacy Marred by Mishandling of Ecuador

   Environmental Crisis, BIOTECH WEEK, Oct. 14, 2009.

3. Ben Casselman et al., Chevron Hit with Record Judgment, WALL ST. J. (Feb. 15, 2011), http://online.wsj.com/article/SB10001424052748703584804576144464044068664.html. The judgment also

   conditionally granted punitive damages of an additional $8.6 million unless Chevron publicly apologized to the plaintiffs within fifteen days of the judgment being issued. Id.

4. Human Rights Impacts of Oil Pollution: Ecuador, BUS. & HUM. RTS. RESOURCE CENTRE, http://www.

   business-humanrights.org/Documents/Oilpollution/Ecuador/Introduction (last visited Feb. 19, 2011).

5. Complaint to Stay Arbitration at 3, Yaiguaje v. Chevron, Nos. 09 Civ. 9958, 10 Civ. 316 (S.D.N.Y.

   Mar. 16, 2010), 2010 WL 1028349 [hereinafter Yaiguaje Complaint].

6. Id. at 3, 7. According to one estimate by Daniel Rourke, up to 10,000 Ecuadorians are still at risk of contracting cancer in the future in the areas where Texaco operated. Jonathan S. Abady, Chevron Should Pay

   
   

   2001, ChevronTexaco,7 the world’s fifth-largest corporation,8 has employed a multitude of litigation strategies to avoid liability for Texaco’s role in the environmental damages, which is estimated to be between $90 and $113 billion.9 It appears that from the beginning, Chevron never contemplated

   compensation for the victims of Texaco’s contamination—Chevron allegedly did not account for the pending litigation between Texaco and the residents of the Amazonian rainforest when it agreed to purchase Texaco for $35 billion.10

   
   

   The Chevron litigation drama began in 1994: approximately 30,000 affected residents of Ecuador and Peru brought a suit against Texaco before the

   U.S. District Court for the Southern District of New York in Aguinda v. Texaco,11 alleging property damage, personal injuries, and increased risk of disease due to “negligent or otherwise improper oil piping and waste disposal practices.”12 Foreign plaintiffs typically prefer bringing suit in the United States, as opposed to a foreign forum, because of the unique substantive and procedural opportunities that are available in the United States.13 These include, to name a few, damages for mental anguish, punitive damages, broad discovery tools, and the right to a jury trial on issues of fact.14

   
   

   In 2001, the court in Aguinda v. Texaco granted Texaco’s renewed motion to dismiss the suit brought by the affected citizens under the doctrine of forum non conveniens (“FNC”).15 The court undertook a detailed analysis to determine whether Ecuador was an adequate alternative forum, one of the

   
   

   for Its Pollution in Ecuador, WALL ST. J. (Oct. 1, 2010), http://online.wsj.com/article/ SB10001424052748704116004575522301163187566.html.

7. Chevron changed its name to ChevronTexaco in 2001, but subsequently changed it back to Chevron in

   2005. Human Rights Impacts of Oil Pollution: Ecuador, supra note 4.

8. Norman Lear, Was Oil Named ‘Crude’ Because of the Way Oil Companies Do Business?, HUFFINGTON POST (June 8, 2010, 2:44 PM), http://www.huffingtonpost.com/norman-lear/was-oil-named- crude-becau_b_604741.html.

9. Michael D. Goldhaber, Year 18 of Ecuador vs. Chevron Pollution Suit, AM. L. DAILY BLOG (Sept. 23, 2010), available at http://www.law.com/jsp/law/international/LawArticleIntl.jsp?id=1202472363613.

10. Amazon Defense Coalition, supra note 2. Given that Chevron paid an 18% premium on Texaco stock

and assumed approximately $8 billion of Texaco’s current debt in the purchase, it is hard to imagine that Chevron ever intended to pay out $90 billion for Texaco’s role in the contamination. Chevron to Buy Texaco in

$35 Billion Deal, ABC NEWS (Oct. 16, 2000), http://abcnews.go.com/Business/story?id=89201&page=1.

11 Aguinda v. Texaco, Inc., 142 F. Supp. 534, 545 (S.D.N.Y. 2001), aff’d, 303 F.3d 470 (2d Cir. 2002).

1. Id. at 537.

2. Richard D. Freer, Refracting Domestic and Global Choice-of-Forum Doctrine Through the Lens of a Single Case, 2007 BYU L. REV. 959, 971 (2007).

14 Id. at 971–72.

15 Aguinda, 142 F. Supp. 2d at 537.

requirements to succeed on a motion to dismiss based on FNC.16 In opposing the motion, the Aguinda plaintiffs provided evidence that “the Ecuadorian courts were subject to corrupting influences and outside pressures, especially from the military, that rendered them inadequate to dispense independent, impartial justice in these cases.”17 Nonetheless, the court determined that

Ecuador was an adequate forum, still admitting that “no one claims the Ecuadorian judiciary is wholly immune to corruption, inefficiency, or outside pressure.”18 The court thus recognized the danger of corruption in the judiciary of Ecuador, yet found that “the courts of Ecuador can exercise with respect to the parties and claims here presented that modicum of independence and impartiality necessary to an adequate alternative forum.”19

The Second Circuit in 2002 affirmed the district court’s dismissal under FNC, holding that Ecuador was a suitable forum for both the plaintiffs from Peru and the plaintiffs from Ecuador.20 In response to the Aguinda plaintiffs’ repeated arguments that Ecuadorian courts were subject to corruption and impartiality, the Second Circuit found that the district court’s findings were not an abuse of discretion.21

The practical effect of an FNC dismissal is significant: in the overwhelming majority of cases, an FNC dismissal is a clear victory for defendants because it forces plaintiffs to either settle for insignificant amounts or abandon their efforts.22 Yet, against all odds, leaders of the affected

Amazonian communities persevered and filed suit in May 2003 against Texaco, by then known as ChevronTexaco, in Lago Agrio, Ecuador.23

Despite litigating in its “preferred forum” in Lago Agrio, ChevronTexaco has since invoked multiple proceedings outside of Ecuador in an attempt to escape liability, including before the American Arbitration Association

16 Id. at 537, 539.

1. Id. at 543.

2. Id. at 544.

19 Id. at 545–46.

1. Aguinda v. Texaco, Inc., 303 F.3d 470, 473 (2d Cir. 2002). The court modified the judgment in one respect by extending the period during which Texaco was required, as a condition to the dismissal, to waive any defenses based on a statute of limitations. Id. at 478–79.

2. Id. at 478.

3. See Freer, supra note 13, at 974.

4. Cortelyou Kenney, Disaster in the Amazon: Dodging “Boomerang Suits” in Transactional Human Rights Litigation, 97 CALIF. L. REV. 857, 858–59 (2009) (reciting case history).

   (“AAA”).24 In the AAA proceeding, ChevronTexaco sought a declaration releasing it from liability or, in the alternative, indemnification by the Republic of Ecuador based on a May 1995 release agreement between Texaco and Ecuadorian government agencies, which absolved the company of potential liability in exchange for partial cleanup of contaminated sites.25 While a New

   York district court ultimately granted a permanent stay of arbitration, one commentator has argued that the fact that the proceedings even took place “pose[d] significant risks to the Lago Agrio plaintiffs” because, despite the similarities to the Lago Agrio litigation, the Lago Agrio plaintiffs’ interests were not being represented in the attempted arbitration or the litigation.26

   
   

   Back in Lago Agrio, the unending litigation has continued to unfold over the past eight years. As the trial began to wind down, reports circulated that the plaintiffs were finally going to be able to recover.27 Nonetheless, Chevron has made it clear that it has no intention of backing down: in August 2009,

   Chevron released on its website secretly taped videos demonstrating corrupt activities involving the Lago Agrio litigation.28 Two men posing as contractors29 took watches and pens implanted with recording devices into

   
   

5. Id. at 859. Chevron also instituted a proceeding before the Permanent Court of Arbitration in the Hague in 2009. Press Release, Chevron, Chevron Files International Arbitration Against the Government of Ecuador Over Violations of the United States-Ecuador Bilateral Investment Treaty (Sept. 23, 2009), http://www.chevron.com/news/press/release/?id=2009-09-23. The Permanent Court of Arbitration in the Hague ruled in favor of Chevron. Press Release, Chevron, Chevron Wins Arbitration Claim Against the Government of Ecuador: International Tribunal Awards Chevron Approximately $700 Million (Mar. 30, 2010), http://www.chevron.com/news/press/release/?id=2010-03-30.

6. Yaiguaje Complaint, supra note 5...