Dropped charges in Ecuador could affect Chevron racketeering case

An Ecuadorean court's decision to dismiss criminal charges in a case concerning oil pollution liability could affect high-stakes litigation in New York over whether Chevron Corp. should have to pay up to $18 billion in damages.

The criminal case in Ecuador focused on whether fraud tainted an agreement between the government and Texaco Petroleum Corp. over oil remediation and the oil company's future liability.

Chevron acquired Texaco in 2001 and has since been battling in court against indigenous plaintiffs who say the company should pay damages for pollution in the region around the town of Lago Agrio, where the oil fields are located.

In February, a judge in Lago Agrio ordered that Chevron pay up to $18 billion in damages. Chevron has countered not just by appealing the judgment but also by filing a racketeering suit against the plaintiffs in New York, claiming the entire case is a fraud.

The criminal case in Ecuador has been mentioned in the racketeering proceeding as possible evidence of collusion between the plaintiffs and the Ecuadorean government, led by leftist President Rafael Correa.


Chevron has also claimed that Correa wields undue influence over the judiciary in Ecuador, a view that the judge presiding over the racketeering case, U.S. District Judge Lewis Kaplan of the Southern District of New York, appears to sympathize with.

But this week, a court in Quito -- the Ecuadorean capital -- dismissed the criminal charges, a development that the plaintiffs were quick to say appears to contradict Chevron's position.

"We believe the decision clearly demonstrates the independence of Ecuador's judiciary system," said Karen Hinton, a spokesman for the plaintiffs.

The case involved two former Texaco lawyers, Rodrigo Perez Pallares and Ricardo Reis Veiga, plus former Ecuadorean government officials and employees of the state-controlled oil company, Petroecuador. Veiga now works for Chevron, while Pallares is outside counsel for the company.

The allegations were that the defendants falsified documents concerning the 1995 agreement between Texaco and Ecuador, in which the government agreed to release the company from environmental claims in return for the remediation of some sites.

The 1995 agreement is a legal obstacle for the plaintiffs, although their lawyers claim it does not address third-party claims.

When the plaintiffs filed suit in Ecuador in 2003, three years after their initial complaint in New York was dismissed, the campaign to start a criminal investigation also began.

Ecuador's prosecutor general launched an investigation but in 2006 it was brought to a close due to insufficient evidence.

Under pressure from the newly elected Correa, the investigation was reopened in 2008, in part due to evidence gleaned from a report submitted in the Lago Agrio litigation by expert Richard Cabrera, which was later revealed to have been influenced by the plaintiffs.

Kaplan discussed the criminal case in detail in a 131-page opinion issued in March, in which he explained why he was imposing a preliminary injunction that would prevent plaintiffs from enforcing the Lago Agrio judgment in the United States.

The criminal charges were, he said, "an attempt to defeat the settlement" between Texaco and the Ecuadorean government.

"It is reasonable to conclude that the prosecutor general has revived the prosecution at least in part on the basis of the ostensibly independent Cabrera report," which was "covertly written" by the plaintiffs "with the support of President Correa," Kaplan wrote.

For Kaplan, the criminal case appears to have been a contributing factor in leading him to question the integrity of the justice system in Ecuador, an issue that has become key to the question of whether the plaintiffs will ever be able to collect any of the damages in courts around the world (Greenwire, May 23).

Hinton said the dismissal of the criminal charges "exposes that Judge Kaplan's apparent opinion that the Ecuadorean judiciary lacks independence and is devoted to persecuting Chevron is based on fictions erupting from the company's self-interested imagination."

A Chevron spokesman said the company was not ready to respond to the Ecuador court's decision.

In a related development, the plaintiffs have filed various legal papers with the New York-based 2nd U.S. Circuit Court of Appeals appealing Kaplan's injunction and seeking his removal from the case due to what Hinton called "his evident bias."

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