Update for Chevron Investors and Shareholders

After 19 years of litigation, the class action lawsuit against Chevron for environmental devastation in the Ecuadorian Amazon may be nearing an end.

On January 3, 2012, the Ecuadorian appeals court confirmed an $18 billion judgment against Chevron, and two months later, on March 12, an appellate court declared that the judgment is final and enforceable.

Chevron has appealed the ruling to the National Court of Justice in Quito, Ecuador's highest court. However, Chevron refused to post a bond that would be required to stop international enforceability of the judgment, and the National Court has not yet indicated whether it will accept the case on appeal. In the meantime, the case now has an internationally valid judgment that can be enforced in Ecuador (where Chevron has no assets) or any other nation.

Having lost resoundingly in Ecuador, Chevron is banking on last-ditch efforts to reverse the judgment in U.S. courts and an international arbitration tribunal.

In federal court in New York, Chevron has pursued a counter-lawsuit against the Ecuadorian plaintiffs under the RICO (Racketeering Influence and Corrupt Organizations) law, alleging that they colluded with Ecuadorian officials to extort a judgment from Chevron.

As of April 2012, Chevron's lawsuit was back before Judge Lewis Kaplan, with the company trying increasingly desperate and improbable legal tactics. Chevron was asking Kaplan to essentially freeze the plaintiffs' financing – an attempt that would completely violate due process and their rights to a fair trial.

In addition to its RICO suit, Chevron has also sought to defend itself though international arbitration against the government of Ecuador under the provisions of the U.S.-Ecuador Bilateral Investment Treaty (BIT).

In February 2012, an arbitration panel ordered the Ecuadorian government – and all of its branches, including the judiciary – to prevent enforcement and recognition of the $18.2 billion judgment. The award expanded on a prior award requiring the government to "take all measures at its disposal to suspend or cause to be suspended the enforcement or recognition within and without Ecuador of any judgment."

The Ecuadorian appeals court promptly rejected this request, saying that to do so would be a violation of Ecuador's obligation under international human rights law. As a result, the arbitration ruling has entered a legal twilight zone, full of apparent diplomatic gravitas but little immediate impact. The future direction of the arbitration case is unclear.

Overall, the endgame in this marathon legal process is likely to be an accelerating race against the clock, as lawyers for the plaintiffs attempt to enforce the judgment by seizing Chevron's key assets in Latin America, while Chevron desperately seeks legal stratagems to protect its tankers, oilfields and refineries from confiscation.

Chevron's sole advantage is its tremendous resources – including its battalion-size legal team of as many as 500 attorneys – which allow the company to carry out a nonstop assault of legal briefs, motions and attacks, attempting to overwhelm, outspend and bankrupt the plaintiffs' scrappy, underdog team of about 15 lawyers.

A new report demonstrates Chevron's lack of disclosure to shareholders around the material risks to the company from the $18 billion judgment. Read the report here.

In Brazil, meanwhile, a Nov. 7, 2011, offshore spill in Chevron's Frade oilfield has led federal prosecutors in Rio de Janeiro state to file lawsuits seeking $22 billion in damages and fines from Chevron. Prosecutors have also sought the criminal indictment of top Chevron executives in the country.

Investor questions for Chevron

  • What is the risk to Chevron of confiscation or attachment of its assets internationally because of the $18 billion judgment? Why has the company not detailed that risk to its shareholders?
  • What is the financial risk to Chevron for oil spills or controversies in Brazil, Nigeria, and Kazakhstan?
  • How much did Chevron spend on its Ecuador-related international legal team in 2011, for all related cases? How much does Chevron expect to spend in 2012? How much has it spent on the case, in total, since it purchased Texaco in 2001?

Shareholder resolutions to support

  • Independent Chair. This asks Chevron to separate the positions of CEO and Chair of the Board. This is good corporate governance and particularly relevant to Chevron given the question of whether the board has provided effective oversight of management's handling of the lawsuit in Ecuador. Lead filer is the Unitarian Universalist Association Common Endowment Fund, with Zevin Asset Management as co-filer.
  • Environmental Director. This asks Chevron to add an expert in environmental affairs to the Board of Directors given environmental lawsuits in Ecuador and Brazil. New York State is the lead filer, with Amnesty International USA and Zevin Asset Management as co-filers.
  • Calling Special Meeting of Shareholders. This calls on the company to amend its bylaws to give shareholders new powers to call a special meeting. It references concern over Chevron's legal liability and reputation in Ecuador and Burma. Lead filer is Newground Social Investments, with Zevin Asset Management as co-filer.
  • Request for Disclosure of Lobbying Policies and Practices. This is a new resolution that seeks to get full disclosure on lobbying positions, as well as processes to influence public policy and financial expenditures on lobbying. The lead filer is AFSCME (American Federation of State, Country and Municipal Employees).

Investor letter to Chevron

Like last year, the letter questions Chevron's strategy of endless litigation and asks the company to consider an equitable negotiated settlement with the communities in Ecuador affected by the company's pollution. You do not need to be a current holder of Chevron stock - simply an institutional investor or asset management firm - in order to sign on the letter. We have pushed back the deadline to sign this letter to COB on Monday, May 14th. If you wish to sign, email simon.billenness@gmail.com or call (617) 596-6158 and please include with your reply the name and position of your organization's signer, and your organization's assets under management. We already have a number of key signers with overall AUM above $130 billion, including the New York State Common Fund.

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