International Environmental Law: A Most Inconvenient Forum
New York Law Journal
More than a decade ago my colleague Jean M. McCarroll and I described what then seemed like the end of a series of environmental claims against Texaco Inc. by indigenous communities from Ecuador’s Amazon rainforest, whose health, property and culture had been severely damaged by a Texaco subsidiary’s oil exploration and waste disposal practices that had polluted rivers, lakes, groundwater and forests and allegedly caused widespread skin lesions and cancers affecting 30,000 people in Ecuador and nearby parts of Peru (“The Second Circuit ‘Texaco’ Decision,” NYLJ, Oct. 23, 1998).
After first attempting to sue Texaco in Texas, where its principal facilities were located, and finding their claims dismissed on the grounds of forum non conveniens by Judge Norman Black in Sequihua v. Texaco, the plaintiffs brought two class actions (one on behalf of Ecuadorian victims and another on behalf of Peruvians) in the Southern District of New York, where Texaco had its headquarters.
The cases were assigned to Judge Vincent Broderick and, following his death, to Judge Jed Rakoff, who followed Judge Black’s lead in dismissing these cases on forum non conveniens grounds in Aguinda v. Texaco Inc. On appeal, however, the Second Circuit vacated that dismissal and directed Judge Rakoff to reconsider the issue in light of Texaco’s refusal to submit to the jurisdiction of the Ecuadorian courts, the changed position of Ecuador’s government (which had initially opposed but now supported the New York litigation) and other factors.
We suggested at the time that the Second Circuit opinion, Jota v. Texaco, might open the way to bring more environmental claims arising from U.S. firms’ foreign operations before federal district courts, where foreign plaintiffs could anticipate fairer, faster and more effective injunctive relief (and higher damage awards) than in their home jurisdictions. While that seemed a reasonable inference at the time, the subsequent history of this dispute shows how quickly the world of international environmental litigation is changing and how risky it is for lawyers to base advice on past practices without taking that change into account.
Remand to Judge Rakoff
On remand, Judge Rakoff undertook a comprehensive reassessment not only of the traditional factors considered in forum non conveniens motions (location of relevant events, parties, witnesses and documents, applicable laws, feasibility of injunctive relief and public interest to be served), but also the threshold question whether Ecuador’s judicial system could provide the class action plaintiffs a fair and impartial forum in which to adjudicate their environmental claims.
Texaco, following the example of Union Carbide in the Bhopal litigation and other transnational corporations sued in the U.S. for alleged misconduct abroad, submitted extensive expert affidavits on Ecuadorian law and the ability of Ecuador’s courts to afford the plaintiffs effective relief substantially equivalent to the class action remedies they were seeking in New York.
Judge Rakoff, sua sponte, also reviewed the U.S. State Department human rights reports on Ecuador, which indicated growing confidence in the independence and quality of the country’s legal institutions following an abortive military coup in January 2002.
Citing a declaration by Texaco’s expert on Ecuadorian courts, Judge Rakoff noted that the new government of Ecuador was headed by a former law school dean and had taken “vigorous steps to further the independence and impartiality of the judiciary” and that none of the State Department’s criticisms of Ecuador’s legal system involved commercial or environmental disputes.
He also noted, based on Texaco’s submissions, that the Ecuadorian courts had recently awarded damages to other plaintiffs in cases against Texaco arising out of the same alleged misconduct and that the Ecuadorian courts were experienced in appointing independent experts to advise the court on technical matters.
All of this led Judge Rakoff to conclude, as Texaco had urged, that the Ecuadorian courts were fully capable of adjudicating the plaintiffs’ claims fairly. On May 30, 2001, he once again dismissed the complaint on forum non conveniens grounds, subject to, among other things, Texaco’s consenting to be sued in Ecuador and to the submissions in Ecuador of the extensive discovery materials previously authorized by Judge Broderick. The Second Circuit unanimously affirmed on Aug. 16, 2002, with a brief extension of the plaintiffs’ time to refile their complaint in Ecuador. Texaco had won again, or so it seemed.
Trial in Ecuador
Rebuffed in Texas and New York, the plaintiffs recommenced their action in Ecuador in 2003 and found themselves trying their case in a makeshift courtroom in Lago Agrio, a small town in the Ecuadorian rainforest where Texaco (which had by then been acquired by Chevron) had based oil exploration activities. The trial quickly became a major focus of regional and national interest, providing an opportunity for local residents and environmental activists to tell their side of the story to the international press. The trial’s location also permitted plaintiffs’ counsel to show the Ecuadorian court first-hand the leaching oil pools, contaminated wells and skin lesions that affected so many local residents as a result of Texaco’s disposal of some 16 million barrels of oil into rivers and unlined crude oil pits.
In addition to disputing the plaintiffs’ claims, Chevron pointed to an earlier 1990 settlement with Petroecuador (the government authority that was Texaco’s partner in carrying out oil exploration) that, Chevron claimed, discharged it from any further liability for environmental cleanup. By the time the trial began, Chevron had turned that contention into an arbitration claim with the American Arbitration Association that sought reimbursement from Ecuador for any damage award against Chevron in the plaintiffs’ lawsuit.
The trial in Ecuador has been underway for more than six years. It has not gone exactly according to Chevron’s expectations. Judge Efrain Novillo, the original judge on the case, was replaced along the way by Judge Juan Nunez, who said in early 2009 that he was carefully reviewing more than 100,000 pages of documents submitted by the parties’ counsel (including a 36 year old lawyer for the plaintiffs, Pablo Fajardo, who told reporters that this was his first case).
To assist in this review and in evaluating the evidence, the court appointed (as Texaco had suggested to Judge Rakoff it might) an independent expert geologist, Richard Cabrera. With the help of a 14-member scientific team, Cabrera found extensive contamination in the area exploited by Texaco and recommended to Judge Nunez that he assess damages against Chevron in the amount of $27 billion. Judge Nunez announced that he expected to issue his decision, which many thought would adopt Cabrera’s recommendations, by the end of 2009.
Faced with this unexpected result, Chevron acted aggressively to derail Judge Nunez’s expected judgment. It launched a public relations campaign accusing Judge Nunez of bias and Ecuador’s new President, Rafael Correa, of interfering with the court proceedings by, among other things, characterizing the environmental pollution left by Texaco as a “crime against humanity.” Chevron also tried, and failed, to persuade the Obama Administration to strip Ecuador of its U.S. trade preference for allegedly breaching its earlier agreement to hold Chevron harmless from further cleanup liability.
Shortly thereafter Chevron also obtained, in a manner not fully disclosed, secret recordings of conversations in which various private parties spoke of a plan to bribe Ecuador’s president and Judge Nunez, among others, in order to share in the expected cleanup windfall.
Judge Nunez denied any knowledge of or involvement in this alleged plot but nevertheless recused himself from further involvement. The episode took a further bizarre turn when it was reported in The New York Times that one of the individuals, an American, who had helped make the secret recordings was a convicted drug trafficker and that another man involved in the recordings had moved with his family to the U.S. at Chevron’s expense.
Chevron also acted on a third front. In 1993, the U.S. and Ecuador had entered into a Bilateral Investment Treaty (BIT) that became effective in May 1997. Article VI(2) of the BIT provides that, in the event of an “investment dispute” between either country and a company of the other country that cannot be settled amicably, the company may either submit the dispute for resolution in that country’s courts or pursue binding arbitration under the rules of the IICSID Convention or the U.N. Commission on International Trade Law.
Article VI(1) of the BIT defines an “investment dispute” as one arising out of or relating to (a) an investment between the company and host country; (b) an investment authorization granted to the company; or (c) an alleged breach of any right the company has under the BIT. Such rights include, in particular, the right to non-discriminatory treatment of its “investment and activities associated therewith” compared to Ecuadorian citizens and companies from other countries.
Although Texaco had withdrawn from Ecuador in 1990 after concluding its cleanup agreement with the government, Chevron took the position that the alleged discriminatory treatment by President Correa and Judge Nunez in the plaintiffs’ damage case constituted a violation of the BIT’s investment protection obligations. Chevron therefore demanded arbitration of this “dispute” under BIT Article VI, designated its arbitrator under Article VII and demanded a broad range of relief that would effectively terminate the pending trial before a judgment could be entered against it.
Ecuador responded, how else, by commencing a new action in New York to enjoin Chevron from pursuing the BIT arbitration. The plaintiffs, who are not parties to the BIT or the arbitration, brought a companion action seeking similar relief. Both Ecuador and the plaintiffs pointed out that Chevron’s predecessor, Texaco, had argued vehemently for the Ecuadorian courts before Judge Rakoff and were thus precluded from challenging their fairness. Moreover, said Ecuador during two days of oral argument before Judge Leonard B. Sand, Chevron had, by joining in the on-going Ecuadorian litigation, effectively elected that judicial forum, rather than arbitration, to resolve its dispute with Ecuador.
Ecuador also noted that no judgment had yet been rendered in the pending litigation so that any Chevron claim for damages from the government’s alleged discrimination was premature.
Judge Sand declined to enjoin the arbitration and granted Chevron’s motion dismissing the complaint. Noting the split in the Southern District between Judges Shira Scheindlin and Loretta Preska as to whether he had the power to stay an arbitration, Judge Sand concluded he should not exercise any such power so long as there was at least one arbitrable issue in dispute.
In this case, that issue was whether the actions of the Ecuadorian government, after the commencement of plaintiffs’ litigation, constituted discriminatory conduct in violation of the BIT. The merits of that claim, or any other claims asserted by Chevron in its arbitration demand, were for the arbitrators to decide. Since those issues included the prematurity argument raised by Ecuador during oral argument and the plaintiffs’ claim that they were being denied the benefits of more than 10 years of litigation, Judge Sand directed that the transcript of the oral argument before him be included in the record sent to the arbitrators.
Judge Sand’s opinion did not consider the threshold legal issue of whether a judicial decision in an environmental remediation and damage action by private parties against a company that has previously left the country could constitute the kind of governmental interference with an “investment” that was contemplated by the BIT, presumably because he viewed that issue as more appropriate for the arbitrators. Since both Ecuador and the plaintiffs have now appealed to the Second Circuit, that court will soon have its third opportunity to review choice of forum issues for this dispute and, if it wishes, the scope of the BIT’s arbitration provisions as well.
In view of the torturous, even bizarre, history of the Chevron litigation so far, it seems foolhardy to draw any firm conclusions about the future of forum non conveniens for either plaintiffs or defendants in international environmental litigation. However, several observations do seem appropriate:
- Judicial and even administrative courts in developing countries like Ecuador are learning how to handle serious environmental complaints and to provide meaningful remedies where past or present misconduct is established. For litigants, this means that careful balancing of all relevant factors, including the opportunity to visit the site of any adverse impacts, is essential before reflexively favoring either a U.S. or foreign court to prosecute (or defend) a case.
- The way in which U.S. courts, particularly federal courts, handle complex environmental claims (class action status, use of experts, public access, basis for judicial findings and remedies) can provide a helpful template for many foreign courts handling such cases for the first time.
- Most U.S. bilateral investment treaties, which are drafted to protect U.S. investors from discriminatory or abusive action by host country governments, do not reflect the complex balancing of public and private interests when environmental misconduct affects private citizens or municipalities. Future agreements will need to consider the degree, if any, to which U.S. firms operating abroad (or foreign firms operating here) can invoke separate arbitration procedures to vindicate their grievances (or defend their actions) when the complaining party is not the host government but its citizens.
- Be careful what you wish for. Everything you say about the benefits of an alternative forum for your adversary may turn out to be true.
Stephen L. Kass is a partner at Carter Ledyard & Milburn and co-director of the firm’s environmental practice group. He is an adjunct professor of international environmental law at Brooklyn Law School.
Reprinted with permission from the April 23, 2010 edition of the New York Law Journal © 2010 Incisive Media Properties, Inc. All rights reserved. Further duplication without permission is prohibited. Reprint information for the legal properties relative to content searches and copyright clearance is available at www.imreprints.com. For questions contact, email@example.com or 347-227-3382.
 847 F. Supp. 61 (S.D. Tex., 1994).
 945 F. Supp. 625 (S.D.N.Y. 1996), reconsid. denied, 175 F.R.D. 50 (S.D.N.Y. 1997).
 157 F.3d 153 (2d Cir. 1998).
 Aguinda v. Texaco Inc., 142 F. Supp. 2d 534 (S.D.N.Y. 2001).
 Aguinda v. Texaco Inc., 303 F.3d 470 (2d Cir. 2002).
 Republic of Ecuador v. Chevron Corp., Nos. 09 Civ. 9958(LBS), 10 Civ. 316(LBS), 2010 WL 1028349 (S.D.N.Y. March 16, 2010).