Reference no: EM131785714

In March 1964, the Ecuadorian government invited Texaco, Inc. (Texaco) and Gulf oil corporation (gulf) to conduct exploratory activities in the Oriente, an area that includes the eastern lowlands and slopes of the Andes and a portion of the Amazon River basin. Texaco and Gulf formed a consortium (Consortium) with equal ownership rights through their Ecuadorian subsidiaries to conduct this exploration. The Consortium discovered oil in commercial quantities in 1967 and began export operations in 1972 after completion of a pipeline to Ecuador’s Pacific coast. Texaco served as the operator on behalf of the Consortium throughout this period of time. The Consortium underwent significant changes in the 1970s. The state-owned oil company-Compania Estatal Petrolera Ecuadorian (CEPE; later reorganized as Petroecuador)-assumed a stake in the Consortium in June 1974 and purchased Gulf’s stake in December 1976. From 1977 to 1990, the Consortium operated with Texaco and CEPE/ Petroecuador as the only participants and Texaco as the operator. On July 1, 1990, Petroamazonas, a subsidiary of Petroecuador, replaced Texaco as the operator. The concession agreement expired on June 6, 1992. Ecuador elected not to renew the agreement and assumed complete control of the concession area. At the time of the terminator of Texaco’s interest, the Consortium had operations on more than one million acres; had 339 wells, 18 production stations, and 1500 kilometers of pipelines; and had extracted more than 1.4 billion barrels of oil.

The consortium’s operations exacted a heavy toll on the environment. Oil production and pipeline operations were alleged to have resulted in the discharge of 26 millions gallons of crude oil and toxic wastewater into the surrounding environment. Approximately 2.5 million acres were impacted by oil-related discharges into wetlands, streams, and rivers and leeching into soil and groundwater. The Consortium dug and operated hundreds of unlined pits, which were used to store toxic chemicals utilized in drilling operations as well as other runoff. Additional sources of environmental contamination included the burning of crude oil, the flaring of approximately 235 billion cubic feet of natural gas and spraying of roads with crude oil for maintenance and dust control.

Ecuador threatened to sue Texaco for environmental injuries. As a result, in May 1995, Texaco, Ecuador, and Petroecuador entered into a contract (Remediation Agreement) wherein Texaco agreed to perform work on designated sites in return for a release of claims form Ecuador and Petroecuador. The Remediation agreement released Texaco and all related companies from claims arising from environmental degradation associated with the Consortium’s activities other than those arising from remediation Texaco was obligated to perform. texaco began remediation in 1995 and completed this work in 1998. Texaco spent $40 million in this effort, which included closing and remediating 161 waste pits and 7 overflow areas, plugging and abandoning 18 wells, and cleaning soil at 36 sites. texaco also installed three produced water treatment and reinfection systems, provided Petroecuador with equipment for ten additional systems, designed three oil containment systems, and conducted extensive replanting of native vegetation at the remediated sites. texaco also made two payments of $1 million each for socioeconomic projects and made payments totaling $4.6 million to affected municipalities in the region. In September 1998, the Ecuadorian government and Petroecuador signed a document (final act) in which they recognized that Texaco had fulfilled its obligations pursuant to the 1995 agreement and released it from current and future liability.

In November 1993, 74 Ecuadorians filed a class action lawsuit against Texaco in the U.S district court for the southern district of new york. The plaintiffs purported to represent more than 30,000 persons residing in the Oriente who had suffered damages from hydrocarbon contamination as a result of the consortium’s operations. The claims were ultimately dismissed on Texaco's motion on the basis of forum nonconveniens, which dismissal was upheld on appeal.

In May 2003, 46 Ecuadorian residents filed a lawsuit against Chevron Corporation (Chevron) in the superior court of justice of Nueva loa in the sucum-bios province. the plaintiffs based their lawsuit on provisions of the Ecuadorian constitution guaranteeing citizens the right to live in a healthy environment and the environmental management law of 1999 that recognized a ”popular action” to obtain damages for environmental injuries. The amount of damages was not initially specified but was later calculated at $27.3 billion.

Chevron asserted numerous defenses. chevron initially contended that there was no valid claim against it or Texaco as the environmental management law could not be applied retroactively pursuant to Ecuador's constitution, civil code, and applicable case law. Furthermore, it asserted that the claims were barred by the remediation agreement and final act. additionally, Chevron claimed that the plaintiffs sued the wrong entity by failing to assert claims against Texaco. specifically, Chevron contended that it did not acquire Texaco in 2001 and thus were not responsible for its liabilities, including responsibilities for environmental injury in Ecuador. rather, Texaco was merged with a wholly owned subsidiary of Chevron called keeper, Inc. chevron also alleged that the superior court lacked personal jurisdiction as chevron had never operated in Ecuador, that the plaintiffs’ claims were barred by Ecuador's four-year statute of limitations, and that the plaintiffs lacked standing as they failed to plead individualized personal injury or property damage.

The superior court deferred ruling on these defenses and commenced trial in October 2003. the conduct of the trial stirred considerable controversy and provided chevron with additional defenses. these controversies include procedural anomalies relating to evidence collection, the testing of soil and water samples, the use of expert witnesses, and the methods utilized to calculate damages. chevron also claimed that the superior court was influenced by political pressure exerted primarily by Ecuadorian president Rafael Correa and that the trial judge lacked integrity.

Although Texaco and chevron’s defense of u.s and Ecuadorian litigations is within the procedural rules in both jurisdictions, is it the appropriate moral response to environmental contamination in Ecuador? Is chevron’s conduct consistent with teleological frameworks for ethical thinking? did chevron’s response to the litigation promote its self-interest to the greatest degree possible as set forth in ethical egoism? what might become of environmental protection in the developing world if chevron successfully defends the litigation? was Texaco's behavior ethical based on the time and place of its occurrence? did Texaco's conduct and chevron’s litigation strategy produce the greatest overall good for affected persons as set forth in utilitarianism? Does the potential outcome to the Ecuadorian litigation demonstrate the difficulties inherent in utilitarianism with respect to measuring outcomes and predicting the success, failure, or utility of certain behaviors?

Is chevrons conduct consistent with deontological frameworks for ethical thinking? Is chevron setting an example by which other multinational corporations may conduct their operations in the developing world? Did Texaco's conduct treat Ecuadorians as means to the end of exploiting oil and gas resources? is chevron’s decision to vigorously defend the Ecuadorian litigation and resist settlement the fairest and most equitable resolution as anticipated by contractarianism?