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Chevron Vaults Hurdle to Arbitrate Ecuador ‘Fraud’

MANHATTAN (CN) - Chevron can continue to seek relief in international arbitration against an $18.2 billion judgment that was entered against the company in Lago Agrio, Ecuador, the 2nd Circuit ruled Thursday.

While the ruling marks an apparent victory for Chevron, the Ecuadoreans say that the decision has far-reaching implications that will ultimately work in their favor. Chevron appears ready to take its chances. "It's simple, they lost again," spokesman Kent Robertson told Courthouse News.

With the dismissal of the Ecuadoreans' challenge, the oil company can continue its campaign to invalidate a lawsuit that seeks billions to remediate environmental devastation allegedly caused by Texaco during decades of oil drilling before it pulled up stakes and became a Chevron subsidiary in 2001.

Claiming that the Ecuadoreans obtained a judgment in their favor through fraud, Chevron began pursuing international arbitration in The Hague through the Bilateral Investment Treaty between the United States and Ecuador. Chevron says the Lago Agrio litigation is an abuse of the criminal justice system in violation of the treaty and the United Nations Commission on International Trade Law.

Ecuador and the Lago Agrio plaintiffs, as intervenors, asked a Manhattan federal judge to stay the arbitration in December 2009, arguing that Chevron had waived its right to initiate such proceedings.

The 2nd Circuit affirmed the judge's decision to dismiss the separate actions of both the country and the Ecuadoreans on Thursday. It is up to the arbitral panel to determine whether the Ecuadoreans' waiver and estoppel claims have merit, the appeals court ruled.

In a 30-page decision, the three-judge panel also noted that the Ecuadoreans lack grounds for estoppel in their attempt to characterize the arbitration as a means for Chevron to back away from its obligations under previous judgments.

Those judgments stem from Ecuadoreans' initial attempt to hold Texaco liable in New York federal court in 1993. After nearly a decade of wrangling, Chevron won a ruling to transfer the case to Ecuador and agreed to honor the process and decisions of the country's courts.

Despite such promises, Chevron is entitled to "challenge the fairness of the Lago Agrio litigation ... whenever and wherever it chooses," Judge Gerard Lynch wrote for the court.

The Ecuadoreans' spokeswoman, Karen Hinton, says that footnotes in the 2nd Circuit's decision contain important concessions for her clients.

One footnote dismisses Chevron's contention that it is not liable for Texaco's pre-acquisition conduct. Chevron merged with Texaco to form ChevronTexaco in 2001, and reverted to its original name Chevron Corporation in 2005.

"There is no indication in the record before us that shortening its name had any effect on ChevronTexaco's legal obligations," the footnote states. "Chevron Corporation therefore remains accountable for the promises upon which we and the District Court relied in dismissing Plaintiffs' action."

Two other footnotes warn Chevron to treat the Lago Agrio suit as an extension of the 1993 suit in New York, called Aguinda v. Texaco, and stick to its obligations under the Aguinda judgment.

"Chevron's contention that the Lago Agrio litigation is not the refiled Aguinda action is without merit," one footnote reads. "[The] promise ... to submit to Ecuadorian jurisdiction, is enforceable against Chevron in this action and any future proceedings between the parties, including enforcement actions, contempt proceedings, and attempts to confirm arbitral awards."

All three footnotes speak to heavily contested issues in decades of litigation between Chevron and the Ecuadoreans.

The Ecuadoreans' spokeswoman heralded the 2nd Circuit's decision as a "Pyrrhic victory" that it will ultimately cause Chevron's defeat. The phrase takes its name from King Pyrrhus of Epirus, an ancient Greek ruler who opposed early Rome. Pyrrhus' army is said to have defeated the Romans at Heraclea in 280 BC and Asculum in 279 BC, but he lost his best soldiers in battle and could not sustain the fight.

Chevron spokesman Kent Robertson, predictably, took a different reading. He told Courthouse News that Hinton's classical interpretation "mischaracterize[s]" the ruling.

"The Second Circuit's decision affirms Chevron's right to contest the Lago Agrio judgment in the Bilateral Investment Treaty arbitration and other proceedings," Robertson said in a statement. "Chevron will continue to defend itself on the grounds that the Lago Agrio judgment is the product of fraud and an Ecuadorian judicial system that does not provide impartial tribunals or due process."

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