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By Brian Flood
June 6 — Ecuador lost its bid to have the Supreme Court revive its challenge to a $96 million international arbitration award—$106 million with interest—in favor of energy giant Chevron Inc. ( Ecuador v. Chevron Corp., 2016 BL 179029, U.S., No. 15-1088, cert. denied 6/6/16 ).
The Supreme Court declined to hear the appeal, leaving in place a lower court's order confirming the award, which concerned a deal to develop oil fields in the Amazon region, according to the high court's June 6 order.
The U.S. Court of Appeals for the District of Columbia Circuit held that U.S. investors could bring arbitration claims against Ecuador even for disputes that began before the two countries' bilateral investment treaty (BIT).
By declining to take up Ecuador's appeal, the Supreme Court will let the D.C. Circuit's decision stand. Chevron released a statement welcoming the Supreme Court's decision; counsel for Ecuador did not immediately respond to a request for comment from Bloomberg BNA.
In 1973, Chevron's predecessor Texaco Petroleum Co. entered into an agreement to develop Ecuador's oil fields. In exchange, the company would provide below-market oil to the government for domestic use. As Chevron began winding up its work in Ecuador in the early 1990s, it filed several breach-of-contract cases in Ecuadorian courts. Among other issues, the company alleged that Ecuador had overstated its domestic oil-consumption needs and had appropriated more crude oil than it was entitled to at the reduced price.
In 2006, a three-member arbitral tribunal based at The Hague found that the Ecuadorian courts' undue delay in settling the lawsuits constituted a breach of the U.S.-Ecuador BIT and awarded damages to Chevron.
Ecuador argued that U.S. courts didn't have jurisdiction to enforce the award under the Foreign Sovereign Immunities Act because Ecuador never actually agreed to arbitrate its dispute with Chevron. A Federal Circuit appeals panel, however, said the BIT, and Ecuador's accompanying offer to U.S. investors to arbitrate outstanding disputes, were enough to establish an agreement to arbitrate (150 ITD, 8/5/15).
This case was not the only high-profile litigation to stem from Texaco's operations in Ecuador.
An Ecuadorian court ordered Chevron to pay $19 billion—reduced on appeal to $9.5 billion—to a group of indigenous farmers and fishermen in the Lago Agrio region due to claims that Texaco polluted Amazonian rainforests with toxic waste. However, a federal district court in 2014 in New York held that this judgment could not be enforced in the U.S., in light of evidence that the Ecuadorian ruling was obtained by fraud, including bribery of the judge ( Chevron Corp. v. Donziger, S.D.N.Y., No. 11-00691, .
Ecuador appealed that ruling to the U.S. Court of Appeals for the Second Circuit, where proceedings are ongoing. Ecuador also is seeking to enforce the award in Canada.
Steffen N. Johnson of Winston & Strawn LLP, Washington, D.C., represented the Republic of Ecuador.
Jeffrey S. Bucholtz of King & Spalding LLP, Washington, D.C., represented Chevron Corp.
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The Supreme Court's order is available at http://www.bloomberglaw.com/public/document/Ecuador_v_Chevron_Corp_No_151088_2016_BL_179029_US_June_06_2016_C.
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