NEWS UPDATE: NY Judge dismisses Ecuador request for stay of Chevron arbitration

By Fernando Cabrera Diaz

March 16, 2010

Judge Leonard Sand of the U.S. District Court for the Southern District of New York has granted Chevron’s motion to dismiss Ecuador’s request to stay the company’s arbitration against the Andean nation at the Court of Arbitration in The Hague.  In his March 11 ruling, Judge Sand held that there was at least one arbitrable issue raised in the Chevron claim which prevented him from staying the arbitration.

As reported previously by ITN, Chevron filed for arbitration against Ecuador in September of 2009, arguing that the country had violated the Ecuador-U.S. Bilateral Investment Treaty by, among other things, interfering on behalf of plaintiffs in a class-action suit against the company currently being disputed in Ecuador.

In that class-action suit, a group of Ecuadorean citizens is suing Chevron over environmental damage allegedly caused by Texaco Inc., which was bought by Chevron in 2001, in the Lago Argrio region of Ecuador where Texaco participated in oil projects with the Ecuadorean government and Petroecuador until 1992.

In response to Chevron’s arbitration, Ecuador and the Lago Agrio claimants separately asked the U.S. District Court to stay the arbitration. Both parties argued that during a previous lawsuit over the environmental damage in Lago Agrio, Texaco had promise the same court that it would abide by any ruling in Ecuador in order to have the case moved to Ecuador. Chevorn moved quickly to dismiss both requests.

In granting Chevron’s motion, Judge Sand said he would assume without deciding that his Court had the power to stay an arbitration under certain circumstances.  Judge Sand noted that the Court was divided on the issue, citing two recent cases which took opposite views as to whether the District Court had the power to stay an arbitration.

What is settled law in New York, according to Judge Sand, is that if there is at least one arbitrable issue, the Court should not intervene in an arbitration. In the case at bar, the Judge found that there was at least one arbitrable issue raised by Chevron in its arbitration at The Hague.

In particular the Judge pointed to Chevron’s claim that two Chevron lawyers were inappropriately criminally indicted and sanctioned and that this entitles the company to « moral damages » as a result of President Correa his government’s public campaign against the company.

Sources:

Transcript of Judge Sand’s decision provided by Chevron Inc.

Previous ITN reporting:

“Ecuadorians battle Chevron in U.S. court over BIT arbitration in long-running environmental damage dispute,” By Fernando Cabrera Diaz, Investment Treaty News, 11 March 2010, available here:

http://www.investmenttreatynews.org/cms/news/archive/2010/03/10/ecuadorians-battle-chevron-in-u-s-court-over-bit-arbitration-in-long-running-environmental-damage-dispute.aspx

“Chevron launches investment-treaty claim against Ecuador,” By By Damon Vis-Dunbar, Investment Treaty News, 2 October 2009, available here:

http://www.investmenttreatynews.org/cms/news/archive/2009/10/01/chevron-claims-denial-of-justice-in-investment-treaty-claim-against-ecuador.aspx

“Chevron warns Ecuador on BIT claim as contract and environmental disputes persist”, By Damon Vis-Dunbar, Investment Treaty News, 26 July 2006, available here:

http://www.iisd.org/pdf/2006/itn_july26_2006.pdf