Chevron urges arbitration in $27 bln Ecuador case

* 17-year-old case carries potential $27.4 bln liability

* Chevron says Ecuador should pay

By Jonathan Stempel

NEW YORK, Aug 5 (Reuters) - Chevron Corp (CVX.N: Quote) urged a federal appeals court not to force it into Ecuador's courts to defend a $27.4 billion lawsuit alleging its oilfields polluted the Amazon rainforest and sickened thousands of Ecuadorians.

Lawyers for Chevron contended the U.S. Second Circuit Court of Appeals in New York should instead uphold a lower court ruling in March allowing the second-largest U.S. oil company to take the 17-year-old case into international arbitration.

Ecuadorian farmers and indigenous residents accused Texaco, which Chevron bought in 2001, of making residents ill and damaging forestry and rivers through the discharge of some 18 billion gallons of toxic water into the rainforest.

While Texaco had oil operations in Ecuador from 1964 to 1992, Chevron wants the country and state-owned Petroecuador, once a Texaco partner, to handle further cleanup and remedial costs, saying Texaco was released in 1998.

"It's really the government of Ecuador that should have to pay," said Randy Mastro, a partner at Gibson Dunn & Crutcher LLP representing Chevron, during the unusually long 1-3/4-hour argument on Thursday before a three-judge Second Circuit panel.

But lawyers for Ecuador and the residents said the matter should be tried in the Ecuadorian town of Lago Agrio.