Biggest lobbying firm in DC caught in Ecuador mess, pays $15 million settlement to Chevron

It must have sounded like a great idea at the time for Patton Boggs, the DC law firm/lobbying powerhouse (annual lobbying revenues: $40 million) to enter into a deal to help Ecuadorian plaintiffs and their American lawyer Steven Donziger to collect billions of dollars in judgments handed down by an Ecuadorian court against Chevron, with the firm’s own share running into hundreds of millions of dollars, if successful. The case had attracted the attention of the jet set left and stars like Sharon Stone, after all.

The only problem was that Chevron, which acquired Texaco, the company that purportedly  had left a toxic mess behind working with the Ecuadorian National Oil Company, believed that fraud had been committed against it, and was willing to put up a fight in American courts to prove its case.

AT has been covering the case for years, but Fausta Wirtz has provided a time line to help understand the very complicated case:

  • 1964: Texaco Petroleum Co. begins drilling for oil in Ecuador as part of a consortium
  • 1990: State-owned PetroEcuador takes over the consortium’s oil operations
  • 1992: Texaco ends operations in Ecuador
  • 1993: Ecuadorean residents sue Texaco in U.S. federal court over oil pollution
  • 1995: Texaco signs agreement with Ecuadorean government to clean up pollution
  • 1998: Texaco completes the cleanup
  • 2001: Chevron Corp. acquires Texaco
  • 2003: Ecuadorean residents sue Chevron in Ecuador court
  • 2011: Chevron sues Ecuadorean plaintiffs’ lawyer Steven Donziger in U.S. court
  • 2011: Ecuadorean court awards the plaintiffs about $18 billion in damages
  • 2013: National Court of Justice in Ecuador affirms verdict but reduces damages to $9.5 billion
  • March 2014: Chevron wins U.S. court case against Mr. Donziger

Yesterday, news came out that Patton Boggs, which had been attracted to the case by the possibility of collecting a share of the $9.5 billion has agreed to pay $15 million to Chevron in return for a release from further liability. Steven Mufson of the Washington Post:

The settlement is a stunning and highly unusual setback for any law firm, let alone the nation’s leading lobbying firm, long a bedrock of the Washington establishment. While the payment will cover only a tiny portion of the money Chevron has spent on the legal battle, the settlement overall tarnishes the reputation of Patton Boggs.

Yet the settlement, which a senior official at the firm said would be entirely covered by Patton Boggs’s insurance policy, also removes a threat to the health of the firm. Patton Boggs had already been struggling with financial pressures common to the legal industry and has recently been exploring possible mergers in a bid to restore its stability.

Now, as part of the settlement with Chevron, Patton Boggs has agreed to assign its 5 percent interest in any money the plaintiffs might obtain. It also agreed to assist Chevron with discovery against the Ecuadoran plaintiffs and their New York-based lawyer, Steven Donziger, who has been doggedly fighting Chevron for more than two decades and who Chevron has argued was part of a racketeering scheme to obtain a fraudulent judgment.

That discovery would cover details about current efforts to enforce the Ecuadoran court judgment overseas. Sources familiar with the case said it could lead to disclosures about offshore entities, one called Amazonia and another called New Co., set up to collect money from enforcements abroad.

The part about assisting Chevron in discovery is most interesting. Since lawyers are normally bound by client confidentiality, I must assume (as a non-lawyer) that this indicates something (criminality?) negates that obligation, in the opinion of Patton Boggs.

The entire decision can be seen here, courtesy of the Wall Street Journal. Fausta notes:

In his opinion, Judge Kaplan noted that Mr. Donziger personally stands to gain more than $600 million in contingency fees and, potentially, control over billions that would go to the plaintiffs were the judgment collected.

On Tuesday, the judge ordered Mr. Donziger and his two co-defendants to turn over all property “traceable” to the Ecuadorean judgment to a trust to be set up on behalf of Chevron, and barred them from seeking to enforce the Ecuador verdict in any U.S. court.

The plaintiffs and lawyer Donziger are not pleased:

Donziger and the Ecuadoran plaintiffs issued a joint statement condemning “this sad and unethical betrayal” by Patton Boggs and Chevron’s “continuing campaign of extortion and intimidation.” They vowed to continue to press the case in appeals courts and challenge the settlement, which they said was a violation of attorney-client privilege.

The best part is that Chevron has left a warning to others:

Chevron has also said it waged a legal fight against the judgment instead of settling as a warning to others who might file lawsuits against big companies in the hope of getting a substantial settlement. Patton Boggs had agreed to represent the Ecuadoran plaintiffs and Donziger in return for getting a share of any enforcements or of a settlement, which the firm anticipated might amount to hundreds of millions of dollars, according to earlier court filings.

This was accomplished even without American adoption of the “English Rule,” that the loser in litigation pays the legal fees of the winner, which is necessary to counter frivolous or meritless lawsuits aimed at intimidating people and companies into settlements to avoid the costs of litigation. The trial attorneys and their wholly-owned subsidiary, the Democratic Party, fiercely oppose the English Rule. Should the debacle of Obama hand Congress and the Oval Office to Republicans, adoption of the English Rule ought to be a high priority, along with a national right to work law. It’s time for the GOP to play hardball the way the left already does.

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