Friday, May 9, 2014

Facing Ethical Problems, Patton Boggs Must Overcome Huge Obstacles To Implement Chevron Settlement

Chevron’s campaign to target any law firm or funder that wishes to help the long-suffering Ecuadorian rainforest communities has claimed another victim – the Patton Boggs law firm. 

While this is distressing news for anyone who believes in the cause of human rights or in the fundamental ethics of the legal profession – treating your clients like this is very bad form -- it by no means lessens Chevron’s risk from the $9.5 billion Ecuador liability it now faces in countries such as Canada where villagers are pursuing enforcement.   Of course, pursuing Chevron’s assets in foreign jurisdictions is what Patton Boggs was supposed to be helping with until we read about the firm’s withdrawal in the press.  

For Patton Boggs, an agreement that it thought would end of its conflict with Chevron is really just the beginning of a new chapter.  This time, the firm will feel intense pressure not just from Chevron but also from its own former clients in Ecuador, who justifiably feel betrayed and who are considering a move to nullify the deal.  More disturbing is that the obligations Patton Boggs agreed to are no less than humiliating.  The attempt to implement the deal could backfire and easily undermine the firm’s pending merger plans.  Merger is the only possible justification for the settlement with Chevron at this particular time.

Here are the main takeaways from the Chevron-Patton Boggs settlement:

**Patton Boggs has opened itself up to potential liability as well as findings that it violated ethical rules governing the legal profession.

The agreement on its face is unethical because it betrays the villagers to whom Patton Boggs owed a duty of loyalty. In a statement that Chevron clearly approved, the firm now says it “regrets” its involvement in the Ecuador case.  It is unethical for a lawyer to make negative public statements about a former client when withdrawing from a case – particularly clients in the rainforest who are impoverished, face grave harm, and have no other U.S. law firm to protect them.  Patton Boggs also agreed to voluntarily turn over a substantial part of its its internal case file to Chevron – a shocking capitulation in and of itself.  But it then put the onus back on the villagers in Ecuador to try to block Chevron from receiving the documents it requests by making privilege objections in New York, even though the villagers no longer have a law firm in the U.S 

**The deal was fundamentally transactional so Patton Boggs could move forward with merger talks. 

Chevron had taken advantage of a tactical mistake by Patton Boggs to sue the firm for “fraud” before New York Judge Lewis A. Kaplan, who has repeatedly made disparaging comments about the Ecuadorians and their counsel, as Patton Boggs itself pointed out in these extraordinary legal petitions (here and here) to have him removed from the recent RICO matter.

Patton Boggs understandably did not want to subject itself to a drawn out legal process against an army of Chevron lawyers.  They knew the matter would be overseen by a judge prepared to help the oil company inflict maximum damage on the firm, as had already had happened to the Ecuadorians and their longtime U.S. legal advisor, Steven Donziger. (For more on how Kaplan operates and how his RICO case was a mockery of justice, see here).  Just the thought of going through that process, and with all of its attendant negative publicity, had to repulse Patton Boggs.  And the contingent liability from the Chevron lawsuit made it virtually impossible for Patton Boggs to be bought by another firm. 

**Chevron’s primary goal was to remove a first-rate law firm with enormous litigation capabilities from the field of play. 

While this might be mission accomplished for Chevron, the company still has a big problem: several top law firms such as Lenczner Slaght in Toronto, Sergio Bermudes Avogados in Brazil, and the fabulous Enrique Bruchou in Argentina continue to help the Ecuadorian communities enforce their judgment.  Other respected firms and lawyers – such as Gupta Beck in Washington, D.C. and John Campbell and Justin Marceau from the faculty of the Sturm College of Law at the University of Denver --  are assisting with a very strong appeal of Chevron’s recent RICO decision in the U.S.  Still other lawyers who are not intimidated by Chevron are in discussions with the villagers to join the battle in both the U.S. and other jurisdictions.

An additional problem for Chevron is that Ecuador’s Supreme Court unanimously affirmed the trial court judgment.  It is likely that foreign judges are going to assume that Ecuador’s courts know a lot more about Ecuador law than a U.S. trial judge operating out of a Manhattan courtroom.  The enforcement litigations ultimately will determine whether Chevron must comply with the Ecuador judgment.  And here, the villagers are in an increasingly strong position, although they would be in a stronger position with Patton Boggs.

**Chevron was able to leverage its superior resources to win a temporary tactical advantage by merely threatening a litigation.

The Patton Boggs dispute with Chevron was always a sideshow.  Chevron already lost the actual litigation on the merits in three levels of courts in Ecuador – the only courts that have been able to assess the full 220,000-page trial record, the 64,000 chemical sampling results, and the 105 technical reports (all of which Kaplan refused to admit into evidence).    Chevron is hoping the public relations hoopla it creates in the U.S. with the Patton Boggs settlement and the earlier capitulation of the Stratus consultants in the face of Chevron’s blackmail will cause enforcement courts to forget about the underlying evidence of Chevron’s toxic dumping and fraud in Ecuador.  It won't work.
**Enforcement actions targeting Chevron assets in other countries are moving forward and there is nothing Judge Kaplan can do to stop them. 

The Canada Supreme Court has set argument for November 7 on a narrow Chevron technical appeal.  If it goes as expected, the communities will head to trial in Canada in 2015 to try to enforce their $9.5 billion judgment in a country where Chevron subsidiaries have roughly $15 billion of assets that kick off about $3 billion per year for the parent company.   Brazil and Argentina also offer enticing prospects, but they are moving more slowly.  That said, actions in those countries still represent huge risks that the oil company will pay every dollar of the judgment.  And a recent decision by Canada’s intermediate appellate court seemed to openly mock Kaplan, further underscoring how his decision could backfire against Chevron.

(We note that most American journalists covering the Ecuador litigation have for the most part not focused on the enforcement actions. This generally has led to coverage that fails to accurately capture how the overall balance of power in this case is not in Chevron’s favor, especially with a pending appeal of Kaplan's decision in the RICO case, as explained below.) 

**Chevron is going to be on the defensive in the appeal of Judge Kaplan’s RICO decision in New York.

Kaplan invited Chevron to bring the RICO case, assigned it to himself, and promoted it at every turn as a SLAPP retaliation suit against the lawyers who helped to hold the company accountable in Ecuador.  He then let Chevron move forward with a trial for equitable relief that had no legal basis under the RICO law.  With the RICO statute replete with problems for Chevron, Kaplan denied the defendants a jury and then made up a new claim for Chevron that it never even put forth itself and was never litigated.  Kaplan also let Chevron put forth secret witnesses and then barred the defendants from cross-examining them or even learning their identities.  As a final insult, he then refused to admit into evidence the Ecuador trial record that was the basis for the finding of liability against Chevron. 

The proceeding throughout had a Kafkaesque feel and was an embarrassment to the U.S judiciary, not to mention a violation of American values. For these reasons and others, we believe Chevron’s RICO decision stands virtually no chance of surviving appeal before the same court which already unanimously overturned Kaplan in 2012 when he tried to impose an illegal global injunction purportedly blocking the villagers from enforcing their judgment in other countries.  That reversal and rebuke of Kaplan was engineered by none other than Patton Boggs.

**Chevron CEO John Watson and General Counsel R. Hewitt Pate are under enormous pressure from the Ecuador litigation.

John Watson and Hew Pate are all in on a scorched-earth litigation strategy that has cost shareholders upwards of $1 billion and has led to all sorts of ethical problems for Chevron lawyers.  These ultimate corporate insiders in 2013 were paid $24 million and $6 million respectively for successfully keeping the villagers waiting yet another year for their clean-up. Watson and Pate are so nervous about being confronted by the villagers and their own shareholders that they made elaborate plans to move their 2014 annual meeting to the remote town of Midland, Texas, a five-hour drive from the nearest metropolitan area.  Several shareholder resolutions stemming from the Ecuador liability pose direct challenges to Watson.  Further, there are anti-Chevron protests planned in several countries for May 21 as an international boycott against the company gathers steam, posing further business and reputational risk.

A few final thoughts about Patton Boggs.

There is no doubt that a small team of capable and dedicated lawyers at the firm did enormously important work on behalf of the Ecuadorians.  You know who you are.  Please know that the villagers and their allies around the world love you for what you did.  You fought like warriors and you did it ethically at all times, exactly as lawyers should.  You beat the hell out of Chevron's Gibson Dunn hit squad in almost every appellate court in the country where unbiased judges heard issues related to the case.  We know you vigorously opposed the settlement with Chevron, which was driven by a group of partners determined to push through a merger which they saw as necessary for the firm’s survival. 

As evidence of the effectiveness of Patton Boggs, Chevron as recently as 2012 was so flustered about its risk that it approached the firm to try to settle the entire Ecuador litigation.  Sadly, Chevron would not offer enough funds for an adequate clean-up even though it no longer seriously disputes the massive extent of the pollution problem in Ecuador. Chevron CEO Watson – himself blatantly conflicted on this issue and known for his pettiness on the Ecuador matter – lost a major opportunity to create a win-win for the communities and his own shareholders.

The ethical problems for Patton Boggs embedded in the settlement are likely to lead to more damage than if the firm had chosen to fight on.  The firm could have beaten back the Chevron allegations that every lawyer in Patton Boggs knows are bogus.  Further, Chevron's allegations stand a good chance of collapsing along with Judge Kaplan’s judgment when it gets scrutinized by the Second Circuit.  And even more critically: What kind of future client is going to want a law firm that shrinks in the face of adversity and puts its own self-interest above people facing a true ecological and public health catastrophe? 

Watson and Pate have yet to learn that Chevron's enormous risk in Ecuador will never be contained with side deals that do not address the fundamental problem and do not include the sign off of the affected communities.