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.