There are many facets to Chevron Corporation’s counteroffensive against the Ecuadoreans who won a $9.5 billion verdict against it three years ago. Chevron took aim at the lead lawyer behind the Ecuador case, Steven Donziger, and persuaded a federal judge in Manhattan to rule this month that Donziger and his clients secured the megajudgment through fraud. It’s also well-known that Chevron is targeting the law firm spearheading efforts to enforce the judgment, Patton Boggs, in a fraud claim pending before the same judge. Less well-known is that Chevron is pressing a similar case against the plaintiffs’ main litigation funder—the online gaming billionaire Russell DeLeon of Gibraltar. Chevron will seek from DeLeon global litigation costs that might be north of half a billion dollars.
Chevron’s case against DeLeon is now gaining traction. Any funder or lawyer involved in the business of enforcing foreign judgments would be wise to pay attention.
After graduating from Harvard Law School in 1992—a year behind future president Barack Obama and future global tort pioneer Steven Donziger—Russ DeLeon passed through Morrison & Foerster as a junior associate. He went on to marry Ruth Parasol, and with her made a fortune on PartyGaming plc, later absorbed into Bwin.Party Digital Entertainment plc. With his spare change DeLeon provided the bulk of funding for both Donziger’s Ecuador litigation and the documentary “Crude” that chronicled it so approvingly. DeLeon put into the case either $25 million or less than $10 million, depending on which evidence is credited. The important point is that he plugged the gap when the law firm Kohn, Swift & Graf and then Burford Capital withdrew as funders amid the public discovery of misconduct that they say Donziger hid from them. As Donziger wrote in a 2007 diary entry: “Russ is a friend, the benefactor for whom I have been waiting for years.”
In addition to the rewards of friendship, the evidence suggests that DeLeon is entitled to nearly $600 million of the $9.5 billion verdict, or just shy of Donziger’s share. I say “is” rather than was, because the plaintiffs are still trying to enforce the Ecuadorean judgment in four nations.
Instead of waiting to assert a fraud defense to enforcement, Chevron has proactively filed a claim against DeLeon in Gibraltar for business tort damages. It’s represented by the global boutique Kobre & Kim, which can handle both sides of enforcement out of London, Hong Kong and two Caribbean offices. Defending DeLeon is Sir Peter Caruana, who served as Gibraltar’s head of state for 15 years.
In a March 14 ruling, Chevron’s Gibraltar claim survived a motion to strike the pleadings (essentially a motion to dismiss). The Gibraltar court found at least a prima facie case that DeLeon and his funding vehicle were “fully involved in the conspiracy, continuing to fund it well after they were aware of fraudulent activities.” Indeed, Chevron alleged that “the stronger the case of fraud became, the more involved the defendants became.”
The challenge for Chevron on the merits—vis-à-vis both DeLeon and Patton Boggs—will be to establish who knew what when. Under the common law standard for fraud, Chevron at least needs to show that DeLeon was willfully blind. In the United States, it’s usually enough to show reckless disregard, which is sometimes defined as knowing that there was a substantial risk of wrongdoing.
By late 2010 the whole world knew, partly thanks to the documentary that DeLeon produced, that Donziger’s team secretly ghostwrote a key damages report in the Ecuador litigation. This was enough to stop especially scrupulous counsel from ever getting involved, and to motivate the clear-seeing professionals at Kohn Swift and Burford to get out while the getting was good. Patton Boggs has always argued that any impropriety was cleansed by later reports that the final judgment relied upon, and it never credited evidence subsequently uncovered by Chevron that the judgment itself was ghostwritten. U.S. District Judge Lewis Kaplan conclusively found both these frauds (among others) in his March 4 ruling against Donziger.
But should the funders and enforcement counsel be liable if they have a colorable belief that they are enforcing a fraud-free judgment? Should that be protected speech? Should litigation fraud as a defense to enforcement be left for the enforcing courts rather than litigated proactively as a business tort in Chevron’s chosen forum?
A less aggressive court might require a showing that their knowledge went beyond the litigation fraud to the extrajudicial dimensions of the conspiracy found by Judge Kaplan, including an extortionate propaganda campaign and obstruction of justice in U.S. discovery. This would make the Chevron cases easier to distinguish in the future, and less chilling to enforcement.
Consider the situation of London’s Woodsford Litigation Funding. According to Donziger’s testimony, Woodsford put $2.5 million into the case only a year ago, even after evidence of bribery emerged. Should Woodsford be considered more culpable, because all the facts were public when it joined? Or should Woodsford be considered less culpable because it wasn’t party to the pressure campaign and cover-up? Or should all past acts of conspiracy be attributable to it? And if Woodsford is liable, what about enforcement counsel in Argentina, Brazil and Canada?
Woodsford must have demanded a hell of a rate of return for entering as late in the game as it did. If Woodsford is now sued—which looks very likely—any funding terms seem a poor bargain. Burford and Kohn look wise to have left, and new funding for the plaintiffs seems doubtful.
It’s hard to shed any tears for the engineers of this historic travesty—but it’s debatable whether Chevron’s campaign against them will turn out to be salutary. Chevron can fairly argue that fraudulent litigation is pathological and should be pathologized. The danger is that the precedent empowers corporations to scare away funding and enforcement counsel in legitimate cases by merely raising a fraud defense.
The Global Lawyer won’t presume to strike this balance, nor to divine who knew what when. Along with the rest of the litigation industry, we’ll watch DeLeon and Patton Boggs closely. Unfortunately, our gut says that the pressure to settle may be too great for these important cases to play out.
The Global Lawyer is American Lawyer senior international correspondent Michael D. Goldhaber’s regular opinion column for the Litigation Daily.