We haven’t blogged recently here about the Chevron Ecuador case, but over the weekend the Washington Post carried a long analysis and profile by Business section reporter Steven Mufson on the state of play – focused particularly on a Washington insider part of the saga, the involvement of DC lobbying-law firm powerhouse, Patton Boggs. Patton Boggs has been an adviser to the Ecuadorian plaintiffs since 2010; it is now being sued by Chevron, the defendant, on fraud charges. Mufson’s story is about the colorful characters, including the lawyers involved – but it is also about the business of financing lawsuits:
When Patton Boggs signed onto the Ecuador case in early 2010 at the suggestion of a hedge fund looking into financing the litigation, it wrote a memorandum titled “Invictus” — borrowing the title of a 19th-century poem that culminates with the famous lines “I am the master of my fate/I am the captain of my soul.” In it, Patton Boggs outlined a strategy to pursue international Chevron assets to enforce the $18.2 billion judgment, “with the ultimate goal of effecting a swift and favorable settlement.” But this case wasn’t like other sticky problems that Patton Boggs had solved by striking deals. “Tommy thought he and Chevron’s counsel could sit down and work this out,” a prominent Washington lawyer, who spoke on the condition of anonymity to protect his business relationships, said about firm titan Thomas Boggs.
It has not worked out that way – Chevron, as OJ readers know, has dug in and will not cut some kind of deal. (Regular readers also know, full disclosure, that I think Chevron is right on the merits, but that’s not my interest here.) Mufson is an outstanding business reporter, and this account is utterly fascinating – Chevron, Ecuador, rainforests, oil, all that aside – for its account of the business of financing lawsuits in US courts in return for a contingency fee – a share of the outcome of any gains. That’s the reason for the reference to the hedge fund at the beginning; some hedge funds are deeply involved in this (rapidly evolving) business model:
How Patton Boggs ended up here is a tale of how the old boy network works in the elite legal world. And it involves an unusual niche — hedge funds that invest in complex litigation in the hope of sharing a big payday. In November 2009, a New York firm seeking financing for the Ecuadoran plaintiffs contacted Burford Capital, run by Christopher Bogart, a former general counsel of Time Warner and litigator at the white shoe firm of Cravath, Swaine & Moore. Burford is the world’s biggest institutional source of litigation financing, with a $300 million fund. Burford’s partners met Donziger, the plaintiffs’ dogged U.S. lawyer who needed fresh backing. Before investing, however, Burford wanted a “highly regarded U.S. litigation counsel” involved, according to a Bogart court filing. James E. Tyrrell Jr., a partner at the Newark office of Patton Boggs and a member of the firm’s executive committee, was the obvious choice ….
By early 2010, Patton Boggs was in. And that fall, Burford invested $4 million in the case, with plans for two further tranches of $5.5 million each. In return, it would get 5.545 percent of the settlement amount. Even if the settlement fell short of the billions expected, Burford would receive a minimum of $55.5 million, a handsome return on its investment. Bogart in his affidavit cited “our substantial confidence in Jim Tyrrell” and “our special relationship with and respect for Jim and Patton Boggs.”
A little more than a year later, the relationship had gone sour – in essence, Burford believed that it had been materially misled in representations made to it in exchange for funding. However, the letter making that accusation was addressed to the plaintiffs’ lawyer, Steven Donziger and the Ecuadorian plaintiffs, not Patton Boggs, which had originally drafted the perhaps imprudently titled “Invictus” internal memo that analyzed the business opportunity presented by the litigation.
On Sept. 29, 2011, Burford sent Donziger and the Ecuadoran lawyers a letter complaining about omissions in the Invictus memo, though it did not address the letter to Patton Boggs. “We believe that you and particularly your U.S. representatives engaged in a multi-month scheme to deceive and defraud in order to secure desperately needed funding,” the letter said, “all the while concealing material information and misrepresenting critical facts in the fear that we would have walked away had we known the true state of affairs.”
The heart of Burford’s complaint was the Cabrera expert witness report on damages allegedly caused by Chevron (i.e., then-Texaco’s) operations in Ecuador; again, regular readers will recall (and those new to this can read an excellent summary in Mufson’s article) the controversies that have swirled around Cabrera’s report, the claims of improper influence and communications, etc.:
The gravity of the doubts surrounding the Cabrera report had not found its way into the 2010 Patton Boggs Invictus memo. There, Patton Boggs had dismissed Chevron’s “bluster” and “singular fixation” on the report. It said that Chevron had declined opportunities to provide Cabrera with information of its own. “The damage is plain to see,” the memo said, adding that Chevron “cannot undermine the soundness of plaintiffs’ science.” But as new details [casting doubt on the Cabrera memo] emerged, Burford’s partners grew upset and believed Tyrrell had deceived them. In his recent affidavit, Bogart attached notes of a January 2011 telephone conversation with Tyrrell, who said that Donziger “was a fool” and that Patton Boggs was “evaluating what to do.” But Tyrrell added, according to the notes, that it was “difficult to believe that no award of significant damages” would come about. Meanwhile Burford has sold its stake to still another private investor group, recouping its $4 million investment.
I’m not doing justice to Mufson’s account of the new twists and turns in the case. But what I find most fascinating here is the intertwining of the rapidly growing business of speculative litigation financing, through essentially sale and resale of bits of the contingency fee, with a case with extraordinary political facts combined with an extraordinary amount of money at issue.
Question to readers: Are there other places in the world that allow this kind of third party financing of lawsuits? I think of it as a peculiarly American practice, though I’m not expert in this area and might be quite wrong. Added: See my post (several) above re Julian op ed on this in the WSJ; also, a couple of informative comments to this post on the apparently burgeoning business of litigation finance in several places in the world. Some good written materials, too – see comments and thanks to commenters.