Chevron sues another funder of Ecuadorian litigation

by  

Roger Parloff

The oil giant has sued Woodsford, a litigation funder, for investing in the allegedly fraud-tainted Ecuadorian environmental suit against it.

Chevron has sued Woodsford Litigation Funding Ltd. for financing the lawyers who are trying to enforce a $9.5 billion environmental judgment against the oil giant that was obtained in Lago Agrio, Ecuador, in 2011.

Chevron  CVX -1.63%  contends—and, last March, a federal judge in Manhattan held—that the judgment was procured by fraud, bribery, and many other crimes.

Chevron’s suit against the funder—filed in Gibraltar last June, but not previously reported—alleges that Woodsford conspired with the leaders of the Ecuadorian litigation to advance “a dishonest and fraudulent prosecution of a claim” against the company. The allegedly fraudulent claim in question is the one that led to the billion-dollar judgment, which purports to compensate residents of the Ecuadorian Amazon for contamination left behind by Texaco, after it drilled for oil there from 1964 to 1992. (Texaco was acquired by Chevron in 2001.)

Woodsford invested $2.5 million in the Ecuadorian case in March or April of 2013, according to trial testimony provided last November by Steven Donziger, the Ecuadorians’ lead U.S. lawyer. The testimony came at a civil racketeering suit Chevron filed against Donziger in Manhattan in 2011.

Woodsford’s involvement came remarkably late in the game. In July 2012–about nine months earlier–U.S. District Judge Lewis A. Kaplan had found that the “uncontradicted evidence” showed that important parts of the plaintiffs case were “tainted by fraud,” though he reserved judgment at the time as to whether the entire judgment was therefore tainted beyond enforceability. As far back as March 2011, Kaplan had written a 126-page opinion finding strong evidence of fraud and granting a preliminary injunction against enforcement of the judgment, though the ruling was later vacated on jurisdictional grounds unrelated to the accuracy of his findings. In addition, by the time Woodsford invested, at least five other U.S. district courts had found “prima facie” evidence of fraud infecting the plaintiffs’ judgment–i.e., evidence that, if left uncontradicted after a full trial, would make out fraud.

This past March, after completion of the racketeering trial, Kaplan ruled that the Lago Agrio judgment had, indeed, been obtained by bribery, extortion, fraud, obstruction of justice, witness tampering, money laundering, and other offenses, and he barred U.S. courts from enforcing the judgment. (Since Chevron has virtually no assets in Ecuador, the Ecuadorian judgment is worthless unless the plaintiffs can convince a court to enforce it in a country where Chevron does have assets.) Judge Kaplan’s ruling is now on appeal to the U.S. Court of Appeals for the Second Circuit. (For a summary of portions of Kaplan’s findings, see here.)

Woodsford has not yet filed papers in Gibraltar responding to the complaint. A spokesman for Woodsford denied that it was inappropriate to provide a loan at the stage it did, but he declined to elaborate.

Chevron had previously sued, also in Gibraltar, the key funder of the case at this point, Russ DeLeon. An old friend of Donziger’s from law school, DeLeon made his fortune though the online poker company, PartyGaming, and now lives in Gibraltar.

In July, in a filing in that case, DeLeon acknowledged having invested $23 million in the Ecuadorian litigation, giving him a 7% stake in the judgment. This is more than twice what Chevron suspected when it filed its suit against him last December.

In that same filing, DeLeon denies wrongdoing, stating that he knew of (and knows of) no conspiracy to employ fraudulent tactics in the case, and that if any were used, he was among the victims of them. He has also counterclaimed against Chevron for defamation. (Chevron’s reply to DeLeon’s defamation claim is here.)

Gibraltar is also the home to Amazonia Recovery Limited, a vehicle the plaintiffs set up to distribute any moneys they eventually may recover from the judgment. Woodsford’s finance agreement was with Amazonia, which is also named as a defendant in the suit against Woodsford.

While it is not known why Amazonia was set up in Gibraltar, a 2010 memo authored by the Patton Boggs law firm, which then represented the plaintiffs, recommended trying to distribute funds recovered from the judgment outside of Ecuador to circumvent an Ecuadorian law that, it was feared, might limit recoveries for attorneys and funders to just 10% of the judgment.

Two earlier key funders of the Ecuadorian suit withdrew from the case long ago, alleging wrongdoing by the plaintiffs. Burford Capital, which invested in late 2010, froze its investment shortly thereafter, and formally withdrew in September 2011, accusing the plaintiffs’ representatives of having tricked the firm into investing through a “multi-month scheme to deceive and defraud.” The original funder of the suit, the Philadelphia law firm of Kohn, Swift & Graft, has also eventually disavowed any stake in the case. In an August 2010 letter to the plaintiffs’ representatives, the lead Kohn lawyer said he was “shocked by recent disclosures concerning potential improper and unethical, if not illegal,” conduct by the plaintiffs representatives, whom he accused of having made “blatant lies” to him. (The plaintiffs have denied making any misrepresentations, and claim that Burford backed away after Chevron pressured law firms and corporations to shun the lender. They say Kohn, Swift was fired for unrelated reasons.)

Karen Hinton, a spokesperson for Donziger, says, “Chevron’s case against Woodsford is yet another attempt by Chevron to retaliate against anybody who tries to help the communities holding Chevron accountable for its environmental crimes and wrongdoing, as found by three layers of courts in Ecuador.”

“A U.S. federal court has ruled that the judgment against Chevron in Ecuador is the product of a fraudulent scheme intended to extort billions of dollars from the company,” says Morgan Crinklaw, a spokesman for oil company. “Chevron believes that the perpetrators of that scheme should be held accountable for knowingly advancing the fraud.”

Woodsford was founded in 2010. Its chief executive officer is Thomas Manduca, a former law partner at the London firm of Lovells, now Hogan Lovells. According to Woodsford’s web site, investment officer Timothy Mayer is a founder and board member of the Association of Litigation Funders of England and Wales, and “played a key role in agreeing the Code of Conduct for Litigation Funders.” The Woodsford spokesperson said Manduca and Mayer had no comment at this time.