Litigation funder feared Chevron case would taint fledgling industry

August 2, 2013

Regardless of what you think of the business of litigation funding, it’s here to stay. There are now hundreds of millions, if not billions, of dollars of capital invested in commercial litigation and arbitration in the United States, Britain and Australia, and some of the biggest litigation funding firms in the United States have begun to show a good enough return for their investors to justify the risk of taking sides in inherently lengthy and uncertain cases. Business groups that oppose investment in litigation tried mightily, but they simply haven’t managed to stem the industry’s steady spread, either through legislation or regulation.

For leading litigation financiers, the most significant impediment to growth is probably vestigial suspicion of their business by the big companies and major law firms they want to partner with. That’s why a newly released unredacted version of a filing by Patton Boggs in Chevron’s Manhattan federal court fraud litigation against the onetime lawyer for Ecuadorians with a $19 billion judgment against the oil company is so interesting. (Ted Folkman at Letters Blogatory was the first to spot the unredacted filing.)

The Patton Boggs brief addresses the relationship between the law firm, which is counsel to the Ecuadorian claimants in some of the multipronged litigation between them and Chevron, and Burford Capital, which once invested in the Ecuadorians’ case but has since alleged that it was deceived into taking part in the litigation. Precisely what Burford knew, and when it knew it, is yet another treacherous cul de sac on the long and ugly road of the Chevron litigation; Burford principal Christopher Bogart and Chevron itself present an abundance of contemporaneous evidence to rebut Patton Boggs’s premise that Burford knew more about flaws in the Ecuadorians’ case than Bogart said in a declaration to U.S. District Judge Lewis Kaplan in April. But the newly released brief quotes internal Burford communications showing the funder’s fear that the taint of its investment in the Chevron litigation would hurt not only its prospects but those of the entire litigation finance industry.

In case you don’t recall, Burford co-founder Bogart made a splash this spring when he filed his declaration, which described how Patton Boggs and Steven Donziger – the New York lawyer who championed the Ecuadorians’ environmental claims against Chevron for years, until Chevron lawyers at Gibson, Dunn & Crutcher revealed such allegedly illicit tactics as bribing Ecuadorian judges – had falsely assured Burford about the legitimacy of the case in Ecuador. Bogart’s declaration was rightly regarded as a boon to Chevron, a repudiation of the Ecuadorians and their advisers by another of their onetime supporters.

Patton Boggs was, of course, infuriated by Bogart’s assertions, which it considered a betrayal. Patton Boggs partner James Tyrrell had been a big supporter of Burford in its early days. He is a personal friend and former law firm partner of Burford co-founder Selvyn Seidel; Patton Boggs even provided office space to Burford when the funder launched. Burford and the law firm worked hand-in-glove in the early days of the funder’s investment in the Ecuadorian case. But Patton Boggs contended in a motion to strike Bogart’s declaration from the record in the case before Kaplan that everything changed when Seidel left Burford and former Latham & Watkins partner Ernest Getto – a onetime outside counsel for Chevron – joined Burford’s board. According to Patton Boggs, after Getto’s arrival, Burford schemed with Chevron to renounce the Ecuadorians and exit a messy case.

As I mentioned above, Chevron vehemently disputes Patton Boggs’s account of collusion between Chevron and Burford, calling it “a fantastical narrative” and “an attempt to hide the obvious,” namely that Burford was appalled by revelations about Patton Boggs in a March 2013 ruling by Judge Kaplan. (A Burford representative told me by email: “Burford is not a participant in the ongoing Lago Agrio saga. We sold our interest in 2010 and terminated our agreement in 2011…. We don’t think it is appropriate to engage in public dialog about ongoing litigation matters outside of the judicial process and we are surprised that Patton Boggs has been willing to do so. We obviously have a different view of the history of this matter – a view that is supported by the contemporaneous documents – but we do not see any purpose in debating the issues in the press.”)

Patton Boggs and Chevron (and Burford) dispute the significance of contacts between Getto and Chevron, but from a Bogart email quoted in the Patton Boggs brief, it seems clear that by early 2011 Bogart wanted Getto to pass along a message of conciliation to Chevron general counsel Hewitt Pate, with whom Getto was dining on Jan. 27. In a preparatory email to Getto, Bogart said that the Chevron case was not a typical matter for Burford, which preferred investing in commercial disputes and working with law firms like Latham or Gibson Dunn. “Burford would, frankly, be happier not to be in the middle of this mess, especially given that it is relatively far afield from our core business of financing corporate litigation,” Bogart wrote.

The litigation funder, according to Patton Boggs, apparently felt torn between the business harm it feared from its involvement in a non-commercial contingency-fee litigation and from stranding a law firm it had agreed to back when (at that point) the law firm hadn’t been accused of doing anything improper.

Burford documents indicate that the company tried to quietly ditch the Chevron case while its involvement was still undisclosed publicly. Once Roger Parloff of Fortune (a friend and former colleague of mine) got wind of Burford’s role, Burford’s concern about business impact deepened. “Getto relayed to Bogart and others that a chief litigator from one major firm told him that ‘she had partners who were interested in Burford, but the firm was being pressured by their insurance clients to stay away’ because of the Ecuador matter,” the newly released Patton Boggs memo said. “Getto complained that the ‘Ecuador investment cuts against’ Burford’s message that it ‘holds itself out as different from most funders in that it funds business disputes,’ a representation that was ‘front and center’ in Getto’s presentations to potential clients.” Bogart, according to the Patton brief, was upset that the Chevron case made Burford seem less like “a Goldman to the Am Law 100″ than like a contingency-fee plaintiffs firm. Getto complained about a meeting with a general counsel in which the first topic of conversation was how Burford’s investment in the Chevron litigation squared with its description of itself as a specialist in funding commercial disputes.

Even worse, according to documents Patton Boggs cites, was the possibility that Burford’s Chevron investment would damage the inchoate alternative litigation finance industry. “It won’t take much to push a number of established law firms and GC’s away from ALF, which seems to me the bigger risk,” Getto said in an email. “With Big Oil, the insurance industry and the Chamber of Commerce allied in trying to shut ALF down, I would expect to see some bills in at least a few states.”

Patton Boggs’s brief paints Burford’s “desperation” over potential harm to its business model as the reason the funder ditched the case and the law firm; Chevron and Burford say the funder publicly repudiated Patton Boggs when it became convinced of the law firm’s deception. In any event, the Chevron mess does not seem to have slowed the litigation funding movement, despite Burford’s fears. Burford principal Bogart told me in an email Friday that the Chevron matter is “so sui generis that it doesn’t really have much of an impact on anything normal, and I think lawyers and clients all understand that.”

(Reporting by Alison Frankel)

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