Tuesday, April 23, 2013

The Ugly Truth Behind the Burford-Chevron Settlement

Reposted from The Chevron Pit

It is becoming increasingly clear that Chevron's so-called "settlement" with Burford Capital, a publicly-traded litigation hedge fund that had helped to finance the historic Ecuador environmental case, is beset by serious ethical problems. Just like the Stratus "settlement" that preceded it, this latest gambit by the oil giant will not diminish in the least its growing risk from the $19 billion adverse judgment.

We already explained the vicious pressure campaign waged by Chevron to extort a settlement from Stratus Consulting, a small Colorado-based technical firm. Stratus literally faced bankruptcy due to Chevron's efforts to drive away its clients and impose enormous legal liability after it had the temerity to work on behalf of the Ecuador communities.

The good people at Stratus caved in the face of Chevron pressure, with two of its scientists agreeing to sign highly misleading affidavits contradicting earlier sworn testimony that the oil giant caused massive toxic contamination in Ecuador. Stratus essentially chose a near-death event (signing false affidavits) over a certain death event (continuing to fight Chevron).

Chevron's settlement with Burford, announced with great fanfare on April 15, suffers from similar credibility problems and also appears to be the product of intimidation and threats.

Given that it is a public entity backed by prominent institutional investors, Burford could not afford to embroil itself in Chevron's threatened litigation sideshow. Chevron's approach threatened to dry up investment money for Burford. It also raised the prospect of forcing the fund to spend millions to defend itself – something that would be very bad for business.

To avoid this Chevron-engineered unpleasantness, Burford CEO Christopher Bogart signed an affidavit that has the odor of being designed by Chevron's own lawyers. Bogart claims in the affidavit that he had had been "misled" by lawyers for the rainforest communities about a wholly irrelevant technical report on damages (called the Cabrera Report). The Ecuador court did not even consider this report when finding Chevron liable.

(The Ecuador court did rely on evidence in more than 100 other technical reports that contained 64,000 chemical sampling results, most showing massive and life-threatening contamination due to Chevron's deliberate toxic dumping in Ecuador. For a summary of the overwhelming evidence against Chevron, see here)

For the Ecuadorians, Burford's settlement changes very little.

Burford already had refused to fund the case further in 2011 after Chevron filed a racketeering case against the communities that named the hedge fund as a "non-party co-conspirator" – a wholly invented designation used by Chevron to instill fear in the heart of any person or entity that wished to help the victims of the oil company's toxic dumping.

But what does matter are the details behind Burford's own descent into darkness. This is where it begins to get interesting.

What Bogart does not disclose is that when Burford ceased funding the case, it was hiding a flagrant conflict of interest from the Ecuadorians as well as its own investors. In late 2010, shortly after Burford had funded the claims of the Ecuadorians, the firm agreed to bring in as a principal partner former litigation lawyer Ernest J. Getto.

Getto had previously generated enormous fees at Latham & Watkins as one of Chevron's lead outside lawyers. He worked for Chevron on a number of high-profile cases, including a toxic tort class action involving allegations of pollution and cancer deaths among students, faculty and alumni at Beverly Hills High School. (That case involved Chevron's use of many of the same subterfuges it employed during the Ecuador trial to undermine the proceedings. You can read about it an excellent book by Joy Horowitz, Parts Per Million.)

In effect, a lawyer extremely close to Chevron had infiltrated the key funding entity of Chevron's litigation adversary in a high-stakes case. Burford had a contractual right to access information from the rainforest communities, including information related to their strategy. There is no evidence – and Bogart has never asserted – that Burford built a firewall between Getto and the case. Burford also never informed the Ecuadorians about the conflict.

Obviously aware of and embarrassed by this conflict of interest, Burford took the extraordinary step of censoring from its own website any reference to Chevron as one of Getto's "major" clients during his tenure at Latham & Watkins. But one need only go to Latham's directory of its retired partners – which we did just the other day – to find this extraordinary claim:

"Mr. Getto, representing Chevron, also led a Latham team that won all 12 motions for summary judgment in the highly publicized Beverly Hills High School toxic tort litigation."
That's what you call a real whopper.

Bogart does Chevron's bidding by claiming in his affidavit he was "misled" about the Cabrera report, but this has scant credibility. Bogart admits he had multiple discussions about this report with counsel for the Ecuadorians. He admits he was given a detailed memo on the case by the Patton Boggs law firm that included an analysis of the issue. He also had access to thousands of court documents filed by Chevron related to its concocted "fraud" narrative.

Again, trial and appellate courts in Ecuador rejected Chevron's arguments about the Cabrera report. The court ruled against Chevron in the underlying case, finding it liable for causing massive toxic damage to the ecosystem. The side Burford funded won. You would think Bogart would be happy.

Which brings us to the next startling detail.

Bogart also does not fully explain in his affidavit the details around Burford's sale to a third party of its interest from its $4 million investment in the Ecuador case. Yet as part of its recent "settlement" with Chevron, Burford said it would give up on any monies it might still be owed from any recovery by the rainforest communities.

That's at least mildly misleading, don't you think?

If Bogart really believes what he says – that the Ecuador case is a "fraud" even though courts in Ecuador have ruled otherwise – then Burford surely must disgorge the monies it made when it sold its interest to a third party. That Burford refuses to do so is all you need to know about how the company really views the Ecuador case.

Curiously, nowhere in the "settlement" does Burford say it has freely entered into its terms with no monetary compensation, which is typical language in civil litigation.

Bogart's affidavit is designed to get rid of a major litigation and business risk for Burford. For Chevron, the affidavit provides a fleeting public relations score that it will use to try to beat back the company's angry shareholders in the lead up to the annual meeting in late May.

In last year's annual meeting, Chevron CEO John Watson was pummeled openly for his mishandling of the Ecuador case. This year, he faces votes on two resolutions related to Ecuador that likely will lead to further embarrassment.

But the "settlement" also creates a nagging headache for Burford which will not easily go away. As Burford aspires to be an industry leader in the nascent field of litigation finance, it will always be known as the firm that caved to pressure from an aggressive oil company hell bent on destroying the legal claims of vulnerable indigenous communities.

In his declaration, Bogart presents his motives as high-minded. He said in settling with Chevron he is trying to maintain Burford's "highly ethical approach to its business". In light of the undisclosed facts and conflicts of interest that Bogart omitted from his affidavit, one can reasonably question what ethical compass is guiding this man.

In the meantime, while Chevron tries to focus attention on dubious and irrelevant affidavits, an Argentine court has embargoed $2 billion in company assets that could be used to satisfy the Ecuador judgment. Similar seizure actions are proceeding against Chevron assets in Canada and Brazil.

Yet Burford's new dance partners at Chevron headquarters refuse to disclose these real and enormous risks to shareholders, prompting multiple complaints to the Securities and Exchange Commission.

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