The Great Chevron Shakedown Case

Erik Telford President, Franklin Center
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Dubbed “arguably the greatest legal fraud in history,” we can only hope they’ll someday make a movie about the “Great Chevron Shakedown Case.”

Here’s what happened. After Chevron acquired Texaco in 2000, Ecuador colluded with environmental activists and helped coordinate a $19 billion judgment against Chevron for alleged contamination and toxic waste dumped into Ecuador’s jungle. Leading the legal team against Chevron was U.S. lawyer Steven Donziger, whose tactics would prove fatal to the case. With no judicial independence in Ecuador, judges inevitably ruled against Chevron. The figure was halved to $9.5 billion by a higher court, but bombshell accusations like bribery were flung by both sides.

When Chevron brought a private RICO action in the U.S. against Donziger and company, many of the accusations against him and his team were proven true as a U.S. court blocked the judgment from being enforced in the U.S. and found that they had committed fraud on U.S. soil. Donziger ended up getting nailed with a laundry list of shenanigans, including violating “federal racketeering laws, committing mail and wire fraud, money laundering, witness tampering and obstruction of justice.”

But the intrigue doesn’t end there. With a recent settlement agreement between Donziger’s principal financial backer James Russell DeLeon and Chevron, we’re finding the story gets even better. Chevron is on the offensive to bring Donziger’s scheme fully to light. With a shadowy millionaire investor like DeLeon in the picture (a resident of Gibraltar, no less!) you’ve got the makings of a blockbuster drama – only instead of the stereotypical big corporation trying to smother the little guy, it’s an opportunistic anti-American dictator trying to pull a fast one after remediation for alleged abuses was already complete.

In a less than dramatic statement, DeLeon confessed that he had been “misled,” by Donziger. “If I had known these facts,” he said, “I would not have funded the litigation.”

A huge portion of Donziger’s funding for the case – $23 million – was supplied by DeLeon. In return he was to get roughly a 7 percent share of the $9.5 billion judgment against Chevron. In the settlement, DeLeon doesn’t have to pay Chevron much, but he has to give up all interest he had in the suit against Chevron, along with his financial interests in Crude – a propaganda film about the case for which he provided 60 percent of the funding. He also won’t see a single dime of return on the $23 million he gave Donziger. It is this loss that will hopefully serve as a lesson to other investors like DeLeon.

Too often these kinds of investor-backed torts are stacked against big companies, because even when justice is on their side it is often more convenient for them to settle than fight it out in court. For these “tort mercenary” funders, this makes these make-or-break lawsuits worth the risk. Had Ecuador’s judgment against Chevron actually succeeded, for example, DeLeon’s stake would have been about $665 million. Had Chevron settled to avoid legal costs and public relations troubles, he still would have scored a quick and sizeable return on his $23 million. Bravo to Chevron, however, for refusing to roll over and forcing DeLeon to publicly admit he was misguided.

Frankly, DeLeon should have known better. Even if we give him the benefit of the doubt and take his statement at face value, he was a longtime friend of Donziger and attended Harvard Law with him.                

Chevron still has some mopping-up to do in two pending cases, but this victory sets a powerful precedent. Hopefully it will both embolden other companies to stand for justice when opportunistic legal action is taken against them, and it will cause tort mercenaries everywhere to think twice before trying to turn a quick profit through a cheap lawsuit.