A British-based litigation-finance firm has pulled out of a controversial oil pollution case against Chevron, again raising questions about a new market in which outside investors seek to share in lawsuit recoveries.
Litigation finance describes a growing group of specialized hedge funds and individual investors who back lawsuits in exchange for a share off the top of any recovery. The U.S. Chamber of Commerce and other business advocates have condemned the spreading practice as likely to encourage frivolous litigation against corporate defendants.
The long-running environmental campaign against Chevron has become Exhibit A in the case against litigation finance. In 2011, an American plaintiffs' attorney, Steven Donziger, won a multibillion-dollar judgment against Chevron in Ecuador. Donziger relied on a variety of litigation-finance backers to sustain lawsuits that began in 1993 in the U.S. before shifting to Ecuador. Chevron struck back last year, winning a judgment in federal court in New York that found Donziger's campaign had devolved into a racketeering conspiracy involving bribery, coercion, and fabricated evidence. Donziger denies wrongdoing and is appealing the racketeering verdict, which Chevron has invoked in refusing to pay the Ecuadorian judgment, now worth about $9.5 billion, according to the Ecuadorian courts.
Under pressure from Chevron, three of Donziger's litigation-finance backers, collectively responsible for investing some $30 million in the case, have withdrawn from the troubled Ecuadorian lawsuit in the wake of the 2014 racketeering ruling. The latest to pull out is Woodsford Litigation Funding of the U.K., which invested $2.5 million in 2013, long after Chevron had accused Donziger of fraud.
In a statement, Woodsford said it "acted in good faith and in the normal course of its business" when it invested in Donziger's lawsuit on behalf of poor Ecuadorian farmers and indigenous tribe members affected by oil contamination in the rain forest east of the Andes Mountains. In light of the 2014 racketeering verdict, "and having become deeply concerned about the ethical standards of attorney Steven Donziger," Woodsford said it "has decided to forego any financial benefit from this matter and to relinquish its entire interest in the proceeds of the litigation to Chevron."
Chevron, in a separate press release, said it would drop a pending fraud lawsuit against Woodsford. "We are pleased that yet another supporter of this fraudulent lawsuit has ended its involvement," said R. Hewitt Pate, Chevron's general counsel. "In settling this matter, Woodsford is the latest in a growing list of former funders, investors, scientific experts, and legal counsel who have abandoned this illicit scheme."
Donziger offered an alternate version of events. He said in an e-mail that Woodsford recently told the plaintiffs' legal team that Chevron wanted to settle to avoid "discovery of critical internal documents related to a corrupt witness." Donziger added that Woodsford also told the plaintiffs' team that the litigation-finance firm "would be forced to sign a false 'confession' required by Chevron in support of the company's self-described demonization campaign targeting myself and other lawyers for the villagers."
Asked to reconcile Woodsford's statement with Donziger's assertion about "a false confession," a spokesman for Woodsford declined to comment further. Karen Hinton, Donziger's spokeswoman, said in a phone message that Woodsford was lying when it said it had become "deeply concerned" about Donziger's ethical standards. "They're just not telling you the truth," Hinton said.
The finger-pointing between Donziger and his former financier underscores one of the potential problems skeptics have identified with litigation finance: the potential for conflicts of interest that may undermine the interests of the clients who are supposedly the main the concern of both lawyers and investors.