By Megan R. Wilson - 05/07/14 12:51 PM EDT
The powerhouse law and lobby firm Patton Boggs has agreed to pay Chevron $15 million to settle allegations that it helped cover up fraudulent evidence in a lawsuit in Ecuador.
The settlement could lift the cloud of trouble that has lingered over Patton, which has reigned for years as Washington’s top-earning lobby firm but has recently shed staff and offices amid declining revenue.
But the firm reversed course on Wednesday, saying a ruling earlier this year involving a related case also that also intwined Chevron included a "number of factual findings about matters which would have materially affected our firm’s decision to become involved and stay involved as counsel here."
"Based on the court’s findings, Patton Boggs regrets its involvement in this matter," the firm said in the settlement documents.
While the $15 million payout is substantial, the legal battle with Chevron was seen as an even larger liability for the firm.
Several experts who spoke with The Hill about the case did not want to be quoted by name due to the legal sensitivities involved, but said the agreement could pave the way for accelerated merger talks between Patton Boggs and Squire Sanders.
Squire has been in talks with Patton Boggs since earlier this year.
A portion of the settlement bars anyone at Patton Boggs — or “any prospective merger partner or successor firm” — from straying from the official statement that was issued on the settlement.
Peter Zeughauser, a chair of the law firm consulting firm Zeughauser Group, called Wednesday’s deal “a huge accomplishment” for Patton Boggs.
“It's an important step to be able to consummate a deal with Squire Sanders,” he said.
Legal consultants said Patton’s insurance coverage could help ease some of the financial pain from the eight-figure settlement.
“It would surprise me if it wasn't covered by insurance,” Zeughauser told The Hill.
“In circumstances like this, where it might cause the Squire Sanders deal to collapse” and cause the firm and its partners to lose a lot of money, there could eventually be punitive damages, including “damages for bad faith denial of coverage,” he said.
The legal fight began after the Amazon Defense Front won a lawsuit against Chevron in Ecuador that gave the indigenous farmers there the ability to sue the oil company for damages caused by drilling.
However, since Chevron had few assets there, the Ecuadorian villagers and their Manhattan attorney, Steven Donziger, began suing Chevron in other countries.
A federal court ruled in March that the Ecuador ruling was tainted by corruption and conspiracy by Donziger, who does not work for Patton Boggs. There are pending lawsuits related to the case in Canada and Brazil.
In the midst of several failed attempts by Patton Boggs to file lawsuits against Chevron for allegedly using “bad faith litigation tactics” — the most recent of which was dismissed last week — a federal judge gave Chevron the go-ahead to pursue litigation against Patton Boggs.
Under Wednesday’s settlement, Patton agreed to sever ties with the Ecuadorians and not assist them in their attempts to collect money from Chevron in other countries. The agreement also gives Chevron the firm’s 5 percent stake in any winnings collected by the plaintiffs.
“We are pleased that Patton Boggs is ending its association with the fraudulent and extortionate Ecuador litigation scheme. Chevron detailed its objections to Patton Boggs’ conduct in its counterclaim, and today’s agreement brings that litigation to an end," said Hewitt Pate, Chevron’s vice president and general counsel, in a statement.
"Chevron encourages others to disassociate themselves from this fraud."
Patton Boggs consistently ranks as the No. 1 lobby firm in Washington based on lobbying fees, which topped $40 million last year. It took in $278 million in overall revenue last year, according to a spokesman at the firm. Although it marked a drop from the $313 million it earned in 2012, the firm's leadership insists that it is becoming a leaner firm that can do more with less.
With the Chevron litigation now in the rearview mirror, Patton will be able to focus on the damage done to its brand by the lawsuit.
It can also turn its full attention to the merger talks with Squire Sanders. Earlier merger negotiations with Locke Lord fell apart last year.
Patton Boggs admitted no wrongdoing in the Chevron settlement, and the payout is only to “avoid the costs of further litigation,” according to the agreement. The firm must pay Chevron within 30 days, which could put a financial strain on it.
“Nothing contained in this agreement shall be construed as an admission by any party as to the merit of lack of merit of any particular claim or defense,” the 22-page document says.
— This story was last updated on May 8 at 2 p.m.