Judge lets defense lawyers withdraw from Chevron RICO lawsuit

By Jessica M. Karmasek | May 20, 2013

NEW YORK (Legal Newsline) -- A federal judge, in an order Friday, allowed the law firms defending New York attorney Steven Donziger and two Ecuadorian plaintiffs against Chevron Corp. to withdraw from the fraud case, filed by the oil giant in a New York federal court in 2011.

In his eight-page memorandum and order, Judge Lewis Kaplan for the U.S. District Court for the Southern District of New York granted the motions filed by Keker & Van Nest and Houston-based law firm Smyser Kaplan & Veselka May 3.

However, Kaplan took issue with the defense lawyers' arguments.

In their motions, lead attorneys John Keker and Craig Smyser argued that both Kaplan's ongoing bias in the case and Chevron's litigation tactics have made it impossible for their clients to pay their legal bills.

"At bottom, the basis for the motions to withdraw is the contention that Keker and Smyser each claims to be owed more than $1 million by their respective clients and that the clients are unable to pay," Kaplan wrote. "But they use this motion to blame others for that alleged situation.

"They assert Chevron has inundated them with an 'endless drumbeat of motions' aimed at 'crushing defendants' and that defendants therefore no longer 'have the resources to defend against Chevron's motion strategy.' They contend that Chevron's 'litigation tactics, which this court [allegedly] has endorsed and encouraged throughout these proceedings,' have rendered their clients poverty-stricken and unable to mount a defense.

"In so arguing, they make a series of exaggerated, inaccurate and, in some cases, inflammatory assertions, some of which warrant brief comment."

According to Keker's memorandum, since September, Donziger has fallen into "significant payment arrears" such that Keker & Van Nest is now owed more than $1.4 million in unpaid fees and costs, including for work presently being conducted.

To even "stay alive" in the case, without appearing at depositions or other "frills," through discovery and trial will cost another $6 million to $10 million in attorney time and costs, he said -- an amount about equal to what the firm estimates Chevron is paying its lawyers each month.

"There is no reasonable prospect of payment of the current receivable, nor of payment of the future fees and costs anticipated to be incurred through trial," Keker wrote.

Keker also was the attorney for prominent Mississippi attorney Richard "Dickie" Scruggs during two judicial bribery cases. Scruggs pleaded guilty to both and received 7 1/2 years in prison.

Federal prosecutors charged Scruggs with offering $50,000 to Lafayette County Circuit Judge Henry Lackey in exchange for a ruling compelling arbitration in a dispute over attorneys fees earned in Hurricane Katrina cases.

They also charged Scruggs, whose brother-in-law is former U.S. Sen. Trent Lott, with offering consideration for a federal judgeship to former Hinds County Circuit Court Judge Bobby DeLaughter. DeLaughter allegedly took the deal and entered a favorable ruling in a dispute over fees between Scruggs and his former business partners in asbestos litigation.

According to Smyser's memorandum, his clients, Ecuadorian rainforest residents Javier Piaguaje and Hugo Camacho, owe in excess of $1.77 million.

"Due to Chevron's legal blitzkrieg, which included an army of over 100 lawyers at Gibson Dunn & Crutcher LLP alone, SKV has had to bill over 16,000 hours on this representation since June 2011," Smyser wrote. "Many of those hours were spent defending Camacho and Piaguaje against an unfounded worldwide anti-enforcement injunction that was ultimately reversed and dismissed by the (U.S. Court of Appeals for the) Second Circuit.

"The rest of those hours have been spent defending Camacho and Piaguaje against a legally infirm cause of action for third-party fraud, in a jurisdiction with which they have no contacts and which they contend lacks personal jurisdiction over them."

Kaplan said in his order that while there has been a "great deal" of motion practice in the case, Chevron is not the only party to blame. All of the lawyers, he said, are responsible.

"Indeed, defendants have filed nearly the same number of motions as has Chevron," the judge wrote.

By the court's count, 85 substantive motions were filed in the case as of Friday -- 46 by Chevron and 39 by the defendants.

"Moreover, although movants claim that the majority of Chevron's 'drumbeat of motions' was intended only to 'crush defendants,' the suggestion that the motions were entirely meritless simply is not so," Kaplan wrote. "Each side has won some motions, lost some and obtained mixed results in more than a few.

"The balance -- in terms of numbers of motions made and, for that matter, motions won and motions lost -- is not very far from even. Moreover, the fact that a motion is denied does not necessarily mean that there was no reasonable basis for it."

Nor has either side sought sanctions against the other on the ground that any particular motion was "so devoid of merit" as to warrant their imposition, the judge noted.

"Furthermore, the court's appropriate role with respect to motions, as a general proposition, is to decide them -- not to prohibit their filing," Kaplan wrote, adding that he has put a "tight limit" on the length of papers on discovery motions and barred letters to the court.

Kaplan said although he does not doubt that Keker and Smyser have issued substantial bills that remain unpaid, there is "no competent evidence" that their non-payment is a result of inability to pay.

"Thus, this is more likely than not a case of deliberate disregard of financial obligations," the judge wrote. "In these circumstances, and given the lack of any objection to the withdrawal, the motions will be granted to the extent set forth below."

Donziger has said he will proceed pro se against Chevron, with the option of trying to rehire Keker "should circumstances change."

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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