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Thomson Reuters – Chevron strips last shreds of privilege from Ecuador lawyers

Date: Aug 4, 2011

Magistrate Judge James Francis IV orders Steven Donziger associates and co-counsel to produce documents under a discovery request related to Chevron’s RICO claim. The ruling is based on Donziger’s prior privilege waiver as well as Crime-Fraud findings:

The tipping point in Chevron’s campaign to block enforcement of an Ecuadorian court’s $9 billion judgment against the oil giant came at the end of 2010, when Manhattan federal judge Lewis Kaplan ruled that plaintiffs lawyer Steven Donziger had to turn over all of his privileged material-e-mails, journals, internal memos -to Chevron defense lawyers. It was an extraordinary ruling, exposing the internal workings of the team representing Ecuadorians who claim to have been harmed by Chevron predecessor Texaco’s contamination of the Lago Agrio region of the rainforest. And Chevron’s lawyers at Gibson, Dunn & Crutcher made the most of it. Based on the privileged materials, Chevron filed a suit accusing Donziger, the Lago Agrio plaintiffs, and many of their experts of racketeering. Under the aegis of the racketeering suit, Judge Kaplan issued a sweeping preliminary injunction in March, barring the plaintiffs from attempting to collect on the judgment an Ecuadorian judge handed down in February.

The injunction will be tested at a hearing before the U.S. Court of Appeals on Sept. 16, and then at a trial before Judge Kaplan that’s set to begin in November. But meanwhile, in the run-up to trial, Chevron’s Gibson Dunn lawyers demanded yet more attorney-client privileged materials, these from two young lawyers who worked with Donziger and from the Philadelphia plaintiffs firm Kohn Swift & Graf. Kohn Swift financed the case for years, until name partner Joseph Kohn and Donziger fell out over case strategy. (Fortune’s Roger Parloff detailed the increasingly byzantine financing of the Lago Agrio case in a fascinating June feature story.)

The Kohn materials had been almost in Chevron’s grasp before, thanks to a court order in a Philadelphia federal court discovery proceeding. But in May, as I’ve reported, the U.S. Court of Appeals for the Third Circuit overturned that order, ruling that Chevron was not entitled to privileged documents because it hadn’t shown evidence that the crime-fraud exception to privilege applies.

On Wednesday, the magistrate judge working with Judge Kaplan ordered the Kohn firm to produce its privileged documents to Chevron. Judge James Francis IV found that all of the materials Kohn claimed as privileged fell under the scope of the waiver imposed previously on Donziger. Chevron counsel Randy Mastro of Gibson Dunn said the order is “very significant.” Mastro said the Kohn privilege logs indicate that the firm has many documents Donziger didn’t previously produce to Chevron. “We’re going to get further insights into what really happened in this case,” Mastro said. Mastro wouldn’t discuss whether the Kohn materials disclose information about settlement talks between Chevron and the plaintiffs lawyers that may have taken place before the case blew up in 2009. Documents that have already come out show Kohn urging other plaintiffs lawyers to settle for $700 million to $1.2 billion.

Mastro noted that Judge Francis analyzed whether the crime-fraud exception applies to a subset of documents belonging to one of Donziger’s former associates (the magistrate had concluded that this category of materials was outside the scope of the Donziger waiver.) Applying the precedent Judge Kaplan set in his injunction ruling, Judge Francis said the exception applies to some of those documents. “Judge Kaplan has already ‘effectively found’ a reasonable basis to suspect that the judgment in the Lago Agrio litigation was procured by fraud,” Judge Francis wrote. “Especially given that the crime-fraud exception requires only a showing of probable cause that a crime or fraud was intended, this determination is sufficient for the crime-fraud exception to apply.”

“It’s extremely significant that the magistrate made express crime-fraud findings,” Mastro said. “That’s two judges now who have found probable cause.”

A spokeswoman for the Ecuadorian plaintiffs said the privilege ruling “is a non-event.” The plaintiffs have previously asserted that Chevron’s unprecedented motions practice is intended to harass the Lago Agrio claimants.

I left messages with Elliot Peters of Keker & Van Nest, who represents the Donziger associates; and James Rohn of Conrad O’Brien, who represents Kohn Swift. Neither got back to me. Seth Ard of Susman Godfrey-who is representing Kohn Swift in potential litigation against Donziger-also didn’t return a phone message.

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