A Gibraltar judge rules that online poker magnate Russ DeLeon, who funded the suit, must answer claims that he knew the plaintiffs' team had engaged in fraud and other crimes.
FORTUNE — Handing Chevron its second important court victory this month, a Gibraltar judge has ruled that the oil giant may go forward with a tort suit against the key current funder of a controversial environmental suit in Lago Agrio, Ecuador, which generated an $18 billion judgment against Chevron in February 2011. (Ecuador’s highest court reduced the award to $9.5 billion last year.)
A Manhattan federal judge found two weeks ago, in a civil racketeering suit brought by Chevron (CVX) against the lead lawyer behind the Lago Agrio litigation, that that judgment had been obtained by bribery, fraud, witness tampering, and other crimes.
In the Gibraltar suit Chevron claims that the funder, American online poker magnate James Russell DeLeon, knew or “turned a blind eye” to the fact that the plaintiffs team, which was led by his old friend and Harvard Law School classmate Steven Donziger, was employing fraudulent and other criminal means to win the judgment.
DeLeon, who has denied wrongdoing, did not immediately respond to an email seeking comment. Karen Hinton, a spokesperson for Donziger said, “Chevron’s case against Mr. DeLeon is yet another attempt by Chevron to retaliate against anybody who tries to help the communities holding Chevron accountable for its environmental crimes and wrongdoing, as found by three layers of courts in Ecuador.”
In a prepared statement, Chevron said, “A U.S. federal court in New York has ruled that the judgment against Chevron in Ecuador is the product of a fraudulent scheme intended to extort billions of dollars from the company. Chevron believes that the perpetrators of that scheme should be held accountable for knowingly advancing the fraud. This action is part of that effort.”
The willingness of the Gibraltar court to hear the suit — which is being brought against DeLeon for “conspiracy to injure” Chevron “by unlawful means” — could have a chilling effect on the willingness of others to fund Donziger’s cause.
In the Manhattan case, U.S. District Judge Lewis Kaplan ruled March 4 that in pursuing the Lago Agrio case Donziger, a New York attorney, had engaged in a pattern of criminality that violated the Racketeer Influenced and Corrupt Organizations Act (RICO). He issued orders barring Donziger and others in concert with him from benefiting from the judgment. Donziger has denied wrongdoing and and has pledged to appeal.
The Gibraltar judge Christopher Butler does not cite and appears to have been unaware of Kaplan’s ruling when he issued his own decision on Friday, March 14. (Butler does, however, refer to findings Kaplan made earlier in the RICO case.)
DeLeon began funding aspects of Donziger’s case in 2006. He also provided, according to Kaplan’s ruling, about 60% of the money needed to produce the documentary film Crude, whose making Donziger had solicited as a means of advancing the litigation.
DeLeon formally began investing in the case, in exchange for a stake in the recovery, in 2007, but his importance as a funding source increased in 2010 and 2011 after both of the earlier key funders of the case dropped out, each accusing Donziger of having defrauded them by concealing from them the allegedly underhanded techniques he was allegedly using to pursue the case.
The total of DeLeon’s investments at this point, and of his stake in the recovery, are unclear, but Judge Kaplan found that he had at least a 1.75% stake in the recovery as of late 2010. Chevron presented testimony at the RICO trial indicating that DeLeon has invested at least $3.4 million in the case, but possibly as much as $9.2 million. Chevron’s retained accountant testified that he believed DeLeon’s current stake in the recovery to be 6% — second only to Donziger’s, which he believed to be 6.3%.
Gibraltar is on the Southern tip of the Iberian peninsula, just south of Spain. It is a self-governing unit, known as a British Overseas Territory, and is considered part of the United Kingdom, though it has its own Parliament and legal system. It uses a common-law court system that looks to guidance from English and other Commonwealth court decisions.
In his 72-page ruling, Judge Butler rejected a petition similar to what, in America, would be called a motion to dismiss. Under the circumstances, he was required by law to assume the truth of Chevron’s factual allegations and was only deciding whether, once that assumption was made, Chevron would have any legal remedy against DeLeon, a Gibraltar resident.
Still, Judge Butler wrote that “it would not be right to allow [Chevron’s suit] to proceed … unless there were at least a prima facie case to justify it.” He then concluded that there was.
“Suffice it to say that on the face of it,” he wrote, “and without seeing or hearing any defence, [Chevron’s submissions] do support the conclusion that [DeLeon and a company called Torvia Ltd., which DeLeon set up to lend money to the Lago Agrio team] were conspirators and fully involved in the conspiracy, continuing to fund it well after they were aware of fraudulent activities. Indeed, it is alleged that the stronger the case of fraud become, the more involved the defendants became.”
Perhaps the most significant legal ruling in the case is Judge Butler’s rejection of DeLeon’s argument — one that Donziger also made to Kaplan and which his team is now making to the courts of Argentina, Brazil, and Canada, where they are trying to enforce the Ecuadorian judgment — that he had no right to question the validity of an Ecuadorian court ruling that had subsequently been upheld by both an Ecuadorian appellate court and Ecuador’s highest court, its National Court of Justice.
Judge Butler made clear that he found the conduct of the Ecuadorian appellate courts suspect, however.
“If the appeal court in Ecuador had before it,” he wrote, “anything like the evidence which has been put before me, it is indeed surprising on the face of it that at least a rehearing was not ordered.”
“Nor is it clear to me at this stage,” he wrote later in the ruling, “that [Chevron] had a full opportunity of contesting the decision in Ecuador … It is difficult to envisage how it could properly and fairly have contested the proceeding if its allegations of wholesale corruption of the judiciary and government are true.”
An attorney who once practiced in San Francisco, DeLeon made his money in the online gambling company called PartyGaming (PYGMF), which was cofounded by the woman who became his wife, attorney and adult entertainment entrepreneur Ruth Parasol. When the company went public in 2005, they each became billionaires. The company’s shares later plummeted, however, when the U.S. began cracking down on online gambling operations marketed to Americans, which the Justice Department considered illegal. Nevertheless, as a couple, DeLeon and Parasol were listed in 2006 as #197 on Forbes’s list of the 400 richest Americans. (In 2011 PartyGaming merged with the Austrian competitor Bwin, forming Bwin.party. As of last year DeLeon and Parasol were reported to be in the process of both liquidating their stakes in the company, and divorcing.)
In 2008, by which time DeLeon and Parasol had taken up residence in Gibraltar, software engineer Anurag Dikshit, a cofounder of PartyGaming, pled guilty in Manhattan and agreed to forfeit $300 million for having violated a 1961 federal law against using the wires to promote sports betting. The following year PartyGaming as a company entered into a non-prosecution agreement in federal court in Manhattan, acknowledging having engaged in crimes to conceal from payment processors the nature of the business that it was engaging in. Both Dikshit (pronounced “Dixit”) and the company pledged with prosecutors to cooperate in an ongoing criminal investigation of the companies’ executives.