NEW YORK (Reuters) - In a deal that could pave the way for a major law firm merger, Washington law and lobbying firm Patton Boggs has agreed to pay $15 million to settle claims by Chevron Corp that it tried to enforce an $18 billion pollution judgment in Ecuador against the oil company it knew was obtained through fraud and corruption.
Chevron said on Wednesday that Patton Boggs had also expressed regret for its involvement in the Ecuadorean case, from which it would remove itself. In exchange, Chevron said it would drop claims of fraud, deceit and malicious prosecution against the 300-lawyer firm.
"We are pleased that Patton Boggs is ending its association with the fraudulent and extortionate Ecuador litigation scheme." Hewitt Pate, Chevron general counsel, said in a statement.
Ecuadorean villagers who had sued Chevron for polluting its rainforest released a statement condemning Patton Boggs' "betrayal" and said they were exploring their legal options against the law firm.
The settlement on Wednesday marks Chevron's latest victory in the battle it has waged to make sure the judgment in Ecuador was deemed fraudulent and not enforceable.
It also comes at a crucial time for the beleaguered Patton Boggs, which has been in merger talks with the larger 1,300-lawyer firm Squire Sanders since February after seeing revenue wane and partners defect.
"Everyone is breathing a sigh of relief because (the settlement) paves the way for the merger to go forward," said one former Patton Boggs lawyer.
Squire Sanders Chairman James Maiwurm did not respond to a request for comment.
Patton Boggs managing partner Edward Newberry did not respond to a request for comment. A firm spokeswoman said in a statement there had recently been "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."
The $15 million payment is considered surprisingly high for Patton Boggs, especially given its delicate financial state, according to three former Patton Boggs lawyers.
Besides the payment to Chevron, the settlement requires Patton Boggs to give the oil company any future legal fees it receives in the case and proceeds from enforcing the Ecuadorean judgment, as well as to cooperate with Chevron's discovery efforts in the case going forward.
The settlement comes on the heels of two developments in the case. In March, a New York federal judge found plaintiffs lawyer Steven Donziger and his legal team used fraud and corruption to secure the 2011 judgment in Ecuador on behalf of the villagers. Donziger is appealing.
Shortly afterward, on April 3, Chevron sued Patton Boggs, accusing it of trying to enforce the $18 billion pollution judgment that the law firm knew had been obtained through fraudulent tactics by plaintiffs lawyers led by Donziger.
Chevron claimed that Patton Boggs partner James Tyrrell took the case despite having ethical concerns about its merits but did so because of "enormous financial pressure at Patton Boggs," according to court papers.
Tyrrell did not respond to a request for comment.
Reporting by Casey Sullivan; Editing by Ted Botha, Jeffrey Benkoe and Sofina Mirza-Reid