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Joe Dilg had little time for legal work in 2003. As managing partner of 798-lawyer Vinson & Elkins, Dilg spent his hours reaching out to clients and troubleshooting administrative issues. In October, he traveled to Dubai in the United Arab Emirates for the opening of the firm’s newest office. In early December, he was the host at the firm’s lavish holiday parties at art museums in Dallas and Houston. It was business as usual — up to a point. For the past two years, Vinson & Elkins has been publicly dogged by its past legal work for the famously bankrupt Enron Corp. Today, V&E is not falling apart — as, according to accounts from two former V&E partners, some gleeful rivals had predicted. But the firm, which is more than eight decades old, no longer exudes the aura of invulnerability. In 2003, for the first time in more than a decade, V&E’s annual revenue will decline. Dilg says revenue this year will be as much as 5 percent less than the $456.5 million posted in 2002, depending on collections in December. “The economy has been difficult for a number of clients,” Dilg notes. Dilg expects profits per partner to be a little higher than the $640,000 in 2002. According to Corporate Counsel magazine, the firm lost the role as lead outside counsel to some Fortune 500 clients in 2003, including Dallas’ Halliburton Corp., which had been the firm’s oldest client, and Houston’s Dynegy Inc. Halliburton General Counsel Bert Cornelison did not return a call seeking comment. John Sousa, a spokesman for Dynegy, confirms that V&E no longer is outside counsel for the company. Since the beginning of 2003, 14 partners have left the firm. The firm is down about 50 lawyers from the beginning of the year. And after entering the New York market for the first time, Vinson & Elkins is finding that growth has come slower than expected, says Dilg, mostly because of how the rugged economy has affected capital-markets clients. Vinson & Elkins also was sued in June by a former associate, Rhonda Wills, who claims she was the victim of racial and gender discrimination and sexual harassment, and that the firm violated her civil rights by denying her partnership. The firm denies the allegations. The suit is pending in federal court in Houston. But perhaps the most threatening development for V&E this year is a bankruptcy examiner’s conclusions about the firm’s role in the downfall of Enron, which filed for bankruptcy two years ago after its stock price dipped to pennies on the dollar. In a report made public in November, examiner R. Neal Batson, a partner at Atlanta’s Alston & Bird, concludes that V&E possibly was negligent or aided and abetted Enron officers in breaching their fiduciary duties to the battered company. Enron had been Vinson & Elkins’ best-paying client, generating more than 5 percent of the firm’s revenue in 2001, and a total of $161.2 million in fees from 1997 through the end of 2001. “A fact-finder could conclude that after [Enron's] 10-Q was filed, V&E knew that Enron was not adequately disclosing obligations to pay debt incurred in these types of [off-the-books] transactions,” Batson’s report states. The bankruptcy examiner grants that V&E may claim it “acted merely as scriveners of transactions, memorializing terms” in work it did for Enron. Vinson & Elkins “became human because of Enron,” says former partner Orrin Harrison III, who left the firm early in the year to join Akin Gump Strauss Hauer & Feld as a partner in Dallas. Dilg disagrees with many of the conclusions in the Batson report. And as managing partner, Dilg says, his role is keeping the firm’s lawyers focused on their work and client development — and not focused on Enron litigation and investigations. “I feel we’re past Enron as far as what people are doing on a day-to-day basis. . . . [I]t’s a distraction to see things in the newspaper,” he says. Partners Harry Reasoner and John Murchison Jr. — the lawyers designated to talk about Enron matters — also disagree with most of the conclusions in the Batson report. But Reasoner, Dilg’s predecessor as managing partner, and Murchison say that some of the findings are helpful to the firm’s position. They note, for instance, that the report clarifies the firm was not the company’s chief counsel on disclosure issues, and the report says V&E partners only had time for a cursory review of many of Enron’s regular Securities and Exchange Commission filings. Reasoner says the Batson report in that regard is “directly inconsistent” with the disgruntled Enron shareholders’ allegations in Mark Newby, et al. v. Enron Corp., et al. that V&E was responsible for disclosure. Reasoner also notes that Vinson & Elkins has written opinions from experts — including Geoffrey Hazard Jr., a law professor at the University of Pennsylvania School of Law; Donald Glazer, counsel at Goodwin Procter in Boston; John Coffee Jr., a professor at Columbia University Law School; and Charles Wolfram, a professor at Cornell Law School — finding that the firm and its lawyers acted ethically and properly in connection with Enron work. Despite those opinions, V&E likely will be in court defending its Enron work. The lawyers representing the unsecured creditors committee in the Enron bankruptcy sought and received permission this month from U.S. Bankruptcy Judge Arthur Gonzalez of New York to sue Vinson & Elkins. The claims, according to the creditors’ motion, could be added to a suit creditors filed in 2002, Montgomery County, Official Committee of Unsecured Creditors of Enron Corp. v. Andrew S. Fastow, et al., which names Fastow, the former chief financial officer, former Chairman Kenneth Lay, former Chief Executive Officer Jeffrey Skilling, and others. Vinson & Elkins is already a defendant in Newby, the shareholder securities class action pending before U.S. District Judge Melinda Harmon of Houston. Plaintiffs lawyer Roger Greenberg, a partner at Schwartz, Junell, Greenberg & Oathout in Houston, says conclusions in the Batson report support the plaintiffs’ allegations in the class action, and the lawyers hope to use it as evidence at trial. AFTER ENRON Vinson & Elkins, the third-largest firm in Texas, is smaller than it was a year ago. Dilg says some of the reduction in size is deliberate — the firm brought on 34 first-year associates this fall compared with 45 in 2002, but lost 14 partners in 2003. Dilg says most left because of lucrative offers or opportunities the lawyers couldn’t refuse. “I don’t think you’ll find Enron had as much to do with it as some economic opportunities,” says Dilg, who had been the firm’s lead lawyer on the Enron account. “Some of the people that left, we would have preferred [them] to have stayed at the firm,” he concedes. Jay Hebert and Mark Tuohey III, co-administrative partners of the firm’s D.C. office, say they have made some key hires in recent months. While the office lost about 10 percent of its lawyers between mid-2002 and mid-2003, these lateral hires have compensated for that loss, bringing the office’s head count back to about 85 lawyers. They point to one of those hires, partner Richard Sauer, former assistant director of the SEC’s Enforcement Division, as a sign of the firm’s health in spite of Enron. “We’ve weathered much of the [Enron] situation,” says Tuohey. “We’re moving forward and we’re thinking of the future.” But Reasoner says it was unusual when Joe Allen and three other public finance partners left to form Allen, Boone & Humphries in August. Reasoner says the firm hasn’t lost many groups of lawyers over the years. Allen declines to comment. Four partners who left V&E in 2003 say fear of repercussions from Enron didn’t directly lead to their departures. All four say they left for better opportunities rather than running from Enron-related troubles. Charles Schwartz of Houston and Harrison of Dallas left Vinson & Elkins in 2003 to lead litigation practices — Schwartz for Skadden, Arps, Slate, Meagher & Flom’s Houston office and Harrison for Akin Gump in Dallas. The offer was just “too fabulous” to pass up, says Schwartz, who has a securities litigation practice and had been talking to Skadden since December 2001 before making the move in April 2003. Schwartz and Harrison speak highly of V&E. Harrison says, “They haven’t closed down any offices. They are still growing in New York. I have no regrets about my time at V&E.” Patrick Thompson, a former Vinson & Elkins partner who left in February to become a partner at Graves Dougherty Hearon & Moody in Austin, says his move was prompted by “a fantastic opportunity.” Even though he’s making less money than he had at V&E, he has the opportunity to work on more of the kind of administrative law cases he enjoys. But Thompson and Harrison say they considered from time to time while at V&E that headlines about Enron were deflecting some prospective clients or causing existing clients to drop the firm. They can’t name a specific instance, but they say they heard rumors about that scenario. “People had to wonder, if you didn’t win a beauty contest, was [Enron] the reason why,” Thompson says. He thinks back to the time when press attention on the Enron story was at its peak in early 2002 when one client expressed sympathy for the negative press Enron and its advisers were receiving, and another client announced he would keep more work in-house. Thompson also remembers being uncomfortable with the way firm management handled talk about Enron. Although Reasoner, the former managing partner, regularly sent firmwide voice mails when major news events broke — such as reports about litigation against Enron and its advisers — Thompson says wide-ranging discussions of the firm’s response to the negative publicity among the full partnership seemed to be verboten. “It was almost like you weren’t a team player if you talked too much about Enron,” Thompson says. “You weren’t really focusing enough on the firm’s work. You weren’t regarded as being positive.” When it came time for Dilg, the relationship partner with Enron, to be appointed as managing partner, Thompson remembers thinking, ” ‘Is this really a good idea?’ But you couldn’t really raise the question. It would be almost admitting Enron was going to be bigger and nastier than any of us could imagine.” Reasoner agrees that the firm discouraged free-floating fretting among its overall partnership about the Enron case. “In our profession, you don’t want handwringers for lawyers,” he says. Soon after Enron filed for bankruptcy in December 2001, the management committee asked Murchison and Reasoner to help outside counsel John Villa, a partner at Williams & Connolly in Washington, D.C., manage the litigation and the public relations of the fallout from the collapse of Enron. Murchison says he now spends more than 50 percent of his time on Enron-related matters, and Reasoner says the work takes up as much as 20 percent of his time. “Obviously, this has been burdensome,” Reasoner says. The two V&E partners are hopeful time and dispersal of information will work in the firm’s favor. “As people have become more knowledgeable about what went on, there is now widespread recognition of how limited our role was,” Murchison says. Reasoner notes that an Oct. 27 article in Fortune magazine focused on Enron’s investment bankers, and a book by the same Fortune authors (Bethany McLean and Peter Elkind) didn’t dwell on the V&E lawyers’ role much at all. As far as his own situation, Dilg and all the former partners Texas Lawyer talked to for this article see no threat to his leadership, despite his central role in the Enron case. Notes Dilg: “The partnership three weeks ago confirmed me for another two years. I don’t feel there’s any real issue.” Miriam Rozen is a contributing reporter and Brenda Sapino Jeffreys is a senior reporter at Texas Lawyer, the American Lawyer Media newspaper where this article first appeared. Legal Times reporter Marie Beaudette contributed to this report.

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