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At 11 a.m. on August 7, an International Chamber of Commerce representative strode into a large conference room and handed out three sealed envelopes, one each to lawyers representing Andersen Consulting, Arthur Andersen, and their umbrella company, Andersen Worldwide SC. Peter Thomas, Andersen Consulting’s attorney, remained in the room as the rest of the lawyers tucked away their copies of the sealed arbitration ruling and headed for the exit. Since arriving late the day before in Paris, where the ICC is based, Thomas, a partner with New York’s Simpson Thacher & Bartlett, had gone on three long jogs to try to keep his mind off the impending ruling. Finally, the moment had arrived. Gathering himself, Thomas ripped open the envelope, pulled out the 129-page ruling, and turned to the back, in a mad search for the bottom line. “I was looking crazily for dollar signs,” he says. “Then it hit me: There weren’t any. I just said, ‘Oh, my God! Oh, my God!’ “ The arbitrator, Guillermo Gamba, ruled that Andersen Consulting could split off from Arthur Andersen without paying alimony. The consultants were ordered to give up the Andersen name, but they had still scored a stunning, implausible victory. When they filed for arbitration in late 1997, fed up with years of sharing profits with the less lucrative Andersen accountants, they had hoped to flee the company on manageable terms. This would be a tall order, considering that Arthur Andersen was demanding a $14.6 billion exit fee and that Andersen had a fairly unambiguous partnership provision to bolster its demand. Hardly anyone who followed the arbitration — least of whom the parties — expected that the consultants could walk for free. Thomas called New York to relay the good news to fellow partner Barry Ostrager, the consultants’ lead lawyer. Ostrager was ecstatic; his gamble had paid off. A nervy trial lawyer with a flair for the dramatic, Ostrager decided early in the Andersen arbitration to depart from conventional wisdom. High-stakes arbitrations — and Andersen’s was one of the largest ever — are the province of three-arbitrator tribunals. They are considered safer than sole arbitrators: less prone to error, more apt to split the baby. But Ostrager wanted a complete victory, and he figured he could best count on that from a sole arbitrator living in a country where there was no Andersen presence, which in effect meant a lesser-developed nation. His downside was huge: A wild-card arbitrator could bankrupt the consulting company. In the end, Ostrager rolled the dice, and they landed on Gamba, a Colombian lawyer with scant arbitration experience who admits he didn’t expect to be chosen. He wouldn’t have been, if Arthur Andersen had its way. Led by James Quinn, a partner with New York’s Weil, Gotshal & Manges, the accountants fought vigorously for a three-arbitrator panel. Ostrager, at least, paid lip service to such a panel, but he never really came close to signing on to three arbitrators. And the fact is, he didn’t have to. “It was a terrible decision,” says Richard Measelle, the former head of Arthur Andersen, who retired in 1997. “[Gamba] didn’t understand what was really going on.” Given the complexity and magnitude of the arbitration, which involved more than 130 Andersen subsidiaries from around the globe, he believes three arbitrators would have done a better job. “Five,” he adds, “would have been even better.” For Ostrager and his client, though, there are no regrets. He’s reveling in the consulting firm’s big win — gloating, even. His sole-arbitrator strategy produced a gusher of fees and a big notch in his litigator’s belt. Even discounting for the usual post-victory spin from the winning lawyer, the Andersen divorce ended in such a lopsided way, it is hard to believe that it was mere serendipity. Indeed, Andersen vs. Andersen will be remembered for what can happen when the measured, conciliatory aims of arbitration are turned into the sort of crapshoot that is a jury trial. Andersen Consulting came to Simpson Thacher in 1996, looking for a way to resolve grievances that had simmered for a decade. The Andersen corporate structure guaranteed a minimum income to partners. In practice, some partners subsidized others. By 1989, when Andersen was split into accounting and consulting units, this duty fell disproportionately on the more profitable consultants. They transferred hundreds of millions in income subsidies to accounting partners from 1989 to 1997, when the arbitration was filed. Making matters worse, Andersen’s accounting unit had entered the consulting business in the 1990s, and the consultants bridled at the thought that they were subsidizing a competitor. They wanted out of the partnership, but they faced an onerous contractual provision, which required any Anderson subsidiary to pay 150 percent of its annual revenue as a penalty for leaving the family. In the arbitration, the consulting company would argue that it did not have to pay the exit fee, on the grounds that Andersen had breached a partnership covenant by competing for consulting business. Andersen denied that it was a competitor and argued that the consultants had concocted the competition claim so that they could walk for free. In 1997 Ostrager assisted the consulting company in trying to forge a settlement. The company offered Andersen a cash-and-equity package worth more than $3 billion, but this “best and final” settlement offer was not satisfactory. As it grew likelier in late 1997 that the consulting company would file for arbitration, Ostrager and his partners Thomas and Robert Smit faced their most critical decision: Who should arbitrate? An Andersen partnership term called for disputes to be resolved by a sole arbitrator, but disputants could agree to change that. Any litigator playing the odds would have sought modification. Andreas Lowenfeld, a New York University law professor who has arbitrated more than 60 international disputes, puts it simply: “One guy can make a mistake.” Parties have to pay arbitrators’ fees, and the three-person format is costlier, but Lowenfeld recommends it for any dispute over $500,000. Other arbitration specialists put the cutoff at $1 million. Risk management also dictates in favor of a three-person tribunal. In the standard three-arbitrator case, opposing parties each select an arbitrator, and then these two choose a third to act as chair of the tribunal. Not surprisingly, the party-appointed arbitrators are typically partisan, and they, in turn, tend to push the chair toward a middle ground. Ostrager weighed his options meticulously, and was keenly aware that the Andersen arbitration had well over $15 billion in competing claims. But, in the end, zeal as much as cold logic drove his decision. Like many trial lawyers, the 53-year-old native New Yorker is hypercompetitive. In trial, Ostrager will ocasionally throw caution and good taste out the window in order to get a win. In cross-examinations, for example, he has been known to harass and demean a witness to make a point. In the Andersen arbitration, he would likewise go for the bold play, and he was fortunate to have a kindred spirit in George Shaheen, the dynamic former head of Andersen Consulting. (Shaheen left in 1999 for Webvan Group, Inc., an online retailer.) In his trademark blunt, Midwestern manner, Shaheen would voice dissatisfaction about being joined at the hip with a company that he regarded as a brutal competitor. His brash style offended some of his more sober-minded accounting colleagues, who felt that Shaheen was concerned merely with Andersen Consulting’s bottom line, not the overall health of the partnership. It didn’t take much for Ostrager to convince Shaheen to go with a sole arbitrator — he wanted a clean break from Andersen. With the battle plan in place, the consulting company filed for arbitration on December 17, 1997. Over the next three months, through the end of March, the parties would square off over who should arbitrate the dispute. Shortly after the arbitration was filed, Arthur Andersen formulated its ideal profile. General counsel Daniel Beckel says the company wanted a three-person arbitration panel “so that the international nature of the [Andersen] organization and the complexity of the issues could be understood in a way that would give everybody, including the arbitrators, more comfort with the situation.” Andersen’s play-it-safe strategy was in keeping with its staid reputation. True to character, it selected a lead lawyer, Weil Gotshal’s Quinn, who is regarded as methodical and fastidious — more behind-the-scenes strategist than flamboyant trial lawyer. Quinn says his main objective was to find the three most highly qualified arbitrators available. A panel of leading lights, he believed, would give the final decision a stamp of authority. “We would more likely get what would be determined by people after the fact to be a rational outcome,” he says. In January 1998 the companies started negotiating the composition of the tribunal, but the discussion quickly bogged down over geography. Ostrager wanted an arbitrator from a lesser-developed country, because he believed that such a person might be less impressed with the Arthur Andersen name and less apt to strictly interpret the contractual exit-fee provision. Ostrager says he didn’t think a $14 billion award would be issued “by someone from a country where the whole economy doesn’t have $14 billion.” Arthur Andersen, meanwhile, did not want to place any geographic limits on the search. In various face-to-face meetings and phone conversations in early 1998, the parties tried to meet halfway. Arthur Andersen, for example, would suggest a three-person panel with arbitrators from Switzerland, England, and the United States, and Andersen Consulting would counter with a three-person tribunal weighted with North Americans (where most of the consulting partners live). But the Arthur Andersen team believed that Ostrager never seriously considered a three-arbitrator panel, and Ostrager concedes as much. “I was pretty firm throughout,” he says. But Simpson Thacher’s Thomas and Smith say that the consulting company would have given in to three arbitrators if Arthur Andersen had offered enough in return. As a concession for agreeing to a three-person panel, for example, Andersen Consulting was demanding that the accountants cease certain corporate activities that the consultants deemed threatening, and further that Arthur Andersen relinquish its claim that the International Chamber of Commerce had no jurisdiction over the case. By late March, however, the horse-trading was growing less productive. Thomas remembers a March 24 conference call with Weil Gotshal partners Mindy Spector and Robert Messineo. Ostrager, who was on vacation in Spain with his family, had stopped at a pay phone to join the conversation. With traffic coursing loudly behind Ostrager, the parties made a final effort at a compromise. After about the fifth bus rumbled past Ostrager, Thomas says, the conversation broke down. Heated words were exchanged, and the parties retreated to their respective camps. By now, Ostrager had effectively run out the clock. Although Andersen and the consulting company were free to fashion almost any sort of tribunal they wanted, Ostrager believed that if they couldn’t come to terms, the ICC would eventually have to step in and hold the parties to the sole-arbitrator provision in the Andersen partnership agreement. Ostrager also knew that he could force the issue on the arbitrator’s nationality. According to ICC protocol, if the parties couldn’t agree on the identity of an arbitrator — and in fact they never got to step one in coming up with a name — the ICC had the right to pick someone. ICC rules require it to choose a sole arbitrator from a country where none of the parties has offices. Given Andersen and Andersen Consulting’s global reach, this geographic neutrality rule effectively ensured an arbitrator from a lesser-developed country. Professor Lowenfeld believes that the ICC’s rule is strained when applied to multinationals. Perhaps, but the consulting company, by refusing to conduct a global search, left ICC with no alternative but to apply the neutrality rule. On March 26, 1998, two days after the Madrid call, the ICC sent the parties a letter, notifying them that it was stepping in to choose a sole arbitrator, as dictated by the parties’ contract. It set out an extensive list of countries that would have to be excluded from the search unless the parties agreed to waive the neutrality rule. Andersen Consulting, of course, wouldn’t bend, so the ICC was forced to limit its search to 17 far-flung nations. The absurdly narrow list — with such choices as Burkina Faso, Macedonia, Syria, and Togo — was the clearest sign yet of how far the arbitration had spun out of Arthur Andersen’s control. Soon, it seemed, the long-running blood feud, hopelessly rancorous, with innumerable obtuse competing claims, and boxes upon boxes of documents, would fall into the hands of God knows who. Ostrager, naturally, was thrilled. Shortly after the ICC sent its March letter, he met at the Harvard Club in midtown Manhattan with Quinn and Sheldon Raab, a partner in New York’s Fried, Frank, Harris, Shriver & Jacobson and the lead lawyer for Andersen Worldwide. Over breakfast, the lawyers discussed the turn that the selection process had taken. Raab expressed his concerns about the latest developments. Ostrager got the impression that Raab believed that the consulting company was sympathetic. Ostrager felt compelled to speak up. “For the record,” he said, flashing a broad smile, “I just want you to know, I’m satisfied with the status quo.” On June 4 the ICC sent the parties another letter, naming Gamba and attaching his resume. Andersen and the consulting company do not know how the ICC settled on Gamba, and the ICC did not return calls seeking comment. In mid-1998, Gamba would not have shown up on any who’s who list of international arbitrators. A commercial litigation specialist, with a 21-lawyer firm in Bogot�, Colombia — Gamba, Barrera, Arriaga and Associates — Gamba, now 54, is unquestionably sophisticated. He earned an LLM from Harvard University in 1973 and speaks perfect English. If he could be faulted for anything, it was a lack of experience. At the time he was picked, he had arbitrated only two international disputes, one with less than $1 million at stake and the other involving no more than $12 million. In Colombia he had arbitrated, alone or with others, ten other disputes, but was not considered one of the top arbitrators in the country. In an interview, Gamba acknowledges his lack of seasoning. “I didn’t have much experience [when the ICC picked me],” he says. “It didn’t impair my work at all. I think it had no effect, at least, on me.” If Andersen was concerned about Gamba, it had no recourse. He could be recused only if it was determined that he had a conflict of interest, and none was ever asserted. Andersen did, however, formally challenge the ICC’s jurisdiction. In late April 1999, Gamba rejected the challenge and then, starting in May, pushed the case to a speedy resolution. The condensed time frame resulted in rifle-shot discovery — with parties seeking specific types of documents — as opposed to the fishing expeditions common in civil trials. Andersen and the consulting company focused most of their attention on videotapes of the consultants’ and accountants’ partnership meetings. The consultants would seize on videos of accounting executives saying that they were going to ratchet up their consulting operation. And the accountants zeroed in on a Shaheen speech — in which he implied that his company would not share its consulting expertise with Arthur Andersen — to argue that Andersen Consulting never really wanted to achieve harmony with Anderson. The “trial” was even more truncated than discovery. Gamba allotted only two weeks for testimony, in late October and early November. The first week of testimony was held in Simpson Thacher’s New York offices; the second week the parties trooped 18 blocks away to Weil Gotshal’s offices. The firms outfitted their conference rooms with a phalanx of gadgetry, and both sides repeatedly flashed charts, videos, and key sections of documents to drive home points. Sharpened by years of preparation, the hearings were dramatic, punctuated by “gotcha” moments on cross-examination. One such moment came during the cross of Lawrence Weinbach, the former head of Andersen Worldwide. Ostrager displayed a video of Charles Ketteman, a former Arthur Andersen executive, suggesting that Andersen needed to do more consulting work, which prompted Weinbach to concede, “Sometimes I have a feeling that Mr. Ketteman may have been an unguided missile.” Nine months later, Gamba released his decision. In the end, he did split the baby, just not as evenly as Andersen would have hoped. Gamba ruled that Andersen was increasingly competing head-to-head with its sister company for consulting work and that this competition had rendered the Andersen empire dysfunctional. But, Gamba concluded, there was no partnership provision that prohibited Andersen from competing. This finding seemed to spell only one possible result: The consultants had to pay up. They were spared, however, by Gamba’s conclusion that Andersen Worldwide had failed in its duty to act as a coordinating entity and to prevent member businesses from competing with each other. Since Andersen Worldwide was asleep at the switch, Gamba ruled, the consulting company could walk for free. In the arbitration, the consultants directed much of their venom at the accountants, but they also used Arthur Andersen as a foil to argue that the parent, Andersen Worldwide, had neglectfully lost control of the family. The double-barrel strategy saved the consulting company from huge damages. Andersen did not come up empty: Gamba ordered the consultants to give up the Andersen name by the end of the year and to return intellectual property, including computer software and training materials. Gamba voices pride in his decision, noting that he tried “to produce something not only adjusted to law, which is the main objective, but to not … hurt [either side].” This is what Richard Measelle, the former Arthur Andesen head, finds most telling: “I really think that Gamba felt like the decision would be welcome by Arthur Andersen, [which] reinforces the feeling that I have that [Gamba] didn’t get it. He just didn’t get it.” What Gamba didn’t get, according to Measelle, is that Andersen governance is stratified, with the heads of Arthur Andersen and Andersen Consulting enjoying considerable authority. As such, Andersen Worldwide does not have sufficient power to unilaterally demand that its subsidiaries keep their businesses distinct, says Measelle. He believes that Gamba demanded too much of the parent company, but he adds that no single arbitrator could have properly understood the Andersen partnership and the duties of its various members. Gamba will not respond to the suggestion that three arbitrators would have done a better job, and he laughs at the claim that he didn’t understand the Andersen partnership structure. Andersen partnership documents explicitly require Andersen Worldwide to act as a coordinating body, Gamba says: “I had to make a decision to follow certain legal documents which are the basis of the Andersen Worldwide organization.” Whether Gamba was overwhelmed, as Arthur Andersen believes, the Andersen arbitration certainly certainly seemed to warrant a top-flight, three-arbitrator panel. Ostrager has no misgivings about standing in the way of such a panel, and he shrugs off the notion that the final result in the arbitration doesn’t possess the authority it would if it had been issued by a blue-ribbon panel. “All that matters to me,” he says, “is that the judgment is binding and enforceable.” That it is, much to Andersen’s chagrin. Without Andersen Consulting, Arthur Andersen is less of a force in the consulting industry. Worse, it has to tiptoe around the Securities and Exchange Commission, which is proposing to ban accounting firms from offering consulting services to their audit clients. The SEC may force Andersen to sell off its fledgling consulting business, but Gamba dealt it a far worse blow. He stripped it of a cash cow without giving it a dime in compensation. Andersen partners have been forced to watch their Big Five accounting peers earn vast sums from their consulting operations. This year, for example, Ernst & Young sold its consulting business, which was decidedly smaller than Andersen Consulting, to Cap Gemini SA of France for $11 billion. Harvard Business School professor Ashish Nanda, who specializes in professional services firms and wrote a case study on the Andersen dispute, puts Andersen Consulting’s market value at more than $25 billion. “The magnitude of the loss suffered by Arthur Andersen,” Nanda says, “is mind-boggling.” On October 12, Andersen Consulting partners voted to take the first step toward an IPO. If it happens, each of the consulting partners will pocket millions, and Arthur Andersen will have cause again to wonder how its fate came to depend on Barry Ostrager of Simpson Thacher and Guillermo Gamba of Bogot�.

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