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Whether Houston lawyers are successful in efforts to move Enron Corp.’s bankruptcy from New York to Houston, the record-setting filing for the company that once employed 7,000 in Houston means big opportunity for the attorneys who are fielding calls from anxious creditors. “Lots of Texas lawyers, lots of bankruptcy lawyers, lots of oil and gas lawyers are very busy and will be for a long time,” says Rhett Campbell, a bankruptcy partner with Thompson & Knight in Houston. Houston lawyers will not only represent creditors, but will also assist companies that expect to bid on Enron assets that will be for sale as the energy giant restructures, and work on dozens of suits filed by disgruntled employees and shareholders who are attempting to place blame and liability on someone for Enron’s stunning downfall. “It’s such a web of lawyers all over the city involved now,” says Russell “Rusty” Hardin Jr., who represents Enron’s auditors, Arthur Andersen, in civil litigation. While the bankruptcy should employ restructuring lawyers at practically every firm in Houston, except for those with conflicts, a large group of litigators are working on the dozens of suits filed in Houston by angry employees and shareholders against defendants including Enron, related companies, officers and directors, and Arthur Andersen. Many of those suits were filed in state and federal courts in the weeks before Enron slid into a New York bankruptcy court after the formerly high-flying energy trader’s financial difficulties began grabbing headlines and its stock price dipped to pennies on the dollar. Enron’s stock price dropped so low that “12 shares of Enron would get you a hotdog in Enron Field,” Hardin says. Thousands of creditors, many in Houston, have claims against Enron and Enron entities that filed for protection from creditors on Dec. 2 in the Southern District of New York. With $49.5 billion in assets, and $31.2 billion in liabilities, it’s the largest-ever U.S. bankruptcy. Lawyers for Enron creditors say it makes more sense to have a Houston judge oversee the Enron bankruptcy than a judge in New York, where they claim the link is tenuous. Campbell says Houston is “more effective, more efficient, more economical.” Campbell and Robin Harrison, another Houston lawyer, have each filed motions asking U.S. Bankruptcy Judge Arthur J. Gonzalez to transfer the huge case to Texas. Harrison represents former and current Enron employees who lost money in their 401(k) retirement plans because of the huge slide in Enron stock, while Campbell represents a number of energy industry creditors. But other lawyers, including H. Rey Stroube III, a partner in the Houston office of Dallas-based Akin, Gump, Strauss, Hauer & Feld, say they expect to soon file similar motions. Stroube’s clients include Dynegy Inc. — the Houston energy company that agreed on Nov. 9 to buy Enron for about $9 billion in stock and $15 billion in assumed debt, but backed out of the deal on Nov. 28. “The obvious reason for filing outside of Texas is to avoid the focus on the Enron employees and other Texas creditors who have been hurt by the company’s failure,” says Harrison, a partner in Campbell Harrison & Wright in Houston. Harrison says the employees who had retirement money invested in Enron stock are, as a class, the largest single shareholder in Enron; many live in Houston. In the motions to change venue, Campbell and Harrison argue there are far more reasons to move the bankruptcy to Houston than to keep it in New York. “There are more assets in Houston, more employees in Houston, more creditors by number in Houston than in New York,” Campbell says. “It will certainly be more efficient to administer in Houston, it will be closer to the [Enron] headquarters in Houston, their trading floor is in Houston, their auditors are in Houston.” In his motion filed Dec. 5, Campbell suggests the only “venue fact” supporting the filing in New York is the New York headquarters for Enron Metals & Commodity Corp., which represents only about half of one percent of the debtor’s assets. “It’s the tail wagging the dog,” he notes. He writes that 816 of the creditors on a consolidated list filed with the court are in Texas, compared to 96 in New York. Campbell argues that when considering all the issues to determine whether to transfer venue set out in In re Commonwealth Refining Co. 596 F.2d 1239, 1247 (5th U.S. Circuit Court of Appeals, 1979), the litigation should be moved to Houston. Those standards are proximity of creditors of every kind to the court, proximity of the debtor, proximity of witnesses, location of the assets, the economic administration of the estate and the necessity of ancillary administration if liquidation should result. “The greater nexus of interests are in Houston,” Stroube says. Despite that, and the fact Houston bankruptcy judges have set up a system to handle complex bankruptcies, two bankruptcy lawyers from Houston representing creditors in the mega-bankruptcy say it will be difficult to win a change of venue. “I don’t think it’s got much of a chance,” says Joel Kay, who is of counsel at Houston’s Hughes, Watters & Askanase. “There’s good reasons for it being in New York, particularly with respect to the secured creditors and the like, but it’s going to go down to the discretion of the court.” “It will be very difficult,” says Allan Diamond, a partner in the Houston office of Diamond McCarthy Taylor & Finley, who adds that, nevertheless, he is thinking about filing a similar venue motion. Harrison expects Gonzalez to consider the motions to change venue at a hearing on Jan. 7. STOCK PLUMMETS Hardin, the attorney for Arthur Andersen, says that ever since Enron started having troubles in October, and more so since it filed for bankruptcy earlier this month, potential clients — lots of them — have been calling him with one question: “Are you working on the Enron litigation?” Hardin, of Russell Hardin Jr. and Associates, says the conversation ends there because he’s been hired to represent Arthur Andersen in civil litigation filed by shareholders who are upset Enron’s stock is now worth pennies on the dollar. The stock of Enron has fallen by about 99 percent since the beginning of the year. Before the bankruptcy filing, the stock was depressed by revelations of some questionable financial transactions involving some limited partnerships set up by Enron’s former chief financial officer, Andrew Fastow, and news of a formal investigation by the Securities and Exchange Commission. Then, on Nov. 8, in a filing with the SEC, the company said it overstated its earnings by about $600 million from 1997 through 2000 and the first two quarters of 2001. Arthur Andersen is named in more than one suit filed in Houston, including a class action filed on Nov. 30 against the accounting firm and six of its employees. The suit alleges fraud, breach of fiduciary duty, and breach of implied and express warranties and seeks at least $600 million in damages. That suit, William Coy v. Arthur Andersen, was filed by lawyers who also earlier sued Vinson & Elkins in state court in Houston and Galveston, Texas, on behalf of disgruntled shareholders, but nonsuited them on Nov. 29. Jeffrey Kaiser, a partner in Kaiser & May, says that after meeting the V&E defense attorney, Joseph Jamail, and some lawyers from the firm, they agreed to the nonsuits. “Bankruptcy was coming down the pike, and the claim against V&E would be property of the bankruptcy estate,” he says, adding that it would be up to Enron, or its bankruptcy trustee, to sue V&E, the corporation’s long-time outside counsel. Jamail, a partner in Houston’s Jamail & Kolius, refers questions about the talks to Harry Reasoner, V&E’s managing partner. Reasoner declines substantive comment on the allegations in the malpractice suits, which alleged lawyers in the Houston-based firm gave advice to Enron in connection with the limited partnerships that was “falsely representing the propriety and legality of such transactions to Enron and the plaintiffs.” “We gave no accounting advice,” he says. “You can certainly draw an inference from the 50-plus suits that have been filed against Enron, no one thought it appropriate to name V&E other than the two that were nonsuited.” While V&E’s liability is an open question, the firm is a creditor. According to pleadings in the bankruptcy, Enron Broadband Services Inc. owes V&E $338,577. Reasoner says the firm continues to do work for Enron; the firm isn’t one of the corporation’s bankruptcy counsel. Weil, Gotshal & Manges is the lead on the bankruptcy, and Houston’s Andrews & Kurth is one of the special counsel. Another of Enron’s major outside firms, Bracewell & Patterson of Houston, is owed $214,156 by Enron Energy Services Operations Inc. “We’re going to lose some money,” says Patrick Oxford, Bracewell’s managing partner. Oxford says Bracewell turned down a request from Enron to be one of its special counsel in the bankruptcy. He says, however, the firm will continue to work on matters it started before the bankruptcy filing. The firm represents Citibank and JP Morgan Chase in various financings with Enron, and may represent some companies buying Enron assets in the restructuring. SUING THE SUITOR There’s other high-profile litigation, including the adversary action Enron filed in bankruptcy court against Dynegy, its would-be suitor. In Enron Corp. v. Dynegy Inc., Enron alleges Dynegy wrongfully terminated its Nov. 9 agreement to buy Enron, and it seeks $10 billion in damages. It also seeks a declaratory judgment to prevent Dynegy from exercising an option to keep Northern Natural Gas Co., a pipeline company. On Dec. 3, Dynegy sued Enron in state court in Houston, seeking to force Enron to turn over the pipeline company. It alleges it received the right to take ownership and control of the pipeline when it invested $1.5 billion in Enron with the merger agreement. B. Daryl Bristow, a partner in Baker Botts who represents Dynegy, says the timing of the filing of Dynegy Inc. v. CGNN Holding Co. Inc., is unrelated to the bankruptcy filing and Dynegy was filing on Dec. 3 anyway. “The whole point of the agreement was we were to have immediate access and control over Northern Natural, and now we are being denied that access, and in fact Enron and its various subsidiaries want to keep the $1.5 billion and the company, too,” Bristow says. Bristow says the adversary action Enron filed in New York is an attempt to blame someone else for the company’s meltdown. “I don’t see it as bet-the-company [litigation] for Dynegy because I don’t think we’re going to lose it,” he says. Martin Bienenstock, a partner in Weil Gotshal in New York and one of Enron’s bankruptcy lawyers, did not return three telephone messages seeking comment by press time on Dec. 6. Enron’s bankruptcy filing puts an automatic stay on litigation against the company in Houston. But some of the suits may proceed with permission from the bankruptcy judge, and other suits that don’t name Enron as a defendant also may proceed. Berry Spears, head of the business restructuring practice at Winstead Sechrest & Minick, says the complication is how far the bankruptcy judge will extend the stay. He says Enron could take the position the stay should extend to suits against its officers and directors on the grounds they need to have their attention on the restructuring. Houston’s Stephen Susman, Enron’s defense attorney in the securities class action litigation and the shareholder-derivative suits filed in Houston in recent weeks, says it’s all on hold because of the stay, and he’s not sure of the next step. He says that if Enron or the trustee decides to pursue the derivative actions because of creditor pressure — a likely scenario — he would like to be considered for the work. “I don’t have any opinion on who they should sue. Who they could sue is all their advisers. Most of them have been sued already in the derivative cases,” he says. “Going to bankruptcy, all it means [is that] all of those cases belong to the corporation.” Notes Susman, “Maybe I’ll be the only one in the world who doesn’t have a conflict.”

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