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Weeks before Enron Corp.’s stock slid to single-digit depths and rival Dynegy Inc. agreed to acquire the formerly high-flying energy trading company, plaintiffs’ lawyers representing disgruntled shareholders were moving in for the kill. The first shareholder suit was filed in state court in Houston on Oct. 17, more than three weeks before the deal with Dynegy was announced on Nov. 9. At least a dozen more have been filed since then in Houston. While the defendants vary from suit to suit, they include the Houston-based corporation and affiliated companies, and various officers and directors. Another state court suit names Vinson & Elkins, Enron’s longtime outside counsel, and another names Arthur Andersen, its accounting firm. Lawyers also have been running down to the federal courthouse in Houston, filing securities fraud class action suits, and some derivative suits similar to the litigation filed in state court. Plaintiffs’ lawyers representing angry shareholders also have filed another dozen or so derivative suits in state court in Oregon, the state where Enron is incorporated. The deal, calling for Dynegy to acquire Enron for about $9 billion in stock and $15 billion in assumed debt, is without question a huge transaction. It’s big news in Houston, where Enron employs thousands and pays outside counsel tens of millions in fees each year. The acquisition itself will keep dozens of lawyers busy for at least six to nine months. The litigation is likely to keep lawyers busy a lot longer. While the deluge of shareholder suits isn’t unexpected — it’s becoming routine whenever a corporation’s stock starts to slip — securities litigation by definition is complicated and costly and likely to drag on for years after Enron’s name is just a memory in Houston. “We’ve got a monster here being created,” says Houston lawyer Jeffrey Kaiser, who filed at least five suits in state court in Houston, including the suits against Vinson & Elkins and Arthur Andersen. “It’s going to be interesting, keep me busy for a while,” says Stephen Susman, Enron’s defense attorney in the shareholder suits. Susman says he’s taking an unusual position as a defense attorney in the litigation. Houston plaintiffs’ lawyer Marian Rosen is another Houston attorney assuming an unaccustomed role in the litigation. Instead of representing plaintiffs, Rosen and her husband, Fred, are the plaintiffs in one of the shareholder derivative suits filed in state court. “As a shareholder I feel that we have a cause of action,” says Rosen, who played a similar role nearly a decade ago in other litigation involving Compaq Computer Corp., a suit that eventually settled. “When they say they are going back to 1997 [to restate earnings] because there have been improprieties as far as accounting is concerned, it raises a lot of issues,” says Rosen, of Marian Rosen & Associates. Rosen’s lawyer is George Fleming, of Fleming & Associates in Houston, who also represented her in the earlier Compaq litigation. He did not return a telephone message by press time, and G. Sean Jez, an associate at Fleming’s firm who is working on Fred A. Rosen, et al. v. Ronnie C. Chan, et al., No. 2001-57517, did not work on the earlier litigation filed against Compaq’s directors. A lawyer with experience defending officers and directors in shareholder litigation, Dallas’ James Coleman Jr., a partner in Carrington Coleman Sloman & Blumenthal, says the suits are always costly because so much is at stake, even if the directors did nothing wrong. “A lot of times, there’s nothing at stake, they [plaintiffs] just want to get some money. A lot of times, it’s very serious. That’s when the rubber meets the road. You have to make a decision on whether or not you can defend it and figure out what that’s going to cost,” says Coleman, who is commenting generally. LOTS OF LAWYERS The stock of Enron, a marketing and trading company, has fallen by about 80 percent since the beginning of the year, going as low as $7 a share. In recent weeks, the stock has been 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. “This is one of the hottest stories in the country right now. One doesn’t have to be a drop-dead idiot to figure that out,” says Richard Zook, whose firm has filed two suits in state court on behalf of investors and filed the first securities fraud class suit in federal court in Houston. In that suit, Patricia D. Parsons v. Enron Corp., et al., No. H01-3903, filed on Nov. 13, the plaintiff is suing Enron, Fastow, chairman Kenneth Lay, former president Jeffrey Skilling and Arthur Andersen. Parsons alleges the defendants engaged in securities fraud by failing to reveal full information about the company’s finances, which led to an artificial inflation of the company’s stock price during the class period of Oct. 22, 1998, through Nov. 8. She seeks class certification and unspecified actual and punitive damages. But the shareholder derivative suits are a little different. Rosen’s suit, for instance, is a shareholder derivative suit that seeks to recover damages on behalf of the nominal defendant, Enron. Her suit seeks damages from 13 officers and directors for their alleged failure to provide oversight into some transactions between Enron and the limited partnerships set up by Fastow. She alleges breach of fiduciary duty of loyalty and breach of fiduciary duty of due care and seeks an accounting of all transactions between Enron, Fastow and the investment partnerships. Dynegy’s plan to acquire Enron in a deal valued at about $23 billion is proving a big project for at least four firms. Enron is using Vinson & Elkins and Weil, Gotshal & Manges for the deal, while Dynegy’s lawyers are from Baker Botts and Akin, Gump, Strauss, Hauer & Feld. That’s in addition to large teams of in-house lawyers from both Houston-based companies. The litigation is also providing work for many lawyers. Susman, a partner in Susman Godfrey in Houston, is defending Enron Corp., while Robin Gibbs, a partner in Gibbs & Bruns in Houston, represents directors named in the suits. Both firms have done work for Enron in the past. Craig Smyser, a partner in Smyser Kaplan & Veselka in Houston, is representing Fastow, along with Richard Drubel, a former Susman Godfrey partner who is now a partner in the New Hampshire office of Boies, Schiller & Flexner. For the SEC investigation, Smyser says Fastow has also hired Lawrence Iason, a partner in New York’s Morvillo, Abramowitz, Grand, Iason & Silberberg, and David Gerger, a partner in Foreman, DeGeurin, Nugent & Gerger of Houston. A group of plaintiffs’ lawyers from Houston are working on the suits filed in state and federal court, along with a number of firms from elsewhere that have national practices in the securities litigation arena. Daniel Gartner, of the Gartner Law Firm in Houston, filed the first suit, Martin Gubernick v. Kenneth L. Lay, et al., No. 2001-53605. It was assigned to 152nd District Judge Harvey Brown, who will hear a motion to consolidate in December. Gartner says he is working with lawyers from Shiffrin & Barroway in Bala Cynwyd, Pa. Also on Oct. 17, W. Kelly Puls, a partner in Puls, Taylor & Woodson of Fort Worth, filed a suit; he is working with lawyers from New York firms Abbey Gardy and Law Offices of James V. Bashian. Puls later filed another suit with lawyers from Abraham & Paskowitz of New York. Other teams include partners Marc Stanley and Roger Mandel and associate Martin Woodward of Dallas’ Stanley, Mandel & Iola, who are working with lawyers from Hulett Harper and Emge & Associates, both of San Diego; and Zook and his partner Tom Cunningham, both of Cunningham, Darlow, Zook & Chapoton of Houston, who are working with Wolf Popper of New York. Also, Thomas Bilek, a partner in Hoeffner, Bilek & Eidman of Houston, is working with New York firms Pomerantz Haudek Block Grossman & Gross and Jaroslawicz & Jaros on one suit filed in state court in Houston. He also is working with Bernstein Liebhard & Lifshitz of New York on another, and with Law Offices of Brian M. Felgoise of Philadelphia on a third one, according to a list of the litigation included with the motion to consolidate. Kaiser, a partner in Kaiser & May, and Robert Fritz, of Fritz Law Firm in Houston, filed five suits together, including the suits against Vinson & Elkins and Arthur Andersen. THE FUTURE The eventual acquisition of Enron by Dynegy is far from music to the ears of several large Houston firms that do a lot of work for Enron. According to Texas Lawyer‘s annual “Who Represents Corporate Texas?” report, which was published in September, Enron had 216 lawyers. A list of the corporation’s major outside firms included Vinson & Elkins, Bracewell & Patterson and Andrews & Kurth and litigation boutiques Susman Godfrey and Gibbs & Bruns. Enron has traditionally been Vinson & Elkins’ largest client, but it’s also the largest client for Bracewell and a major client at Andrews & Kurth. While all firms clearly continue to do work for Enron, the volume of that work may decline if Dynegy is successful in its plan to acquire Enron in the third quarter of 2002. Bracewell’s managing partner Patrick Oxford says the firm has done work for Enron for 15 years, including a lot of regulatory and public policy work in Washington, D.C., and is currently representing the joint lending team of JPMorgan Chase and Citibank in a financing for Enron. (Vinson & Elkins represents Enron in connection with the financing.) Oxford says Enron provides slightly more than 5 percent of Bracewell’s billings and “that’s going to be missed.” Bracewell has done work for Dynegy, he says. Dynegy hasn’t been a client of Andrews & Kurth, says Howard Ayers, the firm’s managing partner, but “they are well known to us and we are well known to them.” “Our posture is Enron is a very good client. The merger is at least nine months away,” Ayers says. He says Enron is “one of our very good and significant clients.” Harry Reasoner, Vinson & Elkins’ managing partner, wouldn’t say if Enron is currently the firm’s largest client, but he says it provides “somewhat less than 10 percent of the firm’s billings.” James Derrick, Enron’s executive vice president and general counsel, was a partner in Vinson & Elkins. The firm also does considerable work for Dynegy. “I don’t have any concern about our prospects for the future. As you know, we were named the pre-eminent energy law firm in the world and we will continue to try to compete for opportunities,” he says. Vinson & Elkins has even more at risk than a major client. In Shirley J. Pratz, et al. v. Vinson & Elkins, No. 2001-57195, three Enron shareholders allege 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.” The suit also alleges that from 1997 through 2001, Enron executives including Fastow, former president Skilling and chairman Lay used the five limited partnerships to benefit financially at the expense of Enron and its shareholders. The plaintiffs seek class action status and allege fraud, negligent misrepresentation, legal malpractice, breach of fiduciary duty and breach of implied and express warranties against Vinson & Elkins. They seek $35 million in actual damages, along with interest and punitive damages. Reasoner says, “It is significant of the many suits that have been filed by sophisticated and outstanding lawyers, only one suit was filed naming the firm on a limited matter and we believe there is no legitimate basis for it.” Reasoner says it’s too soon to say who will defend Vinson & Elkins.

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