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J.P. Morgan Chase, Morgan Stanley Dean Witter, and Merrill Lynch are three names most managing partners dream about listing as clients of their firms. But litigator Alan Levine, managing partner of New York’s Kronish Lieb Weiner & Hellman, lists them as clients he doubts he will ever have, especially now that he has taken each of them on in multibillion-dollar lawsuits. “Once you’ve crossed that bridge, you’re no longer trying to curry their favor,” he said. Crossing that bridge is never easy for corporate law firms, but 100-lawyer Kronish Lieb and other midsize firms have decided to stake out the territory where larger firms fear to tread: big-ticket litigation on behalf of large companies suing the major investment banks and Big Five accounting firms. In many instances, large firms face conflicts of interest barring them from taking on such litigation. But firms also frequently bar themselves due to so-called business conflicts, determined by the firms’ financial interest in not offending particular clients. The Enron Corp. debacle has highlighted a number of these situations. Though widely perceived as a fee bonanza for law firms, Enron is mostly a litigator’s ball, forcing many predominantly corporate firms into confrontational modes with which they are not entirely comfortable. For instance, litigation against a Big Five accounting firm like Arthur Andersen, which audited Enron before its collapse, has traditionally been a daunting prospect for larger firms. According to a number of litigators, each of the major accounting firms — PriceWaterhouseCoopers, Ernst & Young, Deloitte & Touche, KPMG and Andersen — has let it be known they will hire no law firm that represents a party suing any one of them. “It’s not out of altruism,” said one litigator who asked to remain unnamed. “[The Big Five accounting firms would] like nothing more than to see each other go out of business, but they’re afraid of creating bad precedent.” Eric Seiler, managing partner of 40-lawyer Friedman Kaplan Seiler & Adelman in New York, said his firm had litigated against many of the Big Five accounting firms in matters referred to them by firms including Davis Polk & Wardwell, Debevoise & Plimpton and Paul, Weiss, Rifkind, Wharton & Garrison. “The top-tier firms are the most likely to have business conflicts,” said Seiler, “because they have such close relationships with financial institutions.” Arthur Andersen has already been named as a defendant in a number of class action suits relating to its accounting work for Enron, and is the subject of investigations by the Securities and Exchange Commission and the U.S. Department of Justice. In recent weeks, the accounting firm has been seeking to reach a global settlement agreement, but Seiler said the case against Andersen was still at an early stage with regard to corporate claimants, and many large firms may not yet have considered whether they will take on litigation adverse to Andersen. Michael B. Carlinsky, a litigation partner in the New York office of Los Angeles-based Quinn Emanuel Urquhart Oliver & Hedges, said such conflicts are an inherent part of big-firm practice, and the accounting industry’s position on adverse precedent is a common one across different industries. “The reality is there are many large firms afraid to take on litigation for fear they will create precedent adverse to corporate clients,” said Carlinksy. Carlinsky cited such conflicts as one of the major reasons he left the New York office of San Francisco’s Orrick, Herrington & Sutcliffe in January to join Los Angeles-based Quinn Emanuel, whose 150 lawyers are virtually all litigators. INVESTMENT BANKS Like the Big Five accounting firms, the blue-chip investment banks are typically considered sacred cows by large law firms. Kronish Lieb represents Sumitomo Corp. in a suit brought against J.P. Morgan Chase over its alleged participation in the activities of a rogue Sumitomo commodities trader, which ultimately cost the Japanese company $2.6 billion in losses. In May 2000, the law firm negotiated a $275 million settlement with Merrill Lynch in the same case, one of the largest ever paid by the investment bank. In 1998, the firm represented a group of investors suing Morgan Stanley for allegedly abetting fraud at a failed hedge fund. Kronish Lieb has recently been retained by the St. Paul Fire and Marine Insurance Co. and Travellers Indemnity Co. to represent them in a lawsuit brought by J.P. Morgan Chase against 11 insurers seeking payment of more than $1 billion in surety bonds intended to cover Enron trading losses. The insurers have refused payment on the grounds that many of the trades in question were fraudulent. Early last week, Southern District of New York Judge Jed S. Rakoff dismissed J.P. Morgan’s summary judgment motion in the matter. Levine said Kronish Lieb has developed an expertise in financial fraud litigation, which he said he believes is a strong enough niche to balance out the work that will not be coming from the financial services firm he has alienated in the courtroom. “We don’t have a large underwriting or capital markets practice,” he said. “We have a very robust, stand-alone litigation practice.” DAVIS POLK FORCED OUT On the other hand, the role of Davis Polk in the same litigation illustrates the perils big firms can face in such situations. Davis Polk originally brought the suit against the insurers on behalf of J.P. Morgan Chase, one of Enron’s biggest creditors, but was disqualified due to conflict of interest in January. Federal Insurance Co., the party that brought the motion to disqualify the law firm, is a subsidiary of Chubb Corp., a longtime Davis Polk corporate client. Kelley Drye & Warren replaced Davis Polk in the suit in the Southern District. Observers said Davis Polk’s conduct in the matter seemed an example of two business conflicts colliding, with the firm sticking with the bigger client to produce an actual conflict. Indeed, Federal’s memorandum of law in support of its motion to disqualify Davis Polk accused the firm of jettisoning “client loyalty in the name of economic expediency.” According to the Jan. 22 affidavit of Chubb General Counsel Joanne L. Bober in support of the motion to disqualify, Chubb had paid legal fees to Davis Polk, which it regarded as its regular outside counsel, “in excess of $2 million” since the fourth quarter of 1998. Such an amount pales in significance to the fees Davis Polk would have received from the surety bond litigation alone, not to mention all of the other work it performs on behalf of J.P. Morgan, said a partner at another major firm who asked to remain anonymous. Davis Polk is still generating large fees from Enron, as it continues to represent J.P. Morgan Chase as creditor’s counsel in the bankruptcy proceedings. The firm also represents Arthur Andersen, a fact that some observers have suggested is also a conflict. LOOKING BEYOND ENRON Though the post-Enron environment is likely to produce far more scrutiny of financial activities and attendant litigation, the number of firms willing and able to handle such litigation has dwindled over the past few years, as large out-of-town firms had gobbled up many of the smaller local firms. “As firms continue to grow through acquisition,” Carlinsky said, “they become these mega-firms with lots of conflicts.” In the mega-firm environment, he continued, the corporate partners close to the big clients call the shots, a situation that restrains many litigation partners. Seiler noted that litigators face a difficult choice in this environment. “The trade-off is between the stability that comes with having large institutional clients and being able to pursue litigations that you want to pursue,” he said. Levine said Kronish Lieb had held informal talks with a number of larger firms seeking to merge, but that his partners had largely decided they were not interested. For now, he said, the firm will continue to forge ahead on the path it has chosen. “I don’t see this practice area abating anytime soon,” he said.

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