CLOSEClose Law.com Menu
 
X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
As he closed a Feb. 15 letter sent to clients and friends, Vinson & Elkins partner Harry Reasoner slipped in the news that, except for a few lingering matters, his firm has severed its ties with Enron Corp. The end of the three-decade-long relationship comes after Enron withdrew a motion asking the New York judge presiding over Enron’s bankruptcy to add Vinson & Elkins to the long list of firms working on its bankruptcy. Without elaboration, Enron withdrew the motion in February, after at least two creditors groups filed objections. “Obviously we aren’t interested in fighting about it,” says Reasoner, who ended a 10-year term as managing partner in December 2001. But 855-lawyer Vinson & Elkins may have to fight for its reputation because of its close ties to Enron, which has become embroiled in a financial scandal that has culminated in the nation’s largest-ever bankruptcy filing. Sweeping far beyond the doors of the company’s corporate headquarters in downtown Houston, the Enron scandal is creeping into the vaunted halls of Vinson & Elkins. From a start in the early 1970s, Enron grew in importance on Vinson & Elkins’ client list. By the late 1990s, as Enron muscled its way to an energy trading powerhouse, it became Vinson & Elkins’ largest client, accounting for more than 7 percent of the firm’s revenues, and helping fuel growth in the firm’s securities, corporate and project finance practices. The ties between the firm and Enron were close, and the link was cemented as about 20 Vinson & Elkins lawyers, including recently retired general counsel James V. Derrick, left the firm over the years and accepted jobs in Enron’s legal department. Vinson & Elkins became Enron’s go-to firm, negotiating all sorts of deals ranging from the $632 million purchase of Tenneco Inc.’s natural gas liquids business in 1991, to the $3.2 billion purchase of Portland General Corp. in 1996, to its pending sale four years later. Vinson & Elkins also helped New York’s Weil, Gotshal & Manges negotiate Enron’s ultimately unsuccessful last-ditch effort to be acquired by Houston’s Dynegy Inc. last fall. The loss of Enron as a client is bad enough for Vinson & Elkins from a financial perspective. At 7 percent of the total, Enron work represented about $27 million of Vinson & Elkins’ gross revenue of $386.5 million in 2000, according to Texas Lawyer’s annual report on firm finance. Enron has not only been the firm’s largest client the last two years, but Vinson & Elkins is an unsecured creditor in Enron’s bankruptcy — owed about $5 million in unpaid fees — and stands to recover little of it. But with Enron’s downfall the subject of congressional investigations and litigation filed by unhappy shareholders and former and current employees, Vinson & Elkins’ representation of Enron could turn into a public relations, or even a litigation, problem down the line. A Michigan Democrat involved in the investigation into the Enron scandal, U.S. Rep. John Dingell, wants the House Energy and Commerce Committee to hold a hearing on Vinson & Elkins’ role in Enron’s troubles. Reasoner says, to his knowledge, no one from the firm has been asked to testify, but he says current managing partner Joseph Dilg and partner Max Hendrick III have been interviewed by committee investigators. Vinson & Elkins has lost big clients before. For many years, Vinson & Elkins had a close relationship with the former First City Bancorporation. James Elkins Sr. founded the firm in 1917 with attorney William Vinson and founded the bank in 1924. But the strong ties between the firm and the bank weakened some after A. Robert Abboud of Chicago took control of the bank in 1988, and ended because of conflicts after the Federal Deposit Insurance Corp. took over 20 troubled First City banks in 1992. But as First City work dwindled, Vinson & Elkins began to do more Enron work, and the relationship was bolstered after Derrick became the general counsel in 1991. In 2000 and 2001, Enron was the firm’s largest client, says Reasoner. The firm started evaluating its representation of Enron when the bankruptcy was filed in December, Reasoner says. But because the firm was already working on a number of transactions, Enron and its lead bankruptcy counsel, Weil Gotshal, wanted U.S. Bankruptcy Judge Arthur Gonzalez to approve Vinson & Elkins as a special counsel. Instead, Reasoner says, “Very soon, we will be out.” WORK GROWS When Vinson & Elkins was hired in the early 1970s to do work for Enron predecessor Houston Natural Gas Corp., it was at the expense of Houston’s Fulbright & Jaworski. According to Richard Alsup, who became general counsel of HNG in 1973, his predecessor in the general counsel job, Joe H. Foy, hired Vinson & Elkins as HNG’s primary outside firm after he got upset with Fulbright over a conflict. Foy left HNG to go to Houston-based Bracewell & Patterson, and Alsup was promoted. Foy, now retired, is a former member of Enron’s board of directors who is a defendant in shareholder and securities fraud litigation pending in federal court in Houston. Through his defense attorney, Robin Gibbs, a partner in Houston’s Gibbs & Bruns, Foy declines to comment. But Fulbright confirms it was conflicted out of work for HNG, paving the way for Vinson & Elkins to do the work. Alsup was HNG’s general counsel from 1973 until early 1985, and he says the company’s 10 in-house lawyers did most of the company’s legal work at that time. Vinson & Elkins was handling mostly litigation for HNG, he says. Alsup, now a partner in Squire, Sanders & Dempsey in Houston, says he recalls Reasoner doing some litigation for HNG and partner J. Evans Attwell handling some Washington, D.C., regulatory matters. Attwell, a retired partner who was the firm’s managing partner from 1982 through 1991, did not return a telephone message left at his home. Enron was created in the $2.3 billion merger of HNG and InterNorth, of Omaha, Neb., in 1985. Enron grew in importance to V&E over the years. Reasoner says that for many years in the 1980s, First City and Texas Eastern Corp. were the firm’s largest clients. Both were listed, along with Enron, for instance, as the firm’s major representative clients on the Texas Lawyer annual report on firm size published in July 1987. Reasoner says the firm’s Enron work grew dramatically as the company’s revenues ballooned from $10.25 billion in 1985 to $100 billion in 2000. The firm did mergers and acquisitions for Enron, international project finance, a variety of financings, ERISA work and some litigation. But Enron didn’t use Vinson & Elkins alone by any stretch. Before the bankruptcy, Enron was the largest client at Bracewell and at Andrews & Kurth, and the company spread work around. On Texas Lawyer’s most recent “100 Largest Firms in Texas” list, published in July 2001, Enron is included on the client list for Houston-based Vinson & Elkins, Andrews & Kurth, Bracewell & Patterson, Susman Godfrey and Hays McConn Rice & Pickering, as well as Atlanta-based King & Spalding and San Francisco’s Littler Mendelson. STILL AHEAD But now, the halcyon days of Vinson & Elkins’ relationship with Enron are over. As Washington lawmakers, plaintiffs lawyers and prosecutors attempt to determine who deserves the blame for lousing up the financial futures of so many Enron investors and employees, Vinson & Elkins might not come out unscathed. In a report issued Feb. 1 by a special committee of Enron’s board, known as the Powers report, the Houston law firm is explicitly named and blamed for failing to provide “objective and critical professional advice.” Unlike Enron’s former accounting firm, Arthur Andersen, Vinson & Elkins isn’t being sued by disgruntled shareholders or employees. Vinson & Elkins was named in two state court suits filed before Enron’s bankruptcy, but the plaintiffs’ lawyers quickly dropped them after meeting with a lawyer for the firm, the legendary trial lawyer Joseph Jamail of Houston. That doesn’t mean that congressional investigators don’t want to know more. The recent interviews with Dilg, the contact lawyer on the Enron account, and Hendrick, could indicate Dingell may get his wish for a hearing on Vinson & Elkins’ role in Enron’s problems. Vinson & Elkins, in fact, is beginning to distance itself from its once prominent client. In his February letter, Reasoner argues the congressional hearings and media reports created “misunderstanding and misinformation” about the nature of the firm’s relationship with Enron. [Read The Vinson & Elkins Letter."] The firm, Reasoner says in the letter, was “not informed regarding many of Enron’s business dealings with the [off-the-books] partnerships.” (Those partnerships are important because Enron had to restate its income for several years once they were unwound.) Reasoner writes that Enron’s in-house legal department of 250 lawyers handled much of the now controversial Securities and Exchange Commission disclosure issues. Reasoner also defends the firm against criticism it has received for conducting a preliminary investigation of whistleblower Sherron Watkins’ allegations last August. But Reasoner says Vinson & Elkins will get past the loss of Enron as a client, and he says the firm is replacing the business. “Of course the loss of Enron was both a tragedy and an economic loss,” he says. “So far this year we are ahead of where we were last year.”

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.