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As rival accounting firms circle Arthur Andersen amid its high-profile obstruction-of-justice trial in Houston, legal experts said Tuesday that those firms acquiring parts of Andersen piecemeal are unlikely to be exposed to any possible liability. They warned, however, that there is little case law on this type of liability to guide firms interested in buying a part of the troubled Chicago-based firm. Undeterred, the slow dismantling of Arthur Andersen, the U.S. arm of Andersen Worldwide, began in earnest Monday when Ernst & Young announced it would buy four Andersen offices in Michigan and Ohio. The deal, terms of which were not disclosed, was the first involving Andersen’s U.S. operations since it was indicted on a single charge of obstruction of justice for destroying documents related to its audits of Enron Corp. In addition to that criminal indictment, Andersen faces a civil class action filed by former Enron shareholders and employees, who say that Andersen improperly certified Enron’s financial statements. Andersen also agreed Monday to pay $217 million through October to settle a separate civil suit involving Arizona Baptist Foundation, an allegedly fraudulent charity. Altogether, the three suits leave Andersen exposed to billions of dollars in possible fines and other court-ordered payments. That liability is a substantial barrier to a deal for the majority of company, as any buyer would have to take on that liability along with Andersen’s assets, legal experts have said. But a series of smaller deals appear to run less risk of incurring successor liability, said Elizabeth Miller, a professor at Baylor Law School. “A piecemeal sale would generally avoid successor liability,” she said, adding that few cases have dealt with the question. The liability issue is important because Ernst & Young’s Andersen deal in Michigan and Ohio is one of several in the works. Last month, Deloitte & Touche signed a memorandum of understanding to acquire about half of Andersen’s tax practice, and the midsize accounting firm Grant Thornton has expressed an interest in buying parts of the firm that serve middle-market clients. Several other firms, including BDO Seidman, PricewaterhouseCoopers and KPMG, are also reported to be interested in buying various parts of Andersen. Outside the United States as well, the new “big four” accounting firms have been busy for several months, snapping up defecting Andersen Worldwide partnerships, apparently with little regard for liability issues. The reason for their confidence: The risk would arise only if a buyer were to buy a part of Andersen directly involved in the Enron audits, such as its Houston office or its audit practice. One reason is a deal like this might fall under legal theories that cover the sale of product lines. In a few cases where harm could be traced to one particular product line, courts have forced buyers to take on the successor liabilities of that line. The other reason the risk would be higher concerns the legal structure of Arthur Andersen itself. The firm is organized in the United States as a limited liability partnership. This means that individual partners and the partnership itself can be held accountable for their actions — but partners are not liable for mistakes made by other partners. To avoid liability, a buyer would have to avoid taking on only the partners who audited Enron, their superiors and the firm itself. They would be free to buy any offices that never dealt with Enron or its auditors, just as long as the legal entity Arthur Andersen continues to exist after the deal is done. “Except for the people directly involved, the chance of being tagged with liability is low,” said Robert Lawless, a professor at the University of Missouri. Copyright (c)2002 TDD, LLC. All rights reserved.

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