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It’s been mostly business as usual this year for Joe Dilg, managing partner of 798-lawyer Vinson & Elkins. Formerly the lead V&E lawyer on the Enron Corp. account, Dilg had little time in 2003 for legal work. He spent his time glad-handing clients, troubleshooting management issues and acting as a firm leader. In October, he traveled to Dubai, United Arab Emirates, for a reception opening the firm’s newest office. In early December, he was the host at the firm’s lavish holidays parties at art museums in Dallas and Houston. But at the end of this year, one thing will be different for Dilg and V&E: For the first time in more than a decade, V&E’s revenues for the year will decline. Dilg says 2003 revenues will be as much as 5 percent less than the $456.5 million posted in 2002, depending on collections in December.” The economy has been difficult for a number of clients,” Dilg notes. Dilg expects profits per partner to be a little higher than the $640,000 in 2002. But with revenues dipping at V&E, the firm with a reputation for invincibility is starting to show it, too, is vulnerable. According to Corporate Counsel magazine, an affiliate of law.com and Texas Lawyer, the firm lost the role as lead outside counsel to some Fortune 500 clients in 2003, including Dallas’ Halliburton Corp., which had been the firm’s oldest client, and Houston’s Dynegy Inc. Halliburton executive vice president and general counsel Bert Cornelison did not return a call seeking comment before press time. John Sousa, a spokesman for Dynegy, confirms V&E no longer is outside counsel for the company. Since the beginning of 2003, 14 partners have left the firm. The firm is down about 50 lawyers from the beginning of the year. And V&E’s first foray into New York hasn’t gone according to plan; the branch is growing a little slower than expected, says managing partner Dilg, mostly because of how the rugged economy has affected capital-markets clients. The firm also was sued in June by a former associate who alleges in her complaint in Rhonda Wills v. Vinson & Elkins, et al. that she was the victim of racial and gender discrimination at V&E and sexual harassment, and that the firm violated her civil rights by denying her partnership. The firm denies the allegations, but the suit is pending in federal court in Houston. But perhaps the most threatening development for V&E this year is a bankruptcy examiner’s conclusions about the firm’s role in the downfall of Enron Corp., which filed for bankruptcy two years ago after its stock price dipped to pennies on the dollar. In a report made public in November, examiner R. Neal Batson, a partner in Atlanta’s Alston & Bird, concludes that V&E possibly was negligent or aided and abetted Enron officers in breaching their fiduciary duties to the battered company. Enron had been V&E’s best-paying client, generating more than 5 percent of the firm’s revenues in 2001, and a total of $161.2 million in fees from 1997 through the end of 2001. “A fact-finder could conclude that after [Enron's] 10-Q was filed, V&E knew that Enron was not adequately disclosing obligations to pay debt incurred in these types of [off-the-books] transactions,” Batson’s report states. The bankruptcy examiner grants that V&E may claim it “acted merely as scriveners of transactions, memorializing terms” in work it did for Enron. Dilg disagrees with many of the conclusions in the Batson report. And as managing partner, Dilg says his role is keeping the firm’s lawyers focused on their work and client development — and not focused on Enron litigation and investigations. “I feel we’re past Enron as far as what people are doing on a day-to-day basis … . [I]t’s a distraction to see things in the newspaper,” he says. Two years after its one-time top client Enron filed for bankruptcy, V&E is not — as gleeful rivals predict (according to accounts from two former V&E partners) — falling apart. But the firm, which is more than eight decades old, no longer exudes the aura of invulnerability. V&E “became human because of Enron,” says former partner Orrin Harrison III, who left the firm early in the year to join Akin Gump Strauss Hauer & Feld as a partner in Dallas. Partners Harry Reasoner and John Murchison Jr. — the lawyers with authority to talk for V&E about Enron matters — also disagree with most of the conclusions in the Batson report. But Reasoner, Dilg’s predecessor as managing partner, and Murchison say that some of the findings are helpful to the firm’s position. They note, for instance, that the report clarifies the firm was not the company’s chief counsel on disclosure issues, and the report says V&E partners only had time for a cursory review of many of Enron’s regular Securities & Exchange Commission filings. Reasoner says the Batson report in that regard is “directly inconsistent” with the disgruntled Enron shareholders’ allegations in Mark Newby, et al. v Enron Corp., et al. that V&E was responsible for disclosure. Reasoner also notes that the firm has written opinions from experts — including Geoffrey C. Hazard Jr., a law professor at the University of Pennsylvania School of Law; Donald W. Glazer, counsel at Goodwin Procter in Boston; John C. Coffee Jr., a professor at Columbia University Law School; and Charles W. Wolfram, a professor at Cornell Law School — finding the firm and its lawyers acted ethically and properly in connection with Enron work. But despite those opinions, V&E likely will be in court defending its Enron work. The lawyers representing the unsecured creditors committee in the Enron bankruptcy sought and received permission this month from U.S. Bankruptcy Judge Arthur Gonzalez of New York to sue V&E. The claims, according to the creditors’ motion, could be added to a suit creditors filed in 2002 in Montgomery County, Official Committee of Unsecured Creditors of Enron Corp. v. Andrew S. Fastow, et al., which names Fastow, the former chief financial officer, former chairman Kenneth Lay, former chief executive officer Jeffrey Skilling and others. V&E already is a defendant in Newby, the shareholder securities class action suit pending before U.S. District Judge Melinda Harmon of Houston. Plaintiffs’ lawyer Roger Greenberg, a partner in Schwartz, Junell, Greenberg & Oathout in Houston, says conclusions in the Batson report support the plaintiffs’ allegations in the class action suit, and the lawyers hope to use it as evidence at trial. ENRON TALK VERBOTEN V&E, the third-largest firm in Texas, is smaller than a year ago. Dilg says some of the reduction in size is deliberate — the firm brought on 34 first-year associates this fall compared to 45 in 2002 — but the firm did lose 14 partners in 2003. Dilg says most left because of lucrative offers or opportunities the lawyers couldn’t refuse. “I don’t think you’ll find Enron had as much to do with it as some economic opportunities,” Dilg says, who concedes, “some of the people that left we would have preferred [them] to have stayed at the firm.” But Reasoner says it was unusual when Joe B. Allen and three other public finance partners left to form Allen, Boone & Humphries in August. Reasoner says the firm hasn’t lost many groups of lawyers over the years. Allen declines to comment. Four partners who left V&E in 2003 say fear of repercussions from Enron didn’t directly lead to their departures. All four say they left for better opportunities rather than running from Enron-related troubles. Charles Schwartz of Houston and Harrison of Dallas left V&E in 2003 to lead litigation practices — Schwartz for Skadden, Arps, Slate, Meagher & Flom’s Houston office and Harrison for Akin Gump in Dallas. The offer was just “too fabulous” to pass up, says Schwartz, who has a securities litigation practice and had been talking to Skadden since December 2001 before making the move in April 2003. Schwartz and Harrison speak highly of V&E. Harrison says, “They haven’t closed down any offices. They are still growing in New York. I have no regrets about my time at V&E.” Patrick Thompson, a former V&E partner who left the firm in February to become a partner in Graves Dougherty Hearon & Moody in Austin, says his move was prompted by “a fantastic opportunity.” Even though he’s making less money than at V&E, he has the opportunity to work on more of the kind of administrative law cases he enjoys. But Thompson and Harrison say they considered from time to time while at V&E that headlines about Enron were deflecting some prospective clients or causing existing clients to drop the firm. They can’t name a specific instance of that occurring, but they admit they heard rumors about that scenario. “People had to wonder, if you didn’t win a beauty contest, was that [Enron] the reason why,” Thompson says. He thinks back to the time when press attention on the Enron story was at its peak in early 2002 when one client expressed sympathy for the negative press Enron and its advisers were receiving, and another client announced he would keep more work in-house. Thompson also remembers being uncomfortable with the way firm management handled talk about Enron. Although Reasoner, the former managing partner, regularly sent firmwide voice-mails when major news events broke — such as reports about litigation against Enron and its advisers — Thompson says wide-ranging discussions of the firm’s response to the negative publicity among the full partnership seemed to be verboten. “It was almost like you weren’t a team player if you talked too much about Enron,” Thompson says. “You weren’t really focusing enough on the firm’s work. You weren’t regarded as being positive.” When it came time for Dilg, the relationship partner with Enron, to be formerly appointed as managing partner, Thompson remembers thinking, “Is this really a good idea?’ But you couldn’t really raise the question. It would be almost admitting Enron was going to be bigger and nastier than any of us could imagine.” Reasoner agrees that the firm discouraged free-floating fretting among its overall partnership about the Enron case. “In our profession, you don’t want handwringers for lawyers,” he says. Soon after Enron filed for bankruptcy in December 2001, the management committee asked Murchison and Reasoner to help outside counsel John Villa, a partner in Williams & Connolly in Washington, D.C., manage the litigation and the public relations of the fallout from the collapse of Enron. Murchison says he now spends more than 50 percent of his time on Enron-related matters, and Reasoner says it takes up as much as 20 percent of his time. “Obviously this has been burdensome,” Reasoner says. The two V&E partners are hopeful time and dispersal of information will work in the firm’s favor.” As people have become more knowledgeable about what went on, there is now widespread recognition of how limited our role was,” Murchison says. Reasoner notes that an Oct. 27 article in Fortune magazine focused on Enron’s investment bankers, and a book by the same Fortune authors (Bethany McLean and Peter Elkind) didn’t dwell on the V&E lawyers’ role much at all. As far as his own situation, Dilg and all the former partners Texas Lawyer talked to for this article see no threat to his leadership, despite his central role in the Enron case. Notes Dilg, “The partnership three weeks ago confirmed me for another two years. I don’t feel there’s any real issue.”

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