Mediation in Enron/Andersen lawsuits collapses
HOUSTON/WASHINGTON, May 1 (Reuters) - A mediator overseeing long-stalled talks to settle huge civil lawsuits against top Enron Corp. insiders and former Enron auditor Andersen on Wednesday declared the negotiations dead.
Eric Green, the court-appointed mediator, sent an e-mail to U.S. District Judge Melinda Harmon in Houston saying it was the end of the talks, which have been limping along since a marathon negotiating session ended two weeks ago in New York. The breakdown leaves an Andersen settlement offer of $300 million on the table.
"This is to let you know it appears we have not been able to successfully mediate this dispute. Despite the best efforts of all parties, unresolvable differences remain and we do not believe we can overcome them at this time," says the e-mail from Green, who heads the Boston-based mediation firm Resolutions LLC. It was also sent to U.S. Bankruptcy Judge Arthur Gonzalez, who is overseeing Enron's bankruptcy case in New York.
The end of talks could not have come at a worse time for Andersen, which is in trial in Arizona in another major civil suit relating to accounting fraud and is just days away from a federal criminal obstruction of justice trial related to the Enron case.
A judgment in the Arizona case could financially cripple Andersen, while a guilty verdict in the Houston federal criminal trial could destroy it. The U.S. Justice Department accused the Chicago-based auditor of destroying records from its Enron audits after learning they were being sought by U.S. securities regulators.
Now, Andersen also faces the prospect of protracted litigation in the class-action suit brought by angry Enron shareholders, which also names Enron officers and directors and Enron's bankers and lawyers. The shareholders lost billions of dollars when the former Houston energy trading giant collapsed last fall, filing the largest bankruptcy in U.S. history on Dec. 2.
A spokesman for the lead plaintiff, major Enron shareholder the University of California Board of Regents, said there were too many interconnected issues that could not be worked out.
"Without their resolution, any settlement would have worked to the detriment of the class," spokesman Trey Davis said in a statement.
OLD STICKING POINT
Legal sources said that the ultimate sticking point was the same one that stalled the New York negotiations. The plaintiffs could not persuade other defendants in the suit - namely, Enron's bankers and outside lawyers - to waive their right to have Andersen's settlement deducted from any court judgment they might have to pay.
Attorneys close to those defendants have for weeks privately said there was no way they would waive that right.
The second problem was a demand by Enron's creditors - many of the same banks named in the Enron class-action suit - for half of Andersen's settlement.
"If you couldn't resolve the proportionate liability, you never could get to the allocation of the $300 million," said one plaintiff's source.
Andersen expressed disappointment in the end of the settlement talks, which started several months ago with the auditor offering $750 million. Since then, Andersen's financial condition has worsened as it lost more than 200 clients.
"We worked in good faith over the last several months to resolve these matters to the benefit of all parties," Andersen said in a statement. "Considerable progress was made, but unfortunately, the plaintiffs could not resolve several differences among themselves and with defendants other than Arthur Andersen."
Meanwhile, Andersen was in the second day of a trial in Phoenix, Arizona, brought by investors in the Baptist Foundation of Arizona, a nonprofit organization that allegedly operated as a giant Ponzi scheme.
The foundation in 1999 filed the largest Chapter 11 bankruptcy by a nonprofit, costing its investors $570 million. Andersen argues it was duped like everyone else, while the plaintiffs say it should have spotted the fraud.
On Monday, jury selection begins in the criminal trial, in which the U.S. Justice Department will have former top Enron audit partner David Duncan on their side as a key witness against Andersen. Duncan pleaded guilty to obstruction of justice April 9 and agreed to be cooperate with prosecutors.
Legal sources said chances were slim Andersen would reach a last-minute deal before trial. One source close to the case said, "It's possible something could happen during the trial."
Talks broke off in that case on April 18, although Andersen last week sent a final offer that was rejected. Lawyers on both sides have been busy preparing for the trial, expected to take about four weeks.
05/01/02 20:06 ET |
