| -Caveat Lector-
What a travesty. $100 million and much of the information will be kept
secret because of "confidentiality" agreements. What kind of investigation is
that? - JR
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Enron
Examiner Billed Estate for $100 Million
Anthony Lin
New York
Law Journal
12-05-2003
Lawyers who worked on transactions
for Enron Corp. were clearly paid handsomely, but it turns out
investigating those transactions pays much better.
The
investigation headed by Neal Batson, the examiner appointed by the court
overseeing Enron Corp.'s Chapter 11 bankruptcy, has resulted in billings
to the Enron estate of more than $100 million since it started in the
summer of 2002.
By comparison, Houston law firm Vinson &
Elkins billed Enron about $42.8 million in 2000, its most lucrative year
as regular outside counsel to the former energy trading giant.
The
investigation, which produced more than 4,000 pages in four reports, is
almost certainly the most expensive inquiry of its nature in U.S. history.
In October alone, more than three dozen partners and counsel, 33
associates and four contract attorneys at Batson's firm, Alston &
Bird, billed Enron more than $5 million for more than 11,000 hours of
work.
"$100 million is a phenomenal amount of money for doing just
about anything," said Stuart Hirshfield, a bankruptcy partner in the New
York office of Ropes & Gray. "You have to start out with that idea in
determining whether it was ultimately to everyone's benefit."
The
role of an examiner in a bankruptcy is twofold: to identify causes of
action that may lead to recoveries that enlarge the estate to the benefit
of its creditors, and to provide an account
of what went wrong in a corporate failure so as to preserve the integrity
of and public faith in the economic system.
Whether Batson and Atlanta-based Alston & Bird advanced either
goal enough to justify the enormous expense they incurred are questions
that are likely to cast a continuing shadow on the course of the Enron
bankruptcy, especially now that Batson is trying to close the door on the
matter himself. He and his firm submitted their final report last month.
Also last month, Batson, who did not return a call seeking
comment, filed a motion seeking to have himself discharged as Enron
examiner. As part of that motion, he also
sought unprecedented protection from future discovery and liability, as
well as the court's permission to destroy many of the documents he has
obtained in the course of his investigation.
Batson's motion was greeted with objections
from many quarters, including Enron itself and the Official Unsecured
Creditors' Committee.
Calling Batson's requests "aggressive and
unwarranted," Enron's lawyers at Weil, Gotshal & Manges asked Southern
District Bankruptcy Judge Arthur J. Gonzalez to reject Batson's requests
for broad immunity, noting that the company may need documents in Batson's
possession in continuing litigation.
"[D]espite their voluminous
nature, the Reports do not stand on their own," Enron argued in its
objection to Batson's motion.
In a hearing Wednesday, Gonzalez
signaled his likely approval of Batson's discharge, but adjourned a
hearing on the immunity and document retention issues until Dec. 18.
A significant amount of the
material Batson accumulated will be off limits to litigants in any case
because it was obtained subject to confidentiality
agreements. In a hearing also held Wednesday, Gonzalez
granted a protective order preventing the release of transcripts of
interviews Batson and his staff had conducted with executives at several
banks that had dealings with Enron. The transcripts had been sought by
plaintiffs in the shareholder class action suit now pending in federal
court in Houston.
The bankruptcy judge agreed that granting the
plaintiffs access to the transcripts would be more cost-efficient than
having them seek information through their own discovery efforts, but said
the court's interest in protecting confidentiality agreements was higher.
Many of the suits that Enron itself, its creditors and
shareholders have filed against the company's former executives, its
investment banks and its professional services firms have referenced
Batson's investigations. It is unclear, however, how much they have relied
on his findings to date, as opposed to their own investigations or
discovery. Several actions were filed before Batson issued any of his
reports.
It is clear, however, that Batson has acquired enormous
expertise on the subject of Enron, said Larren M. Nashelsky, a bankruptcy
partner in the New York office of Morrison & Foerster. He added that
he thought Batson had a responsibility to continue to play a role in the
process, and not to "wash his hands" of the matter.
"There really
is an obligation to make himself available to explain his findings," said
Nashelsky.
"If it was a $5 million examiner's report, we should
expect the same thing," he added. "Throwing it out there and running away
is not fair to anyone."
COMPLEX CASE
Nashelsky said
the cost of the investigation was certainly high and could make courts in
the future think twice about giving an examiner such broad latitude.
"I think there'll be much higher scrutiny in the future," he said.
But there was also never a case quite like Enron before, Nashelsky
noted.
"In fairness, it's probably the most complicated
[bankruptcy] in terms of scope and the fraud involved that's ever taken
place," he said. "I'm not sure [the costs were] unreasonable given the
complexity of the matter and the lack of forthcoming of the people
involved."
Hirshfield agreed that the case was extraordinary in
its complexity, and that any investigation would have proven expensive. He
also noted that the extraordinary public focus on Enron early on most
likely gave added weight to the public-service aspect of the examiner's
role.
"There's a benefit and then there's a cost benefit," he
said. "Is it more important to bring comfort to the public? There are no
good answers."
The question has only become more complicated as
Enron has faded from the headlines, replaced by WorldCom Inc. and Tyco
International Ltd. While Batson's early reports received a large amount of
media attention, his final report received scant coverage in major news
outlets.
"The longer it takes, the more indifferent people
become," said Hirshfield. "The quicker you can respond to unanswered
questions, the more benefit there is."
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