October 24, 2005
More on Miers & $22M Settlement
Posted by Christine Hurt

Like Gordon, I was inclined to rethink the Locke, Liddell role in the $22M settlement after reading Larry Ribstein's post.  When this tidbit was first brought to light after Miers' nomination, many pooh-poohed its attention as witch-hunting given that firms frequently settle litigation and that Miers was not personally involved with the subject of the lawsuit.  However, after thinking about Larry's argument paralleling Miers' involvement with the involvement of Enron's outside directors in that debacle, I wanted to find out what the buzz was pre-Miers about this settlement.

Interestingly, I found this Houston Chronicle article from 2001 (2001 WLNR 7658029 on Westlaw) talking about Vinson & Elkin's dismissal from the state law investor lawsuit involving Enron.  (V&E has not been dismissed from the federal investor lawsuit, although I may be a few moves late on that one.)  The article, by Mary Flood, is entitled "Texas Laws Treat Enron's Lawyers More Gently than the Accountants" and examines how in Texas, lawyers are liable to no one but their clients for malpractice.  So, absent fraud on the part of the law firm, the vast majority of attorneys are dismissed from lawsuits against their clients.  The article then goes on to give an example for that exception:  the $22M settlement by Locke Liddell for the Ponzi scheme perpetrated by Russell Erxleben.  So, V&E was dismissed from the Enron state court litigation, but Locke Liddell wouldn't roll the dice on their litigation?

Yes, the firm may have taken a low-risk approach to the settlement.  However, given the low probability of any payout absent committing fraud, one must conclude that some evidence existed that the firm knew of fraud in the Ponzi scheme.  In addition, the $22M was quite a chunk of change to avoid litigation.  This is a crude calculation, but if Locke Liddell had profits per partner of about $365k in 2000, and let's say 100 partners, then $22M would represent 2/3 of a year's profits.  That's a lot for a firm to get rid of a nuisance suit.

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