UC's Law Firm In Enron Case Faces Conflict Of Interest

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UC may have to find new lawyers to fight for the millions of dollars it lost in Enron's collapse because the high-powered law firm UC hired is suing the state.

Dean Andal, a member of the State Board of Equalization, sent a letter last week to UC President Richard Atkinson pointing out what he says is a conflict of interest on the part of the firm.

Milberg Weiss Bershad Hynes & Lerach is suing California, claiming the state owes fees from a 1997 case in which the firm defended the California Department of Motor Vehicles. But UC is using the firm in the class action lawsuit it joined against Enron executives.

Conflict of interest, according to Boalt Hall School of Law Professor Stephen Bundy, occurs when "a lawyer sues a current client."

"If the state and the regents are viewed as the same client then there is a technical violation of the rule," Bundy said.

The firm, which handled 60 percent of the class-action securities-fraud cases in the United States last year, wants $9,000 an hour for its work for the state in the 1997 case. The suit overturned a $300 fee charged to new California residents if their cars did not meet the state's emission control standards.

"You could not seek a firm that has more conflict of interest in the United States," Andal said. "(In choosing Milberg Weiss to represent it) UC could prevent the UC pension system from obtaining the several hundred million dollars from Enron. That would be a crying shame."

UC attorney Chris Patti said there is no conflict of interest in Milberg Weiss' representation of UC in the Enron case. He said UC is not the same as the state of California.

"I don't think that same members creates conflict," Patti said.

The governor, though, sits on UC's policy-making board, the board of regents, and appoints most of its members.

William Lerach, the law firm's senior partner, contributed $10,000 to Davis' campaign in 2000, which also makes the firm's relationship with the state suspect, Andal said.

If UC's relationship with Milberg Weiss turns out to be legally defined, UC can waive the conflict of interest rule and keep the firm as their legal representation in the Enron case, Bundy said.

Legal conflict of interest, however, is not the only issue, said Andal. A federal grand jury in Los Angeles is investigating the 190-member law firm in connection with possible improper payments to shareholders enlisted for suits, according to an article in The Los Angeles Times.

UC could become the lead plaintiff in the Enron case, said Patti, adding that an upcoming court hearing will decide the university's status in the case.

The investor with the largest stake in Enron's demise has the best chance at becoming lead plaintiff, Patti said. Florida, suing the company for $300 million, therefore, is a front-runner for the first position.

UC lost $145 million when Enron stock plummeted, largely from its pension plans. The university seeks to recoup its losses through the lawsuit. The losses, though, are only a drop in the bucket, and the university's portfolio remains strong, UC spokespeople have said.

UC chose the San Diego-based firm because they are "the largest and most experienced firm in areas of class action," says Patti. "(They) have the best resources to pursue a case like this. It is going to take a long time and a lot of money to litigate this case."

The university joined the class action lawsuit against Enron in December, claiming the company's executives illegally cashed-in stocks and concealed losses. Collectively, the plaintiffs in the case allege they have lost $1.1 billion.


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