U.S. Judge Considers Mediator

A federal judge in Houston told attorneys she is considering naming a mediator to drive a potential settlement of legal claims against Andersen, the embattled former accounting firm for Enron Corp., according to sources close to the case.

The move by U.S. District Court Judge Melinda Harmon came in response to a request from Enron creditors during a private conference call Thursday. The appointment could position creditors to collect a quick settlement before Andersen’s available resources decline any further.

But the naming of a mediator has come under fire from some Enron shareholders who filed class-action litigation against the accounting giant, according to one attorney close to the case.

In essence, the creditors’ push to consolidate claims against Andersen under one mediator represents an end-run around the shareholders’ attorneys, legal analysts said. For shareholders, mediation could lead to lower financial recoveries from Andersen and other potential defendants.

Luc A. Despins, an attorney for the creditors’ committee, declined to comment. Attorneys for Enron, which filed for bankruptcy protection Dec. 2, did not return phone calls.

A spokesman for Andersen declined to comment.

But plaintiffs have little incentive to agree to a settlement before they have determined how much liability Andersen and other defendants bear, or the extent of their assets, said one attorney close to the case.

The University of California Board of Regents, the lead plaintiff in the class-action case, would be “happy to participate in mediation efforts,” said spokesman Trey Davis. “Without knowing the full liability of defendants in this case or our class’ options for substantial recovery, it would be premature to speculate on the outcome of such a mediation.”

The university system lost an estimated $145 million in pension and endowment funds in the Enron collapse.

The private conference call illustrated how various factions involved in the case are jockeying for position as Andersen--seen as the richest possible legal target for investors who lost billions of dollars in Enron’s collapse--is itself reeling. The accounting giant has lost dozens of clients and is struggling to transfer its international affiliates to rival KPMG.

On Thursday, Enron said it believes Andersen is liable in the energy trader’s downfall and said the two companies have engaged in settlement talks.

But an attorney for Enron’s bankruptcy estate said the class-action plaintiffs have excluded him from their own negotiations with Andersen.

Davis said Enron shareholders preferred to negotiate with Andersen on their own.

The push for a mediator could be part of a longer-range strategy by creditors who may face their own potential legal liability in the case. One such creditor is J.P. Morgan Chase & Co., which arranged oil and gas purchases from Enron through an offshore company.

If Enron shareholders obtain a large court judgment against Andersen and other defendants, the accounting giant could become insolvent and shift liability for the damages to the others. By pushing an early settlement of claims against Andersen, J.P. Morgan Chase reduces the chance of such an outcome.

Also Thursday, an insurance company that had balked at paying as much as $30 million in legal fees for Enron’s current and former directors has agreed to pay the bills resulting from lawsuits over Enron’s collapse.

But insurance firm Aegis said in a court filing Friday that it would revoke the coverage if the company finds that claims were based on misrepresentations. Aegis added that it believes some of the information it was given to underwrite the policies was “inaccurate and false.”

Bankruptcy Court Judge Arthur J. Gonzalez, who previously declined to force Aegis to advance money to the directors, scheduled a hearing for April 11.

Times staff writer Nancy Rivera Brooks contributed to this report.