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USA: Employees Win Round in Enron Suit

by Christian MurrayNewsday
February 21st, 2002

The thousands of Enron employees who saw their 401(k) plans wiped out will be able to take the energy trader to court Monday, following a federal bankruptcy ruling in Manhattan yesterday.

Lawyers for the current and former employees persuaded the judge to overturn -- on a conditional basis -- a ruling that typically protects bankrupt companies from lawsuits. By doing so, employees who lost collectively more than $1 billion in retirement fund assets are able to proceed with their suit against Enron for breaching its fiduciary responsibility.

The employee suit, which was filed with a federal court in Houston, claims that Enron and the trustees of the 401(k) plan were aware of questionable company practices, which made Enron stock an inappropriate investment.

The employee lawsuit always was scheduled to proceed on Monday. But attorney Ron Kilgard, with the Phoenix law firm of Dalton, Gotto, Samson & Kilgard, told the court that employees feared the Houston judge would postpone the case if Enron couldn't be named as part of the suit.

Kilgard asked Judge Arthur Gonzalez to provide a conditional stay, where Enron could be a named defendant and where scheduling and some discovery proceedings could commence.

Martin Dies, a litigator who represented 600 former Enron employees, urged the bankruptcy court yesterday to "grant a stay" so the employees could start court proceedings. "Many have lost their life savings and don't have a job," Dies said.

But Enron's attorney said the size and scope of the employee suit would reduce the amount of time and resources it would be able to give to its creditors.

An attorney for Milbank Tweed, a Manhattan firm representing the creditors committee, said that "110 percent of Enron's efforts should go to restructuring the company -- for all the creditors. And there are hundreds and thousands of companies." The attorney suggested that this issue be revisited in 120 days.

But Gonzalez agreed with the employees' counsel, saying Enron could be a defendant in the case. The judge also called for the removal of the stay June 21.

In other Enron developments, Treasury Department documents obtained by The Associated Press showed that then-Enron chairman Kenneth Lay offered a seat on the company's board in 1999 to Robert Rubin, who was Treasury secretary, and lobbied Rubin and his successor on issues affecting Enron.

Rubin did not join Enron's board of directors. Rubin, who left the government in 1999, is chairman of the executive committee of Citigroup Inc., which along with other banks lent hundreds of millions of dollars to Enron, hoping to keep it afloat.

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