Enron Ex-Employee Groups Seek Voice in Bankruptcy Proceedings

NEW YORK —  Laid-off Enron Corp. workers have asked a Bankruptcy Court judge to give them a major voice in deciding how creditors are repaid and how the company will be restructured.

Three separate groups of former employees have petitioned U.S. Bankruptcy Judge Arthur J. Gonzalez to be named an official creditor committee.

The legal designation could give former workers significant leverage as the court oversees issues such as financial settlements with current Enron management and with other creditors. Many Enron employees suffered huge losses in their retirement savings plans as the company’s stock collapsed.

The Bankruptcy Court has named one creditor committee so far in the Enron case. But that group is composed largely of banks and other large institutions, and ex-employees complain that it doesn’t have their interests at heart. That 15-member committee has a single employee representative, a former Enron lawyer.

“Whenever an issue arises where the employees want something different than the J.P. Morgan Chases of the world want, they’ll at best have one vote out of 15,” said Jeff Boyd, the Texas deputy attorney general whose office is one of the groups seeking to represent former employees.

Gonzalez has set a Feb. 27 hearing to consider the matter.

Historically, few bankruptcy cases have had employee creditor committees, experts said. Judges in most cases assign just one group to speak for all parties. The idea is that it’s easier for the company to negotiate with a single set of creditors.

Indeed, the groups of former Enron workers expect to face stiff opposition--not only from other creditors but from the company itself. Enron spokesman Mark Palmer said the firm believes former employees are adequately represented by the existing committee.

“We expect opposition from every camp,” said Scott Baena, an attorney for one of the two private employee groups.

However, Gonzalez signaled in an earlier ruling that he would he be willing to consider an employee committee. If the judge were to approve the formation of such a committee, the individual members would be selected by the trustee overseeing the case.

The trustee also has the option to approve the formation of a second committee at any time, potentially eliminating the need for the court hearing.

In addition to the Texas attorney general’s group, two private groups are vying to represent former employees: the Severed Enron Employees Coalition and the Ad Hoc Committee of Former Enron Employees.

If either private group is approved it could mean a financial bonanza for their lawyers, experts said. That’s because Enron would be required to pay the legal bills of any official committee. For the lawyers, that means a guaranteed payday.

For that reason, lawyers often jockey to be chosen for such committees, legal authorities said. The strategy, according to UCLA law professor Lynn LoPucki, is to team up with the workers who are most likely to be appointed to the committee--and who then would be in a position to hire the lawyers.

“There is an elaborate process by which the lawyers compete,” LoPucki said. “The first step is for their clients to get on the committee and the second is for the committee to hire them as counsel.”

David McClain, an attorney representing the Ad Hoc ex-employee group, said his goal is to make sure employees are treated fairly in the bankruptcy case. “I would like the committee to hire me, but I don’t have any assurances they will,” he said. “If I don’t get any money out of this, it’s OK. This [battle for employees] is the good fight.”

Having their legal tab picked up by the company would give former employees enormous clout at the bargaining table, LoPucki said. Because employees would have the financial wherewithal to mount a prolonged fight, Enron management would be much more likely to accede to their demands at the bargaining table, he said.

In a 1990 study that he co-authored, LoPucki found that groups represented by official committees had great success in winning settlements at the bargaining table.

In 43 large bankruptcies from 1980 to 1988, LoPucki found that every group represented by an official committee received some financial settlement--even if the legal cases of some groups were so weak that they almost certainly would have lost in a court decision, he said.