Behind the $ystem
By Jonathan York
April 16, 2003, Wednesday
The University of Texas System has its friends. They are the alumni donors, the charitable foundations, the corporate benefactors whose names stand out on campus buildings: Red McCombs School of Business, Lee and Joe Jamail Texas Swimming Center.
And within the System, the University of Texas-Austin School of Law has its friends. Of those, few stick closer than Vinson & Elkins, a major Houston law firm whose generosity to the law school is legendary.
The firm has given at least $1.7 million to the school to date, plus an estimated $2.3 million worth of pro bono representation in the Hopwood case.
But friendship can work both ways.
In fiscal year 2002, V&E was paid just more than $1 million for providing legal services to the UT System, according to Mike Godfrey, the System's general counsel. For the same period, V&E received $243,000 for advising the UT Investment Management Company, which the firm helped charter in 1996.
Those involved in the process deny that anything like an explicit exchange takes place. The firm does, however, continue giving to one UT System entity while doing business with other parts of the System.
Similarly, Fulbright & Jaworski, which law school dean Bill Powers described as "generous," received the most legal services business from the System in fiscal year 2002.
A Daily Texan investigation focuses on the complex relationships between the UT System and its top 2002 legal services contractors.
Legal services contracts go to firms that bid competitively for placement on a list. Contracts then are drawn to keep these firms' services available. Once the list is approved by the state attorney general, Godfrey may assign the actual work.
The latter part of this process determines whether a firm will actually get UT System business or not. Because the work itself is assigned at discretion -- not through bidding -- certain firms may receive more business than others, said Ray Farabee, who was the System's general counsel before Godfrey.
"A given department or a given professor might favor this lawyer or that lawyer," said Farabee, who now is a senior lecturer in the LBJ School of Public Affairs. "For a given time, they may tend to use people who have knowledge going in, instead of people who have to reinvent the wheel every time."
Farabee said such patterns are common and that the general counsel should be sensitive to his clients' wishes.
"I never wanted to say, 'You shouldn't use Joe Dokes; you need to use Sam Smith,'" Farabee said.
William Black, an associate professor in the LBJ school, said he wonders why bids are taken competitively if business is assigned at Godfrey's will.
"One issue is, why do they do that if they've decided they use competitive bidding in other areas," Black said.
Contributions to one UT System entity do not ensure good business from the general counsel's office, Godfrey said.
"Vinson & Elkins is a firm we use, but we use them because of their expertise," he said. "Their generosity to the law school is independent of anything that we might be doing with them here. I don't make choices based upon who is a substantial contributor to the law school."
Bill Powers said he does not pay attention to which firms the UT System uses, but its confidence in V&E and F&J is well-placed.
"Those are two of the largest and most prominent law firms in the state," he said. "It is not at all surprising that the UT System, like any major entity, whether it be a public entity or a business that is looking for outside counsel, would look to those firms."
Vinson & Elkins
V&E's payment for legal services was the second largest for fiscal year 2002. The largest amount, about $2 million, went to Fulbright & Jaworski, a Houston firm of comparable size. F&J specializes in intellectual property law, the area for which the UT System spends the most for outside counsel.
V&E's specialties include energy law (it advised Enron) and securities. For years, it has provided bond counsel for the System.
V&E oversaw UTIMCO's incorporation and has advised the company ever since. No formal contract binds the two entities, said UTIMCO director Bob Boldt. But their relationship pays V&E about $200,000 yearly.
"Our relationship with Vinson & Elkins has been a very good relationship," Boldt said. "I don't think there's any question [whether they should be our outside counsel]."
That relationship may exist because UTIMCO is not required to take competitive bids. Instead, Boldt said, "We hire the firms we think will do the best job."
The firm has one managing partner and one partner on the Law School Foundation board of trustees, which manages part of the school's endowment. It also has two representatives in a steering committee for the University, the Commission of 125.
The Daily Texan was referred to V&E lawyer Jerry Turner for comment on the firm's dealings with the UT System. Turner did not return repeated phone calls since Monday.
"Our relationship with the University has been a long one, and we owe the University a great deal as it educated many of the people in our firm," Harry Reasoner, a V&E partner, told the Texan in March 2002.
Fulbrught & Jaworski
John Crooker Jr., a retired F&J partner, joined the firm after graduating from the UT School of Law in 1937. He was co-author, with Gibson Gayle Jr., of a 1994 history of F&J.
"As far as the interest in the University of Texas law school is concerned," Crooker said, "I suppose from the time [W.B.] Bates came to the law firm in about 1922 and became a partner in the firm, that there has been an interest [with]in the firm in the University of Texas and its law school."
F&J has given $622,351 to the law school to date, according to figures from the school's public affairs office. The amount is less significant than V&E's contribution, but a bond remains.
"We have an excellent relationship with the University of Texas. We feel good about it," said Pike Powers, head of F&J's Austin office. He is not related to Bill Powers.
He said the firm's donations do not directly affect business. But, he said, "obviously those kind of things help and are part of the total picture of the relationship."
F&J also has two representatives on the Commission of 125 and one senior partner on the board of foundation trustees.
Both firms have been generous in other ways. Though not affiliated with the UT System, the Friends of the University Political Action Committee contributes to candidates who are "sympathetic" to the System's needs, said Roger Moore, an Austin attorney who is the PAC's treasurer.
Records filed with the Texas Ethics Commission show that the PAC receives donations from such UT System benefactors as Joe Jamail, Jack Blanton and Bernard Rapoport.
The records also show that between January 2001 and December 2002, V&E contributed a total $18,750 to the PAC. Of that amount, $17,000 came from the firm and its political action committee. Scott Atlas, a V&E lawyer, gave the other $1,750.
F&J lawyer Howard Wolf gave a total $1,500 to the PAC during that period.
V&E, Enron and the Law School
Bill Powers, dean of the law school, described V&E as a "good friend" of the law school. For him, that friendship nearly posed a conflict of interest when he joined the Enron Corp. board of directors in fall 2001 to investigate financial misdeeds. V&E represented Enron at the time.
In the written conclusions to their investigation, the directors noted that "because of the relationship between Vinson & Elkins and the University of Texas School of Law," Powers recused himself from occasionally critical statements concerning V&E.
That relationship had connections to Enron, which gave $250,000 to the law school. James V. Derrick Jr., the corporation's general counsel, was a former president of the law school's alumni association and a former V&E lawyer. To avoid the appearance of a conflict of interests, Derrick resigned from a law school fund-raising group when William Powers joined the Enron board.
Black, the LBJ school professor, said he perceives no glaring ethical problem in the web of relations between the UT System and both firms.
But, he said, "what happens is these things get very institutionalized, and that's the goal, because [firms] don't want the University to think in competitive terms.
"The goal of the law firm is that you do so much work for the client that [clients] don't think of using anybody else," Black said.