Blood in the Water

The sharks are in a frenzy as Enterprise is wounded by one of its own

Jul 17, 2002 at 4:00 am
Thomas Dunn, the fired controller of Enterprise Rent-A-Car, was in the hot seat, but the lawyers were busy aiming their flamethrowers at each other.

This time, the flare-up was about a comma.

During his deposition, Dunn was asked about financial damages, and his lawyer, Lisa Van Amburg, was livid.

"That wasn't our agreement," she fumed at the company's lawyers. "I'm a little disappointed that you would mislead us."

But Enterprise's Michael Kahn, a legal eagle flown in from California, was adamant: Van Amburg was wrong, and he had the proof.

"Ms. Van Amburg, get out the letter," Kahn directed, referring to a letter written to Van Amburg by his partner Karen Petrulakis.

"The letter said: 'We specifically agreed the deposition was about damages comma including emotional distress."

But Van Amburg said the letter flat-out misrepresented an earlier conversation with Petrulakis. It was no more than a legal trick, and Kahn should have known better.

Kahn pressed: "Get out the letter!... 'Damages comma including emotional distress.'"

Again Van Amburg protested.

Kahn snapped: "It would seem to me that would encourage you to read carefully the letters that she sends."

These were not the sounds of lawyers in love.

Nor were the lawyers any friendlier in April when, over the course of five days of depositions, Petrulakis objected 900 times to Van Amburg's questions.

At one point, Petrulakis accused Van Amburg of "yelling at the witness."

"Perhaps you need a break," she added.

Things have gotten so nasty between the lawyers in the Enterprise case that Van Amburg asked St. Louis County Circuit Judge Colleen Dolan to enter an order limiting Enterprise's objections.

Petrulakis replied with an eighteen-page affidavit claiming that Van Amburg and another lawyer in her office, Matt Ghio, are the ones causing trouble between the lawyers.

Judge Dolan was considering the highly unusual step of appointing a lawyer to referee the depositions, someone to step in to stop the legal low blows and sucker punches.

In a May 30 order, after both sides gave her transcripts of the depositions and tattled on each other, Dolan wrote: "The discovery process in this case has become abusive," many objections "appear to be harassment towards opposing counsel" and some questions "appear to be harassment of the witness."

So what's behind the no-holds-barred battle royal of barristers?

Only the reputation of one of St. Louis' most celebrated business success stories.

St. Louis-based Enterprise Rent-A-Car is the nation's largest car-rental company. Through a related foundation, the company's owners and employees are responsible for contributing tens of millions of dollars to local institutions such as the St. Louis Zoo, Forest Park and Washington University. Because of the company's success and generosity, the family that founded and controls Enterprise is seen as a pillar of the community.

Thomas Dunn has a different view.

A 1982 Mizzou grad, Dunn started at Enterprise in 1986 and worked his way from accountant to controller. In 1994, he was named a full vice president. Along the way, he collected four achievement awards from senior management.

All that came crashing down in early 2001, when he was fired from his $650,000-a-year job.

In a lawsuit filed four months after he was fired, Dunn alleged he got the boot after complaining to senior management about the privately held company's business and accounting practices.

Dunn -- whose allegations are all disputed by the company -- says he questioned practices that included:

· Overbilling of customers for repairs when rental cars were damaged. Eventually, Dunn says, Enterprise stopped the overbilling, but only after the company was investigated by the Iowa attorney general.

· Making customers in Missouri, Alabama and North Carolina pay deceptive surcharges. Dunn worried that the customers might think it was a government-imposed fee, not just another way to line Enterprise's pockets. In 1997, Enterprise settled a class-action case filed in Alabama over the practice.

· Registering rental vehicles in certain jurisdictions with the goal of avoiding high-sales-tax states -- a practice, Dunn claims, is illegal.

· Making customers pay sales taxes on leases -- even when it wasn't required.

But Dunn alleges in his lawsuit that most of his issues with the company's top brass revolved around accounting practices and an aborted effort to take the company public.

In June 1999, Dunn says, Enterprise and investment-banking firm Goldman Sachs held a strategic planning meeting to discuss an initial public offering. At the meeting, Goldman Sachs allegedly raised concerns about the company's practice of overdepreciating cars, as well as "excessive senior executive compensation." According to Dunn, Goldman Sachs told Enterprise that both would have to change before the IPO was submitted to regulators.

Dunn claims that Jack Taylor, company founder and chairman of the board, was at the meeting and that he vigorously opposed altering the depreciation-accounting method.

Just weeks after that meeting, Dunn was placed on 90 days' probation. He claims that the official reason for the probation was his "disrespecting senior managers and for not having a 'vision' in touch with Enterprise's strategic position." The probation period ended in November 1999, and Dunn claims he was told he could stay "as long as he behaved."

But the accounting issues weren't resolved.

Dunn claims that in January 2000, his immediate supervisor, chief financial officer John O'Connell, "came back to me and said the accounting resolutions would not work for the company."

"I would keep going back to John with further evidence and he kept saying 'no,'" Dunn testified at a hearing July 3. "I asked him, 'Don't you care about your fiduciary duty as CFO?"

Dunn testified that O'Connell "pounded his fist and said that he didn't care about his fiduciary responsibility -- what he cared about was accounting that would work for Enterprise."

In September, October and November 2000, Dunn says, he reported his concerns to two members of the company's business-ethics committee, but they discouraged him from making a formal presentation to the committee.

In December 2000, Dunn says that he told senior management that several accounting practices would have to change if the company was going to avoid a run-in with securities laws and regulations.

And Dunn alleges that Enterprise told him to submit false or deceptive information to the SEC. Dunn says he refused.

On January 4, 2001, Dunn was fired.

Four months later, he went to court, and Van Amburg posted the lawsuit on her firm's Web site.

They may be big St. Louis boosters and 2001 Citizens of the Year, but Jack Taylor and his son and successor, Andy Taylor, didn't turn to a St. Louis law firm when they needed help protecting their company.

Instead, they turned to San Francisco-based Folger Levin & Kahn and its senior partner Michael Kahn.

Mark Litow, Enterprise's general counsel, has long been a fan of Kahn's firm. When it was named in America's Greatest Places to Work With a Law Degree (1999), Litow gushed: "If all lawyers conducted themselves like those at Folger Levin, you wouldn't see the kind of criticism of lawyers that has become all too common."

Kahn's also a man with big political connections. After the lights flickered and almost went out in California, Governor Gray Davis appointed Kahn to head the state's negotiations with power companies. Kahn also chairs a commission that investigates judicial conduct and is widely recognized in California for his trial abilities.

But because he isn't licensed in Missouri, the St. Louis firm Thompson Coburn also appears in the case as local counsel, a function that usually entails nothing more than supplying a mail drop box, a runner to the courthouse and a conference room for depositions.

One of the first things Kahn did was get Van Amburg to cave in to a sweeping protective order from the plaintiff's counsel.

Although Dunn's lawsuit is filed in a taxpayer-paid court, presided over by a taxpayer-paid judge and alleges, among other things, that consumers were being ripped off, Kahn succeeded in keeping almost the entire proceeding shielded from public inspection.

Roomfuls of documents, including 19,000 pages produced by Enterprise and 6,000 pages from Goldman Sachs, are kept under seal.

And after an Enterprise executive started muttering about defamation claims against Dunn, Van Amburg kept Dunn away from the media.

The fanatical measures used to ensure everything remains secret, marking documents and depositions confidential, filing items under seal and gagging mouths, makes it hard to figure out who's right.

But the July 3 hearing in Judge Dolan's courtroom offered a glimpse.

At issue was whether Dunn's lawyers could depose six key Enterprise shareholders and directors, including Jack Taylor and his daughter JoAnn Taylor Kindle.

On the stand, Dunn testified that the directors had been made aware of some of the problems he'd identified to senior management. There was the question of how the company depreciated rental cars on its balance sheet: Dunn and the outside financial advisors working on the IPO said the rate had to change; Jack Taylor was adamant that it remain unchanged, Dunn said.

Dunn also testified that he raised concerns to O'Connell about Jack Taylor's use of the company plane for personal business -- flying to Seattle and other points where his yacht was anchored.

But it was another question that launched Kahn.

When Van Amburg asked Dunn how much the chairman of Enterprise controlled, Kahn flew to his feet and objected, claiming the information was confidential.

Judge Dolan directed Dunn not to respond, and both sides agreed to refer to a secret exhibit.

But Kahn suggested there were substantially different reasons Dunn was sacked -- reasons that stemmed from his management style rather than his accounting acumen.

Kahn asked Dunn: Was it true that O'Connell had described him as "overbearing, dictatorial and too tyrannical"? Dunn responded: "He never gave me any specifics."

Did two separate internal auditors complain about him? Dunn said he wasn't aware of their criticisms. Did another company executive complain about his behavior? "He did not agree with my organizational structure."

And when Litow, the company general counsel, was called to testify, he said that Dunn -- an executive who was responsible for the corporation's books for more than a decade -- just plain "lacked integrity."

Exactly what sort of dishonesty, Litow didn't make clear.

But Litow said that Andy Taylor was very upset that Dunn had been rude to a job applicant.

The applicant wrote Taylor, complaining that Dunn said he "could have anybody like her -- for less money."

Judge Dolan listened patiently during the two-hour hearing.

When it was over, she didn't rule.

That would come after July 15.

She was going on vacation.