"The mediation is terminated," Eric Green, the court-appointed mediator, told Reuters. 

Talks had limped along since a marathon negotiating session ended two weeks ago in New York. The breakdown leaves an Andersen settlement offer of at least $300 million on the table, and throws the participants into court to fight it out. 

In an e-mail to judges in the case, Green wrote: "This is to let you know it appears we have not been able to successfully mediate this dispute. Despite the best efforts of all parties, unresolvable differences remain and we do not believe we can overcome them at this time." 

Green heads the Boston-based mediation firm Resolutions LLC. He sent the e-mail to U.S. Bankruptcy Judge Arthur Gonzalez, who is overseeing Enron's bankruptcy case in New York and U.S. District Judge Melinda Harmon in Houston. 

The end of talks could not have come at a worse time for Andersen [ANDR.UL], on trial in Arizona in another major civil suit related to accounting fraud and just days from a federal criminal obstruction of justice trial tied to Enron. 

A judgement in the Arizona case could financially cripple Andersen, while a guilty verdict in the Houston federal criminal trial could destroy it. 

The U.S. Justice Department has accused the Chicago-based auditor of destroying records from its Enron audits after learning they were being sought by U.S. securities regulators. 

Now, Andersen also faces the prospect of protracted litigation in the class-action suit brought by angry Enron shareholders, which also names Enron officers and directors and Enron's bankers and lawyers. The shareholders lost billions of dollars when the former Houston energy trading giant collapsed last fall, filing the largest bankruptcy in U.S. history on Dec. 2. Ex-employees of Enron have also sued. 

A spokesman for the lead plaintiff, major Enron shareholder the University of California Board of Regents, said there were too many interconnected issues that could not be worked out. 

"Without their resolution, any settlement would have worked to the detriment of the class," spokesman Trey Davis said in a statement. 

Old Sticking Point 

Legal sources said the ultimate sticking point was the same one that stalled the New York negotiations. The plaintiffs could not persuade other defendants in the suit — namely, Enron's bankers and outside lawyers — to waive their right to have Andersen's settlement deducted from any court judgement they might have to pay. 

Attorneys close to those defendants have for weeks privately said there was no way they would waive that right. 

The second problem was a demand by Enron's creditors — many of the same banks named in the Enron class-action suit — for half of Andersen's settlement. 

"If you couldn't resolve the proportionate liability, you never could get to the allocation of the $300 million," said one plaintiff's source. 

Andersen expressed disappointment at the end of the settlement talks, which saw the auditor cut its first offer from $750 million as its finances worsened. The firm has lost more than 200 clients and seen overseas affiliates break away. 

"We worked in good faith over the last several months to resolve these matters to the benefit of all parties," Andersen said in a statement. "Considerable progress was made, but unfortunately, the plaintiffs could not resolve several differences among themselves and with defendants other than Arthur Andersen." 

Settlement talks could restart, but no prompt resumption was expected, said a source close to the discussions. 

Meanwhile, Andersen was in the second day of a trial in Phoenix, Arizona, brought by investors in the Baptist Foundation of Arizona, a nonprofit organization that allegedly operated as a giant Ponzi scheme. 

The foundation in 1999 filed the largest Chapter 11 bankruptcy by a nonprofit, costing its investors $570 million. Andersen argues it was duped like everyone else, while the plaintiffs say it should have spotted the fraud. 

On Monday, jury selection begins in the criminal trial, in which the U.S. Justice Department will have former top Enron audit partner David Duncan on their side as a key witness against Andersen. Duncan pleaded guilty to obstruction of justice April 9 and agreed to be cooperate with prosecutors. 

Legal sources said chances were slim Andersen would reach a last-minute deal before trial. One source close to the case said, "It's possible something could happen during the trial." 

Talks broke off in that case on April 18, although Andersen last week sent a final offer that was rejected. Lawyers on both sides have been busy preparing for the trial, expected to take about four weeks.