Court rules out class action in Enron shareholders’ suit
NEW ORLEANS – A federal appeals court ruled Monday that Enron Corp. shareholders cannot proceed with a class-action lawsuit against investment banks for their alleged role in the accounting fraud that led to Enron’s collapse.
The 5th U.S. Circuit Court of Appeals opinion reversed a ruling by U.S. District Judge Melinda Harmon in Houston, who had said shareholders could sue as a class.
“As we have recognized, class certification may be the backbreaking decision that places ‘insurmountable pressure’ on a defendant to settle, even when the defendant has a good chance of succeeding on the merits,” the 5th Circuit opinion said.
The three-judge panel said it’s appropriate for the court to intervene “before settlement may be coerced by an erroneous class certification decision.”
Shareholders’ attorneys argue that Merrill Lynch & Co., Credit Suisse Group and other investment banks that did business with Enron should be held liable for billions of dollars in damages.
William Lerach, an attorney for the policyholders, expressed disappointment in the 5th Circuit’s ruling.
“We think it is unfair and wrong under the law,” he said. “The basic holding of the court is that even if the banks participated knowingly in a scheme to defraud investors in Enron’s collapse, you cannot have a class action against the banks.”
Enron, once the nation’s seventh-largest company, entered bankruptcy proceedings in December 2001 when accounting tricks could no longer hide billions of dollars in debt. The collapse wiped out thousands of jobs, more than $60 billion in market value, and more than $2 billion in pension plans.
Lerach said he and other shareholders’ attorneys are likely to appeal Monday’s ruling to the U.S. Supreme Court as quickly as possible. A trial for the shareholders’ $40 billion lawsuit was set to start next month, but Lerach said the 5th Circuit’s ruling will force it to be postponed.
“The judge couldn’t go ahead with a trial under these circumstances,” he said.
Merrill Lynch spokesman Mark Herr said the company is pleased with the 5th Circuit’s ruling, but he declined to make further comment.
Attorneys general from 30 states have sided with Enron shareholders in their bid for a class action.
The Securities and Exchange Commission already has won tens of millions of dollars in settlements with Merrill, JPMorgan Chase & Co. and Citigroup.