A resident fellow at the American Enterprise Institute led an opinion piece in The New York Sun — Enron:  Extortion, Interrupted — with this about the Supreme Court’s denial of certiorari in Regents of Univ. of Calif. v. Merrill Lynch, 06-1341 (U.S. Jan. 22, 2008):

Yesterday, the Supreme Court refused to hear an appeal of a decision rejecting Enron investors’ attempt to recover from investment banks.  The ruling closes an underreported chapter in American litigation history:  how trial lawyers used the Enron scandal to successfully and legally extort billions of dollars from investment banks with a legally meritless lawsuit.

Blawgletter must suppose that the author hadn’t read Regents, which reversed certification of a class of investors because two of the three Fifth Circuit judges believed, contrary to the district court and their dissenting colleague, that individual issues would predominate over common ones for purposes of Rule 23(b)(3).

Does that make the case against the investment banks a "legally meritless" effort to "extort", as the writer asserts?  We think not. 

As we said earlier today, individual claimants may yet recover more of their losses from knowing enablers of Enronian fraud.  They just can’t do it the most efficient way — by membership in a class of all investors, large and small, who lost billions of dollars because of what the investment bankers did.

Nor does an argument that earned the support of half of the federal judges who considered it on the merits strike us as "meritless".  The Wall Street firms that paid billions to settle the claims correctly perceived a real risk that their defense would not prevail.  The ones that settled could have waited for justice to take its course — as Credit Suisse and Merrill Lynch did. 

Should the settlers blame themselves for guessing wrong?  Or should they take satisfaction in eliminating the risk of a bad outcome?

AEI:  Goofiness, Uninterrupted?

Enron investors lose another round.  Yesterday, the Supreme Court denied a request for review of a class-killing decision by the Fifth Circuit in a case involving securities fraud claims by Enron investors against investment banks whose support enabled Enron to inflate its stock price.  See Regents of the Univ. of Calif. v. Credit Suisse First Boston (USA), Inc., 482 F.3d 372 (5th Cir. 2007); post here.

The appeals court’s class decertification turned on the viability of "scheme" liability under section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.  The Regents plaintiffs hoped that the Supreme Court would reverse the dismissal of another scheme liability case, but the Justices disappointed them in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., No. 06-43 (U.S. Jan. 15, 2008).

A new legal strategy?  The WSJ reports today that the lead plaintiff in the Enron case still hopes to find "a legal strategy to fight the defendants" and "will present its alternative approach soon" to the federal district court in Houston.

How can an alternative approach prevail?  For one thing, don’t the Enron investors have a little statute of limitations problem?  Enron tanked more than seven years ago!  And, even assuming they can get around the timeliness issue, how can they beat Stoneridge?

American Pipe and tolling limitations.  The Supreme Court has given absent class members a break on the running of limitations.  As Blawgletter said last July:

American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), and its progeny stop statutes of limitations from running — ties their legs, so to speak — on claims of each member of an on-file class action.  The tolling lasts only so long as the class member remains in the class.  It ends if and when the class member exits the class — either because the court denies class treatment of his claim, because he opts out of the class, or because of a change in the class definition.

The pendency of the Regents case thus tolled limitations, and members of the now-defunct Regents class therefore may now bring individual claims despite the one-year limitations and three-year repose periods so long as they act promptly.

Whither scheme liability?  Assuming you can clear the limitations hurdle, didn’t Stoneridge kill all hope of holding the investment banks responsible for your loss?  We don’t think so.  As we read Justice Kennedy’s Stoneridge opinion for the majority, an Enron stock purchaser may recover from participants in a fraudulent scheme if the buyer can show that he relied on the honesty of the participants’ dealings with the company.  The problem for the Stoneridge plaintiffs was that they had no idea that Charter cable used phantom advertising payments from a supplier, Scientific-Atlanta, to pump up revenues.  The situation may differ with Enron investors; we look forward to seeing what the lead plaintiff comes up with.

Practicalities.  But, really, doesn’t the denial of certiorari in Regents destroy hopes of holding the investment banks liable?  Isn’t pursuing individual claims impractical?

We must say no.  People who suffered large losses may indeed still have viable claims.  Mutual funds, pension plans, investment companies, and even individuals who bought Enron stock before it crashed could yet prosecute their claims.

What to do?  If you bought pre-tank Enron stock, you ought to consult legal counsel right away to review your options.  A six-figure loss may justify a contingent fee arrangement, especially if others join you.  Good luck!

Our feed was born to rebel.

The Ninth Circuit today upheld a Washington district court’s refusal to enforce a ban on joining multiple claimants in a single class-wide arbitration.  The court followed a Washington Supreme Court decision, which struck down a similar ban on class arbitrations, and its own earlier ruling, in which it held that the federal Arbitration Act doesn’t override state law unconscionability principles as they apply to arbitration agreements.  Lowden v. T-Mobile USA, Inc., No. 06-35395 (9th Cir. Jan. 22, 2008) 

The court distinguished a seemingly contrary Third Circuit opinion on the ground that it appeared to involve state law that invalidated a class arbitration ban because it required arbitration. Lowden, slip op. at 855 n.3 (distinguishing Gay v. CreditInform, No. 06-4036 (3d Cir. Dec. 19, 2007) (applying Pennsylvania law).  Blawgletter discussed Gay when it came out.  See the post here.

Contingent business law.

The Supreme Court’s Order List of today includes this surprise:

06-1341  REGENTS OF THE UNIV. OF CA V. MERRILL LYNCH, ET AL.

  The petition for a writ of certiorari is denied.  Justice Kennedy took no part in the consideration of decision of this petition.

Blawgletter predicted the Court would vacate the decision and remand for further Fifth Circuit proceedings in light of Stonebridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 06-43 (U.S. Jan. 15, 2008).

Contingent business law.

Stephen Colbert’s image shares a wall with entrances to the ladies’ and mens’ restrooms in the National Portrait Gallery at the Smithsonian.

I don’t mean to brag, but as it contains three portraits, my portrait has more portraits than any other portrait in the National Portrait Gallery. 

All employees must wash hands before returning to work.

Mr. Colbert has done This Sort of Thing before.  Lookie here for proof.

Contingent business law.

At the end of his march from Selma to Montgomery in 1965, Dr. King spoke on the steps of the Alabama State Capitol.

I know some of you are asking today, "How long will it take?"
I come to say to you this afternoon, however difficult the moment, however frustrating the hour, it will not be long, because truth pressed to earth will rise again.
How long? Not long, because no lie can live forever.
How long? Not long, because you will reap what you sow.
How long? Not long, because the arc of the moral universe is long, and it bends toward justice.

The arc of the moral universe bends toward justice. Amen.

Talk about an excellent post — The UCL Practitioner outdid itself today with its play-by-play of the oral argument yesterday in County of Santa Clara v. Superior Court (ARCO), No. H031540 (Cal. Ct. App.). UCL’s alter ego, the estimable Kimberly A. Kralowec, observed the hearing in the flesh and sums up thus:

As I mentioned early this morning, my sense at the conclusion of the argument was that the justices were leaning in favor of the County’s position. I think they will either adopt the County’s legal argument, or remand for the trial court to consider, at the end of the case, whether the government attorneys exercised sufficient control throughout the litigation so as to make an award of contingency fees proper.  Either result would be a victory for the County.  An opinion will be due by mid-April.

Contingent business law.

Yesterday Blawgletter posted Tort Reform and the Right to Jury Trial, in which we took a commenter on the WSJ Law Blog to task for calling a jury in a securities fraud trial "too stupid to do the right thing" and for citing their $280 million verdict as "[e]xhibit one in our effort to abolish jury trials."

We detailed, with righteous indignation, How Wrong He Was! 

Turns out the commenter — who goes by the sobriquet "Tort Reform" — dabbles, shall we say, in satire.  He deploys sarcasm, uses mockery, and even trucks in irony and ridicule.  He in truth abhors his namesake and offers multitudinous comments that take the positions of tort reformers to their logical conclusions and beyond.  He does it so well that the formidable Point of Law.com disses him as "persistently disruptive" and us as "gullible".

Yes, we have the red face.  A crimson one even.  From embarrassment?  We must say no.  Tort Reform is one funny dude!

Contingent business law.