Class Action Against Enron Banks Dies With Cert Denial
The U.S. Supreme Court has denied cert in a failed $40 billion class action by Enron shareholders who claim investment banks that advised the company helped inflate the value of the stock.
The decision lets stand a ruling by the New Orleans-based 5th U.S. Circuit Court of Appeals barring the suit against the banks, SCOTUSblog reports. The cert denial in California Regents v. Merrill Lynch apparently reflects the court’s ruling last week in Stoneridge Investment Partners v. Scientific Atlanta, which barred securities fraud suits for scheme liability, the blog says.
The high court in Stoneridge held that third parties are not liable for participating in corporate wrongdoing schemes if they did not directly mislead investors. Some had argued that language in the majority opinion suggested there was a financial services exception to Stoneridge’s ban on third-party lawsuits.
They had pointed to language in the majority Stoneridge opinion that could be used to keep the Enron case alive. Justice Anthony M. Kennedy had written that Stoneridge concerned an arrangement between a cable company and suppliers that “took place in the marketplace for goods and services, not in the investment sphere.”
Lawyer Stephen Shapiro of Mayer Brown told the Chicago Tribune blog The Swamp that the cert denial indicates that plaintiffs suing banks will not be able to distinguish Stoneridge. “This further confirms that there is no financial services exception, and that Stoneridge applies to all categories of defendants who fall with the principles it announced,” he said.
In another scheme liability case, the U.S. Supreme Court ordered the San Francisco-based 9th Circuit to reconsider a ruling that had allowed a third-party claim.
