A federal appeals panel in New Orleans said on Monday that a lower court judge improperly granted class-action status in a $40 billion lawsuit by Enron investors, a big victory for the investment banks Merrill Lynch and Credit Suisse Group that sought to have the ruling overturned.
The banks had argued that Judge Melinda Harmon in Houston federal court wrongly allowed investors to allege Merrill Lynch and Credit Suisse were primary participants in the fraud that eventually led to Enron's collapse.
In a 53-page ruling, the U.S. Court of Appeals the 5th Circuit wrote that Judge Harmon's decision to grant class-action status to the case was partly based on "legal error" regarding the banks' liability and sent the lawsuit back to the lower court for reconsideration.
"We are very disappointed," said William Lerach, a lawyer for the Enron investor plaintiffs. "We respect the court, but we think the decision is clearly wrong."
Lerach said the plaintiffs would seek a Supreme Court review of the appeals court's decision.
The trial is scheduled to start on April 16.
In court papers Merrill Lynch had argued there was no evidence to prove the investment bank was a "substantial or significant factor" in the losses that caused Enron's collapse.
In a class-action lawsuit, investors consolidate their complaints, allowing them more clout than if claims were pursued on an individual basis. Lawyers had said a favorable ruling for the deep-pocketed banks would be a massive setback for the plaintiffs.
So far, the lawsuit has netted more than $7 billion for investors, including $2 billion or more each from Canadian Imperial Bank of Commerce, J.P. Morgan and Citigroup.