The 5th U.S. Circuit Court of Appeals in New Orleans Monday ruled that Enron Corp. shareholders may not proceed with a class action lawsuit against the company's former investment banks for their alleged role in the accounting fraud that destroyed the company.

The appeals court's ruling reverses a decision by U.S. District Judge Melinda Harmon in Houston. Harmon approved the original class action lawsuit by the shareholders, and she then expanded it in January, allowing 30 state attorneys general to join the case (see Daily GPI, Jan. 11; July 18, 2003).

The 5th Circuit opinion read in part, "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."

Shareholders argued that investment banks that did business with Enron should be held liable for billions of dollars in damages, including Merrill Lynch & Co., JPMorgan Chase & Co., Citigroup Inc., Credit Suisse, Royal Bank of Canada, Royal Bank of Scotland and Toronto-Dominion Bank. Attorneys general included in the lawsuit are from Texas, Alabama, Arizona, Arkansas, California, Connecticut, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Montana, New Hampshire, New Jersey, New Mexico, North Dakota, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Utah, Vermont and West Virginia.

William Lerach, one of the shareholders' attorneys, said the legal team likely will appeal the ruling "as quickly as possible."

"We think it is unfair and wrong under the law," Lerach 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."

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