California Is Ordered to Drop Enron Claims
A federal judge Thursday ordered California to drop fraud claims seeking $2 billion in refunds from Enron Corp., saying the company is protected from such suits under bankruptcy law.
U.S. Bankruptcy Court Judge Arthur J. Gonzalez ruled that no new claims could be filed against Enron after an Oct. 15, 2002, deadline he imposed following Enron’s 2001 bankruptcy. He denied California’s request to put the ruling on hold until the state could file an appeal, saying, “The state has failed to establish that it would suffer irreparable harm by dismissing” the suit.
The state will file an emergency request to block Gonzalez’s ruling in Bankruptcy Court in New York, Atty. Gen. Bill Lockyer said in a statement.
The lawsuit, filed in June in Alameda County, accused Enron of manipulating power prices during California’s energy crisis in 2000 and 2001 using a series of unlawful trading schemes.
If upheld, the ruling may bar California from pursuing Enron for $2 billion it says it is owed for overpayments stemming from trading practices that allowed Enron to skirt price caps during the energy crisis.
California has been awarded $3 billion in refunds from power companies and says it is owed at least $6 billion more. The state has filed at least 60 lawsuits.
“Enron cannot rip off California consumers and then run and hide behind bankruptcy laws,” Lockyer said. “The legal concept here is pretty simple: Someone who steals cannot escape accountability just because they lose money.”
Lockyer said the June lawsuit was allowed under a provision of bankruptcy law that exempted governments exercising their police or regulatory power from the court-imposed deadline.
“We are pleased with the judge’s decision to uphold the automatic stay” of claims against Enron, said Mark Ellenberg, Enron’s attorney.
California must drop the suit by Oct. 18, Gonzalez ruled.
Enron filed for bankruptcy protection in December 2001 after it was forced to restate $586 million in earnings because of improper accounting. Its shares lost $68 billion in value from their peak in 2000.
