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The Lawyer's Version of "Uncle": How to Affect Substance With Procedure

After the fall of Enron, I began receiving notices for educational seminars on how I, as a lawyer, could profit from its collapse by representing various "injured" parties such as employees, creditors, shareholders, etc. I think the most creative part of the seminar would have been on how to collect any judgment. I see seminar notices on hot topics of the day fairly regularly, and which, in itself, is not a bad thing. But woe be to the businesses and business owners caught in the crosshairs. Of course, these business owners are typical of my clients, so I admittedly have a jaded view of some of the more creative "money making" seminars.

But back to Enron. Apparently, a Houston based law firm named Fleming & Associates decided to make a career out of Enron's collapse. First, it signed up over 750 clients. Then, it devised a plan to avoid a federal law, known as the Securities Litigation Uniform Standards Act, which would have required, in this situation, Fleming to file one lawsuit involving all 750 plus clients. Now, right here in the story, the question is, why would Fleming want to do this?

To avoid the federal law, the Fleming firm filed a series of lawsuits in Texas state courts, in different counties, each with less than 50 plaintiffs, for state securities fraud, and not federal securities fraud. At a minimum, this would have taken at least 16 different cases. And so it began. November 7, 2001, Rosen v. Enron in Harris County; January 16, 2002, an amended complaint in the Rosen case adding 21 more plaintiffs. January 24, 2002, Bullock v. Andersen (as in Arthur Andersen) in Washington County, with 11 plaintiffs. January 29, 2002, Ahlich v. Enron in Brazos County, with 45 plaintiffs. February 7, 2002, Jose v. Arthur Andersen, LLP, in Bexar County, with many plaintiffs and 37 defendants. But this, in and of itself, was not the problem, said the court.

The problem was that Fleming was asking the courts, in each case, to issue a temporary restraining order without any notice to the named defendants. These TROs prevented the defendants, which of course included Enron, Andersen, Kenneth Lay and other executives, from destroying any documents. But the last TRO, the "Jose TRO," also prevented them from transferring any property, funds or assets to third parties not in the ordinary course of their business, and from transferring assets out of the United States. Could you operate your business with this sort of restriction? Bear in mind that any transfer (i.e. paying a bill) deemed by the court to be not "in the ordinary course of business" subjects the transferor to contempt of court charges. And now the answer to "why do it this way" begins to emerge.

The core of the court's concern was that the defendants had no prior notice, even though the Fleming law firm knew the defendants' attorneys. In fact, the Fleming firm was involved in other Enron-related cases with those very attorneys. And in one of those cases, the court actually held a hearing on whether it should issue a TRO preventing these defendants from transferring property outside the ordinary course of business and/or out of the U. S. After hearing evidence from both sides, the court decided not to grant that sort of TRO. And so, by moving quickly and not giving notice, in the Jose case the Fleming firm was able to get something it otherwise could not get.

Well, it worked for a short time, anyway. This course of conduct was brought to the attention of a federal judge for the Southern District of Texas, who slapped an injunction on the Fleming firm, preventing it from filing any more lawsuits relating to Enron without its prior permission. And it ordered the state court judge in Jose to terminate the Jose TRO.

This, needless to say, didn't sit well with the Fleming firm, so they appealed that order to the federal Court of Appeals for the 5th Circuit. And they lost. The appeals court agreed that this was a "serious and systematic abuse of the courts" and then finished its opinion with this wonderful explanation of the role of counsel and court:

The advocate is duty-bound to protect his client's interests, and choices of venue and timing belong to him. But the court has the power, indeed the duty, to remind counsel that they are professionals and order their return to the playing field. This is no matter of rules of fine etiquette. Rather, it is the matter of lawyers as officers of the court conducting themselves in ways that do not impede the work of the courts-the genuine and not false service to their clients.

And so we come to the morals of this story:

1. The death of professionalism. I'm not old enough to have lived the "good old days" back when lawyers extended professional courtesy to each other regularly. I don't even exactly know what that meant, although my hair gets grayer by the hour. But having heard the tales, and the gripes of today's lawyers, I assume it meant that lawyers would not intentionally try to trip each other up with procedural rules in order to affect the substance of the outcome. These days, it seems, many trial lawyers look for loopholes anywhere and everywhere, and exploit them in order to gain an upper hand on the merits. In doing so, they seem to take on the client's case as their own, and win at any cost, as opposed to being a more independent voice for justice. The unfortunate side effect is that such tactics can and often prevent justice from being done in the substance of the dispute.

2. Procedure is critical. If you or your business becomes enmeshed in litigation, make sure competent counsel is retained quickly. In fact, get them involved at the very first sign of trouble and notify the other side of your lawyer's presence and identity. Don't let the other side use procedure to get something they otherwise would not get.

3. Many lawyers use procedure as a twist on the old game of "uncle," where two people lock hands and each then tries to inflict physical pain on the other, until one has had enough and cries "uncle." (Well, maybe this was confined to the South.) But in any event, lawyers are taught to argue the law when the law is on our client's side, and to argue the facts when the facts are on our client's side. Using procedure as a weapon changes the dispute into a game of "uncle," hoping to inflict so much pain, expense, risk, uncertainty, etc., on the defendant that the defendant basically says "irrespective of who's right and wrong, I want/need to quit-I give up, I can't take it anymore." If you never get to the merits of the dispute, you never get a chance to argue the law or the facts, you see. Is that ever justice?

If you get involved in a game of "uncle" you have three choices: (1) inflict more pain on the opponent so they cry "uncle" or at least quit playing that game, moving on to the merits; (2) get the court's attention and intervention, like a referee, so that the court calls off the game; or (3) cry "uncle" and give in, settling the case on the plaintiff's terms. Unfortunately, ignoring the plaintiff who is playing the game nearly always only makes it more likely that the plaintiff will ultimately win.

Newby, et al., v. Enron Corp. et al., U. S. Court of Appeals for the Fifth Circuit, Case No. 02-20343, Decided August 9, 2002.