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Lerach's Enron Lawsuit Against AllianceBernstein Is Dismissed
By Peter Lattman
The Wall Street Journal
Saturday, December 2, 2006

The federal judge overseeing the Enron Corp. shareholders' class-action lawsuit has dismissed a $1 billion claim brought by plaintiffs' lawyer William Lerach against investment firm Alliance Capital Management LP, now known as AllianceBernstein LP.

In a step unusual in securities class-action cases, U.S. District Judge Melinda Harmon in Houston ordered the plaintiffs to pay Alliance's attorney's fees. She also stated that the payment of attorney's fees would be "more appropriate" to "be borne" by plaintiffs' counsel.

"We're disappointed in her ruling but Judge Harmon calls 'em as she sees 'em," said Mr. Lerach of Lerach Coughlin Stoia Geller Rudman & Robbins LLP.  He added that he hopes the judge may change her view or that the plaintiffs may prevail on the issue on appeal, but he says that if attorney's fees "are going to be paid, we're the ones who are going to pay them."

The class-action lawsuit was brought against investment firms for alleged fraud related to their underwriting of Enron securities.

This particular claim concerned the service of an Alliance executive, Frank Savage, on Enron's board of directors and his signing of a false registration statement for the issuance of $1 billion of Enron bonds.

The shareholders alleged that Alliance had placed Mr. Savage on Enron's board to serve its own interest or, at the very least, approved Mr. Savage's Enron board service and thus controlled his actions on the board.

The judge rejected the shareholders' claim, saying, "There is no evidence that Alliance had any authority to influence, supervise or determine Savage's actions at Enron, nor any evidence that Alliance induced Savage to watch out for Alliance's interests while on Enron's board, nor that Savage did watch out for Alliance's interest after joining the Enron board."

She also noted that the shareholders provided no evidence that Mr. Savage "knew or should have known or suspected" that the registration statement was false and misleading at the time he signed it.

Mr. Savage was also named as a defendant in the shareholders' class action and, along with other directors, settled the claim against him without admitting wrongdoing.

"From a public-policy perspective, what we were really litigating here was whether an employer can be held liable for the acts of its employee serving on the board of another company independently," said Alliance's lawyer, Mark Kirsch of Clifford Chance LLP.

Mr. Lerach's firm has secured more than $7 billion in civil settlements for Enron shareholders.

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