Sunday, February 10, 2002


A friend whom I should listen to told me he found the previous post on this topic condescending. After getting him to explain what "condescending" means, I decided he had a point and I should take another stab at the subject. With luck, this will create even more rancor and confusion than the first one.

In describing what I think to be two definitions of "frivolous lawsuit", one understanding held by lawyers and the other by laymen, I was trying to illustrate that the very fact of these different definitions makes a discussion of the topic difficult. Without a common understanding of the terms involved, it's hard to frame the nature of the problem, much less reach consensus or a conclusion.

Having firmly inserted my foot in it on that point, let me shift mid-post to the Enron case, which I am involved in on behalf of the bond purchasers that lost money during the company's collapse. It's clear to me that the primary culprits as identified in the media -- the top officers and Andersen -- are going to get hammered, at least civilly. Not so clear, but vitally important from both a legal and economic standpoint, is what is the liability of the outside directors of Enron? Legal: what are, or should be the boundaries of directors' duties to inquire into management's practices? If you answer "minimal" or "none", then why have a board anyway? Doesn't that make the concept that directors are to look out for and answer to the shareholders and creditors a joke, and a sick joke at that, given the billions of losses due to fraud at Enron? Just what were these folks doing for their $300,000 annual stipends? Attending quarterly meetings and rubber-stamping management decisions, apparently. On the economic side, it's a grim fact that, even if the aforementioned primary culprits are denuded of their assets to pay claims, there will still be multiple billions of unsatisfied losses. As between the directors, who, the facts may well show, were merely negligent and not actually in on the fraud, and the innocent shareholders and creditors, where should those losses land? When the really guilty can't pay the whole freight, the slightly guilty have to pick up the slack until the innocent are made whole.

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