In re Arthur Andersen Llp

• Decision Date: 23 October 2003
• Docket Number: No. 14-03-00572-CV.,14-03-00572-CV.
• Citation: 121 S.W.3d 471
• Parties: In re ARTHUR ANDERSEN LLP, Relator
• Court: Texas Court of Appeals

121 S.W.3d 471

In re ARTHUR ANDERSEN LLP, Relator

No. 14-03-00572-CV.

Court of Appeals of Texas, Houston (14th Dist.).

October 23, 2003.

Rusty Hardin, Andrew Lee Ramzel, Derek Shane Hollingsworth, Houston, for relator.

G. Sean Jez, George, M. Fleming, Houston, for respondents.

Panel consists of Justices FOWLER, EDELMAN, and SEYMORE.

OPINION

WANDA McKEE FOWLER, Justice.

I. INTRODUCTION

This case relates to the financial demise of Enron Corporation. In August of 1999 Ken Lay, President and CEO of Enron Corporation, visited the City of Brenham, Texas in Washington County. The purpose of his visit was to speak to the Washington County Chamber of Commerce at its annual dinner and tout Enron as a savvy investment. This visit was widely publicized in and around Brenham, both by the newspapers and radio. The Plaintiffs,¹ all potential investors in Enron, either attended the meeting and heard Lay tell what a great investment Enron would be for them individually, for their trusts, and for their employee pension plans, or heard about the meeting later. Plaintiffs claim Lay's statements to the group were backed up by Enron's quarterly and annual reports, which indicated that Enron was rock-solid and highly profitable. After investing, the Plaintiffs alleged they would review press releases touting Enron's financial strength and its expected increases in profits.

Lay had told the Plaintiffs and others that they would make lots of money if they invested in Enron. They did make lots of money—for awhile. Then, their stock dropped precipitously. In late 2001, Enron filed for bankruptcy—at the time, the largest ever. Many of Enron's top executives and some officers were accused of illegal activities. Daily news reports indicated that the Justice Department was investigating various Enron officials and investigating the accuracy of Enron's financial reports. Ultimately, several Enron officials were indicted.

The Plaintiffs felt they had been betrayed. They sued Ken Lay and two other Enron executives, unknown before, but by then well known because of the Enron debacle—Andrew Fastow and Jeffrey Skilling—and Arthur Andersen and five of its partners.

Andersen claimed it was just misled just like the Plaintiffs. It tried to join other defendants, namely financial institutions, it claimed were at least partly, if not totally, responsible for Enron's demise. These financial institutions, it claimed, enabled Enron to engage in inappropriate financial deals that masked its economic troubles; without these institutions the Plaintiffs' suit could not be litigated fairly.

But the Plaintiffs claimed that the financial institutions were irrelevant to the lawsuit. They claimed the suit was based on (1) Ken Lay's misrepresentations made that August evening in Brenham, (2) Enron's quarterly and annual financial reports prepared by Andersen, and (3) press releases and other public announcements Enron made concerning its financial strength. They claimed the financial institutions did not misrepresent anything to them the day Ken Lay visited and that their causes of action and petition did not implicate the financial institutions.

The trial court agreed with the Plaintiffs and in April 2003, denied Anderson leave to join the third parties. In July 2003, the trial court also entered a scheduling order that denied joinder of third parties.

In this mandamus, Andersen asks us to hold that the financial institutions are potentially responsible third parties who must be joined, and to set aside the two orders denying joinder. Finally, Andersen asks us to hold that it has no adequate remedy by appeal. Because we agree on all three issues, we conditionally grant the writ of mandamus as to the April 2003 order denying leave to join third parties and the July 2003 scheduling order.

II. BACKGROUND

We turn first to the historical facts. The Plaintiffs sued Andersen² and the other defendants³ for negligent misrepresentation, fraud, and conspiracy. The allegations are extensive and complex, and later we will discuss the relevant allegations in more detail. However, in essence, the Plaintiffs allege that the defendants provided false and misleading public information regarding Enron's financial condition, prompting the Plaintiffs to buy and/or retain existing shares of Enron stock; consequently, their retirement funds were diminished when Enron's true financial condition was eventually revealed and its stock devalued. In particular, the Plaintiffs complain that the defendants failed to disclose Enron's use of "special purpose entities," which concealed Enron's debt and caused its earnings to be overstated.

The procedural history of the suit is complicated; therefore, we will review only those events important to this appeal. In January of 2002, the Plaintiffs filed their original petition. Several months later, Andersen filed its original answer, and a month after that the Plaintiffs filed a first amended petition adding new plaintiffs. Then, in December of 2002,⁴ the Plaintiffs filed a second amended petition again adding new plaintiffs and adding significant factual allegations.

Shortly after the Plaintiffs filed the second amended petition, Andersen filed a motion for leave to join Michael Kopper,⁵ J.P. Morgan Chase,⁶ CSFB,⁷ CIBC,⁸ Bank of America,⁹ Barclays,¹⁰ Lehman Brothers,¹¹ and Merrill Lynch,¹² claiming that the Plaintiffs' new factual allegations and public disclosures implicated these third parties in the transactions involving the special purpose entities.

Shortly after this, in early 2003, Andersen answered the claims of the new Plaintiffs in the first and second amended petitions—referring to them as "intervening Plaintiffs." On the same day, Andersen filed its third-party petition.¹³

A month later, the trial court sua sponte severed into a separate suit¹⁴ the claims of the new Plaintiffs in the second amended petition and Andersen's third-party petition. In response to the severance, the Plaintiffs filed a third amended petition to reflect the Plaintiffs left after the severance order; the third amended petition contained essentially all the greatly expanded factual allegations first raised in the second amended petition.

The trial court held a hearing on Andersen's motion for leave to join third parties. On April 29, 2003, the court signed an order denying the motion. In mid-May of 2003, Andersen filed this mandamus petition and an emergency motion to stay the underlying suit.

Meanwhile, the trial court had set trial for September 29, 2003. However, discovery had previously been stayed until April 24, 2003 by a federal court order.¹⁵ Therefore, despite the pending mandamus petition, the parties began discovery to prepare for the September trial. On July 1, 2003, the Plaintiffs filed a motion to extend the discovery period and a motion for entry of a Level 3 discovery control plan. At a July 8, 2003 hearing on these motions, Andersen again attempted to join third parties by requesting that any such discovery control plan include a deadline for joining additional parties. On July 15, 2003, the trial court entered a scheduling order resetting the trial to November 10, 2003, and setting various deadlines, but the court refused to set a deadline for adding third parties. In August of 2003, we stayed the trial and discovery to allow us to consider the mandamus petition.

III. MANDAMUS STANDARD OF REVIEW

Mandamus relief is available if the trial court clearly abuses its discretion, either in resolving factual issues or determining legal principles, and there is no other adequate remedy at law. Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex.1992). A trial court clearly abuses its discretion if "it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law." Id. at 839. However, as to legal issues, an error amounting to an abuse of discretion can be as simple as misinterpreting or misapplying the law. See Triantaphyllis v. Gamble, 93 S.W.3d 398, 402 (Tex.App.-Houston [14th Dist.] 2002, pet. denied)(citing Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex.1985)). Thus, to show abuse of discretion in determining legal principles, the relator must show the trial court failed to analyze or apply the law correctly. See id; Walker, 827 S.W.2d at 840. A trial court has no "discretion" in determining what the law is or applying the law to the facts. Walker, 827 S.W.2d at 840. Finally, the relator must also show it has no other adequate remedy at law. Id.

IV. THE ISSUES PRESENTED

Andersen contends that the trial court abused its discretion by denying Andersen the right to join the third parties, and that it has no adequate remedy at law. It claims this abuse of discretion is embodied in two orders:

[] the April 2003 order denying leave to join third parties;¹⁶ and

[] the July 2003 scheduling order denying joinder of additional parties.¹⁷

The Plaintiffs claim these orders were proper because the third parties are not responsible parties, and, even if they are responsible parties, the judge had the discretion to refuse to join them because it would delay the trial.

These essentially are the issues before us. To resolve them, we must review the case law on third parties as well as the allegations in the third amended petition and the third-party petition. Then, even if we decide the financial institutions are responsible third parties, as the Plaintiffs claim, we still must determine whether the trial judge abused his discretion in refusing to add them. If we conclude there was an abuse of discretion, we must consider the last hurdle raised by the Plaintiffs— that Andersen has an adequate remedy at law.

A. DENIAL OF LEAVE TO JOIN THIRD PARTIES

Andersen contends that the trial court abused its discretion by denying leave because the third parties are "responsible third parties" under Chapter 33 of the Texas Civil Practice Remedies Code, and, thus, Andersen has the right to have...