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Corporate scandal has been front-page fodder throughout 2002, and Houston-based Enron Corp. led the pack of troubled companies by filing for bankruptcy shortly before the beginning of the year. The inevitable deluge of litigation spawned by the problems at Enron has boosted litigation work for civil lawyers in Texas. Criminal-defense lawyers are busy, too, as a special task force of federal prosecutors working with a grand jury in Houston methodically bring criminal charges against a string of defendants, culminating with the indictment of former Enron Chief Financial Officer Andrew S. Fastow in October. But U.S. District Judge Melinda Harmon of Houston has been a key figure in 2002. She presided over Arthur Andersen’s obstruction of justice trial, a trial that kicked off the Enron Task Force’s attempt to determine who is responsible for the downfall of the formerly high-flying energy company. Harmon also presides over the class-action shareholder securities litigation lodged against Enron and a long list of related defendants by disgruntled shareholders and current and former employees who are in the company’s pension plans. That puts Harmon in the hot seat, and her rulings will play a role in determining who is to blame for the collapse of Enron. Harmon, a federal judge since 1989, has a pro-prosecution reputation, say six lawyers who have practiced in her court. Her rulings on some sticky issues in Andersen’s obstruction of justice trial could make some law, and, some suggest, did more to help the prosecution than the defense. The shareholder securities litigation is just getting started, and Harmon’s impact will unfold during 2003. While Harmon set an ambitious schedule in that litigation, with a trial date in December 2003, she hadn’t ruled by presstime on Dec. 19 on dozens of motions to dismiss, and discovery is largely stalled until after that ruling. With skilled lawyers on both sides of the courtroom at the Andersen trial, Harmon’s rulings may have made the difference between guilt and innocence for the accounting firm. “There were hundreds and hundreds of rulings that were made and almost all of them went in the government’s favor, so it created a very intense, confrontational, argumentative environment in the sense Judge Harmon was adamant in putting up roadblocks for Rusty Hardin,” says Christopher Bebel, a former Department of Justice and Securities and Exchange Commission prosecutor who closely followed the trial. “It was a war of wills day in and day out that caused the jurors to have their adrenalin flowing on a regular basis,” says Bebel, a partner in Shepherd Smith & Bebel in Houston. But the lead federal prosecutor at the trial, Assistant U.S. Attorney Andrew Weissmann of Brooklyn, N.Y., says, “It’s a rare case where a judge’s ruling or the legal advocacy of the attorneys for the parties makes the decision different. It is the facts, and I think this was one of those cases.” Like those of lead defense lawyer Hardin, Harmon’s name and face became nationally known during the Andersen trial, with CNN doing regular updates from the courthouse and a large crew of reporters from across the country covering the trial. Hardin says he won’t criticize Harmon outside of the courtroom. (Neither will a number of other lawyers in Houston who have or may someday try cases in her court.) But Hardin says he believes Harmon’s ruling to allow evidence of Andersen’s alleged previous “bad acts” into the case was disastrous. Andersen defense attorney Charles Rothfeld, a partner in Mayer, Brown, Rowe & Maw in Washington, D.C., is likewise reluctant to talk in detail about how Harmon handled the trial. But Rothfeld, who is working on Andersen’s appeal, says, “Going into it, her reputation as the judge was sympathetic to the government . . . and that proved to be true.” Rothfeld says the “overwhelming majority” of arguments over evidence during the trial went the government’s way. Weissmann suggests that was the impression defense lawyers tried to make during the trial. “There certainly was a lot of spin by Andersen that the judge appeared to favor the government, or appeared to rule in our favor on objections, but that was a very deliberate strategy by Andersen,” he says. “The court was just upholding the law.” Weissmann says the only ruling Harmon made that had the potential to make law was her ruling during jury deliberations that the jurors need not agree that the same individual at Andersen knowingly acted with corrupt intent to obstruct justice. Ultimately, the jurors said they agreed that Andersen in-house lawyer Nancy Temple was that individual, an answer that may have shut down a ground for appeal for the defense lawyers. Jurors said they found the 89-year-old accounting firm guilty of obstruction of justice because Temple wanted to alter an internal document about Enron’s third-quarter earnings report. That gave the jury a reason to find Andersen acted with the intent to keep information from the Securities and Exchange Commission. Harmon, 56, wasn’t initially assigned to the civil litigation against Enron and related defendants; she got the chore when U.S. District Judge Lee Rosenthal recused herself in January without stating a reason. This is the type of litigation that would overwhelm any judge, let alone a busy federal judge. Harmon has been determined from the beginning to streamline the case. If her deadlines were ambitious, it was only because the judge in charge of the case had to push for it to move forward,” says Paul Yetter, a partner in Yetter & Warden of Houston who represents plaintiffs in the civil litigation. Harmon was thrown into the fire when Andersen, Enron’s former accounting firm, exercised its right to a speedy trial. Harmon set the trial for May 6, which was less than two months after the Chicago-based accounting firm was indicted, but well after its ties to the Enron scandal began to affect its business. Prosecutors alleged Andersen engaged in a massive destruction of Enron-related documents in the fall of 2001 that was aimed at keeping information from the SEC, which already had begun an investigation into Enron’s financial reporting. While lead defense attorney Hardin at first pushed hard for a speedy trial – an extraordinary tactic – he changed his tune at the last minute, asking Harmon for a six- to eight-week continuance. But she rejected his argument that pretrial publicity would harm Andersen’s chances of getting a fair trial. The trial stretched over six weeks and didn’t end until June 15, when the 12-member jury returned a guilty verdict against Andersen. In October, Harmon sentenced the firm to the maximum of five years of probation and a $500,000 fine. Although Andersen exited the auditing business in August, the firm is appealing the judgment to the 5th U.S. Circuit Court of Appeals. It’s that appeal that could make some law. Harmon made one key ruling before the trial began that defense lawyers are likely to cite in their appeal, and Hardin suggests it made a victory for Andersen extremely difficult. The judge allowed testimony about Andersen’s past dealings with the SEC under Federal Rule of Evidence 404(b), which sets out some exceptions to the rule prohibiting testimony of previous “bad acts.” Andersen is under probation because of a consent decree in 2001 stemming from its work for Waste Management Inc., and prosecutors introduced testimony about it during the trial. “The admission of extraneous offenses was disastrous for us because it allowed the government to make the jury believe Arthur Andersen was a bad company, a bad accounting firm. Then that forced us to respond to the extraneous offenses that they were relevant, or say they were not relevant,” says Hardin, of Rusty Hardin & Associates. Houston lawyer Michael Clark, a former federal prosecutor in the Southern District of Texas, says Harmon’s 404 (b) ruling colored the trial to a degree. “To me that was a close call,” says Clark, a partner in Hamel, Bowers & Clark. “In all fairness, on the other hand, that company had a history. I think that there was a good chance that issue was going to come out at some point.” But Harmon said when issuing a different ruling late in the trial that it could be an issue of first impression and “one that’s terrifying to a district judge.” Her ruling came in response to a note from jurors who wanted to know if individual jurors could believe different Andersen agents acted knowingly and with a corrupt intent. Harmon told the jury it need not agree on the same individual. Before making the ruling, Harmon said none of the cases cited by either side was on point, and she could see the view of both sides. “If anyone in the audience, the press, knows of a case that is directly on point, I would urge you go give me the cite right now. But I don’t believe that any of the cases cited can be distinguished on the facts of this case, because this is a partnership, not an individual,” the judge said when making her ruling. At the urging of the defense, Harmon submitted an additional question to the jury after the verdict, asking them if they agreed the same Andersen agent had the corrupt intent to obstruct justice. They agreed on Temple, a fact that could preclude an appeal on how Harmon instructed the jury on that question. Although Harmon occasionally showed her humor during the trial, she and Hardin clashed repeatedly during the proceedings; most of the disagreements over evidence and rulings were outside the hearing of the jury. Despite that, Andersen received a fair trial from Harmon in the view of Bebel, who watched much of the trial. He says Harmon gave Hardin a lot of leeway. “She has to be credited for not coming down with an iron fist on him when he turned his back on the various orders she had just issued,” Bebel says. “In the final analysis, the trial was substantially fair.”

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