Here is follow-up research on the question of whether we could remove a
criminal case against Enron to federal court.  It is not as promising as we
first thought.

Thanks
Gary

> -----Original Message-----
> From: Smith, Amanda D.
> Sent: Thursday, May 24, 2001 5:59 PM
> To: Fergus, Gary S.
> Cc: Molland, Michael E.; Meringolo, Peter
> Subject: Enron: Response to Criminal Charges
>
> Gary,
>
> Our earlier preliminary research reflected the fact that, although it will
> likely be difficult, it may be possible under the primary jurisdiction
> doctrine to refer criminal charges to FERC, given the criminal penalty
> provisions of the Federal Power Act.  However, as it becomes more clear
> that, if criminal charges are to be filed, they will be filed in
> California, it is necessary to revisit and expand this earlier research.
>
> We noted earlier that there is a body of substantive law dealing generally
> with the question of whether criminal proceedings are subject to the
> primary jurisdiction doctrine, but no case which considered this question
> with respect to the Federal Power Act specifically.  Based on this, we
> concluded that it may be possible, if difficult, to argue that criminal
> charges should be referred to FERC under the primary jurisdiction
> doctrine.  An expansion of this research reveals that this potential for
> referral appears to only be applicable to federal criminal charges.
>
> State criminal charges are not removable under 28 U.S.C. Section 1441,
> which provides that:  "[e]xcept as otherwise expressly provided by Act of
> Congress, any civil action brought in a State court of which the district
> courts of the United States have original jurisdiction, may be removed by
> the defendant or the defendants, to the district court of the United
> States for the district and division embracing the place where such action
> is pending."  Moreover, our research has revealed no case in which state
> criminal charges were referred directly to any federal regulatory agency.
>
>
> However, our research has revealed another alternative to removal or
> referral of criminal charges.  See generally Sprint Corp. v. Evans (M.D.
> Al. 1993) 818 F.Supp. 1447; Sprint Corp. v. Evans (M.D. Al. 1994) 846
> F.Supp. 1497.
>
> In 1993, the Attorney General of Alabama began an investigation of Sprint
> Corporation, an international telecommunications company acting as a
> "common carrier" within the meaning of the federal Communications Act.
> Sprint, among other things, provided a "1-800" service to subscribers
> pursuant to tariffs filed with the FCC.   To use these "1-800" numbers, a
> caller places a call through a local telephone company, who connects the
> call to a long distance carrier such as Sprint, who generally then
> connected the call to the "1-800" subscribers local telephone number.
>
> In February 1993, Sprint received a subpoena from the Montgomery County
> Grand Jury commanding it to appear and produce all records relating to the
> "1-800" service.  Sprint produced the documents and learned that it was
> under investigation for violation of Alabama's obscenity laws in
> connection with allegedly obscene content distributed over telephone
> lines.
>
> In March 1993, Sprint filed a motion for a temporary restraining order
> (TRO) and a preliminary injunction seeking to enjoin the Alabama Attorney
> General from pursuing a criminal indictment against Sprint for violation
> of the obscenity law.  Sprint maintained enforcement of the anti-obscenity
> law would interfere with federal statutory rights because regulation of
> interstate communications is within the exclusive jurisdiction of the FCC.
> At the TRO hearing the Attorney General could not testify that the
> prosecution was not imminent and, therefore, the court issued the TRO.
>
> Later in March, the Court decided Sprint's motion for a preliminary
> injunction.  Sprint Corp. v. Evans (M.D. Al. 1993) 818 F.Supp. 1447.  At
> the hearing on this motion, counsel for the Attorney General stated that
> the Attorney General's position regarding Sprint's criminal liability
> under the obscenity statute related to the its obligations under that law
> when a telephone customer complains that a "1-800" subscriber's message is
> offensive.  According to counsel, if a customer complains, Sprint is
> obligated to either report the complaint to a prosecuting attorney or
> begin a declaratory judgment action against the subscriber.
>
> The District Court granted the preliminary injunction.  The court held
> that, under the relevant Eleventh Circuit test for determining whether a
> preliminary injunction should issue, the movant must show:  "(1) a
> substantial likelihood that she will ultimately prevail on the merits;
> (2) that she will suffer irreparable injury unless the injunction issues;
> (3) that the threatened injury to the movant outweighs whatever damage the
> proposed injunction may cause the opposing party;  and (4) that if issued,
> the injunction would not be adverse to the public interest."   Sprint, 818
> F.Supp. at 1452.
>
> Before the Court considered the first element of this test, the Court
> addressed the contention that the District Court had no jurisdiction.  The
> Court held that: "[t]he Supreme Court, however, has held that federal
> courts have federal-question jurisdiction under 28 U.S.C.A. S 1331 to
> entertain suits to enjoin state officials from interfering with federal
> statutory rights."
>
> The Court then held that there was a substantial likelihood that Sprint
> would prevail on the merits because "to the extent that the Alabama
> anti-obscenity statute attempts to impose reporting requirements on
> communications by common carriers, it is interstate in nature and
> preempted by federal law.... The statute is being used as a mechanism to
> impose new reporting requirements on common carriers with regard to their
> 800 service.   Currently, under federal law, common carriers do not have
> an affirmative obligation to investigate whether their facilities are
> being used by customers for a lawful purpose."  (Importantly, the Court
> did not reach the question whether the Communications Act preempts all
> Alabama laws imposing liability for conduct of common carriers in the area
> of obscenity.  The Court also rejected the Attorney General's argument
> that a Younger abstention was necessary.)
>
> The Court disposed of the last three parts of the preliminary injunction
> test easily.  First, the Court held that irreparable harm would result
> because "an indictment against Sprint would cause great harm to its
> business reputation and would jeopardize its status as a government
> contractor."  Second, the Court held that the potential harm to Sprint
> outweighed the potential harm to the Attorney General because "although
> the Attorney General relies on a state statute directed at the prosecution
> of the distribution of obscene matter, the Attorney General really seeks
> to impose interstate reporting requirements on common carriers--in other
> words, the generic proceeding at issue is the regulation of interstate
> telecommunications by common carriers outside the context of the
> distribution of obscene matter.  The Attorney General clearly has no
> interest in such interstate regulation."  Third, the Court held that the
> "preliminary injunction serves the public interest by ensuring that the
> national interest in fulfilling the goals of the Federal Communications
> Act."  Sprint, 818 F.Supp. at 1460-61.
>
> In a separate decision, almost a year later, the District Court granted,
> in part, Sprint's motion to refer certain issues to the FCC under the
> doctrine of primary jurisdiction.  Sprint 2, 846 F.Supp. at 1501.  Prior
> to this motion, the Alabama Attorney General changed its allegations
> regarding the illegality of Sprint's conduct under the obscenity law --
> now alleging that Sprint was not criminally liable because of a failure to
> report, but because of a aiding and abetting theory.
>
> The District Court held, in brief, that  "(1) referral to FCC under
> primary jurisdiction doctrine was warranted with regard to question of
> whether common carriers, consistent with Communications Act, may refuse to
> carry information provider's program transmitted as "1-800" service if
> program contains sexually explicit information that has not been
> adjudicated obscene, and (2) referral to FCC was not warranted with
> respect to question of whether attempted criminal prosecution of
> interstate common carrier under state's antiobscenity laws for knowingly
> transmitting potentially obscene or obscene telephone communications
> through its interstate "1-800" facilities is preempted by Communications
> Act."  Sprint 2, 846 F.Supp. at 1497.  The Court then ordered that the
> record of the case be transmitted to the FCC, that the preliminary
> injunction remain in effect and that all motions would be denied without
> prejudice until after the FCC rendered its decision.
>
> Obviously, no analysis of the criminal charges against Enron can yet be
> made, but there is a significant chance that Enron may be able to cast any
> criminal charges filed by the California Attorney General as "regulatory"
> in nature.  Moreover, given relative lack of effect the Alabama Attorney
> General's change in position in the middle of the Sprint case, the
> "regulatory" aspect of the charges may not be as important as it may seem
> in the first Sprint holding on the preliminary injunction.
>
> Please let me know if you would like me to pursue this further.  My
> research has not yet revealed any case that is factually similar to the
> Sprint case.
>
>
>
>
>
>
>
>

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