The Jurisprudence of Enron: Professionalism as Interpretation

Abstract

Jurisprudence can seem like a formidably esoteric field, with conceptual arguments carried on at a high level of abstraction, seemingly remote from the concerns of practicing lawyers. In fact, it is impossible to ignore jurisprudence when thinking about the role of lawyers in the wave of financial accounting scandals exemplified by the collapse of Enron. The Enron case is not about ethics so much as it is about the interpretation and application of a complex scheme of legal norms to innovative business transactions. The lawyers believed they were taking a legitimate, albeit aggressive interpretive attitude toward the law, by structuring the transaction to avoid as many legal restrictions as possible. It must have come as a surprise to these lawyers when they were criticized after Enron's collapse precisely for taking an aggressive stance toward legal and financial accounting standards. Many commentators criticized lawyers for Enron and other companies such as WorldCom and Global Crossing for neglecting their responsibilities to serve as gatekeepers and for facilitating their clients' evasion of law. The lawyers' typical response is that they were only doing what lawyers do - bringing their clients' actions into conformity with the law, pushing the boundaries of the law where it would be helpful to clients, and refusing to regard themselves as quasi-regulators of transactions. This article resolves this debate using the tools of analytic jurisprudence. The lawyers who defend creative, aggressive advice are essentially arguing for a Holmesian bad man interpretive attitude toward the law, in which the content of the law is identified by predicting when legal officials will impose sanctions on an individual. There are many problems with this approach, but one obvious one is that it reduces the law's constraint practically to a nullity, at least where the regulated actors are highly sophisticated companies with the resources to employ battalions of lawyers to create increasingly complex transactional structures. The Holmesian bad man stance, however, relies on a dubious account of the authority of law - one that prioritizes individual autonomy over all other values that bear on practical reasoning. But autonomy is not the only thing people value and, even if it were of paramount importance, there would still be conflicts between incompatible claims of liberty. The function of the law is to settle these first-order normative conflicts, and this settlement depends on the law having a relatively determinate, stable meaning. The function of law creates a second-order reason for lawyers to respect the settlement established by law and not to attempt to nullify it by creating elaborate structures to avoid penalties. Any interpretive strategy that undermines the capacity of law to resolve normative disagreement is ruled out by the second-order moral reasons that give the law legitimacy. The argument for treating the law instrumentally relies, often tacitly, on a highly suspect characterization of the nature and content of law, one that limits legal norms only to texts. Texts are not self-interpreting, however, and can acquire stable, determinate meaning only as they are situated within an interpretive community. In jurisprudential terms, this is an argument about what Hart would call the rule of recognition. My claim is that the rule of recognition in the U.S. legal system incorporates the practices and conventions of interpretive communities as criteria for identifying law. Conventions regulate the exercise of interpretative judgment and impart stability and determinacy to legal norms that would otherwise be subject to manipulation by lawyers. This article gives a number of examples of this process at work, from simple hypotheticals to a detailed consideration of some of the transactions that played a role in the collapse of Enron. The jurisprudential claim is not limited to Enron-style transactions, but has general applicability across the entire domain of legal counseling and transactional practice.