A Legal Frankenstein's Monster: The Complete Bar Order in Securities Fraud Class Action Lawsuits

By Stanley, Jonathon C. | Washington and Lee Law Review, Spring 2018 | Go to article overview

A Legal Frankenstein's Monster: The Complete Bar Order in Securities Fraud Class Action Lawsuits


Stanley, Jonathon C., Washington and Lee Law Review


Table of Contents

I. Introduction ................ 1216

A. The Complete Bar Order: A Legal Frankenstein's Monster ............. 1217

B. The Stanford Story .................... 1218

C. Focus of Discussion Toward a Proposed Solution ...................... 1222

II. The History of the Bar Order in Class Action Settlements ..................... 1223

A. Securities Fraud Litigation ............... 1224

B. Equity Receivership Powers ............. 1226

III. The Legal Landscape and Justifications for the Complete Bar Order ........................... 1228

A. Deference to an Equity Receiver .................. 1228

B. The Important Distinction Between Bankruptcy and Class Action Securities Litigation ................... 1231

IV. The Constitutional Right to Sue (or, the Constitutional Right to a Remedy) .................... 1233

A. Generally .................. 1233

B. The Fundamental Nature of the Right to a Remedy .............. 1235

V. The Complete Bar Order Does Not Satisfy Due Process ............ 1237

A. Procedural Due Process Considerations ................. 1238

B. Substantive Due Process Considerations ............... 1240

VI. The Complete Bar Order as a Constructive Intrusion and Regulation of Constitutional Rights ...................... 1242

VII. The Solution .............. 1244

VIII. Conclusion .............. 1248

I. Introduction

In Mary Shelley's masterpiece of Gothic horror, Frankenstein, the monster stumbles across the diary of his maker, the titular Dr. Frankenstein.1 With Shelley's profound vocabulary, the monster proclaims his sadness upon reading what his creator has written about him:

Everything is related . . . which bears reference to my accursed origin; the whole detail of that series of disgusting circumstances which produced it is set in view; the minutest description of my odious and loathsome person is given, in language which painted your own horrors and rendered mine indelible. I sickened as I read. "Hateful day when I received life!" I exclaimed in agony. "Accursed creator! Why did you form a monster so hideous that even you turned from me in disgust? God, in pity, made man beautiful and alluring, after his own image; but my form is a filthy type of yours, more horrid even from the very resemblance."2

When faced with this account of his creation, Frankenstein's monster came to fully understand his nature: he was the regrettable result of the aspirations of his maker. In piecing together remnants of corpses to create life on his own terms, Dr. Frankenstein created a monster; this monster was unfit to live among the rest of humanity, and infused the world around it with horror rather than beauty.3 Of the many unfortunate lessons in Shelley's novel, this is among the most profound: humanity is rife with hubris, but the hubristic are bound to fail when they rewrite the rules.4

A. The Complete Bar Order: A Legal Frankenstein's Monster

In much the same way that Victor Frankenstein pulled pieces from burial grounds and charnel houses to assemble his creation, the courts have, in recent years, pulled precepts from various legal arenas-bankruptcy, securities law, and equity-to create a legal Frankenstein's monster, in the form of the "Complete Bar Order."5 At its most basic level, a bar order (of any kind) is an order of writ that forbids a party from suing.6 Where traditionally courts have limited a bar order to crossclaims and counterclaims between parties before the court in securities fraud litigation, this new legal creature rewrites long-accepted rules of due process and open access to the courts by effectively and permanently barring any and all claims by parties not even before the court.7

One example of this new form of bar order-the Complete Bar Order-occurred in August of 2016, when the Northern District of Texas approved a settlement between the global accounting firm BDO USA, LLP (BDO) and various parties suing it for its alleged involvement as an aider and abettor in the Stanford Financial Ponzi scheme. …

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