SACRAMENTO, Calif. Oct. 6, 2004 — A federal bankruptcy judge ordered California's attorney general to drop a lawsuit that seeks to block Enron from ever doing business with the state, officials said Wednesday.

Attorney General Bill Lockyer filed the lawsuit in June, accusing Enron of commodities fraud and unfair competition during the height of the state's energy crisis in 2000 and 2001.

In a ruling last month, Judge Arthur J. Gonzalez said Enron is protected from such lawsuits while in bankruptcy proceedings. The energy giant filed for bankruptcy in 2001 amid revelations of false accounting that hid debt and inflated profits.

Gonzalez gave Lockyer until Oct. 18 to drop the case, but a spokesman said Lockyer would appeal.

Lawsuits against companies in bankruptcy are subject to automatic stays or dismissal, but Lockyer argued that should not apply in his case because federal bankruptcy law allows lawsuits aimed at protecting public health or safety.

"The whole point of an exemption for police and regulatory actions is so that the companies can't run from responsibility and hide in bankruptcy," said Lockyer spokesman Tom Dresslar.

The judge said the "police power exception" does not apply to Lockyer's suit because it seeks financial restitution.

In June, federal energy regulators ordered Enron to forfeit $32 million in ill-gotten profits from the energy crisis. Other claims are pending.

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