Tittle, et al v. Enron Corp, et al

Filing 1392

ORDER denying 1364 Hewitt's Motion to Dismiss Plaintiff's 1353 first amended complaint.The parties shall jointly submit a proposed discovery schedule within two weeks of entry of this order, under the Tittle style. (Signed by Judge Melinda Harmon) Parties notified.(htippen, ) Text Modified on 9/2/2008 (htippen, ).

Tittle, et al v. Enron Corp, et al

Doc. 1392

IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In Re ENRON CORPORATION SECURITIES, DERIVATIVE & "ERISA" LITIGATION, § § § MDL 1446

PAMELA M. TITTLE, on behalf of § herself and a class of persons § similarly situated, ET AL., § § Plaintiffs § § VS. § CIVIL ACTION NO. H-01-3913 § CONSOLIDATED & COORDINATED CASES ENRON CORP., an Oregon §(H-01-4060; H-01-4063; H-01-4089; Corporation, ET AL., § H-01-4108; H-01-4125; H-01-4128; § H-01-4208; H-01-4209; H-01-4299; Defendants. § H-01-4326; H-01-0267; H-02-0851; § H-02-1058; H-02-2160; H-02-3754; § H-02-3942; H-03-2257) ENRON CORP. SAVINGS PLAN, § et al., § § Plaintiffs, § § VS. § CIVIL ACTION NO. H-07-4081 § CONSOLIDATED INTO H-01-3913 HEWITT ASSOCIATES, LLC. § § Defendant. § ENRON CREDITORS RECOVERY CORP.,§ formerly known as Enron Corp. § an Oregon Corp., § § Plaintiff, § § VS. § CIVIL ACTION NO. H-08-1894 § CONSOLIDATED INTO H-01-3913 HEWITT ASSOCIATES, LLC, § § Defendant. §

OPINION AND ORDER

Dockets.Justia.com

Pending before the Court in the above consolidated and related actions are (1) Hewitt Associates, LLC's ("Hewitt's") motion to dismiss Plaintiff's first amended complaint1 for lack of subject matter jurisdiction (instrument #1364 in H-01-3913; #14 in H-074081); (2) Hewitt's motion to quash discovery and motion for protective order (#26 in H-07-4081); and (3) Hewitt's motion to dismiss H-08-1894 due to prior, first filed action in the Circuit Court of Lake County, Illinois (#3 in H-08-1894).2 I. Procedural History

There are several interrelated lawsuits and parties involved in this dispute. The quarrel grew out of Hewitt's role in

implementing the distribution of the first tranche of settlement funds of approximately $89 million to Enron Corp. Savings Plan ("Plan") claimants in accordance with the Second Supplemental Amended Allocation Plan (#1220 in Tittle), approved by this Court in the consolidated cases of Tittle, et al. v. Enron, et al., H-013913, and Elaine L. Chao v. Enron Corp., H-03-2257. Specifically,

allegedly retained by the Plan as the Fund Administrator,3 Hewitt

The Original Complaint is #1 in H-07-4081; the First Amended Complaint is #10 in H-01-4081, #1353 in H-01-3913. Enron's Response is filed in both H-08-1894 (#11) and in Tittle (#1390). Hewitt's Reply is filed in H-08-1894 (#14). Although Hewitt disputes that it served as the Fund Administrator, after the issue was raised in a hearing in Tittle on July 27, 2007 regarding Hewitt's miscalculation of the settlement
-23 2

1

was responsible for calculating the distributions (pro rata shares) of the settlement funds to Claimants. On January 30, 2007, after

a Claimant questioned her allocation, Hewitt admitted that it had erred in calculating the distributions. Facing a contempt hearing

set before this Court, Hewitt also agreed to provide at least some of the funds the Savings Plan needed to help cover the shortfall (#1348 in H-01-3913), an arrangement that is now part of the dispute here. Although Hewitt stated that it would work toward

resolving the problem, it apparently did not provide any new, accurate calculations nor make any progress in curing the erroneous distributions. Attempts at mediation failed.

Enron Creditors Recovery Corp.("Enron"), formerly Enron Corp., first made this Court aware of the problem with the initial allocation of the settlement proceeds when, on May 29, 2007, Enron filed in Tittle a motion for approval of modifications to Second Supplemental Amended Plan of Allocation ("Plan of Allocation") (#1309 in H-01-3913). Enron accused Hewitt, which Enron claims was the Fund Administrator, of defective calculations4 that caused a allocations (see transcript, Ex. 1 to # 11 in H-08-1894 and to #1390 in H-01-3913), this Court issued an order that, for the purposes of granting Enron's motion to modify the Second Supplemental Amended Plan of Allocation, found Hewitt was the Fund Administrator. #1334 at 2, ¶ 5 ("Hewitt Associates LLC ("Hewitt") acted as Fund Administrator pursuant to, and as defined in, the Allocation Plan.") in H-01-3913. Hewitt was supposed to have used the closing price of Enron stock on December 31, 1997, $41.46, as the base of its
-34

flawed distribution of settlement proceeds to claimants and of failing to rectify the problem. Hewitt was paid approximately

$900,000 in fees from the settlement fund for its services, thus diminishing the amount available for allocation to the claimants by that sum. Although Hewitt's counsel admitted responsibility for

the miscalculation in a hearing before this Court on July 27, 20075 and did agree, with its rights reserved, to make a loan to the Plan to cover the shortfall, as did Enron, efforts to negotiate a resolution among the parties in Tittle failed. Civil Action No. H-07-4081, Enron Corp. Savings Plan, et al. v. Hewitt Associates, LLC (the "Plan's action" or "Plan's suit") was filed on November 30, 2007 by the Plan,6 the Administrative Committee of the Plan, and the Tittle Plaintiffs. The Complaint

(#1 in H-07-4081) and First Amended Complaint (#10 in H-01-4081, #1353 in H-01-3913) charge Hewitt with tort claims of negligent misrepresentation, grossly negligent misrepresentation, negligence, gross negligence, professional negligence, and breach of contract,

calculations. Instead it incorrectly valued Enron stock as of January 1, 1998 (a trading holiday) at $100 per share, and used that number to begin its calculations. #11 in H-08-1894 or #1390 in H-01-3913, Ex. 1 at 18, 19, Transcript of July 27, 2007 hearing. "Enron is the Plan's named fiduciary within the meaning of ERISA and administers the Plan through a small number of employees in Enron's benefits department referred to as the `Administrative Committee.'" Hewitt's motion to dismiss, #3 at 2 in H-08-1894.
-46 5

i.e., of an agreement drafted by Hewitt and executed by Plaintiffs on July 28, 2006 promising that Hewitt would calculate

distributions in accordance with the Plan of Allocation, based on Hewitt's erroneous calculations. Enron purportedly relied on these calculations in distributing approximately $22 million from the settlement fund to Claimants. The Plan and the Administrative

Committee of the Plan seek to recover this amount as the Plan's losses in assets and property directly resulting from Hewitt's alleged wrongdoing (the "shortfall"). Plaintiffs in H-07-4081 assert that the Court has diversity jurisdiction under 28 U.S.C. § 1332(a)("The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs and is between--(1) citizens of different States . . . ."), as well as ancillary jurisdiction and jurisdiction under the All Writs Act. Plaintiffs claim that the Plan is a citizen of

Delaware, that the Administrative Committee maintains its place of business in and its current members reside in Houston, Texas, and that Hewitt's principal place of business is in Illinois. They

also point to the Court's retention of continuing jurisdiction over "any and all disputes" arising out of implementation of the Plan of Allocation in the orders of final judgment and dismissal on May 24, 2005 and September 12, 2005 in Tittle:

-5-

Without affecting the finality of this Order of Final Judgment and Dismissal in any way, this Court retains continuing jurisdiction over: (a) implementation of the Settlement; (b) any award or distribution of the Settlement Trust, including interest earned thereon; and (c) all other proceeding related to the implementation and enforcement of the terms of the Agreement. Without affecting the finality of this Judgment, the Court retains jurisdiction for purposes of implementing the Agreement and reserves the power to enter additional orders to effectuate the fair and orderly administration and consummation of the Agreement and Settlement, as may from time to time be appropriate, and the resolution of any and all disputes arising thereunder. #987, ¶¶ 28 and 30; #1075, ¶¶ 30 and 31.7 The issues in the Plan's

suit involve over-allocations and under-allocations to thousands of Tittle Claimants and Plaintiffs insist that the Court retains jurisdiction to address them.8 See In re Painewebber Ltd.

Partnerships Litig., No. 94 CV 8547, 2003 (S.D.N.Y. July 22, 2001)(district

U.S. Dist. LEXIS 12581 reserved exclusive

court

jurisdiction to modify the plan of allocation when issues arose relating to overpayment and underpayment of settlement proceeds to class participants). Therefore, Plaintiffs argue, the Court has

They also state that venue is proper pursuant to 28 U.S.C. § 1391(a)(2) because a substantial part of the events giving rise to Plaintiffs' claims occurred in this judicial district and because the case arises out of the distribution of settlement proceeds in accordance with the Allocation Plan (#1220) in the Tittle litigation. This Court has federal question jurisdiction over Tittle, which is grounded in the Employee Retirement Income Security Act of 1974 ("ERISA"). 29 U.S.C. §§ 1001-1461.
-68

7

jurisdiction over this matter under the doctrine of ancillary jurisdiction9 and the All Writs Act, 28 U.S.C. § 1651 ("The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate to aid of their respective

jurisdictions and agreeable to the usages and principles of law."). Civil Action No. H-07-4081 was consolidated into Tittle by the Court on December 3, 2007 (#2 in H-07-4081; #1338 in Tittle).

In 1990, 28 U.S.C. § 1367 codified under the name "supplemental jurisdiction" much of the case-law doctrine of "ancillary jurisdiction" ("power of the court to adjudicate and determine matters incidental to the exercise of its primary jurisdiction of an action") and the doctrine of "pendent jurisdiction" ("a principle applied in federal courts that allows state created causes of action arising out of the same transaction to be joined with a federal cause of action even if diversity of citizenship is not present"). 28 U.S.C. § 1367; definitions from Black's Law Dictionary (6th ed. 1990). Ancillary jurisdiction will be discussed in detail subsequently. Section 1367(a), the relevant provision here, provides, Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute, in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties. The statute requires that the court have original jurisdiction, either diversity under 28 U.S.C. § 1332 or federal question under § 1331, before it can exercise supplemental jurisdiction.
-7-

9

On June 5, 2008,10 Hewitt filed Hewitt Associates, LLC v. Enron Creditors Recovery Corp. f/k/a Enron Corp. ("the Illinois action"), Cause No. 08-MR-643, in the Circuit Court of Lake County, Illinois and had Enron served on June 9, 2008. The Court has been informed by Hewitt that on June 26, 2008, Enron (an Oregon

corporation with its principal place of business in Houston, Texas) removed the Illinois state court suit, on diversity grounds, to the United States District Court for the Northern District of Illinois, Eastern Division, where it is currently pending as Civil Action No. 08-CV-3634.11 Enron also simultaneously filed a motion to transfer

venue to this Court and an emergency motion to extend time to answer in that action.12 Notice to the Court, #1386 in H-01-3913;

#9 in H-08-1894; #30 in H-07-4081.

This Court highlights the fact that Hewitt filed its suit approximately one week after Enron filed its motion to modify the Second Supplemental Amended Plan of Allocation in Tittle (#1309), alerting this Court to, and explaining in detail, Hewitt's role in the erroneous distribution of settlement funds and failed attempts to work out a solution. The Court granted Enron's motion (#1334 on July 27, 2007), and inter alia ordered Hewitt to follow specified instructions in an effort to cure the misallocation. The Court further notes that Hewitt filed its Illinois action six months after the Plan's suit was filed in the Southern District of Texas. For a copy of the original state-court complaint see Ex. 2, part 1, to #11 in H-08-1894. A copy of the removal notice is Ex. 3, part 1, to #11 in H-08-1894.
12 11

10

See #12 in H-08-1894.
-8-

In that Illinois action, Hewitt's Complaint for Declaratory Judgment under section 2-701 of the Illinois Code of Civil

Procedure, 735 ILCS 5/2-701, is based on an Administrative Services Agreement (the "ASA"), entered into by Hewitt and Enron on June 1, 2001.13 Hewitt claims that the ASA contains "detailed provisions

for the sharing and limitation of responsibility for errors and omissions in connection with work performed by Hewitt." Hewitt

asserts that under the ASA, Enron contracted with Hewitt "to provide certain benefit plan administration services to the Plans and the participants" and that the ASA had been "executed in contemplation of Hewitt's taking over record keeping

responsibilities for the Plans, including the Enron Corp. Savings Plan." #7 in H-08-1894, Complaint, ¶¶ 8-9. As of January 1, 2005,

Enron purportedly terminated Hewitt's record keeping services, but Hewitt maintains that the contractual relationship remained in place because Enron and Hewitt executed an "amendment" to the ASA, omitting and changing the scope of Hewitt's services. and Ex. B.14 Id. at ¶ 23

In late 2005, Hewitt states that it began assisting

A copy of the ASA is attached to the complaint noted in footnote 11, Ex. 2, part 1, to #11, and Ex. 3 to #14, both in H-081894. Without getting into the merits of this dispute, which are not relevant to the motions pending here, the Court notes that Enron argues that the ASA was terminated and the new Amendment (see Ex. B to the complaint, Ex. 2 in #11, and Ex. 4 to #14 in H-08-1894) entered into by Enron and Hewitt was far more limited in scope and
-914

13

Enron in developing a settlement allocation protocol for the first tranche of the Tittle settlement fund, which was amended around July 25th of the same year and which extended the term of the ASA to include Hewitt's services on the Tittle allocation protocol. Id. at ¶¶ 24 and 25 and Ex. C. Hewitt asks the Illinois court to

adjudicate the rights and liabilities of the parties under the ASA, to declare that Enron is obligated to indemnify Hewitt for all losses under the terms of the ASA and for Hewitt's loan (exceeding $1,000,000) to the Plan to allow underpaid or unpaid Claimants to be paid without delay, to declare that Enron is obligated to defend Hewitt against the claims brought by the Plan and the

Administrative Committee, and to indemnify Hewitt for damages suffered by Hewitt resulting from Enron's failure to mitigate damages, as required by the ASA.

does not apply to Hewitt's role as Fund Administrator for the Tittle settlement fund. See also Ex. 4 (Declaration of Robert W. Jones) to #11 in H-08-1894. See also letter dated July 25, 2006 (second amendment to the ASA, effective July 1, 2006, attached as Ex. C to the complaint, Ex. 2 in #11 and Ex. 5 to #14 in H-08-1894. Moreover, according to Enron, the Plan's claims against Hewitt are based on the independent retention of Hewitt by the Administrative Committee to perform allocation work as the Fund Administrator in the Tittle Litigation, not Hewitt's data maintenance work under the ASA. Under the approved Plan of Allocation, the settlement proceeds were to be allocated by the Fund Administrator. Enron contends that Hewitt and the Administrative Committee entered into a Letter Agreement to perform the allocation work under that Plan of Allocation.
- 10 -

On June 13, 2008, in the Southern District of Texas, Enron filed Civil Action No. H-08-1894, Enron Creditors Recovery Corp. v. Hewitt Associates, LLC, seeking a declaratory judgment that the ASA does not apply to this dispute between Hewitt and Plan in H-07-4081 and arising out of Hewitt's miscalculations, that Enron has no duty to indemnify Hewitt for any of the alleged losses Hewitt sustained that were caused by Hewitt's misallocation of the settlement fund (no duty to indemnify Hewitt against any claims brought against Hewitt for its own negligence, gross negligence and breaches of its responsibilities), that Enron is not obligated to pay Hewitt any unrecovered balance of Hewitt's loan to the Savings Plan to fund a portion of the shortfall, and that Enron is not obligated to pay any expenses incurred by Hewitt in defending in H-07-4081. On June 13, 2008, Hewitt filed its motion to dismiss H-08-1894 due to the prior filed Illinois case. #14 in H-07-4081.

II.

Pending Motions

A. Hewitt's motion to dismiss Plaintiff's first amended complaint in H-07-4081 for lack of subject matter jurisdiction According to Hewitt, in H-07-4081 the Court has no subject matter jurisdiction (i.e., no federal question jurisdiction, no diversity jurisdiction, no ancillary jurisdiction and no

- 11 -

jurisdiction under the All Writs Act) over the claims arising from the services agreement between Enron Corp. Savings Plan and Hewitt. Under Fed. R. Civ. P. 12(b)(1), Hewitt challenges the

existence of diversity jurisdiction in H-07-4081, which the Plan asserts: it claims that Hewitt and the Plan are both citizens of

Delaware, and therefore not of diverse citizenship.15 Hewitt, a limited liability company, is wholly owned by Hewitt Associates, Inc., which is therefore a member of Hewitt. See #14,

Ex. A, Hewitt Associates, LLC's Operating Agreement (stating that Hewitt Associates, Inc. is the sole owner and operator of Hewitt Associates, corporation, LLC). as Hewitt in Associates, the Plan Inc. the is a Delaware

stated

and

Administrative

Committee's Original Complaint (#1) and First Amended Complaint (#10). The Plan is also a Delaware citizen.

For purposes of diversity jurisdiction under 28 U.S.C. § 1332(a),16 the citizenship of a limited partnership is determined by the citizenship of all of its partners. Corfield v. Dallas Glen

There are no federal law claims for federal question jurisdiction. The rule of complete diversity of citizenship under 28 U.S.C. § 1332 was established in Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L. Ed. 435 (1806). "`The concept of complete diversity requires that all persons on one side of the controversy be citizens of different states than all persons on the other side." McLaughlin v. Mississippi Power Co., 376 F.3d 344, 353 (5th Cir. 2004), quoting Harrison v. Prather, 404 F.2d 267, 272 (5th Cir. 1968).
- 12 16

15

Hills, LP, 355 F.3d 853, 856 n.3 (5th Cir. 2003). Fifth Circuit has not yet determined whether

Although the this rule on

partnership citizenship applies to limited liability companies, Island Park Estates LLC v. Brack, 2006 WL 3448624, *2 (S.D. Tex. 2006), all the Circuit Courts of Appeals that have addressed the question have held that the citizenship of a limited liability company for purposes of § 1332(a) is determined by the citizenship of its members. See Pramco, LLC ex rel. CFSC Consortium, LLC v.

San Juan Bay Marina, Inc., 435 F.3d 51, 54-55 (1st Cir. 2006); Handelsman v. Bedford Village Assocs. Ltd. Partnership, 213 F.3d 48, 51-52 (2d Cir. 2000); General Technology Applications, Inc. v. Exro Ltda, 388 F.3d 114, 120 (4th Cir. 2004); Homfeld II, LLC v. Comair Holdings, Inc., No. 01-1151, 53 Fed. Appx. 731, 732-33, 2002 WL 31780184, *1 (6th Cir. 2002); Cosgrove v. Bartolotta, 150 F.3d 729, 731 (7th Cir. 1998); GMAC Commercial Credit LLC v. Dillard Dept. Stores, Inc. 357 F.3d 827, 829 (8th Cir. 2004); Johnson v. Columbia Props. Anchorage, L.P., 437 F.3d 894, 899 (9th Cir. 2006); Rolling Greens MHP, L.P. v. Comcast SCH Holdings LLC, 374 F.3d 1020, 1022 (11th Cir. 2004). federal district courts The same is true of decisions of some Texas. See, e.g., Deep Marine

in

Technology, Inc. v. Conmaco/Rector L.P., 515 F. Supp. 2d 760, 765 (S.D. Tex. 2007)(Werlein J.); Kinder Morgan Liquids Terminals, LLC v. Ponns & Co., No. Civ. H-06-3225, 2006 WL 3691192, *2 (S.D. Tex.

- 13 -

2006)(Rosenthal, J.).

Without diversity, this breach of services

contract dispute is for state, not federal, court, insists Hewitt. Furthermore, whether this case proceeds in federal or state court will have no impact on the Court's ability to enforce its orders in Tittle. Nor, contends Hewitt, does the Court have jurisdiction over the services contract dispute under either the All Writs Act, 28 U.S.C. § 1651(a), or under the doctrine of ancillary jurisdiction. "Federal courts are courts of limited jurisdiction" and have only "that power authorized by the Constitution and statute." Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377 (1994), citing Willy v. Coastal Corp., 503 U.S. 131, 136-37 (1992). "It is to be presumed that a cause lies outside this limited jurisdiction, . . . and that the burden of establishing the contrary rests upon the party asserting jurisdiction. . . ." (citations omitted). Without an Kokkonen, 511 U.S. at 377 independent basis for

jurisdiction, there is no subject matter jurisdiction over the tort and contract claims asserted in H-07-4081, and the court must dismiss the claims. Owen Equipment and Erection Co. v. Kroger, 437 U.S. 365 (1978). Plaintiffs have argued that the contract and tort claims they allege against Hewitt affect the settlement agreements in Tittle. Hewitt objects that the claims in this suit are distinct from those

- 14 -

litigated in Tittle and that retention of jurisdiction by the Court is not necessary to protect its jurisdiction or enforce judgments in Tittle. The All Writs Act "cannot serve as an independent basis of jurisdiction." Texas v. Real Parties In Interest, 259 F.3d 387, 392 (5th Cir. 2001), cert. denied sub nom. Umphrey v. Texas, 535 U.S. 1115 (2002). Hewitt insists that this case is simply "a

dispute between Delaware citizens over alleged liabilities arising from the performance of a professional services contract." 4 in 07-4081. #14 at

In the Plan's action, Plaintiffs have asserted

claims for breach of contract, negligence, and gross negligence against Hewitt; Hewitt intends to defend by claiming that

Plaintiffs failed to abide by their own contract and Plaintiffs were negligent and grossly negligent in failing to take timely the actions recommended by Hewitt to remedy the effect of the computer error and of the misallocation of the settlement funds. This suit

does not seek to relitigate the Tittle case nor to set aside or undermine the settlements in that action. Nor, insists Hewitt, does the Court have ancillary

jurisdiction over this dispute. Ancillary enforcement jurisdiction exists only when the claims alleged have their own basis for federal court jurisdiction. Kokkonen v. Guardian Life Ins. Co. of

- 15 -

America,

511

U.S. is

375,

381

(1994).17 to protect

Ancillary and

enforcement federal

jurisdiction

authorized

enforce

judgments, for instance by issuance of court attachments, mandamus, garnishments, conveyances. and the prejudgment avoidance of fraudulent The

Peacock v. Thomas, 516 U.S. 349, 356 (1996).

simple fact that the claims alleged here and the claims in the main action might arise out of a "common nucleus of operative facts" is not relevant to the existence of ancillary jurisdiction. Id.

Plaintiffs have claimed the Court has ancillary jurisdiction here because (1) it expressly retained continuing jurisdiction and (2) the case involves allegations of past conduct by Hewitt that will have an impact on the ability of the parties to comply with the Tittle settlement. Hewitt argues that it is well established

This Court feels obligated to point out that Hewitt takes this statement out of context. In Kokkonen the Supreme Court held that district courts do not have the inherent power to enforce a settlement agreement entered into by the parties in federal court since such would be a claim for breach of contract for a state court to decide. 511 U.S. at 380-81. The high court recognized a key exception, however, "if the parties' obligation to comply with the terms of the settlement agreement had been made part of the order of dismissal, either by separate provision (such as a provision `retaining jurisdiction' over the settlement agreement) or by incorporating the terms of the settlement agreement in the order. In that event, a breach of the agreement would be a violation of the order, and ancillary jurisdiction to enforce the agreement would therefore exist." Id. at 381. Only "[a]bsent such action [as retention of jurisdiction over the settlement contract], however, enforcement of the settlement agreement is for state courts, unless there is some independent basis for federal jurisdiction." Id. at 382. The dismissal orders in Tittle did contain such a "retaining jurisdiction" provision.
- 16 -

17

that to exercise ancillary jurisdiction over a claim against a third-party that is not a party to the main action, "the

enforcement proceeding must be a mere continuation of the prior proceeding and not an action based on new grounds." U.S.I.

Properties Corp. v. M.D. Construction Co., 230 F.3d 489, 497 (1st Cir. 2000), citing Anglo-Florida Phosphate Co. v. McKibben, 65 F. 529 (5th Cir. 1894). Here, Hewitt contends, Plaintiffs are trying

to establish new liability against Hewitt and therefore there must be, but there is not, a basis for jurisdiction independent of the Tittle action. 1. Plaintiffs' Response (#23 in H-07-4081) The Plan and the Administrative Committee (collectively, the "Plan") point out that in at least two cases, one before this Court with the same lawyers representing Hewitt in this action, Hewitt has admitted that it is a citizen of Illinois for diversity purposes. Under the doctrine of judicial estoppel,18 the Plan asks

On February 1, 2005, Hewitt sued a Delaware corporation in this Court and alleged diversity jurisdiction based on the fact that Hewitt is "an Illinois limited liability company, which has its principal place of business in Lincolnshire, Illinois." Case No. H-04-2415, Hewitt Associates LLC v. ExpressJet Holdings Inc., Hewitt's Second Amended Complaint at 1, attached to #23 in H0704081 as Ex. A. The Court issued twelve orders in that case and retained jurisdiction until the dispute was resolved on March 27, 2006. #23, Ex. B. In the second suit, on July 28, 2007 Hewitt asked the United States District Court for the Northern District of Illinois to remand a case because Hewitt was a citizen of Illinois, as was one of the defendants. Ex. C to #23.
- 17 -

18

the Court to bar Hewitt from claiming a different citizenship now, purely as a forum shopping strategy. While both sides agree that the Fifth Circuit has not yet resolved the question of an LLC's citizenship for diversity

jurisdiction purposes, Plaintiffs cite a number of cases, twelve from courts in the Fifth Circuit, finding jurisdiction over an LLC as a citizen of the states in which it has registered and has its principal place of business. is an Illinois citizen. #23 at 4-6. Under this rule, Hewitt

Plaintiffs argue that LLCs function like

corporations for jurisdictional purposes, not like partnerships. An LLC is a legal entity separate from its members. 805 Ill. Comp.

Stat. 180/5-1 ("a limited liability company is a legal entity

Nothing about Hewitt's corporate structure has changed since those two cases were filed, insists the Plan. Plaintiffs also note that Hewitt Associates, LLC's 2005, 2006, and 2007 Form TA-2s filed with the Securities and Exchange Commission all identify Hewitt as an Illinois company. Ex. D to #23. Plaintiffs suggest that Hewitt's sudden assertion of Delaware citizenship may violate Fed. R. Civ. P. 11. See Cont'l Ins. Co. v. Constr. Indus. Servs. Corp., 149 F.R.D. 451, 456 (E.D.N.Y. 1993); In re Enron Corp. Sec. Derivative & "ERISA" Litig., 391 F. Supp. 2d 541, 575 (S.D. Tex. 2005)("`The purpose of judicial estoppel is to protect the integrity of the judicial process by preventing the parties from playing fast and loose with the courts to suit the exigencies of self interest.' . . . The three elements of judicial estoppel are (1) the party's position is clearly inconsistent with a previous one; (2) the court accepted the previous position; and (3) the previous position must not have been inadvertent. . . . Moreover judicial estoppel `does not require a formal judgment; rather it only requires that the first court has adopted the position urged by the party either as a preliminary matter or as part of a final disposition."), quoting In re Superior Crewboats, Inc., 374 F.3d 330, 334-35 (5th Cir. 2004).
- 18 -

distinct from its members").

Like a corporation, an LLC has a

state of registration and has a physical principal place of business. Plaintiffs assert that there is no logical reason for Thus

the Court to treat LLCs differently from other corporations. Plaintiffs insist there is diversity jurisdiction here.

Plaintiffs also contend that the Court has both ancillary jurisdiction and jurisdiction under the All Writs Act. Insisting

this dispute "is not a freestanding business dispute between the Plan and Hewitt," as Plaintiffs maintain in that "Hewitt's and alleged admitted

misconduct

Fund

Administrator

Tittle

misallocation of almost $22 million in settlement funds in Tittle is the sole basis for the Plan's claims against Hewitt." (emphasis in original). For voluntarily acting #23 at 7 as Fund

Administrator, specifically responsible for carrying out the Plan of Allocation ordered by the Court, Hewitt was paid $900,000 in fees from the settlement funds, monies which otherwise would have gone into the distribution to Plan Claimants. Furthermore, the

money needed to correct Hewitt's misallocation must come from Hewitt or from offsets against future settlement distributions in Tittle or other Enron-related cases, matters which this action must resolve. Enron and the U.S. Department of Labor have both

recognized that Hewitt's gross negligence directly affects the Court's implementation and enforcement of the Tittle settlement.

- 19 -

See #1309, Enron's Motion for Approval of Modifications to Second Supplemental Amended Plan of Allocation ¶17; and # 1326, Response of the Secretary of Labor to #1309. Furthermore, this Court

specifically retained jurisdiction to hear "any and all disputes" arising out of implementation of the Plan of Allocation. 30; #1075 ¶¶ 30 and 31. #987 ¶

If another court hears this dispute, the

timing and implementation of this Court's future orders in Tittle, as well as the funds available to compensate Tittle claimants, would be impacted. Plaintiffs insist that under the doctrines of

ancillary jurisdiction and the All Writs Act, this Court does not have to leave its management of Tittle dependent on another court's processes or orders. Plaintiffs urge the Court to conclude that it has ancillary jurisdiction to hear the Plan's claims against Hewitt because all the claims concern actions that directly affect this Court's implementation of the Tittle settlement. The United States Supreme Court has held that a court may exercise ancillary jurisdiction in two instances or "heads," sometimes related: "`(1) to permit disposition by a single court of claims that are, in varying respects and degrees, factually interdependent"; and (2) to enable a court to function successfully, that is, to manage its

proceedings, vindicate its authority, and effectuate its decrees.'"

- 20 -

Peacock, 516 U.S. at 354, quoting Kokkonen, 511 U.S. at 379-80.19

The first "head" of ancillary jurisdiction has been termed "supplemental jurisdiction," and is generally codified at 28 U.S.C. § 1367(a). See Peacock, 516 U.S. at 354 n.5 ("Congress codified much of the common-law doctrine of ancillary jurisdiction as part of `supplemental jurisdiction' in 28 U.S.C. § 1367."). It utilizes the "common nucleus of operative facts test of United Mine Workers v. Gibbs, 383 U.S. 715 (1966). The second "head," characterized as ancillary enforcement jurisdiction, is not codified and "recognizes the `inherent power of federal courts to exercise jurisdiction in order to enforce their judgments in certain situations where jurisdiction would otherwise be lacking.'" See, e.g., Myers v. Richland County, 429 F.3d 740, 746-47 & nn. 3, 4 & 5 (8th Cir. 2005); Fafel v. Dipaola, 399 F.3d 403, 412 n.10 (1st Cir. 2005); Epperson v. Entertainment Express, Inc., 242 F.3d 100, 108 (2d Cir. 2001); Hudson v. Coleman, 347 F.3d 138, 142 (6th Cir. 2003); United States v. Alpine Land & Reservoir Co., 174 F.3d 1007, 1012 n.5 (9th Cir. 1999); Futura Dev. of P.R. v. Estado Libre Asociado de P.R., 144 F.3d 7, 9 n.1 (1st Cir. 1998). These courts observe that Congress codified much of the common law doctrine of ancillary jurisdiction in 28 U.S.C. § 1367, under the label "supplemental jurisdiction," but not all. They point to Peacock, in which the Supreme Court stated, "Congress codified much of the common law doctrine of ancillary jurisdiction as part of `supplemental jurisdiction' in 28 U.S.C. § 1367." 516 U.S. at 354 n.5 (emphasis added). They also point out that Kokkonen, the high court in its only mention of the statute in describing the two heads of ancillary jurisdiction, used the signal for "compare," "c.f., 28 U.S.C. § 1367." 511 U.S. at 380. See, e.g., Hudson, 347 F.3d at 142 ("The first category of ancillary jurisdiction identified [in Kokkonen] has largely been codified in the supplemental jurisdiction statute, 28 U.S.C. § 1367. The second category of ancillary jurisdiction is generally referred to as `ancillary enforcement jurisdiction.'"); Alpine Land Reservoir Co., 174 F.3d at n.5 ("Supplemental jurisdiction under § 1367 is distinct from the equitable doctrine of ancillary jurisdiction, which allows a court to adjudicate related claims `to manage its proceedings, vindicate its authority, and effectuate its decrees.'"), citing and quoting Kokkonen, 511 U.S. at 380.; and Fafel, 399 F.3d at 412 (distinguishing the two types of ancillary jurisdiction with respect to § 1367).
- 21 -

19

The burden of showing that claims fall within either category rests on the party asserting jurisdiction. Under the first head, Id. at 354-55. what is now called

embodying

"supplemental jurisdiction," ancillary jurisdiction may "extend to claims having a factual and logical dependence on `the primary suit,' but that primary suit must contain an independent basis for federal jurisdiction. case or controversy claims." The court must have jurisdiction over a before it may 516 assert U.S. at jurisdiction 355, citing over Owen

ancillary

Peacock,

Equipment, 437 U.S. at 376, and Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966). "protect legal Ancillary jurisdiction permits a court to or effectively to resolve an entire,

rights

logically entwined lawsuit."

Owen Equipment, 437 U.S. at 377.

Significantly, supplemental jurisdiction did not replace a federal court's inherent power to "effectuate its decrees." U.S. at 379-80. Kokkonen, 511

See also In re Texas, 110 F. Supp. 2d 514, 525

(E.D. Tex. 2000)(Supplemental jurisdiction "is but a subset of ancillary jurisdiction."). The second head of ancillary jurisdiction is grounded in a court's inherent power to "interpret and enforce its judgment[s]." Harbor Venture, Inc. v. Nichols, 934 F. Supp. 322, 323 (E.D. Mo. 1996). See also Kokkonen, 511 U.S. at 380 ("[T]he second head of

ancillary jurisdiction" relates "to the court's power to protect

- 22 -

its proceedings and vindicate its authority.").20

The exercise of

jurisdiction to enforce a settlement agreement falls under the second head. Kokkonen, 511 U.S. at 380-81. Nevertheless courts

"do not have inherent power, i.e., automatic ancillary jurisdiction to enforce an agreement settling federal litigation unless the parties' obligation to comply with the terms of the settlement agreement is made part of the order either by provisions retaining jurisdiction over the settlement agreement, or by incorporation of the terms of the settlement agreement in the order [emphasis added by this Court]." Harbor Venture, 934 F. Supp. at 323, citing See also Hospitality House, Inc. v.

Kokkonen, 511 U.S. at 381.

Gilbert, 298 F.3d 424, 430 & n. 6 (5th Cir. 2002)(same; moreover, Kokkonen "made clear that a district court may have ancillary jurisdiction to enforce a settlement agreement even where, as in the instant case, the previous dismissal was not effected by court order, but rather by the filing of `a stipulation of dismissal signed by all parties' pursuant to Federal Rule of Civil Procedure

Ancillary enforcement jurisdiction "is a judicial creation, born of the necessity that courts have the power to enforce their judgments. . . . Without this ability to enforce judgements rendered, `[t]he judicial power would be incomplete and entirely inadequate to the purposes for which it was intended.'" S.I. Props. Corp. v. M.D. Construction Co., 230 F.3d 489, 496 & n.5 (1st Cir. 2000), citing Kokkonen, 511 U.S. at 380, and quoting Bank of the United States v. Halstead, 23 U.S. (10 Wheat) 51, 53 (1825). See also Peacock, 516 U.S. at 359 ("Ancillary enforcement jurisdiction is, at its core, a creature of necessity.").
- 23 -

20

41(a)(1)(ii)."); Goins v. Hitchcock Indep. Sch. Dist., 424 F. Supp. 2d 902, 907-08 (S.D. Tex. 2003)("Controlling Fifth Circuit

authority indicates that the issue of ancillary enforcement of a settlement agreement is properly analyzed under the second head of ancillary jurisdiction recognized in Kokkonnen."). head of ancillary jurisdiction in a This second doctrine

non-statutory

"governed not by rule or statute, but by the control necessarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases." Natural Gas

Pipeline Co. of Am. v. Energy Gathering, Inc., 2 F.3d 1397, 1406 (5th Cir. 1993). Plaintiffs jurisdiction maintain here. that The the second head of ancillary the the of

exists

Court's

orders

approving

settlements satisfy the standard established in Kokkonen: Court expressly retained jurisdiction "for the purposes

implementing the Agreement and reserve[d] the power to enter additional orders to effectuate the fair and orderly administration and consummation of the Agreement and Settlement . . . and

resolution of any and all disputes arising thereunder." 30; # 1075, ¶ 31.

#987, ¶

Hewitt's misconduct as Fund Administrator has

prevented this Court from implementing the Tittle settlement in accordance with its orders and is the sole basis of this dispute.

- 24 -

Moreover,

Hewitt

misconstrues

the

doctrine

of

ancillary

jurisdiction. In defining a court's inherent power to enforce its judgments, the Supreme Court over a has "approved range the of exercise of ancillary proceedings

jurisdiction

broad

supplementary

involving third parties to assist in the protection and enforcement of federal judgments, including attachment, mandamus, garnishment, and prejudgment avoidance of fraudulent conveyances." Peacock, 516 U.S. at 356. Thus the fact that Hewitt was not a party to the

Tittle lawsuit at the time the instant action was filed does not bar the Court from exercising ancillary jurisdiction over it.21 Ancillary jurisdiction is particularly appropriate where the court "attempts to execute, or to guarantee eventual executability of, a federal judgment." Id. at 357.

Accordingly, federal courts have held that state law claims against third parties fall within the federal court's ancillary jurisdiction judgment. where See, necessary e.g., to effectuate Telecomms. a settlement Tech, LLC or v.

Cygnus

Totalaxcess.com, Inc., 345 F.3d 1372, 1376 (Fed. Cir. 2003);

The Plan notes that although Hewitt is not currently a party in Tittle, it was named as a defendant in an interpleader action that was filed in this Court on May 27, 2004 and Consolidated with Tittle. H-01-3913, # 861.
- 25 -

21

Montgomery v. Aetna Plywood, Inc., 231 F.3d 399, 411-12 (7th Cir. 2000). In sum Plaintiffs assert that this Court has ancillary

enforcement jurisdiction over this action because the Plan's claims directly affect the implementation of orders over which this Court retained continuing jurisdiction. They argue that it is thus

improper to leave this Court "dependent on state courts to enforce federal judgments, thereby jeopardizing the effectiveness of

federal decrees."

IFC Interconsult, AG v. Safeguard International

Partners, LLC, 438 F.3d 298, 313 (3d Cir. 2006), cert. denied, 127 S. Ct. 136 (2006). Finally the Plan urges the Court to conclude that the All Writs Act ("the Act"), 28 U.S.C. § 1651 ("The Supreme Court and all courts established by Act of Congress may issue all writs necessary and appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law."), authorizes jurisdiction over this action. The Act serves to fill "the

interstices of federal judicial power when those gaps threate[n] to thwart otherwise proper exercise of federal courts' jurisdiction." Pennsylvania Bureau of Corrections v. U.S. Marshals Service, 474 U.S. 34, 41 (1985). The Act "extends, under certain circumstances, to persons who, though not parties to the original action or engaged in wrongdoing, are in a position to frustrate the

- 26 -

implementation of a court order or the proper administration of justice." (1977). United States v. New York Tel. Co., 434 U.S. 159, 174 The Plan argues that this Court has jurisdiction over

Hewitt under the Act because Hewitt's misallocation has frustrated the implementation of this Court's settlement orders in Tittle and because the resolution of this action will determine the manner in which this Court redresses the harm caused to the Tittle claimants. The Plan points to opinions of four Circuit Courts of Appeals22 that have held that the Act authorizes federal jurisdiction over state law claims that directly impact the implementation of a settlement

See Bylinski v. City of Allen Park, 169 F.3d 1001, 1003 (6th Cir. 1999)(agreeing with district court that "the All Writs Act, which gives federal courts the `authority to remove an otherwise unremovable state court case in order to effectuate and prevent the frustration of orders it has previously issued in its exercise of jurisdiction otherwise obtained."), cert. denied, 527 U.S. 1037 (1999), overruled in part, Syngenta Crop Protection, Inc. v. Henson, 537 U.S. 28, 33-34 (2002)(neither ancillary enforcement jurisdiction over the consent judgment nor the All Writs Act can provide a basis for remand jurisdiction); Xiong v. State, 195 F.3d 424, 426 (8th Cir. 1999), overruled in part, Syngenta Crop Protection, Inc. v. Henson, 537 U.S. 28; In re VMS Sec. Litig., 103 F.3d 1317, 1323-24 (7th Cir. 1996)(authorizing the district court "in exceptional circumstances [to] use all its Writs authority to remove an otherwise unremovable state court case in order to effectuate and prevent the frustration of orders it had previously issued"), called into question by Texas v. Real Parties In Interest, 259 F.2d 387, 392-93 (5th Cir. 2001); and Yonkers Racing Corp. v. City of Yonkers, 858 F.2d 855, 864 (2d Cir. 1988), cert. denied, 489 U.S. 1077 (1989). This Court has provided the case histories, which may not be in accord with the Plan's arguments.
- 27 -

22

approved by a federal court.23

The Plan argues that the Act

provides a basis for jurisdiction here because Hewitt's actions have interfered order with in this Court's and ability will to implement this its

settlement

Tittle

affect

Court's

implementation of future Enron-related settlements. The Plan cites two Southern District of Texas district court opinions holding that the All Writs Act authorizes jurisdiction over state law claims involving non-parties which, like Hewitt, played a significant role in a court-approved settlement. In re State of Texas, 110 F.

Supp.2d 514 (E.D. Tex. 2000)(holding that the Act provided federal jurisdiction over state proceedings related to state law claims of fraud, breach of fiduciary duty, conversion, and other misconduct brought by the State of Texas against private counsel who

represented the State in federal tobacco settlement)24; Chance v.

In Syngenta Crop, the Supreme Court ruled that the Act cannot be used to expand statutory removal jurisdiction under § 1441. 537 U.S. at 32. The Plan notes that subsequent decisions concerning the scope of the federal removal statute, 28 U.S.C. § 1441, do not apply to jurisdiction under the Act over actions like the instant one that were originally brought in federal Court. The fundamental principal that the Act can establish jurisdiction over suits originally brought in federal court remained unchanged. The Fifth Circuit subsequently reversed this ruling in Texas v. Real Parties in Interest, 259 F.3d 387, 395 n.12 ("The All Writs Act is a residual source of authority to issue writs that are not otherwise covered by statute" and that where a statute like § 1441 "specifically addresses the particular issue at hand, it is that authority and not the All Writ Act, that is controlling.").
24

23

- 28 -

Sullivan, 993 F. Supp. 565, 567 (S.D. Tex. 1998)(holding that the Act provided federal jurisdiction over plaintiffs' state law breach of fiduciary duty and legal malpractice claims against class counsel involved in federal class action settlement.).25 2. Hewitt's Reply Hewitt reiterates that there is no diversity jurisdiction because Hewitt and the Plan are citizens of Delaware.

This Court also questions the "alternative" holding in Chance that the federal district court had jurisdiction under the Act because it allowed removal of an otherwise unremovable state court case "to effectuate and prevent the frustration of orders it has previously issued in its exercise of jurisdiction otherwise obtained." 993 F. Supp. at 568. The state-court suit in Chance asserted state-law claims arising from the alleged malpractice of an attorney during representation of the plaintiffs in a tobacco class action in federal court. Even though the claims asserted were all under state law, the district court determined that it had federal question jurisdiction under 28 U.S.C. § 1331 because "the state claims are inescapably infused with the overriding federal concerns" at the center of the federal class action and `[c]onsideration of the allegations in this case will entail an inextricably intertwined analysis of the Plaintiffs' settlement agreement within Phillips." Id. at 567. The law has been clarified since Chance was issued in 1998. The Act does not create an independent source of federal jurisdiction. Goss Intern. Corp. v. Man Roland Druckmaschinen Aktiengesellschaft, 491 F.3d 355, 364 (8th Cir. 2007), citing Syngenta Crop, 537 U.S. [at] 31 (declaring the All Writs Act does not establish the original jurisdiction to support removal jurisdiction). The Act does authorize injunctions barring state court actions that could impinge on the federal court's "jurisdiction or authority over an ongoing matter," but it does not provide the federal court with an independent grant of jurisdiction; it limits the court to "issuing process `in aid of' its existing statutory jurisdiction, without enlarging that jurisdiction. Achtman v. Kirby, McInerney & Squire, LLP, 464 F.3d 328, 333-34 (2d Cir. 2006)(citations omitted).
- 29 -

25

As for the judicial estoppel argument, Hewitt explains that it filed Hewitt Associates, LLC v. ExpressJet before the emergence of the rule that the citizenship of each member of the LLC counts for purposes of diversity. In the second suit, Hewitt Associates, LLC

v. Towers Perrin, et al., Hewitt argued in favor of remand to state court because it and two of the defendants were citizens of Illinois; that it was a citizen of Delaware also was not relevant there. Furthermore, maintains Hewitt, neither the doctrine of

ancillary jurisdiction nor the All Writs Act confers jurisdiction here. Hewitt argues that Plaintiffs' asserted factual basis for the parties in of

the exercise of that jurisdiction does not exist: Tittle have already acted to rectify the

misallocation

settlement proceeds among claimants by filing motions requiring Hewitt to provide funds to the Plan, and those motions were resolved to the satisfaction of all, as reported to the Court on March 13, 2008 (#1370). Enron's motion to require initial Fund

Administrator to provide funding for upcoming corrected allocation (#1346)(mooted by #1370) and the Secretary of Labor's motion to show cause why Hewitt should not be held in contempt

(#1348)(withdrawn, #1370).26

This Court notes that one of the motions was mooted and one withdrawn (#21 in H-07-4081; #1370 in H-01-3913) because the Court granted a joint motion to stay so that Hewitt and Enron could
- 30 -

26

Hewitt

also

claims

that

Plaintiffs

have

misapplied

the

doctrine of ancillary jurisdiction.

While Plaintiffs appear to

rely on the second head of ancillary jurisdiction, they also argue that they do not have to establish any independent basis in this case for federal jurisdiction. The Supreme Court makes clear that

under the first head, where claims have a factual and logical dependence on the primary suit, there must be an independent basis for federal jurisdiction in that primary suit and the claims must be brought in that ongoing suit not in a subsequent proceeding. Peacock, 516 U.S. at 355. The Supreme Court observed that it has

approved the exercise of ancillary jurisdiction under the second head, "for the exercise of a federal court's inherent power to enforce its judgments," in "a broad range of supplementary

proceedings involving third parties to assist in the protection and enforcement of federal judgments-including attachment, mandamus, garnishment, and prejudgment avoidance of fraudulent conveyances. Id. at 356. Nevertheless, insists Hewitt, such ancillary

jurisdiction is limited to situations where the respondent had a judgment against it in the original action: "We have never

attempt to work out the misallocation dispute. See instrument #19 in H-07-4081 granting a joint motion to stay for sixty days (#17) in H-07-4081; #1368, granting #1367 in Tittle. As the record evidences, that effort was unsuccessful, the Court issued its order requiring Hewitt to perform specified actions, and this group of lawsuits are now competing over the dispute.
- 31 -

authorized the exercise of ancillary jurisdiction in a subsequent lawsuit to impose an obligation to pay an existing federal judgment on a person not already liable for that judgment." Id. at 357.

"The enforcement proceeding must be a mere continuation of the prior proceeding and not an action based on new grounds." U.S.I.

Properties Corp. v. M.D. Const. Co., 230 F.3d 489, 497 (1st Cir. 2002), citing Anglo-Florida Phosphate, 65 F. 529; Real Parties in Interest, 259 F.3d at 391 n.8. It is undisputed that Hewitt was

never made a party to the Tittle action and did not have its rights and responsibilities adjudicated in that suit. Otherwise there

would be no need for the Plan to have brought this action seeking to establish Hewitt's contractual and tort liability. Finally, argues Hewitt, Plaintiffs have not and cannot show authority for the proposition that the All Writs Act provides a federal court with subject matter jurisdiction over a breach of contract or business tort claim simply because the claims arise out of services relating to the administration of the settlement of a separate class action suit. A plaintiff invoking the All Writs Act must demonstrate that the case has an independent basis for subject matter jurisdiction. Furthermore, a court's authority under the

Act is limited to situations where the issuance of a writ, e.g., an injunction, is "necessary to the preservation or exercise of its

- 32 -

subject matter jurisdiction."

ITT Com. Dev. Corp. v. Barton, 569

F.2d 1351, 1359 (5th Cir. 1978). 3. Court's Ruling First, the Court agrees with Hewitt that all the federal appellate courts that have addressed the issue have concluded that the citizenship of a limited liability company is determined by the citizenship of all its members. See, e.g., Pramco, LLC, 435 F.3d Although neither the United

at 54-55 (and cases cited therein).

States Supreme Court nor the Fifth Circuit has ruled on the question, this Court will follow this "well-established" rule. Id. at 55. Thus the Court lacks diversity jurisdiction over the the

Plan's action, H-07-4081, because Hewitt's member and owner, Hewitt Associates, Inc., is a citizen of Delaware, as is the Plan. Second, even without Hewitt's explanation of its asserted citizenship in previous cases, the Court is not persuaded that it has diversity jurisdiction by application of judicial estoppel, as the Plan urges. The Fifth Circuit has observed, "[W]e are

especially wary of applying judicial estoppel to create subject matter jurisdiction in federal courts." Lara v. Trominski, 216

F.3d 487, 495 n.9 (5th Cir. 2000), citing Lydon v. Boston Sand & Gravel Co., 175 F.3d 6, 14 (1st Cir. 1999)("[C]ourts have been cautioned to give careful consideration to the application of judicial estoppel when subject matter jurisdiction is at stake."),

- 33 -

citing 18 Wright, Miller & Cooper, Fed. Practice & Procedure § 4477 at 784 (1981 and 1999 Supp.).27 See also Creaciones Con Idea, S.A.

de C.V. v. Mashreqbank PSC, 232 F.3d 79, 82 (2d Cir. 2000)("[W]e note that `principles of estoppel do not apply' to questions of subject matter jurisdiction."), citing Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982)("[N]o action of the parties can confer subject-matter jurisdiction upon a federal court."); Da Silva v. Kinsho International Corp., 229 F.3d 358, 361-62 (2d Cir. 2000)("[T]he parties, in Justice

Jackson's memorable phrase, have `changed positions as nimbly as if dancing a quadrille.' . . . However, their prior litigating positions do not preclude either side from asserting its current position since the issue of subject matter jurisdiction is one we are required to consider, even if the parties have ignored it or, as here, have switched sides on the issue."), citing Mt. Healthy City School Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 278 (1977) for the proposition that it "is the obligation of a court, on its own motion, to inquire as to subject matter jurisdiction and satisfy itself that such jurisdiction exists; Rubin v. Buckman, 727 F.2d 71 (3d Cir. 1984)("jurisdiction cannot be created by estoppel, even as a sanction for conduct"), cited for that proposition in

In the current, 2002 edition, the discussion is found at 599 & n.83.
- 34 -

27

Mennen Co. v. Atlantic Mutual Ins. Co., 147 F.3d 287, 294 n.9 (3d Cir. 1998); Wight v. Bankamerica Corp., 219 F.3d 79, 89-90 (2d Cir. 2000)(concluding that "`special care' should be taken in

considering whether judicial estoppel should even apply `to matters affecting federal subject matter jurisdiction,'" and "irrespective of how the parties conduct their case, the courts have an

independent obligation to ensure that federal jurisdiction is not extended beyond its proper limits.); In re Southwestern Bell Telephone Co., 535 F.2d 859, 861 (5th Cir.)("Judicial estoppel principles cannot conclusively establish jurisdictional facts. If

facts come to light casting significant doubt on the power of a federal court to hear a pending case, it must, of course, reexamine its jurisdiction."), modified en banc on other grounds and vacating district court's remand order, 542 F.2d 297 (5th Cir. 1976), rev'd on other grounds sub nom. Gravitt v. Southwestern Bell Tel. Co., 430 U.S. 723 (1977); Hajek v. Burlington Northern R.R. Co., 186 F.3d 1105, 1108 (9th Cir. 1999)("A party cannot estop itself into jurisdiction where none exists."). As for ancillary jurisdiction under the two "heads" delineated in Kokkonen, 511 U.S. at 379-80, ancillary jurisdiction to enforce a settlement, where the dismissal order expressly retains

jurisdiction, falls under the second head, "enabl[ing] a court to function successfully, that is, to manage its proceedings,

- 35 -

vindicate its authority and effectuate its decrees." 81.

Id. at 380-

Two Circuit Courts of Appeals have concluded that unlike the first head, which embodies ancillary jurisdiction under 28 U.S.C. § 1367 and requires that the court have independent original jurisdiction, ancillary jurisdiction under the second "head" apart from the supplemental jurisdiction embodied in the statute, i.e., subject matter "ancillary enforcement jurisdiction," can exist over a separate action for breach of the agreement. The Seventh Circuit and the Eighth Circuit have held that "where a party to a

settlement agreement approved by a federal court brings a new suit in federal court alleging a breach of the agreement, federal jurisdiction exists over the suit, provided that the federal court incorporated the agreement into its final order or reserved

jurisdiction to enforce the agreement."

Montgomery v. Aetna

Plywood, Inc., 231 F.3d 399, 411 (7th Cir. 2000),28 cert denied, 532 U.S. 1038 (2001), quoted by and adding the emphasis, Myers v. Richland County, 429 F.3d 740, 747 (8th Cir. 2005).

In Myers, 231 F.3d at 411, the Seventh Circuit proclaimed, "Precedent in this circuit firmly establishes that the doctrine of ancillary jurisdiction confers federal jurisdiction of a case otherwise outside federal jurisdiction in which the plaintiff seeks to enforce a settlement agreement, as long as the district court incorporated the agreement into its final order or retained jurisdiction to enforced the terms of the agreement. [citations omitted]")
- 36 -

28

Whether or not the Fifth Circuit would agree with these two appellate courts, this Court concludes that it does have ancillary enforcement jurisdiction over these claims and parties in Tittle, into which H-07-4081 and H-08-1894 have been consolidated, under the second "head" of ancillary jurisdiction, established in

Kokkonen, based on the Court's inherent power "to enable a court to function successfully, that is, to manage its proceedings,

vindicate its authority and effectuate its decrees," and thus to enforce its judgments in certain situations where it would not otherwise have jurisdiction. 424 F. Supp. 2d at 907-08. Kokkonnen, 511 U.S. at 380; Goins,

There is no dispute that this Court has

original federal question subject matter jurisdiction over Tittle, which is grounded in ERISA. The Hewitt-Plan dispute emerged in

Tittle, as evidenced by the record spanning from May 29, 2007 until now, with a stay to allow for negotiation (#19, granting a joint motion to stay, #16) on March 13, 2008, but no dismissal of that matter.29 The Tittle action, itself, has not been closed.

A key exception to the rule that "federal courts are courts of limited jurisdiction, and are therefore generally precluded from hearing matters that do not involve a federal question or diverse parties" is that "ancillary jurisdiction permit[s] District Courts

See instruments #1309, 1315-16, 1321-27, 1329-30, 1331-1339, 1341-42, 1344-51, 1353-71, 1381-86, 1390-91.
- 37 -

29

to retain jurisdiction over post-judgment enforcement proceedings." Gambone v. Lite Rock Drywall, Nos. 05-5181 and 05-5284, 2008 WL 2875949, *2 (3d Cir. July 25, 2008). As noted, both the orders of

partial dismissal after settlement at issue here were entered in Tittle, and they both expressly retained jurisdiction over #987,

implementation and enforcement of the settlement agreement. ¶¶ 28 and 30; #1075, ¶¶ 30 and 31. 80.

See Kokkonen, 511 U.S. at 379-

This Court consolidated the Plan's action into Tittle on

November 30, 2007, and the First Amended Complaint is filed in both suits (#1353 in Tittle and #10 in H-07-4081); H-08-1894 was

consolidated on June 18, 2008 (#6 in H-08-1894, #1383 in H-013913). Enron and Hewitt were in the process of executing those

orders, distributing funds according to the Plan of Allocation from the settlement fund, much of which was in the Court registry,30 and under those Court orders, when Hewitt's admitted miscalculations resulted in the incorrect apportionment of a substantial portion of

At the hearing on July 27, 2007 in Tittle (Transcript is Ex. 1 at 17, ll. 6-8, to #11 in H-08-1894 and to #1390 in H-01-3913), Counsel for the Tittle Plaintiffs, Lynn Sarko, stated, "I think this Court has jurisdiction over all of this. This is this settlement. The money being dealt with here came from the registry of the Court in part, is dealing with a settlement under jurisdiction of this Court. [sic]"
- 38 -

30

those recovery fund.

Indeed after a July 27, 2007 hearing on the

dispute,31 the Court issued an order the next day stating, Substantial issues have arisen pertaining to the implementation of the Enron Settlement, the data required for the implementation of the $85 million Settlement, as well as the initial allocation of the award by Hewitt (the "Initial Allocation") and the distribution of the Settlement Trust. These issues include over-allocations and under-allocations to thousands of Claimants, and therefore impact the fair and orderly administration of the Settlements. The Court has jurisdiction to address this matter. See In re Painewebber Ltd. Partnerships Litigation, No. 94 CV 8547, 2003 U.S. Dist. LEXIS 12581 (S.D.N.Y. July 22, 2003). #1334 at 2, ¶6 in Tittle, H-01-3913. Moreover, Hewitt's fees were

paid out of that settlement fund, and thus both the fees and the fund could be impacted by the resolution of this dispute. This

action has a direct relation to the recovered property or assets at the core of the Tittle action, needed to effectuate the

settlements.

Thus Hewitt's actions directly affect implementation

of the settlement and invoke ancillary jurisdiction for this Court's efforts to enforce its orders. As long as each of these

actions "qualifies as a post-judgment enforcement proceeding, which is a proceeding that functions as a means for executing a

judgement, the District Court has subject matter jurisdiction." Gambone, 2008 WL 2875949, at *2.

Transcript of the hearing is Ex. 1 to #1390 in Tittle, H-013913, and #11 in H-08-1894.
- 39 -

31

Furthermore, as stated by the Supreme Court in Peacock, federal courts have the power to engage in "supplementary

proceedings involving third parties to assist in the protection and enforcement of federal judgments," but made clear that "recognition of these supplementary proceedings has not . . . extended beyond attempts to execute, or to guarantee eventual executability of a federal judgment." 516 U.S. at 356-57. Hewitt, Enron and the Plan were in the process of following the Plan of Allocation approved by the Court in Tittle when the erroneous distribution occurred, and Hewitt, even though a third party, is subject to this Court's ancillary enforcement jurisdiction. This Court has ancillary enforcement jurisdiction until

satisfaction of the settlement, i.e., the settlement funds are distributed according to the approved Plan of Allocation. Peacock, 516 U.S. at 356-57 ("Without jurisdiction to enforce a judgment entered by a federal court, `the judicial power would be incomplete and entirely inadequate to the purposes for which it was conferred by the Constitution.'"), quoting Riggs v. Johnson County, 6 Wall. 166, 187 ("[T]he jurisdiction of a court is not exhausted by the rendition of the judgment, but continues until that judgment shall be satisfied.'"). See also U.S.I. Properties Corp. v. M.D.

Construction Co., 230 F.3d at 496 ("`The jurisdiction of a Court is not exhausted by the rendition of its judgment, but continues until

- 40 -

that judgment shall be satisfied.'"), quoting Wayman v. Southard, 23 U.S. (10 Wheat.) 1, 23 (1825), and citing Riggs v. Johnson County., 73 U.S. (6 Wall.) 166, 187 (1968)("[I]f the power is conferred to render the judgment or enter the decree, it also includes the power to issue proper process to enforce such judgment or decree."). "Where the postjudgment claim is simply a mode of

execution designed to reach property of the judgment debtor in the hands of a third party, federal courts have often exercised enforcement jurisdiction. The principle that federal courts have

jurisdiction over an ancillary action `to secure or preserve the fruits and advantages of a judgment or decree rendered,' whether in law or in equity, is well settled." 496. U.S.I. Properties, 230 F.3d at

Furthermore, "Federal courts have expressly recognized their

ability to exercise jurisdiction over new parties in supplemental proceedings where those proceedings concerned property under the control of the federal court due to an existing judgment, even where those new parties are nondiverse." Id. at 497.32

As for jurisdiction under the All Writs Act, this Court agrees with Hewitt that the Fifth Circuit has consistently r