511 F.Supp.2d 742 (S.D.Tex. 2005), C. A. H-01-3624, In re Enron Corp. Securities, Derivative & 'ERISA' Litigation

CourtUnited States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
Citation511 F.Supp.2d 742
Docket NumberC. A. H-01-3624
PartiesIn re Enron Corp. Securities, Derivative & 'ERISA' Litigation
Date16 February 2005

Page 742

511 F.Supp.2d 742 (S.D.Tex. 2005)

In re ENRON CORPORATION SECURITIES, DERIVATIVE & "ERISA" LITIGATION.

Mark Newby, et al., Plaintiffs

v.

Enron Corporation, et al., Defendants.

Connecticut Resources Recovery Authority, Plaintiff,

v.

Murtha Cullina, LLP, et al., Defendants.

Connecticut Resources Recovery Authority, Plaintiff,

v.

Kenneth L. Lay, et al., Defendants.

Connecticut Resources Recovery Authority, Plaintiff,

v.

Kenneth L. Lay, et al., Defendants.

MDL No. 1446.

Civil Action Nos. H-01-3624, H-03-1580, H-03-1579, H-03-1558.

United States District Court, S.D. Texas, Houston Division.

Feb. 16, 2005

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MEMORANDUM AND ORDER

MELINDA HARMON, District Judge.

ROADMAP

I. Factual Background and H"03"1580 ..................................... 751

II. Pending Motions ...................................................... 757

A. H"03"1580 ......................................................... 757

B. H"03"1579 ......................................................... 757

C. H"03"1558 ......................................................... 758

III. Motions in H"03"1580 ................................................. 760

  1. CRRA's Motion to Remand and/or Abstain or to Strike, Dismiss or Sever and Remand ................................................ 760

  2. Court's Ruling on Key Issues ...................................... 761

    1. "Related To" Bankruptcy Jurisdiction ......................... 761

    2. Well Pleaded Complaint Rule .................................. 763

    3. CRRA's Motion to Abstain ..................................... 764

    4. CRRA's Motion to Strike, Dismiss or Sever and Remand Apportionment Complaint .................................... 765

    IV. Motions in H"03"1558 ................................................. 774

  3. CRRA's Motion to Remand or Abstain or to Strike, Dismiss or Sever . 774

  4. CRRA's Motion to Stay ............................................. 775

  5. CRRA's Petition for Certification of Interlocutory Appeal ......... 775

  6. Credit Agencies' Motion for Leave to File Motions to Dismiss or For Stay of Discovery ............................................... 776

  7. CRRA's Motion to Consolidate ...................................... 777

  8. CRRA's Motion to file Sur"Reply ................................... 777

  9. Defendant Andrews & Kurth LLP's Motion to Dismiss ................. 777

    1. Allegations in the Complaint ................................. 777

    2. The Arguments and Court's Comments ........................... 778

    3. Court's Rulings .............................................. 788

    a. Personal Jurisdiction ................................... 788

    b. Applicable State Law .................................... 790

    c. Standing ................................................ 797

    d. CUTPA ................................................... 799

    e. Aiding and Abetting Negligent and/or Fraudulent Misrepresentation ..................................... 801

    (1.) General Challenges ............................... 801

    (2.) The Elements of a § 876(b) in Connecticut ........ 804

    (a.) Scienter ................................ 804

    (b.) Substantial Assistance .................. 805

  10. Credit Rating Agencies' Motions to Dismiss ........................ 808

    1. Negligent Misrepresentation .................................. 809

      a. Rating Agencies' Arguments .............................. 809

      b. Court's Ruling on Negligent Misrepresentation Claim ..... 815

      (1.) First Amendment Protection ....................... 817

      (2.) Duty of Care ..................................... 826

    2. CUTPA ........................................................ 827

      a. Rating Agencies' Arguments .............................. 827

      b. Court's Ruling on CUTPA claims .......................... 830

      (1.) Professional Negligence Exemption ................ 830

      (2.) Unfair Practice that Violates CUTPA: The Cigarette Rule ........................................... 833

      V. Summary of Rulings ................................................... 835

      A. H"03"1580 ......................................................... 835

      B. H"03"1558 ......................................................... 835

      C. H"03"1579 ......................................................... 836

      Page 750

      Plaintiff Connecticut Resources Recovery Authority ("CRRA") filed the three, above referenced, related actions in Connecticut state court, each of which was removed and ultimately transferred to this Court by the Judicial Panel on Multidistrict

      Page 751

      Litigation for pretrial consolidation with MDL 1446. All three are brought by Richard Blumenthal, Attorney General of the State of Connecticut, on behalf of CRRA, a Connecticut State agency created and controlled by statute, to recover public money lost or damages for injury allegedly suffered by CRRA when Enron Corporation ("Enron") and its subsidiary, Enron Power Marketing, Inc., stopped payments to CRRA in breach of an agreement known as the "Enron Transaction" and filed for chapter 11 bankruptcy protection on December 2, 2001.

      The suits in part arise out of the same nucleus of facts regarding purportedly ultra vires contractual agreements comprising the Enron Transaction, executed in December 2000 by CRRA, Connecticut Light & Power ("CL & P"), and Enron. CRRA on the one hand, in H-03-1558 and H-03-1579, claims that the Enron Transaction was part of the same fraudulent pyramid scheme that has been asserted in Newby and in many of the MDL 1446 actions (involving lawyers, accountants, investment banks, etc.) to misrepresent Enron's financial condition and to lure and defraud investors and businesses. Simultaneously CRRA maintains that its claims in H-03-1580 against three law firms for their role in advising CRRA and structuring the Enron Transaction are separate and unrelated to Enron's financial collapse, even though a substantial portion of its damages resulted when Enron filed for bankruptcy and stopped payments owed to CRRA under the Enron Transaction agreements. 1 Because some of the pending motions in the three suits are interrelated, the Court addresses the motions in all three actions in this memorandum order.

      I. Factual Background and H-03-1580

      A malpractice suit, now designated H-03-1580, Connecticut Resources Recovery Authority v. Murtha Cullina, LLP, et al., was originally filed in the Superior Court for the Judicial District of Hartford, Connecticut under docket number CV 02 0818783 S, then transferred to the Waterbury Complex Litigation Docket under number (X06) CV 02 0174569 S, from which it was removed by some of the subsequently added Third-party Apportionment Complaint Defendants to the United States District Court of the District of Connecticut, before being transferred to the undersigned judge by the Judicial Panel on Multidistrict Litigation.

      The causes of action asserted under Connecticut state law in the original Complaint, filed on August 7, 2002, are breach of a legal services agreement, negligence, and indemnification against CRRA's outside counsel, Murtha Cullina, L.L.P. ("Murtha") and Hawkins, Delafield and Wood ("Hawkins, Delafield"). Ex. A to # 1. On November 26, 2002, Defendant Leboeuf, Lamb, Greene & McCrae ("Leboeuf"), which served as outside counsel for Enron during the Enron Transaction and whose opinion letters were allegedly relied upon by CRRA in consummating the Enron Transaction, was added in an Amended Complaint, the governing pleading here. Part of Ex. C to # 1. The causes of action asserted against Leboeuf are negligent misrepresentation, fraudulent misrepresentation, and violation of the Connecticut Unfair Trade Practices Act

      Page 752

      ("CUTPA"), Connecticut General Statutes ("C.G.S.") § 42-110a, et seq. Since H-03-1580 focuses most narrowly on the nature of CRRA's business relationship to the three law firms, and to non-party Enron, in the Enron Transaction, the seed which ultimately gave rise to the all three suits, the Court begins with it to provide factual background.

      CRRA alleges the following background facts. H-03-1580 was brought by the Attorney General of the State of Connecticut, on behalf of CRRA, "a public instrumentality and political subdivision of the state of Connecticut pursuant to Conn. Gen.Stat. § 22a-257 et seq. (the Solid Waste Management Services Act), " which manages, recycles, and disposes of solid waste for most of Connecticut's towns. Under waste management services contracts, 169 Connecticut towns paid CRRA's operating expenses and provided at least minimum amounts of waste and recyclables for disposal, while CRRA operated facilities to burn solid waste and convert the resulting waste heat into steam or electricity, which CRRA then sold under energy purchase agreements, and used the funds generated to defray garbage hauling fees charged by CRRA to the member towns.

      The towns are divided into, and financially guarantee, four regional "projects" that are financially independent of CRRA. Original Complaint at 1-3, Ex. A to Notice of Removal (instrument # 1). The project involved in this dispute is the Mid-Connecticut Project. A statutorily created state agency, CRRA is authorized by C.G.S. § 22a-269 to issue tax-exempt bonds to construct, operate and maintain the Projects; the bonds are secured by contracts that CRRA entered into with the member towns, which provide the waste and recyclables and pay CRRA's operating expenses, and by other CRRA assets. The statute limits CRRA's authority by allowing it to make only secured loans specifically for the acquisition, construction or reconstruction of waste management projects, and to make...

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