RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2000 FED App. 0012P (6th Cir.)
File Name: 00a0012p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
;
LEROY CAUDILL and VIERA
CAUDILL,
Plaintiffs-Appellees,
No. 98-2131
v. >
NORTH AMERICAN MEDIA
CORPORATION, a Delaware
Corporation, LIFESOFT
CORPORATION, a Delaware
Corporation, and PETER J.
Defendants-Appellants,
CHRISTIANO,
CHRISTOPHER J. CHRISTIANO,
MANUEL S. YATOOMA, and
GARY EBERHARDT,
Defendants,
Garnishee.
FIDELITY BANK,
1
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 95-75492—Lawrence P. Zatkoff, Chief District Judge.
1
2 Caudill, et al. v. North Am. No. 98-2131 No. 98-2131 Caudill, et al. v. North Am. 7
Media Corp., et al. Media Corp., et al.
Argued: August 12, 1999 however, in conflict with the Third and Eighth Circuits’
interpretation of the Supreme Court dispositions wherein
Decided and Filed: January 10, 2000 those courts dictate that, “The phrase ‘pursuant to the terms
of the Settlement’ fails to incorporate the terms of the
Before: KRUPANSKY and RYAN, *Circuit Judges; Settlement agreement into the order because ‘[a] dismissal
HULL, District Judge. order’s mere reference to the fact of settlement does not
incorporate the settlement agreement in the dismissal order.’”
_________________ In re Phar-Mor, Inc. Securities Litigation, 172 F.3d 270, 274
(3rd Cir. 1999) (quoting Miener v. Missouri Dep’t of Mental
COUNSEL Health, 62 F.3d 1126, 1128 (8th Cir. 1995)). This court elects
to adopt the Third and Eighth Circuits’ interpretation of
ARGUED: J. Mark Cooney, COLLINS, EINHORN, Kokkonen. Accordingly, absent compliance with the Supreme
FARRELL & ULANOFF, Southfield, Michigan, for Court’s mandate in Kokkonen and subsequent interpretations
Appellants. Dennis E. Moffett, Madison Heights, Michigan, of that decision, the trial court was without jurisdiction to
for Appellees. ON BRIEF: J. Mark Cooney, Noreen L. entertain this case and its decision is vacated, See State Farm
Slank, COLLINS, EINHORN, FARRELL & ULANOFF, Mut. Auto. Ins. Co. v. Powell, 87 F.3d 93, 99 (3rd Cir. 1996),
Southfield, Michigan, for Appellants. Dennis E. Moffett, and this appeal is dismissed.
Madison Heights, Michigan, for Appellees.
It is so ordered.
_________________
OPINION
_________________
KRUPANSKY, Circuit Judge. Appellants, North
American Media Corporation, LifeSoft Corporation, and
Peter Christiano, challenge denial of Defendants’ motion for
Judgment Not Withstanding the Verdict pursuant to Fed. R.
Civ. P. 50 and/or a Motion for a New Trial pursuant to Fed.
R. Civ. P. 59 subsequent to a jury award of damages against
them in a diversity action that charged wrongful cancellation
of stock. Appellants also challenge the district court subject
matter jurisdiction.
Defendant-Appellant LifeSoft Corporation (“LifeSoft”) is
a successor corporation to Co-Defendant-Appellant North
*
The Honorable Thomas G. Hull, United States District Judge for the
Eastern District of Tennessee, sitting by designation.
6 Caudill, et al. v. North Am. No. 98-2131 No. 98-2131 Caudill, et al. v. North Am. 3
Media Corp., et al. Media Corp., et al.
neither by a separate provision “retaining jurisdiction” over American Media Corporation (“North American Media”).
the settlement agreement, nor by “incorporating” the terms of Defendant-Appellant Peter Christiano, along with Defendant
the settlement agreement in the order. See Kokkonen, 511 Christopher Christiano and Defendant Manuel Yatooma, were
U.S. at 381. Had the district court done so, “a breach of the officers and directors of North American Media. Plaintiff-
agreement would be a violation of the order, and ancillary Appellee LeRoy Caudill is a former President of North
jurisdiction to enforce the agreement would therefore exist.” American Media. During his term as North American
Kokkonen, 511 U.S. at 381, and the “enforcement of the Media’s president, LeRoy and his wife Viera Caudill jointly
settlement is for state courts, unless there is some independent acquired 1,400,000 shares of North American Media stock.
basis for federal jurisdiction.” Kokkonen, 511 U.S. at 383. Prior to the instant case, on July 15, 1991, Peter Christiano,
The Court commented that Christopher Christiano and Manuel Yatooma commenced a
derivative shareholders action on behalf of themselves and
the only order here was that the suit be dismissed, a North American Media in the United States District Court for
disposition that is in no way flouted or imperiled by the the Eastern District of Michigan against LeRoy Caudill, North
alleged breach of the settlement agreement. The American Media, and other defendants, charging federal wire
situation would be quite different if the parties’ and securities fraud, federal civil RICO violations, together
obligation to comply with the terms of the settlement with state law charges of, misrepresentation, conspiracy to
agreement had been made part of the order of defraud, and breach of fiduciary duty in violation of
dismissal–either by separate provision (such as a Michigan’s Blue Sky Law (The 1991 Derivative Action). On
provision “retaining jurisdiction” over the settlement May 5, 1992, The 1991 Derivative Action was settled and
agreement) or by incorporating the terms of the dismissed “pursuant to the terms of the parties’ … settlement
settlement agreement in the order. In that event, a breach agreement.”1
of the agreement would be a violation of the order, and
ancillary jurisdiction to enforce the agreement would On September 18, 1995, LeRoy and Viera Caudill filed the
therefore exist. That, however, was not the case here. instant action in the United States District Court for the
The judge’s mere awareness and approval of the terms of Eastern District of Michigan against Defendant-Appellant
the settlement agreement do not suffice to make them North American Media, Defendant-Appellant Peter
part of his order. Christiano, Defendant Christopher Christiano, Defendant
Manuel Yatooma, Defendant-Appellant LifeSoft Corporation,
Kokkonen, 511 U.S. at 380-81. and Defendant Gary Eberhardt, the President of LifeSoft,
alleging that North American Media wrongfully canceled the
The trial court distinguished Kokkonen from the case here
on appeal noting that the Kokkonen dismissal did “not so
much as refer to the settlement agreement,” Kokkonen, 511 1
U.S. at 377, while the dismissal order in The 1991 Derivative The district court dismissal order read in full:
Action specifically stated that “Pursuant to the terms of the
parties’ Oct. 1, 1991 settlement agreement, the Court hereby In the presence of and with the assistance of counsel, the
parties placed a settlement agreement on the record before the
dismisses this case” which language satisfied the Supreme Hon. Bernard Friedman on October 1, 1991. Pursuant to the
Court dictates of Kokkonen and supported the trial courts’ terms of the parties’ October 1, 1991 settlement agreement, the
ancillary jurisdiction. The trial court’s distinction is, Court hereby DISMISSES this case.
IT IS SO ORDERED.
4 Caudill, et al. v. North Am. No. 98-2131 No. 98-2131 Caudill, et al. v. North Am. 5
Media Corp., et al. Media Corp., et al.
Caudills’ shares in North American Media, in violation of the district court’s subject matter jurisdiction de novo. Hilliard
agreement settling The 1991 Derivative Action. The Caudills v. United States Postal Serv., 814 F.2d 325, 326 (6th Cir.
sought declaratory relief, damages, and an order to reissue the 1989). Article III, Section 1 of the United States Constitution
stock to them. prescribes that “the judicial Power of the United States, shall
be vested in one supreme Court, and in such inferior Courts
The complaint invoked federal diversity jurisdiction as the Congress may from time to time ordain and establish.”
pursuant to 28 U.S.C. § 1332, while alleging that all of the Pursuant to 28 U.S.C. § 1332 Congress extended the federal
plaintiffs and all of the defendants were Michigan residents judicial authority granted pursuant to 28 U.S.C. § 1331 to
and that the LifeSoft had its primary place of business in civil actions involving citizens of different states. Section
Michigan. 1332's congressionally conferred diversity jurisdiction has
been interpreted to demand complete diversity, that is, that no
On February 9, 1998, prior to trial, Defendant Yatooma party share citizenship with any opposing party. See Safeco
filed a motion to dismiss Caudill’s complaint for lack of Ins. Co. of America v. City of Whitehouse, 36 F.3d 540, 545
subject matter diversity jurisdiction. See Safeco Ins. Co. of (6th Cir. 1994); and Strawbridge v. Curtiss, 7 U.S. (3 Cranch)
America v. City of Whitehouse, 36 F.3d 540, 545 (6th Cir. 267, 2 L. Ed. 435 (1806). The complaint here on appeal,
1994). On March 13, 1998, relying upon the precedent facially reflects a lack of complete diversity between the
announced in Kokkonen v. Guardian Life Insurance Company adversaries.
of America, 511 U.S. 375 (1994), wherein the Supreme Court
defined the scope of ancillary jurisdiction granted to United Ancillary jurisdiction as defined by the Supreme Court in
States district courts, the trial court concluded that its Kokkonen was designed (1) to permit a court to dispose of
jurisdiction over the instant controversy was ancillary to its factually independent claims and/or (2) to enable a court to
jurisdiction in The 1991 Derivative Action, denied the manage its proceedings, vindicate its authority, and effectuate
defendants’ motion to dismiss the complaint and proceeded its decrees. Kokkonen v. Guardian Life Ins. Co. of America,
to conduct a jury trial on the merits of the issues joined by the 511 U.S. 375, 379-80 (1994). The trial court in the instant
pleadings in Caudills’ action. case misconceived that ancillary jurisdiction derived from its
earlier jurisdiction in The 1991 Derivative Action. The facts
Subsequent to trial, on May 15, 1998, a jury awarded the underlying the derivative shareholders action upon which the
Caudills $832,275 from North American Media, $832,275 trial judge relied for ancillary jurisdiction are, upon
from LifeSoft, and $335,450 from Peter Christiano. No examination, unrelated to Caudill’s claim for wrongful
damages were awarded against Christopher Christiano or cancellation of stock which was predicated upon facts and
Manuel Yatooma who are not parties to this appeal. circumstances that occurred subsequent to and independent of
Defendants North American, LifeSoft, and Peter Christiano the wire and securities fraud which supported the
filed a timely notice of appeal, challenging, inter alia, the shareholders derivative litigation.
subject matter jurisdiction of the district court.
As in Kokkonen, the jurisdiction “asked for here is quite
“The first and fundamental question presented by every removed from what courts require to perform their functions.”
case brought to the federal courts is whether it has jurisdiction See Kokkonen, 511 U.S. at 380. In Kokkonen the parties
to hear a case….” Douglas v. E.G. Baldwin & Associates, obligation to comply with the terms of the settlement
150 F.3d 604, 607 (6th Cir. 1998). This forum reviews a agreement was not “made part” of the order of dismissal,