In Re Enron Corp. Securities, Derivative

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MEMORANDUM AND ORDER

MELINDA HARMON, District Judge.

ROADMAP

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

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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 A. CRRA’s Motion to Remand and/or Abstain or to Strike, Dismiss or Sever and Remand.........................................................760 B. 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 A. CRRA’s Motion to Remand or Abstain or to Strike, Dismiss or Sever.........774 B. CRRA’s Motion to Stay.................................................775 C. CRRA’s Petition for Certification of Interlocutory Appeal...................775 D. Credit Agencies’ Motion for Leave to File Motions to Dismiss or For Stay of Discovery.........................................................776 E. CRRA’s Motion to Consolidate...........................................777 F. CRRA’s Motion to file Sur-Reply........................................777 G. 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 H. Credit Rating Agencies’ Motions to Dismiss...............................808 1. N egligent 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

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 Multidis

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trict 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.

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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

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(“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. GemStat. § 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 only safe, conservative investments in government securities. It may also only make loans of “funds not needed for immediate use” to municipal or regional waste management authorities to establish waste management projects.

Id.

at 7. Internal procedures allow CRRA to make loans to private entities “only as part of comprehensive financial agreements related to solid waste facility financings,” and such loans must be approved by CRRA’s Board of Directors or those to whom or to which such authority has been delegated by the Board of Directors.

For years CRRA used money derived from the sale of bonds to construct and maintain several “trash-to-energy” plants to burn solid waste from member towns to create steam, which it then sold to CL & P for conversion into electricity. CRRA then used the proceeds from the sale of the electric or steam energy and the per-ton garbage hauling (“tipping”) fees charged to member towns to pay for CRRA’s operating expenses and the principal and interest payments on its bonds.

In 1985, before deregulation, CRRA and CL & P entered into a long-term energy purchase agreement (“the 1985 EPA”), which was to govern until May 2012 and under which CRRA would sell to CL & P the steam from the plant generated by the burning of the solid waste in the Mid-Connecticut Project for conversion into electricity at a set rate of 8.5 cents per kilowatt hour of the electricity that was produced. This price was above the prevailing price in the New England regional wholesale electricity market.

In the wake of energy deregulation in 1998, the Connecticut Deregulation Act (P.A. 98-28) required utilities like CL

&

P to focus on distribution and transmission of electricity and to divest themselves of

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power generation facilities. Thus these utilities sought to divest themselves of purchasing contracts like the 1985 EPA by means of buyouts, buydowns, or restructuring of their contracts, including a number that CL & P had with CRRA. To compensate the energy suppliers, like CRRA, for the loss of above-market price under the 1985 EPA, the utilities would make an up-front lump-sum payment to the suppliers in the buydowns. After obtaining the necessary approval, CL & P issued state-tax-exempt Rate Reduction Bonds, provided for by the Connecticut General Assembly in the Deregulation Act, to produce the capital necessary to effectuate the buydowns. Subsequently, CL & P and CRRA entered into a memorandum of understanding, pursuant to which CL & P would pay up front approximately $280 million to CRRA to eliminate or reduce CL & P’s 1985 EPA obligation to purchase steam from CRRA until May 2012 at an above-market valuation. Moreover, as another part of the Enron Transaction, CL & P agreed to buy all the power generated by the newly sold facility, known as South Meadow, in Hartford, Connecticut, but at a lower price than it was obligated to pay before.

According to the amended complaint in the main case, Murtha Cullina, CRRA’s long-time counsel, in a purported conflict of interest, represented CRRA in these negotiations, while its lobbying arm simultaneously worked for Enron to open governmental work and business opportunities, in particular approval of a publicly funded fuel cell project, in Connecticut that would involve CRRA. In December 2002 Enron became involved in the Mid-Connecticut Project buydown, i.e., the allegedly illegal and statutorily unauthorized Enron Transaction, comprised of five main contracts and two agreements dated December 22 and December 28, 2000, which replaced the 1985 EPA between CRRA and CL & P. Of the $280 million received from sale of the Rate Reduction Bonds, CRRA took $60 million, of which it used $10 million to buy the electricity-generating facilities, the land on which they sat, and the equipment owned by CL & P, $27 million to clean up the environmental contamination at the site, and $23 million for its own needs. CRRA instructed CL & P to provide the remaining $220 million directly to Enron and structured the repayment of this unsecured “loan” in two separate monthly payments, one of $2.2 million and the other $175,000, by Enron to CRRA over an eleven-and-one-half-year period (for a total of $294.8 million with interest). CRRA purportedly did not receive any collateral, surety bond, or risk-management interest to secure the deal with Enron outside of a contractual guarantee by Enron to repay Enron’s obligations. Thus the complaints in these three actions contend that what was in actuality an illegal loan of $220 million by CRRA to Enron was disguised, camouflaged and/or manipulated by the law firms, which drafted the documents, so that it would instead appear on Enron’s financial books as an energy transaction, creating a big cash infusion for the company. Murtha Cullina and Hawkins, Delafield purportedly set up the unsecured loan for CRRA, and Leboeuf acted as Enron’s counsel on the transaction, which CRRA contends was illegal,

ultra vires,

and void

ab initio

because CRRA did not have the statutory authority to lend the $220 million to Enron. CRRA maintains that in actuality Enron’s role in the Enron Transaction was limited to that of borrower obligated to repay the $220 million loan to CRRA with interest; Enron never had custody or control of the steam or electricity, never generated either type of energy, assumed none of the actual risk, which at all times was borne by CRRA, and made no profit on the energy transfer, nor did it handle

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its own billing or payment for power delivered to CL & P by CRRA.

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Moreover, according to the amended complaint, in a December 28, 2000 memorandum, Hawkins, Delafield predicted that CRRA was “almost certain to” receive $26.4 million per year, whether or not CRRA produced any energy in that contract year.

Enron’s monthly payments to CRRA began in April 2001 and were to end in 2012; Enron made the payments only until it and Enron Power Marketing, Inc. (“EPMI”), a subsidiary of Enron, filed for protection under the bankruptcy laws on December 2, 2001.

In addition, the complaint asserts that Murtha Cullina and Hawkins, Delafield secretly developed a plan to divert monies from the financially independent Mid-Connecticut Project into CRRA’s own accounts to fund a new and risky venture in alternative energy technologies. On the advice of Murtha Cullina and Hawkins, Delafield, which allegedly did not inform the towns of the Enron Transaction nor disclose the risk involved nor obtain the member

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towns’ approval, while the $2.2 million monthly payment went to the Mid-Connecticut Project, the $175,000 monthly payment went into a new CRRA Non-Project Ventures Fund for use outside the Mid-Connecticut Project.

The complaint charges that the Enron Transaction, involving CRRA, CL & P, and Enron, developed and documented by Murtha Cullina and Hawkins, Delafield, was an illegal contract not only outside the scope of CRRA’s statutory authority, but also in violation of CRRA’s internal procedures, and that it threatened the financial stability of the Mid-Connecticut project.

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The complaint further alleges that Murtha Cullina and Hawkins, Delafield failed to advise CRRA to retain financial advisors to examine the merits of the transaction as well as to warn of any risks involved in doing business with Enron.

Moreover under the tax arbitrage laws non-profit, tax-exempt entities like CRRA are not allowed to profit from their tax-exempt status and may not use capital raised by issuing tax-exempt bonds to make net profits on financial investments, but must rebate any such profits to the IRS. The complaint states that CRRA was paying its Mid-Connecticut bond holders about 5 and 1/2% from bond proceeds on any earnings, while Enron was paying CRRA 7%. Thus CRRA should have been paying the difference back to the IRS, as well as the diverted $175,000 monthly payment. However Murtha Cullina and Hawkins, Delafield drafted the contract to make it appear that the monthly payment in the Enron Transaction was an ongoing energy sale not covered by the arbitrage laws. Hawkins, Delafield also reassured the Board of Directors that the Enron Transaction had no federal tax arbitrage implications and issued an erroneous opinion that CRRA was authorized to enter into the transaction and did not need bondholder consent. Murtha Cullina’s and Hawkins, Delafield’s advice and guidance in the Enron Transaction, undisclosed to the towns or to the bondholders and bond trustee, allegedly endangered the tax-exempt status of CRRA’s bonds, created a substantial risk of higher operating costs for the Mid-Connecticut Project and of tipping fees for the towns, threatened the Project’s ability to repay its bondholders, and menaced the Project’s financial stability.

Procedurally, the malpractice suit against CRRA’s and Enron’s attorneys was significantly modified when, according to CRRA, on December 12, 2002, Hawkins, Delafield became an “Apportionment Plaintiff’ by impleading forty-eight Third-Party Defendants, including former Enron executives and directors, and Arthur Andersen LLP along with a number of partners in that accounting, auditing and consulting firm, by filing what Connecticut calls an “Apportionment Complaint” for potential liability for a proportionate share of the damages sought by CRRA under Connecticut General Statutes (“C.G.S.”) §§ 52 — 102(b) and 52-572(h), as amended by Public Act (“P.A.”) 99-69. Apportionment Complaint, Ex. B to the Notice of Removal (# l).

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CRRA asserts that nearly all the Third-Party Defendants to H-

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03-1580 had already been sued in state court by CRRA in a separate action alleging fraud, intentional torts, and violation of the CUTPA, based on Enron’s purported concealment of its financial instability and fraudulent business dealings from CRRA. That case has since been removed and transferred to this Court by the Multidistrict Litigation Judicial Panel, and is now pending before the undersigned judge as H-03-1558. The parties frequently refer to the pleading in H-03-1558 as the “global complaint”

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and the suit as the “global action” or “global suit.” In essence, H-03-1558 alleges virtually the same kind of fraudulent scheme attacked by Lead Plaintiff in

Newby

in complaining that Defendants fraudulently helped Enron hide its financial instability and fraudulent business deals from the public, including CRRA, and precipitated Enron’s financial collapse and CRRA’s loss of $220 million that it had lent to Enron. The Third-Party Apportionment Complaint in H-03-1580 is modeled upon and repeatedly references the global complaint, according to CRRA.

Procedurally as well as substantively distinguishable from the other two suits, the legal malpractice suit, H-03-1580, was removed to federal district court not by the Defendant law firms, but by some of the Third-Party “Apportionment Defendants” under C.G.S. § 52-102b(a).

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The Apportionment Defendants

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argue that federal jurisdiction exists over the whole suit under 28 U.S.C. §§ 1334 (b) and 1452 and Bankruptcy Rule 9027 because the third-party complaint is “related to” Enron’s bankruptcy proceeding, pending before Judge Arthur Gonzalez in the United States Bankruptcy Court for the Southern District of New York,

In re Enron Corp.,

No. 01-16034. Specifically Apportionment Defendants maintain that the Apportionment Complaint is “related to” the Enron bankruptcy proceedings because (1) the factual and legal issues in this case relate to those in Adversary Proceeding No. 02-02727 between CRRA and Enron before Bankruptcy Judge Arthur Gonzalez and (2) that if Apportionment Plaintiff Hawkins, Delafield prevails against some of the Third-Party Defendants, Enron may owe contribution or indemnity to some of the Apportionment Defendants for costs of litigating this suit, which would reduce the amount in the bankruptcy estate.

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II. Pending Motions

A. H-03-1580

Pending before the Court in H-03-1580, initially alleging malpractice against Defendants Murtha Cullina and Hawkins, Delafield under Connecticut state law, arising out of legal services provided to CRRA relating to the Enron Transaction involving CRRA, CL & P, and Enron Corporation (“Enron”), are

inter alia

the following motions:

(1) Apportionment Defendants Frank Savage and Herbert S. Winokur, Jr.’s motion (filed prior to transfer of the suit to this district) to consolidate H-03-1580 with what is now H-03-1558,

Connecticut Resources Recovery Authority v. Kenneth L. Lay, et al.,

also pending before the undersigned judge as part of the civil Enron litigation, MDL 1446 (instrument # 15);

(2) Plaintiff CRRA’s motion to remand (to the Superior Court for the Judicial District of Waterbury, Connecticut) and/or abstain (# 72) [or alternatively to strike, dismiss or sever the third-party complaint pursuant to Rule 14(a) of the Federal Rules of Civil Procedure and remand the underlying malpractice action against the three law firm defendants pursuant to 28 U.S.C. § 1447 (c) or 1334(c)(1) or 1334(c)(2)];

(3) CRRA’s motion to stay the Apportionment Complaint (# 94);

(4) Apportionment Defendant Joseph W. Sutton’s motion to dismiss under Fed. Rule Civ. P. 12(b)(2) for lack of personal jurisdiction (# 61); and

(5)Apportionment Defendant Rebecca Mark-Jusbasche’s motion to dismiss under Fed. Rule Civ. P. 12(b)(2) for lack of personal jurisdiction (# 62).

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B. H-03-1579

H-03-1579,

Connecticut Resources Recover Authority v. Lay, et al.,

was removed from the Connecticut Superior Court for the Judicial District of Hartford to the United States District Court for the District of Connecticut on “related to” bankruptcy jurisdiction, based on claims in Adversary Proceeding No. 02-02727,

The Connecticut Resources Recovery Authority v. Enron,

and then transferred to the undersigned judge by the Judicial Panel for Multidistrict Litigation for consolidation in MDL 1446. Pending before the Court in H-03-1579 is CRRA’s motion to stay adjudication of any motions to transfer (instrument # 36 in H-03-1579; #119 in H-03-1558) until CRRA files, and a court resolves, a motion to remand that will determine whether the court has subject matter jurisdiction. CRRA has filed such motions to remand in H-03-1558 (#121), H-03-1579 (#39, a duplicate of the one in H-03-1558), and in H-03-1580 (# 72). This Court will rule on these motions to remand in this memorandum and order, mooting the motions to stay adjudication in each case.

In H-03-1579, CRRA seeks to recover from various Enron officers and directors (“the Enron Defendants”

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), Arthur An

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dersen, LLP and some of its accountants (“the Andersen Defendants”

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), Enron’s lawyers, i.e., the law firms of Vinson & Elkins, LLP, and Kirkland & Ellis, four Enron bankers,

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and three credit rating agencies

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$200 million in public funds allegedly owed to CRRA by Enron and EPMI at the time they filed for Chapter 11 bankruptcy protection. The causes of action asserted under Connecticut state law are (1) fraudulent misrepresentation against the Enron Defendants and the Anderson Defendants; (2) negligent misrepresentation against the Enron Defendants, the Andersen Defendants, and the Credit Rating Agency Defendants; (3) aiding and abetting fraudulent and negligent misrepresentation against the Enron Defendants, the Andersen Defendants, Vinson

&

Elkins, Kirkland & Ellis, and the Banking Defendants; (4) negligence against the Andersen Defendants; and (5) violations of the Connecticut Unfair Trading Practices Act (“CUTPA”), C.G.S. § 42-110a,

et seq.

against all Defendants. Motions pertaining to this action have been filed in either of the other two cases, so the Court will address them under those cases.

C. H-03-1558

CRRA in H-03-1558, also removed from the Connecticut Superior Court for the Judicial District of Hartford to the United States District Court for the District of Connecticut, and then transferred here by the Judicial Panel for Multidistrict Litigation for consolidation with MDL 1446, sues the same Defendants that are charged in H-03-1579 and asserts “related to” bankruptcy jurisdiction because Enron may owe contribution and/or indemnity to some of the Defendants and because the claims are related to the Adversary Proceeding between CRRA and Enron in Judge Gonzalez’s court.

The asserted causes of action under Connecticut state law are as follows: fraudulent misrepresentation against the Enron and Andersen Defendants; negligent misrepresentation against the Enron Defendants, the Andersen Defendants, and the Credit Agency Defendants; aiding and abetting fraudulent and negligent misrepresentation against the Enron Defendants, the Andersen Defendants, Vinson & Elkins, Kirkland

&

Ellis, J.P. Morgan Chase, Citigroup, Inc., Merrill Lynch, and Bar-clays Capital, Inc.; negligence against the

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Andersen Defendants; and engaging in unfair trade practices in violation of CUT-PA, C.G.S. § 42-110a

et seq.,

in a scheme to misstate or conceal material information about Enron’s financial condition, against all Defendants. Since the transfer of the action here, a first amended complaint (#247) and a second amended complaint (# 306) have been filed by CRRA.

Pending in H-03-1558 are the following ripe motions:

(1) CRRA’s motion to stay adjudication of any motions to transfer until motion for remand is resolved (# 119), joined by the Arthur Andersen Defendants (# 141);

(2) CRRA’s motion to remand and/or abstain, or alternatively to strike, to dismiss or to sever the third-party complaint pursuant to Rule 14(a) of the Federal Rules of Civil Procedure and then remand the underlying action against the three law firm defendants (# 121);

(3) CRRA’s petition for certification of interlocutory appeal (# 224) of an order by the Honorable Warren W. Egington,

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United States District Court for the District of Connecticut,

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denying CRRA’s motion to remand;

(4) Credit Agency Defendants’ motion for leave to file motions to dismiss and for a stay of discovery (# 237), in other words for relief from this Court’s scheduling order (# 1561 in Newby) staying the filing of amended pleadings and/or responsive pleadings in coordinated cases until the Court resolves the class certification motions in

Newby

and

Tittle;

(5) CRRA’s motion to consolidate H-03-1558 with H-03-1579 (# 246);

(6) Defendant Andrews & Kurth L.L.P.’s motion to dismiss (# 254)

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;

(7) Defendant S & P’s motion to dismiss (# 256);

(8) Defendant Fitch Inc.’s motion to dismiss First Amended Complaint (# 259);

(9) Defendant Moody’s Corporation’s motion to dismiss First Amended Complaint (# 262); and

(10) Plaintiffs motion to file sur-reply (# 321) to Andrews

&

Kurth L.L.P.’s reply.

The Court retroactively grants Credit Agency Defendants’ motion for leave to file motions to dismiss (part of #237), since the motions to dismiss have already been submitted and answered. In addition the Court grants Plaintiffs motion to file sur-reply (# 321) to Andrews & Kurth L.L.P.’s reply (surreply submitted as # 322). These parties’ motions to dismiss have been fully briefed, and thus the Court will resolve them.

When the motions to dismiss were filed, the governing complaint to which they were directed was the First Amended

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Complaint (# 247), filed on December 23, 2003. On March 29, 2004, apparently without leave of court, Plaintiff filed a Second Amended Complaint (# 306), which merely added new parties.

The Court now addresses the ripe motions, case by case, with subject matter jurisdiction issues to be resolved first, i.e., whether this Court has “related to” bankruptcy subject-matter jurisdiction over any of these three suits.

III. MOTIONS IN H-03-1580

A. CRRA’s Motion to Remand [pursuant to 28 U.S.C. § 1447 (c)] and/or Alternatively to Abstain [pursuant to 28 U.S.C. § 1334 (c) (1) ], or Alternatively to Strike, to Dismiss or to Sever the Third-Party Complaint pursuant to Fed. R. of Civil P. 14(a) and Remand pursuant to 28 U.S.C. § 1447 (c), or to Abstain under § 1334(c)(1) (permissive abstention) or under § 1334(c)(2) (mandatory abstention).

A removing Defendant bears the burden of establishing federal jurisdiction.

B., Inc. v. Miller Brewing Co.,

663 F.2d 545, 549 (5th Cir.1981).

In its motion to remand in H-03-1580, CRRA emphasizes that (1) not only the complaint, but also the third-party complaint are based solely on Connecticut state law; (2) only 23 out of 48 third-party Apportionment Defendants removed or consented to removal of the suit, while the named Defendants did not, and one or more of the named Defendants oppose the removal; and (3) the third-party apportionment complaint is (a) impermissible under the Connecticut state law for apportionment and must be stricken or dismissed and (b) not related to the bankruptcy and contains no federal issues; and (4) even if the third-party complaint were permissible under Connecticut law and did relate to the Enron bankruptcy action, nevertheless the malpractice action contains no federal issues, and the removal is defective because not all main-suit Defendants and Apportionment Defendants consented to it. Alternatively, CRRA argues that if the Court finds the removal proper, this action satisfies all the criteria for mandatory abstention pursuant to 28 U.S.C. § 1334 (c)(1) and for discretionary abstention under 28 U.S.C. § 1334 (c)(2).

In opposition, the removing Apportionment Defendants argue that because the law firms may lose the malpractice case and Hawkins, Delafield may win on its Apportionment Complaint, the third-party complaint is “related to” Enron’s bankruptcy proceeding based on potential claims of contribution or indemnification claims against Enron (and its insurers), which, if successful, might diminish the debtor’s estate. CRRA objects that the legal malpractice claim against three law firms does not involve Enron.

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CRRA argues that removal petitions, like all complaints asserting federal jurisdiction, are subject to the well-pleaded complaint rule and that removing Defendants bear the burden to show that the basis of the removal appears on the face of the third-party complaint; removal is not permissible where the basis for federal jurisdiction first appears in a defendant’s answer, defense, or counterclaim. Insisting that the removal is improper, CRRA describes the third-party complaint as “a classic example of a non-federal complaint, since petitioners are unable to assert any ground for federal jurisdiction, except one arising from a speculative defense/counterclaim that petitioners claim they may be able to raise later.”

Moreover, argues CRRA, the “rule of unanimity” requires that all co-defendants join in or consent to removal, but fewer than half have done so here. Furthermore, regarding Defendants’ claim that the Apportionment Complaint is “related to” the bankruptcy proceeding, the factual circumstances underlying the two are completely unrelated: CRRA contends that its complaint in the Adversary Proceeding against Enron in the bankruptcy court is based on the illegality of the CRRA-Enron loan as

ultra vires

and beyond CRRA’s statutory authority, while the Third-Party Apportionment Complaint here sues Enron executives, directors and others who aided Enron in concealing its true financial condition.

Additionally CRRA insists that Apportionment Defendants’ two grounds for asserting related-to bankruptcy jurisdiction, i.e., that the third-party complaint is related to the Adversary Proceeding CRRA filed against Enron in the bankruptcy court and that if Apportionment Defendants are found liable, they will assert indemnification and contribution claims against Enron and could conceivably affect the bankruptcy estate, are wrong. With respect to the first, CRRA characterizes the Adversary complaint as “based on the illegality of the CRRA-Enron loan in that it was

ultra vires

and beyond CRRA’s statutory authority” in contrast to the third party complaint against former Enron executives and accountants who helped conceal Enron’s actual financial condition. With respect to the second ground regarding potential diminishment of the bankruptcy estate, CRRA responds that the case does not involve Enron but only advice given to CRRA by three law firms and that the indemnification claim “at some point in the future is so speculative and far removed from the action at bar that it cannot establish a basis for removal.”

B. Court’s Ruling on Key Issues

1. “Related To” Bankruptcy Jurisdiction

The Court hereby incorporates the conclusions of law in it earlier memoranda and orders in MDL 1446 cases regarding “related to” bankruptcy jurisdiction, in particular two entered in

Newby

as instruments # 1661 and # 1714 concluding that “related to” bankruptcy jurisdiction in this massive multidistrict litigation exists over third-party Defendants’ claims for contribution and indemnity against Enron insurers with a reasonable basis (as directors and officers of Enron, some of Apportionment Defendants are insured by and have contractual rights to indemnity under approximately $450 million of insurance policies that have been declared part of the Enron estate) because they have a conceivable effect on the debtor’s estate.

Title 28 U.S.C. § 1452 provides that “a party may remove”; in comparison to the general removal statute, 28, U.S.C. § 1441 , section (a) of which allows removal only “by the defendant or the defendants,”

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Section 1452 “is arguably broad enough to

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encompass actions removed under § 1452 by debtor and non-debtor third-party defendants and by either type of third-party plaintiffs, who are generally defendants in the primary action that resulted in assertion of third-party claims.” Thomas B. Bennett,

Removal, Remand, And Abstention Relate to Bankruptcies; Yet Another Litigation Quagmire!,

27 Cumb. L.Rev. 1037, 1052-53 (1996-97). Moreover, even under § 1441(c), the Fifth Circuit has recognized the right of a third-party defendant to remove when the third-party claim sets forth a separate and independent controversy, such as the claim for indemnification here.

Carl Heck Engineers Inc. v. Lafourche Parish Police Jury,

622 F.2d 133, 135-36 (5th Cir.l980)(coneluding that indemnity claims are separate and independent because “[s]uch actions can be and often are brought in a separate suit from that filed by the original plaintiff in the main claim.”).

19

In # 1714 and # 2143 this Court previously rejected some of CRRA’s legal conclusions and arguments and does again here. This Court has ruled that unanimity is not required for such removals under § 1452, that the debtor need not be a named defendant, and that under the facts alleged there is a “unity of identity” of the debtor and Third-Party Apportionment Defendants based on the same nucleus of wrongdoing in mutual participation in a scheme to hide Enron’s actual financial status while personally enriching themselves. In this massive multidistrict litigation, claims vastly outstrip assets available for recovery, and should Plaintiffs prevail and trigger the indemnification claims, liability would have an enormous impact on the bankruptcy estate.

Thus the Court agrees with Judge Eginton and concludes that, if the Apportionment Complaint is cognizable under Connecticut law, there is “related to” bankruptcy jurisdiction over H-03-1580 based on the Apportionment Complaint and that the Apportionment Defendants have properly removed the entire action to federal court. The Court also finds that the alleged wrongdoing of the Apportionment Defendants here is inextricably intertwined both factually and legally with the alleged wrongdoing of Enron and its co-conspirators, as well as that of Murtha Cullina, Hawkins, Delafield, and Leboeuf in the malpractice complaint. CRRA is a creditor in the bankruptcy for the same money damages arising out of the same Enron Transaction, although brought under a constructive trust theory that was subsequently rejected by Bankruptcy Judge Gonzalez.

20

Moreover, in H-03-

*763

1580 CRRA has alleged facts suggesting complicity between Murtha Cullina, Enron, and by inference, Defendants in H-03-1558 and the Adversary Proceeding.

2. Well Pleaded Complaint Rule

CRRA argues that the removal here was impermissible because it was based on a claimed federal defense or counterclaim to the claims on the face of CRRA’s complaint. In arguing for the applicability of the well-pleaded complaint rule to challenge removal of this suit from Connecticut state court, CRRA is confusing two different jurisdictional statutes, both providing original jurisdiction for federal district court.

First, 28 U.S.C. § 1331 , the general federal question statute, recites, “The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.” With respect to the “arising under” language, for purposes of removal “federal jurisdiction exists only when a federal question is presented on the face of the plaintiffs properly pleaded complaint.”

Caterpillar, Inc. v. Williams,

482 U.S. 386, 392 , 107 S.Ct. 2425 , 96 L.Ed.2d 318 (1987);

Franchise Tax Board v. Construction Laborers Vacation Trust for Southern California,

463 U.S. 1, 8-12 , 103 S.Ct. 2841 , 77 L.Ed.2d 420 (1983). Thus a plaintiff is the master of his complaint, which he may choose to bring solely under state law to avoid federal jurisdiction, and, except where there is complete preemption by federal law, a case may not be removed if the federal question does not appear on the face of the complaint, but is only raised in a defense to the petition.

Id.; Metropolitan Life Ins. Co. v. Taylor,

481 U.S. 58, 63-67 , 107 S.Ct. 1542 , 95 L.Ed.2d 55 (1987). (Cases grounded in state law may still “arise under’ federal law if vindication of the state-law-created right must turn on a construction of federal law, but such is not relevant in this suit.”

Franchise Tax,

463 U.S. at 8-9 , 103 S.Ct. 2841 .) Here it is undisputed that the malpractice complaint and the Apportionment Complaint assert only Connecticut state-law claims.

In contrast, for “related to” bankruptcy removal jurisdiction under 28 U.S.C. § 1452 , the court has jurisdiction if it satisfies 28 U.S.C. § 1334 . Section 1334 provides,

(a) Except as provided in subsection (b) of this section, the district court shall have original and exclusive jurisdiction of all civil proceedings arising under title 11.

(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts , other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.

“Cases arising under title 11” pursuant to § 1334(a) are actions begun by the filing of a bankruptcy petition under 11 U.S.C. § 301-303 in federal district court or bankruptcy court.

In re Wood,

825 F.2d 90 , 92 (5th Cir.1987). The instant suit is not such a ease, for the debtor is not a party and the complaints do not seek relief under Title 11 of the Bankruptcy Code. Section 1334(b), however, provides for original jurisdiction not only of proceedings “arising under” title 11, but also actions “related to cases under title 11,” even if they are otherwise not subject to federal jurisdiction. An action is “related to bankruptcy” if the outcome of the proceeding could

*764

conceivably have any effect on the estate being administered in bankruptcy.

Id.

at 93.

The well-pleaded complaint rule is not applicable in “related to” bankruptcy removal cases. American

National Red Cross v. S.G.,

505 U.S. 247, 258 , 112 S.Ct. 2465 , 120 L.Ed.2d 201 (1992)(“The ‘well-pleaded complaint’ rule applies only to statutory ‘arising under’ cases.”),

citing Verlinden B.V. v. Central Bank of Nigeria,

461 U.S. 480, 494 , 103 S.Ct. 1962 , 76 L.Ed.2d 81 (1983).

3. CRRA’s Motion to Abstain

CRRA’s motion to abstain either under the mandatory-provision, § 1334(c)(2) or under the a permissive provision, § 1334(c)(1), is also denied.

In determining whether a district court is required under § 1334(c)(2) to abstain from hearing a proceeding based on state law that is before the court on “related to” bankruptcy-jurisdiction, the court must consider the following factors: (1) whether the abstention motion was “timely” filed; (2) whether the action consists of state law claims; (3) whether the action is “related to” a bankruptcy proceeding (i.e., “non-core” matters), in contrast to “arising under” the Bankruptcy Code or “arising in” a case (i.e., “core matters” under the Bankruptcy Code); (4) whether jurisdiction rests solely on § 1334; (5) whether there is an action “commenced” in state court; and (6) whether the action can be “timely adjudicated” in state court.

In re Southmark Corp.,

163 F.3d 925, 928 (5th Cir.1999),

cert. denied,

527 U.S. 1004 , 119 S.Ct. 2339 , 144 L.Ed.2d 236 (1999);

Matter of Gober,

100 F.3d 1195, 1206 (5th Cir. 1996);

In re River Center Holdings, LLC,

288 B.R. 59, 66 (Bkrtey.S.D.N.Y.2003);

Renaissance Cosmetics, Inc. v. Development Specialists, Inc.,

277 B.R. 5, 12 (S.D.N.Y. 2002). It is undisputed that the motion was timely filed in this suit. Furthermore the action asserts only state-law claims. The Court has determined that the Apportionment Complaint is “related to” the Enron bankruptcy and thus the only factors still at issue here are (5) and (6).

Clearly dispositive of the abstention question here is factor (5) under Second Circuit law, which diverges from Fifth Circuit law. Under the law of lower courts in the Second Circuit, mandatory abstention does not apply to a removed action where no parallel court proceeding exists because of the removal of the case; under Fifth Circuit law mandatory abstention may apply to cases removed under § 1452.

Renaissance Cosmetics,

277 B.R. at 12 -13

&

nn.4-6;

River Center,

288 B.R. at 66-67 ;

In re Southmark,

163 F.3d at 929 . Because the Enron bankruptcy proceedings were filed in the bankruptcy court for the Southern District of New York, this Court’s “related to” bankruptcy jurisdiction derives from that court and this Court has concluded that Second Circuit law should apply to MDL 1446 cases here based on such jurisdiction.

Regarding factor (6), with the Apportionment Complaint (discussed below), the Court further finds that CRRA has not met its burden in demonstrating that this action could be timely adjudicated in a Connecticut state court given the complexity of the Enron-related litigation and given CRRA’s claims in the bankruptcy proceeding.

As for permissive remand in the interests of justice, comity, or respect for state law under 28 U.S.C. § 1334 (c)(1), or equitable remand under § 1452(b), courts have broad discretion.

Gober,

100 F.3d at 1206-07 . Among the factors considered are

(1) the effect on the efficient administration of the bankruptcy estate; (2) the extent to which issues of state law pre

*765

dominate; (3) the difficulty or unsettled nature of the applicable state law; (4) comity; (5) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case; (6) the existence of the right to a jury trial; and (7) prejudice to the involuntarily removed defendants.

In re NTL Inc.,

295 B.R. 706, 719 (Bkrtcy. S.D.N.Y.2003),

quoting Drexel Burnham Lambert Group, Inc. v. Vigilant Ins. Co.,

130 B.R. 405, 407 (S.D.N.Y.1991). Two other central factors are “the duplicative and uneconomical use of judicial resources” and the “lessened possibility of inconsistent results.”

NTL,

295 B.R. at 719 . Both are well served by this Court’s retention of jurisdiction here. The civil actions in this court and the proceedings in Judge Gonzalez’s bankruptcy court substantially overlap in parties and issues, and the judges have coordinated proceedings so there is no material obstacle to efficient administration of the debtor’s estate and coordinated discovery provides efficient and equitable access for all. Although the suit is grounded solely in state law, the facts and the issues overlap with those in the federal claims cases and discovery for both federal and state claims will coincide. Here the desirability of dealing with civil actions related to the collapse of the debt- or in a single forum, recognized by the Judicial Panel on Multidistrict Litigation, weighs heavily against permissive abstention.

See, e.g., In re Global Crossing Ltd. Sec. Litig.,

311 B.R. 345, 349 (S.D.N.Y. 2003). As Judge Cote has noted in

In re WorldCom Inc. Sec. Litig.,

293 B.R. 308, 333-34 (S.D.N.Y.2003),

... [I]t is beyond cavil that judicial economy and efficiency are best served by exercising the jurisdiction that so clearly exists. The MDL panel has consolidated scores of cases before this Court to promote the expeditious and efficient resolution of the claims arising from the collapse of WorldCom. The litigation is proceeding apace.... With the consolidation of the litigation in one court, the motion practice and discovery process can be managed to protect the rights of all parties and to preserve, to the extent possible, the maximum amount of assets for recovery by plaintiffs with meritorious claims.... In contrast, if this Court were to abstain pursuant to Section 1334(c)(1) and remand the litigation originally filed in state court, motion practice and discovery would proceed separately in many jurisdictions. The litigation that would ensue in the various fora would be entirely duplicative and wasteful. It would eat into the funds available to pay the alleged victims identified in this litigation. ... A remand would encourage a race for assets, a race that may deprive many victims of the alleged fraud of their fair share of any recovery.

Moreover, while state law governs both the malpractice and the apportionment complaints, there are no unique or unsettled issues of state law that warrant abstention on comity grounds.

In re WorldCom,

293 B.R. at 333 . Thus the Court denies the motion to abstain.

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

Because the Court concludes that it would have “related to” bankruptcy jurisdiction over the Apportionment Complaint, and thus over the entire action, provided that the Apportionment Complaint is viable under Connecticut law, the Court examines the issue of striking or dismissing the Apportionment Complaint for failure to state a cognizable claim under Connecticut law.

CRRA argues that the Apportionment Complaint must be stricken or dismissed, and thus it cannot serve as a

*766

basis for federal jurisdiction, because it fails to meet Connecticut’s statutory requirements in several ways. First, it seeks to recover purely economic or commercial damages, not the permissible damages “resulting from personal injury, wrongful death, or damage to property,” as required by C.G.S. § 52-572h(c). Indeed CRRA points to lower court decisions holding that because damages caused by legal malpractice are purely economic, firms defending themselves against legal malpractice claims cannot use the apportionment mechanism. Second, under the statute, apportionment can only be made among negligent parties, not parties liable for intentional and fraudulent acts. CRRA emphasizes that it sues the three law firms for breach of contract and LeBoeuf for fraudulent misrepresentation and statutory unfair trade practices, but Hawkins, Delafield’s Apportionment Complaint includes allegations of both intentional and fraudulent conduct and sues 44 of the 54 Defendants charged in CRRA’s “global” complaint in H-03-1558, which also sounds

inter alia

in fraudulent misrepresentation and intentional torts. Under Connecticut law, damages for breach of contract and fraudulent misrepresentation of violations of CUTPA cannot be apportioned.

Allard v. Liberty Oil Equipment Co.,

253 Conn. 787, 803 , 756 A.2d 237, 246-47 (2000) (no apportionment between a negligent defendant and a defendant whose conduct was allegedly intentional, reckless, willful and wanton or subject to strict liability or violative of a statute). Third, CRRA has sued Hawkins, Delafield for breach of a fiduciary duty, which CRRA argues is heightened by the fact that its client, CRRA, is a government agency, and § 52-572h(k) expressly states that the statute does not cover breach of fiduciary duty claims. The Connecticut Supreme Court has noted that the “relationship between an attorney and his client is highly fiduciary in its nature.... ”

Andrews v. Gorby,

237 Conn. 12, 20 , 675 A.2d 449, 453 (1996).

Federal and Connecticut rules of procedure are quite different. Under Connecticut law, “[t]he purpose of a motion to strike is to contest ... the legal sufficiency of the allegations of any complaint ... to state a claim upon which relief can be granted.”

Peter-Michael, Inc. v. Sea Shell Associates,

244 Conn. 269, 270-71 , 709 A.2d 558, 559 (1998). Unlike under Fed.R.Civ.P. 12(b)(6), under Connecticut practice a party may only employ a motion to dismiss to question whether, on the face of the record, the court has jurisdiction over the suit.

Flanagan v. Commission on Human Rights and Opportunities,

54 Conn.App. 89 , 93-94

&

n. 5 733 A.2d 881 , 885 & n. 5 (1999),

cert. denied,

250 Conn. 925 , 738 A.2d 656 (Conn. 1999). The proper vehicle to challenge the legal sufficiency of a complaint under Connecticut law is a motion to strike.

Id., citing

Practice Book § 10-39. A motion to strike admits all well-pleaded facts and implications therefrom as true, but does not admit legal conclusions or the truth or accuracy of opinions stated in the pleadings.

Emerick v. Kuhn,

52 Conn.App. 724, 728-29, 739 , 737 A.2d 456, 461, 467 (Conn. App.1999),

cert. denied,

249 Conn. 929 , 738 A.2d 653 (1999),

cert. denied,

249 Conn. 929 , 738 A.2d 653 (1999),

cert. denied,

528 U.S. 1005 , 120 S.Ct. 500 , 145 L.Ed.2d 386 (1999);

Napoletano v. CIGNA Healthcare of Connecticut, Inc.,

238 Conn. 216, 232-33 , 680 A.2d 127, 137 (1996) (“The role of the trial court was to examine the complaints, construed in favor of the plaintiffs, to determine whether the plaintiffs have stated a legally sufficient cause of action.”),

cert. denied,

520 U.S. 1103 , 117 S.Ct. 1106 , 137 L.Ed.2d 308 (1997);

Doe v. Yale University,

252 Conn. 641, 667 , 748 A.2d 834, 851 (2000). The court may grant a motion to strike if it only asserts conclusions of

*767

law that the facts alleged do not support.

Novametrix Medical Systems, Inc. v. The BOC Group, Inc.,

224 Conn. 210, 215 , 618 A.2d 25, 28 (1992);

Urda v. Glynos,

No. CV 950067734, 1996 WL 365013 , *2 (Conn.Super. May 23, 1996). In essence CRRA argues that the Apportionment Complaint’s allegations are legally insufficient to support a claim for apportionment.

In relevant part, C.G.S. § 52-102b (a) (emphasis added by the Court) states, “A defendant in any civil action to which § 52-572h applies may serve a writ, summons and complaint upon a person not a party to the action who is or may be liable pursuant to said section for a proportionate share of the plaintiffs damages in which the demand for relief shall seek an apportionment of liability....” Section 52-102b “is the exclusive means by which a defendant may add a person who is or may be liable pursuant to Section 52-572h for a proportionate share of the plaintiffs damages as a party to the action.” C.G.S. § 52-102b(F);

Allard v. Liberty Oil Equipment Co.,

253 Conn, at 792-93, 756 A.2d at 239-40 , quoting § 52-102b(f)(em-phasis added by the Court).

C.G.S. § 52-110h(a) in turn provides in relevant part,

A defendant in any civil action to which section 52-572h applies may serve a ... complaint upon a person not a party to the action who is or may be liable pursuant to said section for a proportionate share of the plaintiffs damages in which case the demand for relief shall seek an apportionment of liability.

Thus an apportionment complaint may be Idled when Connecticut’s tort reform statute, G.S. 52-572h, the state’s contributory and comparative negligence

21

statute, applies. C.G.S. § 52-572h, provides in relevant part,

(b) In causes of action based on negligence, contributory negligence shall not bar recovery in an action by any person or the person’s legal representative to recover damages resulting from personal injury, wrongful death or damage to property if the negligence was not greater than the combined negligence of the person or persons against whom recovery is sought including settled or released persons under subsection (n) of this section. The economic or noneconomic damages allowed shall be diminished in the proportion of the percentage of negligence attributable to the person recovering which percentage shall be determined pursuant to subsection (f) of this section.

(c) In a negligence action to recover damages resulting from personal injury, wrongful death or damage to property occurring on or after October 1, 1987, if the damages are determined to be proximately caused by the negligence of more than one party, each party against whom recovery is allowed shall be liable to the claimant only for such party’s proportionate share of the recoverable economic damages and the recoverable noneconomic damages except as provided in subsection (g) of this section [emphasis added by the Court]....

(h) (1) A right of contribution exists in parties who, pursuant to subsection (g) of this section, are required to pay more than their proportionate share of such judgment....

(k) This section shall not apply to breaches of trust or other fiduciary obligation [emphasis added by the Court].

(o) Except as provided in subsection (b) of this section, there shall be no appor

*768

tionment of liability or damages between parties liable for negligence and parties liable on any basis other than negligence including, but not limited to, intentional, wanton or reckless misconduct, strict liability or liability pursuant to any cause of action created by statute, except that liability may be apportioned among parties liable for negligence in any cause of action created by statute based on negligence including, but not limited to, an action for wrongful death pursuant to section 52-555 or an action for injuries caused by a motor vehicle owned by the state pursuant to section 52-556.

“ ‘[A] civil action to which section 52-572h applies’ within the meaning of § 52-102b, means a civil action based on negligence.”

Allard,

756 A.2d at 242 . The clear language of § 52-572h(b) states that it applies only to negligence actions in which a party seeks damages for wrongful death, personal injury or damage to property. In the instant case, CRRA has not alleged that it suffered wrongful death and personal injury in its claims against the law firms.

The third category, “damages resulting from ... damage to property,” as used in § 52-102h(b), has been defined by the Connecticut Supreme Court as restricted to “damage to or the loss of use of tangible property” and thus does not apply to commercial losses, i.e., economic harm.

Williams Ford, Inc. v. Hartford Courant Co.,

232 Conn. 559, 581-83 , 657 A.2d 212, 223-224 (1995). After examining the language of the statute and its legislative history, the Connecticut Supreme Court concluded that “the legislature intended the phrase ‘damage to property’ to encompass only its usual and traditional meaning in the law of negligence actions, namely, damage to or the loss of use of tangible property, as opposed to damages from personal injury”; because the legislative history is silent about the intent behind the phrase “damage to property,” it opined, “we simply cannot stretch the meaning of ‘damage to property,’ as used in § 52-572h(b), to include commercial losses unaccompanied by physical damage to or loss of use of tangible property.”

Id.

In

Williams Ford,

the plaintiffs injury was monetary, i.e., savings that the plaintiff would have realized.

Id.,

232 Conn, at 581, 657 A.2d at 222 . In the wake of that decision, a number of lower courts have construed the high court’s ruling to conclude that § 52-572h does not allow recovery of solely economic loss incurred as a result of legal malpractice.

Carpenter v. Law Offices of Dressier,

No. CV010804795S, 2002 WL 442304 , *3 (Conn.Super. Feb. 22, 2002);

Gauthier v. Kearns,

47 Conn.Supp. 166 , 780 A.2d 1016 (2001);

Whitaker v. Erdos & Maddox,

No. CV000371896S, 2000 WL 1862127 , *4 (Conn.Super. Nov. 14, 2000)(claim that lawyer’s negligence caused plaintiff to suffer economic loss “is not a claim for personal injury [and] ... [t]he Supreme Court has stated that monetary damage, or economic loss, does not fall within the purview of the phrase ‘damage to property’ as used in § 52-572h,”

citing Williams Ford)] Thomas v. Smith,

No. 3-.03CV1398, 2004 WL 1969401 , *4 (D.Conn. Sept. 3, 2004) (The Connecticut Supreme Court held in

Williams Ford

that damages within the meaning of the statute do not “ ‘include purely commercial losses, unaccompanied by damages to or loss of the use of some tangible property.’ ”).

CRRA has not alleged that the three firms’ negligent malpractice damaged tangible property of CRRA, to which damage the apportionment defendants might have contributed.

Nevertheless, in

Williams Ford

the Connecticut Supreme Court noted that its conclusion that Section 52-572h(b) does not apply “purely commercial losses,” this

*769

conclusion “does not end our inquiry.” 232 Conn, at 585, 657 A.2d at 224 . The

Williams

Court observed that the statute was passed to abrogate “the absolute bar of contributory negligence in favor of the doctrine of comparative negligence” to allow a comparative determination of “relative degrees of negligence of the plaintiff and the defendant,” as “a means to diminish recovery of damages based upon the degree of the plaintiffs own negligence.”

Id.,

232 Conn, at 583, 657 A.2d at 225 . Examining the language, legislative history, the circumstances surrounding the enactment, and the legislative policy behind § 52-572h(b), as well as the statute’s relationship to “common law principles governing the same general subject matter, emphasized the rule of statutory construction that statutes in derogation of the common law should receive a strict construction and [not] be extended, modified, repealed or enlarged in its scope by the mechanics of construction.”

Id.,

232 Conn, at 581, 657 A.2d at 223 . Not persuaded that the legislature “intended to create a different set of rules of negligence actions involving property losses and commercial losses,” however, the high court “applied] the statute, as a matter of common law, beyond its designated boundaries” and focused on the statute’s underlying “policy for common law adjudication” because “ ‘there was a close relationship between the statutory and common law subject matters.’ ”

Id.,

232 Conn, at 585, 657 A.2d at 225 . The Supreme Court concluded,

Where possible, courts should, as a matter of common law adjudication, ‘assure that the body of the law — both common and statutory, remains coherent and consistent.’ ... It would be consistent with that goal for the doctrine of comparative negligence, which by statute applies to actions based on negligence resulting in damage to person or property, also to apply to the tort of negligent misrepresentation resulting in commercial loss. Furthermore, it would undermine the legislative purpose of § 52-57h(b) if we were to require a plaintiff to be free from contributory negligence as a prerequisite to recovery under a theory of negligent misrepresentation merely because the damages sought were commercial losses rather than property damage. The doctrine of contributory negligence should not, therefore, consistent with our entire body of law, both statutory and common, act as an absolute bar to recovery for plaintiffs seeking recovery for negligent misrepresentation.

We conclude, therefore, as a matter of common law, that the policy of the comparative negligence statute, § 52-572h, applies to negligence actions where only commercial losses are sustained.

Id.,

232 Conn, at 586, 657 A.2d at 225 (emphasis added by this Court).

In

Somma v. Gracey,

15 Conn.App. 371 , 544 A.2d 668 (Conn.App.Ct.1988), which is still good law, which is cited frequently, and which the federal District Court of Connecticut recently described as “the leading decision” on “[t]he scope of the Connecticut apportionment statute as it applies to claims of professional malpractice,” the appellate court held that the comparative negligence defense doctrine applies to legal malpractice claims grounded in negligence and thus apportionment also applies.

Thomas v. Smith,

No. 3:03CV1398, 2004 WL 1969401 , *3 (D.Conn. Sept. 3, 2004).

22

In

Somma ,

a plaintiff sued his attorney for negligence in the sale of the plaintiffs business on the

*770

grounds that the attorney failed to audit and inform the plaintiff of the financial status of the buyer and failed to advise the plaintiff not to accept a nonnegotiable promissory note from the buyer. The defendant attorney was permitted by the court to raise a comparative negligence defense that it was the plaintiffs responsibility to investigate the buyer’s financial condition. In

Somma

the Connecticut appellate court pointed out that § 52-572h(b) states that in causes of action based on negligence, “[a]ny economic or noneconomic damages allowed shall be diminished in proportion of the percentage of negligence attributable to the person recovering and concluded, “In situations where the claim of malpractice sounds in negligence ... the defense of comparative negligence should be made available.... We see no basis for distinguishing between actions for legal malpractice and other claims sounding in negligence.” 15 Conn. App. at 378 , 544 A.2d at 672 . Thus under

Somma ,

a plaintiff alleging a claim for legal malpractice grounded in negligence may seek to recover damages from his attorney for the plaintiffs monetary losses, and that attorney may reduce the damages by asserting in an apportionment complaint an affirmative defense that the plaintiffs negligence was also responsible for the plaintiffs loss.

There is a key distinction between the posture of the instant case and the circumstances in

Somma ,

however, the makes

Somma

inapplicable to H-03-1580. Here the Apportionment Complaint does not assert an affirmative defense of contributory or comparative negligence to former elient/Plaintiff CRRA’s professional malpractice claim, but is an action filed against newly added third-party defendants who were not plaintiffs lawyers, but instead former Enron executive, directors, employees, accountants and auditors and entities such as the northeast utility companies with which CRRA dealt, e.g., CL

&

P, all of whom purportedly helped Enron conceal its true financial condition. In contrast in

Somma

the plaintiff was the former client of the defendant attorney being sued, and the court allowed the attorney to file a comparative negligence defense in response to the plaintiff/client’s professional negligence claim, to show that the plaintiff/client had been negligent in his own right and that negligence had contributed to his own injury. Here Hawkins, Delafield sought to add additional parties as third-party defendants to new claims, in essence, alleged joint tortfeasors, for conduct distinct from the alleged malpractice of Hawkins, Delafield. Therefore

Somma

does not apply. Because Hawkins, Delafield is not asserting a defense of contributory or comparative negligence, Hawkins, Delafield must meet the requirements of the “exclusive” statutory method for adding and forcing others to share in payment of damages to CRRA for CRRA’s monetary losses through the procedural device of a statutory apportionment complaint under §§ 52-102b and 52-572h, not the common law. Such an action must meet the “damage to [tangible] property” requirement, but does not here. Hawkins, Delafield is barred from seeking monetary damages for non-tangible injury.

See also Whitaker v. Maddox,

No. CV000371896S, 2000 WL 1862127 , *3 (Conn.Super. Nov. 14, 2000)(distinguishing

Somma ,

addressing a comparative negligence defense to a legal malpractice claim brought by a client/plaintiff against his former attorney, who in turn asserted an apportionment claim not against plaintiff but against the plaintiffs successor attorney; court held that such an apportionment claim was not only contrary to public policy, but that it was barred because (1) it was not “damage to property” as used in § 52-572h, (2) because plaintiff claimed only economic loss, and (2) because an apportionment complaint cannot be based on breach of a fiduciary duty).

*771

Thus for

Somma

to apply, the affirmative comparative negligence defense comprising the apportionment complaint must arise out of and respond to the plaintiffs negligent malpractice claim, not assert new claims against new parties.

See, e.g., Davis v. Hume,

No. CV88 0096102S, 1990 WL 288692 , *1 (Conn.Super. Apr. 18, 1990), in which the Plaintiff sued a defendant for legal malpractice in failing to diligently prosecute her slip and fall action against the City of Stamford. In

Davis

the attorney defendant filed two special defenses: (1) that the plaintiffs slip and fall was due to her own negligence and (2) that the plaintiff failed to obtain timely medical treatment to mitigate her injuries. The

Davis

court, distinguishing

Somma ,

concluded that the defendant’s defense that plaintiff was comparatively negligent did not relate to the plaintiffs malpractice claim and granted the motion to strike.

See also Thomas v. Smith,

2004 WL 1969401 at *3;

Cusano v. Grudberg,

No. CV010276769, 2003 WL 21771987 , *2 (Conn.Super. July 21, 2003)(Section 52-572h “provides that addition of parties pursuant to § 52-102b and § 52-572h is an exclusive mechanism”; thus “a failure to satisfy the requirements [must be based on negligence and seek damages for personal injury, wrongful death, or damage to tangible property] forecloses the addition of apportionment defendants.”);

Center Capital Corp. v. Hall,

No. CV 92-0452084S, 1994 WL 75862 , *4 (Conn.Super. Feb. 24, 1994);

Gauthier v. Kearns,

47 Conn.Supp. 166, 171 , 780 A.2d 1016 , 1019 (Conn.Super.2001)(noting the statute in essence applies to joint tortfeasors, i.e., “two or more persons who are liable to the same person for the same harm,” but who need not “act in concert or in pursuance of a common design, nor is it necessary that they be joined as defendants”; “the question that must be addressed under § 52-572h(c) is whether the damages are determined to be proximately caused by the negligence of more than one party”).

Kearns,

47 Conn.Supp. at 170-75 , 780 A.2d 1016 , 1018-21 (emphasis added by this Court).

See also Vona v. Lerner,

No. CV 94314224S, 1998 WL 437337 , *2 (Conn.Super. July 16, 1998) (in case alleging that a law firm and lawyer breached their fiduciary duty and their contract with plaintiffs by disclosing plaintiffs’ financial information to a bank without plaintiffs’ consent, the court denied accounting firm’s motion to strike law firm’s third-party complaint for apportionment against an accounting firm for malpractice for providing that financial information to the bank).

Moreover, Conn. Legislative Service Public Act 99-69 (West), which expressly governs all cases pending or filed on or after August 11, 1998, amended § 52-572h by adding subsection (o), in order to overrule a prior decision by the Connecticut Supreme Court,

Bhinder v. Sun Co., Inc.,

246 Conn. 223, 242 , 717 A.2d 202, 208 (1998). In

Bhinder

the high court ignored the plain language of the statute and extended it by infusing it with common law principles to hold that liability may be apportioned between intentional and negligent tortfeasors.

Id.

(as a matter of common law the court should “extend the policy of apportionment to permit a defendant in a negligence case to bring in as an apportionment defendant a party whose conduct is alleged to be reckless, willful, and wanton.”).

23

The subsection (o), added

*772

by the legislature to overrule

Bhinder ,

precludes such apportionment:

Except as provided in subsection (b) of this section, there shall be no apportionment of liability or damages between parties liable for negligence and parties liable on any basis other than negligence including, but not limited to, intentional, wanton or reckless misconduct, strict liability or liability pursuant to any cause of action created by statute, except that the liability may be apportioned among parties liable for negligence in any cause of action created by statute based on negligence including, but not limited to, an action for wrongful death pursuant to section 52-555 or an action for injuries caused by a motor vehicle owned by the state pursuant to section 52-556.

In sum, as stated by the Connecticut Supreme Court after examining the legislative history, “The general effect of P.A. 99-69, § l(o), was to make clear that the apportionment principles of § 52-572h do not apply where the purported apportionment complaint rests ‘on any basis other than

negligenceAllard,

253 Conn. at 800-04 , 756 A.2d at 245 ^47 (concluding that § 52-572h(o) does not allow apportionment between a defendant liable in negligence and a defendant liable on a strict liability product liability theory or for intentional, wanton or reckless misconduct or pursuant to any cause of action created by statute). Thus the Court examines the Apportionment Complaint in H-03-1580 to determine whether its claims sound only in negligence.

CRRA contends that not only has it has sued the three law firms for breach of contract (legal service agreements) and negligence, but also Le Boeuf for fraudulent misrepresentation and statutory unfair trade practices.

24

CRRA maintains that Hawkins, Delafield’s Apportionment Complaint includes allegations of both intentional and fraudulent conduct and sues 44 of the 54 Defendants charged in CRRA’s “global” complaint in H-03-1558, which also sounds

inter alia

in fraudulent misrepresentation and intentional torts.

Allard v. Liberty Oil Equipment Co.,

253 Conn, at 803, 756 A.2d at 246-47 . Plaintiff insists that under Connecticut law, dam

*773

ages for breach of contract and fraudulent misrepresentation of violations of CUTPA cannot be apportioned. The Court agrees.

As noted, in its Apportionment Complaint Hawkins, Delafield has sued 44 of the 54 defendants that were also sued in CRRA’s global complaint in H-03-1558. The Apportionment Complaint (also part of Ex. C to # 1), in seeking apportionment of damages, references the amended complaint and the global complaint in H-03-1558 because they seek the same $220 million in damages relating to the Enron Transaction. While CRRA insists that its claims in the global complaint are not grounded in negligence, Hawkins, Delafield argues that over half of the twenty-five causes of action, including eight aiding and abetting claims asserting complicity in negligent misrepresentation, sound in negligence, according to CRRA’s own pleadings.

25

Hawkins, Delafield maintains that it merely modeled its Apportionment Complaint on and incorporated CRRA’s allegations of negligence into the Apportionment Complaint.

26

The Court’s review of the global complaint’s claims, such as those against Enron directors and officers and Arthur Andersen employees, revealed that the factual allegations are substantially grounded in intentional fraud even though the causes of action are labeled as negligence by CRRA. Many of the Apportionment Complaint allegations are not properly negligence-based. As discussed

infra,

because aiding and abetting under Connecticut law requires that the aider and abettor to “be generally aware of [its] role as part of the overall illegal or tortious conduct” of the primary actor that aider and abettor is substantially assisting at the time it is assisting, aiding and abetting is by nature inconsistent with negligence’s lack of such

*774

awareness. See pages 70-73 and n. 39 of this memorandum and order. Moreover, the Apportionment Complaint seeks to apportion damages that might be imposed upon Hawkins, Delafield in the legal malpractice case-in-chief, but that action has asserted not only negligence, but also a breach of contract cause of action against Murtha Cullina and Hawkins, Delafield and both fraudulent misrepresentation and CUTPA violations against Leboeuf. An apportionment complaint cannot seek to apportion damages for claims that are not grounded in negligence.

Furthermore, CRRA has sued Hawkins, Delafield for breach of a fiduciary duty, a duty which CRRA argues is heightened by the fact that CRRA, its client, is a government agency. Section 52-572h(k)9 expressly states that it does not cover “breaches of trust or of other fiduciary obligations.” As noted earlier, CRRA points out that the Connecticut Supreme Court has noted that the “relationship between an attorney and his client is highly fiduciary in its nature.... ”

Andrews v. Gorby,

237 Conn. 12 , 675 A.2d 449, 453 (1996);

Whitaker,

2000 WL 1862127 , *4. This Court concurs.

In

Whitaker v. Erdos & Maddox,

the court concluded that § 52-572h(k), which expressly states that “[t]his section shall not apply to breaches of trust or of other fiduciary obligations,” required the court to strike a plaintiffs claim that his attorney breached his fiduciary duty to the plaintiff because apportionment under the statute was inapplicable. 2000 WL 1862127 at *4-5.

See also Andersen v. Bitondo,

No. CV 970081677S, 1998 WL 279810 , *1 (Conn.Super.Ct. May 18, 1998). While CRRA has not expressly identified breach of fiduciary duty as one of its causes of action, in

Whitaker,

2000 WL 1862127 at *4, the court noted,

The Supreme Court has stated that “the relationship between an attorney and client must involve personal integrity and responsibility on the part of the lawyer and an equal confidence and trust on the part of the client.... The relationship between an attorney and client is highly fiduciary in its nature and of a very delicate, exacting and confidential character, requiring a high degree of fidelity and good faith.”

Andrews v. Gorby,

237 Conn. 12, 20 , 675 A.2d 449 (1996).

Because of the intrinsic nature of that fiduciary duty, the

Whitaker

court found “the apportionment concept to be inapplicable to the present case” for legal malpractice. 2000 WL 1862127 at *5.

In sum, for all these reasons, the Court agrees with CRRA that Hawkins, Delafield’s Apportionment Complaint fails to meet the requirements of Connecticut law and that CRRA’s motion to strike it should be granted. Moreover, because the Apportionment Complaint is the sole source of this Court’s “related to” bankruptcy jurisdiction over the entire action, the Court therefore has no subject matter jurisdiction over the remaining portion of the suit and accordingly grants CRRA’s motion to remand the remainder of the case to the appropriate Connecticut state court. The motions constituting instruments # 15 and 94 are therefore MOOT, while # 61 and 62 will remain pending for ruling by the Connecticut state court following remand.

IV. MOTIONS IN H-03-1558

A. CRRA’s Motion to Remand and/or Abstain, or Alternatively to Strike, Dismiss or Sever the third-party complaint pursuant to Rule 14(a) of the Federal Rules of Civil Procedure and Remand the underlying action against the three law firm defendants (# 121)

CRRA also moves to remand H-03-1558 under 28 U.S.C. § 1447 (c) on the grounds

*775

that there is no federal jurisdiction over its state-law claims

27

or, alternatively, for the court to abstain from exercising jurisdiction under 28 U.S.C. § 1334 (c)(1) or (2). It maintains that the Defendants’ potential claims for indemnification or contribution from Enron’s bankruptcy estate, when Enron is not a party to this suit, are insufficient to sustain “related to” bankruptcy jurisdiction here under 28 U.S.C. §§ 1334 (b) and 1452. Defendants argue that the Court has jurisdiction because the claims are related to the adversary proceeding between CRRA and Enron pending in the bankruptcy court.

28

The Court has indicated in this memorandum and order, beginning on page 25, and in numerous other MDL 1446 cases its legal conclusions regarding “related to” bankruptcy jurisdiction based on contribution and indemnification claims and the unanimity rule as well as mandatory and permissive abstention with respect to the kind of claims asserted here and accordingly denies CRRA’s motion.

B. CRRA’s Motion to Stay Adjudication of Any Motions to Transfer until motion for remand is resolved (# 119), joined by the Arthur Andersen Defendants (# 141), is MOOT in light of the Court’s resolution of #121.

C. CRRA’s Petition, under 28 U.S.C. § 1292 (b), for Certification of Interlocutory Appeal (# 224) of an order by the Honorable Warren W. Eginton, United States District Court for the District of Connecticut, denying CRRA’s motion to remand and/or abstain, or Alternatively to Strike, Dismiss or Sever the Third-Party Complaint pursuant to Rule 14(a) of the Federal Rules of Civil Procedure and Remand the underlying action against the three law firm defendants.

Section 1292(b) provides,

When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from that order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order....

28 U.S.C. § 1292 (b). “The decision to certify an interlocutory appeal pursuant to section 1292(b) is within the discretion of the trial court and unappealable.”

In re Air Crash Disaster,

821 F.2d 1147, 1167 (5th Cir.1987),

citing In re McClelland Engineers, Inc.,

742 F.2d 837, 839 (5th Cir.1984),

cert. denied,

469 U.S. 1228 , 105 S.Ct. 1228 , 84 L.Ed.2d 366 (1985).

CRRA contends that there are controlling questions of law and substantial

*776

grounds for difference of opinion regarding Judge Eginton’s order. Specifically, it identifies as controlling legal issues (1) is this case “related to” a bankruptcy proceeding, thus creating federal jurisdiction under § 1334(b) and § 1452; (2) if there is “related to” bankruptcy jurisdiction, was the removal procedurally deficient because there was no unanimous consent; (3) if there is jurisdiction, should mandatory abstention under § 1334(c)(2) apply; and (4) if there is jurisdiction, should the court in its discretion permissively abstain from exercising it under § 1334(c)(1)?

It is apparent from this Court’s memoranda and orders in MDL 1446 that it had independently come to the same conclusions as’ Judge Eginton regarding these issues in the instant action. Moreover, while acknowledging that the scope of “related to” bankruptcy jurisdiction is unsettled, the Court is confident that its rulings are well founded and supported by substantial recent case law and that an exception from the rule against piecemeal appeals is not warranted here. With respect to the three conditions required for a petition for certification of interlocutory appeal, i.e., that the question be a controlling issue of law, that there is substantial ground for disagreement about the issue of law, and that an immediate appeal appears to advance the ultimate termination of the MDL 1446 litigation, the Court is persuaded by the last requirement and by its implications in the context of this huge MDL litigation, to deny the petition. The Court finds that not only would the appeal not materially advance the ultimate termination of the litigation, since the instant action is only tangentially related to the substantive claims of the

Newby

class action, but that such an appeal would obstruct the progress of this very complex action over which this Court has imposed an orderly and efficient discovery schedule. Furthermore, this issue relates to cases from a number of circuit courts of appeals with differing views. Indeed Judge Eginton’s order was issued in the Second Circuit, but with the transfer here, would be reviewed by the Fifth Circuit. Because of the division among courts, this Court is convinced that ultimately a ruling by the Supreme Court or action by Congress, will be required to resolve the question, and such a process would be lengthy and most likely not final until after the resolution of this litigation.

Therefore the Court denies the petition for certification of an interlocutory appeal.

D. Credit Agency Defendants’ Motion for Leave to File Motions to Dismiss and for a Stay of Discovery (# 237), in other words for relief from this Court’s scheduling order (# 1561 in

Newby)

staying the filing of amended pleadings and/or responsive pleadings in coordinated cases until the Court resolves the class certification motions in

Newby

and

Tittle.

Describing themselves as “the three leading providers of rating opinions about the credit worthiness of securities and securities issuers in the United States” published “to subscribers and the general public,”

29

Standard & Poor’s, Moody’s, and Fitch, while preserving their right to contest the court’s personal jurisdiction over them, seek to file their motions to dismiss on an expedited basis

30

and for a limited stay of discovery against them because they are convinced that they should be dismissed based “on their well established

*777

First Amendment rights as publishers” and wish to avoid extraordinary burdens of time and money that discovery would entail, as well as the “inhibition of] the free flow of information on matters of public concern.” # 237 at 2.

Obviously, any value in expedited consideration has been defeated at this point by the sheer size and volume of this litigation, which has severely taxed the Court’s ability to address in a timely matter countless matters in the myriad MDL 1446 cases. Nevertheless, the Credit Rating Agencies represent that CRRA has consented to the relief they seek and to the extent that the parties have worked matters out by agreement, parts of the motion may no longer be in dispute, the matter is resolved. As indicated earlier, the Court grants the motion for leave to file the motions to dismiss and, since the Court resolves the motions to dismiss

infra,

finds the request for a stay of discovery to be MOOT.

E.CRRA’s Motion to Consolidate H-03-1558 with H-03-1579 (#246 in H-03-1558) and Rebecca Mark-Jusbasche’s Motion to Consolidate the same cases (# 41 in H-03-1579).

Apparently, while the case was pending in the United States District Court for the District of Connecticut, the docket sheet reflects entry of an order on 12/20/02 by Judge Eginton granting Rebecca MarkJusbasche’s motion to consolidate these two actions, but there is no such instrument in the file.

31

Moreover, the parties have continued to file instruments in the separate cases with no recognition of consolidation. Thus to clarify this situation, the Court grants both motions to consolidate and henceforth the parties shall file all pleadings in the older, lead case, H-03-1558.

F. Plaintiffs motion to file sur-reply (# 321) to Andrews & Kurth L.L.P.’s reply

The motion to file sur-reply, which was submitted as #322, is unopposed. The Court therefore grants the motion and has considered the sur-reply in resolving the motion to dismiss.

G. Defendant Andrews & Kurth L.L.P.’s Motion to Dismiss (#254)

1. Allegations in the Amended Complaint

The complaint identifies Andrews & Kurth as outside general counsel to Enron at all relevant times, i.e., between 1998 and December 2, 2001.

Three causes of action are asserted against Andrews

&

Kurth. With respect to the first two, Andrews & Kurth is charged with knowingly and intentionally aiding and abetting in fraudulent misrepresentations and aiding and abetting in negligent misrepresentations about Enron, including about its operations, performance, profitability, liquidity, debt structure, indebtedness, and debt and borrowing capacity, as issued in its financial statements and SEC filings, press releases, and publicly disseminated reports and disclosures, purportedly for the purpose of furthering Enron’s illegitimate business interests and Ponzi scheme to deceive the business community and investing public, including CRRA, by inflating Enron’s revenue and hiding billions of dollars of its debt. CRRA claims that it reasonably and justifiably relied on such numerous, false statements in making its decision to do business with Enron. In a third count against the law firm, the complaint asserts that An

*778

drews & Kurth and the other Defendants violated CUTPA, Conn. Gen.Stat. § 42-110a,

et seq.

The First Amended Complaint at ¶ 280 asserts that the law firm represented Enron in twenty eight FAS 140

32

Transactions, “one of Enron’s favorite tools for improperly reporting inflated income while keeping crippling amounts of debt off its financial statements and public disclosures.”

33

Plaintiff alleges that these transactions were

structured by Enron to monetize an otherwise illiquid asset, remove the asset from its balance sheet in a purported sale but nonetheless retain control over the asset in order to time the final disposition or sale of the asset. Enron used these transactions to improperly report inflated income on its financial statements and public disclosures. Indeed, these transactions did not constitute “true sales,” but rather were loans and the resulting proceeds should have been recorded and publicly reported as debt.

According to the complaint, even though Andrews & Kurth knew that the transactions would not be recorded as debt, but instead as gain, on Enron’s balance sheet and that Enron would retain control over, and ultimate ownership of, the purportedly transferred asset(s), Andrews & Kurth issued “true sales” opinion letters representing that Enron was “legally isolated” from these assets, as required by FAS 140. Moreover, it alleges that Andrews

&

Kurth knew that these opinion letters were provided to Arthur Andersen L.L.P. to serve as a basis for its materially misleading accounting treatment in Enron’s financial statements. Enron did prepay and unwind many of the transactions before their contemplated maturity date, sometimes (with particular examples cited in the complaint) while Andrews & Kurth was still working on the opinion letter relating to a transaction’s original creation. First Amended Complaint at ¶¶ 284-90. While drafting the related “true sale” opinion letters, Andrews & Kurth also purportedly helped Enron in the unwinding of fifteen related transactions, the documents for which had express provisions for prepayment and continuing retention of control over and immediate reacquisition of “sold” assets by Enron.

34

The complaint also claims that Andrews & Kurth expressed concern to Enron about the propriety of allowing Enron to prepay at any time to retrieve the assets, but that in deals closing in December 1999 the law firm “was given very clear instructions that Enron had to be able to prepay and get the assets back at any time” and thus had included that express right in the documents. First Amended Complaint at ¶ 185.

35

2. The Arguments and Court Comments

Andrews

&

Kurth moves to dismiss the complaint against it, which it claims “boils down to conclusory allegations that CRRA was fraudulently induced into a transaction

*779

in which A & K had

no role

based upon false financial statements that A & K

neither generated nor audited.

A & K’s only action was drafting opinion letters for its client in wholly unrelated transactions that are not alleged to have reached the Plaintiff nor to have been drafted for the benefit of the Plaintiff.” # 254 at 1.

With respect to the CUTPA claim, Andrews & Kurth contends that it fails because (1) Connecticut law does not apply to a Texas law firm’s actions in representing a Texas client, writing opinion letters addressed to Enron in Texas and provided to Arthur Andersen in Texas or Illinois, and (2) the Connecticut Supreme Court has held that for public policy reasons such a CUTPA cause of action does not exist for attorney/client services.

Andrews & Kurth maintains that for CUTPA to apply, “the violation ‘must be tied to a form of trade or commerce

intimately associated

with Connecticut [citation omitted].’ ”

Titan Sports, Inc. v. Turner Broadcasting Sys., Inc.,

981 F.Supp. 65, 71 (D.Conn.1997). Andrews

&

Kurth emphasizes that there is no nexus between Andrews & Kurth and Connecticut that implicates trade or commerce in Connecticut. The conclusory allegation that the law firm “derives substantial revenue from interstate international commerce, including from business within the State of Connecticut,” is insufficient to trigger the statute.

Alexander Hamilton Life Ins. Co. v. James River Corp. of Va.,

No. 3:96cv1100(AHN), 1997 WL 13053 , *7 (D.Conn. Jan. 14, 1997)(dismissing CUTPA claim where, as here, the plaintiff “failed to allege what trade or commerce occurred in Connecticut” that gave rise the “the alleged wrongdoing”).

After researching the question, the Court finds that the geographical reach of CUTPA has not been definitively resolved. On the one hand the clear language of the statute seems to support applying the statute to conduct involving “trade and commerce” in Connecticut because in defining that phrase, § 42-110(4) restricts it to

specific acts

“in this state.” Nevertheless, § 42-110g(b) provides that persons “entitled to bring an action under subsection (a) of this section may ... bring a class action on behalf of themselves and other persons similarly situated who are residents of this state or injured in this state to recover damages [emphasis added by the Court],” suggesting that even where the tortious acts occur out-of-state, where persons in Connecticut are injured, a claim may be brought under CUTPA. Although no appellate court has addressed the question, several lower courts have held that even where the violations have occurred completely out-of-state, CUTPA applies if “the injury, i.e., the economic impact, occurred in Connecticut.”

See, e.g., Titan Sports, Inc. v. Turner Broadcasting Systems, Inc.,

981 F.Supp. at 72 n. 5 (and cases cited therein);

Connecticut Pipe Trades Health Fund v. Philip Morris, Inc.,

153 F.Supp.2d 101, 107 (D.Conn.2001)

(citing Titan Sports

for the holding “that CUTPA applies to out-of-state defendant whose allegedly deceptive acts occurred outside the state but were broadcast within Connecticut and injured plaintiff in Connecticut”);

Federici v. Gans,

No. CV 940317690S, 1999 WL 49779 , *2 (Conn.Super.l999)(finding there was “sufficient showing that the economic impact of the unfair trade practice occurred in Connecticut” to sustain a CUTPA claim)

(citing Uniroyal Chemical Co., Inc. v. Drexel Chemical Co., Inc.,

931 F.Supp. 132 (D.Conn.1996) for the proposition that “a CUTPA claim may also be maintained where there is sufficient showing that the economic impact of the unfair trade practice occurred in Connecticut”);

Voltec Int’l, Inc. v. Allied Signal Aerospace Co.,

No. 3:93CV01171(WWE), 1997 WL 288627 ,

*1

(D.Conn. Mar. 7, 1997) (“in the context of a multistate transaction,

*780

where choice-of-law principles dictate that the law of Connecticut should be applied, a cause of action may exist under CUTPA even though none of the acts complained of took place in Connecticut”).

Nevertheless, one treatise maintains that the legislative history, which the authors concede is not reliable because it consists of statements made long after the enactment of the statute, demonstrates that the legislature did not intend to allow CUTPA to cover conduct “merely ‘affecting’ trade or commerce” in Connecticut and rejected language to that effect (i.e., “wherever situate, and shall include any trade or commerce directly or indirectly affecting the people of this state”), choosing instead to restrict its reach to conduct occurring “in this state.” Robert M. Langer, John T. Morgan, and David L. Belt, 12 Conn. Prac., Unfair Trade Practice § 3.7 (“Conduct Outside Connecticut”) (West 2004). The same treatise, without demonstrating similarities in the aim or nature of either statute, notes the use of a similar phrase in section 5 (authorizing the Federal Trade Commission to proceed only against “unfair methods of competition in commerce”

36

) of the Federal Trade Commission Act, passed in 1924, 15 U.S.C. § 45 , and in effect at the time that CUTPA was enacted in 1973, may be relevant to construing what the Connecticut legislature intended in enacting CUTPA. In

F.T.C. v. Bunte Bros.,

312 U.S. 349, 350-51 , 61 S.Ct. 580 , 85 L.Ed. 881 (1941), the Supreme Court interpreted “commerce” as limited to interstate commerce and refused to read it expansively to mean “affecting commerce.” In 1975, the FTC Act was amended to reach “unfair or deceptive acts or practices in

or affecting

” commerce; in contrast the Connecticut legislature never amended its statute and its silence and inaction suggest that it did not wish to expand CUTPA’s geographical reach to conduct outside the state that affected commerce in Connecticut. Langer,

et al.,

12 Conn. Prac. § 3.7. The Court finds that neither one of these somewhat attenuated arguments is persuasive.

Because there is judicial authority for allowing a CUTPA claim based on violations outside of state that affect trade and commerce in Connecticut and where injury occurs to Connecticut residents, the Court finds that the statute applies to that extent.

Even if the statute is applicable to Andrews & Kurth’s conduct outside of Connecticut that allegedly injured CRRA in Connecticut, Andrews & Kurth argues that acts taken by an attorney in the “representation of the client in a legal capacity” are “excluded for public policy reasons”; thus actions such as Andrews & Kurth’s opinion letters for Enron are not actionable under CUTPA.

Jackson v. R.G. Whipple, Inc.,

225 Conn. 705, 731 , 627 A.2d 374, 386 (1993)(Berdon, J., concurring)

37

As the panel explained in

Jackson ,

225 Conn, at 727, 627 A.2d at 384 ,

“Determining when attorneys should be held liable to parties with whom they are not in privity is a question of public policy.” ... Providing a private cause of action under CUTPA to a supposedly aggrieved party for the actions of his or her opponent’s attorney would stand the attorney-client relationship on its head and would compromise an attorney’s

*781

duty of undivided loyalty to his or her client and thwart the exercise of the attorney’s independent professional judgment on his or her client’s behalf.

Id.

(citations omitted).

38

Next, Defendant argues that CRRA’s claim for aiding and abetting negligent misrepresentation fails to identify any particular misrepresentations by Andrews & Kurth, no less to assert that CRRA relied on such. The only allegedly false statements that CRRA expressly claims to have relied upon were those in public filings, credit rating reports, and statements by Enron, in creation of which Andrews & Kurth had no role. Furthermore Andrews & Kurth contends that CRRA has not identified any duty Andrews

&

Kurth had to prevent, to police, or to stop the fraudulent accounting practices or the Enron Transaction in dispute, in which Andrews

&

Kurth maintains it had no role, for which the firm made no proposals, and regarding which the firm did not participate in the structuring or drafting. Andrews & Kurth cites this Court’s decision in

In re Enron Corp. Sec., Derivative & ERISA Litig.,

235 F.Supp.2d 549, 706 (S.D.Tex.2002)(dismissing claims against Kirkland

&

Ellis because there were no allegations against it of material misrepresentations or omissions to investors or the public generally, because the documents it drafted were for private transactions and were not included in or drafted for any public disclosure or shareholder solicitation, and because it was not Enron’s counsel for securities or SEC filings).

As a threshold matter, the Court notes that the claims against Kirkland & Ellis were grounded in different law than the claims against Andrews & Kurth. Moreover, although Andrews & Kurth argues that this Court’s decision granting Kirkland

&

Ellis’ motion to dismiss supports a similar action here, the pleadings are distinguishable. The Court found the allegations against Kirkland and Ellis were conelusory and general, whereas here CRRA has identified twenty-eight separate and allegedly deceptive opinion letters drafted by Andrews

&

Kurth and unwindings by Andrews & Kurth of four of those transactions, contradicting the substance of those letters. In addition, and a key factor here, Andrews

&

Kurth did not prepare these documents to provide misleading information to its client, Enron, because Enron already knew that it was repurchasing assets that Andrews

&

Kurth was representing were beyond Enron’s reach. Instead the nature of the purported information in the documents indicate that the information in the letters was intended, by both Enron and Andrews

&

Kurth, to deceive persons outside the attorney-client relationship. The complaint has alleged that Andrews

&

Kurth knew that its opinion letters were used by Arthur Andersen as a basis for its purportedly misleading financial statements, which it also knew were incorporated into the public SEC filings and which Andrews & Kurth had reason to expect would mislead the public and fraudulently induce entities like CRRA to enter into business with and lend money to a foundering corporation. Thus third parties like CRRA were the intended or foreseeable recipients of Andrews & Kurth’s allegedly fraudulent legal services.

*782

Moreover, argues Defendant, analogizing aiding and abetting to civil conspiracy,

39

an allegation that Andrews & Kurth knowingly and intentionally aided and abetted negligent misrepresentations of Enron’s financial status is inherently contradictory and is not legally cognizable.

In re Am. Cont’l Corp./Lincoln Sav. & Loan See. Litig.,

794 F.Supp. 1424, 1439 (D.Ariz.1992)(rejecting claim and observing “other courts have found the concept of secondary liability for negligence to be inherently inconsistent”). To aid and abet, one must have “knowledge” of the primary actor’s tortious conduct and “substantially assist” in effecting that conduct.

Morin v. Trupin,

711 F.Supp. 97, 112 (S.D.N.Y.1989)(elements of aiding and abetting are (1) existence of a primary fraud, (2) aider and abettor must have knowledge of that fraud, and (3) the aider and abettor must provide substantial assistance to achieve the primary fraud). Be

*783

cause civil conspiracy requires specific intent, and because a person cannot agree to commit a wrong about which he has no knowledge, some courts have concluded that parties cannot commit conspiracy to be negligent.

Firestone Steel Products Co. v. Barajas,

927 S.W.2d 608, 614 (Tex. 1996);

Triplex Communications Inc. v. Riley,

900 S.W.2d 716, 719 (Tex. 1995)(same).

Cf. Texas Dept. of Transportation v. Able,

35 S.W.3d 608, 613 (Tex. 2000)(Joint enterprise liability views each defendant as the agent of the other and holds each responsible for the negligent act of the other).

But see In re ZZZZ Best Sec. Litig.,

No. CV87-3574RSWL, 1990 WL 132715 , *12 (C.D.Cal. July 23, 1990) (“Since aiding and abetting liability requires allegations of knowledge, it would not seem to be compatible with negligent misrepresentation which is based on the conduct of an actor that does not have to be done with knowledge. However, the aider and abettor is not the same party as the one who allegedly made the negligent misrepresentation. Thus the aider and abettor could knowingly further a misrepresentation that was negligently made by another party.”).

In sum, Andrews & Kurth insists that “CRRA’s attempt to manufacture secondary liability for alleged negligent misrepresentations by Enron and the Enron Defendants must fail.” # 254 at 10.

Third, regarding the cause of action for aiding and abetting fraudulent misrepresentation, Plaintiff fails to satisfy the knowledge requirement, which Andrews & Kurth contends turns on whether the abettor owed a duty to the Plaintiff. Here, it insists, Plaintiff has failed to show that Andrews & Kurth owed a duty to CRRA to prevent, intercept or disclose the alleged fraud in a transaction in which Andrews & Kurth maintains it played no role. Andrews & Kurth argues that for a claim of fraud by nondisclosure, there generally must be a duty to disclose arising from a fiduciary relationship or a previously incomplete and misleading representation, neither of which is pled here.

Lesikar v. Rappeport,

33 S.W.3d 282, 319 (Tex. App.-Texarkana 2000, pet. den.);

Renovitch v. Kaufman,

905 F.2d 1040,1048 (7th Cir.1990). Because an attorney must protect the confidences of his client, a third party does not have a fraud claim against an attorney who fails to disclose information about a client, even a client perpetrating fraud.

Lesikar,

33 S.W.3d at 319-20 ;

Renovitch,

905 F.2d at 1047 . Thus seven if Enron were defrauding CRRA, CRRA has no claim against Andrews & Kurth based on its silence or inaction.

Andrews

&

Kurth contends that where there is no fiduciary or contractual duty running from the alleged aider and abettor to the Plaintiff, as is the situation here, silence and inaction may satisfy the substantial assistance requirement only where the plaintiff shows that “the defendant ... possesses] a ‘high conscious intent’ and a conscious and specific motivation to aid the fraud.”

Woodward v. Metro Bank of Dallas,

522 F.2d 84, 97 (5th Cir.1975).

40

See also Abell v. Potomac Ins. Co.,

858 F.2d 1104, 1126-27 (5th Cir.1988)(“When it is impossible to find any duty of disclosure, an alleged aider-abettor should be found liable only if scienter of the high ‘conscious intent’ variety can be proved. Where some special duty of disclosure exists, then liability should be possible with a lesser degree of scienter.... Silent acquiescence never indicates by itself that the abettor wants the fraudulent scheme to succeed; here we usually require proof of ‘conscious intent.’ ”),

cert. denied sub nom. Abell v.

*784

Wright, Lindsey & Jennings,

492 U.S. 918 , 109 S.Ct. 3242 , 106 L.Ed.2d 589 (1989). Andrews

&

Kurth maintains that it owed no duty to CRRA and that CRRA has failed to allege a high conscious intent and specific motivation to aid in the fraud.

41

In opposition, CRRA argues, and this Court agrees, that even if the “conscious intent” test does apply to common law aiding and abetting,

42

the Fifth Circuit jury charge for “conscious intent” requires only that the plaintiff show that the defendant knew of the existence of the securities violation and understood that its actions aided in promoting the success of the securities violation.

Akin v. Q-L Investments, Inc.,

959 F.2d 521, 536 (5th Cir.l992)(“Conscious assistance has two aspects. First the plaintiff must prove that the defendant had knowledge of the existence of the securities violation and generally understood how its actions aided in promoting the success of the securities violation. Second, the plaintiff must prove that the defendant intended to further the securities violation.”). “The second element of scienter — commitment—would be met where evidence shows that the abettor acts from a desire to help the fraud succeed.”

Id.

at 536 n. 14. CRRA insists that it has alleged these elements and shown that the law firm was aware of and associated itself with Enron’s fraud; CRRA has cited evidence corroborating Andrews

&

Kurth’s knowledge, including its admissions of instructions from Enron to violate FAS 140, its internal communications expressing its concerns, and its participation in unwinding transactions while simultaneously working on opinion letters to support them as “true sales.”

Andrews & Kurth contends that CRRA’s pleading also fails to demonstrate that the law firm “substantially assisted” in any fraudulent misrepresentation for aiding and abetting liability because it fails to allege that Andrews & Kurth drafted, reviewed or authorized any statement on which CRRA claims to have relied in connection with the Enron Transaction.

Morin,

711 F.Supp. at 113 (“In the context of aiding and abetting, where the primary violations consist of either misrepresentations in, or omissions from, a document, the substantial assistance must relate to the preparation or dissemination of the document itself.”). Reading “preparation” and “document” narrowly, the firm insists that Andrews & Kurth’s opinion letters, even if they contained misrepresentations,

*785

do not constitute substantial assistance to the primary securities law violation, i.e., the misrepresentations relied upon by CRRA. Andrews

&

Kurth further argues CRRA never identified any misinformation that was prepared or transmitted by Andrews & Kurth to CRRA and on which CRRA relied, no less that Plaintiff also failed to allege that the law firm even made a misrepresentation on which the law firm intended CRRA to rely.

McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests,

991 S.W.2d 787, 791, 794 (Tex.1999) (A claim under the Restatement (Second) of Torts § 552

43

“is available only when information is transferred by an attorney to a known party for a known purpose”; liability is limited “to situations in which the attorney who provides the information is aware of the non-client and intends that the nonclient rely on the information”);

Johnson & Higgins of Texas, Inc. v. Kenneco Energy, Inc.,

962 S.W.2d 507, 524 (Tex.1998).

44

Instead

*786

CRRA has expressly stated that it relied on credit reports improperly prepared by Credit Agencies derived from false representations by Enron, audited financial statements and SEC filings improperly prepared by Andersen and made by Enron, and public and private statements made by Enron representatives.

CRRA disagrees with Andrews & Kurth’s contention that CRRA has failed to plead substantial assistance for aiding and abetting liability. CRRA maintains that substantial assistance requires only that the allegations be “sufficiently specific to inform the defendant of the precise nature of the charges against him.”

Neil-son v. Union Bank of California, N.A.,

290 F.Supp.2d 1101, 1131 (C.D.Cal.2003) (“Where aiding and abetting is the gravamen of the claim, Rule 9(b) requires that the complaint ... inform [the defendant] ... what he did that constituted ... ‘substantial assistance.’ ”).

45

The motion to dismiss also emphasizes that aiding and abetting must be pled with particularity under Federal Rule of Civil Procedure 9(b), but argues the complaint fails to identify the misrepresentations made by Andrews & Kurth or to plead facts and circumstances demonstrating that the Andrews

&

Kurth’s conduct and intent were fraudulent, indeed that the law firm was in any way involved in the Enron Transaction or that it made any profit from that Transaction.

Morin,

711 F.Supp. at 113 .

Specifically CRRA accuses Andrews & Kurth of providing essential assistance to Enron’s fraudulent scheme to hide debt and build up revenue by its participation in twenty-eight FAS 140 transactions and in

*787

unwinding fifteen related transactions because these transactions fraudulently permitted Enron to retain control over the transferred assets and to “doctor” its books. At times working simultaneously on the opinion letters to support these transactions and on the unwinding of them, often at critical reporting times, Andrews

&

Kurth knew that these transactions lacked economic substance and were not “true sales.” CRRA maintains that in deciding to do business with Enron it relied on financial statements that were generated as a result of Andrews & Kurth’s aid and assistance to the scheme.

Noting that it has not alleged that Andrews

&

Kurth committed a primary violation, even though the law firm’s arguments seem to charge that CRRA has, CRRA maintains that it has adequately satisfied both the knowledge and substantial assistance prongs for aiding and abetting fraudulent misrepresentation. Under the Restatement (Second) of Torts § 876(b) (1977), “for harm resulting to a third person” (CRRA) from the tortious conduct of another (Enron), CRRA need only allege (1) that Enron committed a wrongful act that caused injury, (2) that Andrews & Kurth knew that Enron’s conduct constituted a breach of duty and (3) that Andrews & Kurth gave substantial assistance or encouragement to Enron in breaching that duty.

FDIC v. Romaniello,

No. CV 92-0294248, 1992 WL 369557 (Conn.Super. Dec. 3, 1992)(Although Connecticut has not recognized a cause of action for aiding and abetting a common law fraud, following

Halberstam v. Welch,

705 F.2d 472 (D.C.Cir.1983), it recognizes the theories of conspiracy, or concerted action by agreement, and aiding and abetting, or concerted action by substantial assistance, as embodied in the Restatement (Second) of Torts § 876 (1979), “Persons Acting in Concert”: “For harm resulting to a third person from the tortious conduct of another, one is subject to liability if he (a) does a tortious act in concert with the other or pursuant to a common design with him ... or (b) knows that the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself....”). Indeed this Court observes that several lower courts in Connecticut have recognized the § 876(b) cause of action.

See also Brunette v. Bristol Savings Bank,

No. CV 92-0453957S, 1994 WL 468448 , *2 (Conn.Super. Aug. 22, 1994) (following

Romaniello

and identifying as elements of aiding and abetting fraudulent actions of a co-defendant “(1) the party whom the defendant aids must perform a wrongful act that causes injury; (2) the defendant must be generally aware of [its] role as part of an overall illegal or tortious activity at the time [it] provides assistance; (2) the defendant must knowingly and substantially assist the principal violation.”);

In re Colonial Ltd. P’ship Litig.,

854 F.Supp. 64 , 102 (D.Conn.1994)(same);

Shuster v. Lyons,

No. CV910036302S, 1994 WL 472419 , *6 (Conn.Super. Aug. 7, 1997)(Connecticut accepted a doctrine analogous to civil conspiracy in the theory of liability under § 876 of the Restatement (Second) Torts in

Carney v. DeWees,

136 Conn. 256, 262 , 70 A.2d 142 (1949));

Calore v. Town of Stratford,

No. CV980357147S, 2001 WL 58364 , *4 (Conn.Super. Jan. 8, 2001). Moreover the state’s Supreme Court has long recognized a common law claim for aiding and abetting a tort or statutory violation.

Carney v. DeWees,

136 Conn. 256, 262 , 70 A.2d 142, 146 (1949) (for asserting an aiding and abetting claim, as stated in the Restatement (Second) § 876 (1965), “a person is liable if he ... (b) knows that the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct itself. If the encouragement or assistance is a substantial factor in causing the resulting tort, the one giving it is himself a tortfeasor and is responsible

*788

for the consequences of the other’s act”);

Slicer v. Quigley,

180 Conn. 252, 259 , 429 A.2d 855, 859 (1980),

overruled on other grounds, Ely v. Murphy,

207 Conn. 88 , 540 A.2d 54 (1988);

Conn. National Bank v. Giacomi,

242 Conn. 17, 63 , 699 A.2d 101, 126 (1997).

See also Feen v. Benefit Plan Administrators, Inc.,

No. 406726, 2000 WL 1398898 , *9 (Conn.Super. Sept. 7, 2000)(“With respect to claims of aiding and abetting, Connecticut has adopted 4 Restatement (Second) Torts § 876(b)(1977)....”).

Furthermore, § 876(b) applies to both intentional and negligent tortious acts. Comment d to § 876(b);

Dudrow v. Ernst & Young, LLP,

No. X01 CV 980144211, 1998 WL 800204 , *12 (Conn.Super. Nov. 4, 1998)(aiding and abetting claims for intentional and negligent misrepresentations are cognizable under § 876).

See also Fortae v. Holland,

334 Ill.App.3d 705, 720 , 268 Ill.Dec. 173 , 778 N.E.2d 159, 171 (2002)(in-concert liability under § 876(b) applies to knowing, substantial assistance of either intentional or negligent wrongdoing of other actors),

appeal denied,

202 Ill.2d 669 , 272 Ill.Dec. 357 , 787 N.E.2d 172 (2003);

Wright v. Brooke Group Ltd.,

652 N.W.2d 159, 172-74 (Iowa 2002)(under § 876 “the plaintiff may base a claim of civil conspiracy on wrongful conduct that does not constitute an intentional tort”).

Finally, challenging CRRA’s standing to bring this suit against the law firm, Andrews & Kurth urges that CRRA is merely one of many creditors to whom Enron owed money and that its claim can only be brought by the Creditors’ Committee in the Enron bankruptcy proceedings. Alternatively, Andrews & Kurth argues that like other Enron creditors, CRRA has no standing to sue on any claim against Andrews & Kurth outside of the Enron bankruptcy because any cognizable claim against a professional working for the debtor, Enron, belongs exclusively to the bankruptcy estate since the alleged generalized injury is to the Enron estate and would affect all other creditors. CRRA does not allege a specific misrepresentation made by Andrews

&

Kurth to CRRA, but only that the law firm knew that the transactions for which it had been retained by Enron contributed to the false financial statements upon which creditors generally would rely; thus the claim arises out of Andrews & Kurth’s relationship with Enron, not with individual creditor CRRA. Andrews & Kurth reiterates that CRRA has failed to allege any duty running from the law firm to itself and no direct injury to CRRA arising from a breach of such a duty. Any duty Defendant breached was a duty to Enron, and thus any resulting injury was to Enron.

3. Court’s Ruling

a. Personal Jurisdiction

As an initial matter, CRRA argues that Andrews & Kurth belatedly claimed that Connecticut courts lack personal jurisdiction over the law firm; CRRA insists that Andrews & Kurth has waived that defense because it failed to raise it in its motion to dismiss. Fed. R.Civ.P. 12(h)(1) (“A defense of lack of jurisdiction over the person ... is waived (A) if omitted from a motion in the circumstances described in subdivision (g), or (B) if it is neither made by motion under this rule nor included in a responsive pleading or an amendment thereof permitted by Rule 14(a) to be made as a matter of course.”).

Titan Sports, Inc. v. Hellwig,

No. 3:98-CV-467 (EBB), 1999 WL 301695 , *7 (D.Conn. Apr. 26,1999)(“Under Federal Rule of Civil Procedure 12(h)(1), a party waives the defense of lack of personal jurisdiction when it is neither raised in the first pre-answer motion pursuant to Rule 12(b), nor included in a responsive pleading or an amendment to the pleading permitted as of right by Rule 51(a).... Thus

*789

a litigant ordinarily must raise a personal jurisdiction defense ‘at the time he makes his first significant defensive move— whether it be by way of a Rule 12 motion or a responsive pleading.’ ’’Xquoting 5A Charles A. Wright and Arthur R. Miller,

Federal Practice and Procedure

§ 1391 (1990)).

Andrews & Kurth contends that such waiver was impossible because it was never sued in Connecticut; instead CRRA added Andrews & Kurth as a defendant on December 23, 2003 by amended complaint, eight months after the case was transferred to this Court by the Judicial Panel on Multidistrict Litigation.

First, this Court observes that the Second Circuit prefers the term “forfeiture” rather than “waiver” of the personal jurisdiction defense in such circumstances.

Hamilton v. Atlas Turner, Inc.,

197 F.3d 58, 61 (2d Cir.1999)(“The term “waiver’ is best reserved for a litigant’s intentional relinquishment of a known right. Where a litigant’s action or inaction is deemed to incur the consequence of loss of a right, or, as here, a defense, the term ‘forfeiture is more appropriate.’ ”) (and cases cited therein).

The multidistrict litigation statute authorizes federal courts to exercise nationwide jurisdiction. 28 U.S.C. § 1407 (providing for the transfer of actions pending in different districts “to any district for coordinated or consolidated pretrial proceedings”);

In re “Agent Orange” Product Liability Litigation MDL No. 381,

818 F.2d 145, 163 (2d Cir.1987)(The Judicial Panel on Multidistrict Litigation “has recognized, ‘Transfers under Section 1407 are simply not encumbered by considerations of in personam jurisdiction and venue.... Following a transfer, the transferee judge has all the jurisdiction and powers over pretrial proceedings in the actions transferred to him that the transferor judge would have had in the absence of transfer.’ ”),

cert. denied sub nom. Pinkney v. Dow Chemical Co.,

484 U.S. 1004 , 108 S.Ct. 695 , 98 L.Ed.2d 648 (1988). Thus this Court would have the same in person-am jurisdiction as the transferor Connecticut federal court, and no more.

Furthermore, the MDL Panel has held that the phrase “pretrial proceedings” encompasses a motion to dismiss for lack of personal jurisdiction.

Hamilton v. Atlas Turner, Inc.,

197 F.3d at 62 ,

citing the following cases: In re Gypsum Wallboard,

302 F.Supp. 794, 794 (J.P.M.L.1969) (“ ‘[mjotions to .... dismiss for lack of jurisdiction are being routinely considered by courts to which multidistrict litigation has previously been transferred and we see no good reason why [the defendant] cannot pursue its remedies following transfer’ ”);

In re Agent Orange Product Liability Litig.,

996 F.2d 1425, 1435 (2d Cir. 1993),

cert. denied,

510 U.S. 1140 , 114 S.Ct. 1125 , 127 L.Ed.2d 434 (1994);

Stirling v. Chemical Bank,

382 F.Supp. 1146, 1150 (S.D.N.Y.1974),

aff'd,

516 F.2d 1396 (2d Cir.1975); and 15 Charles A. Wright, Arthur R. Miller, Edward H. Cooper,

Federal Practice and Procedure

§ 3866 (2d ed. Supp.1999) (“ ‘Transferee courts have ruled on a wide range of preliminary and factual questions, such as ... motions to dismiss for lack of jurisdiction.’ ”).

46

An

*790

drews & Kurth, added after that transfer, has not yet challenged personal jurisdiction under Connecticut’s long arm statute and minimum contacts under the Fourteenth Amendment in the motion to dis-. miss that it has filed in this Court and an attempt to do so now might be deemed untimely.

Regardless, where there is “related to” bankruptcy jurisdiction, as here, the personal jurisdiction challenge based on minimum contacts with the forum state is irrelevant. 17 Charles A. Wright, Arthur R. Miller and Edward H. Cooper,

Fed. Prac. & Procedure,

§ 4106 (2004 Supp.)(“Bankruptey Rule 7004 provides for nationwide service of process in adversary proceedings arising in the bankruptcy courts. Therefore in determining whether the bankruptcy court has personal jurisdiction over the adversary defendants, the relevant question to be asked is not whether defendants have minimum contacts with the forum state, but whether the defendants have sufficient contacts with the United States for the exercise of personal jurisdiction to comport with traditional notions of fair play and substantial justice.”);

In re Enron Corp.,

316 B.R. 434, 444 (Bkrtcy.S.D.N.Y.2004) (Bankruptcy Rule 7004(f) “does not require that a state ‘minimum contacts’ analysis be undertaken to determine personal jurisdiction in a federal question case such as an adversary proceeding. ... [Ojnly a federal ‘minimum contacts’ test in required, whereby the Fifth Amendment’s Due Process Clause limits a bankruptcy court’s exercise of personal jurisdiction over a defendant.”);

Cytomedix v. Little Rock Foot,

287 B.R. 901, 903 (N.D.Ill.2002)(Minimum contacts analysis of

International Shoe Co. v. Washington,

326 U.S. 310, 316 , 66 S.Ct. 154 , 90 L.Ed. 95 (1945), does not apply in bankruptcy context where the court has “related to” jurisdiction because the resolution of the action affects the bankrupt’s estate). Here Andrews

&

Kurth clearly has contacts with the nation as a whole. Moreover the Court does not find that trying the case in New York or in Connecticut

47

would be fundamentally unfair under the Fifth Amendment Due Process Clause. The law firm has not shown that trial in these states would be so costly, burdensome, or inconvenient so as to deprive Andrews & Kurth of its day in court. Andrews & Kurth does business around the country and has represented national and international entities.

b. Applicable State Law

The second threshold issue here is which state’s choice of law rule applies.

In diversity jurisdiction cases, the choice of law rules of the state in which the court sits apply.

Klaxon Co. v. Stentor Elec. Mfg. Co.,

313 U.S. 487, 496 , 61 S.Ct. 1020 , 85 L.Ed. 1477 (1941). In federal question jurisdiction cases, where a court is exercising supplemental jurisdiction over state-law claims, a federal court also applies the choice of law rules of the forum state to the state law claims.

Id.; Paracor Fin., Inc. v. Gen. Elec. Capital Corp.,

96 F.3d 1151 , 1164 (9th Cir.1996). In the instant case, however, which was transferred under § 1407, a different analysis applies. Generally if a case is transferred under 28 U.S.C. § 1406 , the choice of law rules of the transferee court apply.

Nelson v. Int’l Paint Co.,

716 F.2d 640, 643 (9th Cir.1983). But when a case has been

*791

transferred pursuant to 28 U.S.C. § 1404 (a), the choice of law rules of the transferor court are applied.

Ferens v. John Deere,

494 U.S. 516, 525 , 110 S.Ct. 1274 , 108 L.Ed.2d 443 (1990). This Court has previously found that a transfer under § 1407 in a case involving only state-law claims is more akin to the latter, where the venue was proper in the transferor federal district court, but the transfer by the Judicial Panel for Multidistrict Litigation was for convenience and efficiency. #2143 at 15;

In re Nucorp Energy Sec. Litig.,

772 F.2d 1486, 1492 (9th Cir.1985) (and cases cited therein) (“we must apply the choice of law rules of Illinois because the claims were originally filed in the district court in Illinois before they were transferred to California by the Judicial Panel on Multidistrict Litigation”). Thus the choice of law rules of Connecticut apply here.

In tort cases, including causes of action for misrepresentation, Connecticut previously followed the traditional

lex loci delicti

doctrine, i.e., that the law of the place of injury governs. Under that doctrine, in this action the state suffering the economic impact of CRRA’s $220 million loan to Enron would be Connecticut and its law would govern the substantive rights and obligations of the parties to the litigation.

O’Connor v. O’Connor,

201 Conn. 632, 637 , 519 A.2d 13, 15 (1986). Subsequently in 1986 Connecticut modified that approach in tort actions where “application of the doctrine of lex loci would produce an arbitrary, irrational result” to embrace the “most significant relationship” analysis of the Restatement (Second) of Conflict of Laws §§ 6 and 145(1) and (2) (1971) because that test “represent[ed] the most comprehensive and equitably balanced approach to the conflict of laws.”

O’Connor v. O’Connor,

201 Conn, at 648-50, 519 A.2d at 21-22 ;

Dugan v. Mobile Medical Testing Services, Inc.,

265 Conn. 791, 800-01 , 830 A.2d 752, 759 (2003). Thus only where application of lex loci will produce an irrational result does the Court apply the Restatement’s more flexible balancing test.

Since Andrews & Kurth contends that Texas choice of law principles should apply, the Court notes that in 1979 Texas also adopted the Restatement (Second) of Conflict of Laws’ approach.

Gutierrez v. Collins,

583 S.W.2d 312, 318 (Tex.1979);

Hughes Wood Products, Inc. v. Wagner,

18 S.W.3d 202, 205 (Tex.2000).

Section 145 of the Restatement, governing the choice of law decisions for tort issues generally, states,

(1) The rights and liabilities of the parties with respect to an issue in tort are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the occurrence and the parties under the principles stated in § 6.

(2) Contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:

(a) the place where the injury occurred,

(b) the place where the conduct causing the injury occurred,

(c) the domicile, residence, nationality, place of incorporation and place of business of the parties, and

(d) the place where the relationship, if any, between the parties is centered.

These contacts are to be evaluated according to their relative importance with respect to the particular case.

Section 6 principles “are used in evaluating the significance of a relationship, with respect to the particular issue, to the potentially interested states, the occurrence and the parties [emphasis added by the Court].” Comment b, § 145, Restatement (Second) of Conflict of Laws. Section 6(2) provides that where no state statute directs the parties,

*792

factors relevant to the choice of the applicable rule of law include

(a) the needs of the interstate and international systems,

(b) the relevant policies of the forum,

(c) the relevant policies of other interested states and the relevant interests of those states in the determination of the particular issue,

(d) the protection of justified expectations,

(e) the basic policies underlying the particular field of law,

(f) certainty, predictability and uniformity of result, and

(g) ease in the determination and application of the law to be applied.

“[I]t is the significance, and not the number, of § 145(2) contacts that determines the outcome of the choice of law inquiry under the Restatement [Second] approach. As the concluding sentence of § 145(2) provides, [t]hese contacts are to be evaluated according to their relative importance with respect to the particular issue.”

Dugan,

265 Conn., at 803 , 830 A.2d at 752 .

See generally Chang v. Chang,

No. CV040198722S, 2004 WL 2095116 , *2 (Conn.Super. Aug. 23, 2004). The comments also indicate that factors such as the protection of justified expectations of the parties and predictability and uniformity are of lesser importance in tort cases that in other areas of law, such as contracts, thus making the remaining factors more important for tort actions. Comment b to § 145. Moreover the purpose of state policies effected in the interested states’ tort rules becomes significant. “If the primary purpose of the tort rule involved is to deter or punish misconduct, ... the state where the conduct took place may be the state of dominant interest and thus of the most significant relationship. On the other hand, when the tort rule is designed primarily to compensate the victim for his injuries, the state where the injury occurred, which is most often the state where the plaintiff resides, may have the greater interest in the matter.”

Id.

Comment c to § 145. Nevertheless the comment recognized, “To some extent, at least, every tort rule is designed both to deter other wrongdoers and to compensate the injured person.”.

Id.

Section 148 of the Restatement (Second) of Conflict of Laws, focusing on the specific torts of fraud and misrepresentation where the injury is pecuniary, for the purpose of determining the state with the most significant relationship, provides,

(1) When the plaintiff has suffered pecuniary harm on account of his reliance on the defendant’s false representations and when the plaintiffs reliance took place in the state where the false representations were made and received, the local law of this state determines the rights and liabilities of the parties unless, with respect to the particular issue, some other state has a more significant relationship under the principles stated in § 6 to the occurrence and the parties, in which the local law of the other state will be applied.

(2) When the plaintiffs action in reliance took place in whole or in part in a state other than that where the false representations were made, the forum will consider such of the following contacts, among others, as may be present in the particular case in determining the state which, with respect to the particular issue, has the most significant relationship to the occurrence and the parties:

(a) the place, or places, where the plaintiff acted in reliance upon the defendant’s representations,

(b) the place where the plaintiff received the representations,

(c) the place where the defendant made the representations,

*793

(d) the domicile, residence, nationality, place of incorporation and place of business of the parties,

(e) the place where a tangible thing which is the subject of the transaction between the parties was situated at the time, and

(f) the place where the plaintiff is to render performance under a contract which he has been induced to enter by the false representations of the defendant.

The Comment to § 148 states that it applies to fraudulent, negligent or innocent misrepresentations.

Because the aiding and abetting claims are secondary to and derivative of the underlying tort claims of fraudulent and negligent misrepresentation,

48

which allegedly caused the financial injury to CRRA in Connecticut, the Court examines the most significant relationship contacts with respect to § 148, as well as § 145 and § 6.

Andrews & Kurth contends that Texas, its place of business, where it performed the work for Enron,

49

i.e., where it generated the opinion letters and unwound the purportedly improper transactions, and where its relationship to Enron was centered, has the most significant relationship to the occurrence at issue and the parties in this action.

Generally the two most important factors in the most significant relationship test for tortious conduct are where the tortious conduct took place and where the injury occurred.

Because a civil action for aiding and abetting cannot exist independently but must be based upon a valid underlying cause of action, the Court considers both the place of the aiding and abetting and the place where the misrepresentations were made to CRRA as places where the tort took place.

Efthimiou,

268 Conn, at 504-05, 846 A.2d at 226,

citing Marshak v. Marshak,

226 Conn. 652, 668 , 628 A.2d 964, 971 (1993)(“civil action of aiding and abetting cannot stand alone and depends on the existence of a valid underlying cause of action”). This Court notes that “[vicarious liability can of course be based on acts of assistance as well as words of encouragement.”

Halberstam,

705 F.2d at 482 . Furthermore, such encouragement or deed need not be “at the scene of the tort”; “aiding-abetting action may also be more distant in time and still substantial enough to create liability.”

Id., citing Russell v. Marboro Books,

18 Misc.2d 166 , 183 N.Y.S.2d 8 (N.Y.Sup.Ct.1959).

See also

Restatement (Second) of Conflict of Laws § 148 (“When the plaintiff has suffered pecuniary harm on account of his reliance on the defendant’s false representations and when the plaintiffs reliance took place in the state where the false representations were made and received, the local law of this state determines the rights and liabilities of the parties unless, with respect to the particular issue, some other state has a more significant relationship under the principles stated in § 6 to the occurrence and the parties, in which the local law of the other state will be applied.”). In the instant case, the allegations in the complaint indicate that the relevant tortious conduct took place in Texas and in Connecticut. According to

*794

the complaint, the misrepresentations issued in public financial statements that were required by federal law were based in part on Andrews & Kurth’s deceptive opinion letters drafted in Texas and were foreseeably made by Enron and Arthur Andersen to CRRA in Connecticut,

inter alia.

The reliance by CRRA on those alleged misrepresentations and the injury to CRRA occurred wholly in Connecticut.

50

Moreover, the Court finds significant the fact that Plaintiff is a quasi-public agent of the State of Connecticut, therefore making its injury one that must be born by the taxpayers of Connecticut, a significant factor in the analysis of the states’ relevant interests.

Furthermore, when a law firm works for a top Fortune 500 corporation with international dealings, like Enron, and that law firm prepares documents with information that it knows will be incorporated into required, key public financial statements that will be distributed nationwide, indeed worldwide, it is surely foreseeable that those who do business with that corporation may be injured by reasonable reliance on what are allegedly knowing and material misrepresentations in them that were provided by that law firm.

Under § 148, Connecticut law applies unless some other state has a more significant relationship to the substantive claim at issue and to the parties. Because in a tort action, factors such as protection of justified expectations of the parties and predictability and uniformity are of diminished importance, the Court’s analysis under Sections 145 and 6 of the Restatement focuses on the purpose of the states’ relevant local law rules to the issue in dispute to determine Connecticut’s and Texas’ interest in the determination of the case.

Regarding the states’ relevant policies and interests, Andrews & Kurth argues that under Texas law, an attorney owes a duty of care only to his client and that only a client in privity can sue a lawyer for professional negligence. As

for

charges of fraudulent and negligent misrepresentation, Andrews

&

Kurth asserts that this Court has ruled that an attorney is only liable in Texas if it takes an affirmative step of speaking out to the public or if the attorney knew or had reason to expect that the defendant was in a limited group that might reasonably have been expected to have access to the information and to act in reliance on it. # 1194. It also emphasizes that Texas has refused to adopt § 876’s concert of action theory of liability.

Juki v. Airington,

936 S.W.2d 640, 643-44 (Tex.1996).

Finding Andrews & Kurth’s argument misleading, this Court observes while it is true that Texas has not adopted the Restatement (Second) of Torts § 876 for concert of action liability for substantially assisting negligent or fraudulent misrepresentation, Texas also has not rejected it; instead the Texas Supreme Court stated, “whether such a theory of liability is recognized in Texas is an open question.”

*795

Juhl v. Airington,

936 S.W.2d 640, 643-44 (Tex.1996).

See also Ernst & Young, L.L.P. v. Pacific Mut. Life Ins. Co.,

51 S.W.3d 573 , 583 n. 7 (Tex.2001) (“... [W]e do not consider whether Texas law recognizes a cause of action for ‘aiding and abetting’ fraud separate and apart from a conspiracy claim.”). Rather the high court in

Juhl

first focused on § 876(a), which imposes liability for agreement to act in a common design, in comparison to a cause of action for civil conspiracy, which Texas had long recognized, and found that the provision was illogical. It explained that negligence cannot be an intentional wrong since one cannot agree or conspire to be negligent.

Id.

at 643.

51

It compared a § 876(a) claim with a cause of action is under § 876(b), which is invoked in the instant suit and which imposes liability for substantially assisting and encouraging a tortfeasor in a tortious act.

Id.

at 644. With respect to that provision, the Texas Supreme Court found in

Juhl

that even if Texas adopted § 876, the claim failed because the summary judgment evidence in that suit proved that the defendants did not breach any duty, recognized or potential, to the plaintiff.

Id.

The Court observes that Comment c to § 145 states, “A rule which exempts the actor from liability is entitled to the same consideration in the choice-of-law process as is a rule which imposes liability.” There is no Texas law expressly and affirmatively providing immunity for professionals from allegations of aiding and abetting; rather, in Texas the Court finds inaction and recognition that the issue is “an open question.” And while Texas may have a policy of protecting professionals from third-party liability when a Texas attorney injures Texas residents, its interest in injury to persons and entities outside Texas, i.e., in Connecticut, is limited.

Nevertheless, this Court does not find Texas’ policy toward attorneys whose performance is below professional standards to be so different from, or antithetical to, that of Connecticut so as to deny application of Connecticut law here. Both states have a policy of holding accountable to third-parties attorneys whose conduct falls below acceptable professional standards. Andrews & Kurth oversimplifies this Court’s ruling regarding attorney liability to third parties under Texas law; that memorandum and order speaks for itself. See # 1194 at 73-98. While the Court has concluded that Texas does permit third-parties to sue attorneys for professional negligence under the circumstances alleged here, the Court agrees that Texas has not expressly adopted § 867 and has not applied derivative common-law aiding and abetting to professional negligence claims.

In contrast, Connecticut has a strong, express policy of, and interest in, protecting its residents from tortious conduct, even where that conduct occurred outside of its boundaries, when the conduct injures Connecticut residents within the state’s boundaries. That policy is evidenced in the reach of one of Connecticut’s two long-arm statutes: it provides jurisdiction over foreign partnerships that commit torts with an impact in Connecticut as “consistent with the statute’s remedial purpose of providing Connecticut residents with a convenient forum to seek redress for losses they suffer here as a result of a nonresident’s tortious actions.”

Cody v. Ward,

*796

954 F.Supp. 43, 46 (D.Conn.l997)(holding that transmission of fraudulent misrepresentations by a nonresident to a Connecticut resident by telephone and electronic mail to induce that Connecticut resident to buy and hold securities was sufficient to subject the nonresident to suit in Connecticut). Connecticut General Statutes Ann. § 52-59b(a), states in relevant part that a Connecticut court has personal jurisdiction over a foreign partnership that “commits a tortious act outside the state causing injury to person or property within the state, except as to a cause of action for defamation of character arising from the act, if such person or agent (A) regularly, does or solicits business, or engages in any other persistent course of conduct or derives substantial revenue from goods used or consumed or services rendered, in the state, or (B) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.... ” The allegations against Andrews & Kurth, if cognizable under Connecticut law and if proven, would satisfy this facial requirement of § 52-59b(a)(B) of the long-arm statute, authorizing jurisdiction.

52

Furthermore, the Court finds that Connecticut has a strong interest in adjudicating this dispute involving CRRA, not only because it is a Connecticut entity, but because it is a quasi-public state agency. CRRA is entitled to a forum that can provide it with convenient and effective relief.

As noted earlier, Connecticut traditionally followed the law of the place of injury, the

lex loci delicti

doctrine, for tort cases; that doctrine still controls in Connecticut except where its application “would produce an arbitrary, irrational result,” but even then remains a factor to be considered in the most significant relationship analysis.

Id.

at 46 & n. 7;

O’Connor v. O’Connor,

201 Conn, at 649-50, 519 A.2d at 21-22 .- The Court finds no reason to conclude that imposing the

lex loci delicti

doctrine here would produce an arbitrary or irrational result and thus need not even reach the most significant relationship analysis. The result is the same under either test. According to allegations in the complaint, Enron intentionally targeted “business opportunities” in states outside of Texas to further its seam and to raise money from non-Texans to feed its Ponzi

*797

scheme and conceal its financial condition. Moreover, Enron employed individuals and entities in other states that have also been sued for aiding and abetting the alleged misconduct leading to the company’s financial collapse. It would be irrational, depending upon the law of the state in which each alleged aider and abettor had its principal place of business, to allow a party that knowingly and foreseeably injures residents in another state, by substantial assistance in creating and distributing to the public material misrepresentations of Enron’s financial condition on which it knew businesses and investors would rely.

The Court concludes that Connecticut has the most significant relationship here and the law of Connecticut applies.

Thus the Court concludes that Connecticut law applies to this action.

c. Standing

The burden of establishing standing rests on the party claiming that status.

Hirsch v. Arthur Andersen & Co.,

72 F.3d 1085, 1092 (2d Cir.1995)(“To have standing, ‘[a] plaintiff must [1] allege personal injury [2] fairly traceable to the defendant’s allegedly unlawful conduct and [3] likely to be redressed by the requested relief.’ ”).

CRRA claims that Andrews & Kurth aided and abetted Enron in concealing debt and inflating income on its financial statements and public disclosures based on those financial statements, that CRRA relied on those financial statements and public disclosures, the CRRA suffered a direct injury while Enron, and the debtor’s estate, suffered none, and thus neither Enron nor its trustee (in Enron’s case the court-appointed reorganization specialist Stephen Cooper) could bring these claims against Andrews & Kurth.

The Court agrees with CRRA that it has standing to pursue its claims. It is well established that pursuant to the Bankruptcy Code a trustee in bankruptcy “stands in the shoes of the corporation and has standing to bring any suit that the bankrupt corporation could have instituted had it not petitioned for bankruptcy.”

Shearson Lehman Hutton, Inc. v. Wagoner,

944 F.2d 114, 118 (2d Cir.1991). Furthermore, “a bankruptcy trustee has no standing generally to sue third parties on behalf of the estate’s creditors, but may only assert claims held by the bankrupt corporation itself.”

Id.

Thus the bankruptcy trustee may not assert claims of the creditors against third parties, but only claims belonging to the debtor against third parties.

Id.

(and cases cited therein).

Moreover, where the debtor “has joined with a third party in defrauding its creditors, the trustee cannot recover against the third party for the damage to the creditors.”

Id.See also Breeden v. Kirkpatrick & Lockhart LLP (In re Bennett Funding Group, Inc.),

336 F.3d 94, 100 (2d Cir.2003)(“Where ‘a bankrupt corporation has joined with a third party in defrauding its creditors, the trustee cannot recover against the third party for the damage to the creditors.’ ”)

(quoting Hirsch,

72 F.3d at 1094 ). This rule applies to professional negligence claims.

Bennett Funding Group, Inc.,

336 F.3d at 100 ;

Hirsch,

72 F.3d at 1094 . If a debtor corporation’s officers and directors and a third party “collaborated in the fraudulent scheme, the trustee can sue only if it can establish that there has been damage to the corporation apart from the damage to the third-party creditors.”

Bennett Funding Group, Inc.,

336 F.3d at 100 . A creditors’ committee, acting on behalf of the corporate debtor, similarly lacks standing to assert causes of action against a third-party for aiding and abetting the debtor corporation.

Lippe v. Bairnco Corp.,

218 B.R. 294, 301 (S.D.N.Y.1988)(when professionals are alleged to have aided and abet

*798

ted a company’s managers in wrongdoing, “the claim ‘belongs to creditors

qua

creditors,’ and cannot be asserted by the company, its [bankruptcy] trustee, a committee of unsecured creditors, or anyone else standing in the shoes of the debtor corporation.”).

Furthermore state law determines whether a creditor of a bankrupt corporation or the bankruptcy trustee (or a debtor in a bankruptcy proceeding) may bring a claim outside the bankruptcy proceedings.

See, e.g., St. Paul Fire and Marine Ins. Co. v. PepsiCo, Inc.,

884 F.2d 688, 700 (2d Cir.1989) (“We agree with those courts that have held that the determination of whether a claim may be brought by a creditor of a bankrupt corporation outside of the bankruptcy proceedings depends on an analysis of state law”),

citing Morton v. National Bank (In re Morton),

866 F.2d 561, 563 (2d Cir.1989) (“Whether the rights belong to the debtor or the individual creditors is a question of state law.”);

Bennett Funding Group, Inc.,

336 F.3d at 100 ;

Hirsch,

72 F.3d at 1093 . It is well established that Connecticut law gives a creditor like CRRA standing to assert causes of action for negligence and fraud if its injury is foreseeable,

inter alia. Hirsch,

72 F.3d at 1093 ,

citing inter alia Tackling v. Shinerman,

42 Conn.Supp. 517, 520 , 630 A.2d 1381 , 1384 & n. 2 (Conn.Super.1993) (“Connecticut law recognizes liability in negligence of attorneys and accountants to third parties whose reliance is foreseeable without regard to privity”).

53

The Court concludes that similarly it would permit a creditor to sue a third-party for aiding and abetting fraud and negligence.

A creditor must assert a direct injury to have standing to sue outside of the bankruptcy proceedings, unless the trustee abandons the claim.

St. Paul Fire and Marine Ins. Co,

884 F.2d at 701 . Where the claim against a third party is a general claim, with no particularized injury to a specific creditor, but instead a claim that could be brought by any creditor, the trustee is the proper plaintiff to bring suit because “[t]he claims, if proved, would have the effect of bringing the property of the third party into the debtor’s estate, and thus would benefit all creditors.”

St. Paul Fire and Marine Ins. Co,

884 F.2d at 701 (and cases cited therein).

Here CRRA’s claims against Andrews & Kurth for aiding and abetting negligent and fraudulent misrepresentation on which CRRA claims to have relied, arose out of a default on a purported illegal loan from CRRA to Enron as part of the Enron Transaction, and are individual to and caused direct harm specific to CRRA, but not to the debtor, and any recovery from Andrews & Kurth would not become the property of the bankruptcy estate. Thus here the claim belongs to the creditor, CRRA, and not to the debtor in bankruptcy or a creditors’ committee. Because the Court concludes that there is no damage to the debtor corporation from Andrews & Kurth’s conduct separate from that suffered by the third-party creditor, neither the trustee nor the creditors’ committee, both of which stand in the shoes of the debtor, has standing to assert the

*799

claim.

Shearson Lehman Hutton, Inc. v. Wagoner,

944 F.2d at 118-20 . Thus the Court finds that CRRA has standing to assert such claims.

d. CUTPA

General Statutes § 42-110b(a) provides, “No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” In turn, “trade or commerce” “is broadly defined as the advertising, the sale or rent or lease, the offering for sale or rent or lease, or the distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value in this state.” General Statutes § 42-110a(4). “The entire act is remedial in character ... and must be liberally construed in favor of those whom the legislature intended to benefit.”

Larsen Chelsey Realty Co. v. Larsen,

232 Conn. 480, 492 , 656 A.2d 1009 (1995).

54

There is no requirement of heightened pleading with particularity under CUTPA.

Macomber v. Travelers Property and Casualty Corp.,

261 Conn. 620, 644 , 804 A.2d 180, 196 (Conn.2002). Instead the Connecticut Supreme Court has

“adopted the criteria set out in the cigarette rule by the federal trade commission for determining when a practice is unfair: (l)[W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise — in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers, [competitors or other business persons] ----All three criteria do not need to be satisfied to support a finding of [a violation of CUTPA].”

Id.,

quoting

Hartford Electric Supply Co. v. Allen-Bradley Co.,

250 Conn. 334, 367-68 , 736 A.2d 824 (1999).

See also Atlantic Richfield Co. v. Canaan Oil Co.,

202 Conn. 234, 243 , 520 A.2d 1008 (1987) (“a practice may be unfair because of the degree to which it meets one of the criteria [of the ‘cigarette rule’] or because to a lesser extent it meets all three.”). Here there is no serious argument that the Credit Rating Agencies’ conduct was corrupt, immoral or unscrupulous. “[A] violation of CUTPA may be established by showing either an actual deceptive practice ... or a practice amounting to a violation of public policy.

55

... Furthermore a party need not prove an intent to deceive to prevail under CUT-PA.”

Cheshire Mortgage Service, Inc. v. Montes,

223 Conn. 80, 105-06 , 612 A.2d 1130 (1992). Nor is there a requirement that a consumer relationship must exist between a' plaintiff and a defendant being sued for a violation of CUTPA; indeed “ ‘a competitor or other business person can maintain a CUTPA cause of action without showing consumer injury.’ ”

Macomber ,

261 Conn, at 643, 804 A.2d at 195-96 .

See

*800

generally

Robert M. Langer, John T. Morgan and David L. Belt, 12 Conn. Prac. Unfair Trade Practice § 3.6 (Absence of Competitive or Transactional Relationship) (West 2005). An act or practice is deemed “deceptive” if it meets three conditions: (1) there is a representation, omission or other practice likely to mislead consumers; (2) consumers interpreted the message reasonably under the circumstances; and (3) the misleading representation or omission or practice is material, i.e., likely to affect consumer’s decision or conduct.

Caldor, Inc. v. Heslin,

215 Conn. 590, 597 , 577 A.2d 1009 (1990),

cert. denied,

498 U.S. 1088 , 111 S.Ct. 966 , 112 L.Ed.2d 1053 (1991).

“[T]he liberal construction to which a remedial statute such as CUTPA is entitled, led the courts to construe its broad coverage to include unfair trade practices by attorneys.”

Heslin v. Connecticut Law Clinic of Trantolo & Trantolo,

190 Conn. 510, 520 , 461 A.2d 938 (1983). Although CUTPA does apply to the conduct of attorneys because “the conduct of any trade or commerce” does not exclude such, the courts in Connecticut have held that the statute applies only to the entrepreneurial or commercial aspects of the practice of law, and not to the attorney’s professional representation of a client. Thus a claim of malpractice, i.e., professional negligence, does not fall within the statute’s reach.

Suffield Development Associates, Ltd. Partnership v. National Loan Investors, L.P.,

260 Conn. 766, 781 , 802 A.2d 44, 53 (2002);

Beverly Hills Concepts, Inc. v. Schatz & Schatz, Ribicoff & Kotkin,

247 Conn. 48, 79 , 717 A.2d 724 (1998)(“Our CUTPA cases illustrate that file most significant question in considering a CUTPA claim against an attorney is whether the allegedly improper conduct is part of the attorney’s professional representation of a client or is part of the entrepreneurial aspect of practicing law.”).

“[I]t is important to note that, although lawyers are subject to CUTPA, most of the practice of law is not. The ‘entrepreneurial’ exception is just that, a specific exception from CUTPA immunity for a well defined set of activities — advertising and bill collection for example.”

See Haynes v. Yale-New Haven Hospital,

243 Conn. 17, 34-38 , 699 A.2d 964 (1997) (reasoning that practice of law and medicine may give rise to CUT-PA claims only for entrepreneurial aspects, such as solicitation of business and billing, and not for claims involving issues of competence and strategy). It is not a catch-all provision intended to subject any arguably improper attorney conduct to CUTPA liability. Therefore, the mere fact that the actions of the attorney and the law firm might have deviated from the standards of their profession does not necessarily make the actions entrepreneurial in nature.

Suffield Development,

260 Conn, at 782, 802 A.2d 44 . The distinction between entrepreneurial and professional representation roles is not based on whether the attorney acted for profit, as such a result would largely undermine the general rule.

Suffield,

260 Conn. at 782-83 , 802 A.2d at 53-54 . The exemption from CUTPA liability applies to intentional misconduct as well as negligent misconduct that falls below the professional standards. Id. at 54.

56

The Connecticut Supreme Court has

*801

held that it is important not to interfere with the attorney’s primary duty of robust representation of the interests of his or her client.... This public policy consideration requires us to hold that CUTPA covers only the entrepreneurial or commercial aspects of the profession of the law. The noncommercial aspects of lawyering — that is, the representation of the client in a legal capacity — should be excluded for public policy reasons.

Haynes ,

243 Conn, at 34-35, 699 A.2d 964 .

After reviewing the pleadings, this Court finds that allegations against Andrews & Kurth fall within the noncommercial, “strategy” area of professional representation and are therefore excluded from CUTPA liability for public policy reasons. Thus the Court finds that the motion to strike should be granted as to the CUTPA claim.

e. Aiding and Abetting Negligent and/or Fraudulent Misrepresentation

(1.) General Challenges

In arguing that logically there can be no cause of action for aiding and abetting negligent misrepresentation, Andrews

&

Kurth has selected cases from jurisdictions that agree with it, but fails to address those which do not and to cite any Connecticut cases.

As a threshold matter, this Court concludes that Connecticut does recognize an independent common law claim for aider and abettor liability as defined by § 876(b) of the Restatement (Second) of Torts.

Connecticut Nat’l Bank v. Giacomi,

233 Conn. 304, 329 , 659 A.2d 1166, 1178 (1995) (affirming that there is no cause of action for aider and abettor liability under the provision of the Connecticut Uniform Securities Act modeled on § 10(b) of the Securities Exchange Act and pointing out alternatively that common law aider and abettor liability is available under the Restatement (Second) of Torts § 876 if the elements for such a cause of action are satisfied). It is clear that such a claim reaches aiding and abetting fraud or intentional torts, and a couple of state cases suggest that it would also encompass aiding and abetting negligent misrepresentation.

Carney v. DeWees,

136 Conn. 256, 262 , 70 A.2d 142, 145-46 (Conn.l949)(recognizing claim for common law aiding and abetting in a wrongful death claim);

Dudrow v. Ernst & Young LLC,

No. X01 CV98-0144211S, 1999 WL 786261 , *10 (Conn.Super. Sept. 15, 1999).

See infra

at 803-04,

et seq.

Nevertheless, while the tortfeasor in the underlying tort may merely be negligent, under Restatement (Second) of Torts § 876(b) the aider and abettor is required have scienter and not merely to meet a “should have known” standard.

Dudrow,

No. X01 CV 98 0144211, 1998 WL 800204 , at *6; Restatement (Second) of Torts § 876(b) (“For harm resulting to a third person from the tortious conduct of another, one is subject to liability if he ... knows that the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself. ... ”).

See, e.g., Efthimiou,

268 Conn. at 504-05, 846 A.2d at 225 (emphasizing aiding and abetting as a derivative claim, following Halberstam’s

57

“generally aware of his role as part of an overall illegal or

*802

tortious activity at the time he provides assistance” to the party performing “a wrongful act that causes an injury,” and requiring that the aider and abettor must “knowingly and substantially assist the principal violation”);

Brunette,

1994 WL 468448 at *2 (at least recklessness);

Romaniello,

1992 WL 369557 at *1-2 (following Halberstam).

Indeed, a number of Connecticut cases addressing § 876(b) rely on

Halberstam,

705 F.2d at 477 , which distinguished between conspiracy and aiding and abetting,

58

but which did not distinguish between intentional and negligent torts for the conduct which the defendant allegedly aided and abetted, for liability under § 876(b). Although CRRA divides its claims into aiding and abetting negligent misrepresentation and aiding and abetting fraudulent misrepresentation, because Connecticut recognizes such claims only under § 876(b), it would be more appropriate to plead a single claim. To state a claim under § 876(b), the plaintiff must show (1) that the aider and abettor knows that the party he is aiding is breaching a duty it owes to another and (2) that the aider and abettor gave substantial assistance to the primary tortfeasor. With respect to attorneys, “[u]nlike negligence claims, aiding and abetting liability does not require the existence of, nor does it create, a pre-existing duty of care to a third party nonclient.

59

Rather aiding and abetting liability is based on proof of scienter — the defendants must

know

that the conduct they are aiding and abetting is a tort.”

Witzman v. Lehrman & Flom,

601 N.W.2d 179, 186 (Minn.1999),

citing Restatement (Second) of Torts

§ 876.

60

*803

Moreover, the elements of substantial assistance and knowledge are examined “in tandem”; “where there is a minimal showing of substantial assistance, a greater showing of scienter is required.”

Witzman,

601 N.W.2d at 188 ,

citing In re TMJ Implants Products Liability Litigation,

113 F.3d 1484 , 1495 (8th Cir.1997), and

Camp v. Dema,

948 F.2d 455, 459 (8th Cir.1991).

Although Andrews & Kurth contends that Connecticut only recognizes a claim for aiding and abetting in the context of dangerous physical activities like drag racing, the Court finds this claim is erroneous.

See, e.g., Carney v. DeWees,

136 Conn. 256 , 70 A.2d 142 (recognizing common law claim for aiding and abetting a statutory violation or a tort)

61

;

Connecticut Nat’l Bank v. Giacomi,

242 Conn. 17 , 699 A.2d 101 (1997);

Connecticut Nat’l Bank v. Giacomi,

233 Conn. 304, 329 , 659 A.2d 1166, 1177 (Conn.1995) (affirming that there is no cause of action for aider and abettor liability under the provision of the Connecticut Uniform Securities Act modeled on § 10(b) of the Securities E

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