LE ROY CAUDILL and VIERA CAUDILL v. North American Media Corporation , a Delaware Corporation, LIFE SOFT CORPORATION , a…

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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2000 FED App. 0012P (6th Cir.)
File Name: 00a0012p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
LE R OY C AUDILL and VIERA
C AUDILL,
Plaintiffs-Appellees,
v.
NORTH AMERICAN M EDIA
C ORPORATION , a Delaware
Corporation, LIFE S OFT
C ORPORATION , a Delaware
Corporation, and P ETER J.
C HRISTIANO ,
Defendants-Appellants,
C HRISTOPHER J. C HRISTIANO ,
M ANUEL S. YATOOMA , and
GARY EBERHARDT ,
Defendants,
FIDELITY BANK,
Garnishee.
;>

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No. 98-2131
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 95-75492—Lawrence P. Zatkoff, Chief District Judge.

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2 Caudill, et al. v. North Am.
Media Corp., et al.
No. 98-2131
*The Honorable Thomas G. Hull, United States District Judge for the
Eastern District of Tennessee, sitting by designation.
Argued: August 12, 1999
Decided and Filed: January 10, 2000
Before: KRUPANSKY and RYAN, Circuit Judges;
HULL, District Judge.*
_________________
COUNSEL
ARGUED: J. Mark Cooney, COLLINS, EINHORN,
FARRELL & ULANOFF, Southfield, Michigan, for
Appellants. Dennis E. Moffett, Madison Heights, Michigan,
for Appellees. ON BRIEF: J. Mark Cooney, Noreen L.
Slank, COLLINS, EINHORN, FARRELL & ULANOFF,
Southfield, Michigan, for Appellants. Dennis E. Moffett,
Madison Heights, Michigan, for Appellees.
_________________
OPINION
_________________
KRUPANSKY, Circuit Judge. Appellants, North
American Media Corporation, LifeSoft Corporation, and
Peter Christiano, challenge denial of Defendants’ motion for
Judgment Not Withstanding the Verdict pursuant to Fed. R.
Civ. P. 50 and/or a Motion for a New Trial pursuant to Fed.
R. Civ. P. 59 subsequent to a jury award of damages against
them in a diversity action that charged wrongful cancellation
of stock. Appellants also challenge the district court subject
matter jurisdiction.
Defendant-Appellant LifeSoft Corporation (“LifeSoft”) is
a successor corporation to Co-Defendant-Appellant North
No. 98-2131 Caudill, et al. v. North Am.
Media Corp., et al.
7
however, in conflict with the Third and Eighth Circuits’
interpretation of the Supreme Court dispositions wherein
those courts dictate that, “The phrase ‘pursuant to the terms
of the Settlement’ fails to incorporate the terms of the
Settlement agreement into the order because ‘[a] dismissal
order’s mere reference to the fact of settlement does not
incorporate the settlement agreement in the dismissal order.’”
In re Phar-Mor, Inc. Securities Litigation, 172 F.3d 270, 274
(3rd Cir. 1999) (quoting Miener v. Missouri Dep’t of Mental
Health, 62 F.3d 1126, 1128 (8th Cir. 1995)). This court elects
to adopt the Third and Eighth Circuits’ interpretation of
Kokkonen. Accordingly, absent compliance with the Supreme
Court’s mandate in Kokkonen and subsequent interpretations
of that decision, the trial court was without jurisdiction to
entertain this case and its decision is vacated, See State Farm
Mut. Auto. Ins. Co. v. Powell, 87 F.3d 93, 99 (3rd Cir. 1996),
and this appeal is dismissed.
It is so ordered.

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6 Caudill, et al. v. North Am.
Media Corp., et al.
No. 98-2131
neither by a separate provision “retaining jurisdiction” over
the settlement agreement, nor by “incorporating” the terms of
the settlement agreement in the order. See Kokkonen, 511
U.S. at 381. Had the district court done so, “a breach of the
agreement would be a violation of the order, and ancillary
jurisdiction to enforce the agreement would therefore exist.”
Kokkonen, 511 U.S. at 381, and the “enforcement of the
settlement is for state courts, unless there is some independent
basis for federal jurisdiction.” Kokkonen, 511 U.S. at 383.
The Court commented that
the only order here was that the suit be dismissed, a
disposition that is in no way flouted or imperiled by the
alleged breach of the settlement agreement. The
situation would be quite different if the parties’
obligation to comply with the terms of the settlement
agreement had been made part of the order of
dismissal–either by separate provision (such as a
provision “retaining jurisdiction” over the settlement
agreement) or by incorporating the terms of the
settlement agreement in the order. In that event, a breach
of the agreement would be a violation of the order, and
ancillary jurisdiction to enforce the agreement would
therefore exist. That, however, was not the case here.
The judge’s mere awareness and approval of the terms of
the settlement agreement do not suffice to make them
part of his order.
Kokkonen, 511 U.S. at 380-81.
The trial court distinguished Kokkonen from the case here
on appeal noting that the Kokkonen dismissal did “not so
much as refer to the settlement agreement,” Kokkonen, 511
U.S. at 377, while the dismissal order in The 1991 Derivative
Action specifically stated that “Pursuant to the terms of the
parties’ Oct. 1, 1991 settlement agreement, the Court hereby
dismisses this case” which language satisfied the Supreme
Court dictates of Kokkonen and supported the trial courts’
ancillary jurisdiction. The trial court’s distinction is,
No. 98-2131 Caudill, et al. v. North Am.
Media Corp., et al.
3
1The district court dismissal order read in full:
In the presence of and with the assistance of counsel, the
parties placed a settlement agreement on the record before the
Hon. Bernard Friedman on October 1, 1991. Pursuant to the
terms of the parties’ October 1, 1991 settlement agreement, the
Court hereby DISMISSES this case.
IT IS SO ORDERED.
American Media Corporation (“North American Media”).
Defendant-Appellant Peter Christiano, along with Defendant
Christopher Christiano and Defendant Manuel Yatooma, were
officers and directors of North American Media. Plaintiff-
Appellee LeRoy Caudill is a former President of North
American Media. During his term as North American
Media’s president, LeRoy and his wife Viera Caudill jointly
acquired 1,400,000 shares of North American Media stock.
Prior to the instant case, on July 15, 1991, Peter Christiano,
Christopher Christiano and Manuel Yatooma commenced a
derivative shareholders action on behalf of themselves and
North American Media in the United States District Court for
the Eastern District of Michigan against LeRoy Caudill, North
American Media, and other defendants, charging federal wire
and securities fraud, federal civil RICO violations, together
with state law charges of, misrepresentation, conspiracy to
defraud, and breach of fiduciary duty in violation of
Michigan’s Blue Sky Law (The 1991 Derivative Action). On
May 5, 1992, The 1991 Derivative Action was settled and
dismissed “pursuant to the terms of the parties’ … settlement
agreement.”1
On September 18, 1995, LeRoy and Viera Caudill filed the
instant action in the United States District Court for the
Eastern District of Michigan against Defendant-Appellant
North American Media, Defendant-Appellant Peter
Christiano, Defendant Christopher Christiano, Defendant
Manuel Yatooma, Defendant-Appellant LifeSoft Corporation,
and Defendant Gary Eberhardt, the President of LifeSoft,
alleging that North American Media wrongfully canceled the

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4 Caudill, et al. v. North Am.
Media Corp., et al.
No. 98-2131
Caudills’ shares in North American Media, in violation of the
agreement settling The 1991 Derivative Action. The Caudills
sought declaratory relief, damages, and an order to reissue the
stock to them.
The complaint invoked federal diversity jurisdiction
pursuant to 28 U.S.C. § 1332, while alleging that all of the
plaintiffs and all of the defendants were Michigan residents
and that the LifeSoft had its primary place of business in
Michigan.
On February 9, 1998, prior to trial, Defendant Yatooma
filed a motion to dismiss Caudill’s complaint for lack of
subject matter diversity jurisdiction. See Safeco Ins. Co. of
America v. City of Whitehouse, 36 F.3d 540, 545 (6th Cir.
1994). On March 13, 1998, relying upon the precedent
announced in Kokkonen v. Guardian Life Insurance Company
of America, 511 U.S. 375 (1994), wherein the Supreme Court
defined the scope of ancillary jurisdiction granted to United
States district courts, the trial court concluded that its
jurisdiction over the instant controversy was ancillary to its
jurisdiction in The 1991 Derivative Action, denied the
defendants’ motion to dismiss the complaint and proceeded
to conduct a jury trial on the merits of the issues joined by the
pleadings in Caudills’ action.
Subsequent to trial, on May 15, 1998, a jury awarded the
Caudills $832,275 from North American Media, $832,275
from LifeSoft, and $335,450 from Peter Christiano. No
damages were awarded against Christopher Christiano or
Manuel Yatooma who are not parties to this appeal.
Defendants North American, LifeSoft, and Peter Christiano
filed a timely notice of appeal, challenging, inter alia, the
subject matter jurisdiction of the district court.
“The first and fundamental question presented by every
case brought to the federal courts is whether it has jurisdiction
to hear a case….” Douglas v. E.G. Baldwin & Associates,
150 F.3d 604, 607 (6th Cir. 1998). This forum reviews a
No. 98-2131 Caudill, et al. v. North Am.
Media Corp., et al.
5
district court’s subject matter jurisdiction de novo. Hilliard
v. United States Postal Serv., 814 F.2d 325, 326 (6th Cir.
1989). Article III, Section 1 of the United States Constitution
prescribes that “the judicial Power of the United States, shall
be vested in one supreme Court, and in such inferior Courts
as the Congress may from time to time ordain and establish.”
Pursuant to 28 U.S.C. § 1332 Congress extended the federal
judicial authority granted pursuant to 28 U.S.C. § 1331 to
civil actions involving citizens of different states. Section
1332's congressionally conferred diversity jurisdiction has
been interpreted to demand complete diversity, that is, that no
party share citizenship with any opposing party. See Safeco
Ins. Co. of America v. City of Whitehouse, 36 F.3d 540, 545
(6th Cir. 1994); and Strawbridge v. Curtiss, 7 U.S. (3 Cranch)
267, 2 L. Ed. 435 (1806). The complaint here on appeal,
facially reflects a lack of complete diversity between the
adversaries.
Ancillary jurisdiction as defined by the Supreme Court in
Kokkonen was designed (1) to permit a court to dispose of
factually independent claims and/or (2) to enable a court to
manage its proceedings, vindicate its authority, and effectuate
its decrees. Kokkonen v. Guardian Life Ins. Co. of America,
511 U.S. 375, 379-80 (1994). The trial court in the instant
case misconceived that ancillary jurisdiction derived from its
earlier jurisdiction in The 1991 Derivative Action. The facts
underlying the derivative shareholders action upon which the
trial judge relied for ancillary jurisdiction are, upon
examination, unrelated to Caudill’s claim for wrongful
cancellation of stock which was predicated upon facts and
circumstances that occurred subsequent to and independent of
the wire and securities fraud which supported the
shareholders derivative litigation.
As in Kokkonen, the jurisdiction “asked for here is quite
removed from what courts require to perform their functions.”
See Kokkonen, 511 U.S. at 380. In Kokkonen the parties
obligation to comply with the terms of the settlement
agreement was not “made part” of the order of dismissal,

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