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Enron and Anna Nicole Smith

By Ronald R. Sussman and Seth Van Aalten

On May 1, 2008, Cooley Godward Kronish LLP's bankruptcy litigation team, acting as counsel to the Official Employment-Related Issues Committee of Enron Corp. (the 'Employee Committee'), obtained a court-approved settlement of $850,000 from the Estate of John Cliff Baxter (the 'Baxter Estate'), a former 'Top Hat' executive of Enron who elected to accelerate approximately $1.3 million in deferred compensation benefits on the eve of the bankruptcy filing and committed suicide shortly thereafter. That and other similar transfers were challenged by the Employee Committee in a complaint filed against Baxter and other former executives alleging causes of action in preference and fraudulent transfer.

Although a number of the transferees challenged (unsuccessfully) the personal jurisdiction of the Enron bankruptcy court, only the Baxter Estate challenged its jurisdiction over the subject matter of the litigation. In a motion for summary judgment filed in December 2005, the Baxter Estate asserted that the Enron bankruptcy court lacked jurisdiction to entertain the Employee Committee's action under the so-called 'probate exception' to federal jurisdiction. The probate exception is a judicially crafted exception to otherwise proper federal jurisdiction that reserves to state probate courts such exclusive powers as the annulment of a will, the administration of a decedent's estate, and the disposal of property in their custody. At its core, the probate exception reiterates the general principle that where one court is exercising jurisdiction over property, a second court should not assume jurisdiction over the same property.

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