Safeco Ins. Co. of America v. City of White House, Tenn.
| Decision Date | 10 November 1994 |
| Docket Number | No. 93-5898,93-5898 |
| Citation | 36 F.3d 540 |
| Parties | SAFECO INSURANCE COMPANY of America, Plaintiff-Appellant, v. CITY OF WHITE HOUSE, TENNESSEE, a Municipal Corporation, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Alfred H. Knight (argued and briefed), Alan D. Johnson (briefed), Willis & Knight, Nashville, TN, for plaintiff-appellant.
Charles H. Warfield, Farris, Warfield & Kanaday, Nashville, TN, Robb S. Harvey (argued and briefed), Tuke, Yopp & Sweeney, Nashville, TN, for defendant-appellee.
Before: KENNEDY, RYAN, and NORRIS, Circuit Judges.
In this declaratory judgment action, Safeco Insurance Company of America appeals summary judgment holding it liable as surety on a performance bond for damages incurred by the City of White House, Tennessee, resulting from Eatherly Construction Company's alleged breach of a construction contract. In this appeal, we must decide whether the district court properly exercised jurisdiction over this case, and, if so, whether the district court erred in concluding that Eatherly and the City had entered into a contract and that Eatherly breached that contract by subsequently withdrawing its bid.
We conclude that the district court did have subject matter jurisdiction over the case, and we affirm the district court's conclusion that a binding contract existed between Eatherly and the City. However, we hold that there is a genuine issue of material fact precluding the grant of summary judgment on the issue of breach, so we reverse and remand.
This case arises out of Eatherly Construction's "withdrawal" of its winning bid for the construction of a sanitary system for the City of White House, Tennessee. In 1987, the City solicited bids from contractors to build a municipal wastewater treatment facility. The City informed contractors bidding on the job that the project was being funded in part by the Environmental Protection Agency and that the EPA required contractors working on EPA funded projects to make an effort to ensure that small, minority, and women's businesses (so-called MBE's) were employed as sources for supplies, equipment, and services. One document in the bid specifications provided:
It is the policy of the Environmental Protection Agency (EPA) to require its grantees to award a fair share of subagreements to small and minority and women's businesses on contracts an[d] subagreements performed under EPA construction grants. This requirement is contained in 40 Code of Federal Regulations Part 33 Section 240.
The bid specifications stated further that the low bidder must forward to the City, no later than ten days after the bid opening, documents reflecting compliance with the EPA's equal opportunity policy. In addition, the specifications provided that no bidder could withdraw its bid within 90 days after the actual date of opening so as to allow the City to complete its financing arrangements.
Eatherly submitted the lowest bid at $2,643,749.10 and the City accepted the bid on March 19, 1987. Eatherly and the City executed an agreement on April 16, 1987. As required under the agreement, Eatherly furnished a performance bond payable to the City issued by Safeco, Eatherly's surety. In both Eatherly's bid proposal and in the agreement ultimately executed, Eatherly agreed to perform all work in conformance with the "Contract Documents" found in the bid specifications, including the EPA's equal opportunity policy. Eatherly understood that the City's acceptance of its bid was contingent upon approval of the government agencies involved, namely the EPA. Moreover, Eatherly worked on EPA funded projects in the past and understood that EPA's approval depended on, among other things, EPA's determination of the contractor's good faith effort to employ minority subcontractors on the projects.
Under the terms of the bid specifications, the low bidder was required to submit documents concerning compliance with the EPA's equal employment opportunity within ten days of the bid opening. On March 19, 1987, Eatherly delivered some documents to White-Taylor-Walker, the engineering firm handling the project for the City, but none of the documents contained information about minority business enterprises. White-Taylor forwarded the documents to the EPA and instructed Eatherly to contact the EPA directly to discuss Eatherly's compliance with the EPA's requirements.
On March 30, 1987, Eatherly mailed a form letter to ten MBE's inviting them to bid on the project; Eatherly received no response to these letters. Eatherly contended that there was no minority company in the Middle Tennessee area that was qualified to do the work and claimed that it had no choice but to subcontract the work to a nonminority subcontractor. Eatherly never secured an agreement with a minority subcontractor to work on the project.
The City grew concerned about Eatherly's failure to secure minority participation in the project, and on June 8, reminded Eatherly in a letter that it must comply with the EPA's requirements:
As you know, no work order can be issued authorizing the commencement of work until you are able to satisfy your company's requirements to meet the EPA Minority Business Enterprise requirements....
The City is anxious for you to give this matter your closest attention so that a starting date can be announced at the earliest possible time.... [I]t would appear that basically all [the EPA] needed was a confirmation that you have done what is necessary to meet the EPA requirements.
Eatherly responded to the City's letter stating that if it did not have an "unconditional contract" with the City, it was "withdrawing" its bid. Eatherly met with the City on June 17 and confirmed that it was withdrawing its bid.
Subsequently, the EPA instructed the City that since Eatherly failed to comply with federal regulations regarding minority subcontractors, the City should award the contract to the second lowest bidder. The City awarded the contract to Moore Construction Company. Moore obtained EPA approval and completed the work for its bid of $2,998,029.56 plus $20,000 for an increase in the price of materials between the bid date and the contract date.
In July 1987, the City claimed that Eatherly committed an anticipatory breach by withdrawing its bid (on June 17) and made a demand upon Safeco to pay, as surety for Eatherly, the amounts provided for in the performance bond that Eatherly furnished to the City. In November 1987, Safeco filed this declaratory judgment action in federal court premised on diversity of citizenship, naming Eatherly and the City as defendants, and seeking a declaration as to its liability to the City under the bonds which Safeco issued in connection with Eatherly's bid for, and the City's award of, the construction contract. The City filed a counterclaim against Safeco as surety, and a cross-claim against Eatherly for breach of contract.
The City moved for summary judgment against Safeco and Eatherly on the ground that the City entered a contract with Eatherly and that Eatherly committed an anticipatory breach of the contract when it withdrew its bid. Eatherly filed a cross-motion for summary judgment, arguing that no contract existed. The district court referred the motions to a magistrate judge, who recommended that the City's motions be denied because, although there was a contract between the City and Eatherly, there were disputed issues of fact as to whether Eatherly had complied with its obligation under the contract and the EPA's regulations. In addition, the magistrate judge recommended that Eatherly's motion be denied and that its cross-claim against the City be dismissed because there was, as a matter of law, a valid contract between the City and Eatherly. The district court adopted this recommendation in whole and Eatherly applied for an interlocutory appeal, which this court denied on November 15, 1990.
Shortly before trial, Eatherly moved to realign the parties and to dismiss the case for lack of jurisdiction. Eatherly argued that its interests and those of Safeco were identical, and that with Eatherly--a partnership with Tennessee citizenship--on one side of the case against the City--a Tennessee municipal corporation--on the other, complete diversity would be lost. The district court granted the motion in part. It held that Safeco and Eatherly indeed had identical interests and should be aligned on the same side of the case in opposition to the City. But because Eatherly and Safeco had identical interests and no claim was left pending against Eatherly, the district court concluded that Eatherly was a dispensable party and granted the City's motion to dismiss Eatherly from the case, thus retaining diversity jurisdiction.
Eatherly then filed an action in Tennessee state court against the City and Safeco. Safeco moved to stay or dismiss the federal case on abstention grounds, but the district court denied its motion on the ground that the state court action was nothing more than an attempt to relitigate the federal court's findings that the agreement was enforceable. The City then moved for summary judgment on the grounds that: (1) the district court had already concluded that Eatherly and the City had a contract; (2) there was no factual issue regarding breach because Eatherly withdrew its bid after it had been accepted; and (3) damages could be ascertained by stipulation. The district court granted the motion and entered judgment against Safeco in the amount of $560,205.11, that is $352,847.08, the cost of substitute performance, plus $207,358.03 in prejudgment interest. The district court also awarded the City costs and attorney fees under a hold harmless clause in Safeco's performance bond.
Our review of a grant of summary judgment is de novo; we use the same test as used by the...
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