430 F.2d 1077 (2nd Cir. 1970), 766, United States ex rel. D'Agostino Excavators, Inc. v. Heyward-Robinson Co.

Docket Nº:766, 34513.
Citation:430 F.2d 1077
Party Name:UNITED STATES of America, for the Use and Benefit of D'AGOSTINO EXCAVATORS, INC., Plaintiff-Appellee, v. The HEYWARD-ROBINSON COMPANY, Inc. and Maryland Casualty Company,Defendants-Appellants.
Case Date:July 24, 1970
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 1077

430 F.2d 1077 (2nd Cir. 1970)

UNITED STATES of America, for the Use and Benefit of D'AGOSTINO EXCAVATORS, INC., Plaintiff-Appellee,


The HEYWARD-ROBINSON COMPANY, Inc. and Maryland Casualty Company,Defendants-Appellants.

No. 766, 34513.

United States Court of Appeals, Second Circuit.

July 24, 1970

Argued May 13, 1970.

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Francis X. Conway, New York City, for defendants-appellants.

Irwin M. Echtman, New York City, for plaintiff-appellee.

Before FRIENDLY and KAUFMAN, Circuit Judges, and BRYAN, [*] District judge.

FREDERICK van PELT BRYAN, District Judge.

This is an appeal from a judgment for the plaintiff entered in the United States District Court for the District of Connecticut upon a jury verdict after trial before Chief Judge J. Edward Lumbard, of the Court of Appeals of this Circuit, sitting by designation.

The action involves two subcontracts for excavation work between D'Agostino Excavators, Inc. (D'Agostino) and The Heyward-Robinson Company, Inc. (Heyward) as prime contractor on two construction jobs in Connecticut. One of the prime contracts, for the construction of barracks at the Naval Submarine Base in New London, Groton, was with the federal government (the Navy job). The other, a non-federal job, was for the construction of a plant for Stelma, Inc. at Stamford (the Stelma job).

D'Agostino brought this action against Heyward and its surety, Maryland Casualty Company (Maryland) under the Miller Act, 40 U.S.C. §§ 270a and 270b, to recover payments alleged to be due on the Navy job. Heyward answered, denying liability on the Navy job and counterclaiming for alleged overpayments and extra costs of completing both the Navy job and the Stelma job. In reply, D'Agostino denied liability on the Heyward counterclaims and interposed a reply counterclaim to recover from Heyward monies alleged to be due on the Stelma job.

At the trial, the two subcontracts in suit were treated together. D'Agostino claimed that Heyward had breached both subcontracts by failing to make progress payments as required and that substantial sums were owing to it from Heyward on both jobs. Heyward claimed that D'Agostino had breached both subcontracts by permitting its compensation and employee liability insurance to lapse; that, as a result, Heyward on October 19, 1965 had terminated both; and that D'Agostino was liable for overpayments and costs of completion on both.

The issue as to whether Heyward had breached the subcontracts prior to October 19, 1965, when Heyward claimed to have terminated them, was submitted to the jury as a special question. The jury found that Heyward had breached the subcontracts prior to that date.

After amendment of the complaint by D'Agostino to allege a claim in quantum meruit for the work performed on both jobs, special questions then were

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submitted to the jury as to the reasonable value of the work performed by D'Agostino on each project and the net amount owed by Heyward to D'Agostino on both. The jury found, in answer to these questions, that the net amount owed by Heyward to D'Agostino on both jobs was $63,988.36. Judgment against Heyward was rendered accordingly. Under a formula agreed to by the parties, it was determined that the amount due to D'Agostino on the Navy job was $40,771.46 and judgment was entered against Maryland in that sum.

The trial court denied motions for judgment notwithstanding the verdict and for a new trial pursuant to Rules 50(b) and 59, Fed.R.Civ.P. Heyward and Maryland appeal from the judgment against them, raising a variety of questions which will be dealt with seriatim.


Appellants' initial contention is that the District Court had no jurisdiction over the counterclaims on the Stelma job. They therefore contend that the Stelma claims must be dismissed and that since D'Agostino's claims on the Navy and Stelma jobs were presented to the jury as inseparable, the judgment below must be reversed.

Appellants urge that the Stelma counterclaims are not compulsory counterclaims over which the federal court acquired jurisdiction ancillary to the jurisdiction which it had over D'Agostino's Miller Act claim stated in the complaint. They say that these are permissive counterclaims over which the court had no ancillary jurisdiction and which lacked the required independent basis of federal jurisdiction.

This jurisdictional issue is raised for the first time in this Court. In the Court below appellants affirmatively urged that the Stelma counterclaims were compulsory. Nevertheless, it is well settled that lack of federal jurisdiction may be raised for the first time on appeal, even by a party who originally asserted that jurisdiction existed or by the Court sua sponte. E.g., American Fire & Casualty Co. v. Finn, 341 U.S. 6, 17-18, 71 S.Ct. 534, 95 L.Ed. 702 (1951); Mansfield, Coldwater & Lake Michigan Ry. Co. v. Swan, 111 U.S. 379, 384, 4 S.Ct. 510, 28 L.Ed. 462 (1884); Precise Imports Corp. v. Kelly, 378 F.2d 1014, 1015-1016 (2d Cir.), cert. denied, 389 U.S. 973, 88 S.Ct. 472, 19 L.Ed.2d 465 (1967); John Birch Society v. National Broadcasting Co., 377 F.2d 194, 199 (2d Cir. 1967); Shahmoon Industries Inc. v. Imperato, 338 F.2d 449 (3rd Cir. 1964). We turn, then, to the jurisdictional issue.

It is apparent from the record that there is no independent basis of federal jurisdiction over the Stelma counterclaims. Both D'Agostino and Heyward are New York corporations with offices in New York. There is thus no diversity jurisdiction. Clearly there is no jurisdiction under the Miller Act over these counterclaims since the Stelma contract did not involve public work for the federal government.

The question is whether the Stelma counterclaims are compulsory or are permissive. Under the rule in this circuit, if they are permissive there is no Federal jurisdiction over them unless they rest on independent jurisdictional grounds. O'Connell v. Erie Lackawanna R.R. Co., 391 F.2d 156, 163 (2d Cir. 1968), vacated and ordered dismissed as moot, 395 U.S. 210, 89 S.Ct. 1767, 23 L.Ed.2d 213 (1969); Lesnik v. Public Industrials Corporation, 144 F.2d 968, 976 n. 10 (2d Cir. 1944); Fraser v. Astra Steamship Corp., 18 F.R.D. 240, 241-242 (S.D.N.Y.1955); Telegraph Delivery Service v. Florists Tel. Service, 12 F.R.D. 342 (S.D.N.Y.1952); 3 J. Moore, Federal Practice P13.19(1) at 53-57 (2d ed. 1969). But see Revere Copper and Brass, Inc. v. Aetna Casualty and Surety Company, 426 F.2d 709 (5th Cir. May 8, 1970); G. Fraser, Ancillary Jurisdiction and the Joinder of Claims in the Federal Courts, 33 F.R.D. 27, 28-34 (1963); Green, Federal Jurisdiction over Counterclaims, 48 N.W.U.L.Rev.

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271, 282-285 (1953) . 1 On the other hand, if they are compulsory counterclaims, they are ancillary to the claim asserted in the complaint and no independent basis of Federal jurisdiction is required. E.g., United Artists Corp. v. Masterpiece Productions, Inc., 221 F.2d 213 (2d Cir. 1955). See, e.g., Moore v. New York Cotton Exchange, 270 U.S. 593, 46 S.Ct. 367, 70 L.Ed. 750 (1926); C. Wright, Law of Federal Courts, §§ 9, 79 (2d ed. 1970); 3 J. Moore, supra, P13.15 at 31-42.

Under Rule 13(a) Fed.R.Civ.P. a counterclaim is compulsory 'if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim.' In United Artists Corp. v. Masterpiece Productions, supra, Chief Judge Clark said:

In practice this criterion has been broadly interpreted to require not an absolute identity of factual backgrounds for the two claims, but only a logical relationship between them. Lesnik v. Public Industrials Corp., 2 Cir., 144 F.2d 968, 975, citing and quoting, inter alia, Moore v. New York Cotton Exchange, 270 U.S. 593, 610, 46 S.Ct. 367, 371, 70 L.Ed. 750, thus: "Transaction' is a word of flexible meaning. It may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship.' See also Blair v. Cleveland Twist Drill Co., 7 Cir., 197 F.2d 842, 845; Wright, Estoppel by Rule: The Compulsory Counterclaim Under Modern Pleading, 38 Minn.L.Rev. 423, 440-445, 39 Iowa L.Rev. 255; 3 Moore's Federal Practice P13.13 (2d ed. 1948 and 1954 Supp.). 221 F.2d at 216. See United States for Use and Benefit of Pickard Engineering Co. v. Southern Construction Company, 293 F.2d 493, 500 (6th Cir. 1961), rev'd in part on other grounds, sub nom. Southern Construction Co. v. Pickard, 371 U.S. 57, 83 S.Ct. 108, 9 L.Ed.2d 31 (1962); United States v. Eastport Steamship Corporation, 255 F.2d 795 (2d Cir. 1958); C. Wright, supra, at 346-349.

Thus '* * * courts should give the phrase 'transaction or occurrence that is the subject matter' of the suit a broad realistic interpretation in the interest of avoiding a multiplicity of suits.' 3 J. Moore, supra, P13.13 at 33-36 (2d ed. 1969). As the Supreme Court said in Pickard:

The requirement that counterclaims arising out of the same transaction or occurrence as the opposing party's claim 'shall' be stated in the pleadings was designed to prevent multiplicity of actions and to achieve resolution in a single lawsuit of all disputes arising out of common matters. 371 U.S. at 60, 83 S.Ct. at 110.

In the case at bar the counterclaims were compulsory within the meaning of Rule 13(a). There was such a...

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