City of Yorkville v. Am. Southern Ins. Co.

Decision Date12 August 2011
Docket NumberNo. 10–3229.,10–3229.
Citation654 F.3d 713
PartiesCITY OF YORKVILLE, also known as United City of Yorkville for the Use and Benefit of AURORA BLACKTOP INCORPORATED, Plaintiff–Appellant,v.AMERICAN SOUTHERN INSURANCE COMPANY and Ocean Atlantic Service Corporation, Defendants–Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

OPINION TEXT STARTS HERE

Jean C. Francissen, Attorney, Dickson & Hasenbalg, Aurora, IL, for PlaintiffAppellant.Grace Winkler Cranley, Attorney, Chicago, IL, for DefendantsAppellees.Before ROVNER, WILLIAMS, and HAMILTON, Circuit Judges.WILLIAMS, Circuit Judge.

Aurora Blacktop (“Aurora”) filed this lawsuit, claiming that it is entitled to the proceeds of certain bonds issued by American Southern Insurance Company (American Southern) in favor of the City of Yorkville. The district court found that Aurora did not have standing to sue, and dismissed the case. We find that Aurora is not a third-party beneficiary to the bonds because there is no language in the bonds suggesting that American Southern's obligation runs to third parties. We affirm.

I. BACKGROUND

This case started out as three different actions brought against Ocean Atlantic Services (Ocean Atlantic) and American Southern in state court by three plaintiffs. The cases were removed to federal court by American Southern and consolidated. The district court's jurisdiction was premised on diversity of citizenship. Only Aurora appealed the judgment of the district court.

Ocean Atlantic is a real estate developer that was building the Westbury East Village subdivision in Yorkville, Illinois. According to the parties' representations at oral argument, as part of that project, Ocean Atlantic was required to make certain public improvements that would eventually be turned over to the City of Yorkville for maintenance. Yorkville Subdivision Control Ordinance § 8.02.01 requires a subdivider to post an irrevocable bond payable to the City of Yorkville “to assure the satisfactory installation of required improvements.”

According to Aurora's complaint, Ocean Atlantic (the contractor) obtained a series of subdivision bonds from American Southern in order to satisfy the ordinance. On June 15, 2006, American Southern (the surety) issued the subdivision bonds in favor of the City of Yorkville “for the purpose of guaranteeing the installation” of public improvements in the subdivision. All of the subdivision bonds (attached to Aurora's complaint) are identical, except for the amount insured and the specific improvements guaranteed. Each bond provides a list of events or conditions that would entitle the City of Yorkville to deem Ocean Atlantic in default. One of those conditions is “if the City of Yorkville has determined that the public improvements or other improvements covered by this [bond] have been or are likely to be the subject of liens or other claims by contractors, subcontractors or third parties.” The bonds also provide that the City of Yorkville can make a demand on the bonds by “presenting the Surety with a letter from the City Clerk ... demanding performance accompanied by the certificate of the City Clerk ... certifying the basis for the default and demand on this Subdivision Bond.”

Work on the subdivision commenced, and Ocean Atlantic hired Aurora (the subcontractor) to work on several public improvements. But the project stalled after Ocean Atlantic ran into financial difficulties, and the subdivision was never completed. Several subcontractors, including Aurora, were never paid for the work they performed. The subcontractors eventually recorded several mechanic's liens on the subdivision property in the amount allegedly owed by Ocean Atlantic.

On June 17, 2009, Ocean Atlantic wrote a letter to the City of Yorkville recommending that it redeem some of the bonds. In the letter, Ocean Atlantic explained that there were “presently three foreclosures pending that will prevent the current owner from completing the [subdivision].” Ocean Atlantic recommended that the bond proceeds be placed into escrow to pay for the release of the mechanic's liens and to ensure the completion of the improvements.

On August 31, 2009, the City of Yorkville sent a letter to American Southern making a demand for payment on the subdivision bonds. But American Southern never paid up, and the City did not pursue the matter further (even though the bonds contain an attorneys' fees provision). Aurora then filed suit against Ocean Atlantic and American Southern, purporting to bring its case in the name of the City of Yorkville for its own benefit. Aurora contends that it should be paid out of the proceeds of the bonds.

The case was removed to federal court. American Southern filed a motion to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). The district court granted the motion, finding that Aurora did not have standing to assert claims on the bonds because it was not a third-party beneficiary to the bonds. Aurora appeals.

II. ANALYSIS
A. Appellate Jurisdiction

Early on in this appeal we were concerned that the order appealed from might not be a “final decision” within the meaning of 28 U.S.C. § 1291 because it appeared that the district court's order failed to dispose of Aurora's case against Ocean Atlantic, the other defendant in this lawsuit. We ordered Aurora to explain why the appeal should not be dismissed.

Aurora filed a memorandum asserting that we have jurisdiction because the district court dismissed its complaint for lack of subject matter jurisdiction under Rule 12(b)(1) with prejudice, and entered judgment. Aurora also claimed, however, that the case was improperly removed to federal court. American Southern responded that it agreed with Aurora that the order dismissing Aurora's case is a final appealable order, but argued that Aurora waived the removal issue by failing to object below.

The district court dismissed Aurora's complaint with prejudice for lack of subject matter jurisdiction and closed the case by entering judgment. The dismissal of Aurora's lawsuit was final, and we have jurisdiction over this appeal. Banks v. Sec'y of Ind. Family & Soc. Servs. Admin., 997 F.2d 231, 237 (7th Cir.1993) (This court has jurisdiction over this appeal because dismissal of an action for lack of subject matter jurisdiction is a final judgment.”); see also Hill v. Potter, 352 F.3d 1142, 1144–45 (7th Cir.2003) (“The test [for finality] is whether the district court has finished with the case.”); In re Slimick, 928 F.2d 304, 307 n. 1 (7th Cir.1990) (“In an ordinary civil case, a complete act of adjudication ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.”).

Aurora also forfeited its challenge to American Southern's defective removal. Aurora claimed that removal was improper because Ocean Atlantic never consented to removal, and the consent of all defendants is generally required to remove. A motion to remand a case on any basis other than lack of subject matter jurisdiction must be made within 30 days after the filing of the notice of removal. 28 U.S.C. § 1447(c). Failure to join all defendants when a case is removed to federal court is a waivable procedural defect. McMahon v. Bunn–O–Matic Corp., 150 F.3d 651, 653 (7th Cir.1998) (plaintiff forfeited claim that removal was improper because, although only one defendant signed the notice of removal, plaintiff did not raise the defect before the court within 30 days); In re Cont'l Cas. Co., 29 F.3d 292, 294 (7th Cir.1994) (“The plaintiff has a right to remand if the defendant did not take the right steps when removing, but the plaintiff also may accept the defendant's choice of a federal forum. Procedural defects in removal ... may be waived or forfeited.”). Because Aurora did not move to have the case remanded within 30 days, it forfeited its challenge to American Southern's removal. In fact, even if it had not, removal would have been proper because the parties disclosed at oral argument that Ocean Atlantic was never served and defendants who have not been served need not join in a removal petition. See Shaw v. Dow Brands, Inc., 994 F.2d 364, 369 (7th Cir.1993).

B. Standing to Sue as Third–Party Beneficiary

In this case, we must decide whether Aurora has standing as a third-party beneficiary to enforce the subdivision bonds at issue. “In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or particular issues.” Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 444–45 (7th Cir.2009) (affirming dismissal of plaintiff's case under Rule 12(b)(1) upon finding that plaintiff did not have standing to sue on state law contract theory). The parties do not dispute that Illinois law applies. See Davis v. G.N. Mortg. Corp., 396 F.3d 869, 879 (7th Cir.2005) (“In a case where subject matter jurisdiction in federal court is premised on diversity jurisdiction under 28 U.S.C. § 1332, the court applies the substantive law of the forum state.”).

“A contract of a surety involves a direct promise to perform the obligations of another person in the event such person fails to perform as required by his contract.” Vee See Constr. Co., Inc. v. Luckett, 102 Ill.App.3d 444, 58 Ill.Dec. 149, 430 N.E.2d 91, 93 (1981). Aurora is not a party to the subdivision bonds (the surety agreement) since American Southern issued the bonds to Ocean Atlantic in favor of the City of Yorkville. But Aurora claims that it is an intended beneficiary and may therefore sue on the bonds.

In Illinois, if a contract is entered into for the direct benefit of a third person who is not a party to the contract, that person may sue on the contract as a third-party beneficiary. Carson Pirie Scott & Co. v. Parrett, 346 Ill. 252, 178 N.E. 498, 501 (1931). The test is whether the benefit is direct, in which case the person may sue, or incidental, in which case the person...

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