806 F.2d 862 (9th Cir. 1986), 84-3832, United States v. City of Twin Falls, Idaho

Docket Nº:84-3832, 84-3837.
Citation:806 F.2d 862
Party Name:UNITED STATES of America, Plaintiff/Appellee, v. The CITY OF TWIN FALLS, IDAHO, Defendant. The CITY OF TWIN FALLS, IDAHO, Third-Party Plaintiff/Appellant, v. HAMILTON AND VOELLER, INC., an Idaho corporation; Detweiler Bros., Inc., an Idaho corporation; Envirotech Corporation, d/b/a Envirotech Systems, Inc., a foreign corporation doing business in I
Case Date:December 15, 1986
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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806 F.2d 862 (9th Cir. 1986)

UNITED STATES of America, Plaintiff/Appellee,



The CITY OF TWIN FALLS, IDAHO, Third-Party Plaintiff/Appellant,


HAMILTON AND VOELLER, INC., an Idaho corporation; Detweiler

Bros., Inc., an Idaho corporation; Envirotech Corporation,

d/b/a Envirotech Systems, Inc., a foreign corporation doing

business in Idaho, Third-Party Defendants/ Appellees.

UNITED STATES of America, Plaintiff/Appellee,



The CITY OF TWIN FALLS, IDAHO, Third-Party Plaintiff/Appellant,


HAMILTON AND VOELLER, INC., an Idaho corporation,

Third-Party Defendant,


Envirotech Corporation, d/b/a Envirotech Systems, Inc.,

Third-Party Defendant/Appellant.

Nos. 84-3832, 84-3837.

United States Court of Appeals, Ninth Circuit

December 15, 1986

Argued and Submitted Oct. 9, 1985.

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[Copyrighted Material Omitted]

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Randall D. Morrison, Finan, White & Morrison, San Francisco, Cal., for plaintiff/appellee.

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John C. Hohnhorst, John C. Hepworth, Hepworth, Nungester & Felton, Twin Falls, Idaho, for defendant.

Appeal from the United States District Court for the District of Idaho.

Before TANG, SCHROEDER, [*] and BOOCHEVER, Circuit Judges.

BOOCHEVER, Circuit Judge:

The United States sued the City of Twin Falls, Idaho for violation of federal water pollution statutes. The City filed a third-party indemnity action against Envirotech Corporation and others responsible for the design and construction of the City's sewage treatment plant. The United States prevailed against the City, and the City obtained a jury verdict in its breach of contract and warranties action against Envirotech. The verdict was for $1,222,493.65, and the district court awarded the City attorney fees and some costs. The City moved unsuccessfully for a partial new trial on damages. Envirotech cross-appeals. The parties raise numerous issues involving jurisdiction, contract formation and modification, Uniform Commercial Code application and remedies, jury instructions, punitive damages, expert witness costs and fees, and attorney fees.


The City of Twin Falls (the City) needed a new secondary waste treatment plant to meet United States Environmental Protection Agency (EPA) water pollution discharge standards. Between 1972 and 1974, a Twin Falls engineering firm, Hamilton and Voeller, Inc., designed the facility and prepared specifications for the equipment. The City solicited bids for the various phases of the project, including site preparation and general construction (Division I), and manufacture and installation of the secondary treatment equipment (Division III). For its Division III contract, the City required the bidder to guarantee it would meet certain specifications, including a specified rate of dewaterability of sludge 1 and a percentage of biological oxygen demand (BOD) 2 that would be attained without the use of chemicals. The successful bidder also was required to agree that it would repair or replace equipment failing to meet specifications within the first year. If after a two year period the equipment still did not meet specifications, the City had an option to demand the removal of the equipment and refund of payments.

Envirotech Corporation (Envirotech) won the bid for supplying and installing the secondary treatment equipment. The facility was constructed and the treatment system installed between 1974 and 1976. Problems with the secondary system began immediately, and the system never performed as intended.

In September 1976, the United States (for the EPA) commenced an action seeking injunctive relief and civil penalties against the City in the federal district court for the District of Idaho, alleging that the City's sewage treatment plant was discharging various pollutants in violation of federal water pollution standards and the pollution discharge permit issued the City by the EPA. The district court's jurisdiction was based upon 28 U.S.C. Sec. 1331 (1982) (federal question) and 28 U.S.C. Sec. 1345 (United States as plaintiff).

The City denied the allegations, and in March 1978, it joined several third-party defendants, including Envirotech (a California corporation which manufactured and sold the pollution control equipment which is the subject of this appeal). The answer and third-party complaint alleged that in

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order to comply with the federal water pollution standards, the City contracted with the third-party defendants to design and build the treatment facility, and that as a result of breach of contract and negligence, the City was "potentially liable to the Plaintiff for daily alleged fines...." Because there were other third-party defendants defeating diversity, the City in an amended answer asserted jurisdiction as to the third-party defendants based upon the pendent and ancillary nature of this claim. The City alleged that it had been sued by the United States and that it was "entitled to indemnity for any and all loss occasioned by recovery by the United States," as well as for all costs and attorney fees. It also sought additional damages arising from the need to repair or replace the treatment plant caused by Envirotech's negligence and breach of express and implied contract warranties.

In October 1980, the litigation between the United States and the City was concluded in the United States' favor under the terms of a stipulation and consent decree. Among other things, the decree required the City to repair and reconstruct the plant to meet its EPA pollution discharge permit requirements. By the terms of the consent decree, the court retained jurisdiction over the proceedings until the decree terminated on December 31, 1982. The court observed that, for all practical purposes, the suit between the United States and the City was terminated, that the City's third-party actions presented voluminous and complex state law issues best resolved in the state courts, that the trial was likely to be protracted, and that there appeared to be no complete diversity of jurisdiction. Nevertheless, the court determined to retain jurisdiction because of the extensive discovery already conducted.

The jury returned a verdict against Envirotech for the sum of $1,222,493.65, and judgment was entered accordingly. Following trial, the City moved for a partial new trial on its measure of damages objection. The motion was denied. The City also sought costs including expert fees and costs which it paid its experts for depositions taken by Envirotech. The City obtained costs of $15,109.79 from Envirotech, but the expert fees and deposition costs were denied. The City was awarded statutory attorney fees from Envirotech in the amount of $275,000, and Envirotech appeals this award.



The court denied Envirotech's motion to dismiss for lack of subject matter jurisdiction. Envirotech appeals the ruling that the district court had ancillary jurisdiction over the City's third-party claims. Envirotech argues that the City's third-party claims were pendent party claims, i.e., the City brought in new parties on state law claims which, because of the absence of complete diversity, had no independent basis of federal subject matter jurisdiction. Envirotech also contends that even if the court had ancillary jurisdiction, it abused its discretion in refusing to dismiss the third-party claims which predominantly involved state law issues.

The City responds that the district court possessed ancillary jurisdiction permitting the City to implead third-party defendants under Rule 14(a) of the Federal Rules of Civil Procedure for indemnification of the City's liability as to the original plaintiff, the United States. Further, once the district court properly exercised its ancillary jurisdiction as to the City's indemnity claims, it also had pendent jurisdiction over the City's remaining damage claims under Rule 18.

Standard of Review

This court reviews de novo a district court's decision on subject matter jurisdiction. Jones v. Gordon, 792 F.2d 821, 824 (9th Cir.1986); Clayton v. Republic Airlines, Inc., 716 F.2d 729, 730 (9th Cir.1983).


  1. Ancillary and Pendent Jurisdiction

    Fed.R.Civ.P. 14(a) permits a defendant, as a third-party plaintiff, to bring an action

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    against a person not a party "who is or may be liable to him for all or part of the plaintiff's claim against him." Rule 18(a) permits a party asserting a claim to relief as a third-party claimant to join as many claims as he has against the opposing party. Fed.R.Civ.P. 18(a).

    Both ancillary and pendent jurisdiction

    expand the scope of federal courts by permitting parties to obtain a federal forum for claims which, by themselves, are not within the statutory jurisdiction of the federal courts.... Ancillary claims are claims which ... arise out of the same transactions that are the subject of the federal cause[ ] of action but which are asserted after the original complaint is filed, usually by one other than the original plaintiff.

    Blake v. Pallan, 554 F.2d 947, 956-57 n. 11 (9th Cir.1977). The City's indemnity claim against Envirotech arises out of the installation, warranty, and failure of the treatment system to return clean water to the river. This is the same transaction which was the subject of the federal claim against the City. The third-party claim is therefore ancillary under this definition.

    The City's contract and warranty claims involve issues not presented by the United States' complaint. We must determine whether they are pendent under the provisions of Rule 18(a). In Blake, we defined pendent claims as "state claims which arise from the same 'nucleus of operative facts' as that of a federal claim and which are joined in the same complaint with the federally cognizable...

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