US Fidelity & Guar. v. Algernon-Blair, Inc.

• Decision Date: 08 November 1988
• Docket Number: Civ. A. No. 88-T-630-N.
• Citation: 705 F. Supp. 1507
• Parties: UNITED STATES FIDELITY AND GUARANTY COMPANY, etc., Plaintiff, v. ALGERNON-BLAIR, INC., etc., et al., Defendants.
• Court: U.S. District Court — Middle District of Alabama

705 F. Supp. 1507

UNITED STATES FIDELITY AND GUARANTY COMPANY, etc., Plaintiff, v. ALGERNON-BLAIR, INC., etc., et al., Defendants.

Civ. A. No. 88-T-630-N.

United States District Court, M.D. Alabama, N.D.

November 8, 1988.

L. Graves Stiff, III, Thomas L. Selden, Starnes & Atchison, Birmingham, Ala., for plaintiff.

William D. Coleman, Capell, Howard, Knabe & Cobbs, Montgomery, Ala., for Algernon-Blair.

Davisson F. Dunlap, Jr., Pennington, Wilkinson, Dunlap, Butler & Gautier, Tallahassee, Fla., Gordon Thames, and Howard A. Mandell, Mandell & Boyd, Montgomery, Ala., for Pelzer Homes, Inc. and William G. Thames.

MEMORANDUM OPINION

MYRON H. THOMPSON, District Judge.

Plaintiff United States Fidelity & Guaranty Company (USF & G) has filed this action against defendants Algernon-Blair, Inc., Pelzer Homes, Inc., and William G. Thames, seeking declaratory relief under the Declaratory Judgment Act, 28 U.S.C.A. § 2201. Algernon-Blair has filed a cross-claim against Pelzer Homes and Thames, charging them with misrepresentation and fraud, and breach of contract. Before the court are Pelzer Homes and Thames's motions to stay or dismiss the complaint and cross-claim and in the alternative for a more definite statement as to the complaint. The court heard oral argument on these motions on November 7, 1988. For the reasons that follow, the court concludes that the motions to dismiss the complaint and cross-claim should be granted and that this cause should be dismissed as to all parties and claims, albeit without prejudice.

I.

A.

In September 1987, Pelzer Homes and Algernon-Blair entered into a contract for the construction of a 120-unit apartment complex in Tallahassee, Florida. USF & G issued bonds securing Algernon-Blair's performance of the contract, and securing payment by Algernon-Blair to all labor and material suppliers for services and materials rendered in connection with the contract. Algernon-Blair, the general contractor, was the principal and Pelzer Homes, the owner, was the obligee of these bonds. In exchange for the issuance of these performance and payment bonds, Algernon-Blair entered into a "Master Surety Agreement" with USF & G, committing itself to indemnify USF & G for any losses resulting from Algernon-Blair's default on the bonds.

Algernon-Blair began construction of the complex in January of this year and continued until sometime in the spring when Pelzer Homes terminated the construction agreement, charging Algernon-Blair with breach. Pelzer Homes and Thames then notified USF & G that they considered Algernon-Blair in default, and they requested USF & G to assume responsibility for the construction project under the performance and payment bonds. Pelzer Homes and Thames also informed USF & G that they had solicited bids from other contractors to complete the construction job.

Pelzer Homes and Thames received three bids from this solicitation. Having heard nothing from USF & G to suggest that it would assume responsibility for the completion of the project, Pelzer Homes and Thames entered into a contract with one of the bidders to complete the complex.¹ Although USF & G never consented to this second contract, completion of the project is now proceeding, and Pelzer Homes and Thames apparently make no immediate demands on USF & G pursuant to the bonds.² So far as the court has been informed, construction is not yet finished, and final cost figures on the project are thus not yet available.

After the breakdown of their contractual relationship, Pelzer Homes and Thames filed suit against Algernon-Blair in state circuit court in Leon County, Florida, alleging fraud and breach of contract. Algernon-Blair defended and filed a counter-claim in that litigation, alleging fraud and breach against Pelzer Homes and Thames and filing a lien against the property in question. This state proceeding is still pending. USF & G filed the action at hand nearly two months after Pelzer Homes and Thames filed in state court.³

B.

After stating its factual allegations, USF & G asks this court to declare the rights and obligations of the parties with respect to the construction project at issue in the case, and to declare the rights and obligations of USF & G with respect to the claims made the subject of the pending state litigation and the two bonds.

The cross-claim contains four counts. Algernon-Blair charges Pelzer Homes and Thames with fraud and misrepresentation in Count I and with breach of contract in Count II. In count III, Algernon-Blair challenges Pelzer Homes and Thames's asserted termination of the construction contract "for convenience," asserting in essence another breach count. Count IV seeks a declaratory judgment from this court regarding Algernon-Blair's rights to certain City of Tallahassee rebate payments relating to the construction project.

In the pending motions, Pelzer Homes and Thames make a number of arguments urging this court to dismiss or stay USF & G's case.⁴ Two of these arguments merit discussion in this opinion. In the next section, the court will explain why it lacks jurisdiction to hear the dispute in this case. In the subsequent section, the court will explain why, even if jurisdiction were present, it would dismiss this case under its inherent discretion to hear declaratory judgment actions.

II.

A.

USF & G argues that its complaint is properly before the court by virtue of diversity jurisdiction. 28 U.S.C.A. § 1332(a). USF & G is a corporate citizen of the State of Maryland; Algernon-Blair and Pelzer Homes are corporate citizens of the State of Alabama; and Thames is also a citizen of the State of Alabama. Despite the fact that USF & G appears to have satisfied the jurisdictional elements of § 1332(a),⁵ Pelzer Homes and Thames argue that this court should realign Algernon-Blair as a co-plaintiff and dismiss for lack of complete diversity between plaintiffs and defendants. The court agrees with this argument.

Under our dual system of government, federal courts have limited, as opposed to general, jurisdiction. Thus a necessary inquiry in every suit filed in federal court is whether the court has authority to hear the case at all. Since individuals cannot extend the jurisdiction of the federal judiciary, the court bears the responsibility of resolving this inquiry accurately; the parties may not waive the requirements of subject matter jurisdiction, and the issue is subject to review at virtually all stages of the proceedings, including before the Supreme Court of the United States. E.g., Bender v. Williamsport Area School Dist., 475 U.S. 534, 541, 106 S.Ct. 1326, 1331, 89 L.Ed.2d 501 (1986); see also Fed. R.Civ.P. 12(h)(3) ("Whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action."). This principle imposes a duty upon the court, when a party invokes diversity jurisdiction, to ensure that no plaintiff is a citizen of the same state as any defendant before proceeding to the merits of the dispute. The manner in which USF & G characterizes the parties in its complaint is not dispositive of this jurisdictional issue. City of Indianapolis v. Chase National Bank, 314 U.S. 63, 70, 62 S.Ct. 15, 17, 86 L.Ed. 47 (1941). In City of Indianapolis, the Supreme Court clearly enunciated this point:

It is our duty, as it is that of the lower federal courts, to "look beyond the pleadings, and arrange the parties according to their sides in the dispute." ... Litigation is the pursuit of practical ends, not a game of chess. Whether the necessary "collision of interest," ... exists, is therefore not to be determined by mechanical rules. It must be ascertained from the "principal purpose of the suit," ... and the "primary and controlling matter in dispute."

Id. (citations omitted).

The duty of looking beyond the pleadings to determine proper alignment is a particularly difficult one for a district court to perform. In contrast to its usual approach in analyzing a motion to dismiss, the court must critically assess the substance of the alleged controversy to determine the goals and interests of each party. Given the early stage at which this must be done and the undeveloped factual field, experienced judges may well draw different conclusions from the same situation. See 13B C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3607 at 438-40 (1984) (describing the Court's sharp division in City of Indianapolis, supra). The determination is assuredly more difficult in this case because of the many contingencies inherent in USF & G's declaratory judgment claim. Indeed, the fact that USF & G seeks a declaration of the parties' rights and obligations with respect to the contract, but presents no direct claims in contact or fraud against any of the defendants, nor any apparent demands pressed upon it by the defendants, forces the court to speculate to a certain degree as to USF & G's specific interests in the suit. This unfortunate necessity arises from the combination of USF & G's pleading and the unavoidable issue of subject-matter jurisdiction.

In any event, the appropriate test in this circuit to determine whether parties are properly aligned as opposing parties in a lawsuit is "whether there is an actual or substantial controversy" between them. Weller v. Navigator Marine Inc., 737 F.2d 1547, 1548 (11th Cir.1984) (per curiam) (quoting Indemnity Insurance Co. v. First National Bank, 351 F.2d 519, 522 (5th Cir.1965)). "We look to the true interest of the parties and the positions asserted by them before the ... court in making this determination." Id.

USF & G's potential liability to Pelzer Homes and Thames under the terms of the "performance bond" is contingent on three factors. First, Algernon-Blair must be in default under the contract; second, Pelzer Homes must declare Algernon-Blair to be in default; and third, Pelzer Homes must have satisfied its contractual obligations....