Balt. City Bd. of Sch. Comm'rs v. Warren-Ehret Co. of Md., Inc.
| Decision Date | 12 November 2014 |
| Docket Number | Civil Action No. ELH-14-02306 |
| Parties | BALTIMORE CITY BOARD OF SCHOOL COMMISSIONERS, Plaintiff, v. WARREN-EHRET COMPANY OF MARYLAND, INC. et al. Defendants. |
| Court | U.S. District Court — District of Maryland |
This construction case was initially filed in state court and was then removed to federal court, based on diversity of citizenship. The question now is whether the court has subject matter jurisdiction based on diversity.
In or about April 2014, the Baltimore City Board of School Commissioners ("BCBSC") filed suit in the Circuit Court for Baltimore City against Warren-Ehret Company of Maryland, Inc. ("Warren-Ehret") and Westfield Insurance Company ("Westfield"). Several exhibits are appended to the Complaint. Count One is a claim for breach of contract against Warren-Ehret, a Maryland corporation. Count Two is a claim for breach of contract against Westfield, an Ohio corporation.
On July 18, 2014, Westfield timely removed the case to federal court. In its Notice of Removal (ECF 1), Westfield asserted jurisdiction based on diversity of citizenship, pursuant to 28 U.S.C. § 1332. Id. at ¶ 2.
The suit arises from a contract between Warren-Ehret and BCBSC, entered on or about April 27, 2010, by which Warren-Ehret was to replace the roof at Harlem Park Middle School in Baltimore (the "Contract"). In support of its contractual undertaking, Warren-Ehret secured a performance and payment bond issued by Westfield on behalf of Warren-Ehret and for the benefit of BCBSC. Under the terms of the Bond, Westfield, as Surety, became bound to pay BCBSC up to the amount of the bond ($1,959,580) in the event of any defaults, breaches, and/or failures by Warren-Ehret under the Contract. See Plaintiff's Exhibit 1 (the "Contract"); Plaintiff's Exhibit 2 (the "Bond"). Moreover, under the terms of the Contract, Warren-Ehret was obligated to substantially complete its work by May 28, 2011.
According to BCBSC, Warren-Ehret defaulted under the Contract. Therefore, BCBSC terminated the Contract, pursuant to a letter to Bradford Koch, Sr., President of Warren-Ehret, dated August 15, 2011. See Plaintiff's Exhibit 3. The termination was effective as of August 16, 2011. As of the termination date, BCBSC had allegedly paid Warren-Ehret $1,808,346.46; was holding $95,176.24 as retainage; and $56,085.30 remained due under the Contract.
Plaintiff contends that the work was left unfinished by Warren-Ehret. As a request, BCBSC retained Cam Construction Co., Inc. to complete the work, at a cost of almost $800,000. In addition, because of alleged defects in the work of Warren-Ehret, Cam Construction had to perform additional remedial work, at a cost of over $250,000. The work on the school roof was not completed until December 2012.
Based on these allegations, BCBSC made demand upon Westfield for payment under the Bond, in the amount of $903,049.86, as a result of Warren-Ehret's default and alleged breach of contract. Westfield has not paid.
As noted, Westfield removed the case to federal court based on diversity. In support of its claim of diversity, Westfield alleged that Warren-Ehret is a defunct Maryland corporation whose operations ceased as of the summer of 2011.
On July 21, 2014, the Court issued its "Standing Order Concerning Removal." Westfield filed its response on August 1, 2014. ECF 15. Westfield reiterated that Warren-Ehret ceased all operations in the summer of 2011, and is not in good standing with the Maryland State Department of Assessments and Taxation ("SDAT"). Id. ¶ 3. Further, it alleged that Warren-Ehret has no intention of reviving its operations. Id. And, Westfield alleged: Id. ¶ 6.
On August 18, 2014, the Court directed plaintiff to provide its views as to whether this Court has diversity jurisdiction. See ECF 16. Plaintiff responded on September 4, 2014 (ECF 17), disputing diversity jurisdiction, and seeking a remand to the Circuit Court for Baltimore City. Plaintiff's response is supported by several exhibits.
In ECF 16, plaintiff asserted, inter alia, that it "was in the midst of its additional efforts to locate Mr. Koch, as well as formalizing its request . . . for alternative service upon Warren-Ehret, . . . when Westfield filed its Notice of Removal to this Court, therefore divesting theCircuit Court of its power to act further." ECF 17 at 5, ¶ 10. Moreover, plaintiff insists that the parties are not completely diverse and that Warren-Ehret is a viable Maryland corporation, subject to suit. Id. at 5 ¶¶ 11 and 12. See Md. Code (2014 Repl. Vol.), Corporations and Associations Article § 2-103(2) ().
In addition, plaintiff argues that "forfeiture of a corporation's charter, given its significance, is quite formalized." ECF 17 at 7, ¶ 7. It cites § 3-503 of the Corporations and Associations Article of the Maryland Code (2014), which pertains to forfeiture of a corporate charter for nonpayment of taxes or failure to file the requisite reports. Noting that "'Forfeiture' means that the legal existence of the entity has been relinquished," plaintiff maintains that "the charter of a corporation is not forfeited until SDAT issues a formal Proclamation declaring it to be so, which Proclamation cannot be issued until a series of prior steps have been completed." ECF 17 at 8-9, ¶ 17. Plaintiff insists that, even if Warren-Ehret is not in good standing with the SDAT, its corporate charter has not been forfeited and thus Warren-Ehret remains "a viable Maryland corporation in legal existence, and, as such, there is not, and never was, diversity of citizenship. . . ." Id. ¶ 18.
Alternatively, plaintiff argues that, even if Warren-Ehret's charter was forfeited, plaintiff would then be entitled to sue the Director-Trustees of the corporation, pursuant to § 3-515 of the Corporations and Associations Article. Id. at 9-10, ¶ 21. In particular, § 3-515 provides that, when the charter of a Maryland corporation has been forfeited, the Director-Trustees may sue or be sued in their own names as trustees or in the name of the corporation. In either circumstance, suggests plaintiff, diversity would not be satisfied.
As noted, the question here is whether this Court has subject matter jurisdiction, based on diversity of citizenship.
In Home Buyers Warranty Corporation v. Hanna, 750 F.3d 427, 432 (4th Cir. 2014), the Fourth Circuit said: "Fundamental to our federal system is the principle that '[f]ederal courts are courts of limited jurisdiction.'" (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)). Thus, a federal district court may only adjudicate a case if it possesses the "power authorized by Constitution and statute." Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005) (internal quotation marks omitted). As the Fourth Circuit stated in Strawn v. AT & T Mobility LLC, 530 F.3d 293, 296 (4th Cir. 2008), if a party seeks to proceed in federal court, it "must allege and, when challenged, must demonstrate the federal court's jurisdiction over the matter." Indeed, "if Congress has not empowered the federal judiciary to hear a matter, then the case must be dismissed." Hanna, 750 F.3d at 432.
Put another way, "[a] court is to presume ... that a case lies outside its limited jurisdiction unless and until jurisdiction has been shown to be proper." United States v. Poole, 531 F.3d 263, 274 (4th Cir. 2008) (citing Kokkonen, 511 U.S. at 377). Moreover, a federal court has "an independent obligation to determine whether subject-matter jurisdiction exists, even when no party challenges it." Hertz Corp. v. Friend, 559 U.S. 77, 94 (2010).
Congress has conferred jurisdiction on the federal courts in several ways. To provide a federal forum for plaintiffs who seek to vindicate federal rights, Congress has conferred on the district courts original jurisdiction over civil actions that arise under the Constitution, laws, or treaties of the United States. Exxon Mobil Corp., 545 U.S. at 552; 28 U.S.C. § 1331. See also U.S. Constitution Art. III, § 2 () Moreover, 28 U.S.C. § 1367(a) grants district courts "supplemental jurisdiction over all other claims that are so related to claims in the action within [the courts'] original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution."
In addition, "Congress . . . has granted district courts original jurisdiction in civil actions between citizens of different States, between U.S. citizens and foreign citizens, or by foreign states against U.S. citizens," so long as the amount in controversy exceeds $75,000. Exxon Mobil Corp., 545 U.S. at 552; see 28 U.S.C. § 1332. This so-called diversity jurisdiction "requires complete diversity among parties, meaning that the citizenship of every plaintiff must be different from the citizenship of every defendant." Cent. W. Virginia Energy Co., Inc. v. Mountain State Carbon, LLC, 636 F.3d 101, 103 (4th Cir. 2011); see Strawbridge v. Curtiss, 7 U.S. 267 (1806).
"When a plaintiff files in state court a civil action over which the federal district courts would have original jurisdiction based on diversity of citizenship, the defendant or defendants may remove the action to federal court, 28 U.S.C. § 1441(a), provided that no defendant 'is a citizen...
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