Bethlehem Contracting Co. v. Lehrer/McGovern, Inc.
| Decision Date | 15 September 1986 |
| Docket Number | No. 1325,D,1325 |
| Parties | BETHLEHEM CONTRACTING COMPANY, a Corporation of the Commonwealth of Pennsylvania, Plaintiff-Appellant, v. LEHRER/McGOVERN, INC., a Corporation of the State of New York, Lehrer/McGovern, Inc., as Agent for Timko Contracting Corporation, a Corporation of the State of New York, and Paul Milstein, Individually, Polito Enterprises, Inc., a Corporation of the State of New York, and Gem Steel Erectors, Inc., a Corporation of the State of New York, Defendants-Appellees. ocket 86-7179. |
| Court | U.S. Court of Appeals — Second Circuit |
William W. Lanigan, New York City (Lanigan, O'Connell & Chazin, New York City, of counsel), for plaintiff-appellant.
Mark E. Klein, New York City (Joseph L. Forstadt, Linda S. Riefberg, Stroock & Stroock & Lavan, New York City, of counsel), for defendants-appellees Timko Contracting Corp. and Paul Milstein.
Before MANSFIELD, CARDAMONE, and WINTER, Circuit Judges.
Plaintiff Bethlehem Contracting Company ("Bethlehem") appeals from Judge Bramwell's dismissal of its diversity action. He based this dismissal upon the "exceptional circumstances" doctrine governing the exercise of concurrent federal and state jurisdiction articulated in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), and elaborated upon in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).
The underlying dispute arose out of a construction project converting the former Biltmore Hotel in New York City into an office building known as Bank of America Plaza. Bethlehem became involved in the project in January 1982, when it entered into a contract with Lehrer/McGovern, Inc. ("Lehrer/McGovern"), the project's construction manager. Lehrer/McGovern was acting as agent for Timko Contracting Corporation ("Timko"), the project's general contractor. Bethlehem agreed to provide all labor, equipment, supervision, and administration necessary to construct a structural steel and metal deck for the project. Bethlehem subsequently entered into subcontracts with Gem Steel Erectors, Inc. ("Gem") to provide for the erection of the deck, and with Gem's affiliate, Polito Enterprises, Inc. ("Polito"), to supply certain materials and accessories.
In late 1982, Gem allegedly threatened to withdraw its employees from the project, claiming that Bethlehem was not paying monies due under its subcontract. In order to avoid a work stoppage, Timko and Paul Milstein, Timko's president and director, arranged to make progress payments directly to Gem. This arrangement is the basis of the present action in which Bethlehem alleges, inter alia, breach of the contract between itself and Timko, and tortious interference by Milstein with the subcontract between Bethlehem and Gem.
Prior to the present action, however, there was a flurry of related activity in New York state court. In October 1983, Gem and Polito filed notices of mechanic's liens in New York County against the construction project. In early 1984, the owner of the property, Builtland Partners ("Builtland"), petitioned in Supreme Court, New York County, to discharge the notices of lien. Meanwhile, on March 19, 1984, Gem and Polito commenced an action in the same court for foreclosure of the liens and for breach of contract in connection with the work, labor, and supplies they had provided at the project. The fourteen defendants in the state litigation include Builtland, Timko, and Bethlehem, as well as eleven other entities that claim an interest in or liens on the construction project property. Milstein, a partner in Builtland, is not a party to the state court action.
After the New York Supreme Court granted Builtland's petition and discharged the notices of lien as untimely and defective, Gem and Polito proposed a stipulated dismissal of all parties that had been named as defendants in the state litigation solely with respect to the lien foreclosure causes of action. Although Builtland and Timko agreed to this proposal, no further action was taken. Instead, several months later, counsel for Gem and Polito and counsel for Bethlehem jointly requested that Builtland and Timko stipulate to the dismissal of the state court action and agree to be sued by Bethlehem in federal court. This request was rejected. Each side now accuses the other of conspiring to keep the state court action dormant. Whatever the cause, there is no dispute about the result: none of the defendants has answered the state complaint, and no party has engaged in formal discovery.
Bethlehem commenced the present action in the Eastern District against Lehrer/McGovern, Milstein, Gem, and Polito on July 9, 1985; Timko was added as a defendant on August 22, 1985. Jurisdiction was grounded on diversity of citizenship. In October 1985, all parties to the action stipulated to the dismissal of Lehrer/McGovern on the ground that it was an agent for a disclosed principal and therefore had no liability for the claims asserted. During the same month, Timko and Milstein moved to dismiss the entire action on the ground that a pending state court action raised substantially identical issues. Holding that "this case falls within the framework of the exceptional circumstances test," the district court dismissed the complaint. Decision and Order (filed Nov. 25, 1985) at 6. We reverse.
Where, as here, a federal court properly has subject matter jurisdiction, it has a "virtually unflagging obligation" to exercise that jurisdiction, even if an action concerning the same matter is pending in state court. Colorado River, 424 U.S. at 817-18, 96 S.Ct. at 1246. This obligation is subject to very limited exceptions, one of which is relevant to this case. A district court may decline to exercise its jurisdiction in "exceptional circumstances" based on "considerations of '[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation.' " Id. at 817, 96 S.Ct. at 1246 (quoting Kerotest Mfg. Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 183, 72 S.Ct. 219, 221, 96 L.Ed. 200 (1952)). See also Cone, 460 U.S. at 14-16, 103 S.Ct. at 936-37; Telesco v. Telesco Fuel and Masons' Materials, Inc., 765 F.2d 356, 360-63 (2d Cir.1985); Giardina v. Fontana, 733 F.2d 1047, 1052-53 (2d Cir.1984); Levy v. Lewis, 635 F.2d 960, 965-67 (2d Cir.1980).
Colorado River identified several factors to be considered in applying the exceptional circumstances test: the assumption by either court of jurisdiction over any res or property, the inconvenience of the federal forum, the avoidance of piecemeal litigation, and the order in which jurisdiction was obtained. 424 U.S. at 818, 96 S.Ct. at 1246-47. Cone elaborated upon this test and added two new considerations: whether state or federal law supplies the rule of decision, and whether the state court proceeding will adequately protect the rights of the party seeking to invoke federal jurisdiction. 460 U.S. at 23-27, 103 S.Ct. at 941-43. In both cases the Court warned, however, that the determination whether to defer to a state court under the exceptional circumstances test "does not rest on a mechanical checklist, but on a careful balancing of the important factors as they apply in a given case, with the balance heavily weighted in favor of the exercise of jurisdiction." Id. at 16, 103 S.Ct. at 937 (emphasis added); see also Colorado River, 424 U.S. at 818-19, 96 S.Ct. at 1246-47 ().
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