Board Trustees Stanford v. Modual a/C Systems

• Decision Date: 01 July 1999
• Docket Number: No. C 99-00680 CW.,C 99-00680 CW.
• Parties: BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, in its capacity as a Management and Operating contractor for the United States Department of Energy, Plaintiff, v. MODUAL A/C SYSTEMS, INC., a California corporation; Quick-Set Construction Co., a California corporation; Specialized Drywall Systems, Inc., a California corporation; Whelan Electric, a California corporation; Trumpp Brothers, Inc, a California corporation; Kayar Corporation, doing business as Regevig Roofing; BHP Steel Building Products USA, Inc., a Washington corporation, Defendants.
• Court: U.S. District Court — Northern District of California

Page 965

54 F.Supp.2d 965

BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, in its capacity as a Management and Operating contractor for the United States Department of Energy, Plaintiff, v. MODUAL A/C SYSTEMS, INC., a California corporation; Quick-Set Construction Co., a California corporation; Specialized Drywall Systems, Inc., a California corporation; Whelan Electric, a California corporation; Trumpp Brothers, Inc, a California corporation; Kayar Corporation, doing business as Regevig Roofing; BHP Steel Building Products USA, Inc., a Washington corporation, Defendants.

No. C 99-00680 CW.

United States District Court, N.D. California.

July 1, 1999.

Jeffrey A. Rich, Weintraub, Genshlea & Sproul, Sacramento, CA, for plaintiff.

Michael P. Quinlivan, Kouns, Quinlivan & Severson, San Jose, CA, for Modual A/C Systems, Inc., defendant.

Donald K. Struckmann, Roseville, CA, for BHP Steel Building Products USA, Inc., defendant.

ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS AND DENYING PLAINTIFF'S MOTION FOR A PRELIMINARY INJUNCTION

WILKEN, District Judge.

This case arises from a series of contracts between the United States Department of Energy (DOE) and Plaintiff Board of Trustees of the Leland Stanford Junior University (Stanford), Stanford and PBS Building Systems, Inc. (PBS), and PBS and Defendants. Defendants move to dismiss Stanford's complaint. Stanford opposes Defendants' motions and moves for a preliminary injunction to prevent Defendants from enforcing the judgment obtained against Stanford in State court. Having considered all of the papers filed by the parties, the Court grants Defendants' motions to dismiss and denies Stanford's motion for a preliminary injunction.

BACKGROUND

Pursuant to a contract between the DOE and Stanford (the DOE contract), Stanford operates the Stanford Linear Accelerator Center (SLAC), a federal research facility, in San Mateo County.

In 1994, Stanford engaged PBS to construct and install a modular structure at SLAC. Neither Stanford nor PBS obtained a Miller Act bond. See 40 U.S.C. § 270a, et seq.¹ During the course of the project, PBS filed for bankruptcy. Although Defendants, a group of subcontractors, completed the work they contracted to perform at SLAC, PBS failed to pay them.

On April 28, 1995, Defendants filed their original complaint in United States District Court in San Jose, California, alleging that Stanford violated the Miller Act by failing to execute and furnish a payment bond. On September 12, 1995, the Honorable Ronald M. Whyte found that the Miller Act did not apply because neither Stanford nor PBS had obtained a payment bond and that Defendants thus failed to establish subject matter jurisdiction. The court dismissed Defendants' complaint with leave to amend. In so doing, the court suggested that Defendants appeared to have a claim for breach of contract as third party beneficiaries despite the absence of a bond, but that such a claim would have to be brought in State court.

Defendants subsequently filed a complaint in San Mateo County Superior Court, alleging that Stanford had breached its contract with the DOE by failing to provide the bonds required by federal law and asserting that Stanford was liable to Defendants as third-party beneficiaries of the contract.

After conducting a bench trial, the superior court found Stanford liable and ordered it to pay damages to Defendants. In so ruling, the court expressly rejected Stanford's contention that it was entitled to sovereign immunity. The court also found that Stanford, as a "management and operating contractor" (M & O contractor), was the prime contractor and thus was obliged to obtain a Miller Act payment bond. In the alternative, the court found that, even if Stanford were not the prime contractor, it was nonetheless obliged to procure a bond.

On September 17, 1997, Stanford appealed the superior court's decision. On October 26, 1998, the California Court of Appeal, in an unpublished opinion, affirmed the lower court's finding of liability. The appellate court agreed that Stanford was obliged under its contract with the DOE to obtain a Miller Act bond and that, as third-party beneficiaries, Defendants were entitled to recover from Stanford.

The appellate court also rejected Stanford's argument that, because the DOE contract provides that any judgment against Stanford must be paid by funds from the United States Treasury, Stanford is entitled to sovereign immunity. In reaching its decision, the court noted that Stanford failed to cite a single case in which a private individual or entity was protected by sovereign immunity simply because federal funds would be used to satisfy the judgment. The court further noted that Stanford not only declined to argue that it was acting as an agent of the federal government, but that it expressly maintained that "the existence or nonexistence of an agency relationship is irrelevant." Stipulation Re Facts and Documents, Ex. 8 at 6.

On January 20, 1999, the California Supreme Court denied Stanford's petition for review. Stanford did not file a petition for a writ of certiorari with the United States Supreme Court.

On February 17, 1999, Stanford filed its complaint in this Court, seeking declaratory and permanent injunctive relief to bar enforcement of the State court judgment.

DISCUSSION

1. Defendants' Motions to Dismiss

A. Rule 12(b)(1)

Dismissal is appropriate under Rule 12(b)(1) when the district court lacks subject matter jurisdiction over the claim. Fed.R.Civ.P. 12(b)(1). Federal subject matter jurisdiction must exist at the time the action is commenced. See Morongo Band of Mission Indians v. California State Board of Equalization, 858 F.2d 1376, 1380 (9th Cir.1988), cert. denied, 488 U.S. 1006, 109 S.Ct. 787, 102 L.Ed.2d 779 (1989). A Rule 12(b)(1) motion may either attack the sufficiency of the pleadings to establish federal jurisdiction, or allege an actual lack of jurisdiction which exists despite the formal sufficiency of the complaint. See Thornhill Publishing Co., Inc. v. General Tel. & Electronics Corp., 594 F.2d 730, 733 (9th Cir.1979); Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987).

Subject matter jurisdiction is a threshold issue which goes to the power of the court to hear the case. Therefore, a Rule 12(b)(1) challenge should be decided before other grounds for dismissal, because they will become moot if dismissal is granted. See Alvares v. Erickson, 514 F.2d 156, 160 (9th Cir.), cert. denied, 423 U.S. 874, 96 S.Ct. 143, 46 L.Ed.2d 106 (1975); see also 5A Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1350, 210 (2d ed.1990).

A federal court is presumed to lack subject matter jurisdiction until the contrary affirmatively appears. See Stock West, Inc. v. Confederated Tribes, 873 F.2d 1221, 1225 (9th Cir.1989). An action should not be dismissed for lack of subject matter jurisdiction without giving the plaintiff an opportunity to amend unless it is clear that the jurisdictional deficiency cannot be cured by amendment. See May Dept. Store v. Graphic Process Co., 637 F.2d 1211, 1216 (9th Cir.1980).

B. The Rooker/Feldman Doctrine Bars Stanford's Claims

a. The Rooker/Feldman Doctrine

Federal review of a final judgment by a State court is governed by Title 28 U.S.C. § 1257, which states, in relevant part,

Final judgments or decrees rendered by the highest court of a State in which a decision could be had, may be reviewed by the Supreme Court by writ of certiorari where the validity of a treaty or statute of the United States is drawn in question or where the validity of a statute of any State is drawn in question on the ground of its being repugnant to the Constitution, treaties, or laws of the United States, or where any title, right, privilege, or immunity is specially set up or claimed under the Constitution or the treaties or statutes of, or any commission held or authority exercised under, the United States.

28 U.S.C. § 1257. United States district courts generally do not have jurisdiction over challenges to State court decisions, even if those challenges raise federal constitutional issues. See Rooker v. Fidelity Trust Co., 263 U.S. 413, 415-16, 44 S.Ct. 149, 68 L.Ed. 362 (1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 476, 482-83, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983); Elks National Foundation v. Weber, 942 F.2d 1480, 1483-84 (9th Cir.1991), cert. denied, 505 U.S. 1206, 112 S.Ct. 2995, 120 L.Ed.2d 872 (1992). "If [the State] court erroneously determines a federal question, recourse does not lie to the United States District Court or to the United States Court of Appeals. Jurisdiction to review the judgments of state courts lies exclusively in the United States Supreme Court." Exxon Shipping Co. v. Airport Depot Diner, Inc., 120 F.3d 166, 169 (9th Cir.1997); see also Bates v. Jones, 131 F.3d 843, 856-67 (9th Cir.1997), cert. denied, ___ U.S. ___, 118 S.Ct. 1302, 140 L.Ed.2d 468 (1998); Worldwide Church of God v. McNair, 805 F.2d 888, 890-91 (9th Cir.1986).

The Supreme Court has held that, if federal claims are "inextricably intertwined" with the State court's ruling, the district court has no subject matter over such claims, even if the plaintiff failed to raise the federal claims in the State court proceedings. Feldman, 460 U.S. at 482 n. 16, 103 S.Ct. 1303 ("By failing to raise his claims in state court a plaintiff may forfeit his right to obtain review of the state-court decision in any federal court"); see also Dubinka v. Judges of the Superior Court, 23 F.3d 218, 221-22 (9th Cir.1994).

In the present case, Stanford's claim that it is entitled to sovereign immunity was expressly raised, addressed, and rejected by both the State Superior Court and the State Court of Appeal. See Stipulation Re Facts and Documents, Ex. 6 at 8; Ex. 8 at 3-6. Although it appears that Stanford did not raise the specific claim that it is the alter ego or agent of the...