Federal Ins. Co. v. Bill Harbert Const. Co.
| Decision Date | 10 December 1999 |
| Docket Number | No. Civ.A. 98-0616-RV-M.,Civ.A. 98-0616-RV-M. |
| Parties | FEDERAL INSURANCE COMPANY, Plaintiff, v. BILL HARBERT CONSTRUCTION COMPANY and The Board of Water and Sewer Commissioners of the City of Mobile, Defendants. |
| Court | U.S. District Court — Southern District of Alabama |
L. Graves Stiff, III, Joel S. Dickens, Elise Frohsin, Starnes & Atchison, Birmingham, AL, Edward C. Greene, Mobile, AL, for Federal Insurance Company.
Edward C. Greene, Frazer, Green Upchurch & Baker, LLC, Mobile, AL, John D. Sours, Wasson, Sours & Harris, P.C., Atlanta, GA, for Bill Harbert Construction Company.
Elias J. Saad, James E. Atchison, Mona A. Vivar, Atchison, Crosby, Saad & Beebe, P.C., Mobile, AL, for Board of Water and Sewer Commissioners of the City of Mobile.
Jerry A. McDowell, Michael D. Knight, Brian P. McCarthy, McDowell Knight Roedder & Sledge, L.L.C., Mobile, AL, for Sika Corporation.
Jeffery J. Hartley, Richard O. Kingrea, Adams & Reese, LLP, Mobile, AL, for BCM Engineers, Inc., ATC Group Services.
Plaintiff Federal Insurance Company ("Federal") brings this diversity action against defendants Bill Harbert Construction Company ("Harbert") and the Board of Water and Sewer Commissioners of the City of Mobile ("the Board") under the Declaratory Judgment Act, 28 U.S.C. § 2201. The Board has filed a motion to realign the parties on the basis that Harbert's interests are aligned with Federal's concerning the primary issue in the case.1 After carefully reviewing the law and considering the submissions of the parties,2 the court concludes that the motion is due to be granted. Consequently, because realignment destroys diversity jurisdiction, this case will be dismissed in its entirety.
In December 1994 and January 1995, respectively, Harbert and the Board entered into two separate public construction contracts for upgrades and modifications to a waste water treatment plant and sludge system located in Mobile, Alabama. Federal issued bonds securing Harbert's performance of the construction contracts and securing Harbert's payments to all labor and material suppliers for services and supplies rendered in connection with those contracts. Harbert, the general contractor, is the principal of the bonds, and the Board, the owner of the waste water treatment plant and sludge system, is the obligee. By separate written agreement, Harbert is obligated to indemnify and exonerate Federal for any claims, demands or losses arising from the construction projects.
During the course of construction, a dispute arose between Harbert and the Board as to whether the plans and specifications for sealing two oxygenated reactor basins serving the waste water treatment plant were adequate. Harbert insisted that various modifications were necessary to achieve the specified pressure test results required by the contract. The Board responded that the problem was shoddy work rather than faulty plans, and it refused to revise the specifications for the reactor sealant system.
Unable to resolve these differences, the Board terminated the contracts and demanded that Federal discharge its obligations under the bonds to complete the improvement projects. After hiring an independent engineering consultant and performing an extensive investigation of the design and construction of both projects, Federal determined that there appeared to be defects in the Board's plans and specifications, including the design of the sealant system that Harbert was to use in the oxygenated reactor basins.
Federal then filed this declaratory judgment action seeking a determination of the rights and obligations of the parties under the construction contracts and the surety bonds. Explaining that deficiencies apparently exist in the Board's specifications, Federal's complaint expressed doubts as to whether Harbert would be able to achieve the requisite pressure results called for in the construction contracts without certain design modifications that were rejected by the Board. After setting forth this background, the complaint asks the court to resolve whether Harbert materially defaulted in its performance of either or both bonded contracts; whether the Board wrongfully terminated or breached either or both contracts; and whether Federal is obligated to complete either both of projects pursuant to the performance bonds or is instead discharged from all liability due to the Board's breach.
Harbert and the Board answered the complaint and asserted cross-claims for breach of contract against each other. Harbert alleges that the Board impeded Harbert's performance of the construction contracts and then terminated both contracts without cause. The Board countered that Harbert defaulted on both contracts by failing to perform the work in either a timely manner or in accordance with the terms and conditions of those contracts. The Board also filed a counterclaim against Federal, asserting that Federal had failed to discharge its obligations under the surety bonds. Harbert, on the other hand, did not file a counterclaim or otherwise assume an adversarial position against Federal. Recognizing this fact, the Board moves to realign Federal and Harbert on the same side of the lawsuit. Harbert joins Federal in opposing the motion.
The Declaratory Judgment Act provides that federal district courts "may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201. The Act, however, does not confer federal subject matter jurisdiction. See Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671-72, 70 S.Ct. 876, 879, 94 L.Ed. 1194 (1950). Rather, it "merely creates a new remedy in cases or controversies for which an independent basis of federal jurisdiction exists." First Fed. Sav. & Loan Ass'n v. Brown, 707 F.2d 1217, 1220 (11th Cir.1983). Thus, to sustain a declaratory judgment action in federal court, a plaintiff must invoke a basis for subject matter jurisdiction that is separate from the Declaratory Judgment Act itself.
Federal asserts that the court has diversity jurisdiction pursuant to 28 U.S.C. § 1332 to hear this declaratory judgment action. Section 1332 grants federal subject matter jurisdiction over actions between citizens of different states in which the amount in controversy is greater than $75,000. On the face of the complaint, it appears that these requirements are satisfied. The amount in controversy is sufficient because the collective value of the contracts is more than $12,000,000, and it seems that there is complete diversity of citizenship because both defendants, Harbert and the Board, are corporate citizens of Alabama, while Federal, the sole plaintiff, is not.
Nonetheless, it is well-established that "[d]iversity jurisdiction cannot be conferred upon the federal courts by the parties' own determination of who are plaintiffs and who defendants." Indianapolis v. Chase National Bank, 314 U.S. 63, 69, 62 S.Ct. 15, 17, 86 L.Ed. 47 (1941). It is instead the court's responsibility to properly align the parties and determine whether diversity jurisdiction exists. Justice Frankfurter, writing for the majority in Indianapolis, explained when realignment is proper:
To sustain diversity jurisdiction there must exist an "actual", "substantial", controversy between citizens of different states.... 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" .... 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., 62 S.Ct. at 17 (internal citations omitted). The purpose of determining whether an "actual, substantial controversy" exists between a named defendant and a named plaintiff regarding the "principal purpose of the suit" is to ensure that federal courts are adjudicating actions in which there is a true case or controversy. "In other words, realignment doctrine is, at its foundation, concerned with the constitutional ban on advisory opinions." Nevada Eighty-Eight, Inc. v. Title Ins. Co., 753 F.Supp. 1516, 1525 (D.Nev.1990). Admittedly, however, there is a significant division among the lower courts on how to apply the realignment doctrine. Specifically, courts are in disagreement on whether they must look to the "principal purpose of the suit" in deciding whether there is a sufficient collision of interest to avoid realignment or whether the existence of any "actual, substantial controversy" may suffice to sustain the pleaded positions of the parties. As a result, two distinct approaches to party realignment have emerged.
Several circuits apply the "principle purpose" or "primary issue" test and look beyond the pleadings to identify the primary matter in dispute and then align the parties according to their positions with regard to that issue. See, e.g., Employers Ins. of Wausau v. Crown Cork & Seal Co., 942 F.2d 862, 866 (3d Cir.1991); United States Fidelity & Guar. Co. v. A & S Mfg. Co., 48 F.3d 131, 133 (4th Cir.1995); Lowe v. Ingalls Shipbuilding, 723 F.2d 1173, 1178 (5th Cir.1984); United States Fidelity & Guar. Co. v. Thomas Solvent Co., 955 F.2d 1085, 1089 (6th Cir.1992); Continental Airlines, Inc. v. Goodyear Tire & Rubber Co., 819 F.2d 1519, 1523 n. 2 (9th Cir.1987). In so doing, these courts ignore all "actual and substantial ancillary or secondary issues" between the named parties in determining the proper alignment, regardless of how significant those issues may be. Thomas Solvent Co., 955 F.2d at 1089.
Other circuits, however, have interpreted Indianapolis to mean that realignment is proper only where there are no actual conflicts between the parties. See, e.g., ...
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