Gallagher v. Continental Ins. Co.

• Decision Date: 20 August 1974
• Docket Number: No. 73-1885,73-1885
• Citation: 502 F.2d 827
• Parties: Dennis J. GALLAGHER et al., Plaintiffs-Appellants, v. The CONTINENTAL INSURANCE COMPANY, a New York corporation, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 827

502 F.2d 827

Dennis J. GALLAGHER et al., Plaintiffs-Appellants,

v.

The CONTINENTAL INSURANCE COMPANY, a New York corporation,

et al., Defendants-Appellees.

No. 73-1885.

United States Court of Appeals, Tenth Circuit.

Aug. 20, 1974, Rehearing Denied Sept. 10, 1974.

John S. Carroll, Denver, Colo., for plaintiffs-appellants.

Charles E. Carlsen, Minneapolis, Minn. (Weller, Friedrich, Hickisch & Hazlitt, Gorsuch, Kirgis, Campbell, Walker & Grover, Denver, Colo., Carlsen, Greiner & Law, Minneapolis, Minn., John S. Moore, Atty. Gen., Joseph M. Montano, Chief Highway Counsel, Sp. Asst. Atty. Gen., and Richard W. Phillips, Asst. Chief Highway Counsel, Sp. Asst. Atty. Gen., on the brief), for defendants-appellees.

Before BREITENSTEIN, McWILLIAMS and BARRETT, Circuit Judges.

BREITENSTEIN, Circuit Judge.

Plaintiffs-appellants, as citizens and taxpayers of Colorado and the United States, brought this class action in state court to recover 55 million dollars for 'the treasury of the State of Colorado and the treasury of the United States, as their interests may appear.' The controversy centers around a highway tunnel which is part of the National System of Interstate and Defense Highways. The defendants-appellees are the project contractors, their sureties, the State of Colorado, and various Colorado officials. All defendants moved under 28 U.S.C. 1441(c) for removal to federal court and asserted federal jurisdiction under i8 U.S.C. 1331 and 1332, federal question and diversity. The district court denied a motion to remand and dismissed the action on the ground, among others, of lack of standing to sue. We affirm.

In 1967 defendant State of Colorado, acting through defendant state officials, Love, Shumate, Dunham, and Middlemist contracted with defendants Al Johnson Construction Company, Gibbons & Reed Company, Western Paving Construction Company, and Kemper Construction Company, doing business as Straight Creek Tunnel Constructors, for a tunnel on Interstate 70 near Loveland Pass, Colorado. The tunnel was then known as the Straight Creek Tunnel and now as the Eisenhower Memorial Tunnel. The contract price was $54,140,486 of which the United States was to pay about 91% Because the tunnel is part of a federal-aid highway within the purview of the Federal-Aid Highway Act. See 23 U.S.C. 101 et seq.

Defendants Continental Insurance Company, Travelers Indemnity Company, Federal Insurance Company, and United States Fidelity and Guaranty Company are the sureties on the bond guaranteeing performance of the 1967 contract. The penal sum of the bond is $49,576,500, and is apportioned among the sureties in sums ranging from about $24,700,000 to about $4,900,000.

In 1970 the state and the contractors made a new contract which authorized additional payment to the contractors in the amount of some 55 million dollars. Both the 1967 and the 1970 contracts were approved by the appropriate federal official. In 1971 plaintiffs made a demand on the state officials that they refuse to pay the additional compensation called for by the 1970 contract and that they sue on the performance bond. The demand was refused. The tunnel was completed and is now in use.

The suit was filed in state court in 1973 and removed to federal court on the petition of all defendants. The remand motion asserts lack of federal jurisdiction and argues first that presence of the state as a defendant bars federal jurisdiction. Plaintiffs are all Colorado citizens. Because of this fact the Eleventh Amendment, which bars federal jurisdiction over a suit against a state by citizens of another state, is not literally applicable. However, the Supreme Court has held that an unconsenting state 'is immune from suits brought in federal courts by her own citizens as well as by citizens of another State.' Employees v. Missouri Public Health Dept., 411 U.S. 279, 280, 93 S.Ct. 1614, 1616, 36 L.Ed.2d 251; see also Briggs v. Sagers, 10 Cir., 424 F.2d 130, 131-132, cert. denied 400 U.S. 829, 91 S.Ct. 58, 27 L.Ed.2d 59.

Whether immunity is a constitutional or common law bar, the Court has held that the bar may be waived by consent to suit. See Employees v. Missouri Public Health Dept., 411 U.S. 279, 280, 93 S.Ct. 1614, 36 L.Ed.2d 251; Petty v. Tennessee-missouri Bridge Commission, 359 U.S. 275, 276, 79 S.Ct. 785, 3 L.Ed.2d 804; Missouri v. Fiske, 290 U.S. 18, 24, 54 S.Ct. 18, 78 L.Ed. 145; and Hans v. Louisiana, 134 U.S. 1, 20, 10 S.Ct. 504, 33 L.Ed. 842. In the instant case the state made a general appearance, joined in the removal petition and the resistance to plaintiffs' remand motion, moved to dismiss for failure to state a claim, and on this appeal reasserts its contentions made in the district court. It appears by its attorney general whose authority to take the mentioned actions is not questioned.

Plaintiffs are not helped by Art. III, 2, of the Constitution which defines the extent of federal jurisdiction but contains no bar to the exercise of that jurisdiction. Waiver of immunity is not conferment of jurisdiction by consent. Be that as it may, in the case before us federal jurisdiction is asserted on grounds having nothing to do with presence of the state as a defendant.

An anomalous situation results if federal jurisdiction is denied because a state is joined in a suit brought for its benefit. The argument that the state is an indispensable party because it made the 1967 and 1970 contracts proves nothing. We are concerned with jurisdiction, not joinder. If jurisdiction lies in federal courts, it is not defeated by the transparent device of making the state a party defendant.

Plaintiffs also contend that neither diversity nor federal question jurisdiction can be sustained because the $10,000 requirement of 1331(a) and 1332(a) can be satisfied only by the impermissible aggregation of claims. Although the total sum sought is 55 million dollars, the interest of each plaintiff and of each member of the class whether considered as state or federal citizens and taxpayers is concededly less than $10,000. Separate and distinct claims may not be aggregated to satisfy the jurisdictional requirement. Snyder v. Harris, 394 U.S. 332, 335, 89 S.Ct. 1053, 1056, 22 L.Ed.2d 319. The rule is different when 'two or more plaintiffs unite to enforce a single title or right in which they have a common and undivided interest.' Ibid.

Zahn v. International Paper Co., 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511, is not to the contrary. It deals with a Rule 23(b)(3) spurious class action and asserts the continuing validity of Snyder. Ibid. at 301,94 S.Ct. 505. We are concerned with a Rule 23(b)(1) true class action wherein the rights of class members are common and undivided. See Advisory Committee's Note to Rule 23, 39 F.R.D. 73, 100. The complaint before us seeks to enforce a single right in which plaintiffs have a common and undivided interest. Hence, aggregation is proper. Snyder, 394 U.S. at 335, 89 S.Ct. 1053. See also Berman v. Narragansett Racing Association, 1 Cir., 414 F.2d 311, 315, cert. denied 396 U.S. 1037, 90 S.Ct. 682, 24 L.Ed.2d 681.

Diversity of citizenship exists between the plaintiffs and all of the sureties. Federal jurisdiction lies under 1332 and removal is proper under 1441(c) if a separate and independent claim is asserted against the sureties. In American Fire & Cas. Co. v. Finn, 341 U.S. 6, 71 S.Ct. 534, 95 L.Ed. 702, a single plaintiff sued two foreign insurance companies and their mutual resident agent for a fire loss. Plaintiff sought one recovery and alleged her inability to say which defendant was liable. One of the nonresident insurors removed. The Court said that the action was not removable because there was but a 'single wrong' to plaintiff 'arising from an interlocked series of transactions.' Ibid. at 14, 71 S.Ct. at 540.

The Tenth Circuit has denied removal in cases involving single injuries for which a single relief is sought. See Gray v. New Mexico Military Institute, 10 Cir., 249 F.2d 28; Snow v. Powell, 10 Cir., 189 F.2d 172; and Willoughby v. Sinclair Oil & Gas Co., 10 Cir., 188 F.2d 902. Removal was upheld in Greenshields v. Warren Petroleum Corporation, 10 Cir., 248 F.2d 61, cert. denied 355 U.S. 907, 78 S.Ct. 334, 2 L.Ed.2d 262, a civil conspiracy case in which the complaint charged a removing party with different acts occasioning different results than those pertaining to other defendants.

Climax Chemical Company v. C. F. Braun & Co., 10 Cir., 370 F.2d 616, cert. denied 386 U.S. 981, 87 S.Ct. 1287, 18 L.Ed.2d 231, was an action against one defendant for negligently performing a contract to design and engineer an industrial plant and to guarantee the overall operation. Other defendants were charged with negligence in the design and engineering of certain components of the plant. The court distinguished the cases involving one wrong and either joint or alternative liability, 370 F.2d at 619, said that the relationship of the claims to the same plant was not enough, Ibid., and upheld removability. The Eighth Circuit followed Climax in Crosby v. Paul Hardeman, Inc., 8 Cir., 414 F.2d 1, 4-5.

In the instant complaint two recoveries are sought, one against the sureties on the performance bond made in connection with the 1967 contract and one against the contractors for money paid under the allegedly invalid 1970 contract. Plaintiffs say that there is but one wrong, the breach of the 1967 contract, and that the claims asserted are all derived from that wrong. The difficulty is that the complaint alleges two wrongs, (1) nonperformance of the 1967 contract, and (2) payment to the contractors under the invalid 1970 contract. The difference is pointed up in the prayer for relief which seeks 49 million dollars from the sureties under their bond and 55 million from the contractors, to the extent not paid by the sureties. Thus, the complaint asks two different recoveries. The sureties have no connection with, or concern over, the payments...