Granite Re, Inc. v. N. Lines Contracting, Inc.

• Decision Date: 12 August 2020
• Docket Number: Case No. 19-CV-2832 (PJS/ECW)
• Citation: 478 F.Supp.3d 772
• Parties: GRANITE RE, INC., Plaintiff, v. NORTHERN LINES CONTRACTING, INC.; Northland Dedicated, LLC ; BR Holdings, Inc.; Blair J. Raitz; and Faribault County, Defendants.
• Court: U.S. District Court — District of Minnesota

478 F.Supp.3d 772

GRANITE RE, INC., Plaintiff,

v.NORTHERN LINES CONTRACTING, INC.; Northland Dedicated, LLC ; BR Holdings, Inc.; Blair J. Raitz; and Faribault County, Defendants.

Case No. 19-CV-2832 (PJS/ECW)

United States District Court, D. Minnesota.

Signed August 12, 2020

Daniel R. Gregerson, David H. Gregerson, and David R. Hackworthy, GREGERSON, ROSOW, JOHNSON & NILAN, LTD., for plaintiff Granite Re, Inc.

Jeffrey A. Wieland and Aaron A. Dean, MOSS & BARNETT, P.A., for defendants Northern Lines Contracting, Inc., Northland Dedicated, LLC, BR Holdings, Inc., and Blair J. Raitz.

Roger C. Justin, RINKE NOONAN, for defendant Faribault County.

ORDER

Patrick J. Schiltz, United States District Judge

In May 2017, defendant Northern Lines Contracting ("Northern Lines") entered into a construction contract with defendant Faribault County ("the County"). Plaintiff Granite Re, Inc. ("Granite") was the surety on the project. The County eventually alleged that Northern Lines breached its obligations under the construction contract and submitted a claim to Granite. Granite responded by filing this declaratory-judgment action seeking a determination of the parties’ respective rights and obligations under the construction contract and two related agreements. This matter is currently before the Court on the County's motion to dismiss for lack of subject-matter jurisdiction and under the doctrine of forum non conveniens. For the reasons that follow, the motion is granted in part, and Granite's claims are dismissed under the doctrine of forum non conveniens.

I. BACKGROUND

This lawsuit relates to three agreements:

First, the construction contract : On May 16, 2017, Northern Lines executed a contract to build drainage ditches for the County. ECF No. 25 ¶ 10. The construction contract, which was drafted by the County, includes a forum-selection clause providing that "[a]ny litigation concerning claims under the Contract shall be venued in the County District Court of the County the project is located within." ECF No. 37-1 at 19–20. The "County District Court" to which the construction contract refers is the Faribault County District Court.

Second, the performance bond : As required by Minnesota law and by the terms of the construction contract, Northern Lines obtained a performance bond from Granite in the amount of the contract price, or $2,866,032.85. See Minn. Stat. § 574.26 ; ECF No. 25 ¶ 10. The performance bond, which was also drafted by the County, provides that, "[t]he Contractor [Northern Lines] and Surety [Granite], jointly and severally, bind themselves ... to the Owner [the County] for the performance of the Construction Contract, which is incorporated herein by reference." ECF No. 37-1 at 23. The bond also includes a forum-selection clause, which provides that "[a]ny proceeding, legal or equitable, under this Bond may be instituted in any court of competent jurisdiction in the location in which the work or part of the work is located ...." Id. at 24.

Third, the indemnity agreement : By separate agreement, Northern Lines and three parties related to Northern Lines (defendants BR Holdings, Inc., Northland Dedicated, LLC, and Blair Raitz)—collectively, the "Indemnitors"—agreed to indemnify Granite for any liability, losses, or expenses that Granite incurs by reason of serving as surety for Northern Lines. ECF No. 25 ¶ 9; ECF No. 42-1. In other words, if Granite has to pay the County under the performance bond, then the Indemnitors have to reimburse Granite under the indemnity agreement. The indemnity agreement does not contain a forum-selection clause.

On December 21, 2018, Northern Lines informed the County that it had substantially completed the work required under the contract. ECF No. 25 ¶ 11. The County issued a punch list of items that still had to be completed. Id. ¶¶ 12, 18. After Northern Lines allegedly failed to complete those items, the County paid an outside contractor to do so. Id. ¶ 24. On October 31, 2019, the County submitted a claim under the performance bond in the amount of $1,037,953.35, which represented the difference between what the County paid to the outside contractor to finish the work that Northern Lines allegedly failed to do and the amount that the County had held back from Northern Lines. Id. ¶ 25.

In response to the County's claim, Granite filed this declaratory-judgment action against the County, Northern Lines, and the other Indemnitors. Granite seeks a determination of the parties’ rights and obligations under the construction contract, the performance bond, and the indemnity agreement.

The County has moved to dismiss this action for lack of subject-matter jurisdiction. In the alternative, the County has moved to dismiss this action pursuant to the forum-selection clause in the construction contract. For the reasons that follow, the Court finds that it has subject-matter jurisdiction, but also finds that Granite's claims must be dismissed under the doctrine of forum non conveniens because those claims fall within the construction contract's forum-selection clause.

II. STANDARD OF REVIEW

The County has moved to dismiss this action for lack of subject-matter jurisdiction. Because the County raises a fact-based challenge to Granite's assertion of subject-matter jurisdiction, the Court "need not accept ‘bare allegations’ " of Granite's pleading, but rather may "weigh the evidence." Disability Support All. v. Heartwood Enters., LLC , 885 F.3d 543, 547 (8th Cir. 2018) (citation omitted).

The County has also moved to dismiss this action on the basis of the forum-selection clause in the construction contract. When a federal court finds that a valid, mandatory forum-selection clause requires that a case be litigated in state court, dismissal is warranted under the doctrine of forum non conveniens unless the nonmoving party can show "that public-interest factors overwhelmingly disfavor" dismissal. Atl. Marine Constr. Co. v. U.S. Dist. Ct. for the W. Dist. of Tex. , 571 U.S. 49, 67, 134 S.Ct. 568, 187 L.Ed.2d 487 (2013).

III. SUBJECT-MATTER JURISDICTION

Granite asserts that this Court has diversity jurisdiction under 28 U.S.C. § 1332. On the face of the complaint, Granite appears to be correct. The amount in controversy exceeds $75,000, and it appears that the parties are completely diverse. Granite, the sole plaintiff, is a citizen of Oklahoma, while all of the defendants are citizens of Minnesota.

The County argues, however, that the parties are improperly aligned. Because Granite and the Indemnitors share a common interest in establishing that Northern Lines did not breach the construction contract, the County argues that the Indemnitors should be realigned as plaintiffs, leaving the County as the sole defendant. Realignment would, of course, destroy complete diversity, as Minnesota citizens would appear on both sides of the "v."

As the Supreme Court explained in City of Indianapolis v. Chase National Bank , courts are not bound "by the parties’ own determination of who are plaintiffs and who defendants." 314 U.S. 63, 69, 62 S.Ct. 15, 86 L.Ed. 47 (1941). Rather, courts must "look beyond the pleadings, and arrange the parties according to their sides in the dispute." Id . (citation and quotation marks omitted). The Supreme Court explained that "[t]o sustain diversity jurisdiction there must exist an actual, substantial, controversy between citizens of different states .... Whether the necessary collision of interest exists ... must be ascertained from the principal purpose of the suit, and the primary and controlling matter in dispute." Id. (internal citations and quotation marks omitted).

The courts of appeals are divided over how Indianapolis should be applied. See Fed. Ins. Co. v. Bill Harbert Constr. Co. , 82 F. Supp. 2d 1331, 1334 (S.D. Ala. 1999) (describing the circuit split). Some circuits apply the "principal purpose" test, under which courts identify "the primary matter in dispute and then align the parties according to their positions with regard to that issue." Id. Others circuits apply the "actual and substantial conflict" test, under which courts take into account "all potential conflicts between the named parties and do not distinguish between primary and secondary issues when determining whether realignment is appropriate." Id. So long as there is at least one actual and substantial conflict between the nominal plaintiff and the nominal defendant, the parties are not realigned. Id.

As counsel for the County conceded at oral argument, the Eighth Circuit applies the actual-and-substantial-conflict test. See Universal Underwriters Ins. Co. v. Wagner , 367 F.2d 866, 870–71 (8th Cir. 1966) ; Interlachen Props., LLC v. State Auto Ins. Co. , 136 F. Supp. 3d 1061, 1067 (D. Minn. 2015) ("In deciding whether to realign the parties, the Eighth Circuit applies the ‘actual and substantial conflict’ test."). The County argues, however, that the Eighth Circuit is mistaken and that the actual-and-substantial-conflict test is not consistent with Indianapolis . Whatever the merits of the County's argument, this Court is bound by Eighth Circuit precedent.

Without question, there are actual and substantial conflicts between Granite and the Indemnitors (including Northern Lines). In Count I of the amended complaint, Granite seeks to hold the Indemnitors liable to Granite under the indemnity agreement if Granite is found liable to the County under the performance bond. ECF No. 25 ¶¶ 29–33. This is an actual and substantial conflict, even though it will not arise unless Northern Lines is found to have breached the construction contract, an issue on which Granite and the Indemnitors are aligned. See Fid. & Deposit Co. of Md. v. City of Sheboygan Falls , 713 F.2d 1261, 1264–68 (7th Cir. 1983) (finding an actual and substantial conflict between surety and bond principal based on "potential conflict" over principal's contingent liability under indemnity agreement).

In Count II of the amended complaint, Granite seeks...