Huber, Hunt & Nichols, Inc. v. Architectural Stone Co., Inc.

• Decision Date: 27 August 1980
• Docket Number: No. 78-2575,78-2575
• Citation: 625 F.2d 22
• Parties: HUBER, HUNT & NICHOLS, INC., Plaintiff-Appellant, v. ARCHITECTURAL STONE CO., INC., a Louisiana Corporation, and State of Louisiana, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 22

625 F.2d 22

HUBER, HUNT & NICHOLS, INC., Plaintiff-Appellant, v. ARCHITECTURAL STONE CO., INC., a Louisiana Corporation, and State of Louisiana, Defendants-Appellees.

No. 78-2575.

United States Court of Appeals Fifth Circuit.

Aug. 27, 1980.

Russ M. Herman, Fred L. Herman, New Orleans, La., Christopher Kirages, Indianapolis, Ind., for plaintiff-appellant.

Henican, James & Cleveland, C. Ellis Henican, New Orleans, La., for Architectural Stone Co.

Robert E. Redmann, La. Dept. of Justice, Bruce P. Anderson, New Orleans, La., for State of Louisiana.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before THORNBERRY, FRANK M. JOHNSON, Jr. and HENDERSON, Circuit Judges.

HENDERSON, Circuit Judge:

The appellant, the plaintiff below, filed this suit to compel the defendants-appellees to submit two contract disputes to a single arbitration panel. The district court treated the matter as one of state law and denied relief. Because federal law controls the outcome of the case we must vacate the judgment and remand to the trial court to determine a difficult threshold eleventh amendment question.

Huber, Hunt & Nichols, Inc. (hereinafter referred to as "Huber, Hunt"), was the general contractor for the construction of the Louisiana State University Medical Center and Education Building in New Orleans. The printed contract identifies the owner as "the State of Louisiana, Division of Administration." The Division of Administration is an arm of the governor's office. Architectural Stone Company (hereinafter referred to as "Architectural Stone") was a subcontractor, supplying and installing granite facing for the building's exterior. The project fell behind schedule, and, pursuant to the general contract, Huber, Hunt asked the American Arbitration Association (hereinafter referred to as ("AAA") to arbitrate its claim for damages arising from the delay. ¹ Huber, Hunt claimed that the building would have been completed on time if the owner had provided adequate specifications for the foundation. It alleged that the original specifications were the cause of "an inordinately high incidence of breakage of prestress concrete pilings." Subsequently, Architectural Stone asked the AAA to arbitrate its claim against Huber, Hunt for damages caused by construction delays. ²

In an attempt to have the two arbitration proceedings consolidated, Huber, Hunt brought this diversity action ³ in the United States District Court for the Eastern District of Louisiana. The court heard argument on the motion to consolidate before considering the owner's motion to dismiss for lack of subject matter jurisdiction. ⁴ Ruling from the bench, the trial judge denied the motion to consolidate. ⁵

This appeal followed. Huber, Hunt insists that the district court erred in applying Louisiana law. The appellees, needless to say, defend the district court's decision pointing to a variety of reasons why consolidation is inappropriate under either federal or state law. The crux of their position is that the owner is the State of Louisiana, and hence the suit is barred by the eleventh amendment to the Constitution.

The action was brought against Architectural Stone "and State of Louisiana." ⁶ At first blush it would appear that the eleventh amendment precludes the suit, at least as far as the state is concerned. Recently, however, federal courts have permitted actions against the political subdivisions of states, independent state agencies, and state officials acting in their official capacities, especially in cases asserting claims under the Civil War amendments. See e. g., Monell v. New York City Dept. of Social Services, 436 U.S. 658, 690 n. 54, 98 S.Ct. 2018, 2035 n. 54, 56 L.Ed.2d 611, 635 n. 54 (1978); Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed.2d 714 (1908). Thus, the refined question is whether the owner is the alter ego of the state or an independent agency; if the latter, the district court can properly proceed to the merits.

"That there has been room for differences of opinion with regard to such limitations the reported cases in this court bear conclusive testimony. It cannot be stated that the case before us is entirely free from any possible doubt . . . ." Ex parte Young, 209 U.S. at 142, 28 S.Ct. at 446, 52 L.Ed. at 722. This is certainly no less true now than it was in 1908. See generally Centraal Stikstof Verkoop., N.V. v. Alabama State Docks Dept., 415 F.2d 452, 454-57 (5th Cir. 1969); 32 Am.Jur.2d Federal Practice and Procedure §§ 25, 26, and 105-08 (1967); 1 Moore's Federal Practice P 0.60(2. 2) (2d Ed. 1979); Mathis, The Eleventh Amendment: Adoption and Interpretation, 2 Ga.L.Rev. 207 (1968).

In our Circuit the issue of whether a state is "a necessary party," Hopkins v. Clemson Agricultural College, 221 U.S. 636, 31 S.Ct. 654, 55 L.Ed. 890, 896-97 (1911) viz.: Is the owner the "second self" of the state or a "separate and distinct" entity subject to suit "must be determined by the law of the State," Louisiana Land & Exploration Co. v. State Mineral Bd., 229 F.2d 5, 7 (5th Cir.), cert. denied, 351 U.S. 965, 76 S.Ct. 1029, 100 L.Ed. 1485 (1956). This is a question that the state courts will seldom, if ever, have answered, and unfortunately the parties have been unable to locate controlling precedent.

Where, as here, the status of the defendant is unclear, the court must look to any and all available sources for guidance. Consideration should be given to the owner's "right to hold and use property," whether it has express authority to "sue and be sued, plead and be impleaded, in its corporate name," Clemson, 221 U.S. at 639, 31 S.Ct. at 655, 55 L.Ed. at 895-96, the extent of the owner's independent management authority, Jagnandan v. Giles, 538 F.2d 1166 (5th Cir. 1976), cert. denied, 432 U.S. 910, 97 S.Ct. 2959, 53 L.Ed.2d 1083 (1977); Louisiana Land, 229 F.2d at 8, and, a factor that subsumes all others, the treatment of the owner by the Louisiana courts, C.H. Leavell & Co. v. Bd. of Comm'rs of Port of New Orleans, 424 F.2d 764, 766-67 (5th Cir. 1970). See also Centraal Stikstof Verkoop., N.V. v. Alabama St. Docks Dept., 415 F.2d 452 (5th Cir. 1969); Dept. of Highways of Louisiana v. Morse Bros. & Assoc., 211 F.2d 140 (5th Cir. 1954); Usry v. Louisiana Dept. of Highways, 459 F.Supp. 56 (E.D.La.1978).

The Division of Administration has been a party to several cases recently decided by the Louisiana courts. In Haughton Elevator Division v. State, Through the Division of Administration, 367 So.2d 1161 (La.1979), the Supreme Court of Louisiana held that the actions of the Division in awarding public contracts must comport with the due process requirements of the fourteenth amendment. Bennett v. Division of Administration, 307 So.2d 118 (La.App.1974), upheld the termination of a Division employee for the "misappropriation . . . of funds to which the State was rightfully entitled," and throughout the opinion the court referred to checks given to the Division as state funds. Both of these cases can be construed as treating the Division as the "second self" of the state, but its status was not an issue in either, and was irrelevant to the outcome of both. Finally, in Smith v. Division of Administration, 362 So.2d 1101 (La.1978), the court resolved an extremely complicated and much-litigated question of Louisiana law, and held that most employees of the Division are not "employees of the governor" within the meaning of the State Constitution's civil service provisions. Unfortunately, the opinion does not deal specifically with the problem here, and we can find nothing in it to aid our inquiry.

This court has previously observed that when there is no "controlling state precedent . . . (w)e give great weight to the view of the State law taken by a district judge experienced in the law of that state . . ." C.H. Leavell & Co. v. Bd. of Comm'rs of Port of New Orleans, 424 F.2d at 766, quoting Freeman v. Continental Gin Co., 381 F.2d 459, 466 (5th Cir. 1967). It is therefore appropriate to remand the case so that the parties can be afforded an opportunity to present both sides of the issue in an orderly and complete fashion. Walker v. Felmont Oil Corp., 240 F.2d 912, 916 (6th Cir. 1957); cf. Platoro Limited v. Unidentified Remains of a Vessel, 508 F.2d 1113, 1115 n. 3 (5th Cir. 1975) (noting an eleventh amendment problem to be considered on remand).

Without reaching the eleventh amendment question, the district court held that he could not grant the requested relief under Louisiana law. ⁷ He found "dispositive" Louisiana decisions holding that there can be no consolidation absent express contractual provision therefor. Although state law is usually adopted in diversity cases, it is not followed in an action to enforce the arbitration provision of a contract in interstate commerce. The parties to these contracts are from different states, and if, as appears likely, performance necessarily entailed interstate commerce, cf. E.C. Ernst, Inc. v. Manhattan Construction Co. of Texas, 551 F.2d 1026, 1040 n. 36 (5th Cir. 1977) (finding interstate commerce involved on appeal), enforcement of the arbitration clause in federal court is controlled by the United States Arbitration Act, 9 U.S.C.A. §§ 1-14, and not Louisiana law. ⁸ Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967); Tullis v. Kohlmeyer & Co., 551 F.2d 632, 638 n. 8 (5th Cir. 1977). See Tejas Development Co. v. McGough Bros., 165 F.2d 276, 278-79 (5th Cir. 1947).

The Arbitration Act itself is silent on the subject of consolidation, but some federal courts construed it to permit consolidation, even in the face of contrary state law. Compania Espanola de Petroleas, S.A. v. Nereus Shipping, S.A., 527 F.2d 966 (2d Cir. 1975), cert. denied, 426 U.S. 936, 96 S.Ct. 2650, 49 L.Ed.2d 387 (1976); Robinson v. Warner, 370 F.Supp. 828 (D.R.I.1974); cf. Fed.R.Civ.P. 81(a)(3) and 42(a) (consolidation of...