JA Jones Const. Co. v. City of New York, 90 Civ. 4227 (MBM).

• Decision Date: 19 December 1990
• Docket Number: No. 90 Civ. 4227 (MBM).,90 Civ. 4227 (MBM).
• Citation: 753 F. Supp. 497
• Parties: J.A. JONES CONSTRUCTION COMPANY AND DAIDONE ELECTRIC OF N.Y., INC., A JOINT VENTURE, Plaintiff, v. The CITY OF NEW YORK, Defendant.
• Court: U.S. District Court — Southern District of New York

753 F. Supp. 497

J.A. JONES CONSTRUCTION COMPANY AND DAIDONE ELECTRIC OF N.Y., INC., A JOINT VENTURE, Plaintiff, v. The CITY OF NEW YORK, Defendant.

No. 90 Civ. 4227 (MBM).

United States District Court, S.D. New York.

December 19, 1990.

COPYRIGHT MATERIAL OMITTED

Howard B. Levi, Kornstein Veisz & Wexler, New York City, for plaintiff.

Lewis S. Finkelman, Corp. Counsel, New York City, for City of New York.

OPINION AND ORDER

MUKASEY, District Judge.

Plaintiff seeks a judgment in this court declaring its rights under a contract with the City of New York which incorporates federal regulations that define how to calculate additional payments for change orders and delays. Plaintiff argues that incorporation of these regulations in the contract makes this a case arising under the laws of the United States and thus gives this court jurisdiction over the dispute. However, for the reasons set forth below, the regulations in question create no federal rights for the plaintiff. Accordingly, and because there is no diversity of citizenship between the parties, the action must be dismissed for lack of subject-matter jurisdiction.

I.

Plaintiff J.A. Jones Construction Co. and Daidone Electric Co. of N.Y., Inc. ("Jones"), a joint venture of a New York corporation and a North Carolina corporation, contracted in March 1986 with defendant, City of New York, to perform electrical construction work at the North River Water Pollution Control Project. The project was funded by a grant from the Environmental Protection Agency ("EPA") under the Clean Water Act ("CWA"), 33 U.S.C. § 1251-1376 (1986) — specifically § 1281, which authorizes the EPA "to make grants to any State, municipality, or intermunicipal or interstate agency for the construction of publicly owned treatment plants." During construction of the project, the City initiated various changes in the original plans ("change orders") and caused other delays in Jones' performance.

This action arises from a dispute over how to calculate additional amounts claimed by Jones for change orders and City-caused delays. The contract between Jones and the City is subject by its terms to a set of regulations promulgated by the EPA and contained in 40 CFR Part 33 entitled "Procurement Under Assistance Agreements" ("EPA procurement regulations"). Plaintiff contends that the EPA procurement regulations require that additional amounts for change orders be calculated pursuant to cost accounting principles contained in 41 CFR § 1-15.4 of the Federal Procurement Regulations and that amounts relating to City-caused delays be calculated under a model equitable adjustment clause contained in 40 CFR § 33.1010, subpart 5. Jones claims that a proper reading of the EPA procurement regulations mandates that these two provisions supersede any conflicting provisions elsewhere in the contract.

The City contends that Article 13 of the contract contains a waiver, permitted by the regulations, for any claims based on City-caused delays, and that any additional change order costs should be calculated under a formula set out in Article 26 of the contract because the EPA procurement regulations provide that the City's duties are governed by OMB Circular A-87, specifically applicable to local governments, rather than the Federal Procurement Regulations. Not surprisingly, as plaintiff interprets the EPA procurement regulations, it would be entitled to more money than it would get under clauses cited by the City.¹

Pursuant to the federal declaratory judgment statute, 28 U.S.C. § 2201, plaintiff has requested a judgment declaring (i) that the cost accounting principles contained in the Federal Procurement Regulations be applied in calculating reimbursements for change orders issued under the contract, and (ii) that defendant must construe the contract to incorporate the equitable adjustment clause contained in 40 CFR § 33.1030, subpart 5.

Defendant has brought several motions, including one to dismiss for lack of subject matter jurisdiction pursuant to Fed.R. Civ.P. 12(b)(1).²

II.

Plaintiff's complaint alleges jurisdiction pursuant to both 28 U.S.C. § 2201, the federal declaratory judgment statute, and § 1331, which provides that "the district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws or treaties of the United States."

It is well settled that "federal jurisdiction cannot be based on the fact that a declaratory judgment is sought because the declaratory judgment statute does not expand the jurisdiction of the federal courts." West 14th Street Commercial Corp. v. 5 West 14th Owners Corp., 815 F.2d 188, 194 (2d Cir.), cert. denied, 484 U.S. 850, 108 S.Ct. 151, 98 L.Ed.2d 107 (1987); Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 16, 103 S.Ct. 2841, 2850, 77 L.Ed.2d 420 (1983); Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671-2, 70 S.Ct. 876, 879, 94 L.Ed. 1194 (1950).

There is no diversity of citizenship between the parties, so federal jurisdiction can be based only on 28 U.S.C. § 1331. Therefore, plaintiff's complaint must be dismissed unless it "arises under" federal law.

In determining whether a complaint arises under federal law, the claims must be examined in accordance with the well-pleaded-complaint rule, which requires that "federal jurisdiction ... be found from `what necessarily appears in the plaintiff's statement of his own claim ..., unaided by anything alleged in anticipation of or avoidance of defenses which it is thought the defendant may interpose.'" West 14th Street Commercial Corp, 815 F.2d at 192 (quoting Taylor v. Anderson, 234 U.S. 74, 75-76, 34 S.Ct. 724, 724, 58 L.Ed. 1218 (1914)).

To determine whether a well-pleaded declaratory judgment complaint arises under federal law, a court must look beyond the fact allegations and, by identifying the substantive theories upon which plaintiff could have brought its action, determine whether there necessarily would be federal jurisdiction in a suit for coercive relief brought either by the declaratory defendant or the declaratory plaintiff, apart from any anticipated defenses. See Franchise Tax Board, 463 U.S. at 19, 103 S.Ct. at 2851; West 14th Street Commercial Corp., 815 F.2d at 194-95; Stone & Webster Engineering Corp. v. Ilsley, 690 F.2d 323, 327-28 (2d Cir.1982), aff'd, 463 U.S. 1220, 103 S.Ct. 3564, 77 L.Ed.2d 1405 (1983).

Applying the well-pleaded-complaint rule here, it is clear that plaintiff's claim is essentially one for breach of contract. A suit for coercive relief by either party necessarily would be a contract action. The central issue would be whether defendant breached its contract with plaintiff by failing to apply the appropriate cost accounting principles. Essentially, plaintiff contends that defendant has breached certain provisions which are incorporated into the contract through the operation of the EPA procurement regulations. On the other hand, defendant contends that although the regulations are applicable to the contract, defendant's contractual duties are governed by specific provisions in the written agreement between the parties. Other than breach of contract, plaintiff has not suggested a theory under which either it or the City could bring a coercive suit to enforce rights. Plaintiff has presented its claim as "in the nature of breach of contract," and the central issue as "whether certain federal regulations ... are ... mandatory or ... merely permissive." Plaintiff's Memorandum of Law at 1. However, plaintiff's only basis for enforcing the rights allegedly guaranteed by the EPA procurement regulations is the contract. Therefore, in determining whether plaintiff's claims arise under federal law, its declaratory action will be analyzed as a contract action whose resolution requires construction of federal regulations.

III.

The Supreme Court has emphasized that "in exploring the outer reaches of § 1331, determinations about federal jurisdiction require sensitive judgments about congressional intent, judicial power, and the federal system." Merrell Dow Pharmaceuticals, Inc. v. Thompson, 478 U.S. 804, 810, 106 S.Ct. 3229, 3233, 92 L.Ed.2d 650 (1986). The mere fact that a court necessarily must interpret federal law or federal regulations to determine the merits of a claim is insufficient to confer federal jurisdiction. Merrell Dow, 478 U.S. at 813, 106 S.Ct. at 3234; Gully v. First Nat'l Bank, 299 U.S. 109, 115, 57 S.Ct. 96, 99, 81 L.Ed. 70 (1936) ("Not every question of federal law emerging in a suit is proof that a federal law is the basis of the suit.").

Nor does even the mandatory incorporation of federal standards into a contract necessarily create federal jurisdiction in a contract action based on an alleged breach of those standards. Jackson Transit Authority v. Local Division 1285, Amalgamated Transit Union, AFL-CIO-CLC, 457 U.S. 15, 29, 102 S.Ct. 2202, 2210, 72 L.Ed.2d 639 (1982). In Jackson, a union sued a municipal transit authority for breach of both a collective bargaining agreement and a related "§ 13(c) agreement," which preserved transit workers' pre-existing collective bargaining rights. Such guarantee of pre-existing rights was required by § 13(c) of the Urban Mass Transportation Act of 1964, 49 U.S.C. § 1609(c), as a condition for the receipt by local governments of federal mass transit funds. The union argued that because the contract rights in the § 13(c) agreement were guaranteed by federal law, its complaint stated claims arising under federal law. The Court rejected that argument and held that determining federal jurisdiction in an action "to enforce contracts contemplated by federal statutes" turns on Congressional intent. After analyzing the legislative history of the statute, the Court held that there was no federal jurisdiction over the Union's claims because Congress did not "intend such contract actions to set forth federal, rather than state, claims." Id. at 21, 102 S.Ct. at...