Moosehead Sanitary Dist. v. S.G. Phillips Corp., No. 79-1205

• Citation: 610 F.2d 49
• Decision Date: 11 December 1979
• Docket Number: No. 79-1205
• Parties: The MOOSEHEAD SANITARY DISTRICT et al., Plaintiffs, Appellees, v. S. G. PHILLIPS CORPORATION, etc., et al., Defendants, Appellees. State of Maine, Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

Page 49

610 F.2d 49

13 ERC 2196

The MOOSEHEAD SANITARY DISTRICT et al., Plaintiffs, Appellees, v. S. G. PHILLIPS CORPORATION, etc., et al., Defendants, Appellees State of Maine, Appellant.

No. 79-1205.

United States Court of Appeals First Circuit.

Argued Oct. 5, 1979.

Decided Dec. 11, 1979.

Cabanne Howard, Asst. Atty. Gen., Augusta, Me., with whom Philip F. W. Ahrens, III, Asst. Atty. Gen., Augusta, Me., was on brief, for appellant.

Jotham D. Pierce, Jr., Portland, Me., with whom Jeffrey M. White, Portland, Me., J. William Batten, Waterville, Me., Pierce, Atwood, Scribner, Allen, Smith & Lancaster, Portland, Me. and Daviau, Jabar & Batten, Waterville, Me., were on brief, for appellee, The Moosehead Sanitary Dist.

W. John Amerling, Portland, Me., with whom David P. Ray and Jensen, Baird, Gardner & Henry, Portland, Me., were on brief, for appellee, S. G. Phillips Corp.

Michael D. Taber, Bangor, Me., with whom Gene Carter and Rudman, Winchell, Carter & Buckley, Bangor, Me., were on brief, for appellees, Johns-Manville Products Corp. and Johns-Manville Sales Corp.

S. Peter Mills, III, and Richardson, Hildreth, Tyler & Troubh, Portland, Me., on brief for appellee, Wright, Pierce, Barnes & Wyman.

Before CAMPBELL and BOWNES, Circuit Judges, and BONSAL, ^* Senior District Judge.

LEVIN H. CAMPBELL, Circuit Judge.

Appellant, the State of Maine, is seeking permission to intervene pursuant to Fed.R.Civ.P. 24(a) in a consolidated diversity action now pending in the Maine District Court. That action was brought by The Moosehead Sanitary District (Moosehead) against several private contractors for damages stemming from the allegedly faulty design and construction of a sewage treatment plant at Moosehead Lake near the town of Greenville, Maine. The plant has never worked properly, and Moosehead asserts that it has been abandoned. Maine bases its claim to intervention as of right on its contribution of one fourth of the $2 million construction cost of the facility. The district court denied the state's motion to intervene. We affirm.

I.

Moosehead's action has apparently not advanced beyond the pleading stage, and we must refer to the various complaints, counterclaims, third-party claims, and so forth as constituting the record to date. The parties seem to agree that the facts necessary to decision of this appeal are not in dispute.

Plaintiff-appellee Moosehead is a sanitary district organized under the laws of Maine, 38 Me.Rev.Stat.Ann. § 1061 Et seq., and governed by a board of trustees elected by the residents of the district. Moosehead was created in order to construct and operate a sewage system in Greenville. In October 1971, Moosehead entered into two contracts with Wright, Pierce, Barnes and Wyman (Wright, Pierce), a Maine corporation, for design and construction supervision of a sewage system, including a collection system, pumping station, force mains and a tertiary sewage treatment plant. Moosehead contracted with S. G. Phillips Corporation (Phillips), a Vermont corporation, in December 1973 for construction of interceptor sewers, pumping stations and the treatment plant. In connection with construction of the treatment plant, Phillips purchased two flocculation-filtration units (also known as moving bed filter (MBF) units) from Johns-Manville, a Colorado corporation. ¹ The MBF units were delivered to the project in early 1974 and were installed at the plant by Phillips.

In September 1976, Moosehead commenced this litigation by suing Phillips in the Piscataquis County Superior Court in Maine; $76,000 in liquidated damages was sought for Phillips' alleged failure to finish the project by the date specified in the contract. Phillips removed the action to federal court on the basis of diversity of citizenship. Moosehead then amended its complaint to add a count for breach of warranty with respect to the MBF units and breach of the construction contract. The amended complaint sought damages in excess of $2 million, alleging that the plant was essentially unworkable. (According to Maine, a new plant has since been built with additional state and federal funds.) Phillips counterclaimed against Moosehead which then brought a third-party claim against Wright, Pierce, asserting that Wright, Pierce was liable for any claims that might be realized against Moosehead. Because both Moosehead and Wright, Pierce are located in Maine, jurisdiction was premised on the court's ancillary jurisdiction. ²

In December 1977, Moosehead filed another action, this one against Johns-Manville for breach of warranty and negligence regarding the design, manufacture and sale of the MBF units. Damages were claimed in the amount of $3 million on each count. In each of these actions, the private defendants cross-claimed against each other. On motion of the plaintiff, the two actions were consolidated. At the preliminary pre-trial conference on July 18, 1978, the State of Maine made known its intention to file a motion to intervene.

On August 1, 1978, the state moved to intervene as a party-plaintiff to assert a cross-claim against Moosehead and to assert claims against defendants Phillips and Johns-Manville. The theory of the cross-claim was that the provision of funds for the project by Maine gave rise to contractual or quasi-contractual liability on the part of Moosehead. The claims against defendants were based on the theory that Maine was a third-party beneficiary of the contracts between Moosehead and the defendants. Intervention was sought both as of right, Fed.R.Civ.P. 24(a), ³ and by permission of the court, Fed.R.Civ.P. 24(b). ⁴ Maine's motion was argued to a magistrate, who rejected both grounds. Intervention of right was not available, the magistrate ruled, because Maine had not shown that " 'as a practical matter' its interest will be impaired or impeded if it simply waits for the plaintiff to secure whatever recovery it can in this Court and then sues the plaintiff in state court." The magistrate also held that permissive intervention would "cause delay and . . . unnecessarily complicate the present actions."

The district court, after hearing, affirmed the magistrate's decision denying Maine the right to intervene under Rule 24(a). ⁵ The court held that Maine was not a third-party beneficiary of the contracts between Moosehead and the private contractors, and thus did not have an interest in the subject matter of the litigation sufficient to support intervention as of right. The court also found that Maine's interest in recovering from Moosehead a portion of any sums Moosehead won from the defendants would not be impaired or impeded as a practical matter if intervention were denied, and that Moosehead would adequately represent Maine's interest in ensuring an adequate recovery.

II.

Rule 24(a) establishes four basic requirements which must be met before a party is permitted to intervene as of right: ⁶ (1) the application must be timely; (2) the applicant must claim "an interest relating to the property or transaction which is the subject of the action"; (3) the applicant must be "so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest"; and (4) it must be shown that the applicant's interest will not be "adequately represented by existing parties." The district court assumed that Maine's application to intervene was timely, and as the parties do not contest this point on appeal, we also assume the timeliness requirement is met. At issue is the correctness of the district court's ruling that Maine did not meet the other three requirements.

A.

Maine asserts two separate "interests" in the subject matter of this litigation. The first of these is its asserted interest in recovering against Phillips and Johns-Manville as a third-party beneficiary of the contracts between Moosehead and these parties. The district court rejected this claim, holding that Maine was a mere incidental beneficiary of the contracts and thus not entitled to maintain a suit. See Restatement of Contracts § 133 (1932). As this is a diversity action, we look to the law of the state for the substantive rule of decision. The issue is whether Maine is a creditor beneficiary of the contracts, and as such, able to bring suit independently to enforce them. Maine states in its brief on appeal that Maine law is "completely silent" on this point. Appellees cite the case of Forbes v. Wells Beach Casino, Inc., 307 A.2d 210 (Me.1973), to indicate that when faced with a third-party beneficiary question, the Supreme Judicial Court of Maine has looked to the Restatement for guidance. See also Bartashevich v. City of Portland, 308 A.2d 551 (Me.1973). Under the Restatement, a person who is not a party to a contract is entitled to sue on the contract only if such person is a donee beneficiary, § 133(1)(a), ⁷ or a creditor beneficiary, § 133(1)(b). An incidental beneficiary has no cause of action on the contract. The Restatement defines a person as a creditor beneficiary "if no purpose to make a gift appears . . . and performance of the promise will satisfy an actual or supposed or asserted duty of the promisee to the beneficiary." § 133(1)(b). The state contends that it is a creditor beneficiary because Moosehead entered into the contracts with the private defendants in order to fulfill duties Moosehead owed to Maine. According to Maine, these duties consisted in first, the obligation of Moosehead to use the state's funds only to build a sewage treatment plant, and second, the statutory obligation of the district to provide sewage treatment sufficient to protect the waters of Moosehead Lake.

The difficulty with Maine's argument is that the state has nowhere alleged facts sufficient to support a finding that Moosehead, the promisee, intended to fulfill any duty to Maine when it entered these contracts. Moosehead strenuously denies it had any such duty. The contracts themselves make no mention...