New England Concrete Pipe Corp. v. D/C Systems of New England, Inc.

• Decision Date: 11 September 1981
• Docket Number: Nos. 80-1682,80-1683,s. 80-1682
• Citation: New England Concrete Pipe Corp. v. D/C Systems of New England, Inc., 658 F.2d 867 (1st Cir. 1981)
• Parties: NEW ENGLAND CONCRETE PIPE CORPORATION, Plaintiff-Appellant, v. D/C SYSTEMS OF NEW ENGLAND, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 867

658 F.2d 867

NEW ENGLAND CONCRETE PIPE CORPORATION, Plaintiff-Appellant, v. D/C SYSTEMS OF NEW ENGLAND, INC., et al., Defendants-Appellees.

Nos. 80-1682, 80-1683.

United States Court of Appeals First Circuit.

Argued May 5, 1981.

Decided Sept. 11, 1981.

Arnold P. Messing, Boston, Mass., with whom Margaret H. Marshall, Peter A. Zheutlin and Csaplar & Bok, Boston, Mass., were on brief, for Massachusetts Housing Finance Agency.

Terrance J. Hamilton, Boston, Mass., with whom David M. Roseman and Chaplin, Casner & Edwards, Boston, Mass., were on brief, for New England Concrete Pipe Corp.

John M. Reed, Boston, Mass., with whom Philip M. Cronin and Withington, Cross, Park & Groden, Boston, Mass., were on brief, for Dwight Building Co. and Westinghouse Elec. Corp.

Loring A. Cook, III, Boston, Mass., with whom Roche, Carens & DeCiacomo, Boston, Mass., was on brief, for Sydney and Winn, etc.

Before BOWNES and BREYER, Circuit Judges, and WYZANSKI, ^* Senior District Judge.

BOWNES, Circuit Judge.

This case presents cross-appeals from the district court's final resolution of a dispute over payment on a sub-subcontract for work performed by the plaintiff as part of the construction of Mystic Valley Towers, a private housing project located in Medford, Massachusetts. Because we conclude that the district court lacked subject matter jurisdiction, we vacate the judgment.

In February, 1974, Mystic Valley Towers Associates (the Owners), a limited partnership managed by its general partners, Stanley Sydney and Arthur Winn, entered into an agreement with the Massachusetts Housing Finance Agency (MHFA), in which MHFA agreed to finance the construction of the Mystic Valley Towers project. At the same time, the Owners contracted with Dwight Construction Company (Dwight) for Dwight to act as the general contractor on the project. Dwight in turn executed an agreement with D/C Systems of New England, Inc. (D/C Systems) for the latter to serve as the prime subcontractor.

None of these contracts were executed until Dwight had furnished a bond to ensure the payment of labor and materialmen. Under one section of MHFA's enabling statute, Mass.Gen.Laws Ann. ch. 23A App., § 1-5, ¹ MHFA, as mortgagee, was obligated to require that the sponsor of the project, in this case the Owners, obtain such a bond or "an equivalent escrow arrangement." The pending construction loan agreement between the MHFA and the Owners provided that the Owners would require the general contractor, Dwight, to furnish the bond. Dwight proposed, in lieu of a bond from a licensed commercial surety, to obtain a "Bond and Letter of Guarantee" from Westinghouse Electric Corporation, which owned Dwight through a subsidiary. Unwilling to absorb the additional cost of a commercial bond, the Owners concurred in this proposal. After some negotiation, MHFA finally accepted Westinghouse's guarantee as satisfying the statutory requirement and the contracts were executed.

About one month later D/C Systems sub-subcontracted with New England Concrete Pipe Corporation (New England) for the provision of prefabricated concrete floor members. As work progressed on the project a dispute arose over the quality of the floor members produced by New England. Dissatisfied with New England's product, D/C Systems ultimately refused to make the final payment due under the sub-subcontract. New England then demanded payment from Dwight, Westinghouse, the Owners and MHFA, none of whom were willing to accept responsibility for the amount claimed. In March, 1975, New England brought suit in the Superior Court of Massachusetts to recover the outstanding balance allegedly due on the sub-subcontract, naming as defendants D/C Systems, Dwight, Westinghouse, the Owners and MHFA.

On April 7, 1975, Westinghouse and Dwight removed the action to the United States District Court for the District of Massachusetts. None of the parties, including New England, objected. Over the course of the preliminary proceedings the district court dismissed nine of the twelve counts in New England's amended complaint. One of the issues decided before the trial was that the guarantee provided by Westinghouse was not a bond under Massachusetts law. With respect to two of the remaining three counts, the court entered judgment by default against D/C Systems, which in the interim had been declared bankrupt. The case finally went to trial on the one remaining count of New England's complaint, several cross-claims filed by MHFA against the Owners, Dwight and Westinghouse and two cross-claims brought by the Onwers against Dwight and Westinghouse. Finding that MHFA had negligently accepted Westinghouse's "Bond and Letter of Guarantee" as sufficient security for Dwight's payment obligations, in violation of its duty under ch. 23A App., § 1-5, the district court entered judgment against MHFA on New England's claim and dismissed all of the cross-claims. MHFA appeals this decision, 495 F.Supp. 1334, and New England appeals the dismissal of its claims against the other defendants.

At oral argument we questioned whether the case had properly been removed from the state court, although none of the parties had raised the issue, either below or on appeal. ² With the benefit of supplementary briefs from the parties, we address this question of our jurisdiction.

As the district court recognized, no basis existed for original federal subject matter jurisdiction over this action. The dispute does not implicate any question of federal law and the diversity of citizenship between the plaintiff and the defendants is far from complete. See 28 U.S.C. §§ 1331(a) and 1332(a). With the exception of Westinghouse and Dwight, all of the parties share Massachusetts citizenship: Westinghouse is a Pennsylvania corporation with its principal place of business in that state and Dwight is a Connecticut corporation with its principal place of business in Hamden, Connecticut. But the lack of complete diversity, though it precluded original jurisdiction, did not necessarily foreclose the diverse defendants, Westinghouse and Dwight, from removing the action to federal court. If either of the claims asserted by New England against Dwight and Westinghouse is "separate and independent" of the claims leveled against the other defendants, as the district court decided, the entire action was removable pursuant to 28 U.S.C. § 1441(c). We turn then to ascertain what constitutes a separate and independent claim under § 1441(c) and whether either of New England's claims against Westinghouse and Dwight, in relation to its other claims, satisfies that description.

Section 2 of the Judiciary Act of 1875 (as amended), the precursor of § 1441(c), provided that when in any suit mentioned in this section, there shall be a controversy which is wholly between citizens of different States, and which can be fully determined as between them, then either one or more of the defendants actually interested in such controversy may remove said suit into the district court....

28 U.S.C. § 71 (1940 ed.). With the "separable" controversy as their lodestar, the courts construed § 2 as implicitly dividing suits into three categories. If the suit not otherwise within original diversity jurisdiction included a separable controversy, that is, one which might have been brought alone as a separate suit within diversity jurisdiction, then the entire suit could be removed. If a suit that was not within original diversity jurisdiction involved only nonseparable controversies, or only one controversy, it could not be removed. Finally, if a suit contained a separate, not merely separable, controversy, the courts deemed the separate controversy to be a distinct suit and permitted its removal alone, leaving the balance of the original suit in the state court. ³

However sound in theory this tripartite scheme may have seemed, ⁴ in practice it failed. See Reviser's Note, 28 U.S.C. § 1441. "Nearly three-quarters of a century of interpretation could not give definitive meaning, for all imaginable kinds of multi-party litigation, to (these) pigeonholes...." Cohen, supra note 3, at 5. In particular, the courts were unable to divine from the distinction between separate and separable controversies a practicable standard that could produce consistent results. Id. at 6.

To avoid the interpretative difficulties engendered by § 2, Congress in 1948 adopted § 1441(c), which provides:

Whenever a separate and independent claim or cause of action, which would be removable if sued upon alone, is joined with one or more otherwise non-removable claims or causes of action, the entire case may be removed and the district court may determine all issues therein, or, in its discretion, may remand all matters not otherwise within its original jurisdiction.

Although § 1441(c) replaced the separable controversy with a more restrictive standard, "a separate and independent claim or cause of action," it retained § 2's allowance for removal of the entire case. Thus, "section 1441(c) takes the unique approach of authorizing federal jurisdiction of an entire complex litigation not within original federal jurisdiction only where the connection between parts of the litigation is most tenuous." Cohen, supra note 3, at 7-8. The district court now has the authority, however, to remand those facets of the case which would not be within the court's original jurisdiction. And, unlike § 2, which defined the separable controversy in terms of diversity jurisdiction alone, under § 1441(c) the requisite separate and independent claim may be premised on either diversity or federal question jurisdiction.

In American Fire & Casualty Co. v. Finn, 341 U.S. 6, 71 S.Ct. 534, 95 L.Ed. 702 (1951), the Supreme Court rendered what remains the most important, though far from comprehensive, interpretation of § 1441(c). Finn, a citizen of Texas, brought suit in a Texas court to obtain compensation for property lost as the result of a fire. A...