Rotondo Weirich Enters., Inc. v. Sundt/Layton (In re Rotondo Weirich Enters., Inc.)

• Decision Date: 16 April 2018
• Docket Number: Adv. No. 17–185,Bky. No. 15–16146 ELF JOINTLY ADMINISTERED
• Citation: 583 B.R. 860
• Parties: IN RE: ROTONDO WEIRICH ENTERPRISES, INC., et al., Debtors Rotondo Weirich Enterprises, Inc., Plaintiff, v. Sundt/Layton, a Joint Venture, Sundt Construction, Inc., Layton Construction Company, LLC, Fidelity & Deposit Company of Maryland, Zurich American Insurance Company, Federal Insurance Company, Liberty Mutual Insurance Company, California Department of Corrections and Rehabilitation, Defendants
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

583 B.R. 860

IN RE: ROTONDO WEIRICH ENTERPRISES, INC., et al., DebtorsRotondo Weirich Enterprises, Inc., Plaintiff,

v.Sundt/Layton, a Joint Venture, Sundt Construction, Inc., Layton Construction Company, LLC, Fidelity & Deposit Company of Maryland, Zurich American Insurance Company, Federal Insurance Company, Liberty Mutual Insurance Company, California Department of Corrections and Rehabilitation, Defendants

Bky. No. 15–16146 ELF JOINTLY ADMINISTERED

Adv. No. 17–185

United States Bankruptcy Court, E.D. Pennsylvania.

Signed April 16, 2018

Aris J. Karalis, Robert W. Seitzer, Karalis PC, Philadelphia, PA, for Plaintiff.

Michael G. Menkowitz, Fox,Rothschild, LLP, 2000 Market St., l0th floor, Philadelphia, PA, for Defendants.

MEMORANDUM

ERIC L. FRANK, U.S. BANKRUPTCY JUDGE

I. INTRODUCTION

Debtor Rotondo Weirich Enterprises, Inc. ("the Debtor") has filed a complaint ("the Complaint"), seeking damages from Sundt/Layton, a joint venture, Sundt Construction, Inc., Layton Construction Company, LLC (collectively "Sundt/Layton") and the California Department of Corrections and Rehabilitation ("the CDCR") based on alleged breaches of a construction contract.

The Debtor also seeks recovery from Fidelity & Deposit Company of Maryland, Zurich American Insurance Company, Federal Insurance Company and Liberty Mutual Insurance Company ("the Sureties") on a public works bond.

The Defendants have filed a Motion to Dismiss the Complaint ("the Motion"), asserting:

1. The court lacks jurisdiction over the claims against the CDCR based on the Eleventh Amendment to the U.S. Constitution.

2. A joint venture entity formed by the Debtor and CML RW Security, LLC ("CML")—not the Debtor —was the contracting party with Sundt/Layton and therefore, the Debtor lacks standing to assert a claim for breach of contract.

3. The court lacks subject matter jurisdiction under 28 U.S.C. § 1334(b) to adjudicate all causes of action based on the subcontract.

4. All of the claims are subject to binding arbitration.

5. Due to the undisputed existence of an express contract, the Debtor may not assert a claim for unjust enrichment.

6. The Debtor was not licensed to do business in California.

For the reasons explained below, I will grant the Motion in part and deny it in part. Specifically, I will:

1. defer a ruling on the first three (3) grounds for dismissal stated above, all of which are based on the court's asserted lack of jurisdiction; and

2. stay all of the claims against the CDCR and Sundt/Layton pending binding arbitration of the parties' disputes.¹

As a result of this disposition, it is unnecessary to discuss the fifth and sixth grounds for dismissal stated above.

II. PROCEDURAL HISTORY

On August 27, 2015, the Debtor filed a petition for relief under chapter 11 of the Bankruptcy Code. On November 20, 2015, Sundt/Layton filed Proof of Claim No. 105, alleging it was owed an unliquidated amount for the Debtor's breaches under the Subcontract.

On June 28, 2017, the Debtor filed the Complaint. The Defendants filed a Motion to Dismiss the Complaint under Fed. R. Civ. P. 12(b)(1) and 12(b)(6) on September 29, 2017.² Both sides filed a memorandum and supplemental memorandum in support of their respective positions, the last of which was filed on January 31, 2018.

III. THE COMPLAINT

A. Facts

The well-pled facts in the Complaint and the attached documents permit me to describe the case straightforwardly, in the light most favorable to the Debtor, without accepting any of the Debtor's legal conclusions. See Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).³

On or about March 13, 2014, the CDCR executed a contract ("the Prime Contract") with Sundt/Layton, as general contractors, for the construction of a prison ("the Donovan Project").

On March 26, 2014, Sundt/Layton, in turn, executed a contract ("the Subcontract") with "Rotondo Weirich Enterprises, Inc. / CML RW Security, LLC d/b/a/ RW Companies" to do certain work on the Donovan Project. The Debtor's President/CEO signed the Subcontract on behalf of "RW Companies." The Subcontract provided that the Debtor was responsible for "the Precast Module scope of work" and CML, (at the time, a subsidiary of the Debtor), was responsible for the separate "Detention Equipment and Security Electronics scope of work." (Ex. C ¶ 1.1).

In connection with the Prime Contract, the Sureties provided a payment bond and performance bond in the total amount of $168,762,000.00.

The Debtor did some of the work contemplated by the Subcontract and contends that it has not been fully paid. In addition, the Debtor incurred debts to its own sub-subcontractors. The Debtor last worked on the project on February 2, 2016. CML completed its work on the project in March 2017. The Debtor is now unable to determine what amounts were paid to CML or directly to its sub-subcontractors,

The Debtor contends that Sundt/Layton owes it a presently undetermined amount for the work it performed on the Donovan Project.

B. Claims Asserted

The Complaint alleges these seven (7) counts against some or all of the Defendants, based on contract, statutory and equitable theories of recovery:

• Count I—Accounting (against Sundt/Layton)

The Debtor demands to see Sundt/Layton's books to determine which entities were paid for which work, and if sub-subcontractors were paid directly by Sundt/Layton.

• Count II—Breach of Contract (against Sundt/Layton)

The Debtor seeks payment under the Subcontract for work it performed, with the amount determined after an accounting.⁴

• Count III—Claim on Bonds (against the Sureties)

The Debtor asserts a private right of action to recover unpaid amounts directly from a public works performance bond. See Cal. Civ. Code § 9558.

• Count IV—Statutory Attorney's Fees (against all Defendants)

The Debtor seeks to recover attorney's fees as part of its "action to enforce the liability on the bond." See Cal. Civ. Code § 9564(c).⁵

• Count V—California Prompt Pay Statute (against Sundt/Layton)

The Debtor asserts that it did not get paid for completed work within the required time period. As a result, the Debtor asserts that it is entitled to recover the amount due, plus 2% per month plus fees and costs. See Cal. Civ. Code § 8818.

• Count VI—Unjust Enrichment/Quantum Meruit (against all Defendants)

If all of the above claims fail, the Debtor asserts that it is entitled to a recovery for the value of those benefits it conferred through its work based on a theory of unjust enrichment and/or quantum meruit.

• Count VII—Objection to Proof of Claim 105 (against Sundt/Layton)

The Debtor objects to Sundt/Layton's proof of claim and requests that it be disallowed.

IV. DISCUSSION

A. Deferral of the Jurisdictional Issues

1.

In this adversary proceeding, the Defendants have raised three (3) issues that go to this court's subject matter jurisdiction: Eleventh Amendment immunity; the Debtor's standing;⁶ and the lack of subject matter jurisdiction under 28 U.S.C. § 1334(b). See Part I, supra.

As a general rule, a federal court should first determine whether it has jurisdiction over an action before considering the merits. See, e.g., Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) ; In re Mullarkey, 536 F.3d 215, 220–21 (3d Cir. 2008) ; Packard v. Provident Nat'l. Bank, 994 F.2d 1039, 1049 (3d Cir. 1993).

This principle is qualified, however, by the "leeway" accorded to the court "to choose among threshold grounds for denying audience to a case on the merits." Sinochem Int'l Co. v. Malay. Int'l Shipping Corp., 549 U.S. 422, 431, 127 S.Ct. 1184, 167 L.Ed.2d 15 (2007) (quoting Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 584, 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999) ) (internal and additional citations omitted); see also Kelly v. Maxum Specialty Ins. Grp., 868 F.3d 274, 280 n.3 (3d Cir. 2017) (describing various types of non-merits dismissals permitted before addressing subject matter jurisdiction). Thus, it is not necessarily mandatory for a federal court to rule on its subject matter jurisdiction if a case is subject to another, non-merits disposition.

For the reasons explained below, I will exercise my discretion to resolve the Motion on a different, non-merits, threshold ground (i.e., mandatory arbitration) without deciding the jurisdictional issues raised by the Defendants.

2.

First, I will explain why it is appropriate to defer resolution of the Eleventh Amendment immunity issue.

The Eleventh Amendment to the U.S. Constitution expressly renders a state immune from liability for damages in a suit brought in federal court by "[c]itizens of another [s]tate." The Eleventh Amendment also immunizes a state from damage suits brought in federal courts by its own citizens. Dellmuth v. Muth, 491 U.S. 223, 229 n.2, 109 S.Ct. 2397, 105 L.Ed.2d 181 (1989).⁷

Eleventh Amendment immunity applies both to the state and any entity closely enough related to be considered an "arm of the state." E.g., Karns v. Shanahan, 879 F.3d 504, 512–13 (3d Cir. 2018) ; Maliandi v. Montclair State Univ., 845 F.3d 77, 82–3 (3d Cir. 2016). Generally, speaking, suits against a state agency or a state department are considered to be suits against a state which are barred by the Eleventh Amendment. Geis v. Bd. of Educ. of Parsippany–Troy Hills, Morris Cty., 774 F.2d 575, 580 (3d Cir. 1985) ; Addlespurger v. Wecht, 2018 WL 1412409, at *5 (W.D. Pa. Mar. 21, 2018).

To determine whether an entity is an "arm of the state," the court must determine:

(1) Whether the money that would pay the judgment would come from the state (whether payment will come from the state's treasury, whether the agency has the money to satisfy the judgment, and whether the sovereign has immunized itself from responsibility for the agency's debts);

(2) The status of the agency under state law (this includes four factors—how state law treats the agency generally, whether the entity is separately

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