State of West Virginia v. Haynes

• Decision Date: 04 October 1972
• Docket Number: Civ. A. No. 68-90.
• Citation: 348 F. Supp. 1374
• Court: U.S. District Court — Southern District of West Virginia
• Parties: STATE OF WEST VIRGINIA and State Road Commission of West Virginia, a corporation, Plaintiffs, v. John M. HAYNES and United States Fidelity and Guaranty Company, a corporation, Defendants.

348 F. Supp. 1374

STATE OF WEST VIRGINIA and State Road Commission of West Virginia, a corporation, Plaintiffs, v. John M. HAYNES and United States Fidelity and Guaranty Company, a corporation, Defendants.

Civ. A. No. 68-90.

United States District Court, S. D. West Virginia, Charleston Division.

October 4, 1972.

Donald R. Wilson of Preiser & Wilson, Charleston, W. Va., for plaintiffs.

Charles W. Yeager, K. D. Pauley, Charleston, W. Va., for defendants.

MEMORANDUM ORDER

KENNETH K. HALL, District Judge.

Plaintiffs, the State of West Virginia and State Road Commission of West Virginia, entered into a written contract with the defendant, John M. Haynes, whereby said defendant contracted to build for the plaintiffs a certain bridge in Cabell County, West Virginia, known as the Howell's Mill Road Bridge No. 2108, Project No. I-64-1(38)21 C-3. To secure the faithful performance of the contract, the defendant, Haynes, as principal, and defendant, United States Fidelity and Guaranty Company, as surety, executed and delivered to the plaintiffs a bond in the sum of $353,588.84.

Prior to completion of the construction of the bridge, defendant Haynes was notified by letter dated June 18, 1963, from Wilson Ward, Director, Construction Division of the plaintiff State Road Commission of West Virginia, to remove the deck on the west bound structure and replace it with a new deck completely. Haynes, by letter dated May 19, 1964, through his attorney, rejected the plaintiffs' demand to replace the concrete deck.

Plaintiffs allege that on August 12, 1963, defendant Haynes abandoned the contract and stopped all work thereunder. On June 9, 1964, defendant Haynes was notified that the contract, because of the breach thereof, was being assumed by the State Road Commission of West Virginia. The defendant, United States Fidelity and Guaranty Company, responding to plaintiffs' demand to take action under its bond, refused on November 9, 1964, to take any action.

Plaintiffs assert in the complaint that the defendants' failure to comply with the provisions of the contract forced them to proceed with the construction of the bridge in accordance with the plans and specifications of the contract. In so doing, they allege an expenditure of $204,076.85. In addition, plaintiffs claim that they were prevented from opening to traffic segments of Interstate Highway No. 64, and the deprivation of use of the highway resulted in damages of an additional $250,000.00. Plaintiffs demand judgment against defendants in the sum of $454,076.85.

Plaintiffs brought an action for breach of contract against defendants, John M. Haynes and United States Fidelity and Guaranty Company, in the Circuit Court of Kanawha County, West Virginia, on June 21, 1968. The action was removed to this Court on joint petition of defendants filed on July 3, and again, as amended, on July 10, 1968.

Defendant Haynes has filed, in addition to his answer, a counterclaim, alleging that plaintiffs improperly terminated the contract, and improperly refused to pay the defendant for the balance of the work or permit him to bid on other bridge jobs let by the plaintiffs. Defendants asks for damages in the amount of $297,321.34.

On July 31, 1972, a pre-trial conference was held with counsel for all parties present. The Court directed the attention of all parties to the questions which had heretofore been raised regarding the jurisdiction of this Court to entertain this action, and, it appearing to the Court that jurisdiction was a preliminary issue which needed to be resolved, the Court ordered the plaintiffs and the defendants to submit their briefs on said jurisdictional question together with any motions which any party considered necessary in connection therewith. Briefs have been timely received by this Court.

Defendants in their brief contended that the State of West Virginia is neither a necessary nor a proper party in the litigation. Defendants cited statutory law authorizing the State Road Commission to negotiate and enforce contracts as well as to perform "functions necessary and germane to its public corporate existence and purposes." W.Va.Code, § 17-2-1 (Michie 1966). Defendants also contend that the State Road Commission of West Virginia is a citizen of the State of West Virginia within the purview of the diversity of citizenship jurisdiction of this Court. Defendants rely on the case of Port of Seattle v. Oregon and Washington Railroad Co., 255 U.S. 56, 41 S.Ct. 237, 65 L.Ed. 500 (1921), in which Mr. Justice Brandeis held that a public corporation is a citizen of the state in which it functions and that the action in question was properly removed from a state court to a United States District Court in Oregon. Defendants raised other issues considered inconsequential here.

Plaintiffs contend that, in a suit for breach of a construction contract brought by the State of West Virginia and by the State Road Commission against the contractor and his bonding company, the State of West Virginia is a necessary party to the suit. The bond issued by United States Fidelity and Guaranty Company clearly is between said company as surety, the contractor as principal, and the State of West Virginia. Furthermore, the West Virginia statutory provision that ". . . suits may be prosecuted from time to time in the name of the State . . ." has been held mandatory and not permissive. W. Va.Code, § 6-2-17 (Michie 1966); Hensley v. Copley, 122 W.Va. 621, 11 S.E.2d 755 (1940). Plaintiffs assert that if the State of West Virginia must be joined as a party, then an action by the State of West Virginia and the State Road Commission against a contractor for breach of contract and against the surety on his bond cannot be properly removed to federal court. Plaintiffs contend that the diversity of citizenship requisites of 28 U.S.C. § 1332, do not apply to a state. Plaintiffs contend that the courts analyze various factors to see if the state is the real party in interest, thereby defeating diversity. Harris County v. Ideal Cement Co., 290 F.Supp. 956 (D.C. Tex.1968). One factor is whether the state agency which is a party to the suit is an arm or alter ego of the state. Plaintiffs argue that the State Road Commission was, at the time the action was commenced, an arm of the State of West Virginia. The second factor which plaintiffs contend should be weighed is whether the subject matter involved is a governmental function rather than a private matter. Plaintiffs assert that roads were the domain of state control via the State Road Commission, and hence a governmental function. The third factor as considered in the Harris case is whether the pecuniary and beneficial interests of the state generally are involved. Plaintiffs state that they clearly are at issue here.

The Court finds that, in deciding the question of whether the action by the State of West Virginia and the State Road...