Stromberg Metal Works, Inc. v. Press Mechanical, Inc.

Decision Date20 February 1996
Docket NumberNo. 95-2760,95-2760
Citation77 F.3d 928
PartiesSTROMBERG METAL WORKS, INC., and Comfort Control, Inc., Plaintiffs-Appellants, v. PRESS MECHANICAL, INC., et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

Vincent Borst (argued), Alex Darcy, Askounis and Borst, Chicago, IL, for Stromberg Metal Works, Incorporated, Comfort Control, Incorporated.

Robert R. Stauffer (argued), Jenner & Block, Chicago, IL, for Lester H. Goldwyn, John P. Goldwyn.

Alisa B. Arnoff, Bruce C. Scalambrino, Scalambrino & Arnoff, Chicago, IL, for George E. Zielinski.

Before EASTERBROOK, ROVNER, and EVANS, Circuit Judges.

EASTERBROOK, Circuit Judge.

Bechtel Power Corporation is the owner's contracting agent for the Calvert Cliffs nuclear power station under construction in Lusby, Maryland. Bechtel hired Press Mechanical to work on the heating, ventilation, and air conditioning system of the power station's diesel generator building. The contract between Bechtel and Press calls for the application of Maryland law and requires Press to "bind every subcontractor to ... the terms of the construction documents as far as applicable to the work performed by the subcontractor". Press engaged Stromberg Metal Works and Comfort Control to do some of the HVAC work required by the Bechtel-Press contract. Press issued purchase orders, which provide on the front that the work is to be done "in strict accordance with the plans, specifications and other contract documents listed below"--which include the master contract that selects Maryland law. Preprinted on the back of each purchase order is this sentence: "This order shall be governed by the laws of the State of Illinois."

The contract between Press and Bechtel provides that Bechtel will pay Press for work done by a subcontractor only if Press certifies that the subcontractor has been paid, or that a bond secures payment. The project's owner needs clean title, which means that Bechtel or the owner may have to pay the subcontractor directly if necessary to clear a mechanic's or materialman's lien. No one wants to pay twice for the same work. Hence the requirement that Press pay the subcontractor before Bechtel will pay Press. According to the complaint, whose allegations we must accept, Press represented to Bechtel that it had paid more than $425,000 to Stromberg, and more than $27,000 to Comfort Control, for their work under the subcontracts. Bechtel then reimbursed Press. But the representation was false; Press had paid only $18,000 to Stromberg and nothing to Comfort Control. Press is insolvent and has made an assignment for the benefit of its creditors. Apparently Stromberg and Comfort Control do not have liens on their work (the reason for this is not clear, but we need not pursue the question). Having paid Press, Bechtel is unwilling to pay the subcontractors directly, and Press cannot. Stromberg and Comfort Control filed this action under the diversity jurisdiction seeking to collect from Lester H. Goldwyn, John P. Goldwyn, and George E. Zielinski, who it believes controlled Press and were responsible for the false certification to Bechtel and the non-payment of the debts on the subcontracts. They invoke the Maryland Construction Trust Fund Statute. One clause of this law, Md. Real Property Code § 9-201(b)(1), provides that funds received by a contractor "for work done or materials furnished ... for or about a building by any subcontractor" are held in trust for the subcontractor, and § 9-202 adds:

Any officer, director, or managing agent of any contractor or subcontractor, who knowingly retains or uses the moneys held in trust under § 9-201 of this subtitle, or any part thereof, for any purpose other than to pay those subcontractors for whom the moneys are held in trust, shall be personally liable to any person damaged by the action.

Illinois law lacks any comparable provision, so plaintiffs' case depends on the application of Maryland law. Zielinski and the Goldwyns believe that they have defenses even if Maryland law applies, but we need not decide whether that is so. Similarly, we sidestep the question whether the current version of the Maryland law (which we have quoted) differs materially from the version in force when Press failed to pay Stromberg and Comfort Control.

I

Stromberg's claim exceeds $50,000, but Comfort Control's claim does not, so the immediate question is: does the supplemental jurisdiction permit a court to hear a claim by a party whose loss does not meet the jurisdictional minimum? In Clark v. Paul Gray, Inc., 306 U.S. 583, 59 S.Ct. 744, 83 L.Ed. 1001 (1939), the Supreme Court held not, but 28 U.S.C. § 1367, enacted in 1990, may have altered that result. One court of appeals has held that § 1367 supersedes Clark and allows pendent-party jurisdiction when the additional parties have claims worth less than $50,000. In re Abbott Laboratories, 51 F.3d 524, 527-29 (5th Cir.1995). (Actually, the fifth circuit held that § 1367 alters the result of Zahn v. International Paper Co., 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511 (1973); we discuss below whether there is a material difference between Clark and Zahn.) No other court of appeals has addressed this question; we recently remarked on its unsettled nature. Anthony v. Security Pacific Financial Services, Inc., 75 F.3d 311, 315-16 & n. 2 (7th Cir.1996). Most district judges, within and without this circuit, have held that the old rule retains vitality. The district court in this case followed the majority view and dismissed Comfort Control's claim for want of jurisdiction. But we are reluctant to create a conflict among the circuits on a jurisdictional issue. We follow Abbott Laboratories, which has strong support from the statutory text.

Section 1367(a) provides that "district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." (Italics added.) To emphasize the inclusiveness of "all", the section continues: "Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties." Abbott Laboratories observed that this language is direct and unambiguous. We held in Brazinski v. Amoco Petroleum Additives Co., 6 F.3d 1176 (7th Cir.1993), that § 1367(a) permits the adjudication of a claim by a pendent party that neither arises under federal law nor is supported by diversity of citizenship. If § 1367(a) allows suit by a pendent plaintiff who meets the jurisdictional amount but not the diversity requirement, it also allows suit by a pendent plaintiff who satisfies the diversity requirement but not the jurisdictional amount.

Although the final sentence of § 1367(a) might have been designed to do nothing more than reverse the outcome of Finley v. United States, 490 U.S. 545, 109 S.Ct. 2003, 104 L.Ed.2d 593 (1989), which held that pendent-party jurisdiction is unavailable when the principal claim arises under federal law, the text is not limited to federal-question cases, and § 1367(b) shows that the statute governs diversity litigation as well. Section 1367(b) begins: "In any civil action of which the district courts have original jurisdiction founded solely on section 1332 of this title, the district courts shall not have supplemental jurisdiction" in defined circumstances. So although, as Abbott Laboratories discussed, some legislative history suggests that the responsible committees did not expect § 1367 to upset Zahn, the text is not limited in this way. When text and legislative history disagree, the text controls. In re Sinclair, 870 F.2d 1340 (7th Cir.1989).

The Goldwyns ask us to distinguish Abbott Laboratories on the ground that it, like Zahn, involved a class action. Zahn held that every member of a class must satisfy the jurisdictional minimum, and Abbott Laboratories concluded that under § 1367 only the named class representatives need do so. Our case, by contrast, has just two plaintiffs. But § 1367 does not distinguish class actions from other cases; neither did Zahn. Indeed, the point of Zahn was that the class device made no difference. Snyder v. Harris, 394 U.S. 332, 89 S.Ct. 1053, 22 L.Ed.2d 319 (1969), held that Fed.R.Civ.P. 23 does not alter the rule that multiple persons' claims cannot be combined to reach the minimum amount in controversy. Then Zahn added that each unnamed class member must satisfy the jurisdictional amount even if the class representatives do so without aggregation. The Court started from the proposition, established in Clark, that § 1332 applies to each party independently. See also Scott v. Frazier, 253 U.S. 243, 40 S.Ct. 503, 64 L.Ed. 883 (1920). Zahn holds that the unnamed class members remain "parties" for this purpose. In modern terms, this means that Rule 23 does not authorize pendent-party jurisdiction. See also Fed.R.Civ.P. 82 ("[t]hese rules shall not be construed to extend or limit the jurisdiction of the United States district courts"). Zahn added only that the status of the pendent parties as class members (rather than as named representatives) does not make a difference. Section 1367(a) has changed the basic rule by authorizing pendent-party jurisdiction, and that change affects Clark and Zahn equally. To the extent practical considerations enter in, it is hard to avoid remarking that allowing thousands of small claims into federal court via the class device is a substantially greater expansion of jurisdiction than is allowing a single pendent party. It is therefore easy to imagine wanting to overturn Clark but not Zahn; it is much harder to imagine wanting to overturn Zahn but not Clark, and we have no reason to believe that Con...

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