U.S. for Use and Benefit of Newton v. Neumann Caribbean Intern., Ltd.
| Citation | 750 F.2d 1422 |
| Decision Date | 07 January 1985 |
| Docket Number | No. 83-1904,83-1904 |
| Parties | UNITED STATES of America for the Use and Benefit of David G. NEWTON, doing business under the assumed name and style of David G. Newton Construction, Plaintiff-Appellee, v. NEUMANN CARIBBEAN INTERNATIONAL, LTD., doing business as Neumann Caribbean, et al., Defendants-Appellants. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Richard Corona, Richard Corona & Assoc., San Diego, Cal., for defendants-appellants.
Donald D. Harmata, Sacramento, Cal., for plaintiff-appellee.
Appeal from the United States District Court for the Northern District of California.
The prior opinion in this case, filed May 4, 1984, is withdrawn, and the attached opinion is substituted in its place.
With this substitution, the petition for rehearing is denied.
Before WALLACE and BOOCHEVER, Circuit Judges, and WYZANSKI, * Senior District Judge.
This is an appeal by Neumann Caribbean International, Ltd. (Neumann) and Safeco Insurance Company (Safeco) from a judgment of the District Court of the Northern District of California ordering Neumann and Safeco to submit to arbitration David G. Newton's (Newton) claim against Neumann arising out of a contract between them, and further ordering a stay of all other judicial proceedings in this case until such arbitration has been completed.
The principal issues raised in this appeal are (1) whether Neumann agreed that it would submit to arbitration the dispute between it and Newton as to the claim which Newton makes against it; (2) if so, whether the District Court had federal power over Newton's causes of action against Neumann and against Safeco; (3) if so, whether the District Court had judicial, that is equitable, jurisdiction to enforce the arbitration promise made by Neumann and (4) if so, whether the District Court in the circumstances of this case, abused its discretion in staying Neumann from proceeding with respect to its claims arising out of the prime contract or out of sub-contracts, whether the claim be against Newton or another, until after the arbitration be completed.
The following are the material facts.
Neumann entered into a contract with Round Valley Indian Housing Authority (RVIHA) on June 24, 1977, under which, in consideration of an agreed price to be paid by RVIHA, Neumann promised to furnish the materials and perform the labor for the construction of 70 single-family dwellings for RVIHA.
24 C.F.R. Sec. 805.203(c) provides that:
... The contractor shall be required to provide assurance in the form of 100 percent performance and payment bonds, or a lesser percentage or other security approved by HUD....
Neumann in paragraph 5 of its answer "affirmatively aver[s] that pursuant to applicable laws, Neumann Caribbean International, Ltd., a corporation as principal, and Safeco Company, as surety, executed and delivered to the Round Valley Indian Housing Authority, a payment and performance bond as required by the contract between the parties".
Then Neumann entered into a sub-contract made on July 8, 1977, and amended on July 14, 1977, with Newton under which the latter agreed to furnish certain of the labor and materials stipulated in the prime contract. That sub-contract, in providing for the arbitration of disputes, stated:
"That where arbitration of disputes is granted the Contractor under the terms of this contract on the project covered by this agreement, such right of arbitration shall be extended to the Sub-Contractor, and that in disputes arising between only the general Contractor and the Sub-Contractor, right of arbitration shall be extended to the Sub-Contractor even though the contract between the general Contractor and the owner contains no reference to arbitration."
On July 31, 1979, Newton filed in the Northern District of California a complaint against both Neumann and Safeco alleging that he had performed the sub-contract as amended and that Neumann had not paid him as agreed, and that he was entitled against both defendants to judgment for the amount due. In that complaint he also alleged that the District Court had federal jurisdiction of the cause of action pursuant to the Miller Act, 40 U.S.C. Secs. 270a through 270d.
On January 10, 1980, Neumann filed its answer, counterclaim, and third party complaint. Those pleadings alleged separate claims against Newton and against the Round Valley Indian Housing Authority--all arising in connection with the same construction project. In due season Safeco answered the complaint, Newton answered the counterclaim, and the Round Valley Indian Housing Authority answered the third party complaint.
On March 5, 1980, Newton filed a motion for arbitration and for a stay of action pending such arbitration. On June 6, 1980, the District Court, per Orrick, J., granted that motion and ordered arbitration of Newton's claim against Neumann and stayed other proceedings. From such arbitration and stay order Neumann appealed to this Court of Appeals. On March 16, 1982, this court dismissed the appeal because the District Court had no jurisdiction under the Miller Act, but simultaneously this court gave Newton leave to amend his complaint to allege any appropriate basis of federal jurisdiction.
On July 23, 1982, the District Court granted a motion, earlier filed by Newton, to permit him to amend his complaint so as to allege jurisdiction under 28 U.S.C. Sec. 1352. On August 11, 1982 Newton amended his complaint to allege such jurisdiction.
On March 31, 1983, the District Court, per Lynch, J., ordered that Newton's claims be referred to an arbitrator for arbitration and simultaneously ordered that all other judicial proceedings in this case be stayed until the arbitration be completed.
On April 20, 1983, Neumann and Safeco appealed that March 31, 1983 order to this court.
The first question for us to consider is whether as a consequence of its sub-contract with Newton, Neumann is under a duty to Newton to submit to arbitration the contract claim against it which Newton presents. We conclude that such duty exists. The sub-contract provides for arbitration "in disputes arising between only the general [i.e. the prime] Contractor and the Sub-Contractor". As to the contractual claim made by Newton against the prime contractor Neumann, we regard it as clear that only the two of them are parties to that particular dispute. We agree with District Judge Lynch that even if the rights of Newton cannot be vindicated without consideration of the owner's [the Round Valley Indian Housing Authority's] actions, this dispute is between only two parties, the prime contractor and the sub-contractor.
The second question is whether the District Court has federal jurisdiction of Newton's claim against Neumann as well as his claim against Safeco.
We conclude that federal jurisdiction has been conferred by 28 U.S.C. Sec. 1352 which provides that:
The district courts shall have original jurisdiction ... of any action on a bond executed under any law of the United States....
Under the prime contract Neumann agreed to post, and it did in fact post, a performance bond executed by Safeco. Those steps were taken pursuant to the requirement in 24 C.F.R. Sec. 805.203(c) that "The contractor shall be required to provide assurance in the form of 100 percent performance and payment bonds...". Hence the Safeco bond was, as stipulated in 28 U.S.C. Sec. 1352, executed under a "law of the United States". This clearly gave federal jurisdiction of sub-contractor Newton's bond claim against the surety.
Such steps also gave the District Court federal jurisdiction over the sub-contractor's joined action (based on a contract but not on a bond) against the prime contractor, although the words of section 1352 do not so state. Lasley v. U.S., 285 F.2d 98,...
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