Westra Const., Inc. v. U.S. Fidelity & Guar. Co.

• Decision Date: 30 April 2008
• Docket Number: Civil Action No. 1:03-CV-0833.
• Parties: WESTRA CONSTRUCTION, INC., Plaintiff v. UNITED STATES FIDELITY & GUARANTY COMPANY, Defendant.
• Court: U.S. District Court — Middle District of Pennsylvania

546 F.Supp.2d 194

WESTRA CONSTRUCTION, INC., Plaintiff v. UNITED STATES FIDELITY & GUARANTY COMPANY, Defendant.

Civil Action No. 1:03-CV-0833.

United States District Court, M.D. Pennsylvania.

April 30, 2008.

COPYRIGHT MATERIAL OMITTED

Jonathan H. Rudd, McNees Wallace & Nurick, Harrisburg, PA, for Plaintiff.

Bridget E. Montgomery, Adam M. Shienvold, Eckert Seamans Cherin & Mellott, LLC, R. James Reynolds, Jr., Thomas Thomas Armstrong & Niesen, Harrisburg, PA, Robert T. Carlton, White and Williams, Philadelphia, PA, for Defendant.

MEMORANDUM

CHRISTOPHER C. CONNER, District Judge.

Presently before the court is the motion to intervene pursuant to Federal Rule of Civil Procedure 24(a)(2) (Doc. 84), filed by Fidelity and Deposit Company of Maryland ("F & D"). Both plaintiff Westra Construction, Inc. ("Westra") and defendant United States Fidelity & Guaranty Company ("USF & G") oppose the motion for intervention. (See Docs. 88, 89.) On April 16, 2008, the court held oral argument on the motion, which has been fully briefed and is ripe for disposition. (See Doc. 96.) For the reasons that follow, the motion will be denied.

I. Factual Background

A. The Instant Litigation

The dispute between Westra and USF & G centers around the construction of a facility for the Pennsylvania Turnpike Commission which began in 1999. Alexander Construction, Inc. ("ACI") served as the general contractor for this project, while Westra served as a subcontractor. USF & G acted as ACFs surety. (See Doc. 70 at 1.) After the project was substantially completed in 2001, Westra made several demands for payment from ACI, which ACI rejected for lack of substantiation. On August 6, 2002, Westra filed a demand for arbitration with the American Arbitration Association. The arbitration proceedings commenced on July 7, 2003 and spanned eighty-five hearing days. On August 2, 2005, the arbitration panel awarded Westra $1 million in damages, fees and costs, and attorney's fees. Prior to completion of the arbitration proceedings, Westra initiated the instant action against USF & G, asserting that USF & G is liable for the entire amount of the arbitration award as ACFs surety. (See id. at 2-3.) USF & G filed a motion to vacate or modify the arbitration award (Doc. 22), which was denied by the memorandum and order of court dated March 29, 2007, 2007 WL 1031438 (Doc. 70). The action is currently in the pretrial discovery stage. (See Doc. 86.)

B. F & D's Relationship to the Instant Litigation

On January 1, 1997, Westra and F & D entered into an agreement of indemnity whereby F & D consented to serve as Westra's surety for all of its construction projects. (Doc. 84 ¶ 16.) In connection with the turnpike project, F & D issued a payment bond in the sum of $8.7 million on July 23, 1999. (Id. ¶ 18.) Between October of 1999 and February of 2000, Westra entered into five sub-subcontracts with Novinger Group, Inc. ("Novinger"). (Id. ¶ 19.) Ultimately, a payment dispute arose between Westra and Novinger, and Novinger commenced a lawsuit against Westra and F & D in the Dauphin County Court of Common Pleas. In settlement of this lawsuit, F & D paid Novinger $402,486.68 between February 27, 2006 and December 20, 2007. (Id. ¶¶ 20-23.) F & D has unsuccessfully sought to recover this amount from Westra pursuant to the terms of the indemnity agreement. (Id. ¶¶ 27-28.) F & D now claims that it possesses a right to intervene in the instant action because it is subrogated to any amount up to $402,486.68 that Westra might recover from USF & G. (Id. ¶ 25.)

II. Discussion

In response to F & D's motion, Westra and USF & G argue that permitting F & D to intervene would: (1) defeat this court's subject matter jurisdiction, and (2) violate the intervention standard set forth in Federal Rule of Civil Procedure 24(a)(2). (See Docs. 88, 89.) The court will address these arguments seriatim.

A. Subject Matter Jurisdiction

There is no independent jurisdictional basis for intervention. Accordingly, a party seeking to intervene must demonstrate the existence of a federal question, diversity of citizenship, or supplemental jurisdiction. See 7C CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL PRACTICE AND PROCEDURE § 1917 (2008). The instant motion to intervene does not present a federal question; therefore, the court need only address the applicability of diversity and supplemental jurisdiction.

1. Diversity Jurisdiction

The court's subject matter jurisdiction over the action between Westra and USF & G is premised on diversity of citizenship. See 28 U.S.C. § 1332 (granting district courts original jurisdiction over civil actions between "citizens of different states" with an amount in controversy of greater than $75,000). The United States Supreme Court has interpreted § 1332 to require "complete diversity," meaning that "[i]n a case with multiple plaintiffs and multiple defendants, the presence in the action of a single plaintiff from the same state as a single defendant deprives the district court of original diversity jurisdiction over the entire action." Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 553, 125 S.Ct. 2611, 162 L.Ed.2d 502 (2005).

Here, both F & D and USF & G are Maryland corporations. (See Doc. 87 at 11.) Because USF & G is a defendant, the complete diversity doctrine prohibits the court from exercising diversity jurisdiction over F & D's claims if F & D intervenes as a plaintiff. See Exxon Mobil, 545 U.S. at 553, 125 S.Ct. 2611. Accordingly, the instant jurisdictional question turns on which party designation is properly assigned to F & D. Dev. Fin. Corp. v. Alpha Hons. & Health Care, Inc., 54 F.3d 156, 160 (3d Cir.1995) (stating that a court must properly align the parties before deciding whether jurisdiction exists "[w]here party designations have jurisdictional consequences"). If F & D is appropriately viewed as a plaintiff, the court may not exercise diversity jurisdiction over F & D's claims. If, however, F & D is properly considered a defendant, the court may entertain F & D's claims.

In determining the appropriate party designation to be assigned to an intervenor, the court must "penetrate the nominal party alignment and ... consider the parties' actual adversity of interest." Id. "Opposing parties must have a collision of interests over the principal purpose of the suit." Id. While F & D is attempting to intervene as a defendant, Westra argues that the requested alignment is a "transparent attempt" to avoid problems of diversity jurisdiction because F & D's interests make it more akin to a plaintiff than to a defendant. (See Doc. 88 at 13.) The court agrees and finds that F & D's interests are adverse to USF & G's and not to Westra's. The "principal purpose" of the instant litigation is to determine USF & G's liability to finance the arbitration award on ACI's behalf. (See id.); see also Polak v. Kobayashi, No. 05-330, 2005 WL 2008306, at *2 (D.Del. Aug. 22, 2005) (realigning the parties with reference to the "primary issue" in the lawsuit); Richman, Berenbaum & Assoc., P.C. v. Carolina Cas. Co., No. 02-3195, 2002 WL 1895900, at *2 (E.D.Pa. Aug. 14, 2002) (same). Both F & D and Westra are interested in establishing USF & G's liability to finance the arbitration award and in maximizing the amount of that liability. USF & G is interested in just the opposite outcome, namely, proving that it is not liable for any amount of the arbitration award. This "collision of interests" bars alignment of F & D and USF & G on the same side of the dispute.¹ See Dev. Fin. Corp., 54 F.3d at 160. Accordingly, the court must realign F & D as an intervening plaintiff, which prevents the court from exercising diversity jurisdiction over F & D's claims.

2. Supplemental Jurisdiction

Courts are ordinarily permitted to exercise supplemental jurisdiction over any claims that are so related to the original action that they "form part of the same case or controversy." 28 U.S.C. § 1367(a). To satisfy the case or controversy requirement, all claims, including "claims that involve the ... intervention of additional parties," must derive from a "common nucleus of operative fact." See Doherty v. Teamsters Pension Trust Fund of Phila. & Vicinity, 142 Fed.Appx. 573, 575 (3d Cir.2005); 28 U.S.C. § 1367(a). In the action sub judice, F & D's claims share a common nucleus of operative fact with Westra's claims against USF & G. Both sets of claims concern USF & G's liability to finance the same arbitration award. Accordingly, the case or controversy requirement is satisfied in the instant case.

However, this does not end the court's supplemental jurisdiction inquiry. Congress has placed a specific limitation on a court's ability to exercise supplemental jurisdiction over intervention claims in cases founded solely on diversity of citizenship:

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 ... over claims by persons ... seeking to intervene as plaintiffs under Rule 24 of such rules, when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.

28 U.S.C. § 1367(b). F & D's intervention request satisfies the first three requirements of this statute: (1) the underlying civil action between Westra and USF & G is founded on diversity, (2) F & D seeks to intervene under Rule 24, and (3) the court has determined that F & D would be appropriately designated a plaintiff if it were permitted to intervene. However, the dispositive inquiry is whether F & D's intervention "would be inconsistent with the jurisdictional requirements of section 1332." Id.

Few courts have attempted to define the contours of the final requirement of § 1367(b). Those that have addressed the issue have concluded that intervention is inconsistent with the jurisdictional requirements of §...