Reinforced Concrete & Masonry Construction Inc. v. Hudson Insurance Company
Filing
30
OPINION AND ORDER re: 15 LETTER MOTION for Conference addressed to Judge Shira A. Scheindlin from Gregory A. Tsonis dated October 21, 2014 filed by Hudson Insurance Company, 21 MOTION to Intervene filed by N. J.D. Wiring & Electric, Inc., 13 LETTER MOTION to Adjourn Conference addressed to Judge Shira A. Scheindlin from Gregory A. Tsonis dated October 2, 2014 filed by Hudson Insurance Company: For the foregoing reasons, NJD's motion is GRANTED, and the case is dismissed without prejudice. The Clerk of Court is directed (1) to close Dkt. Nos. 13, 15, and 21, and (2) to close this case. (Signed by Judge Shira A. Scheindlin on 12/8/2014) (tn)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
REINFORCED CONCRETE & MASONRY
CONSTRUCTION, INC. d/b/a BROAD
CONSTRUCTION,
Plaintiff,
OPINION AND ORDER
- against -
14-cv-1705 (SAS)
HUDSON INSURANCE COMPANY,
Defendant.
-------------------------------------------------------- :x:
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.
INTRODUCTION
On March 12, 2014, Broad Construction ("Broad") filed suit against
Hudson Insurance Co. ("Hudson"), surety ofN.J.D. Wiring & Electric ("NJD").
After entering into an agreement with the Metropolitan Transit Authority ("MTA")
to refurbish the Eastchester Bus Depot (the "Project"), NJD subcontracted a
portion of the work to Broad. 1 Here, Broad seeks to recover against Hudson for
payment that Broad believes it is owed in connection with work performed under
See Complaint and Prayer for Relief, ,-i,-i 1-2.
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the subcontract. 2
On November 17, 2014, NJD moved to intervene, on the grounds that
MTA -
a non-party - recently indicated that its understanding of the primary
contract (between MTA and NJD) has changed, in a way that exposes NJD to
potential liability in connection with the present lawsuit. For the reasons set forth
below, I find that NJD must be permitted to participate in this litigation. However,
because NJD' s intervention would defeat complete diversity among the parties,
thereby extinguishing this Court's subject matter jurisdiction under section 1332,
the case is dismissed without prejudice - leaving the parties free to continue this
litigation in state court.
II.
BACKGROUND
The work that NJD agreed to perform for MTA consists of two
component parts: (1) the primary contract, and (2) various "additional work
orders" -
i.e., addenda to the primary contract, providing for further work (and
more funding) in response to new contingencies. On October 8, 2014, MTA
notified NJD that one such order, Change Order No. 2, was "under review by ...
the Project's architect, who believed that the work called for under [the Order] was
2
See id.,-(,-( 10-20.
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within the scope of [the primary contract]." 3 If so, Change Order No. 2 would be
rescinded - because the work it contemplated in fact overlapped with the primary
contract- and the additional compensation provided in Change Order No. 2 (to be
paid by MTA to NJD) would be unwound, yielding less overall compensation for
NJD. On October 20, 2014, the rescission of Change Order No. 2 was confirmed. 4
NJD disputes the MTA's rescission of Change Order No. 2 andaccording to its representations - plans to litigate the issue in due course. 5 The
reason the decision is relevant to the instant dispute is that Broad has already been
compensated (by NJD via Hudson) for the work described in Change Order No. 2,
and in light of the MTA's change of heart, NJD would like an opportunity to assert
counterclaims seeking a refund of that compensation. Indeed, NJD maintains that
if it is not given such an opportunity, it faces a risk of inconsistent verdicts. 6
The problem, in essence, is that both the dispute between Broad and
11/04/14 Affidavit of Stavros Karageorgiou, Operations Manager of
NJD, in Support ofNJD's Motion for Intervention, ,-r 20.
4
See id. ,-r 21.
See Non-Party NJD's Memorandum in Support of Its Motion for
Intervention ("NJD Mem."), at 4 ("Whether MTA has the right to rescind a change
order previously approved will be the subject of future litigution.").
6
See id. at 5-7. See also 10/31/14 Transcript of Conference ("l 0/31/14
Transcript").
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Hudson and the (imminent) dispute between NJD and MTA require a fact-finder to
assess the scope of the Project- specifically, whether Change Order No. 2 was, as
the MTA now believes, duplicative of the primary contract's terms. In NJD's
view, dividing the controversy between two separate lawsuits makes it possible
that (1) this Court will find that Change Order No. 2 was beyond the original scope
of the Project (and therefore that Broad's compensation was proper), but that (2)
another court down the line will find that Change Order No. 2 was within the
original scope of the Project (and therefore that the MTA can recover monies paid
to NJD). If that came to pass, NJD argues that it would be "[left] []with ... a
liability which would otherwise have been a contractual 'pass through. "'7 In other
words, due to inconsistent findings of fact, NJD would be forced to return money
to the MTA but, simultaneously, to pay the same sum to Broad.
III.
APPLICABLE LAW
A.
Intervention
Under Rule 24, "the court must permit anyone to intervene who ...
claims an interest relating to the property or transaction that is the subject of the
action, and is so situated that disposing of the action may as a practical matter
7
10/21114 Letter from Gregory A. Tsonis, Counsel for N JD, to the
Court, at 2.
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impair or impede the movant's ability to protect its interest." 8 The Second Circuit
has held that this Rule creates a four-factor test. The intervenor must "(l) timely
file an application, (2) show an interest in the action, (3) demonstrate that the
interest may be impaired by the disposition of the action, and (4) show that the
interest is not protected adequately by the parties to the action." 9 The Second
Circuit has also "underscored that a '[f]ailure to satisfy any one of these four
requirements is a sufficient ground to deny [a motion to intervene]."' 10
B.
No Supplemental Jurisdiction Over Diversity-Based Suits
Section 1367(a) provides that "in any civil action of which the district
courts have original jurisdiction, the 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." 11
Section 1367 (b ), however, provides an important caveat. "In any civil action of
which the district courts have original jurisdiction founded solely on section 1332"
Fed. R. Civ. P. 24(a)(2).
9
Floydv. City ofNew York, 770 F.3d 1051, 1057 (2d Cir. 2014)
(internal citations omitted).
10
Id. (quoting "R" Best Produce, Inc. v. Shulman-Rabin Mktg., 467 F .3d
238, 241 (2d Cir. 2006)).
11
28 U.S.C. § 1367(a).
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-
that is, jurisdiction stemming from the parties' diversity 12 -
"the district courts
shall not have supplemental jurisdiction under subsection (a) over claims ... by
persons ... seeking to intervene as plaintiffs under Rule 24, when exercising
supplemental jurisdiction over such claims would be inconsistent with the
jurisdictional requirements of section 1332." 13
IV.
DISCUSSION
A.
NJD Has the Right to Intervene
NJD plainly has an interest in this action, and- in light ofMTA's
recent reinterpretation of the primary contract terms -NJD's motion to intervene
was timely. 14 Furthermore, even if Hudson can adequately represent NJD's
interests vis-a-vis Broad- and it is unclear whether that is so 15 -
Hudson cannot
represent NJD'sfull interests, because the meaning of Change Order No. 2 bears
not only on the dispute between NJD and Broad, but also on the dispute between
12
See id. § 1332.
13
Id. § 13 67(b).
14
In its papers, Broad makes numerous references to NJD's "delay."
See, e.g., Memorandum in Opposition to NJD's Motion to Intervene ("Opp.
Mem."), at 1 (calling the motion an "eleventh hour" tactic). Notably, however,
Broad has made no attempt to argue that NJD's motion -however close in time to
the scheduled trial date - is untimely in the formal sense contemplated by the
Federal Rules and the case law.
See NJD Mem. at 7 (arguing that Hudson cannot adequately represent
NJD's interests because it "cannot raise NJD's affirmative claims against Broad").
15
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NJD and MTA. Therefore, NJD's legal interests "[are] not protected adequately by
[other] parties to the action." 16
The outstanding question, then, is whether the present dispute actually
threatens NJD's legal interests. It is one thing for a non-party to be "interested" in
a litigation in the sense of preferring one outcome over another. It is another thing
for a non-party to demonstrate that a litigation potentially imperils its legal rights.
Indeed, in other breach of contract suits between subcontractors and sureties,
courts in this District have held that principals (like NJD) typically do not have the
right to intervene, because they retain claims against both parties subcontractor and the surety -
the
regardless of the suit's outcome. 17 Even if a
principal is generally "interested" in the suit, courts have held that the principal's
legal interests are not threatened. In Broad's view, the same logic applies here as a principal, NJD has rights against Broad and Hudson under state law, and no
16
Floyd, 770 F.3d at 1057.
17
See, e.g., Siteworks Contr. Corp. v. West Sur. Co., 461 F. Supp. 2d
205, 209-10 (S.D.N.Y. 2006) (holding that, in a suit between a subcontractor and a
surety, the principal was "not subject to any direct liability ... as a consequence of
the [subcontractor's] claims," and that the principal retained rights under "separate
agreement[ s] not [presently] before the court"); William A. Gross Const. Assoc. v.
American Mfr. Mut. Ins. Co., No. 07 Civ. 10639, 2009 WL 427280, at *13
(S.D.N.Y. Feb. 23, 2009) (explaining that "suits ___ in -which a surety but not the
principal is sued by an alleged creditor, are common and permissible under New
York law," and that such suits typically do not require the principal's participation)
(internal citations omitted).
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intervention is necessary to vindicate those rights.
The trouble with this argument is that NJD is not only concerned
about its legal position vis-a-vis Broad and Hudson. It is also concerned about its
legal position vis-a-vis MTA. Broad tries to defuse NJD's fear by emphasizing correctly- that if Broad prevails here, and NJD believes that result to be unjust, it
is free to bring state law claims against Broad in the future. 18 This, however, gives
short shrift to NJD's actual concern. The potential for "inconsistency" does not
stem from NJD's inability to bring suit against Broad (and/or Hudson). Rather, it
stems from the possibility ofNJD losing a suit against MTA. What NJD fears is
that two mutually disadvantageous results will coincide. First, this Court will
agree with Broad that Change Order No. 2 is beyond the scope of the primary
contract (entitling Broad to collect from Hudson). Second, another court, down the
line, will agree with MTA that Change Order No. 2 is within the scope of the
primary contract (entitling MTA to clawback payments from NJD). If those
contradictory holdings both come to pass, NJD argues that it will be left holding
the bag.
I agree. Given the structure of the transaction underlying this dispute,
it would do a disservice to NJD's role - as a pass-through- to make it bear the
18
See Opp. Mem. at 11-12.
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risk of inconsistent fact-finding as to the relationship between the primary contract
and Change Order No. 2. 19 NJD has a right to intervene.
B.
Because NJD's Intervention Would Destroy the Parties' Diversity,
the Case Must Be Dismissed
Section 1367 is clear: supplemental jurisdiction does not extend to
disputes between non-diverse parties when federal jurisdiction is based on
diversity of citizenship. Thus, NJD's motion creates an irreconcilable conflict
between section 1367 and Rule 24. 20 The question is which way the conflict
In the alternative, Broad argues that even if the present dispute poses a
risk of"inconsistency," NJD has only alleged the possibility of inconsistent legal
results, not inconsistent legal obligations - and it is only the latter that requires
intervention. See Opp. Mem. at 12. See also Travelers Indem. Co. of Conn. v.
Losco Grp., 150 F. Supp. 556, 564-65 (S.D.N.Y. 2001). This argument confuses
the requirements of necessary joinder under Rule 19 with those of intervention by
right under Rule 24. In Losco - the case on which Broad relies - the issue was
whether a defendant should be allowed to hale a non-party into court, not whether
a non-party should be allowed to intervene. Although the defendant's concern in
Losco was functionally similar to NJD's concern - there, as here, the fear was that
parallel proceedings would give rise to contradictory verdicts - the policy
considerations behind the Rules are entirely distinct. It is little surprise that joinder
under Rule 19(a) requires an extraordinary showing of need, because it often
involves compelling a party with "no interest in [the] proceedings" to appear in
court. Id. at 565. Whereas Rule 24 is about vindicating the rights of non-parties,
Rule 19 actively encroaches on the rights of non-parties (sometimes, with good
reason). It only makes sense that the two would be governed by different
standards, and that the former is more permissive.
19
20
NJD points out that the limitation on supplemental jurisdiction under
section 1367 is limited to claims "by persons ... seeking to intervene as plaintiffs
under Rule 24." 28 U.S.C. § 1367(b) (emphasis added). The jurisdictional bar is
therefore inapplicable, NJD argues, because it is trying to intervene as a defendant,
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should be resolved -
in favor of this Court retaining jurisdiction, or in favor of
NJD participating in the litigation.
Faced with this problem, Broad argues in favor of this Court retaining
jurisdiction. But in light of the existence of an alternate forum that can include
NJD -
state court- Broad's proposal makes little sense. If brought today, this
lawsuit should involve at least three parties -
and, once MTA is included,
probably four. Because the dispute about the scope of the primary contract in
relation to Change Order No. 2 bears on multiple parties' legal interests, it should
be litigated (or settled) jointly. That it cannot be so litigated in federal court is no
reason to ignore the dispute's practical implications. It is a reason for the parties to
not a plaintiff- and even ifNJD intends to bring counter-claims (which could be
said to make it a "third-party plaintiff'), the purpose of section 1367' s limitation is
to "prevent original plaintiffs - but not defendants or third parties - from
circumventing the requirements of diversity ... [by] smuggl[ing] in claims that the
plaintiff would not otherwise be able to interpose." Viacom Intern. v. Kearney, 212
F .3d 721, 726-27 (2d Cir. 2000) (emphasis in original). In this case, however, NJD
not only has counterclaims against Broad; it also has potential affirmative claims
against MTA, a non-party that NJD is likely to join to the suit (or attempt to join to
the suit) soon after intervening. See 10/31/ 14 Transcript, at 6 (where counsel for
NJD indicates that NJD "[seeks] to intervene [in the present suit] and to bring an
action against MTA") (emphasis added). In light of that reality, it is not clear
which way the limitations of section 1367 cut. What is clear, however, is that
general principles of jurisdiction tilt in favor of fewer exercises of federal
jurisdiction, not more. See Siteworks, 461 F. Supp. 2d at 207-08 (it is "axiomatic
that the federal courts are courts of limited jurisdiction"): 28 U_S_C_ ~ 1367(c)
(establishing that even when supplemental jurisdiction is proper under section
1367(a)-(b), federal courts may decline to exercise such jurisdiction for a wide
variety of reasons, both structural and case-specific).
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adjudicate the dispute elsewhere.
In sum, I conclude that NJD has a right to intervene in this action. But
NJD's intervention also deprives this Court of subject matter jurisdiction,
precluding its further involvement in the case. Accordingly, for intervention to
proceed -
as both the criteria set forth in Rule 24(a) and basic principles of
fairness demand -
the dispute must be pursued in state court, where all the parties
may be joined in a single lawsuit. 21
V.
CONCLUSION
For the foregoing reasons, NJD's motion is GRANTED, and the case
is dismissed without prejudice. The Clerk of Court is directed (1) to close Dkt.
Nos. 13, 15, and 21, and (2) to close this case.
Dated:
21
New York, New York
December 8, 2014
Cf Boise Cascade Corp. v. Wheeler, 419 F. Supp. 98, 103 (S.D.N.Y.
1976) ("Since [the intervenor] cannot be joined as a party plaintiff without ousting
the court of jurisdiction, we must determine whether 'in equity and good
conscience the action should proceed.' After due consideration of all relevant
circumstances, we conclude that it should not.") (citing Fed. R. Civ. P. 19(b)).
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- Appearances For Plaintiff:
Manny A. Frade, Esq.
Mastropietro-Frade, LLC
The Chancery, 190 Willis Avenue
Mineola, NY 11501
(516) 2 79-6699
For Defendant Hudson and Non-Party NJD:
Gregory Aris Tsonis, Esq.
Milber, Makris, Plousadis & Seiden, LLP
1000 Woodbury Road, Ste. 402
Woodbury, NY 11797
(516) 712-4000
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