Opinion
Civil Action No. 02-2507-KHV
March 24, 2003.
MEMORANDUM AND ORDER
D.F. Freeman Contractors, Inc. ("Freeman") brings suit against St. Paul Fire and Marine Insurance Company ("St. Paul") to collect on a payment bond which St. Paul issued on behalf of Julius Kaaz Construction Company, Inc. ("Kaaz"). This matter comes before the Court on Defendant St. Paul Fire And Marine Insurance Company's Motion To Dismiss For Nonjoinder Or, In The Alternative, Motion For Stay Of Proceedings (Doc. #10) filed January 23, 2003. St. Paul seeks to dismiss the case pursuant to Rule 12(b)(7), Fed.R.Civ.P., for failure to join an indispensable party under Rule 19(b), Fed.R.Civ.P. In the alternative, St. Paul asks the Court to stay the case pending the outcome of certain state court proceedings. For reasons stated below, the Court overrules the motion to dismiss and the alternative motion to stay.
I. Legal Standards
The Court exercises discretion in deciding a Rule 12(b)(7) motion. Citizen Band Potawatomi Indian Tribe of Okla. v. Collier, 17 F.3d 1292, 1292 (10th Cir. 1994) (citing Navajo Tribe of Indians v. New Mexico, 809 F.2d 1455, 1471 (10th Cir. 1987)). Defendant bears the burden to produce evidence which shows the nature of the interest possessed by an absent party and that such party's absence will impair the protection of that interest. Citizen Band, 17 F.3d at 1292. Defendant can satisfy this burden with "affidavits of persons having knowledge of [the interest] as well as other relevant extra-pleading evidence." Id. (quoting Martin v. Local 147, Int'l Bhd. of Painters, 775 F. Supp. 235, 236 (N.D.Ill. 1991) (quoting 5A Charles A. Wright Arthur R. Miller, Federal Practice Procedure § 1359 at 427 (1990)).
In deciding whether party is indispensable under Rule 19(b), the Court applies a two-part analysis. Rishell v. Jane Phillips Episcopal Mem'l Med. Ctr., 94 F.3d 1407, 1411 (10th Cir. 1996). First, it determines under Rule 19(a) whether the party is necessary and must be joined if feasible. Id. A party is necessary if
(1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.
Rule 19(a), Fed.R.Civ.P. If the party is necessary but cannot be joined, the Court determines under Rule 19(b) whether the party is indispensable. Rishell, 94 F.3d at 1411. In order to conclude that a party is indispensable, the Court must find "in equity and good conscience" that the action should not proceed in the party's absence. Rule 19(b), Fed.R.Civ.P.; Sac Fox Nation of Mo. v. Norton, 240 F.3d 1250, 1259 (10th Cir. 2001). In making this determination, the Court balances the following factors:
first, to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties; second, the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rendered in the person's absence will be adequate; fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.
Rule 19(b), Fed.R.Civ.P. The Court exercises discretion in determining the weight of each factor. Thunder Basin Coal Co. v. Southwestern Pub. Serv. Co., 104 F.3d 1205, 1211 (10th Cir. 1997).
The power to stay proceedings is incidental to the Court's inherent power "to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants." Landis v. N. Am. Co., 299 U.S. 248, 254 (1936). The Court has discretion whether to grant a stay. See id.; Pet Milk Co. v. Ritter, 323 F.2d 586, 588 (10th Cir. 1963). In exercising its judgment, the Court "must weigh competing interests and maintain an even balance." Landis, 299 U.S. at 255. The party requesting a stay "must make out a clear case of hardship or inequity, if there is even a fair possibility that the stay will work damage to some one else." Id.; see also Commodity Futures Trading Comm'n v. Chilcott Portfolio Mgmt., Inc., 713 F.2d 1477, 1484 (10th Cir. 1983). The Tenth Circuit has emphasized that "[t]he right to proceed in court should not be denied except under the most extreme circumstances." Chilcott, 713 F.2d at 1484 (quoting Klein v. Adams Peck, 436 F.2d 337, 339 (2d Cir. 1971)). The granting of a stay must be kept within the "bounds of moderation." Landis, 299 U.S. at 256. Courts abuse their discretion if they issue a stay of infinite duration, absent a pressing need. See id. at 255.
II. Facts
On September 30, 2002, Freeman filed its complaint in this action, alleging the following facts: On or about March 20, 2001, Kaaz entered into a contract with the City of Leavenworth, Kansas ("the City") to perform construction work on Shawnee Street (the "Shawnee Street project"). Complaint (Doc. #1) ¶ 4. The contract required Kaaz to provide a payment bond to ensure that it would pay all subcontractors and suppliers for the project. Id. ¶ 6. Pursuant to this requirement, Kaaz obtained a payment bond from St. Paul ("the Bond"). Id. ¶ 7. Thereafter, Kaaz subcontracted with Freeman for certain labor, material, supplies and services for the Shawnee Street project. Id. ¶ 5. Freeman performed its obligations under the subcontract. Id. ¶ 9. Pursuant to the subcontract, Kaaz owes Freeman $102,421.63 plus $20,400.15 in prejudgment interest. Id. ¶¶ 10-11. Freeman claims that it is entitled to collect those sums from St. Paul under the Bond. Id. ¶¶ 13-14.
St. Paul denies that Freeman is entitled to recover under the Bond. Answer (Doc. #6) filed November 25, 2002 ¶¶ 13-14. Specifically, St. Paul denies that Freeman performed its obligations under the Shawnee Street subcontract. Id. ¶ 9. As defenses, St. Paul asserts the following rights to setoff: (1) $16,000.00 for work which Freeman failed to perform under the Shawnee Street subcontract; and (2) $104,768.18 for an pre-existing debt from Freeman to Kaaz on account of Freeman's prior breach of a different subcontract for work on the Gatewood Street project. Id. at 5.
In support of its motion to dismiss, St. Paul submits the following evidence. Sometime in 2000, Freeman filed suit against Kaaz in the District Court of Johnson County, Kansas, on claims which the Court is unable to determine. See D.F. Freeman Contractors, Inc. v. Julius Kaaz Constr. Co. Inc., et al., Case No. 00CV07105. On or about November 20, 2002, Freeman filed a second amended petition in the state court case asserting breach of contract claims against Kaaz under the Shawnee Street and the Gateway Street subcontracts. See St. Paul Memorandum, Exhibit C at 5-7. The second amended petition alleged that Kaaz had wrongfully withheld monies due Freeman under the subcontracts because of a dispute between Kaaz and the City regarding the quality of work on the Gatewood Street project. Kaaz asserted a counterclaim in the state court case, seeking declaratory judgment on its right to set off from amounts due Freeman under the Gatewood Street subcontract and other subcontracts those damages caused by Freeman's defective work on the Gatewood Street project. See Exhibit E, St. Paul Memorandum at 13-15. St. Paul claims that the state court case is set for trial in June of 2003, but it provides no evidence to support that assertion. See St. Paul Memorandum at 4.
St. Paul does not present affidavit testimony or other evidence to support many of its factual contentions. See Defendant St. Paul Fire And Marine Insurance Company's Memorandum Of Law In Support Of Motion To Dismiss For Nonjoinder Or, In The Alternative, For Stay Of Proceedings ("St. Paul Memorandum") (Doc. #11) filed January 23, 2003 at 2-7 and Exhibits A, B and D. The Court considers only those facts which St. Paul supports with admissible evidence. See Citizen Band, 17 F.3d at 1292 (defendant can satisfy burden with affidavits and extra-pleading evidence).
St. Paul asserts that Freeman filed the state court case on November 15, 2000, but it provides no evidence to support that assertion. See St. Paul Memorandum at 4. According to the case number, 00CV07105, it appears that Freeman filed the case in 2000. St. Paul provides no evidence regarding the claims which Freeman asserted in its first petition. Freeman asserts that the case before this Court "was the first filed action regarding the monies due and owing on the Shawnee Street project . . ." Plaintiff D.F. Freeman Contractors, Inc.'s Memorandum Of Law In Opposition To Defendant's Motion To Dismiss ("Freeman Response") (Doc. #17) at 9. Neither party presents evidence regarding which suit first asserted Freeman's claim to recover amounts due for the Shawnee Street project.
Freeman also asserted a breach of contract claim against H-P Sawing and Drilling, Inc. for deficient work on the Gateway Street project. See id. at 7-8.
Although St. Paul does not present sworn testimony to support its assertion, it asserts that Kaaz and the City arbitrated the dispute. According to a letter dated November 5, 2001, which St. Paul does not authenticate, the arbitrators found as follows:
1. That a large portion of the work was not acceptable.
2. That due to the City's failure to inspect and react to the cited problems and the subsequent confusing orders to the contractor, the contractor is awarded a portion of the actual cost of replacement.
3. The award represents ½ of the claim less profit, overhead and attorney's fees.
4. Further it is the arbitrators' feelings that the contractor should pursue the claim for the other half against the subcontractor.
Exhibit B, St. Paul Memorandum.
Exhibit E is the answer to the second amended petition and counterclaim which Kaaz filed in the state court case on December 17, 2002. St. Paul provides no evidence whether Kaaz asserted a counterclaim in its earlier pleadings.
III. Analysis
St. Paul asserts that Kaaz is a necessary party under Rule 19(a) and that joinder will destroy diversity jurisdiction. St. Paul also urges the Court to find that this case should not proceed because Kaaz is an indispensable party under Rule 19(b). In the alternative, St. Paul asks the Court to stay these proceedings to avoid the possibility of inconsistent results in this and the state court case. Freeman argues that Kaaz is not a necessary or indispensable party, and urges this Court to proceed with this case and decide its motion for summary judgment on the issue whether St. Paul can use Freeman's alleged breach under the Gatewood Street subcontract to set off amounts due on the payment bond for the Shawnee Street project. See Statement Of Uncontroverted Facts And Suggestions In Support Of Plaintiff D.F. Freeman Contractors, Inc.'s Motion For Summary Judgment (Doc. #9) filed January 14, 2003.
As discussed supra, before the Court can determine whether Freeman is an indispensable party under Rule 19(b), it must first find that Freeman is a necessary party under Rule 19(a). St. Paul argues that Kaaz is a necessary party because (1) both the state court case and this case involve the same issue — whether Kaaz may offset monies due Freeman under the Shawnee Street subcontract because of Freeman's deficient work on the Gatewood Street project — and (2) Kaaz and/or St. Paul face the risk of inconsistent obligations if the Court allows this case to proceed. See St. Paul Memorandum at 8-9. This argument misses the mark. St. Paul does not assert that the Court cannot award complete relief in Kaaz's absence, that St. Paul cannot adequately represent Kaaz's interest, or that disposition of this case in Kaaz's absence may result in inconsistent obligations to St. Paul or Freeman. See Rule 19(a); Champagne v. City of Kansas City, Kan., 157 F.R.D. 66, 67 (D.Kan. 1994) (complete relief refers to relief between persons already parties to action). Indeed, even if plaintiff joined Freeman as a party to this case, it would not cure the harm of which St. Paul complains: Kaaz and/or St. Paul would still face the possibility of inconsistent obligations in this case and the state court case. St. Paul has not shown that Kaaz is a necessary party under Rule 19(a).
St. Paul urges the Court to stay this case pending resolution of the state court case because a stay makes "common sense" and constitutes a "simple straight-forward solution." St. Paul Memorandum at 17. "Generally, as between state and federal courts, the rule is that `the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction. . . .'" Colo. River Conservation Dist. v. United States, 424 U.S. 800, 817 (1976) (quoting McClellan v. Carland, 217 U.S. 268, 282 (1910)). This approach to state and federal concurrent jurisdiction "stems from the virtually unflagging obligation of the federal courts to exercise the jurisdiction given to them." Id. Only exceptional circumstances warrant staying a federal proceeding because of a concurrent state court proceeding. See id. at 818.
St. Paul did not focus on this argument and cites no law in support of it.
St. Paul does not argue that exceptional circumstances justify a stay under the Colorado River analysis.
On this record, St. Paul has not shown a pressing need for a stay. See Landis, 299 U.S. at 255. Both this case and the state court case involve a common issue: whether Freeman is liable to Kaaz for breach of its obligations under the Gatewood Street subcontract. This case, however, involves another issue which is not before the state court: whether St. Paul may use the Gatewood breach to set off amounts due under the payment bond for the Shawnee Street project. Freeman has filed a motion for summary judgment on this issue, and St. Paul presents no valid reason why the Court should not address it. The Court will not stay the case at this time.
Even if the state court decides that Kaaz can use the Gatewood breach to set off amounts due under the Shawnee Street subcontract, St. Paul has not shown that such ruling would apply to its obligation under the payment bond.
St. Paul may renew its motion to stay if the Court determines that it is entitled to use the Gatewood breach to set off amounts due under the payment bond.
IT IS THEREFORE ORDERED that Defendant St. Paul Fire And Marine Insurance Company's Motion To Dismiss For Nonjoinder Or, In The Alternative, Motion For Stay Of Proceedings (Doc. #10) filed January 23, 2003 be and hereby is OVERRULED.
IT IS FURTHER ORDERED that defendant's response to plaintiff's motion for summary judgment is due on or before April 7, 2003. Plaintiff may file a reply brief on or before April 21, 2003.