Dennis J. Gallagher v. The Continental Insurance Company, a New York Corporation

502 F.2d 827
CourtCourt of Appeals for the Tenth Circuit
DecidedSeptember 10, 1974
Docket73-1885
StatusPublished
Cited by53 cases

This text of 502 F.2d 827 (Dennis J. Gallagher v. The Continental Insurance Company, a New York Corporation) is published on Counsel Stack Legal Research, covering Court of Appeals for the Tenth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Dennis J. Gallagher v. The Continental Insurance Company, a New York Corporation, 502 F.2d 827 (10th Cir. 1974).

Opinion

BREITENSTEIN, Circuit Judge.

Plaintiffs-appellants, as citizens and taxpayers of Colorado and the United States, brought this class action in state court to recover 55 million dollars for “the treasury of the State of Colorado and the treasury of the United States, as their interests may appear.” The controversy centers around a highway tunnel which is part of the National System of Interstate and Defense Highways. The defendants-appellees are the project contractors, their sureties, the State of Colorado, and various Colorado officials. All defendants moved under 28 U.S.C. § 1441(c) for removal to federal court and asserted federal jurisdiction under 28 U.S.C. §§ 1331 and 1332, federal question and diversity. The district court denied a motion to remand and dismissed the action on the ground, among others, of lack of standing to sue. We affirm.

In 1967 defendant State of Colorado, acting through defendant state officials, Love, Shumate, Dunham, and Middle- *830 mist, contracted with defendants Al Johnson Construction Company, Gibbons & Reed Company, Western Paving Construction Company, and Kemper Construction Company, doing business as Straight Creek Tunnel Constructors, for a tunnel on Interstate 70 near Loveland Pass, Colorado. The tunnel was then known as the Straight Creek Tunnel and now as the Eisenhower Memorial Tunnel. The contract price was $54,140,486 of which the United States was to pay about 91% because the tunnel is part of a federal-aid highway within the purview of the Federal-Aid Highway Act. See 23 U.S.C. § 101 et seq.

Defendants Continental Insurance Company, Travelers Indemnity Company, Federal Insurance Company, and United States Fidelity and Guaranty Company are the sureties on the bond guaranteeing performance of the 1967 contract. The penal sum of the bond is $49,576,500, and is apportioned among the sureties in sums ranging from about $24,700,000 to about $4,900,000.

In 1970 the state and the contractors made a new contract which authorized additional payment to the contractors in the amount of some 55 million dollars. Both the 1967 and the 1970 contracts were approved by the appropriate federal official. In 1971 plaintiffs made a demand on the state officials that they refuse to pay the additional compensation called for by the 1970 contract and that they sue on the performance bond. The demand was refused. The tunnel was completed and is now in use.

The suit was filed in state court in 1973 and removed to federal court on the petition of all defendants. The remand motion asserts lack of federal jurisdiction and argues first that presence of the state as a defendant bars federal jurisdiction. Plaintiffs are all Colorado citizens. Because of this fact the Eleventh Amendment, which bars federal jurisdiction over a suit against a state by citizens of another state, is not literally applicable. However, the Supreme Court has held that an unconsenting state “is immune from suits brought in federal courts by her own citizens as well as by citizens of another State.” Employees v. Missouri Public Health Dept., 411 U.S. 279, 280, 93 S.Ct. 1614, 1616, 36 L.Ed.2d 251; see also Briggs v. Sagers, 10 Cir., 424 F.2d 130, 131-132, cert. denied 400 U.S. 829, 91 S.Ct. 58, 27 L.Ed.2d 59.

Whether immunity is a constitutional or common law bar, the Court has held that the bar may be waived by consent to suit. See Employees v. Missouri Public Health Dept., 411 U.S. 279, 280, 93 S.Ct. 1614, 36 L.Ed.2d 251; Petty v. Tennessee-Missouri Bridge Commission, 359 U.S. 275, 276, 79 S.Ct. 785, 3 L.Ed.2d 804; Missouri v. Fiske, 290 U.S. 18, 24, 54 S.Ct. 18, 78 L.Ed. 145; and Hans v. Louisiana, 134 U.S. 1, 20, 10 S.Ct. 504, 33 L.Ed. 842. In the instant case the state made a general appearance, joined in the removal petition and the resistance to plaintiffs’ remand motion, moved to dismiss for failure to state a claim, and on this appeal reasserts its contentions made in the district court. It appears by its attorney general whose authority to take the mentioned actions is not questioned.

Plaintiffs are not helped by Art. Ill, § 2, of the Constitution which defines the extent of federal jurisdiction but contains no bar to the exercise of that jurisdiction. Waiver of immunity is not conferment of jurisdiction by consent. Be that as it may, in the case before us federal jurisdiction is asserted on grounds having nothing to do with presence of the state as a defendant.

An anomalous situation results if federal jurisdiction is denied because a state is joined in a suit brought for its benefit. The argument that the state is an indispensable party because it made the 1967 and 1970 contracts proves nothing. We are concerned with jurisdiction, not joinder. If jurisdiction lies in federal courts, it is not defeated by the transparent device of making the state a party defendant.

*831 Plaintiffs also contend that neither diversity nor federal question jurisdiction can be sustained because the $10,000 requirement of §§ 1331(a) and 1332(a) can be satisfied only by the impermissible aggregation of claims. Although the total sum sought is 55 million dollars, the interest of each plaintiff and of each member of the class whether considered as state or federal citizens and taxpayers is concededly less than $10,000. Separate and distinct claims may not be aggregated to satisfy the jurisdictional requirement. Snyder v. Harris, 394 U.S. 332, 335, 89 S.Ct. 1053, 1056, 22 L.Ed.2d 319. The rule is different when “two or more plaintiffs unite to enforce a single title or right in which they have a common and undivided interest.” Ibid.

Zahn v. International Paper Co., 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511, is not to the contrary. It deals with a Rule 23(b)(3) spurious class action and asserts the continuing validity of Snyder. Ibid, at 301, 94 S.Ct. 505. We are concerned with a Rule 23(b)(1) true class action wherein the rights of class members are common and undivided. See Advisory Committee’s Note to Rule 23, 39 F.R.D. 73, 100. The complaint before us seeks to enforce a single right in which plaintiffs have a common and undivided interest. Hence, aggregation is proper. Snyder, 394 U.S. at 335, 89 S.Ct. 1053. See also Berman v. Narragansett Racing Association, 1 Cir., 414 F.2d 311, 315, cert. denied 396 U.S. 1037, 90 S.Ct. 682, 24 L.Ed.2d 681.

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Bluebook (online)
502 F.2d 827, Counsel Stack Legal Research, https://law.counselstack.com/opinion/dennis-j-gallagher-v-the-continental-insurance-company-a-new-york-ca10-1974.