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VINCENT v. P. R. MATTHEWS CO.

April 13, 1954

Thomas C. VINCENT, etc., Plaintiff,
v.
P. R. MATTHEWS CO., Inc., People of the State of New York, et al., Defendants. HARTFORD ACCIDENT & INDEMNITY COMPANY, Defendant and Third Party Plaintiff, v. P. R. MATTHEWS CO., Inc., Peter R. Matthews, Alice Matthews, Albert Weiss, Third Party Defendants



The opinion of the court was delivered by: BRENNAN

There is in the background of these motions the question of affording the litigants complete relief in a single litigation where the presence of the United States and the State of New York, as parties, is required. The United States denies jurisdiction over it in the Supreme Court of the State of New York, and the State of New York denies jurisdiction in the United States District Court.

The action is for the enforcement of a lien under a contract for a public improvement within the State of New York. It may generally be referred to as a mechanic's lien foreclosure action. On November 17, 1949, the State of New York entered into a contract for the repair of facilities at the Hudson River State Hospital, Poughkeepsie, New York. The primary contractor was Matthews Co., Inc., and the Hartford Accident and Indemnity Company, hereinafter referred to as Hartford, delivered to the State of New York a performance bond in accordance with the provisions of the state law. The bond in a general way was conditioned for the faithful performance of the terms of the contract. Matthews Co. defaulted in its contract, which was completed by Hartford, the surety. Hartford was paid by the State the cost of such completion. Because of the contractor's default in the payment for labor and materials, numerous liens were filed. The United States filed tax liens in the amount of about $ 30,000, and the defendant Klein filed an assignment executed by Matthews in the amount of $ 25,000. Action was commenced in the Supreme Court of Albany County by a subcontractor against the main contractor, Hartford, Klein, and some fifteen lienors to enforce its lien in accordance with the provisions of the Lien Law of the State of New York. McKinney's Consol.Laws, c. 33. On June 30, 1951, the United States, invoking the provisions of Title 28 U.S.C.A. §§ 2410 and 1444, removed the cause into this court. Some time elapsed, and Hartford for valuable considerations procured the assignment from all lienors of their interest in the fund held by the State and in the cause of action. Hartford did not, however, succeed to the rights or interest of the United States or of the defendant Klein. For all practical purposes the parties now interested in this litigation are the State of New York, Hartford, the United States, and Klein. The pleadings have been amended accordingly.

 There does not seem to be any serious factual dispute involved in this litigation. It is indicated that at the time of the default of the contractor, the State of New York concedes that there was due him the sum of about $ 48,000. It appears that there is no dispute but that the liens filed attached thereto. The State, however, holds an additional amount of about $ 91,000, which represents the difference between the contract price and the total sums paid by the State to the contractor and surety on account of the contract. There is then in the hands of the State about $ 139,000 to which the surety claims the liens attached. As indicated above, the State contends that such liens attached only to $ 48,000, and the balance in its possession became forfeited to the State because of the contractor's default.

 The present motion made by the State of New York to dismiss the complaint raises essentially the question of the court's jurisdiction to adjudicate the rights of the litigants in the funds held by the State or to direct the distribution thereof. It is urged in substance that the State of New York has not waived its sovereign right of immunity, so that the action can be maintained in this court. Upon the argument it was urged that, if there were a substantial doubt as to the court's jurisdiction over the State of New York, the case should be remanded to the state court, in accordance with the prayer of the complaint. This would be a practical solution, especially since it is urged that the interest of the United States is more theoretical than practical, since the liens -- the validity of which are yet to be established -- exceed in amounts the funds held by the State of New York. The United States, however, has determined that as a matter of policy it should insist that the waiver of its immunity from suit in an action of this kind is conditioned upon its right to remove the action to the United States District Court for trial. 28 U.S.C.A. §§ 2410 and 1444. The litigants and the Court are, therefore, faced with the situation that, should the case be remanded, then the state court would have no jurisdiction over the United States; and, if the case is to be retained, the litigants must meet the contention that this court has no jurisdiction over the State of New York.

 The situation so far as the parties who have a financial interest at stake is an unhappy one. The contentions of all parties have been exhaustively briefed, and it seems to be agreed that there is no judicial precedent which would be determinative of this controversy.

 The contention of the United States can be shortly decided. While the theory of sovereign immunity is discussed at length in the briefs, it can be disposed of generally by the statement, which is equally applicable both to the United States and the State of New York, that the sovereign is immune from suit, except as it consents to be sued, and it may condition such consent to a particular court or tribunal. U. S. v. Sherwood, 312 U.S. 584, 61 S. Ct. 767, 85 L. Ed. 1058; Department of Highways, State of La. v. U. S., 5 Cir., 204 F.2d 630.

 28 U.S.C.A. § 2410 waives the immunity of the United States in an action to foreclose a lien upon real or personal property, upon which the United States has or claims to have a lien. This waiver expressly permits the United States to be sued in a state court having jurisdiction of the subject matter. Such immunity, however, is granted under the condition prescribed in Section 1444, which gives the United States the unqualified option to remove such an action to the district court. It follows that the immunity waived is conditioned upon the right of removal, and should that right be withheld or thwarted, it would seem to follow that the immunity is withdrawn. It follows, therefore, that there is no basis upon which this court can remand the case over the objection of the United States.

 Turning now to the contention of the State of New York that it is immune from suit in this court, the problem is approached with the understanding that its immunity is as complete as that of the United States, and this court may not assume that consent of the State to be sued in its courts, grants to it similar jurisdiction, especially in matters involving the State's revenues. Great Northern Life Ins. Co. v. Read, 322 U.S. 47, 64 S. Ct. 873, 88 L. Ed. 1121.

 The Eleventh Amendment to the Constitution of the United States by its terms prohibits the exercise of jurisdiction here. We find, however, that the State of New York has waived its immunity in this type of action by the provisions of Sections 42 and 44, subd. 6, of the Lien Law of the State of New York. Section 42 provides that a public improvement lien may be enforced against the funds of the state in the same court, and in the same manner, as a mechanic's lien on real property. Section 44, subd. 6, provides that the State is a necessary party to the enforcement of such a lien. These sections have been construed to amount to a waiver of immunity on the part of the State. In fact, it is conceded by the State on this motion that the State may be sued in this action, but it is urged that the consent given is limited to an action in the state courts, and that this court is, therefore, without jurisdiction.

 The problem then becomes one of determining the jurisdictional limits of the waiver, insofar as this court is concerned. Precedents involving the construction and application of statutes generally are not of great value. The rules generally applied are not in dispute.

 Although not involving the question of jurisdiction of a United States District Court, the waiver in question has been examined by the New York Court of Appeals in Anderson v. John L. Hayes Construction Co., 243 N.Y. 140, 153 N.E. 28, 29. In the Court's opinion that case holds that the State may be sued in a lien foreclosure action '* * * in the ordinary courts of justice * * *.' and that the waiver of the State is to be construed in the light of its evident purpose to afford a remedy to competing parties who are claimants to public improvement funds held by the State. A key to the construction and application of the State's waiver in the present jurisdictional impasse is afforded by the following quotation, taken from the Anderson case, 243 N.Y. at page 147, 153 N.E. at page 29. 'The exemption of the sovereign from suit involves hardship enough, where consent has been withheld. We are not to add to its rigor by refinement of construction, where consent has been announced.' This quotation is cited with approval in U. S. v. Aetna Surety Co., 338 U.S. 366 at page 383, 70 S. Ct. 207, 94 L. Ed. 171.

 The State urges that the Anderson case is no longer a precedent since the Lien Law was amended the next year after its decision. Like the decision itself, the Amendments did not involve the jurisdictional question arising here. In any event they did not in any way nullify the language used in indicating the extent of the waiver granted.

 The sections of the Lien Law under consideration are general in scope. The consent of the State to be sued is explicit. The remedy is to be enforced 'in the same manner as a mechanic's lien on real property.' It follows that the State may be made a party, and the remedy pursued as if the sovereign were an individual. If the United States were a party to an individual mechanic's lien foreclosure action, it could remove the action to a federal court, and such court would obtain jurisdiction. The language and purpose of the statute waiving the State's immunity, the rules of construction and practical considerations, all prompt the conclusion that this court has jurisdiction of the State of New York, and that the motion should be denied.

 The other contentions of the moving party have not been overlooked. It is held that the court has jurisdiction to adjudicate concerning the fund held by the State. Hartford Accident & Indemnity Co. v. First National Bank & Trust Co., 281 App.Div. 607, 121 N.Y.S.2d 308

 The motions are denied, and it is so ordered.

 On the Merits

 This action may be described as one brought to enforce liens under a contract for a public improvement. Authority therefore is found in the New York State Lien Law, Section 42, and since the provisions of that law apply, this type of action is usually litigated in the state courts. The United States however invoked the provisions of 28 U.S.C.A. §§ 2410 and 1444 and removed the cause into this Court where the issues were tried.

 The facts are not seriously in dispute and following state practice, the litigants submitted proposed findings and conclusions which, while perhaps are unnecessarily detailed, have been considered and as finally adopted are set out below. Same furnish a factual background which will not be repeated. The procedural history of the action will be briefly set forth.

 This action was commenced in the Supreme Court of the State of New York, Albany County, on June 18, 1951, to foreclose the liens filed against a contract for a public improvement, and to recover upon the Payment Bond posted thereunder, the deficiencies arising upon said foreclosure. The case was subsequently removed to this Court by defendant United States of America. Subsequently plaintiff and all defendant mechanic's lienors assigned their liens and the causes of action based thereon, to defendant Hartford Accident and Indemnity Company, by assignments filed November 14, 1952. By an amended pleading, said defendant pleaded said assignments and added a new cause of action to impress and enforce its equitable lien upon the available funds held by defendant State of New York under said contract by virtue of its subrogation rights.

 By a third party summons and complaint served upon the above named third party defendants, defendant Hartford seeks to hold them liable, under a written indemnity agreement, for the losses sustained and incurred by it, by reason and in consequence of posting said Payment Bond.

 All of the issues framed by all of the pleadings, came on for trial before this Court and all of the parties appeared by their respective counsel, except that defendant P. R. Matthews Co. Inc. and the third party defendants (other than Albert Weiss against whom the action was discontinued), defaulted in appearing at said trial.

 Findings of Fact

 1. Defendants P. R. Matthews Co. Inc. (hereafter referred to as the Contractor) and defendant People of the State of New York, acting through the Department of Mental Hygiene (hereafter referred to as the State) entered into a contract for a public improvement (Ex. 1), dated November 17, 1949, No. 941, Specifications No. 12884, Project No. 7482, for Additional Power Plant Facilities, Power House Building No. 33, Hudson River State Hospital, Poughkeepsie, New York, at a price of $ 419,990 (subsequently adjusted to $ 423,708.07), under which contract the Contractor posted a Performance Bond and also a Payment Bond pursuant to § 137 of the New York State Finance Law, McKinney's Consol. Laws, c. 56, each dated November 17, 1949, in the penal sum of $ 419,990 upon which bonds defendant Hartford Accident and Indemnity Company (hereafter referred to as the Surety) became surety.

 2. The Contractor proceeded with the work under said contract and prior to October 20, 1950, received seven progress payments under estimates duly approved and certified by the State. The Contractor also earned $ 48,000 certified by the State to be payable under Estimate No. 8 approved by the State on October 24, 1950, and such sum was not paid to him because certain liens were filed with the Comptroller against the contract and such sum is still held by the State subject to adjudication in reference to said sum in this action. No further moneys were earned by the Contractor under the contract.

 3. After the contractor received from the State certificate No. 8 dated October 24, 1950, no further moneys were earned by ...


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