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June 4, 1990


The opinion of the court was delivered by: Bartels, District Judge.


This is a motion to dismiss a third-party complaint pursuant to Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction, or, in the alternative, pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. The main suit is a diversity action predicated upon a breach of contract between Aetna Casualty & Surety Company ("Aetna") and Spartan Mechanical Corporation and several related individuals and other corporations ("Spartan"). Spartan has filed a third-party complaint for contribution and indemnification from several third-party defendants who are officers or agencies of the City of New York (the "City"). On the motion to dismiss the following questions are raised: (1) whether in this suit based upon diversity of citizenship the Court has ancillary jurisdiction over the third-party action; (2) whether under New York law Spartan can be entitled to contribution from the City for breach of contract by Spartan; and (3) whether under New York law Spartan is entitled to indemnification based on the City's alleged wrongdoing, absent an indemnity agreement providing for the same.


On December 21, 1982, and April 26, 1984, New York defendant Spartan executed indemnity agreements whereby it agreed to indemnify Connecticut plaintiff Aetna as an inducement for and in connection with certain bonds it was anticipated that Aetna, as Spartan's surety, would issue. Aetna was to assure Spartan's performance of construction contracts and payment of subcontractors or suppliers, and Spartan, in turn, entered into the indemnity agreements.

Subsequently, on June 10, 1985, Spartan and the City entered into a contract (the "Contract") under which Spartan agreed to install heating and ventilation systems at a construction project called the Queens North Borough Repair Shop. In conjunction with the Contract, Aetna executed a payment bond for $2,895,000 and a performance bond for $2,895,000 (the "Bonds") in favor of the City, as obligee, with Spartan as principal and Aetna as surety. The Bonds bound Aetna, "if requested to do so by the City, to fully perform and complete the Work to be performed under the Contract . . . if, for any cause, the Principal fails or neglects to so fully perform and complete such work." The Bonds further provided that "if the Principal, his representatives or assigns, shall well and faithfully perform the said Contract . . . then this obligation shall be null and void. . . ."

Spartan began work on the project, but on June 10, 1988, after notice and a hearing, the City declared Spartan in default on the Contract, and on June 16, 1988, the City called upon Aetna to fulfill its obligations under the Bonds. Aetna complied, while fully reserving the rights of Spartan, if any, against the City.

On August 22, 1989, Aetna commenced the instant breach of indemnification contract action against Spartan in this court, seeking $111,639.56 on the performance bond, $298,150.28 on the payment bond, and $83,420.69 in interest, attorneys' fees, consultants' fees, and disbursements to which it claims it is contractually entitled. Spartan, in its answer, alleges that Aetna knew or should have known that the declaration of default by the City was wrongful. Accordingly, in affirmative defenses Spartan claims that 1) Aetna had no obligation to perform under the Bonds and therefore performed as a volunteer; and 2) its performance under the Bonds was not in "good faith," as required under the indemnity agreements. Claiming lack of "good faith" on Aetna's part, Spartan also counterclaims against Aetna for breach of the indemnity agreements.

An important event occurred on January 12, 1990, when Spartan impleaded the City as a third-party defendant in this action. This third-party complaint alleges that Spartan was not able to properly perform the Contract, and therefore became liable on the indemnity agreements, because of acts and omissions by the City — e.g., the City did not provide Spartan with adequate or correct plans, the City made numerous changes which caused the work to be delayed, and the City failed to coordinate the work properly. Accordingly, Spartan claims that, should it be held liable to Aetna, Spartan is entitled to have recovery over and against the City on the basis of either contribution or indemnity.

Spartan has also commenced a separate action against the City in the Supreme Court of the State of New York for the County of Queens, in which it seeks $7,600,000 in damages for breach of the Contract, claiming that the City wrongfully declared it in default.




Spartan's impleader of the City, a non-diverse third-party, raises the question of this Court's jurisdiction over such a claim. Despite the fact that federal courts, as courts of limited jurisdiction, are empowered to hear only cases and controversies over which both Article III of the Constitution and federal statutes have granted subject matter jurisdiction, the ill-defined doctrine of "ancillary jurisdiction" — judge-made and allegedly rooted in a "common sense solution to the problems of piecemeal litigation," C. Wright, A. Miller, & E. Cooper, Federal Practice & Procedure § 3523 at 82 (1984) — has long been relied upon by the federal courts to hear disputes over which subject matter jurisdiction has been expressly conferred neither by statute nor by the Constitution. See Id.

"Property" Jurisdiction

The doctrine of ancillary jurisdiction was first articulated in Freeman v. Howe, 65 U.S. (24 How.) 450, 16 L.Ed. 749 (1860). In Freeman, a New Hampshire resident, seeking to collect on certain bonds, brought a diversity action in federal court against a Massachusetts railroad. The quasi in rem suit was commenced by service of a summons and complaint, and by seizure of several of the defendant's railroad cars by Freeman, a United States marshall, pursuant to a process of attachment. Thereafter, Massachusetts-domiciled mortgagees of the railroad company sued Freeman in replevin in Massachusetts state court. Pursuant to the state writ of replevin, a Massachusetts sheriff seized the railroad cars from Freeman. At trial in the state court matter, Freeman defended his possession of the railroad cars by citing the federal process of attachment, but this defense was overruled and the mortgagees prevailed.

On appeal, the Supreme Court reiterated what it had said on prior occasions regarding conflicting processes from different courts, namely, that the question as to which authority should prevail depends upon "which jurisdiction had first attached by the seizure and custody of the property under its process." Id. at 455. This, of course, answered the question on appeal: Freeman's right to possess the railroad cars pursuant to the federal process of attachment could not be trumped by a subsequently issued writ of replevin.

However, the Court proceeded to address several alternative contentions that the Massachusetts mortgagees had made, among them, that the Massachusetts mortgagees had to be allowed to assert their rights in state court or else be without remedy; they could not assert their rights in federal court as they were domiciliaries of the same state as the plaintiff in the federal suit, the Massachusetts railroad. With this argument the Court disagreed, finding that such a claim was not an original suit for which independent subject matter jurisdiction must exist, "but ancillary and dependent, supplementary merely to the original suit, out of which it had arisen, and . . . maintained without reference to the citizenship or residence of the parties." Id. at 460 (emphasis added). Thus, it was early established, and long held thereafter, that so long as the federal court has subject matter jurisdiction over the main action, the court has jurisdiction over disputes ancillary to that action where the action involves property over which the federal court has exclusive control. "Most of the early cases of ancillary jurisdiction were of this type." Wright, supra § 3523 at 88-89 (citing cases).

Enforcement Jurisdiction

The same rationale was extended to actions brought in federal court to carry out or enforce federal judgments. As the Court stated in Dugas v. American Sur. Co., 300 U.S. 414, 57 S.Ct. 515, 81 L.Ed. 720 (1937):

  [A Supplemental] bill may be brought in a federal
  court in aid of and to effectuate its prior decree
  to the end that the decree may be carried fully
  into execution or that it may be given fuller
  effect, but subject to the qualification that the
  relief be not of a different kind or on a
  different principle. Such a bill is
  ancillary and dependent, and therefore the
  jurisdiction follows that of the original suit,
  regardless of the citizenship of the parties to the
  bill or the amount in controversy.

Id. at 428, 57 S.Ct. at 521 (emphasis added and footnote omitted).

Compulsory Counterclaims

  So close is the connection between the case sought
  to be stated in the bill and that set up in the
  counterclaim, that it only needs the failure of
  the former to establish a foundation for the
  latter; but the relief afforded by the dismissal
  of the bill is not complete without an injunction
  restraining [plaintiff] from continuing to obtain
  by stealthy appropriation what the court had held
  it could not have by judicial compulsion.

Id. at 610, 46 S.Ct. at 371.

Pendent Jurisdiction & Later Developments

Whereas ancillary jurisdiction involves claims made by parties other than the plaintiff which have no independent subject matter jurisdictional basis, pendent jurisdiction, as recognized by the now-familiar case of United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966), involves claims asserted by the plaintiff which have no independent jurisdictional basis. The theory behind pendent jurisdiction is that since Article III of the Constitution grants federal courts the power to hear "cases" arising under federal law, those controversies spawned from a "common nucleus of operative fact," Gibbs, 383 U.S. at 725, 86 S.Ct. at 1138 — i.e., those that a plaintiff "would ordinarily be expected to try . . . all in one judicial proceeding," id. — are really part and parcel of the same "case" as far as the constitution is concerned. Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 371, 98 S.Ct. 2396, 2401, 57 L.Ed.2d 274 (1966).

Thus, under pendent jurisdiction, a plaintiff with a claim that comes within the federal question subject matter jurisdiction of the federal court can append thereto state-law claims lacking an independent jurisdictional basis. See Gibbs, 383 U.S. 715, 86 S.Ct. 1130. Significantly, however, in Gibbs, the pendent claim was between the original parties to the suit.

Ancillary jurisdiction, to the extent discussed above, and pendent jurisdiction as used in Gibbs, were, in themselves, not very troublesome jurisdictionally as they were either infrequently used and were absolutely necessary for the federal courts to act as courts, see Wright, supra ยง 3523 at 88, or did not involve claims against additional parties for which there was no independent subject matter jurisdiction. However, the Supreme Court's language in Moore, the liberalization of third-party practice ...

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