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December 19, 1990


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


Plaintiff seeks a judgment in this court declaring its rights under a contract with the City of New York which incorporates federal regulations that define how to calculate additional payments for change orders and delays. Plaintiff argues that incorporation of these regulations in the contract makes this a case arising under the laws of the United States and thus gives this court jurisdiction over the dispute. However, for the reasons set forth below, the regulations in question create no federal rights for the plaintiff. Accordingly, and because there is no diversity of citizenship between the parties, the action must be dismissed for lack of subject-matter jurisdiction.


Plaintiff J.A. Jones Construction Co. and Daidone Electric Co. of N.Y., Inc. ("Jones"), a joint venture of a New York corporation and a North Carolina corporation, contracted in March 1986 with defendant, City of New York, to perform electrical construction work at the North River Water Pollution Control Project. The project was funded by a grant from the Environmental Protection Agency ("EPA") under the Clean Water Act ("CWA"), 33 U.S.C. § 1251-1376 (1986) — specifically § 1281, which authorizes the EPA "to make grants to any State, municipality, or intermunicipal or interstate agency for the construction of publicly owned treatment plants." During construction of the project, the City initiated various changes in the original plans ("change orders") and caused other delays in Jones' performance.

This action arises from a dispute over how to calculate additional amounts claimed by Jones for change orders and City-caused delays. The contract between Jones and the City is subject by its terms to a set of regulations promulgated by the EPA and contained in 40 CFR Part 33 entitled "Procurement Under Assistance Agreements" ("EPA procurement regulations"). Plaintiff contends that the EPA procurement regulations require that additional amounts for change orders be calculated pursuant to cost accounting principles contained in 41 C.F.R. § 1-15.4 of the Federal Procurement Regulations and that amounts relating to City-caused delays be calculated under a model equitable adjustment clause contained in 40 C.F.R. § 33.1010, subpart 5. Jones claims that a proper reading of the EPA procurement regulations mandates that these two provisions supersede any conflicting provisions elsewhere in the contract.

The City contends that Article 13 of the contract contains a waiver, permitted by the regulations, for any claims based on City-caused delays, and that any additional change order costs should be calculated under a formula set out in Article 26 of the contract because the EPA procurement regulations provide that the City's duties are governed by OMB Circular A-87, specifically applicable to local governments, rather than the Federal Procurement Regulations. Not surprisingly, as plaintiff interprets the EPA procurement regulations, it would be entitled to more money than it would get under clauses cited by the City.*fn1

Pursuant to the federal declaratory judgment statute, 28 U.S.C. § 2201, plaintiff has requested a judgment declaring (i) that the cost accounting principles contained in the Federal Procurement Regulations be applied in calculating reimbursements for change orders issued under the contract, and (ii) that defendant must construe the contract to incorporate the equitable adjustment clause contained in 40 C.F.R. § 33.1030, subpart 5.

Defendant has brought several motions, including one to dismiss for lack of subject matter jurisdiction pursuant to Fed.R. Civ.P. 12(b)(1).*fn2


Plaintiff's complaint alleges jurisdiction pursuant to both 28 U.S.C. § 2201, the federal declaratory judgment statute, and § 1331, which provides that "[t]he district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws or treaties of the United States."

It is well settled that "federal jurisdiction cannot be based on the fact that a declaratory judgment is sought because the declaratory judgment statute does not expand the jurisdiction of the federal courts." West 14th Street Commercial Corp. v. 5 West 14th Owners Corp., 815 F.2d 188, 194 (2d Cir.), cert. denied, 484 U.S. 850, 108 S.Ct. 151, 98 L.Ed.2d 107 (1987); Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 16, 103 S.Ct. 2841, 2850, 77 L.Ed.2d 420 (1983); Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671-2, 70 S.Ct. 876, 879, 94 L.Ed. 1194 (1950).

There is no diversity of citizenship between the parties, so federal jurisdiction can be based only on 28 U.S.C. § 1331. Therefore, plaintiff's complaint must be dismissed unless it "arises under" federal law.

In determining whether a complaint arises under federal law, the claims must be examined in accordance with the well-pleaded-complaint rule, which requires that "federal jurisdiction . . . be found from `what necessarily appears in the plaintiff's statement of his own claim. . . ., unaided by anything alleged in anticipation of or avoidance of defenses which it is thought the defendant may interpose.'" West 14th Street Commercial Corp, 815 F.2d at 192 (quoting Taylor v. Anderson, 234 U.S. 74, 75-76, 34 S.Ct. 724, 724, 58 L.Ed. 1218 (1914)).

To determine whether a well-pleaded declaratory judgment complaint arises under federal law, a court must look beyond the fact allegations and, by identifying the substantive theories upon which plaintiff could have brought its action, determine whether there necessarily would be federal jurisdiction in a suit for coercive relief brought either by the declaratory defendant or the declaratory plaintiff, apart from any anticipated defenses. See Franchise Tax Board, 463 U.S. at 19, 103 S.Ct. at 2851; West 14th Street Commercial Corp., 815 F.2d at 194-95); ...

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