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INTERNATIONAL PAVING SYS. v. VAN TULCO

October 11, 1994

INTERNATIONAL PAVING SYSTEMS, INC., Plaintiff,
v.
VAN-TULCO, INC., RELIANCE INSURANCE COMPANY OF NEW YORK, RELIANCE INSURANCE COMPANY, AMERICAN REINSURANCE COMPANY, EMPLOYERS REINSURANCE CORPORATION and NORTH AMERICAN REINSURANCE CORPORATION, Defendants. DONALD J. CRECCA, as Trustee in Bankruptcy for A.V.A. Construction, Inc., Plaintiff, v. VAN-TULCO, INC., Defendant. VAN-TULCO, INC., Third-Party Plaintiff, v. CITY OF NEW YORK, Third-Party Defendant. CITY OF NEW YORK, Fourth-Party Plaintiff, v. BERGER, LEHMAN ASSOCIATES, P.C., Fourth-Party Defendant.



The opinion of the court was delivered by: DENIS R. HURLEY

 HURLEY, District Judge

 In these consolidated cases regarding the rights and obligations of the parties to several contracts for the renovation of the St. George Ferry Terminal in Staten Island, New York, the parties have moved for various forms of pre-trial relief, including summary judgment, amendment of the complaints, and impleader of additional parties. For the reasons set forth below, these motions are denied in part and granted in part.

 Background

 In June of 1983, the City of New York (the "City") entered into a contract with Berger, Lehman Associates, P.C. ("Berger Lehman"), pursuant to which Berger Lehman was to design and plan the work for a construction project (the "Project") involving the renovation of the bus ramps at the St. George Ferry Terminal in Staten Island, New York. A few weeks later, the City, acting through the New York City Department of Transportation, entered into a contract with Van-Tulco, Inc. ("Van-Tulco"), whereby Van-Tulco would be the general contractor for the Project.

 As part of Van-Tulco's contract with the City, Van-Tulco was required to furnish and deliver a labor and material payment bond. Van-Tulco delivered such a bond, with Van-Tulco acting as principal and Reliance Insurance Company of New York, Reliance Insurance Company, American Reinsurance Company, North American Reinsurance Corporation, and Employers Reinsurance Corporation acting as joint and co-sureties. According to the terms of the bond, Van-Tulco and the co-sureties became jointly and severally liable for the payment of all persons, firms, suppliers, subcontractors and corporations furnishing materials for or performing labor within the purview of the contract between Van-Tulco and the City.

 Van-Tulco entered into a subcontract with AVA Construction, Inc. ("AVA"), whereby AVA was to supply and install latex modified concrete ("latex concrete") on the ramps of the ferry terminal. AVA, in turn, entered into an agreement with International Paving Systems, Inc. ("International Paving"), as sub-subcontractor, pursuant to which International Paving was to supply the latex concrete for the Project.

 Shortly after its installation, certain portions of the latex concrete showed signs of cracking and delamination. As a result, the City is currently withholding payment of an outstanding contract balance to Van-Tulco pending a judicial determination of, inter alia, the cause of the cracking and delamination.

 In early 1988, International Paving commenced an action against Van-Tulco and the co-sureties to recover pursuant to the payment bond. In this action, International Paving is seeking monies that AVA allegedly failed to pay pursuant to the sub-subcontract for the latex concrete. Subsequently, in 1990, Donald J. Crecca, as trustee in bankruptcy for AVA, sued Van-Tulco for monies due under its subcontract for the supply and installation of the latex concrete. In this second action, Van-Tulco asserted a counterclaim and offset against AVA on the ground that the cracking and delamination of the latex concrete was due to defects in the workmanship and materials furnished by AVA. Van-Tulco also brought a third-party action against the City asserting that Van-Tulco installed the latex concrete in accordance with the plans and specifications for the Project but that those plans and specifications were defective. Van-Tulco seeks to recover monies due under its general contract with the City, including monies owed for the concrete work on the Project. The City, in turn, brought a fourth-party action against Berger Lehman, asserting that if the plans and specifications were defective, it is the responsibility of Berger Lehman. The main claim in this action between AVA and Van-Tulco has been discontinued pursuant to a settlement, but Van-Tulco's counterclaims against AVA and the third- and fourth-party actions remain pending. Pursuant to this Court's Order dated November 10, 1992, the two actions were consolidated.

 Discussion

 I. Motion by the City to Dismiss the Third-Party Action for Lack of Subject Matter Jurisdiction

 At the outset, the Court considers the City's contention that the Court lacks subject matter jurisdiction over Van-Tulco's third-party action against the City. To properly address this claim, the Court must first address whether the City was properly impleaded in this action.

 
A. Propriety of Impleader

 In support of its motion to dismiss the third-party action, the City contends that its impleader was improper under Federal Rule of Civil Procedure 14(a). (City Reply Mem. at 5-12.) Rule 14(a) provides in relevant part that

 
at any time after commencement of the action a defending party, as a third-party plaintiff, may cause a summons and complaint to be served upon a person not a party to the action who is or may be liable to the third-party plaintiff for all or part of the plaintiff's claim against the third-party plaintiff.

 Fed. R. Civ. P. 14(a) (emphasis added). The general purpose of Rule 14(a) is to serve judicial economy, discourage inconsistent results, and limit the prejudice incurred by a defendant by removal of the time lag between a judgment against the defendant and a judgment over against a third-party defendant. Blais Constr. Co., Inc. v. Hanover Square Assocs.-I, 733 F. Supp. 149, 152 (N.D.N.Y. 1990) (citing Dery v. Wyer, 265 F.2d 804, 806-07 (2d Cir. 1959)).

 It is well settled that, for impleader to be available, the third party defendant must be "liable secondarily to the original defendant," or that "the third party must necessarily be liable over to the defendant for all or part of the plaintiff's recovery," or that "the defendant must attempt to pass on to the third party all or part of the liability asserted against the defendant." See, e.g., United States v. Joe Grasso & Son, Inc., 380 F.2d 749, 751-52 (5th Cir. 1967) (emphasis in original) (citations omitted). "Whichever expression is preferred, it is clear that impleader under Rule 14 requires that the liability of the third party be dependent upon the outcome of the main claim." Id. at 752 (emphasis added).

 Finally, "the decision whether to permit a defendant to implead a third-party defendant rests in the trial court's discretion," Kenneth Leventhal & Co. v. Joyner Wholesale Co., 736 F.2d 29, 31 (2d Cir. 1984) (citation omitted), and the Court "must balance the benefits of settling related matters in one suit against the possible prejudice to the plaintiff and the third-party defendant." Affiliated FM Ins. Co. v. Jou Jou Designs, Inc., 1993 U.S. Dist. LEXIS 14547, No. 90 Civ. 8262, 1993 WL 427406, at *3 (S.D.N.Y. Oct. 15, 1993) (quoting Consolidated Rail Corp. v. Metz, 115 F.R.D. 216, 218 (S.D.N.Y. 1987)).

 Unlike the traditional grounds for a third-party action -- indemnification or contribution -- the third-party claim in this action is based upon the theory of breach of contract. The City contends that breach of contract is an inappropriate basis for impleader. It further contends that the breach of contract claim in this case is not "derivative" of the original action, and instead, arose out of a "separate and independent claim."

 First, the Court considers whether a third-party action must sound in indemnification or contribution. Rule 14(a) merely requires that the third-party be one "who is or may be liable to the third-party plaintiff for all or part of the plaintiff's claim against the third-party plaintiff." Thus, in reviewing the propriety of a third-party action, it seems that the primary consideration should be the substance of the claim -- whether the defendant has attempted to pass on to the third party all or part of the liability asserted against the defendant -- rather than the form of the defendant's claim. This interpretation of Rule 14 is supported by a recent case that is analogous to the case at bar:

 
In this case, . . . the "defending party" in the main action . . . first tried to state a claim against [the third-party defendant] for indemnity and contribution, but eventually rested its attempt to shift liability on a breach of contract theory. Rule 14 requires that there be some sort of derivativeness or nexus between the primary liability . . . and the basis for the attempt to assign third party liability . . . . But we have never held that such derivativeness must take the form of an indemnity or contribution claim.

 Campen v. Greenamayer, 1991 U.S. App. LEXIS 18370, Nos. 89-56050, 89-56057, 1991 WL 148750, at **5 (9th Cir. Aug. 5, 1991) (citations omitted). Having found the rationale of Campen to be persuasive, this Court finds that a breach of contract claim may form the basis for impleader of a third-party defendant, so long as it is sufficiently derivative of or dependent upon the main claim.

 The second portion of the Court's analysis, then, is whether the breach of contract claim in this case was dependent upon the main action. In this action, the main complaint alleged that Van-Tulco failed to pay AVA monies due for certain concrete work on the Project. (Compl. at PP 2, 8.) The third-party complaint alleged, inter alia, that the City withheld payment from Van-Tulco for the supply and installation of the latex concrete at issue in the main action. *fn1" (See Third-party Compl. at P 16; see also Van-Tulco Reply Mem. at 6.)

 The complaints thus reveal that if AVA properly supplied and installed the latex concrete at the Project, then AVA would be entitled to payment under its contract with Van-Tulco. Similarly, if the latex concrete has been properly supplied and installed by its subcontractor, Van-Tulco would be entitled to payment from the City for this portion of the Project. Therefore, if AVA were entitled to recover against Van-Tulco for its concrete work on the main claim, Van-Tulco would be entitled to recover from the City for this concrete work on the third-party claim. Accordingly, it appears that Van-Tulco properly impleaded the City, for the City "is or may be liable" to Van-Tulco for all or part of AVA's claim against Van-Tulco, see Fed. R. Civ. P. 14(a), and the third-party claim was dependent upon the resolution of the original action.

 Although this Court is aware of certain cases that have refused to permit impleader where the original and third-party claims arose from distinct contracts, see, e.g., Unilease Computer Corp. v. Major Computer Inc., 126 F.R.D. 490, 493 (S.D.N.Y. 1989); Blais Constr. Co., Inc. v. Hanover Square Assocs.-I, 733 F. Supp. 149, 157 (N.D.N.Y. 1990), in each of those cases, the courts emphasized that the resolution of the contractual responsibilities at issue in the third-party claim was not dependent upon the resolution of contractual responsibilities at issue in the main action. In this case, in contrast, as explained above, the responsibility of the third-party defendant was dependent upon the resolution of the claim between the plaintiff and the defendant. Thus, the mere fact that the original and third-party actions arose from distinct contracts does not convince the Court that impleader was inappropriate in this case.

 Finally, this Court has considered the benefits of impleader in this action, including judicial economy and the avoidance of inconsistent results, and weighed them against potential prejudice to the City. The City has not contended that it has suffered prejudice from the third-party action, nor has the Court, on its independent review of this action, found that any such prejudice has resulted from the City's impleader. Thus, the Court, in its discretion, finds that the benefits of impleader outweigh any potential disadvantages, and, therefore, the initiation of the third-party action in this case was appropriate under Federal Rule of Civil Procedure 14(a).

 
B. Subject Matter Jurisdiction

 Having determined that the City was properly impleaded in this case, the Court next considers the City's contention that the third-party complaint should be dismissed for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). *fn2" When considering a 12(b)(1) motion, the Court is required "to weigh the evidence and satisfy itself as to the existence of its power to hear the case." See Ensign-Bickford Co. v. ICI Explosives USA Inc., 817 F. Supp. 1018, 1028 (D. Conn. 1993) (citation omitted).

 Jurisdiction over the main claim in this action between AVA and Van-Tulco was founded on diversity of citizenship. 28 U.S.C. § 1332(a)(1). The third-party claim between Van-Tulco and the City, however, has no independent jurisdictional basis: there is no diversity of citizenship between the parties, nor does the claim raise a "federal question." See id. at § 1331. The City contends that, in light of the Supreme Court's decision in Finley v. United States, 490 U.S. 545, 104 L. Ed. 2d 593, 109 S. Ct. 2003 (1989), this Court lacks subject matter jurisdiction over Van-Tulco's third-party claim. *fn3"

 In Finley, the plaintiff instituted an action in federal court against the Federal Aviation Administration under the Federal Tort Claims Act, for injuries arising from a plane crash. The plaintiff later sought to amend her complaint to include state-law claims arising out of the same accident against two additional defendants, claiming that the federal court had pendent jurisdiction over these non-federal claims. The Supreme Court held, however, that a federal court adjudicating a matter under ...


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