Harvey Construction Co. v. Robertson-Ceco Corp.

United States Court of Appeals,

Fifth Circuit.

No. 91-6035.

HARVEY CONSTRUCTION COMPANY, Plaintiff-Appellant,

v.

ROBERTSON-CECO CORPORATION, Defendant-Appellee.

Jan. 3, 1994.

Appeal from the United States District Court for the Southern District of Texas.

Before JOHNSON, GARWOOD, and WIENER, Circuit Judges.

GARWOOD, Circuit Judge:

Plaintiff-appellant Harvey Construction Company (Harvey) appeals the district court's order

dismissing its complaint pursuant to 28 U.S.C. § 1359 for want of subject matter jurisdiction. Harvey

also appeals the denial of its motions for summary judgment and for default judgment and contests

the district court's grant of certain discovery motions of defendant-appellee Robertson-Ceco

Corporation (Robertson). We reverse and remand the jurisdictional issue. We decline to address the

remaining issues.

Facts and Proceedings Below

In March 1978, Harvey became the general contractor for the construction of the

3D/International Office Tower, a multi-story office building in Houst on (the 3D building). The

owners of the 3D building were Gerald Hines and 3D Tower, Limited, a Texas limited partnership,

one of the partners of which was Gerald D. Hines Interests.1 Gerald Hines is the father of Jeff Hines,

one of Harvey's directors and its current sole shareholder.

In August 1978, Harvey subcontracted with Robertson,2 to design, construct, and install the

3D building's curtain wall system, the nonstructural stainless steel and glass exterior "skin" of the

1
We refer to the owners of the 3D building collectively as 3DT.
2
Harvey actually subcontracted with Cupples Products Division, which is now a part of
Robertson-Ceco Corporation. We include Cupples in our references to Robertson.
building. The subcontract and the general contract were completed on time, and the 3D building was

occupied by June 1979. The $2,425,800.00 subcontract price was timely paid.

In 1987, 3DT commenced negotiations to sell the building to a third party. At issue in these

negotiations were defects in the exterior curtain construct ed by Robertson. Some of the stainless

steel panels were "buckling or delaminating." Robertson declined to take responsibility for these

defects as the warranty for its work had expired. 3DT refused Robertson's offer to construct, for new

consideration, an overlay to conceal the damage.

In June 1989, 3DT sued Harvey, Robertson, and Hexcel Corporation (Hexcel), one of

Robertson's suppliers of materials, in state court in Houston. The damages alleged in this suit arose

out of the work covered by Robertson's subcontract.

The subcontract between Harvey and Robertson contained a provision in which Robertson

agreed to indemnify and/or defend Harvey for claims arising out of its subcontract work.3 On

September 5, 1990, Harvey sent a writ ten demand to Robertson for indemnification in the suit by

3DT.4 On September 21, 1990, Robertson sent a reply in which it stated that it could not then agree

to indemnify Harvey but would reassess the request at a later time. Robertson claims that it was

unsure about the extent of the indemnity request and was waiting for Harvey to clarify its request.

Harvey did not file a cross-action for indemnification in 3DT's state court suit, nor did Robertson ever

offer to indemnify or to defend Harvey in the 3DT suit.

On January 22, 1991, in the state court suit 3DT dismissed without prejudice all its claims

against Robertson and Hexcel, without notice to either, and entered into a settlement agreement and

an agreed judgment with Harvey whereby Harvey assumed liability for $3,950,000.00 for breach of

contract. As part of the settlement agreement, 3DT assigned to Harvey all of its claims against

Robertson arising out of 3DT's suit. On January 29, Harvey brought this action against Robertson

3
In its brief on appeal, Robertson distinguishes between its duties to Harvey arising out of
"operations" and those arising out of "performance." Robertson interprets the subcontract to limit
its duty to defend to claims arising out of its operations.
4
Robertson emphasizes in its brief that this demand letter did not contain a request that
Robertson defend Harvey in the suit by 3DT but only that it indemnify Harvey for any resultant
liability.
in the United States District Court for the Southern District of Texas on the basis of diversity of

citizenship, claiming damages for breach of contract, negligence, fraud, negligent misrepresentation,

and violations of the Texas Deceptive Trade Practices Act.

On January 30, one day after Harvey brought this action, Robertson filed a declaratory

judgment action against Harvey in the Eastern District of Missouri, also on the jurisdictional basis of

diversity of citizenship.

Robertson's answer in the instant suit was due on March 4; Robertson on February 27

requested an extension of time to answer, and it filed its answer on March 15. Also on March 15,

Harvey filed a motion for default judgment. At a hearing held on March 21, the district court orally

granted the request for an extension of the answer date and denied the motion for default judgment.

Later in March, Harvey moved for partial summary judgment on the issue of indemnity. The

district court denied this motion in a speaking opinion on April 25. In May, Robertson filed its

motions to dismiss for want of subject matter jurisdiction pursuant to 28 U.S.C. § 1359 and to

compel discovery into the settlement discussions held between Harvey and 3DT.

In August 1991, the district court orally granted Robertson's motion to compel discovery.

It then dismissed Harvey's complaint for want of subject matter jurisdiction. Harvey filed a timely

notice of appeal; it appeals the denial of its motions for summary judgment and for default judgment

and the grant of Robertson's discovery orders in conjunction with the final order of dismissal.

Discussion

I. Jurisdictional Issue

Robertson argues that diversity subject matter jurisdiction does not exist in this case because

the settlement transactions between 3DT and Harvey, both domiciled in Texas, were an attempt to

create federal jurisdiction where it was not previously available. The district court ruled as a matter

of law that Harvey achieved diversity jurisdiction collusively and dismissed the action pursuant to 28

U.S.C. § 1359.5 The legal basis for this ruling is subject to review de novo.

5
28 U.S.C. § 1359 provides that "[a] district court shall not have jurisdiction of a civil action in
which any party, by assignment or otherwise, has been improperly or collusively made or joined to
invoke the jurisdiction of such court."
 Harvey, as the party seeking to invoke jurisdiction, has the burden of proving the facts

necessary to sustain jurisdiction. Green v. Hale, 433 F.2d 324, 329 (5th Cir.1970). We review the

factual findings supporting the dismissal under the clearly erroneous standard. Williamson v. Tucker,

645 F.2d 404 (5th Cir.), cert. denied, 454 U.S. 897, 102 S.Ct. 396, 70 L.Ed.2d 212 (1981).

For purposes of deciding the issue of jurisdiction, we distinguish between Harvey's indemnity

claim against Robertson and the claims that 3DT assigned to Harvey as part of the settlement

agreement in the state court action. In return for assigning its claims against Robertson to Harvey,

3DT retained approximately a 957 interest in any recovery that Harvey might obtain on those claims.6

3DT had no interest in Harvey's indemnity claim.

In addressing the jurisdictional issue, both Robertson and the district court erroneously

focused on the alleged fraud and collusion in the settlement agreement.7 Focusing instead on the

domicile of the parties, it is clear that diversity jurisdiction exists for claims between Harvey and

Robertson because they are citizens of different states.8 28 U.S.C. § 1332(a). Robertson is a

Delaware corporation with its principal place of business in Pennsylvania. Harvey is a Texas

corporation with its principal place of business in Houston.

Although we note, without so finding, that there may be some truth to the allegations of

collusion, we cannot sustain the jurisdictional dismissal of the indemnity claim. Whether the

settlement was co llusive or not goes only to the merits of the action and does not affect the

6
Pursuant to the terms of the agreement, Harvey would keep five percent of the recovery or its
attorney's fees, whichever was greater.
7
The district court stated: "It is clear that 3DT and Harvey Construction are seriously related
companies with parallel interests who excluded these defendants from the negotiating process and
came up with a system by which they could be placed in this forum where they could not have
otherwise been placed...."

Robertson cites the connections between Harvey and the 3D building ownership to
support the district court's factual findings. The officers and directors of Harvey are Jeff
Hines (director only), John Greenberger, and Ken Hardin. Greenberger and Hardin are
also officers and employees of the Hines Interests Limited Partnership, which is owned
entirely by Gerald and Jeff Hines. At the time of the general contract, Gerald Hines, Jeff's
father, both owned 897 of Harvey and was one of the owners of the 3D building.
8
Robertson does not contend that diversity does not exist between it and Harvey. Indeed, it
based its declaratory judgment action in Missouri on diversity grounds.
jurisdiction of the district court.9 We hold that the district court erred in dismissing Harvey's

indemnity claim for want of subject matter jurisdiction.

We are unable, on the record before us, to rule on the dismissal of the claims assigned by

3DT to Harvey because there is no evidence of the diversity status of 3DT and Robertson. 3DT is

a Texas limited partnership. The Supreme Court has held that a district court must consider the

citizenship of limited partners for purposes of establishing diversity jurisdiction. Carden v. Arkoma

Assoc., 494 U.S. 185, 187-196, 110 S.Ct. 1015, 1017-1021, 108 L.Ed.2d 157 (1990). We must

remand these claims for a finding by the district court as to the citizenship of 3DT's limited partners.

On remand, if the district court determines that diversity exists between 3DT and Robertson,

it must find that the assignment of 3DT's claims to Harvey did not create collusive jurisdiction and

thus the parties may proceed to the merits of the claims.10 If, however, 3DT and Robertson are not

diverse, no federal jurisdiction for the assigned claims exists. 28 U.S.C. § 1359; Kramer v.

Caribbean Mills, Inc., 394 U.S. 823, 89 S.Ct. 1487, 23 L.Ed.2d 9 (1969).11

9
Robertson has also raised the issue of collusion as a defense on the merits. It argues that 3DT
and Harvey entered into the settlement agreement, with the assignment of claims to Harvey, in
order to avoid the defenses Robertson could have asserted against 3DT in the state court action.
10
The fact that the alleged collusion stemmed from the state court action in which there was no
basis for federal jurisdiction because 3DT sued both Harvey and Robertson has no effect on the
district court's jurisdiction or on the merits. 3DT could have created a collusive settlement
without instigating judicial procedures or by suing only Harvey.
11
Kramer v. Caribbean Mills, Inc. is the leading case discussing § 1359 in connection with
diversity jurisdiction. In Kramer, a Panamanian corporation assigned its rights arising out of a
contract dispute with a Haitian corporation to an attorney in Texas. Consideration for the
assignment was $1.00. In an agreement dated the same day, the attorney promised to pay the
Panamanian corporation 957 of the net recovery on the assigned cause of action. The Supreme
Court affirmed a holding of this Court dismissing the action as collusively brought. The Court
found that the assignment had been made for the purposes of collection; indeed, the attorney
admitted that diversity jurisdiction was a primary motivating factor behind the assignment.
Kramer, 394 U.S. at 827, 828, 89 S.Ct. at 1490.

Robertson claims that the interest in litigation retained by 3DT is proof of
collusion. Harvey's "payment" for pursuing this action is five percent of the recovery on
3DT's claims or its attorney's fees. Thus 3DT would receive approximately 957 of the
recovery on its claims, the percentage found collusive in Kramer. Harvey is acting as a
collection agent for 3DT's claims, and certainly the district court's implied finding to this
effect is not clearly erroneous. Accordingly, if 3DT and Robertson are not diverse,
Kramer precludes jurisdiction over the assigned 3DT claims.
II. Interlocutory Rulings

Harvey requests that we address the propriety of the district court's denial of Harvey's

motions for default and summary judgment and the district court's discovery rulings in favor of

Robertson. These are interlocutory orders that are not appealable absent a final judgment.12 See 28

U.S.C. § 1292(a). Because we remand the final order of dismissal to the district court for a

determination of the diversity status of 3DT, and for a determination on the merits of the indemnity

claim, we will not review the remaining issues.

Conclusion

We reverse the order of the district court dismissing the action for want of subject matter

jurisdiction. We remand Harvey's indemnity claim for a determination on the merits. We remand the

assigned claims of 3DT against Robertson for a finding on the diversity status of these two parties

and ruling accordingly on jurisdiction respecting those claims. We do not address the interlocutory

issues.

REVERSED AND REMANDED.

12
We note that the district court generally has the right to decline to summarily resolve a case
before it unless the defendant is entitled to absolute or qualified immunity. See Veillon v.
Exploration Services, 876 F.2d 1197, 1200 (5th Cir.1989); Marcus v. St. Paul Fire & Marine
Ins., 651 F.2d 379, 382 (5th Cir.1981).