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Tru-Line Metal Products, Inc. v. U.S. Fabrication & Erection (6/7/2002) sp-5578
Tru-Line Metal Products, Inc. v. U.S. Fabrication & Erection (6/7/2002) sp-5578
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
TRU-LINE METAL PRODUCTS, )
INC., JODY SUTHERLAND, and ) Supreme Court No. S-9790
CRAIG HOLLEY, )
) Superior Court No.
Appellants, ) 3AN-98-10300 CI
)
v. ) O P I N I O N
)
U.S. FABRICATION & ERECTION, ) [No. 5578 - June 7, 2002]
)
Appellee. )
________________________________)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Karen Hunt, Judge.
Appearances: Susan Orlansky and Jeffrey M.
Feldman, Feldman & Orlansky, Anchorage, for
Appellants. Bruce E. Davison and Joseph A.
Pollock, Davison & Davison, Anchorage, for
Appellee.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.
CARPENETI, Justice.
I. INTRODUCTION
I. In this contract dispute, Tru-Line Metal Products, Inc.
sued United States Fabrication and Erection (USF&E) in federal
court. The federal court granted summary judgment in favor of
USF&E and awarded full attorneys fees as a sanction for filing a
baseless claim. Tru-Line then brought this action in state
superior court. USF&E moved for summary judgment on res judicata
grounds. The superior court granted summary judgment and awarded
USF&E three times actual attorneys fees and costs as a sanction
under Alaska Rules of Civil Procedure 11 and 95. Because the
federal court did not have subject matter jurisdiction, res
judicata does not bar Tru-Line from filing suit in state court on
the same claim. We therefore reverse the grant of summary
judgment and remand for further proceedings in the superior
court.
II. FACTS AND PROCEEDINGS
A. Background
In 1994 M.A. Mortensen entered into a contract with the
United States Army Corps of Engineers for improvements to
Elmendorf Composite Medical Facility. Mortensen entered into a
subcontract with Waiward Steel Fabricators, Ltd., which in turn
entered into a subcontract with United States Fabrication and
Erection. In October 1994 USF&E, as principal, and Star
Insurance Company (Star), as surety, executed a payment bond,
guaranteeing payment of all persons having a direct relationship
with either USF&E or a subcontractor of USF&E. In February 1995
USF&E, as a second-tier subcontractor on the Elmendorf project,
entered into a subcontract with Tru-Line Metal Products, Inc. to
install metal decking.
B. The Federal Court Lawsuit
A. In May 1997 Tru-Line filed suit against USF&E and Star in
United States District Court in Anchorage, alleging breach of
contract and claiming damages totaling over $730,000, plus
interest, costs, and attorneys fees. In its complaint, Tru-Line
asserted that the federal court had federal question jurisdiction
pursuant to 28 U.S.C. 1331 and by virtue of the Miller Act.1
USF&E and Star moved for summary judgment, arguing that Tru-Lines
claims were barred under the Miller Act. USF&E and Star also
contended that, because Tru-Line was not registered as a
contractor in the State of Alaska pursuant to AS 08.18.151,2 it
was not entitled to enforce its contract with USF&E.
Tru-Line attempted to amend its complaint in September
1997. The amended complaint purported to establish diversity of
citizenship as another ground for federal jurisdiction. However,
Tru-Line failed to note diversity in the heading, did not allege
any facts establishing diversity in the pleadings, and stated the
incorrect jurisdictional amount. At oral argument on the motion
for summary judgment, United States District Court Judge John W.
Sedwick, noting these substantial defects in the amended
complaint, allowed counsel for Tru-Line to withdraw the amended
complaint and file another. (Tru-Line never filed a second
amended complaint.) Judge Sedwick also stated that he saw no
valid claim based upon the Miller Act.3 He indicated that he
would consider the other matters with respect to the state law
issues, that is whether Tru-Line, as an unregistered contractor,
could sue on its contract. He expressed skepticism that Tru-Line
could do so.4
In his written order from chambers, Judge Sedwick
granted summary judgment to USF&E. He found that, because Tru-
Line was a third-tier contractor and because the Star payment
bond was not a Miller Act bond, Tru-Line was not entitled to
recover under the Miller Act. Judge Sedwick also discussed the
Alaska contractor registration law and its applicability to Tru-
Lines claims. He found the Alaska Contractor Registration Act to
be substantive in nature and applicable to Tru-Lines claims
brought in federal court pursuant to diversity jurisdiction. As
Tru-Line did not dispute that it was an unregistered contractor,
Judge Sedwick stated that Tru-Line was barred from suing on the
contract it entered into with USF&E.
In a separate order from chambers, Judge Sedwick
granted USF&E Rule 11 sanctions in the sum of reasonable
attorneys fees, expenses, and costs. He found that Tru-Line
filed an utterly baseless claim under the Miller Act. He also
found that the lack of reasonable inquiry made by Tru-Line
supported a finding of frivolousness and warranted the imposition
of sanctions.
C. The Superior Court Lawsuit
A. In October 1998 Tru-Line filed suit against USF&E in
superior court in Anchorage alleging fraud, negligent
misrepresentation, and conversion. USF&E moved for summary
judgment based on res judicata. Tru-Line opposed the motion,
alleging that the merits of Tru-Lines federal claim were never
reached as Tru-Lines complaint was dismissed because it was not a
registered Alaska contractor. The state complaint concerned
fraud and conversion claims that, according to Tru-Line, could
not have been part of its federal complaint as it had no
indication that it had been purposefully misled and defrauded by
USF&E.
The superior court granted USF&Es motion for summary
judgment. USF&E then filed a motion for attorneys fees and
sanctions against Tru-Line and its legal counsel, pursuant to
Alaska Rules of Civil Procedure 11, 68, 82, and 95. The court,
finding that Tru-Line had no reasonable basis in fact to file a
complaint on an action deemed by the federal court to be baseless
and frivolous, granted USF&Es motion for attorneys fees and
sanctions. For violations of Alaska Rules 11 and 95, the court
granted USF&E three times its actual costs and attorneys fees to
be paid by Tru-Line and its counsel, Jody Sutherland and Craig
Holley, jointly and severally. A motion for reconsideration by
Tru-Line and its counsels was denied and those parties now appeal
to this court.
III. STANDARD OF REVIEW
I. A superior courts order granting a motion for summary
judgment is reviewed de novo.5 We will affirm a grant of summary
judgment if there are no genuine issues of material fact and if
the moving party is entitled to summary judgment as a matter of
law.6 The question of whether res judicata applies is a question
of law, which we review de novo.7
IV. DISCUSSION
A. As the Federal Court Found that It Did Not Have Subject
Matter Jurisdiction over Tru-Lines Claim, the Superior
Court Erred in Granting Summary Judgment to USF&E.
1. Res judicata generally
Res judicata is a judicial doctrine that has as its
primary objective claim preclusion or judicial finality. 8 Under
this doctrine, a judgment in a prior action bars a subsequent
action if (1) the prior judgment was a final judgment on the
merits, (2) a court of competent jurisdiction rendered the prior
judgment, and (3) the same cause of action and same parties or
their privies were involved in both suits. 9 Res judicata
implements the generally recognized public policy that there must
be some end to litigation and that when one appears in court to
present his case, is fully heard, and the contested issue is
decided against him, he may not later renew the litigation in
another court.10
Tru-Line stipulates for the purposes of this appeal
that the federal court entered a final judgment, that the
previous case involved the same parties, and that the new claims
arose out of the same transaction as the claims in the federal
suit. But it argues that res judicata does not apply because the
federal court judgment was not on the merits.
2. The federal court judgment was not on the
merits.
a. Federal question jurisdiction
For a court to exercise federal question jurisdiction,
a case must arise under the United States Constitution, the laws
of the United States, or treaties made under their authority.11
The claim arising under federal law must also be substantial;
that is, there must be legal substance to the position that the
plaintiff is promoting.12 If the federal claim that is the basis
for jurisdiction is obviously without merit or is wholly
frivolous, the federal court must dismiss for a lack of
jurisdiction.13 However, if there is any foundation of
plausibility to the claim[,] federal jurisdiction exists.14 There
is no question that a dismissal that results because there is no
substantial federal question is a jurisdictional dismissal:
[I]t remains the federal rule, and needs no reexamination here. 15
In his order granting summary judgment to USF&E, Judge
Sedwick found that the Miller Act could not serve as a basis for
the district court to exercise jurisdiction. The court based its
findings on the fact that the bond obtained by USF&E did not meet
the criteria established to be a Miller Act bond; that even if it
had been a Miller Act bond, Tru-Line sued the sub-sub-sub-
contractor, not the prime contractor; and that even if it had
sued the proper party, Tru-Line was too far removed from the
prime contractor to sue under the Miller Act. As the court found
that Tru-Lines Miller Act claim was not a substantial claim upon
which it could exercise federal question jurisdiction, the
district court could not exercise pendant jurisdiction over Tru-
Lines common law contract claims.
The resolution of the Miller Act claim rested on
jurisdictional grounds even though these findings were made in an
order of summary judgment. Although the decision may be styled a
summary judgment, it should not gain increased preclusive effects
because of the label chosen.16 As such, a determination of
whether the grant of summary judgment as to the federal question
was on the merits should be looked at in the context of a
dismissal for lack of jurisdiction. Such dismissals are not on
the merits.17
b. Diversity jurisdiction
Diversity jurisdiction extends to controversies between
citizens of different states.18 Generally, there is a presumption
against diversity jurisdiction unless diversity jurisdiction is
properly asserted in the pleadings.19 This presumption places the
burden of proof on the party asserting jurisdiction, the
sufficiency of which may be raised by the parties or sua sponte
by the court at any time.20 However, a courts discretion to
dismiss for lack of subject matter jurisdiction, when the
plaintiff could have pled diversity jurisdiction and such
jurisdiction in fact exists, should be used sparingly.21
Jurisdiction may be sustained on the basis of a statute not
relied on or alleged in the pleadings.22 As such, a court may
sustain jurisdiction, even if defectively pled, when a proper
basis for jurisdiction exists upon review of the entire
complaint.23
Diversity jurisdiction was not properly pled in
district court. The first complaint merely alleged jurisdiction
under the Miller Act. In its amended complaint, Tru-Line
attempted to allege diversity jurisdiction. Tru-Line is a
California corporation and USF&E is an Alaska corporation. These
facts were disclosed during oral argument on the summary judgment
motion. During that argument, Judge Sedwick allowed Tru-Line to
withdraw its defective amended complaint and granted it leave to
file another amended complaint, one that would properly allege
diversity jurisdiction. Tru-Line, though, never filed an amended
complaint properly asserting diversity jurisdiction.
In his order, Judge Sedwick discussed Tru-Lines state
law contract claims. He did not, however, state that he was
exercising diversity jurisdiction. Rather, he mentioned
diversity jurisdiction in a footnote stating that [t]he Alaska
Contractor Registration law is substantive in nature and
therefore, applicable to Tru-Lines contract claims brought in
federal court pursuant to diversity jurisdiction.
Judge Sedwicks discussion of Tru-Lines state law
contract claims did not constitute a final judgment on the
merits. Having given Tru-Line the opportunity to file an amended
complaint properly alleging diversity jurisdiction, and Tru-Line
having failed to do so, Judge Sedwicks opinion acted only as an
advisory opinion on the futility of such action. As Tru-Line did
not have a valid claim under the Contractor Registration Act,
Judge Sedwick stated, it was unable to sue on the contract it
entered into with USF&E. As Judge Sedwicks discussion of the
state law claims was advisory and not a judgment on those claims,
it is no bar to Tru-Line filing a suit in state court on the
contract. Summary judgment in favor of USF&E, therefore, should
not have been granted.
B. Because It Was Error To Grant Summary Judgment, the Award of
Treble Fees and Costs Is Vacated.
The superior court awarded USF&E treble fees and costs.
We need not reach the propriety of this sanction. Because
summary judgment should not have been granted, the award of fees
and costs must be vacated.
V. CONCLUSION
A. Because the federal court judgment was not on the merits,
Tru-Lines state court case was not barred by res judicata. The
superior courts grant of summary judgment is therefore REVERSED,
the award of attorneys fees is vacated, and the case is REMANDED
to the superior court for further proceedings on Tru-Lines state
law claims.
_______________________________
1 40 U.S.C. 270(a)-(f) (2001). The Miller Act requires
the prime contractor on a federal construction project to furnish
a payment bond to insure payment to those who have a direct
contractual relationship with either the prime contractor or a
subcontractor. United States v. Aetna Cas. & Sur. Co., 981 F.2d
448, 450 (9th Cir. 1992).
2 AS 08.18.151 provides:
A person acting in the capacity of a
contractor may not bring an action in a court
of this state for the collection of
compensation for the performance of work or
for breach of a contract for which
registration is required under this chapter
without alleging and proving that the
contractor was a registered contractor at the
time of contracting for the performance of
the work.
3 After taking the matter under advisement and indicating
that his practice was to provide a written order explaining his
rulings, Judge Sedwick stated: It does seem to me apparent that
theres . . . clearly no claim based upon the Miller Act here.
This is not a Miller Act bond and a . . . sub-sub-sub-sub cannot
make such a claim, and its been known for many, many years that .
. . thats not proper.
4 Judge Sedwick stated: I will consider the other matters
with respect to the state law issues. Im not ruling at this
time. It does appear to me probable that theres no way this case
can be brought into federal court, in view of the substantive
state law requiring contractor registration, but I will look at
the cases [cited by counsel].
5 White v. State, Dept of Natural Res., 14 P.3d 956, 959
(Alaska 2000).
6 Calhoun v. State, Dept of Transp. & Pub. Facilities,
857 P.2d 1191, 1193 (Alaska 1993).
7 Renwick v. State, Bd. of Marine Pilots, 971 P.2d 631,
633 (Alaska 1999).
8 Engebreth v. Moore, 567 P.2d 305, 307 (Alaska 1977)
(quoting Drickersen v. Drickersen, 546 P.2d 162, 169 (Alaska
1976)).
9 White, 14 P.3d at 959 (quoting Tope v. Christianson,
959 P.2d 1240, 1243 (Alaska 1998)).
10 DeNardo v. State, 740 P.2d 453, 455 (Alaska 1987)
(internal quotes omitted).
11 U.S. Const., art. III, 2
12 See, e.g., United Mine Workers of America v. Gibbs, 383
U.S. 715, 725 (1966); 13B Charles Alan Wright, Arthur R. Miller,
& Edward H. Cooper, Federal Practice and Procedure 3564, at 66-
67 (2d ed. 1984) [hereinafter Wright].
13 See, e.g., Montana Catholic Missions v. Missoula
County, 200 U.S. 118, 130 (1906); Mainelli v. Providence Journal
Co., 312 F.2d 3, 5-6 (1st Cir. 1962); 13B Wright, supra note 12,
3564.
14 13B Wright, supra note 12, 3564 at 71; see, e.g.,
Southpark Square Ltd. v. City of Jackson, Miss., 565 F.2d 338,
342-43 (5th Cir. 1977).
15 13B Wright, supra note 12, 3564 at 73 (quoting Hagans
v. Lavine, 415 U.S. 528, 538 (1974)).
16 18 Wright, supra note 12, 4444, at 392 (citing Wright
Mach. Corp. v. Seaman-Andwall Corp., 307 N.E.2d 826, 833 (Mass.
1974)).
17 See e.g., In re Matter of Pacific Marine Ins. Co. of
Alaska in Liquidation, 877 P.2d 264, 267 n.2 (Alaska 1994);
Ostrow v. Higgins, 722 P.2d 936, 938 (Alaska 1986); Moran v.
Poland, 494 P.2d 814, 816 (Alaska 1972).
18 U.S. Const., art. III, 2.
19 See Naartex Consulting Corp. v. Watt, 722 F.2d 779, 792
(D.C. Cir. 1983).
20 See Rice v. Rice Found., 610 F.2d 471, 474 (7th Cir.
1979).
21 Hoefferle Truck Sales, Inc. v. Divco-Wayne Corp., 523
F.2d 543, 549 (7th Cir. 1975).
22 May v. Supreme Court of Colorado, 508 F.2d 136, 137
(10th Cir. 1974).
23 Van Hoose v. Williams, 496 F. Supp. 947, 948 (E.D. Ky.
1980).
