Opposition Brief — Langan Engineering Associates, Inc. v. 21st Phoenix Corp.

No. 89-1599

In The

Supreme Court of the United States

October Term, 1989

AIM

LANGAN ENGINEERING ASSOCIATES, INC.,

Petitioner,

21ST PHOENIX CORPORATION, formerly known

as THE HANSON DEVELOPMENT COMPANY,

Respondent.

BRIEF IN OPPOSITION TO PETITION

FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

eniestbieiniiadadads —_—__@—— ieeiseinedieteintdiietia

Kevin M. Fow er

FRIEDEN, Haynes & Forses

400 S.W. 8th St., Suite 409

lopeka, Kansas 66603

(913) 232-7266

Counsel for Respondent

eel oar arn ‘OCKLE LAW BRIEF PRINTING CO, (60) 256004 =2«2#02#°02#2~C—

OR CALL COLLECT (402) 342-283)

BEST AVAIL! Py

Rig a

QUESTION PRESENTED

Whether a federal court with undisputed subject mat-

ter jurisdiction to decide a Rule 14(a) third-party claim

for “pass through” construction project delay damages

between non-diverse third-parties is also empowered to

decide a claim for additional delay damages between

those same parties where the non-diverse third-party de-

fendant has been properly impleaded and the claim for

such additional delay damages arises out of and is log-

ically entwined with the same construction delays as the

main removal action between diverse parties.

il

PARTIES

All parties to the proceeding in the court whose

judgment is sought to be reviewed include:

King Fisher Marine Service, Inc., a Texas corporation

[Plaintiff and hereinafter “King Fisher’];

21st Phoenix Corporation, formerly known as The

Hanson Development Company, a Delaware Corporation

with its principal place of business in New Jersey [Defen-

dant, Third-Party Plaintiff and Appellee, and hereinafter

“Hanson” J;

Langan Engineering Associates Inc., a corporation

with its principal place of business in New Jersey [Third-

Party Defendant and Appellant, and hereinafter “Lan-

gan”]; and

Highlands Insurance Company, a Texas corporation

[Third-Party Defendant and hereinafter “Highlands”].

To the best of our knowledge, none of these parties

has any parent or subsidiary company to be listed herein.

ili

TABLE OF CONTENTS

Page

Og 8 yg fs |» i

ena e Tiga. waa jas 4c oe he dk hs wee bess ii

pes yg 8) iv

massemmres Gr Tite CASE... 5. cece cece ecceees 1

SUMMARY OF THE ARGUMENT ................. 8

ARGUMENT FOR DENYING THE PETITION...... 11

1. The Tenth Circuit opinion below does not mate-

rially conflict with the decision of another Unit-

ed States court of appeals concerning the

proper scope of ancillary jurisdiction in third-

eo EE ee er ee 11

2. The Tenth Circuit opinion below does not con-

flict with applicable decisions of this Court .. 19

ee Sey e veces CCR eR aN sk eee eens 20

APPENDIX

iv

TABLE OF AUTHORITIES

CASES

Aldinger v. Howard, 427 U.S. 1, 96 S.Ct. 2413, 49

ee: os | eer rrr ere 9, 10, 11,

Birmingham Fire Ins. Co. of Pa. v. Winegardner &

Hammons, Inc., 714 F.2d 548 (5th Cir. 1983)

i Rede pues < ape eveces bakes caer eee 12, 16,

Eagerton v. Valuations, Inc., 698 F.2d 1115 (i1th Cir.

1983)

F.O. Majors v. American National Bank of Huntsville,

426 F.20 SOG Gt Cie. TSG). . 2 ec ccciccccves 12,

Finley v. United States, __ U.S. __, 109 S.Ct. 2003,

em eR | 8) eer ee 9, 10,

Hartford Acc. and Indem. Co. v. Sullivan, 846 F.2d

377 (7th Cir. 1988), cert. denied, 109 S.Ct. 2428

| APE or eer ee ee eee 1, 14, 3,

King Fisher Marine Serv., Inc. v. Hanson Dev. Co.,

717 F.Supp. 727 (D.Kan. 1987)

May’s Family Centers, Inc. v. Goodman’s Inc., 104

F.R.D. 112 (N.D.II1. 1985)

eoceeCenrer ee £4 2 a8 he O42 @

Moore v. New York Cotton Exchange, 270 U.S. 593, 46

S.Ct. 367, 70 L.Ed. 750 (1926)........ 9, 10, 11,

Nat. Union Fire Ins. Co. v. Continental Illinois Corp.,

661 F.Supp. 964 (N.D.IIl. 1987)

eceCceeeneeenoee8 ee 8 8 @

Nishimatsu Construction Co., Ltd. v. Houston Nat.

Bank, 515 F.2d 1200 (5th Cir. 1975)

Noland Company v. Graver Tank & Manufacturing

Co., 301 F.2d 43 (4th Cir. 1962)

Caer DO Hiw@ #4808 6 46

Owen Equipment & Ercction Co. v. Kroger, 437 U.S.

365, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978)

eeeaeve*

Page

18, 19

17, 18

Vv

TABLE OF AUTHORITIES - Continued

Page

Revere Copper & Brass Inc. v. Aetna Cas. & Sur. Co.,

Gee Fate FOO Cotte Ge, TEs ke os ces cc ewencsccecs 16

Schwab v. Erie Lackawanna Railroad Co., 438 F.2d 62

See Sa Ra he tan ea wee v Gains dawns os 19

Travelers Ins. Co. v. First Nat. Bank, Etc., 675 F.2d

Ce Gee Gs WE 5 8s oo oo br Re re Ki vanwdawensnes < 16

United States v. City of Twin Falls, Idaho, 806 F.2d

862 (9th Cir. 1986), cert. denied, 482 U.S. 914, 107

ee 4 Pree Pee Tr Teper re eee ee 19

RULEs

Rule 10.1, Rules of the Supreme Court............. 8, 9

Peete WN 5 ek 20 het svn cc euceneeees 2, 8, 10, 13, 18

8 a ED rN Mary tee fire 6, 7, 8

No. 89-1599

a

vw

In The

Supreme Court of the United States

October Term, 1989

&

4

LANGAN ENGINEERING ASSOCIATES, INC.,

Petitioner,

vs.

21ST PHOENIX CORPORATION, formerly known

as THE HANSON DEVELOPMENT COMPANY,

Respondent.

a

_

BRIEF IN OPPOSITION TO PETITION

FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

a

vv

STATEMENT OF THE CASE

The material facts of this construction litigation are

correctly recited in the district court’s opinion below,

King Fisher Marine Serv., Inc. v. Hanson Dev. Co., 717

F.Supp. 727, 728 (D.Kan. 1987), which appear at pages

45-48 of the Appendix to the Petition for Writ of Cer-

tiorari, and will not be restated here. Nevertheless, some

additional facts require separate articulation to ensure

clarity and to rectify certain perceived misstatements set

forth in the Petition for a Writ of Certiorari [“Petition for

Writ”.

On December 19, 1973, after this construction litiga-

tion had been properly removed to federal court, Judge

Templar granted Hanson leave to file a third-party com-

plaint against Langan which contained claims for “pass

through” liability under Rule 14(a) and construction delay

damages in excess of the “pass through” claim. [Cf R.Vol.

I, Doc. 18, Order, 12/19/73, with R.Vol. I, Doc. 14, Defen-

dant’s Motion for Leave, 12/10/73, and Exhibit A thereto

at Third-Party Complaint, Count I]. Because King Fisher

and Hanson had interposed substantial claims against

each other in the main diversity action for damages aris-

ing out of the same construction delays, Judge Templar

expressly recognized a “likelihood that issues developed

will demonstrate that Langan may be liable to Hanson,

depending upon the outcome of the main claim... ”

[R.Vol. I, Doc. 18, Order, 12/19/73, p. 2].

On December 27, 1973, Hanson impleaded Langan as

a third-party defendant and interposed both of its claims

against Langan which had been previously approved for

filling by the district court. [R.Vol. I, Doc. 19, Amended

Answer, Amended Counterclaim and Third-Party Com-

plaint, 12/27/73, Third-Party Complaint at Count I]. Lan-

gan subsequently filed its Answer to Third-Party

Complaint and Counterclaim. [R.Vol. I, Doc 26, Answer to

Third-Party Complaint and Counterclaim, 3/1/74]. While

Langan generally denied liability to Hanson, it did not

challenge the propriety of its joinder or Hanson’s third-

party claims, and it did not request remand of these

proceedings, in whole or in part, to state court. [Id. at

1-3]. However, in further response to Hanson’s third-

party claim for construction delay damages in the amount

of $136,395.60, Langan asserted its own counterclaim for

“pass through” liability against King Fisher. [R.Vol. [,

Doc. 26, Answer to Third-Party Complaint and Counter-

claim, 3/1/74, p. 3]. This counterclaim alleged, among

other things, that King Fisher was solely responsible for

all construction delays and that “[iJf the defen-

dant . . . recovers against the Third-Party Defen-

dant... for any delays in the completion of Marina Lakes

project then the Third-Party Defendant claims against the

plaintiff [King Fisher] for any and all such damages.” [id.,

p. 3 at 74 3-4).

During the period from 1974 through 1977, the par-

ties conducted extensive pretrial discovery, and the dis-

trict court devoted substantial attention to discovery

disputes and motions for partial summary judgment. [See,

e.g., R.Vol. I, Docs. 30-98].

On June 29, 1977, prior to the completion of pretrial

discovery, the district court held its final pretrial confer-

ence in this case [R.Vol. I, Doc. 72, Pretrial Order, 8/1/77,

p- 1}. In relevant part, the district court gave Hanson

leave to amend its pleadings and answers to interrogato-

ries “in regard to the amount and nature of its damages”

lid., p. 5 at 4 3], and directed the parties to exchange

detailed information regarding their respective claims.

[Id., pp. 5-6 at JY 4-8]. The district court also recognized

that one of the “Legal and Factual Issues” for ultimate

decision included whether Hanson was “entitled to dam-

ages against third-party defendant, Langan Engineering,

in the event judgment is rendered against defendant...”

[R.Vol. I, Doc. 72, Pretrial Order, 8/1/77, p. 7 at ¥ 8].

Following the pretrial conference, on July 7, 1977,

King Fisher filed its required list of witnesses, exhibits

and supplemental factual contentions. [R.Vol. I, Doc. 64,

Plaintiff’s Information, 7/7/77]. King Fisher’s supple-

mental factual contentions identified nine (9) reasons that

Hanson or its representatives [e.g., Langan] had caused

construction delays and additional expenses. [Id., p. 4].

When Hanson subsequently filed its supplemental factual

contentions required by the Pretrial Order, eight (8) of the

nine (9) reasons for delays and additional expenses iden-

tified by King Fisher also formed the basis of Hanson’s

third-party claims against Langan. [Cf R.Vol. I, Doc. 73,

Defendant’s Information, 8/4/77, with Doc. 64, Plaintiff’s

Information, 7/7/77]. Likewise, both King Fisher and

Hanson designated virtually the same witnesses and ex-

hibits to support their respective positions concerning

responsibility for the construction delays which per-

meated the main diversity action and Hanson's third-

party claims against Langan. [Cf R.Vol. I, Doc. 64, Plain-

tiff’s Information, 7/7/77, with Doc. 69, Defendant’s Des-

ignation of Exhibits and Witnesses, 7/29/77].

Hanson subsequently amended its pleadings and an-

swers to interrogatories, increasing the amount of Hans.

on’s asserted “delay” damages against both King Fisher

and Langan from $136,395.60 to $155,703.60. [R.Vol. I,

Doc. 66, Second Amended Answer, Amended Counter-

claim and Third-Party Complaint, 7/25/77; Doc. 67,

Amended Answers of Defendant to Interrogatories,

7/25/77; see also Petition for Writ, p. 6].

On January 24, 1978, Langan’s local counsel was per-

mitted to withdraw from this case. [R.Vol. I, Order,

1/24/78]. “At that time, Langan was notified that it

should ‘take pains’ to retain other local counsel in accord-

ance with Local Rule 4(f) of the Rules of Practice for [the

district] court. This was never done.” [R.Vol. I, Doc. 124,

Memorandum and Order, 12/16/83, p. 3 (emphasis in

original)].

On January 16, 1979, nearly eight months after a May

1978 trial setting had been continued, notice was sent to

counsel setting this case for trial on April 9, 1979. [Id.].

Jay Scott MacNeill, Langan’s remaining counsel, was

permitted to withdraw from the case on February 14,

1979. [R.Vol. I, Doc. 102, Order, 2/14/79]. However, be-

cause of frustrations in setting this case for trial, the

district court advised that “the case ‘will proceed [to trial]

April 9 whether Langan is represented or not.’ ” [R.Vol. I,

Doc. 124, Memorandum and Order, 12/16/83, pp. 3-4].

This case proceeded to trial on April 9, 1979, but

Langan did not appear. [R.Vol. I, Doc. 130, Transcript of

Proceedings, 4/9/79, p. 2]. The district court was in-

formed that King Fisher and Hanson had “entered into an

agreement” to settle the main diversity action under

which Hanson would consent to a judgment in favor of

King Fisher for $60,000 plus interest, Hanson would dis-

miss its counterclaim against King Fisher, and Hanson

would dismiss its third-party claim against Highlands.

i/d., pp. 3-4]. Hanson then proceeded to trial on its third-

party complaint against Langan, offered evidence, and

requested judgment in an amount less than that estab-

lished by the undisputed evidentiary record. [Id., pp.

5-10; Petition for Writ, p. 9]. At the conciusion of the trial,

the district court advised that it would approve the settle-

ment between King Fisher and Hanson, and that the

“exact amount” of Hanson’s judgment against Langan

would be taken under advisement. [R.Vol. I, Doc. 130,

Transcript of Proceedings, 4/9/79, p. 10].

On April 11, 1979, the district court entered judgment

on the “full, final and complete settlement of the matters

in controversy” between King Fisher, Hanson and High-

lands by reducing “the complaint of King Fisher” against

Hanson to judgment in the amount of $60,000, dismissing

Hanson’s counterclaim against King Fisher, and dismiss-

ing Hanson’s third-party claim against Highlands. [R.Vol.

I, Doc. 104, Journal Entry of Judgment, 4/11/79, pp. 1-2;

Doc. 105, Judgment, 4/11/79]. The district court also

entered judgment in favor of Hanson “on its third-party

complaint” against Langan in the amount of $155,703.50.

[R.Vol. 1, Doc. 104, Journal Entry of Judgment, 4/11/79,

pp. 2-3; Doc. 105, Judgment, 4/11/79]. Langan did not

appeal. [Appendix to Petition for Writ, App. 47].

On October 3, 1983, Langan filed a motion to set

aside the judgment for the asserted reasons that Langan

had no notice of the trial date or the entry of judgment

[R.Vol. I, Doc. 109, Motion of Third-party Defendant,

10/3/83; Appendix to Petition for Writ, App. 47]. The

district court subsequently denied relief and found, in

part, that “[t]he facts of this case do not support a motion

for relief from judgment under subp. ‘s 4 or 6 of Rule

60(b).” [R.Vol. I, Doc. 124, Memorance m and Order,

12/16/83, p. 3]. Langan thereafter appealed to the Tenth

Circuit [R.Vol. I, Doc. 126, Notice of Appeal, 1/5/84].

On September 11, 1985, the Tenth Circuit affirmed the

district court’s first decision refusing to set aside its judg-

ment against Langan [R.Vol. I, Doc. 142, King Fisher Ma-

rine Service, Inc. v. 21st Phoenix Corp., et al., No. 84-1025

(10th Cir., unpublished, 9/11/85) (Order and Judg-

ment)].! In particular, the Tenth Circuit rejected Langan’s

contentions that the imposition of judgment violated due

process; “that Fed.R.Civ.P. 60(b) further requires vacating

judgment; and that the judgment entered exceeds the

damages that the third-party plaintiff originally prayed

for.” [Id., p. 2; Appendix, p. 2]. Langan, however, did not

petition this Court for a writ of certiorari.

On November 13, 1985, Langan filed its second mo-

tion in the district court seeking to set aside the judgment

rendered on April 11, 1979 in favor of Hanson. [R.Vol. 1,

Doc. 139, Motion of Third-Party Defendant, 11/13/85]. In

this Rule 60(b)(4) motion, Langan contended that the

judgment is void for lack of subject matter jurisdiction

under Owen Equipment & Erection Co. v. Kroger, 437 U.S.

365, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978), because there

was no diversity of citizenship between Hanson and Lan-

gan. [Id.]. Hanson responded that the district court had

ancillary jurisdiction in this removal action over the

third-party claim against Langan for “excess” delay dam-

ages; that settlement of the claims in the main diversity

action did not affect subject matter jurisdiction; and that

the district court’s potentially erroneous exercise of juris-

diction did not void its judgment nor warrant relief under

Rule 60(b)(4). [R.Vol. I, Doc. 148, Memorandum of 21st

Phoenix Corporation, 1/27/86].

On September 8, 1987, the district court concluded

that “this case is distinguishable from Kroger and that this

1 This unpublished Order and Judgment of the Tenth Cir-

cuit appears in the Appendix hereto, beginning at page 1.

court had the constitutional and statutory authority to

exercise jurisdiction...” and, accordingly, denied Lan-

gan’s second motion for relief from judgment. [Appendix

to Petition for Writ at App. 52]. Langan subsequently

appealed and, on January 10, 1990, a unanimous panel of

the Tenth Circuit affirmed. The Tenth Circuit held that

“the district court’s ancillary jurisdiction encompassed all

of Hanson’s third-party claims. Having exercised its an-

cillary jurisdiction over Hanson’s proper rule 14(a) in-

demnity claim against Langan, it was within the court’s

power and its discretion also to hear and decide Hanson’s

delay damages claim against Langan, given that the claim

arose from the same transaction or occurrence as the

principal claim by King Fisher against Langan.” [Appen-

dix to Petition for Writ at App. 41].

Langan petitions this Court for certiorari review of

the Tenth Circuit’s judgment affirming the district court's

second refusal to grant relief from judgment under Rule

60(b).

La

vy

SUMMARY OF THE ARGUMENT

No “special and important” reasons exist for discre-

tionary review of the Tenth Circuit’s decision below. Rule

10.1, Rules of the Supreme Court (effective Jan. 1, 1990).

Respondent accordingly prays that Langan’s petition for

writ of certiorari be denied in its entirety.

The Tenth Circuit’s decision does not materially con-

flict with the decision of any other United States court of

appeals concerning the scope or exercise of ancillary ju-

risdiction in third-party practice. When, as here, a third-

party claim between non-diverse parties arises out of a

tight nucleus of operative fact in common with the main

diversity action, the Tenth Circuit recognizec that the

proper test for ancillary jurisdiction over that claim is

whether it also arises out of and is logically related to the

same “transaction or occurrence” as one or more claims

for which there is an independent basis for federal subject

matter jurisdiction. No decision of any United States

court of appeals is in conflict with this formulation of the

appropriate jurisdictional test. Although there may be

“some disagreement” among the circuits concerning the

scope of such ancillary jurisdiction, Hanson submits that

application of the Tenth Circuit’s well-reasoned approach

would not alter or affect the outcome of any “decision of

another United States court of appeals on the same mat-

ter . . . ” Rule 10.1(a), Rules of the Supreme Court.

Therefore, the “conflict” perceived by Langan lacks legal-

ly controlling significance and does not merit discretion-

ary review on writ of certiorari.

The decision of the Tenth Circuit below is also firmly

anchored in pertinent decisions of this Court from Moore

v. New York Cotton Exch~> ge, 270 U.S. 593, 46 S.Ct. 367, 70

L.Ed. 750 (1926), thro: ~h Finley v. United States, _ US.

__, 109 S.Ct. 2003, 104 L.Ed.2d 593 (1989). Since the

district court’s constitutional power to decide Hanson’s

third-party claim for delay damages is undisputed, the

Tenth Circuit dedicates most of its forceful analysis to

proper application of Owen Equipment and Erection Com-

pany v. Kroger, 437 U.S. 365, 98 S.Ct. 2396, 57 L.Ed.2d 274

(1978), in light of Moore, Aldinger v. Howard, 427 U.S. 1, 96

10

S.Ct. 2413, 49 L.Ed.2d 276 (1975), and Finley, [See Appen-

dix to Petition for Writ at App. 9-27].?

After reviewing this line of precedent, the Tenth Cir-

cuit correctly concluded that Owen Equipment is factually

distinguishable and, in view of this Court’s reference to

Moore in Owen Equipment, ancillary jurisdiction over a

third-party claim between non-diverse parties exists

where the ciaim is logically related to, rather than log-

ically dependent upon, the main action. [Appendix to

Petition for Writ of App. 14-21; cf Owen Equipment, 437

U.S. at 376, with Moore, 270 U.S. at 609-10]. Utilizing the

two-step analysis mandated in Finley, Owen Equipment

and Aldinger, the court also held that ancillary jurisdiction

properly attached to Hanson’s third-party claim for delay

damages because of the “posture” in which it was assert-

ed and because “Congress has neither impliedly nor ex-

pressly negated the exercise of jurisdiction over Hanson’s

added third-party claim.” [Appendix to Petition for Writ

of App. 23, 25-27].

In this case, the district court had undisputed consti-

tutional and statutory power to determine the main di-

versity claims and Hanson’s “Rule 14(a) pass-through

claims” against Langan. [See Petition for Writ, p. 23].

Since it is also undisputed that Langan was properly

impleaded as a third-party defendant, unlike Finley and

Aldinger, Hanson’s additional claim against Langan did

not require the addition of any party over whom there

2 Langan’s Petition for Writ of Certiorari notably fails to

address the impact of Moore, Aldinger and Finley on the proper

scope and application of the jurisdictional rules announced by

this Court in Owen Equipment. Such silence is deafening.

11

was no independent basis for jurisdiction. [Appendix to

Petition for Writ of App. 25-26 and n. 9; see Finley, 109

S.Ct. at 2007-08; Aldinger, 427 U.S. at 18]. Likewise, this

additional third-party claim is “logically related to King

Fisher’s claim” in that “arguably any [construction] de-

lays by Langan would give rise to damages to both Hans-

on and King Fisher.” [Appendix to Petition for Writ at

App. 21]. Because Congress never intended the diversity

statute “to confine the jurisdiction of federal courts so

inflexibly that ‘hey are unable to. . . effectively resolve an

entire, logically entwined lawsuit,” Owen Equipment, 437

U.S. at 377, the existence of ancillary jurisdiction in this

case enabled the district court to “effectively resolve an

entire, logically entwined lawsuit,” id., without requiring

Hanson to sacrifice its statutory removal rights or its

ability to obtain complete relief. [Appendix to Petition for

Writ at App. 19, 27 and 52; see also Moore, 270 U.S. at 610).

Therefore, a proper reading of the pertinent decisions

from this Court impels that conclusion that “the district

court’s ancillary jurisdiction encompassed all of Hanson’s

third-party claims.” [Appendix to Petition for Writ at

App. 41].

y%

—_

ARGUMENT FOR DENYING THE PETITION

1. The Tenth Circuit opinion below does not mate-

rially conflict with the decision of another Unit-

ed States court of appeals concerning the proper

scope of ancillary jurisdiction in third-party

practice.

Langan contends that the Tenth Circuit’s decision in

this case conflicts with the decisions in Hartford Acc. and

12

Indem. Co. v. Sullivan, 846 F.2d 377 (7th Cir. 1988), cert.

denied, 109 S.Ct. 2428 (1989) [“Hartford”], Birmingham Fire

Ins. Co. of Pa. v. Winegardner & Hammons, Inc., 714 F.2d 548

(5th Cir. 1983) [“Birmingham Fire”], and F.O. Majors v.

American National Bank of Huntsville, 426 F.2d 566 (5th Cir.

1970) [“Majors”]. [Petition for Writ, pp. 18-19]. Relying

most extensively upon Hartford, Langan also argues that

“the instant case would have been decided differently if it

had arisen in the Seventh Circuit [rather] than the Tenth

Circuit.” [/d., p. 16]. Hanson vigorously disagrees.

In Hartford, certain officers of the Ford City Bank,

including Mr. Sullivan, engaged in a conspiracy to de-

fraud the bank in connection with certain real estate

loans. Shortly after the bank was informed of the scheme,

one of the principal conspirators defaulted, owing the

bank more than $2.5 million. 846 F.2d at 379. In an effort

to mitigate its damages, “[t]he bank demanded that Sul-

livan sign over his interest in Neuport Estates, and he

complied.” Id. Ford City Bank subsequently sold Neuport

Estates for more than the loan balance it secured, plus

expenses, and applied the remaining sale proceeds to

other loans of the principal conspirator. Id.

Hartford Accident and Indemnity Company insured

the bank against “defalcations by its officers” and settled

the bank’s indemnity claim for $1.25 million, “plus an

assignment of Ford City’s legal rights.” 846 F.2d at 379.

But Hartford did not take “an open-ended assignment of

Ford City’s liabilities.” Id. at 380. The insurance company

was not a citizen of Illinois and subsequently filed suit

against the bank officers — all of whom were citizens of

Illinois — in federal district court predicated upon diver-

sity of citizenship. 846 F.2d at 379. Sullivan be #

13

Ford City, also a citizen of Illinois, on a third-party com-

plaint under Rule 14(a) “seeking to recover the amount

that Ford City had realized from the sale of Neuport

Estates over and above the amount owed the bank” on

the loan it secured, primarily because “the bank had

breached a fiduciary duty to him by applying the pro-

ceeds to . . . other loans.” Id. Characterizing the im-

pleader of Ford City Bank as “somewhere in

between... examples of proper and improper invocation

of ancillary jurisdiction,” the Seventh Circuit concluded

that Sullivan’s third-party complaint should be dismissed

for lack of subject-matter jurisdiction. 846 F.2d at 380, 385.

In evaluating the propriety of Sullivan’s third-party

claims against Ford City Bank, a non-diverse third-party

defendant joined on a state law claim which could not

serve as the basis for Sullivan’s recovery against Hart-

ford, the Seventh Circuit properly concluded that “the

test of same transaction of occurrence. . . .is the proper

test to use in determining which Rule 14(a) claims are

within the federal courts’ ancillary jurisdiction if the

doctrine is narrowly construed in the impleader setting,

as we think it should be...” 846 F.2d at 382 [emphasis

added]. Utilizing the “same transaction or occurrence”

test approved by this Court in Moore, 270 U.S. at 610, and

applied by the Tenth Circuit in its opinion below, the

court held that while Hartford’s claim against Sullivan

and Sullivan’s claim against Ford City Bank “involve

considerable factual overlap . . . they arise at different

times from different events, and thus flunk the test of

same transaction or occurrence.” 846 F.2d at 382.3

* “Hartford’s claim against Sullivan arises out of the

fraudulent scheme by Orlak and others to defraud the bank,

(Continued on following page)

14

The Seventh and Tenth Circuits each agree that the

scope of ancillary jurisdiction over third-party claims,

while narrow, extends to claims which arise out of the

same “transaction or occurrence” as the main action. Cf

Hartford, 846 F.2d at 382 [“same transaction or occur-

rence” is the appropriate test], with Appendix to Petition

for Writ of App. 17-19 [same as Hartford, but noting that

Moore requires only a “logical relationship” between the

main and ancillary claims]. Since these circuits apply the

same test for ancillary jurisdiction in third-party practice,

there is no palpable support for Langan’s suggestion that

this case “would have been decided differently if it had

arisen in the Seventh Circuit...” [Petition for Writ, p.

16]. While ancillary jurisdiction in Hartford did not en-

compass Sullivan’s third-party claim because it arose at a

different time from different factual events than the main

diversity claim, 846 F.2d at 382, the same cannot be said

about this case. Here, ancillary jurisdiction properly at-

tached to Hanson’s third-party claim against Langan for

delay damages because it arose at the same time from the

same events [i.e., construction project delays] as the main

diversity action between King Fisher and Hanson. See

Appendix to Petition for Writ of App. 19-21. Since it

plainly appears that the Tenth Circuit’s decision below

would not change the holding in Hartford and the Seventh

Circuit’s decision in Hartford would not change the out-

come in this case, there is no material conflict between

(Continued from previous page)

while Sullivan’s claim against the bank arises out of the bank’s

efforts to cut its losses by foreclosing the Neuport Estates loan

after the frauds were discovered.” Hartford, 846 F.2d at 382.

15

these circuits which merits discretionary review by this

Court.4

4 The Tenth Circuit acknowledged that two decisions ren-

dered by the United States District Court for the District of

Northern Illinois are in “apparent agreement” with Langan’s

assessment that “logical dependence” is necessary for ancillary

jurisdiction over an additional “claim sought to be added.”

[Appendix to Petition for Writ at App. 16-17]. These decisions,

however, are not appellate court opinions; they do not squarely

decide that “logical dependence” marks that outer limits of

ancillary jurisdiction; and if they do decide that “logical de-

pendence” is an absolute requirement, their continued vitality

is highly questionable in view of the Seventh Circuit’s opinion

in Hartford.

In Nat. Union Fire ins. Co. v. Continental Illinois Corp., 661

F.Supp. 964 (N.D.IIl. 1987), Judge Shadur dismissed the third-

party complaint because it was not “based on the same nucleus

of the operative fact as the other claims in these actions”

without deciding the permissible scope of ancillary jurisdiction

in third-party party practice. Id. at 970.

In May’s Family Centers, Inc. v. Goodman's Inc., 104 F.R.D.

112 (N.D.IIl. 1985), Judge Shadur likewise failed to define the

outer limits of ancillary jurisdiction by holding only that such

jurisdiction attached where the outcome of the main diversity

claim “is a necessary but not a sufficient condition of” the

third-party defendant’s liability to the third-party plaintiff. Id.

at 115-16. But since this degree of logical dependence brought

the third-party complaint within the court’s ancillary jurisdic-

tion, the district court in May’s Family Centers did not deter-

mine the extent to which such dependence may be required, if

at all, before a federal court obtains ancillary jurisdiction over

a third-party claim between non-diverse parties.

Hanson acknowledges, however, that there is dicta in Na-

tional Union and May’s Family Centers which suggests “logical

(Continued on following page)

16

The Fifth Circuit decisions in Birmingham Fire and

Majors likewise fail to materially conflict with the Tenth

Circuit’s decision in this case. But before addressing these

particular decisions, it should be emphasized that a set-

tled line of precedent in the Fifth Circuit relies upon the

same “transaction or occurrence” test for ancillary juris-

diction endorsed by the Seventh and Tenth Circuits. See

Travelers Ins. Co. v. First Nat. Bank, Etc., 674 F.2d 633,

638-39 (Sth Cir. 1982); Nishimatsu Construction Co., Ltd. v.

Houston Nat. Bank, 515 F.2d 1200, 1205 (5th Cir. 1975);

Revere Copper & Brass Inc. v. Aetna Cas. & Sur. Co., 426 F.2d

709, 714-716 (5th Cir. 1970). In Travelers, while the court

dismissed a cross-claim between non-diverse parties for

lack of ancillary jurisdiction, the Fifth Circuit ratified its

earlier decision in Revere Copper, concluding in the wake

of Owen Equipment:

The key is the requirement that, for a non-

diverse claim to be considered ancillary to a

diverse one, it must not only arise from the

same ‘core of operative facts’ as does the diverse

claim, but it must also bear a ‘logical relation-

ship’ to that claim.

675 F.2d at 638 [emphasis added].

(Continued from previous page)

dependence” as an absolute requirement for ancillary jurisdic-

tion. Nevertheless, the Seventh Circuit’s position later articu-

lated in Hartford that ancillary jurisdiction exists where a third-

party complaint arises out of the same “transaction or occur-

rence” as the main action demonstrates that such dicta is of no

value in resolving the issue presented by Langan for discre-

tionary review.

17

In Birmingham Fire, a hurricane inflicted more than $2

million in damage to the defendants’ Holiday Inn. The

hotel was insured by two different insurance policies,

issued by two separate insurance companies, at the time

the hurricane struck. Birmingham Fire Insurance Compa-

ny of Pennsylvania [“BFI”], a citizen of Pennsylvania,

denied coverage and filed a declaratory judgment action

against the defendants, citizens of Texas, in the United

States District Court for the District of Texas with respect

to its liability, if any, on its insurance policy. 714 F.2d at

549. The defendants ultimately filed a cross-complaint

against BFI and moved to join the Texas Catastrophe

Property Insurance Association [“TexCat”], a creature of

Texas statute which also insured the hotel, as an addition-

al defendant on its cross-complaint. Id. TexCat moved to

dismiss BFI’s cross-complaint for lack of jurisdiction

premised upon BFI’s failure to exhaust administrative

remedies required by Texas law. The district court

granted the motion. 714 F.2d at 549.

On appeal, the Fifth Circuit affirmed, concluding that

BFI’s failure to exhaust administrative remedies was fatal to

its purported action against TexCat. 714 F.2d at 550. How-

ever, BFI also argued that its cross-complaint against TexCat

was a “compulstory counterclaim” which automatically and

involuntarily vested the district court with ancillary jurisdic-

tion. Id. at 551. Because “this case is peculiar,” the Fifth

Circuit agreed to “go further and elaborate why ancillary

jurisdiction is inappropriate and impermissible in this case.”

Id. The court of appeals then held that BFI’s cross-complaint

against TexCat was not a compulsory counterclaim because it

did not arise from the same core of operative facts as the

main diversity action and BFI was merely “attempting to

18

implead additional parties; it is not asserting a counterclaim

against an already opposing party.” 714 F2d at 551-552.

Given the posture of Birmingham Fire, the Fifth Circuit also

observed that BFI’s attempt to implead a non-diverse party

on a state law claim not arising from the same core of

operative facts as the main diversity action was expressly

prohibited ‘» this Court’s decisions in Aldinger and Owen

Equipment. 7i4 2d at 552-53.

By contrast, in this case, Hanson properly impleaded

Langan as a non-diverse third-party defendant on its

Rule 14(a) “pass through” liability claim that was clearly

dependent on the outcome of the main diversity action.

Likewise, Hanson’s additional claim for “delay” damages

in excess of its “pass through” claim arose from the same

core of operative facts and was logically related to or

entwined with the same transaction or occurrence as the

main diversity action. Since the posture of this case is

substantially different from the facts of Birmingham Fire, it

cannot reasonably be said that the Tenth Circuit’s opinion

below conflicts with this Seventh Circuit decision. Cf

Majors, 426 F.2d at 567-68 [dces not attempt to define the

boundaries of permissible ancillary jurisdiction in third-

party practice, except to observe that such jurisdiction

does not extend to “separate and independent causes or

claims” J.

Hartford, Birmingham Fire, and Majors are the only

decisions identified by Langan which allegedly conflict

with the Tenth Circuit’s opinion below. As demonstrated

above, however, Langan’s contention does not survive

scrutiny. Hanson accordingly submits that the Fifth, Sev-

enth and Tenth Circuits are in substantial agreement con-

cerning the proper scope of ancillary jurisdiction, and the

19

decision of the Tenth Circuit in this case does not mate-

rially conflict with the decision of another United States

court of appeals on the same matter. See also United States

v. City of Twin Falls, Idaho, 806 F.2d 862, 867-68 (9th Cir.

1986) [endorses same transaction or occurrence test; must

be “a close factual and logical nexus” between third-party

claim and main action], cert. denied, 482 U.S. 914, 107 S.Ct.

3185 (1987); Eagerton v. Valuations, Inc., 698 F.2d 1115,

1119 (11th Cir. 1983) [must be tight nexus or logical

relationship between the ancillary claim and the subject

matter properly in federal court]; Schwab v. Erie Lackawan-

na Railroad Co., 438 F.2d 62, 70-71 (3d Cir. 1971) [endorses

same transaction or occurrence test for ancillary jurisdic-

tion over third-party claim in excess of a properly

impleaded indemnity claim]; Noland Company v. Graver

Tank & Manufacturing Co., 301 F.2d 43, 49-50 (4th Cir.

1962) [proper third-party complaint for indemnity may

also include “closely related” claims which arise from the

same transaction or occurrence as the main action].

2. The Tenth Circuit opinion below does not con-

flict with applicable decisions of this Court.

Langan contends that the Tenth Circuit’s decision

conflicts with the decision of this Court in Owen Equip-

ment. [Petition for Writ, pp. 19-22]. However, Petitioner

has completely failed to address or dispute the Tenth

Circuit’s comprehensive analysis and application of Owen

Equipment in light of this Court’s decisions in Finley,

Aldinger and Moore. [Cf Petition for Writ, pp. 19-22, with

Appendix to Petition for Writ of App. 9-27]. In the inter-

est of brevity, Hanson respectfully submits that the Tenth

20

Circuit’s well-reasoned analysis below convincingly dem-

onstrates that its decision does not conflict with Owen

Equipment or any other applicable decision of this Court.

The Tenth Circuit’s discussion and analysis of Owen

Equipment, set forth at pages 9 through 27 of the Appen-

dix to Langan’s Petition for Writ, is therefore fully incor-

porated by reference.

yN

-

CONCLUSION

For the reasons articulated above, Respondent re-

spectfully requests this Honorable Court to deny Lan-

gan’s petition in its entirety.

Respectfully submitted,

Kevin M. Fow.er

FRIEDEN, HaAyNes & Fores

400 S.W. 8th St., Suite 409

(913) 232-7266

Counsel of Record for Respondent

and

JOHN C. FRIEDEN

FrRIEDEN, Haynes & Forses

400 S.W. 8th St., Suite 409

Topeka, Kansas 66603

(913) 232-7266

Counsel for Respondent

|

App. 1

APPENDIX

) UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

KING FISHER MARINE

SERVICE, INC.,

a Texas corporation,

Plaintiff-Appellee,

VS.

21st PHOENIX CORP., f/k/a

THE HANSON DEVELOPMENT

COMPANY, a Delaware

corporation,

Defendant, Third-Party

Plaintiff-Appellee,

VS.

LANGAN ENGINEERING

ASSOCIATES, INC.,

A CORPORATION,

Third-Party Defendant-

Appellant,

VS.

HIGHLANDS INSURANCE

COMPANY, a Texas corporation,

Third-Party Defendant.

ee ee ee ee ee ee et ee ee ee ee ee

No. 84-1025

(D.C. No. T-5258)

(District of

Kansas)

(Filed in

the United

States Court

of Appeals

for the Tenth

Circuit

Sept. 11, 1985)

(Filed in

the United

States

District

Court for

the District

of Kansas

Nov. 18, 1985)

ORDER AND JUDGMENT

Before MOORE, SETH and McWILLIAMS, Circuit Judges.

App. 2

After examining the briefs and the appellate record,

this three-judge panel has determined unanimously that

oral argument would not be of material assistance in the

determination of this appeal. See Fed. R. App. P. 34(a);

Tenth Cir. R. 10(e). The cause is thereby submitted with-

out oral argument.

Langan Engineering Associates, Inc., (“Langan”) ap-

peals from a judgment of the trial court denying its

motion pursuant to Fed. R. Civ. P. 60(b) to set aside a

judgment of $155,703.50 on the grounds that it received

no notice of trial nor of the judgment itself. On appeal,

Langan contends that Fed. R. Civ. P. 55(b)(2) and the due

process clause of the Fifth Amendment prohibit the impo-

sition of judgment; that Fed. R. Civ. P. 60(b) further

requires vacating judgment; and that the judgment enter-

ed exceeds the damages that the third-party plaintiff

originally prayed for. Having reviewed the briefs and

record, we conclude that the trial court properly analyzed

the facts and law; therefore, we adopt its reasoning and

affirm its judgment.

The trial court in its Memorandum and Order of

December 15, 1983, characterized this case as one of

neglect and disregard not qualifying for relief under Fed.

R. Civ. P. 55(b)(2) or Fed. R. Civ. P. 60(b). Suit was origi-

nally tiled in 1972 and languished until 1983 when defen-

dant, third-party plaintiff, 21st Phoenix Corp., formerly

known as the Hanson Development Company, sought to

execute on its 1979 Kansas judgment by filing it in federal

court in New Jersey.

ry

In the meantime, from 1972 to 1983, the record re-

veals successive problems that Langan experienced with

App. 3

retained counsel, both in New Jersey where the corpora-

tion does business, and in Kansas where suit was filed

and local rules require association of out-of-state counsel

with a local representative. By 1978, both local and New

Jersey counsel were granted permission to withdraw.

Since January 1978, Langan was under a court order to

retain new counsel. The court made clear that the then

five-year-old case would proceed to trial regardless of

whether new counsel was secured. Langan failed to ap-

pear for trial, and, upon the taking of evidence, judgment

was entered against the corporation for $155,703.50. Four

years later, Langan moved to vacate the judgment, alleg-

ing that neither the corporation nor its attorney received

notice of the trial.

The trial court’s opinion gave thorough consideration

to each of appellant’s arguments, holding that neither the

facts nor the law support its contentions. We would add

that to contort the ensuing five years of inattention and

neglect to fit within the parameters of relief provided in.

Rule 60(b)(4) or (6) would not only reward the appellant.

for dilatory conduct but distort the purpose of the Feder-

al Rules. The Federal Rules of Civil Procedure ess not

enacted as a strategic tool useful to a litigant at certain!

times but disregarded at others.

In adopting the reasoning of the trial court, we

would further add that a motion under Rule 60(b) precip-

itates an extraordinary procedure which permits a court

which renders judgment to grant relief from the judgment

upon a showing of good cause within the rule. Brown v.

McCormick, 608 F.2d 410 (10th Cir. 1979). The resulting

decision is framed within the sound discretion of the trial

court and will be set aside only upon a finding of abuse

App. 4

of discretion. This standard of review has been under-

scored in some circuits by stating that denial of relief

must be so unwarranted as to constitute an abuse of dis-

cretion. Seven Elves v. Eskenazi, 635 F.2d 396, 402 (5th Cir.

1981) (emphasis in original).

Our review of the briefs and record satisfies us that

justice has been done in the light of all the facts. Appel-

lant’s self-induced slumbering on his rights cannot be

rectified by this court.

The judgment is affirmed.

/s/ Howard K. Phillips

HOWARD K. PHILLIPS,

Clerk