Court Opinion

ID: 1041555
Source: CourtListenerOpinion
Date Created: 2013-09-20 19:15:36.208604+00
Date Added: 2024-06-11T12:50:02.077606
License: Public Domain

United States Court of Appeals
                       For the First Circuit

No. 12-2431

                ALLSTATE INTERIORS & EXTERIORS, INC.,

                             Plaintiff,

                                 v.

                   STONESTREET CONSTRUCTION, LLC,

              Defendant/Third Party Plaintiff-Appellee,

                                 v.

                        WEYBOSSET HOTEL, LLC,

                  Third Party Defendant-Appellant.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF RHODE ISLAND

              [Hon. Mary M. Lisi, U.S. District Judge]

                               Before

                         Lynch, Chief Judge,
                      Torruella, Circuit Judge,
                    and Stearns,* District Judge.

     Thomas More Dickinson for appellant.
     Christine K. Bush, with whom Anastasia A. Dubrovsky and Scott
& Bush Ltd. were on brief, for appellee.

                         September 20, 2013

     *
      Of the District of Massachusetts, sitting by designation.
          LYNCH, Chief Judge.      After a ten-day bench trial, the

district court awarded a judgment against Weybosset Hotel, LLC

("Weybosset") and in favor of its construction company, Stonestreet

Construction,   LLC   ("Stonestreet"),        in    the    sum   of   $571,595.

Stonestreet   and   Weybosset   are    both        Rhode   Island     companies.

Weybosset appeals, arguing that there was no federal jurisdiction,

and the $571,595 was awarded in error.

          Weybosset    argues   that    the    district      court     erred   in

exercising supplemental jurisdiction over this case following the

settlement of some of the dispute between the case's two diverse

parties, Stonestreet and Allstate Interiors & Exteriors.                It also

challenges one of the district court's discovery rulings, along

with its interpretation of the governing construction contract.

          We affirm.

                           I.   Background

          All of the claims in this case arise from the Hampton Inn

& Suites renovation and construction project in Providence, Rhode

Island.   Stonestreet, as the construction manager and general

contractor, entered into a construction contract ("Contract") with

Weybosset in November 2007, with an initial project completion date

of November 25, 2008.    Largely as a result of cost overruns and

other delays, disputes relating to the Contract have now been the

subject of litigation in state and federal court.

                                  -2-
A.          Key Contract Provisions

            The main compensation provision in the Contract is its

Guaranteed Maximum Price (GMP), which is defined as the sum of the

"cost of work" and the "construction manager's fee."          The GMP was

not to exceed the maximum of $11,250,000 originally set by the

contract, "but was subject to additions and deductions by changes

in the Work as provided in the Construction Documents."         The GMP-

adjustment mechanism came in the form of "Change Order Requests"

(CORs), under which Stonestreet could seek additional funds if

project timing or cost requirements changed.            Throughout the

project, CORs were typically prepared by Stonestreet and submitted

to Weybosset for approval and signature.

            Included in the GMP was $809,888, which represented a

lump sum of Stonestreet's "general conditions" costs from the

preconstruction and construction phases of the project.         The lump

sum included more specific line-item estimates, including the costs

of an administrative assistant, project executive, and project

manager.     During the project, Stonestreet divided the lump sum

equally across its monthly payment requisitions until the original

lump sum was fully billed by November 2008.

            Generally, Stonestreet paid its subcontractors pursuant

to its standard form contracts, which contained a pay-when-paid

clause     that   stated:   "It   is    agreed   that   the   Contractor

[Stonestreet], as a condition precedent to payment of any monies

                                  -3-
which become due to the Subcontractor, must first receive payment

from the Owner."   The timing disconnect between the pay-when-paid

provision and the payment schedule under the Contract between

Weybosset and Stonestreet, which was based on the overall progress

of the project, led to several instances of subcontractors not

being paid after their work was completed.

B.        Project Delays

          The   main   project   delay   concerned   the   provision   of

"permanent power" to the building.         In the early stages of the

project, Weybosset's existing structures provided temporary power;

however, Stonestreet eventually required a permanent power supply

to continue work on the project.1        In the construction contract,

the parties agreed that "[p]rimary service, cable and transformer"

were excluded from Stonestreet's scope of work, and were thus

controlled by Weybosset.         At trial, witnesses testified that

"primary service" means "permanent power."

          Stonestreet initially anticipated having permanent power

at the project site during the summer of 2008.       Power was in fact

not supplied at that time, and the delay in supplying permanent

power led to delays in, among other things, installation of the

mechanical, electrical, and elevator systems. As a result of these

     1
       Stonestreet's witnesses testified at trial that without
delivery of permanent power, Stonestreet could not disconnect any
of the old electrical panels, nor could it fully supply power to
the renovated building so that it could perform required life
safety testing.

                                   -4-
delays,   Stonestreet    generated    an    updated   project   schedule   on

October 27, 2008, which reflected a revised completion date of

January 28, 2009; at that point, the remaining elements of the

project could not be completed without permanent power at the site.

Power was ultimately provided on January 6, 2009.

           In light of these delays, Stonestreet submitted COR 127,

which sought an increase in the total GMP of $152,473.20 to cover

increased general conditions costs that resulted from the overall

project delays.    In January 2009, Stonestreet submitted a draft of

Requisition 14, which sought payment for December 2008 work as

specified in COR 127.        At the time of submission, Stonestreet was

not advised that it would not be paid for its continued work on the

project (as reflected in COR 127), and it continued to install

systems once permanent power was supplied to the building.                 In

March and April, Stonestreet twice updated COR 127 to reflect

continued project costs; Weybosset did not respond to either

submission.       On   May    29,   2009,    Edmund   Landry,   Weybosset's

representative, formally rejected COR 127.

C.         Procedural History

           The case was originally filed on June 26, 2009 in the

U.S. District Court for the District of Rhode Island by Allstate

Interiors & Exteriors ("Allstate"), one of the subcontractors on

the project, against Stonestreet.           Allstate sought payment of an

outstanding balance of $244,725, and Stonestreet counterclaimed

                                     -5-
that Allstate had not completed the work as originally agreed

between the parties.       In addition, Stonestreet filed a third-party

complaint against Weybosset, bringing several state law causes of

action arising from the construction project.              The claims included

breach of contract, breach of good faith and fair dealing, unjust

enrichment, and tortious interference with contractual relations.

Stonestreet also argued that Weybosset's failure to pay Stonestreet

certain    sums   caused   Stonestreet    to    breach     its   contract   with

Allstate    and   other    subcontractors      on    the   project,   and   that

Weybosset    should   therefore    indemnify        Stonestreet   for   damages

sustained as a result of such breaches.

            While this case was pending in federal court, all three

parties were involved in parallel litigation in Rhode Island state

court.     That litigation dealt with two mechanics' liens, filed

against Weybosset by Allstate and Stonestreet, respectively.                The

dispute between Allstate and Weybosset in state court was resolved

by settlement.

            When Allstate resolved its claim against Weybosset in

state court, it effectively resolved most of Allstate's claims

against Stonestreet in federal court.           Stonestreet's counterclaim

against Allstate remained outstanding, and Allstate remained a

party to the case.         While the resolution of Allstate's claim

against Stonestreet, confirmed during a January 21, 2010 hearing

before the district court, came relatively quickly after the

                                    -6-
initiation of this case, Allstate participated in discovery along

with   Stonestreet     and     Weybosset.        Additionally,    because

Stonestreet's counterclaim against Allstate was still pending,

Allstate remained a party to the case regardless of the state court

settlement.

          Following this partial settlement, Weybosset filed a

motion to dismiss Stonestreet's third-party complaint for lack of

subject matter jurisdiction in November 2009.          It argued that the

main dispute in the case concerned state law claims between two

non-diverse parties, Weybosset and Stonestreet (both Rhode Island

companies), and that exercising federal jurisdiction over the

dispute between those parties following the resolution of some

claims between Allstate and Stonestreet (the two diverse parties)

was therefore improper.      Notably, Allstate remained a party to the

case   following     the     partial     settlement,   as   Stonestreet's

counterclaim against Allstate was not part of the settlement.        The

district court denied Weybosset's motion on February 24, 2010.

          Before trial, Weybosset filed a series of discovery

motions, each seeking to strike certain of Stonestreet's materials

from the record.   The district court denied all three motions, and

Weybosset appeals from one of those rulings.

                                       -7-
               Following   a   partial      grant    of    summary     judgment   in

Weybosset's favor that is not at issue in this appeal,2 the

district court conducted a ten-day bench trial.                   After the trial

and the filing of post-trial memoranda, the district court issued

its final order on October 31, 2012.                As it is relevant to this

appeal, the district court ruled in favor of Stonestreet on the

core breach of contract claim and awarded damages in the amount of

$571,595.        Before this court, Weybosset appeals three of the

district      court's    rulings:     (1)   the     exercise      of   supplemental

jurisdiction       following     Allstate      and        Stonestreet's     partial

settlement; (2) the interpretation of the construction contract for

the    purpose    of    calculating    damages;      and    (3)    the   denial   of

Weybosset's discovery motion regarding supplemental expert reports.

 II.       The District Court's Exercise of Supplemental Jurisdiction

               We review a district court's decision regarding the

exercise of supplemental jurisdiction for abuse of discretion.

Vera-Lozano v. Int'l Broad., 50 F.3d 67, 70 (1st Cir. 1995).

Finding that the district court did not abuse its discretion in

exercising jurisdiction over the dispute between Stonestreet and

Weybosset, we find no error.

       2
       Weybosset's motion for partial summary judgment was filed
with respect to $1,016,499 in subcontractor costs that Stonestreet
sought to recover. Because Weybosset had already partially settled
these claims by paying $893,521 to the subcontractors directly, the
district court granted Weybosset's motion with respect to the sums
already paid.

                                         -8-
           It is plain -- and the parties do not dispute -- that the

district court initially had supplemental jurisdiction over the

claims between Weybosset and Stonestreet under section 1367(a),

which states:

           [I]n any civil action of which the district
           courts   have   original   jurisdiction,   the
           district courts shall have supplemental
           jurisdiction over all other claims that are so
           related to claims in the action within such
           original jurisdiction that they form part of
           the same case or controversy under Article III
           of the United States Constitution.        Such
           supplemental jurisdiction shall include claims
           that involve the joinder or intervention of
           additional parties.

28 U.S.C. § 1367(a) (emphasis added); see Godin v. Schencks, 629

F.3d 79, 83 (1st Cir. 2010).   State and federal claims are part of

the same "case or controversy" for the purposes of section 1367(a)

if they "'derive from a common nucleus of operative fact' or 'are

such that [they] . . . would ordinarily be expected to [be] tr[ied]

. . . in one judicial proceeding.'" Penobscot Indian Nation v. Key

Bank of Me., 112 F.3d 538, 564 (1st Cir. 1997) (second, third, and

fourth alterations in original) (quoting United Mine Workers v.

Gibbs, 383 U.S. 715, 725 (1966)).     Weybosset does not dispute that

at the outset of the dispute, it was proper for the district court

to exercise supplemental jurisdiction over Stonestreet's state law

claims against Weybosset under section 1367(a).

           Instead, Weybosset argues that the district court's

decision    on   the   jurisdictional     issue   is   governed   by

                                -9-
section 1367(b).     In cases where the district court's original

jurisdiction   is   based   solely    on    diversity   jurisdiction,    that

section strips federal jurisdiction "over claims by plaintiffs

against persons made parties under Rule 14, 19, 20, or 24 of the

Federal Rules of Civil Procedure . . . when exercising supplemental

jurisdiction over such claims would be inconsistent with the . . .

requirements of [diversity jurisdiction]."           28 U.S.C. § 1367(b).

Weybosset was made a party to the case under Rule 14, and argues

that even though section 1367(b) applies to claims of "plaintiffs,"

the underlying rationale of that section should counsel against the

district court's decision to exercise jurisdiction over this case.3

Weybosset claims that we should read section 1367(b) to strip the

district   courts   of   jurisdiction       over   claims   made   by   either

plaintiffs or third-party plaintiffs against non-diverse parties

brought into a case pursuant to Rule 14. Stonestreet's rebuttal is

that Weybosset's reading of section 1367(b) is contrary to the

     3
       Weybosset's reliance on Genesis Healthcare Corp. v. Symczyk,
133 S. Ct. 1523 (2013), is misplaced.        Weybosset argues that
Genesis Healthcare "suggests that where the underlying claim that
invokes federal jurisdiction has been resolved -- even if not
formally disposed -- there is no 'case or controversy' sufficient
to invoke jurisdiction under Article III."       Genesis Healthcare
turned on a question of mootness in a collective action under the
Fair Labor Standards Act (FLSA).         In that case, the lead
plaintiff's claim was satisfied, and the Court held that once that
individual claim was moot, so too was the larger suit because the
lead plaintiff had no personal interest in representing other
members of the group in the case. Id. at 1532. The jurisdictional
issue in this case centers around the reach of federal jurisdiction
to include state law claims between non-diverse parties; mootness
principles do not control the outcome.

                                     -10-
plain language of the statute and in conflict with established case

law.   Stonestreet is correct.

           Although we have not previously addressed this issue

directly, we now hold that "plaintiff" in section 1367(b) refers to

the original plaintiff in the action, and not to a defendant that

also is a third-party plaintiff.         In so holding, we join several

other circuits that have come to the same conclusion.                  See State

Nat'l Ins. Co. v. Yates, 391 F.3d 577, 580 (5th Cir. 2004); Grimes

v. Mazda N. Am. Operations, 355 F.3d 566, 572 (6th Cir. 2004);

Viacom Int'l v. Kearney, 212 F.3d 721, 726-27 (2d Cir. 2000);

United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 492 (4th Cir.

1998); Dev. Fin. Corp. v. Alpha Hous. & Health Care, Inc., 54 F.3d

156, 160-61 (3d Cir. 1995).          This holding is consistent with

Congress's intent that section 1367(b) should "prevent original

plaintiffs    --   but   not   defendants    or     third    parties    --   from

circumventing the requirements of diversity."           Grimes, 355 F.3d at

572; see also United Capitol Ins. Co., 155 F.3d at 493 ("Because

defendants are involuntarily brought into court, their joinders and

impleaders were not deemed [by Congress] as suspect as those of the

plaintiff, who is master of his complaint.").               On this reading of

section 1367(b), because Stonestreet was not a plaintiff in the

original     action,     the   statute     cannot    operate     to     withdraw

jurisdiction from subsequent claims made pursuant to Rule 14.

                                    -11-
             In the alternative, Weybosset argues on the basis of

section 1367(c), which lists circumstances in which the district

courts "may decline to exercise supplemental jurisdiction" over a

claim that would otherwise be a proper subject for supplemental

jurisdiction.      28 U.S.C. § 1367(c) (emphasis added).         One such

circumstance is if "the [state] claim substantially predominates

over the claim or claims over which the district court has original

jurisdiction."     Id. § 1367(c)(2).      We find that the decision to

exercise jurisdiction over the dispute between Stonestreet and

Weybosset was not an abuse of discretion.

             The   district    court's    evaluation    of    Weybosset's

jurisdictional argument focused on two key issues.           Allstate had

not dismissed its claim against Stonestreet in federal court

because Stonestreet was still pursuing its related counterclaim

against Allstate.        Not only did Allstate remain a party to the

case, but it was integrally involved in the case before Weybosset

filed its motion to dismiss for lack of subject matter jurisdiction

on November 12, 2009.

             Perhaps more serious than Weybosset's contention that

Allstate's     partial     settlement    justified   dismissal   is   its

predominance argument. Weybosset's core claim is that the district

court should have declined to exercise supplemental jurisdiction

under section 1367(c)(2) because the state claims between the non-

diverse parties to the case predominated over all other claims at

                                   -12-
issue. Section 1367(c) codifies the holding of United Mine Workers

of America v. Gibbs, 383 U.S. 715 (1966), where the Supreme Court

clarified that a district court may dismiss state claims "if it

appears that the state issues substantially predominate, whether in

terms of proof of the scope of the issues raised, or of the

comprehensiveness of the remedy sought."           Id. at 726.     As the

district court noted, both the Allstate-Stonestreet dispute and the

Stonestreet-Weybosset dispute arose from the contracts relating to

the same construction project.            Although Stonestreet's claims

against Weybosset involved a greater monetary claim than its

remaining dispute with Allstate, both sets of claims thus depended

on the same body of evidence and sought a similar legal remedy in

the form of contractual damages.     Stonestreet's non-diverse claims

against Weybosset did not clearly predominate over the remaining

diverse claims.

            Furthermore,   while   section    1367(c)   provides   that   a

district court "may decline to exercise supplemental jurisdiction"

under certain circumstances, it does not obligate a district court

to do so.     Although the grounds enumerated in section 1367(c)

ordinarily lead to dismissal of state claims, "this praxis is not

compelled by a lack of judicial power" and "in an appropriate

situation, a federal court may retain jurisdiction over state-law

claims notwithstanding."    Rodriguez v. Doral Mortg. Corp., 57 F.3d

1168, 1177 (1st Cir. 1995); see also Oneida Indian Nation of N.Y.

                                   -13-
v. Madison Cnty., 665 F.3d 408, 439 (2d Cir. 2011) ("To be sure,

the fact that one or more of the grounds for declining to exercise

supplemental jurisdiction set forth in section 1367(c) applies does

not mean that dismissal is mandated.").

               In light of the substantial parity between the diverse

and non-diverse cases and the district court's discretion over

remaining supplemental jurisdiction under section 1367(c), we

cannot find that the district court erred by deciding to exercise

jurisdiction in this case.

 III.       The District Court's Interpretation of the Contract Under
                              Rhode Island Law

               On appeal from a bench trial, pure issues of law are

reviewed de novo, while findings of fact are reviewed for clear

error.      Litif v. United States, 670 F.3d 39, 43 (1st Cir. 2012).

               Weybosset challenges two sums included in the district

court's      judgment:   $65,665   (for   secretaries   and   estimators   at

Stonestreet's office) and $182,956 (for personnel, insurance,

dumpsters,      and   other   costs   following   the   construction   delay

period).4 Weybosset argues the district court's inclusion of these

amounts in the judgment amounted to a violation of Rhode Island

        4
       In its reply brief, and for the first time before this
court, Weybosset contested the inclusion of $81,050.67 in
preconstruction costs. Issues advanced for the first time in reply
briefs are deemed waived. Waste Mgmt. Holdings, Inc. v. Mowbray,
208 F.3d 288, 299 (1st Cir. 2000). Even if this challenge were
properly before us, however, it suffers from the same legal
deficiencies as those above.

                                      -14-
contract law.     Both challenges lack merit, and we affirm the

district court.

          Weybosset argues that including the sum for secretaries

and estimators was in error under § 6.2.1 of the Contract, which

generally excludes (1) the salaries of Stonestreet's personnel at

Stonestreet's principal office, (2) the expenses of that office,

and (3) overhead and expenses, all except as specifically provided

elsewhere in the contract. Weybosset argues that the parties never

formally altered this provision per the modification section of the

contract, which required modifications to be in writing.      This

argument is unavailing: at the outset of the project, when the

parties agreed that Stonestreet would be paid for its "general

conditions costs" in a lump sum, the now-disputed line items were

explicitly included in the original breakdown of that lump sum. In

effect, there was a writing -- implicitly approved by both parties

-- that resulted in this modification.     In short, the district

court correctly held that Weybosset waived its challenge to these

line items both when it agreed to the lump sum general conditions

and when it paid Stonestreet's first thirteen requisitions (which

included portions of this lump sum) without challenge.

          Further, the district court upheld the use of the lump

sum as a valid modification of § 6.2.1 of the construction contract

under Rhode Island law. See Fondedile, S.A. v. C.E. Maguire, Inc.,

610 A.2d 87, 92 (R.I. 1992) ("[P]arties to a contract can mutually

                               -15-
assent to modify a contract if the modification does not violate

the law or public policy and if the modification is supported by

adequate consideration.").   In this case, the mutual assent came

from the initial approval of the lump sum, and then from the

conduct of the parties surrounding the payment of the first

thirteen requisitions.   Rather than a "sua sponte modification" of

the contract as Weybosset contends, the district court's ruling was

instead a valid finding of a contract modification and waiver based

on the parties' continuing course of conduct during the project.

The district court did not err in applying Rhode Island contract

law.

          Weybosset's    argument     opposing   the   judgment   in

Stonestreet's favor for "personnel, insurance, dumpsters[,] and

other costs" is particularly tenuous and ill-specified.     Neither

the "other costs" nor their connection to the disputed contract

provision are ever specified in Weybosset's briefing. That portion

of Weybosset's argument, at the very least, is waived.    See United

States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990) ("[I]ssues

adverted to in a perfunctory manner, unaccompanied by some effort

at developed argumentation, are deemed waived.").

          The remaining claims are advanced in such a cursory

fashion that they could also be waived under Zannino; however, on

the merits, Weybosset's argument likewise fails.       The district

court's findings with regard to dumpster costs and additional

                               -16-
clean-up costs were based on trial testimony: the costs were

included in COR 127 and arose as a result of project delays caused

by Weybosset's failure to deliver primary power to the project on

time.   This testimony, and the district court's resulting finding,

was consistent with § 7.3.6 of the Contract, which stated that

Stonestreet was entitled to increased costs (including labor costs)

that resulted from increases in the scope of work that were

attributable to Weybosset.      At trial, the district court noted

Weybosset's failure to present any testimony or evidence to counter

Stonestreet's explanation of these charges, and went on to note

Weybosset's failure "to demonstrate that those charges were not

legitimate."   On appeal, Weybosset likewise offers no evidence on

this point, and we see no reason to disturb the district court's

considered determination.

                        IV.   Discovery Motion

           In managing discovery disputes, we recognize the district

court's broad discretion.      As such, we disturb a trial court's

determination on a discovery matter "only upon a clear showing of

manifest injustice, that is, where the lower court's discovery

order was plainly wrong and resulted in substantial prejudice to

the aggrieved party."   Mack v. Great Atl. & Pac. Tea Co., 871 F.2d

179, 186 (1st Cir. 1989); see also Brandt v. Wand Partners, 242

F.3d 6, 18 (1st Cir. 2001) ("Discovery decisions by the . . .

district court are reviewed for abuse of discretion, and the

                                 -17-
discretion in this area is very broad, recognizing that an appeals

court simply cannot manage the intricate process of discovery from

a distance.").    In light of this standard, we affirm the district

court's rulings on Weybosset's discovery motion.

          Weybosset's appeal on this point centers on Stonestreet's

provision -- shortly after expert discovery closed, but a year

before trial -- of a supplemental interrogatory response and

supporting documentation from one of Stonestreet's experts.                The

district court found that these corrected disclosures in fact were

timely and contemplated by Rule 26(e)(2).            See Fed. R. Civ. P.

26(e)(2) (providing that a party's duty to supplement an expert's

report "extends both to information included in the report and to

information given during the expert's deposition," and that this

information "must be disclosed by the time the party's pretrial

disclosures under Rule 26(a)(3) are due").

          It is clear that Stonestreet's supplemental materials

were disclosed in a timely fashion; further, Weybosset falls well

short of proving prejudice resulting from the district court's

ruling.   It     claims   that   the    district   court's   ruling   on   the

discovery motion "impeded Weybosset's ability to prepare for trial

and put counsel in the position of having no opportunity to inquire

on these documents until the trial itself."            This contention is

without merit.    Not only did Stonestreet's supplemental materials

reflect a change in calculations in Weybosset's favor, but at

                                       -18-
trial,   Weybosset's   expert    testified   that   his   review   of

Stonestreet's supplemental materials did not change the opinions

initially expressed in his expert report.     Finally, the one-year

lag between the disclosure of the supplemental materials and trial

make plain that Weybosset had ample time to inspect the materials

prior to trial.

          We affirm the district court's discovery ruling.

                          V.    Conclusion

          The district court's judgment is affirmed.       Costs are

awarded to Stonestreet but we deny its request for an award of

double costs.

                                 -19-