Court Opinion

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Opinions of the United
1999 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

10-4-1999

Spring City Corp. v. Amer. Buildings Co.
Precedential or Non-Precedential:

Docket 98-1584, 98-1586

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Recommended Citation
"Spring City Corp. v. Amer. Buildings Co." (1999). 1999 Decisions. Paper 274.
http://digitalcommons.law.villanova.edu/thirdcircuit_1999/274

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Filed October 4, 1999

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 98-1584 & 98-1586

SPRING CITY CORPORATION,
trading as SPRING II ASSOCIATES

v.

AMERICAN BUILDINGS COMPANY

v.

CONTRACTORS OF AMERICA, INC.

v.

PALMER CONSTRUCTION CO., INC.;
BASILE CONSTRUCTION COMPANY

American Buildings Company,
       Appellant

(D.C. Civ. Nos. 97-cv-08127 & 98-cv-00105)

No. 98-1585

SPRING CITY CORPORATION,
trading as SPRING II ASSOCIATES

v.

LYNN BRADEEN; CONTRACTORS OF AMERICA, INC.;
AMERICAN BUILDINGS COMPANY

American Buildings Company,
       Appellant
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
District Judge: Hon. John R. Padova
(D.C. Civ. No. 98-cv-00028)

Argued: July 27, 1999

Before: SLOVITER, NYGAARD and McKEE, Circuit Judges

(Filed: October 4, 1999)

       Steven G. Hall, Esq. (formerly with
        McLain & Merritt, P.C.) (Argued)
       Robert B. Hill, Esq.
       McLain & Merritt, P.C.
       Atlanta, GA 30326

       Warren F. Sperling
       Bennett, Bricklin & Saltzburg
       Philadelphia, PA 19103

        Attorneys for Appellant
        American Buildings Company

       John F. Brown, Jr., Esq.
       Matthew F. Noone, Esq. (Argued)
       Cozen & O'Connor
       Philadelphia, PA 19103

        Attorney for Appellee
        Spring City Corp.

OPINION OF THE COURT

SLOVITER, Circuit Judge.

This appeal has enough subsidiary procedural issues to
bring a gleam to the eye of a civil procedure teacher. But
there are two underlying issues that are dispositive-- the
nonreviewability of a remand order and the appropriateness
of an order staying a duplicative federal action.

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I.

BACKGROUND AND PROCEDURAL HISTORY

This suit filed by Spring City Corp. arises out of the
partial collapse of its building in Limerick, Pennsylvania, in
1996 as the result of a heavy snow and ice fall.
Construction of that building began in 1987. The
companies participating in the project were Basile Corp.
("Basile"), which was general contractor for the
construction, Contractors of America, Inc. ("Contractors"),
which supplied metal building components for the building,
American Buildings Co. ("American"), which manufactured
and delivered the building components, and Palmer
Construction Co. ("Palmer"), which actually constructed the
building.

In September 1997, Spring City, a Pennsylvania
corporation, filed suit in the Pennsylvania Court of
Common Pleas alleging negligence, breach of contract, and
breach of warranty, based on the building collapse against
Contractors, a New Jersey corporation, and its president,
Lynn Bradeen, a New Jersey citizen. In November 1997,
Contractors filed writs of summons pursuant to
Pennsylvania Rule of Civil Procedure 2252 against
American, a Delaware corporation with its principal place of
business in Alabama, Palmer, a Pennsylvania corporation,
and Basile, also a Pennsylvania corporation, to add them as
third-party defendants. Under the Pennsylvania Rules,
third-party defendants may be joined by writ or by formal
complaint. See Pa. R. Civ. Proc. 2252(b).

In December 1997, Spring City filed an amended
complaint adding American as a defendant on one count.
American then removed the action to federal court on the
basis of diversity of citizenship. This case was assigned
docket number 98-28. Also in December, Spring City filed
a second action in state court, this one naming only
American as a defendant. American removed this case as
well, and it was assigned docket number 97-8127. Because
there was diversity between Spring City and American,
Spring City did not contest the removal of this
second action. American subsequently filed a third-party

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complaint asserting negligence and breach of warranty
claims against Contractors, and Contractors filed a fourth-
party action for contribution and indemnification against
Palmer and Basile. Finally, in January 1998 Spring City
filed a third action in federal court against American as the
only defendant based on diversity of citizenship. This was
assigned docket number 98-105. Again, there was no
jurisdictional challenge in this federal case. As in No. 97-
8127, American filed a third-party action against
Contractors and Contractors filed a fourth-party action
against Palmer and Basile.

However, Spring City moved to remand No. 98-28 (the
action in which, prior to removal, Palmer and Basile had
been joined as third-party defendants under Rule 2252) to
state court based on a lack of diversity and to stay the two
remaining federal cases pending the resolution of the
remanded case in state court. The District Court agreed
with Spring City that there was no longer complete diversity
in No. 98-28. Spring City Corp. v. Bradeen et al., Nos. 97-
8127, 98-105, 98-28, slip op. at 6 (E.D.Pa. Mar. 12, 1998)
(hereafter "Slip op.") Therefore, the court granted the
motion to remand No. 98-28 to the Pennsylvania state
court. The court also ruled that as a result of the remand
there would be parallel proceedings pending in state and
federal courts. Slip op. at 9. After analyzing the factors
outlined in Colorado River Water Conservation District v.
United States, 424 U.S. 800 (1976), the court determined to
grant Spring City's motion to stay the two remaining federal
cases, No. 97-8127 and No. 98-105. Slip op. at 1.

American filed a timely Notice of Appeal. It argues on
appeal that (1) the citizenship of third-party defendants
should not be considered in determining diversity, and (2)
the District Court improperly applied Colorado River. It
seeks reactivation on the federal docket of the stayed cases
and reinstatement of the remanded case.

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II.

DISCUSSION

A.

The Order Remanding No. 98-28

American challenges the District Court's finding that no
diversity existed in No. 98-28 on the ground that complete
diversity exists among what it considers the real`parties in
the case, Spring City (plaintiff-appellee), Contractors
(defendant), and American (defendant-appellant). American
argues that the Pennsylvania citizenship of the two
additional parties, Basile and Palmer, should not have been
considered in determining diversity because they were
solely "nominal" parties joined under state rules of
procedure.

Of course, Spring City rejects American's view and
emphasizes that, when Palmer and Basile were joined, it
gained substantive rights against them under Pa. Rule
2255. Moreover, it states that it has recently acquired
evidence, which it has submitted to this court, that
defendant Contractors is incorporated in Pennsylvania and
thus is non-diverse with Spring City.1

In ruling that No. 98-28 should be remanded because
there was no longer the requisite diversity of citizenship,
the District Court noted the differences in the effect of
_________________________________________________________________

1. Spring City has requested leave to formally supplement the record
with this evidence. Although appellate courts "do not take testimony,
hear evidence or determine disputed facts," Sewak v. INS, 900 F.2d 667,
673 (3d Cir. 1990), subject matter jurisdiction is a fundamental issue
that a court is required to resolve, even where parties have not raised
the issue, see Meritcare Inc. v. St. Paul Mercury Ins. Co., 166 F.3d 214,
217 (3d Cir. 1999), and even on appeal, see Weaver v. Bowers, 657 F.2d
1356, 1360 (3d Cir. 1981) (en banc). It is thus likely that this court
could consider the evidence about Contractor's Pennsylvania citizenship,
even newly presented, but American conceded that fact at oral
argument. In view of our disposition, however, we need not decide Spring
City's motion.

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joining a third-party defendant under the Pennsylvania
Rules of Civil Procedure as distinguished from the Federal
Rules of Civil Procedure. Third-party pleading under Pa. R.
Civ. Proc. 2255(d) allows a plaintiff to "recover from an
additional defendant found liable to the plaintiff alone or
jointly with the defendant as though such additional
defendant had been joined as a defendant and duly served
and the initial pleading of the plaintiff had averred such
liability." Pa. R. Civ. Proc. 2255(d); see Sheriff v. Eisele, 381
Pa. 33, 35, 112 A.2d 165, 166 (1955) (plaintiff 's claim has
same effect as if additional defendant had originally been
named a defendant without need to file a new pleading);
Pappas v. Asbel, 450 Pa. Super. 162, 175, 675 A.2d 711,
718 (Pa. Super. 1996) (joining an additional defendant
makes that defendant immediately subject to the plaintiff 's
claim in every respect).

The District Court referred to other decisions of its
colleagues holding that Rule 2255(d) destroys diversity by
affording a plaintiff substantive rights against a third-party
defendant. Slip op. at 6-7 (citing Adams v. Ford Motor Co.
and Donna Lynn Peyton, Civ. A. No. 87-0524, 1987 WL
13344 (E.D. Pa. June 30, 1987) and Carey v. American
Motors Corp., Civ. A. No. 87-0100, 1987 WL 5726 (E.D. Pa.
Jan. 23, 1987)). In contrast, a third-party defendant joined
under Federal Rule of Civil Procedure 14 does not become
a defendant as against the original plaintiff, so that federal
jurisdiction is not destroyed where those parties are
citizens of the same state. See Smith v. Philadelphia Transp.
Co., 173 F.2d 721, 724 n.2 (3d Cir. 1949). The District
Court therefore held that when Bradeen and Contractors
filed the writ of summons directed to Palmer and Basile,
Palmer and Basile became additional defendants against
whom Spring City had a direct right of recovery. Slip op. at
6.

American argues on appeal that in the context of
removal, "federal law determines who is plaintiff and who is
defendant," citing Chicago Rock Island & Pack R.R. Co. v.
Stude, 346 U.S. 574, 580 (1954). It argues that where the
operation of a local procedural rule interferes with a federal
statute, which it states Pa. Rule 2255 does, the local rule
must yield. In response, Spring City argues that Rule 2255

                               6
gives the plaintiff a substantive right which, under Erie
Railroad Co. v. Tompkins, 304 U.S. 64 (1938), federal courts
must apply in a diversity action. See Atlanta Int'l. Ins. Co.
v. School Dist. of Philadelphia, 786 F.2d 136, 140-141 (3d
Cir. 1986) (applying Rule 2255 but calling results"ironic"
and "illogical").

It would be intriguing to analyze the jurisdictional issues
presented by the application of Pa. Rule 2255 in federal
court and the recently discovered Pennsylvania citizenship
of an original defendant. A review of the District Court's
decision to remand on the basis of lack of subject matter
jurisdiction would require consideration whether the effect
of Pa. Rule 2255(d) is to give Spring City a direct claim
against the additional defendants Palmer and Basile even
though Spring City has apparently not yet amended its
complaint to assert such a claim, and, if so, whether the
result is to destroy diversity of citizenship. We might then
have to consider American's argument that application of
the Pennsylvania Rule to destroy diversity jurisdiction is
inconsistent with the Supremacy Clause.

We cannot engage in these tantalizing arguments. We are
precluded from doing so by 28 U.S.C. S 1447(d). That
section of the Judicial Code provides: "An order remanding
a case to the State court from which it was removed is not
reviewable on appeal or otherwise . . . ." This prohibition is
designed to prevent undue delay from the potentially
constant appeal of remand orders. Liberty Mutual Ins. Co. v.
Ward Trucking Corp., 48 F.3d 742, 745 (3d Cir. 1995). It
"severely circumscribes" an appellate court's authority to
review most such remand orders. Id.

We see no reason not to apply S 1447(d) to this case. The
District Court based its remand on the lack of diversity
among the parties, a "garden-variety, routine jurisdictional
determination." Carr v. American Red Cross , 17 F.3d 671,
682 (3d Cir. 1994). Remand in this case was "issued under
S 1447(c) and invok[ed] the grounds specified therein--that
removal . . . was without jurisdiction--[and is thus]
immune from review under S 1447(d)." Trans Penn Wax
Corp. v. McCandless, 50 F.3d at 217, 222 (3rd Cir. 1995)
(quoting Thermtron Prods. Inc. v. Hermansdorfer , 423 U.S.
336, 346 (1976)); see also Things Remembered, Inc. v.

                               7
Petrarca, 516 U.S. 124, 127-28 (1995) ("As long as a district
court's remand is based on a timely raised defect in
removal procedure or on lack of subject-matter jurisdiction
--the grounds for remand recognized by S 1447(c)--a court
of appeals lacks jurisdiction to entertain an appeal of the
remand order under S 1447(d).").

American relies on Chicago Rock Island & Pack R.R. Co.
v. Stude, 346 U.S. 574 (1954), for its argument that we can
consider the remand. In Chicago, a railroad challenged a
condemnation award by filing separate suits in federal and
state court. The railroad, which was nominally a defendant
in the state action, removed that action to federal court.
The district court subsequently granted the landowner's
motion to dismiss the case filed in federal court but denied
its motion to remand the state case. Each party appealed.

The Supreme Court held that although orders denying
motions to remand are interlocutory and ordinarily not
reviewable until final judgment, the two suits were
functionally identical and had been treated as one case by
the parties and the lower court. As a result, the Court
treated both appeals as taken in a single case that had
culminated in a final order -- dismissal -- which is patently
appealable. Id. at 578.

Here, neither the parties nor the District Court have
treated the three actions as one, nor would it have been
appropriate for them to do so. More importantly, although
orders granting motions to remand are interlocutory and
thus not subject to appeal as final orders, see 16 Moore's
Federal Practice S 107 App. 113[2][a] (Matthew Bender 3d
ed.) (citing Railroad Co. v. Wiswall, 90 U.S. 507 (1874)),
S 1447(d) provides an additional, broader prohibition on
review. Courts have excepted from this prohibition remand
orders based on factors other than those listed inS 1447(c),
see Trans Penn Wax, 50 F.3d at 222, and orders predicated
"on a substantive decision on the merits of a collateral
issue." 16 Moore's Federal Practice S 107.44[2][a][ii]; see
also Carr, 17 F.3d at 682-83 (finding remand order
reviewable "where a separable and final determination . . .,
whether substantive or jurisdictional, . . . triggers a
remand") (emphasis added). This case fits neither exception.
The District Court may have addressed fascinating

                               8
procedural issues, but it did so solely in making a "garden-
variety, routine jurisdictional determination." Carr, 17 F.3d
at 682.

It follows that we will dismiss so much of American's
appeal as challenges the remand of No. 98-28.

B.

The Order Staying Nos. 97-8127 and 98-105

American also appeals from the District Court's order
staying the two pending federal cases, Nos. 97-8127 and
98-105, arguing that the court erred in applying the
Colorado River doctrine. We must first consider whether the
stay order is appealable. Ordinarily, a stay is not a "final
decision" of the district court. The established definition of
a final decision for purposes of 28 U.S.C. S 1291 is that it
"ends the litigation on the merits and leaves nothing for the
court to do but execute the judgment." Quackenbush v.
Allstate Ins. Co., 517 U.S. 706, 712 (1996) (internal
quotation omitted).

In Michelson v. Citicorp National Services, Inc. , 138 F.3d
508 (3rd Cir. 1998), we discussed the circumstances under
which a stay order may be considered final and appealable.
If the stay simply defers or postpones resolution of an
action in federal court, then it is only a temporary measure
not subject to appeal under 28 U.S.C. S 1291. Id. at 513.
However, when a district court relies on the Colorado River
doctrine to stay a case in federal court because it is
duplicative with a state court proceeding, such a stay will
generally have the "practical effect of a dismissal," id., by
putting a party "effectively out of [federal] court." Moses H.
Cone Mem'l. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 9
n.8 (1983). Although we have previously stated that the
argument that any Colorado River stay is per se appealable
is "not without basis," Michelson, 138 F.3d at 514, we have
instead applied the finality analysis of Moses H. Cone,
which entails "inquiry into the effect of the district court's
stay to ascertain whether the court has surrendered its
jurisdiction to a state court," and whether a decision in

                               9
state court would have preclusive effect on the federal
action. Id.

Here, as American argues, resolution of the remanded
case in state court will have a preclusive effect on the
stayed cases. American, which is a primary defendant in
the stayed cases, has been joined as a third-party
defendant in the remanded case. Under the Pennsylvania
joinder rules, Spring City now has a direct claim against it
just as though American had been a defendant originally.
Pa. R. Civ. Proc. 2255(d). Thus, a determination of liability
in the remanded case will be res judicata for the federal
cases, and, as a result, American has been put "effectively
out of [federal] court." Moses H. Cone, 460 U.S. at 9 n.8. It
follows that the order staying the two federal cases is final
and appealable. We turn therefore to the merits of that
order.

In determining whether the situation before it fell within
the Supreme Court's abstention doctrine enunciated in
Colorado River, the District Court first determined that the
remanded state action and the federal actions are parallel
because both lawsuits concern the collapse of the roof,
virtually the same parties are involved, and the state
litigation will dispose of all of the claims raised in the
federal case. Slip op. at 8-9. The court then stated that the
decision fell within its discretionary power. In making that
decision, the court outlined the following six factors
referred to in Colorado River, Moses H. Cone, and Third
Circuit cases: "(1) which court first assumed jurisdiction
over property; (2) the inconvenience of the federal forum; (3)
the desirability of avoiding piecemeal litigation; (4) the order
in which jurisdiction was obtained; (5) whether federal or
state law controls; and (6) whether the state court will
adequately protect the interests of the parties." Slip op. at
9-10.

The District Court then determined that three of those
factors "weigh[ed] heavily in favor of staying" the federal
cases: avoiding piecemeal litigation, the fact that state law
rather than federal law controls the issues, and the fact
that a state court will adequately protect the parties'
interests. Slip op. at 11. The District Court considered
irrelevant the three other factors that form the test: which

                               10
court first asserted jurisdiction over the issue, the potential
inconvenience of the federal forum, and the order in which
jurisdiction was obtained. In holding that the stay was
warranted, the District Court noted that the stay was
"based on principles of judicial economy and sound judicial
administration" recognized in Colorado River.

We cannot disagree that it would be more efficient to hold
the federal cases in abeyance until the conclusion of the
state case. But Colorado River abstention must be
grounded on more than just the interest in avoiding
duplicative litigation. In Colorado River, the duplicative
litigation involved allocation of water rights in Colorado, one
of the most critical issues in the Southwest. The United
States had brought suit in federal court as trustee for
certain Indian tribes seeking determination of water rights.
Pursuant to authority granted by the McCarran
Amendment, 43 U.S.C. S 666, the United States was joined
as a defendant in a state proceeding under the Colorado
Water Rights Determination and Administration Act. The
district court held that under the circumstances, it should
abstain in the federal action. When the Supreme Court
considered the case, it agreed that abstention was
appropriate in light of the clear federal policy embodied in
the McCarran Act to avoid piecemeal adjudication of water
rights. Nonetheless, the Court's opinion in Colorado River
made clear that "exceptional circumstances" are required to
justify abstention. 424 U.S. at 813.

We analyzed this issue in Ryan v. Johnson, 115 F.3d
193, 197 (3d Cir. 1997), where we noted that in Moses H.
Cone the Supreme Court reiterated the narrowness of
Colorado River. We pointed out that even though it is
important to prevent "piecemeal litigation," a stay is
appropriate only when there is a "strong federal policy
against [such] litigation." Id. at 197. This has long been our
precedent. In University of Maryland v. Peat Marwick Main
& Co., 923 F.2d 265, 275-76 (3d Cir. 1991), we stated, "The
general rule regarding simultaneous litigation of similar
issues in both state and federal courts is that both actions
may proceed until one has come to judgment, at which
point that judgment may create a res judicata or collateral
estoppel effect on the other action."

                               11
In support of the District Court's decision to abstain,
Spring City argues that there is a vital state interest in the
construction of safe buildings, that lifting the stay will
result in piecemeal litigation, that only state laws are at
issue, and that the state court assumed jurisdictionfirst
and will adequately protect the parties' rights. It also
accuses American of forum-shopping in order to "receive a
favorable ruling with respect to the economic loss doctrine."
Spring City's Brief at 36-37. American responds that if the
fact that state law controls in this case mandated a stay,
virtually any diversity case in which state law"was not
entirely settled" would merit Colorado River abstention. As
we stated in Ryan, just as "abstention cannot be justified
merely because a case arises entirely under state law," the
question whether parties' interests are protected is only
relevant when they are not; that is, "when the state court
is adequate, . . . [this] factor carries little weight." Ryan,
115 F.3d at 199, 200.

Spring City relies on this court's decision in Trent v. Dial
Medical of Florida, Inc., 33 F.3d 217 (3d Cir. 1994), where
we affirmed the stay of a duplicative federal proceeding. In
Ryan, however, we recognized that Trent, by focusing
principally on the avoidance of piecemeal litigation, was
inconsistent with our earlier decisions and the Supreme
Court's emphasis in Colorado River and Moses H. Cone that
a "strongly articulated congressional policy against
piecemeal litigation" is required to justify a stay. Ryan, 115
F.3d at 198. We were concerned that were we to follow
what appears to be Trent's emphasis on "piecemeal
litigation," we would "swallow[ ] up the century-old principle
. . . that the pendency of an action in the state court is no
bar to proceedings concerning the same matter in the
Federal court having jurisdiction." Id. (citations and
internal quotation marks omitted). We held in Ryan that
under Third Circuit Internal Operating Procedure 9.1, our
prior case law takes precedence over an inconsistent later
case. Id.

We agree and hold that Ryan represents the applicable
law under Third Circuit and Supreme Court precedent. In
Ryan, we narrowly construed the circumstances that would
qualify for abstention, emphasizing language in Colorado

                               12
River that an abstention,   even for "considerations of wise
judicial administration .   . . can be justified . .. only in the
exceptional circumstances   where the order to the parties to
repair to the state court   would clearly serve an important
countervailing interest."   Id. at 195-96 (citation and internal
quotation marks omitted).

We see nothing in the present case that constitutes the
"exceptional circumstances" that would warrant abstention
under Colorado River. We respect the considerations that
caused the District Court to enter the stay but hold it erred
in doing so. The parties have advised us that the state case
is proceeding expeditiously. We are confident that the
District Court can establish procedures in the federal cases
that will minimize duplication of effort.

III.

CONCLUSION

In conclusion, we reiterate that federal courts have a
"virtually unflagging obligation . . . to exercise the
jurisdiction given them." Colorado River, 424 U.S. at 817.
For the reasons set forth, we will dismiss so much of this
appeal as challenges the remand of No. 98-28, reverse the
order staying the federal actions, and remand the
remainder of this suit to the District Court. Each party to
bear its own costs.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

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