Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

COUNTY OF COOK v. MELLON STUART CO.

June 15, 1992

COUNTY OF COOK, a body politic and corporate, Plaintiff,
v.
MELLON STUART COMPANY, a Pennsylvania corporation, FEDERAL STREET CONSTRUCTION CO., INC., a Pennsylvania corporation, BAKER ENGINEERING, INC, an Illinois corporation, MICHAEL BAKER CORPORATION, a Pennsylvania corporation, MELLON STUART CONSTRUCTION, INC., a Pennsylvania corporation, and SEABOARD SURETY COMPANY, a New York corporation, Defendants.



The opinion of the court was delivered by: MARVIN E. ASPEN

 MARVIN E. ASPEN, District Judge:

 On May 11, 1992, plaintiff County of Cook (the "County") filed an action in the Circuit Court of Cook County against Mellon Stuart Company ("Mellon Stuart"), Federal Street Construction Company ("Federal Street"), Baker Engineering, Inc. ("Baker Engineering"), Michael Baker Corporation ("MBC"), Mellon Stuart Construction Inc. ("MSCI") and Seaboard Surety Company ("Seaboard"), alleging breach of contract. On May 14, 1992, defendants removed the action to this court on the basis of diversity of citizenship. Presently before the court is the County's supplemental motion to remand for want of subject matter jurisdiction. *fn1" For the reasons set forth below, we conclude that this court lacks subject matter jurisdiction over the instant action and, as such, remand the case to the Circuit Court of Cook County.

 I. Background

 In 1974, a class of detainees in the custody of the Cook County Department of Corrections brought an action against the County pursuant to 42 U.S.C. § 1983, charging violations of the Eighth and Fourteenth Amendment of the United States Constitution for failure to provide safe and human conditions of confinement. A comprehensive consent decree was entered on April 9, 1982, providing in part for the renovation and modernization of the County's jail facilities. Duran v. Elrod, No. 74-2949 (N.D. Ill. 1982) (Shadur, J.), aff'd, 713 F.2d 292 (7th Cir. 1983), modified, 760 F.2d 756 (7th Cir. 1985). In order to meet the population restrictions and distribution ceilings for detainees as specified in the consent decree, the County, on August 4, 1989, advertised for bids on the construction of a new jail dormitory facility to be located in the County's Department of Corrections Complex at 2700 South California Boulevard. In September of 1989, defendant Mellon Stuart, an entity incorporated in Pennsylvania, submitted its bid for the project, along with supporting documents indicating its healthy financial status. On or about September 18, 1989, Mellon Stuart was awarded the contract for the construction of the new jail facility.

 Under the contract, in consideration for $ 38,887,000, Mellon Stuart agreed to furnish all labor, materials, equipment, machinery, apparatus, implements, etc. for the work to be performed. Mellon Stuart was to substantially complete the work on the new jail no later than April 30, 1991. The contract defines "substantial completion" as the date when construction is sufficiently complete so as to enable the County to occupy or utilize the facility for the purpose of providing adequate housing for the inmates of the Cook County Department of Corrections. The contract expressly provided that time was of the essence. Additionally, as required pursuant to the contract, Mellon Stuart submitted a Performance and Payment Bond, i.e., a surety bond, executed by Seaboard, a New York corporation, for valuable consideration. This surety bond constitutes a promise by Seaboard and Mellon Stuart to the County (1) that all terms and conditions of the contract will be fully performed, and (2) that the County would be held harmless from all liabilities, costs, damages and expenses which might accrue against the County in favor of any person not a party to the contract or as a result of negligence by Mellon Stuart or any of its agents.

 By March, 1991, substantial defects surfaced in the construction of the new jail. Most noteworthy was extensive delamination, cracking and debonding of concrete topping slabs poured under the direction of Mellon Stuart. These concrete structures were not in conformance with the contract requirements, and ran afoul of the minimum standards of the City of Chicago Building Code. The contract provided that, in the face of defects, Mellon Stuart agreed to perform necessary corrective work, bearing all costs of such work, within five days after written notice of the defect by the County. In order to remedy the defective concrete work, Mellon Stuart proposed a procedure of epoxy injection and joint grinding. Mellon Stuart agreed to bear the costs of testing the epoxy method, and assumed full responsibility for protecting adjoining work already in place. After completing 50% of the epoxy injections, it was discovered that epoxy had seeped into light fixtures, down walls, out of mechanical soffits and ceiling areas, through flashings and down the face of exterior walls of the building. Despite this discovery, Mellon Stuart continued the epoxy injections for approximately four additional weeks, resulting in the blockage of electrical conduits and hydronic heating pipes embedded in the concrete, and the destruction or damage of other completed work, systems, fixtures, equipment, components and property. The County considers Mellon Stuart's failure to remedy the defects, as well as its conduct of the epoxy injections, violations of the contract and its agreement to exercise due care.

 Concurrent with the timing of the epoxy debacle, Mellon Stuart had failed to pay its subcontractors and material suppliers as required by the contract, raising serious questions regarding Mellon Stuart's financial stability and its ability to complete the project in a timely manner. According to the County, in September of 1991, Mellon Stuart transferred substantially all of its valuable assets to one or more of the following entities. (1) MBC, an organization incorporated in Pennsylvania; (2) Baker Engineering, an Illinois corporation with its principle place of business in Illinois; or (3) MSCI, an entity incorporated in the state of Pennsylvania. In conjunction with the transfer of assets, Mellon Stuart changed its name to Federal Street, an organization incorporated in Pennsylvania. As alleged by the County, Federal Street operated as a shell company for the Baker defendants, i.e., MBC, Baker Engineering, and MSCI, retaining only a few undesirable construction projects including the new jail. The County further claims that MBC, Baker Engineering, and MSCI are conducting business with Mellon Stuart and Federal Street as a common enterprise. Having acquired substantially all of Mellon Stuart's assets and taken over its business affairs, the County maintains that the Baker defendants are successors in interest to Mellon Stuart and, therefore, are liable for its obligations and contingent losses.

 By December, 1991, Mellon Stuart, calling itself Federal Street, was unable to meet its financial obligations to its subcontractors working on the new jail. By letters dated December 27, 1991, pursuant to section GC-17 of the contract, the County officially notified Mellon Stuart and Seaboard that Mellon Stuart was in default in the performance of its obligations under the contract. Under the terms of the contract, Mellon Stuart was afforded ten days in which to cure the defaults, but failed to do so. Once again, on April 11, 1992--four days prior to the anticipated date of completion, as revised--the County informed Mellon Stuart and Seaboard of Mellon Stuart's further defaults under the contract. The County reiterated its demands in a meeting with representatives of Mellon Stuart and Seaboard, on May 7, 1992. At this meeting, Seaboard notified the County that it did not accept the County's conclusion regarding the defaults of Mellon Stuart, and therefore refused to complete the work itself in accordance with its obligation under the surety bond and contract. Seaboard's position was restated in a letter dated May 8, 1992, prompting the instant lawsuit.

 II. Jurisdiction

 The County seeks remand to the Circuit Court of Cook County, arguing that complete diversity, see Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L. Ed. 435 (1806) (requiring that no plaintiff share common citizenship with any defendant for diversity jurisdiction to exist under federal law), is not present in this case. Specifically, the County points to the citizenship of (1) Baker Engineering, undisputedly a citizen of Illinois, and (2) Mellon Stuart, n/k/a Federal Street, allegedly having its principal place of business in Illinois. Defendants concede that Baker Engineering is an Illinois corporation, but maintains that it was fraudulently joined as a defendant in this action. Further, defendants claim that Mellon Stuart, n/k/a Federal Street, sustains its principal place of business in Pennsylvania, the state of its incorporation. Because this court cannot conclude that Baker Engineering was fraudulently joined in this cause, we need not consider whether Mellon Stuart, n/k/a Federal Street, maintains its principal place of business in Illinois.

 The right of removal under 28 U.S.C. § 1441 "cannot be defeated by a fraudulent joinder of a resident defendant having no real connection with the controversy." Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97, 42 S. Ct. 35, 37, 66 L. Ed. 144 (1921). The Seventh Circuit in Poulos v. Naas Foods, Inc., 959 F.2d 69 (7th Cir. 1992), addressed for the first time the contours of the fraudulent joinder doctrine. The Poulos court defined "fraudulent joinder" in terms of (1) false allegations of jurisdictional fact, or, as in most cases, (2) a claim against an in-state defendant "that simply has no chance of success, whatever the plaintiff's motives." Id. at 73 (citations omitted). There can be no dispute that this action does not involve false allegations of jurisdictional fact and, as such, our present focus is on whether the County has stated a viable claim against Baker Engineering. The burden of establishing fraudulent joinder is a heavy one, resting with the out-of-state defendant seeking to remove the cause to federal court. Id. Defendants must show that, "after resolving all issues of fact and law in favor of the [County], the [County] cannot establish a cause of action against [Baker Engineering,] the in-state defendant." Id. (emphasis in original) (citing B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir. 1981)). As noted by the Seventh Circuit, "the federal court must engage in an act of prediction: is there any reasonable possibility that a state court would rule against the non-diverse defendant?" Id. In the event that this court answers the above question in the affirmative, defendants have failed to carry their burden and the cause must be remanded to the Circuit Court of Cook County.

 Under Illinois law, a corporation that purchases the assets of another corporation is generally not liable for the debts and liabilities of the transferor. Fenderson v. Athey Products Corp., 220 Ill. App. 3d 832, 834, 581 N.E.2d 288, 290, 163 Ill. Dec. 337 (1st Dist. 1991); Kramer v. Weedhopper of Utah, Inc., 204 Ill. App. 3d 469, 475, 562 N.E.2d 271, 274, 149 Ill. Dec. 807 (1st Dist. 1990). The Illinois courts, ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.