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Sverdrup Corp. v. Edwardsville Community Unit School District No. 7

September 10, 1997

SVERDRUP CORPORATION, PLAINTIFF-APPELLANT,

v.

EDWARDSVILLE COMMUNITY UNIT SCHOOL DISTRICT NO. 7, EDWARDSVILLE BOARD OF EDUCATION, JAMES SPECIALE, ET AL., DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Southern District of Illinois. No. 95 C 805 William D. Stiehl, Judge.

Before POSNER, Chief Judge, and COFFEY and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

ARGUED APRIL 17, 1997

DECIDED SEPTEMBER 10, 1997

In this diversity case, Sverdrup Corporation appeals the district court's grant of a stay of the proceedings pending resolution of a parallel action in the Illinois state court. Because the district court granted the stay without an analysis of the abstention principles that govern the Colorado River doctrine, we reverse its judgment and remand the case for further proceedings.

I. BACKGROUND

A. Facts

Edwardsville Community Unit School District No. 7 ("Edwardsville") hired Sverdrup Corporation ("Sverdrup") to construct a new high school for the district. *fn1 A dispute arose between the parties to the construction contract with respect to Sverdrup's performance. The dispute focused on Lindley Renken, a licensed architect who was a full-time employee of Sverdrup and who was the construction manager ("CM") for the school project. According to Edwardsville, Mr. Renken negligently misrepresented cost estimate information concerning the project.

As a result of this dispute, on October 30, 1995, each party filed suit. Sverdrup commenced its action in the United States District Court for the Southern District of Illinois ("the federal case"); Edwardsville filed its case in the Circuit Court for the Third Judicial Circuit, Madison County, Illinois ("the state case"). In the federal case, Sverdrup sought damages on three counts: breach of contract and failure to pay; breach of contract and wrongful termination; and quantum meruit. In the state case, Edwardsville alleged breach of contract and negligent misrepresentation against Sverdrup and brought a separate claim for negligent misrepresentation against the project architect/construction manager Lindley Renken. Mr. Renken, also a defendant in the state action, was an Illinois resident and thus had the same citizenship as Edwardsville.

Sverdrup subsequently removed the state suit to federal court. In order to demonstrate the requisite diversity of citizenship, Sverdrup alleged that Mr. Renken was fraudulently joined to defeat diversity jurisdiction. Sverdrup contended in its removal petition that Edwardsville's claim against Mr. Renken sought only economic damages for his alleged negligent misrepresentation. Because there can be no recovery under Illinois law against an architect for economic loss damages on account of an alleged negligent misrepresentation, see 2314 Lincoln Park West Condominium Ass'n v. Mann, Gin, Ebel & Frazier, Ltd., 555 N.E.2d 346, 348 (Ill. 1990), Sverdrup contended that Edwardsville could not state a claim against architect Renken under Illinois law. For that reason, asserted Sverdrup, Mr. Renken's Illinois citizenship must be ignored for the purpose of determining diversity, and the case may be removed to federal court. Edwardsville responded, in its motion to remand to state court, that Mr. Renken was properly joined and that there was no diversity between the parties. Consequently, Edwardsville asserted, the federal district court lacked jurisdiction. Edwardsville therefore filed a motion to remand the state case to state court and to stay or dismiss the federal case.

B. Order of the District Court

The district court ruled on both of Edwardsville's motions at the same time. It found that the federal and the state actions involved the same factual issues and core parties. In the court's view, one issue was key to determining both of the matters before it: whether Edwardsville had a viable cause of action against Mr. Renken for negligent misrepresentation. Critical to that determination, the court believed, was resolution of the question whether Mr. Renken was an architect or a construction manager.

The district court then concluded that Mr. Renken was, under this contract, a construction manager with responsibilities that were broader than architectural input, such as supplying cost estimate information to Edwardsville. R.21 at 5. As a result, Mr. Renken was not protected by 2314 Lincoln Park West Condominium Association, 555 N.E.2d at 348, which barred damage suits against architects for architectural malpractice. Therefore, the court reasoned, Sverdrup did not meet its burden of proving fraudulent joinder. Because the non-diverse defendant destroyed the requisite diversity of citizenship, the court held that it was without subject matter jurisdiction over the removed state case. The court therefore granted Edwardsville's motion to remand the state case.

Without further explanation, the court further stayed the federal case pending resolution of the remanded state court action. Sverdrup now appeals the district ...


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