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City of Yorkville, Also Known As v. Plaintiff-Appellant

August 12, 2011

CITY OF YORKVILLE, ALSO KNOWN AS UNITED CITY OF YORKVILLE FOR THE USE AND BENEFIT OF AURORA BLACKTOP INCORPORATED,
v.
PLAINTIFF-APPELLANT, AMERICAN SOUTHERNINSURANCECOMPANYAND OCEANATLANTICSERVICECORPORATION, DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:10-cv-01473-John W. Darrah, Judge.

The opinion of the court was delivered by: Williams, Circuit Judge.

ARGUED MARCH 29,2011

Before ROVNER, WILLIAMS, and HAMILTON, Circuit Judges.

Aurora Blacktop ("Aurora") filed this lawsuit, claiming that it is entitled to the proceeds of certain bonds issued by American Southern Insurance Company ("American Southern") in favor of the City of Yorkville. The district court found that Aurora did not have standing to sue, and dismissed the case. We find that Aurora is not a third-party beneficiary to the bonds because there is no language in the bonds suggesting that American Southern's obligation runs to third parties.

We affirm.

I. BACKGROUND

This case started out as three different actions brought against Ocean Atlantic Services ("Ocean Atlantic") and American Southern in state court by three plaintiffs. The cases were removed to federal court by American Southern and consolidated. The district court's jurisdiction was premised on diversity of citizenship. Only Aurora appealed the judgment of the district court.

Ocean Atlantic is a real estate developer that was building the Westbury East Village subdivision in Yorkville, Illinois. According to the parties' representations at oral argument, as part of that project, Ocean Atlantic was required to make certain public improve-ments that would eventually be turned over to the City of Yorkville for maintenance. Yorkville Subdivision Control Ordinance § 8.02.01 requires a subdivider to post an irrevocable bond payable to the City of Yorkville "to assure the satisfactory installation of required improvements."

According to Aurora's complaint, Ocean Atlantic (the contractor) obtained a series of subdivision bonds from American Southern in order to satisfy the ordinance. On June 15, 2006, American Southern (the surety) issued the subdivision bonds in favor of the City of Yorkville "for the purpose of guaranteeing the installation" of public improvements in the subdivision. All of the subdivision bonds (attached to Aurora's complaint) are identical, except for the amount insured and the specific improvements guaranteed. Each bond provides a list of events or conditions that would entitle the City of Yorkville to deem Ocean Atlantic in default. One of those conditions is "if the City of Yorkville has determined that the public improvements or other improvements covered by this [bond] have been or are likely to be the subject of liens or other claims by contractors, subcontractors or third parties." The bonds also provide that the City of Yorkville can make a demand on the bonds by "presenting the Surety with a letter from the City Clerk . . . demanding performance accompanied by the certificate of the City Clerk . . . certifying the basis for the default and demand on this Subdivision Bond."

Work on the subdivision commenced, and Ocean Atlantic hired Aurora (the subcontractor) to work on several public improvements. But the project stalled after Ocean Atlantic ran into financial difficulties, and the subdivision was never completed. Several subcon-tractors, including Aurora, were never paid for the work they performed. The subcontractors eventually recorded several mechanic's liens on the subdivision property in the amount allegedly owed by Ocean Atlantic.

On June 17, 2009, Ocean Atlantic wrote a letter to the City of Yorkville recommending that it redeem some of the bonds. In the letter, Ocean Atlantic explained that there were "presently three foreclosures pending that will prevent the current owner from completing the [subdivision]." Ocean Atlantic recommended that the bond proceeds be placed into escrow to pay for the release of the mechanic's liens and to ensure the completion of the improvements.

On August 31, 2009, the City of Yorkville sent a letter to American Southern making a demand for payment on the subdivision bonds. But American Southern never paid up, and the City did not pursue the matter further (even though the bonds contain an attorneys' fees provision). Aurora then filed suit against Ocean Atlantic and American Southern, purporting to bring its case in the name of the City of Yorkville for its own benefit. Aurora contends that it should be paid out of the proceeds of the bonds.

The case was removed to federal court. American Southern filed a motion to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). The district court granted the motion, finding that Aurora did not have standing to assert claims on the bonds ...


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