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Ohio Farmers Insurance Company v. Graham Construction Services

September 13, 2012

OHIO FARMERS INSURANCE COMPANY, PLAINTIFF,
v.
GRAHAM CONSTRUCTION SERVICES, INC. DEFENDANT AND CROSS-DEFENDANT,
v.
CENTRAL TRENCHING, INC. DEFENDANT, CROSS-CLAIMANT, AND THIRD PARTY PLAINTIFF,
v.
TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, AS SURETY FOR I.C.S., INC. AND AS SURETY FOR GRAHAM CONSTRUCTION, INC., THIRD PARTY DEFENDANT.



The opinion of the court was delivered by: Daniel L. Hovland, District Judge United States District Court

ORDER DISMISSING COMPLAINT, CROSS-CLAIM, AND THIRD-PARTY COMPLAINT

Before the Court are three dispositive motions seeking to dismiss, transfer, or stay all the claims in this case. The Court grants the motions for the reasons set forth below.

I. BACKGROUND

This dispute arises out of the construction of a freshwater intake structure on Lake Sakakawea near Parshall, North Dakota ("Parshall Project"). I.C.S., Inc. d/b/a Industrial Contract Services, Inc. ("ICS") initially agreed to build the intake structure for the City of Parshall. ICS then assigned the construction of the intake structure to Graham Construction Services, Inc. ("Graham Construction"). Graham Construction entered into a subcontract agreement with Central Trenching Inc. ("Central Trenching") to perform directional drilling along with other services at the Parshall Project. See Docket No. 14-1. All of the construction companies obtained payment or performance bonds. Travelers Casualty and Surety Company of America ("Travelers") provided payment bonds to ICS and Graham Construction. Central Trenching obtained a performance bond from Ohio Farmers Insurance. See Docket Nos. 1-1; 14-1, p. 11. The record reveals that during the work at the Parshall Project a dispute arose between Graham Construction and Central Trenching. This complex litigation followed.

On February 23, 2012, Ohio Farmers Insurance, the surety to Central Trenching, filed a "Complaint for Declaratory Judgment" against Graham Construction and Central Trenching. See Docket No. 1. Ohio Farmers Insurance seeks a declaration that the surety company has no obligation to perform at the Parshall Project pursuant to the performance bond. See Docket No. 1, p. 4. Central Trenching filed an answer and cross-claim against Graham Construction, contending that Graham Construction breached the contract, failed to pay accounts stated, and negligently managed the Parshall Project. See Docket No. 14, p. 3. Central Trenching also filed a third-party complaint against Travelers, as surety to ICS and Graham Construction, alleging that Graham Construction failed to pay for work at the Parshall Project and seeking payment pursuant to the Travelers payment bonds. See Docket No. 25. In addition, Graham Construction filed a lawsuit in Minnesota state court against Central Trenching and Midco Diving and Marine Services, Inc. See Docket Nos. 46-1 and 46-2; see also Minnesota Judicial Branch Website, available at http://pa.courts.state.mn.us/default.aspx (last visited August 14, 2012) (showing Case No. 19HACV-12-2886). Graham Construction alleges Central Trenching breached the contract, and caused delays and damages at the Parshall Project.

Dispositive motions are now before the Court which seek to dismiss, transfer, or stay all of the claims filed in federal court in North Dakota. Graham Construction filed a motion to dismiss or transfer both Ohio Farmers Insurance's declaratory judgment action and Central Trenching's crossclaims. See Docket No. 18. Travelers, as surety to Graham Construction, filed a motion to dismiss, or in the alternative stay, Central Trenching's third-party complaint. See Docket No. 44. Travelers, as surety to ICS, filed an identical motion to dismiss or stay the third-party claims. See Docket No. 60.

II. LEGAL DISCUSSION

A. OHIO FARMERS INSURANCE DECLARATORY ACTION

Graham Construction essentially contends that Ohio Farmers Insurance's declaratory action should be dismissed because the complaint fails to set forth a justiciable controversy. A federal court's jurisdiction to issue a declaratory judgment is limited to "cases and controversies." Marine Equip. Mgmt. Co. v. United States, 4 F.3d 643, 646 (8th Cir. 1993). The Declaratory Judgment Act states: "In a case of actual controversy within its jurisdiction, . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201 (emphasis added). Discussing the justiciable controversy standard in the context of a declaratory judgment action, the Eighth Circuit explained as follows:

The decisions of the Supreme Court have developed a definition of "controversy" that must be applied to the facts of this appeal. In Aetna Life Insurance Co. v. Haworth, [300 U.S. 227, 240-41 (1937)], the Court said,

A "controversy" in this sense must be one that is appropriate for judicial determination. A justiciable controversy is thus distinguished from a difference or dispute of a hypothetical or abstract character; from one that is academic or moot. The controversy must be definite and concrete, touching the legal relations of parties having adverse legal interests. It must be a real and substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts. (citations omitted)

The difficulty in applying this definition was noted in Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826 (1941).

The difference between an abstract question and a "controversy" contemplated by the Declaratory Judgment Act is necessarily one of degree, and it would be difficult, if it would be possible, to fashion a precise test for determining in every case whether there is such a controversy. Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties ...


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