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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Tru-Line Metal Products, Inc. v. U.S. Fabrication & Erection (6/7/2002) sp-5578

Tru-Line Metal Products, Inc. v. U.S. Fabrication & Erection (6/7/2002) sp-5578

     Notice:   This opinion is subject to correction  before
     publication  in  the  Pacific  Reporter.   Readers  are
     requested to bring errors to the attention of the Clerk
     of  the  Appellate  Courts, 303  K  Street,  Anchorage,
     Alaska 99501, phone (907) 264-0608, fax (907) 264-0878.


            THE SUPREME COURT OF THE STATE OF ALASKA


TRU-LINE METAL PRODUCTS,      )
INC., JODY SUTHERLAND, and         )    Supreme Court No. S-9790
CRAIG HOLLEY,                                )
                              )    Superior Court No.
             Appellants,                )    3AN-98-10300 CI
                              )
     v.                       )    O P I N I O N
                              )
U.S. FABRICATION & ERECTION,  )    [No. 5578 - June 7, 2002]
                              )
             Appellee.                  )
________________________________)

          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Karen Hunt, Judge.

          Appearances:  Susan Orlansky and  Jeffrey  M.
          Feldman,  Feldman & Orlansky, Anchorage,  for
          Appellants.  Bruce E. Davison and  Joseph  A.
          Pollock,  Davison & Davison,  Anchorage,  for
          Appellee.

          Before:     Fabe,  Chief  Justice,  Matthews,
          Eastaugh, Bryner, and Carpeneti, Justices.

          CARPENETI, Justice.

I.   INTRODUCTION

          I.   In this contract dispute, Tru-Line Metal Products, Inc.

sued  United States Fabrication and Erection (USF&E)  in  federal

court.   The federal court granted summary judgment in  favor  of

USF&E and awarded full attorneys fees as a sanction for filing  a

baseless  claim.   Tru-Line then brought  this  action  in  state

superior court.  USF&E moved for summary judgment on res judicata

grounds.  The superior court granted summary judgment and awarded

USF&E  three times actual attorneys fees and costs as a  sanction

under  Alaska  Rules of Civil Procedure 11 and 95.   Because  the

federal  court  did  not  have subject matter  jurisdiction,  res

judicata does not bar Tru-Line from filing suit in state court on

the  same  claim.   We  therefore reverse the  grant  of  summary

judgment  and  remand  for further proceedings  in  the  superior

court.

II.  FACTS AND PROCEEDINGS

     A.   Background

          In 1994 M.A. Mortensen entered into a contract with the

United  States  Army  Corps  of  Engineers  for  improvements  to

Elmendorf Composite Medical Facility.  Mortensen entered  into  a

subcontract with Waiward Steel Fabricators, Ltd., which  in  turn

entered  into  a  subcontract with United States Fabrication  and

Erection.   In  October  1994  USF&E,  as  principal,  and   Star

Insurance  Company (Star), as surety, executed  a  payment  bond,

guaranteeing  payment of all persons having a direct relationship

with  either USF&E or a subcontractor of USF&E.  In February 1995

USF&E,  as a second-tier subcontractor on the Elmendorf  project,

entered into a subcontract with Tru-Line Metal Products, Inc.  to

install metal decking.

     B.   The Federal Court Lawsuit

          A.   In May 1997 Tru-Line filed suit against USF&E and Star in

United  States  District Court in Anchorage, alleging  breach  of

contract  and  claiming  damages  totaling  over  $730,000,  plus

interest, costs, and attorneys fees.  In its complaint,  Tru-Line

asserted that the federal court had federal question jurisdiction

pursuant  to  28 U.S.C.  1331 and by virtue of the  Miller  Act.1

USF&E and Star moved for summary judgment, arguing that Tru-Lines

claims  were  barred under the Miller Act.  USF&E and  Star  also

contended  that,  because  Tru-Line  was  not  registered  as   a

contractor  in the State of Alaska pursuant to AS 08.18.151,2  it

was not entitled to enforce its contract with USF&E.

          Tru-Line  attempted to amend its complaint in September

1997.  The amended complaint purported to establish diversity  of

citizenship as another ground for federal jurisdiction.  However,

          Tru-Line failed to note diversity in the heading, did not allege

any facts establishing diversity in the pleadings, and stated the

incorrect jurisdictional amount.  At oral argument on the  motion

for summary judgment, United States District Court Judge John  W.

Sedwick,   noting  these  substantial  defects  in  the   amended

complaint,  allowed counsel for Tru-Line to withdraw the  amended

complaint  and  file  another.  (Tru-Line never  filed  a  second

amended  complaint.)  Judge Sedwick also stated that  he  saw  no

valid  claim  based upon the Miller Act.3  He indicated  that  he

would  consider the other matters with respect to the  state  law

issues,  that is whether Tru-Line, as an unregistered contractor,

could  sue on its contract. He expressed skepticism that Tru-Line

could do so.4

          In  his  written  order  from chambers,  Judge  Sedwick

granted  summary judgment to USF&E.  He found that, because  Tru-

Line  was  a  third-tier contractor and because the Star  payment

bond  was  not  a Miller Act bond, Tru-Line was not  entitled  to

recover  under the Miller Act.  Judge Sedwick also discussed  the

Alaska contractor registration law and its applicability to  Tru-

Lines claims.  He found the Alaska Contractor Registration Act to

be  substantive  in  nature and applicable  to  Tru-Lines  claims

brought in federal court pursuant to diversity jurisdiction.   As

Tru-Line  did not dispute that it was an unregistered contractor,

Judge  Sedwick stated that Tru-Line was barred from suing on  the

contract it entered into with USF&E.

          In  a  separate  order  from  chambers,  Judge  Sedwick

granted  USF&E  Rule  11  sanctions  in  the  sum  of  reasonable

attorneys  fees,  expenses, and costs.  He  found  that  Tru-Line

filed  an utterly baseless claim under the Miller Act.   He  also

found  that  the  lack  of reasonable inquiry  made  by  Tru-Line

supported a finding of frivolousness and warranted the imposition

of sanctions.

     C.   The Superior Court Lawsuit

          A.   In October 1998 Tru-Line filed suit against USF&E in

          superior  court in Anchorage alleging fraud,  negligent

misrepresentation,  and  conversion.   USF&E  moved  for  summary

judgment  based  on res judicata.  Tru-Line opposed  the  motion,

alleging  that the merits of Tru-Lines federal claim  were  never

reached as Tru-Lines complaint was dismissed because it was not a

registered  Alaska  contractor.  The  state  complaint  concerned

fraud  and  conversion claims that, according to Tru-Line,  could

not  have  been  part  of  its federal complaint  as  it  had  no

indication that it had been purposefully misled and defrauded  by

USF&E.

          The  superior court granted USF&Es motion  for  summary

judgment.   USF&E  then  filed a motion for  attorneys  fees  and

sanctions  against  Tru-Line and its legal counsel,  pursuant  to

Alaska  Rules of Civil Procedure 11, 68, 82, and 95.  The  court,

finding that Tru-Line had no reasonable basis in fact to  file  a

complaint on an action deemed by the federal court to be baseless

and  frivolous,  granted  USF&Es motion for  attorneys  fees  and

sanctions.  For violations of Alaska Rules 11 and 95,  the  court

granted USF&E three times its actual costs and attorneys fees  to

be  paid  by Tru-Line and its counsel, Jody Sutherland and  Craig

Holley,  jointly and severally.  A motion for reconsideration  by

Tru-Line and its counsels was denied and those parties now appeal

to this court.

III. STANDARD OF REVIEW

          I.   A superior courts order granting a motion for summary

judgment is reviewed de novo.5  We will affirm a grant of summary

judgment if there are no genuine issues of material fact  and  if

the  moving party is entitled to summary judgment as a matter  of

law.6  The question of whether res judicata applies is a question

of law, which we review de novo.7

IV.  DISCUSSION

     A.   As the Federal Court Found that It Did Not Have Subject
          Matter  Jurisdiction over Tru-Lines Claim, the Superior
          Court Erred in Granting Summary Judgment to USF&E.
          
          1.   Res judicata generally

          Res  judicata is a judicial doctrine that has  as   its

primary objective claim preclusion or judicial finality. 8  Under

this  doctrine,  a judgment in a prior action bars  a  subsequent

action  if  (1)  the prior judgment was a final judgment  on  the

merits, (2) a court of competent jurisdiction rendered the  prior

judgment,  and (3) the same cause of action and same  parties  or

their  privies  were  involved in both  suits.  9   Res  judicata

implements the generally recognized public policy that there must

be  some end to litigation and that when one appears in court  to

present  his  case,  is fully heard, and the contested  issue  is

decided  against  him, he may not later renew the  litigation  in

another court.10

          Tru-Line  stipulates for the purposes  of  this  appeal

that  the  federal  court  entered a  final  judgment,  that  the

previous case involved the same parties, and that the new  claims

arose  out  of the same transaction as the claims in the  federal

suit.  But it argues that res judicata does not apply because the

federal court judgment was not on the merits.

          2.         The  federal court judgment was not  on  the

               merits.

               a.   Federal question jurisdiction

          For  a court to exercise federal question jurisdiction,

a  case must arise under the United States Constitution, the laws

of  the  United States, or treaties made under their authority.11

The  claim  arising under federal law must also  be  substantial;

that  is, there must be legal substance to the position that  the

plaintiff is promoting.12  If the federal claim that is the basis

for   jurisdiction  is  obviously  without  merit  or  is  wholly

frivolous,  the  federal  court  must  dismiss  for  a  lack   of

jurisdiction.13    However,  if  there  is  any   foundation   of

plausibility to the claim[,] federal jurisdiction exists.14  There

is  no question that a dismissal that results because there is no

substantial  federal  question  is  a  jurisdictional  dismissal:

[I]t remains the federal rule, and needs no reexamination here. 15

          In  his order granting summary judgment to USF&E, Judge

Sedwick found that the Miller Act could not serve as a basis  for

the district court to exercise jurisdiction.  The court based its

findings on the fact that the bond obtained by USF&E did not meet

the criteria established to be a Miller Act bond; that even if it

had  been  a  Miller  Act  bond, Tru-Line sued  the  sub-sub-sub-

contractor,  not the prime contractor; and that even  if  it  had

sued  the  proper  party, Tru-Line was too far removed  from  the

prime contractor to sue under the Miller Act.  As the court found

that  Tru-Lines Miller Act claim was not a substantial claim upon

which  it  could  exercise  federal  question  jurisdiction,  the

district court could not exercise pendant jurisdiction over  Tru-

Lines common law contract claims.

          The  resolution  of  the Miller  Act  claim  rested  on

jurisdictional grounds even though these findings were made in an

order of summary judgment.  Although the decision may be styled a

summary judgment, it should not gain increased preclusive effects

because  of  the  label chosen.16  As such,  a  determination  of

whether  the grant of summary judgment as to the federal question

was  on  the  merits  should be looked at in  the  context  of  a

dismissal for lack of jurisdiction.  Such dismissals are  not  on

the merits.17

               b.   Diversity jurisdiction

          Diversity jurisdiction extends to controversies between

citizens of different states.18  Generally, there is a presumption

against  diversity jurisdiction unless diversity jurisdiction  is

properly asserted in the pleadings.19  This presumption places the

burden  of  proof  on  the  party  asserting  jurisdiction,   the

sufficiency of which may be raised by the parties or  sua  sponte

by  the  court  at any time.20  However, a courts  discretion  to

dismiss  for  lack  of  subject  matter  jurisdiction,  when  the

plaintiff  could  have  pled  diversity  jurisdiction  and   such

jurisdiction   in  fact  exists,  should  be  used   sparingly.21

Jurisdiction  may  be sustained on the basis  of  a  statute  not

          relied on or alleged in the pleadings.22  As such, a court may

sustain  jurisdiction, even if defectively pled,  when  a  proper

basis   for  jurisdiction  exists  upon  review  of  the   entire

complaint.23

          Diversity  jurisdiction  was  not  properly   pled   in

district  court.  The first complaint merely alleged jurisdiction

under  the  Miller  Act.   In  its  amended  complaint,  Tru-Line

attempted  to  allege  diversity  jurisdiction.   Tru-Line  is  a

California corporation and USF&E is an Alaska corporation.  These

facts were disclosed during oral argument on the summary judgment

motion.  During that argument, Judge Sedwick allowed Tru-Line  to

withdraw its defective amended complaint and granted it leave  to

file  another  amended complaint, one that would properly  allege

diversity jurisdiction.  Tru-Line, though, never filed an amended

complaint properly asserting diversity jurisdiction.

           In  his order, Judge Sedwick discussed Tru-Lines state

law  contract  claims.  He did not, however, state  that  he  was

exercising   diversity   jurisdiction.   Rather,   he   mentioned

diversity  jurisdiction in a footnote stating that  [t]he  Alaska

Contractor   Registration  law  is  substantive  in  nature   and

therefore,  applicable to Tru-Lines contract  claims  brought  in

federal court pursuant to diversity jurisdiction.

          Judge  Sedwicks  discussion  of  Tru-Lines  state   law

contract  claims  did  not constitute a  final  judgment  on  the

merits.  Having given Tru-Line the opportunity to file an amended

complaint properly alleging diversity jurisdiction, and  Tru-Line

having failed to do so, Judge Sedwicks opinion acted only  as  an

advisory opinion on the futility of such action.  As Tru-Line did

not  have  a  valid claim under the Contractor Registration  Act,

Judge  Sedwick  stated, it was unable to sue on the  contract  it

entered  into  with USF&E.  As Judge Sedwicks discussion  of  the

state law claims was advisory and not a judgment on those claims,

it  is  no  bar to Tru-Line filing a suit in state court  on  the

contract.  Summary judgment in favor of USF&E, therefore,  should

          not have been granted.

     B.   Because It Was Error To Grant Summary Judgment, the Award of

          Treble Fees and Costs Is Vacated.

          The superior court awarded USF&E treble fees and costs.

We  need  not  reach  the  propriety of this  sanction.   Because

summary judgment should not have been granted, the award of  fees

and costs must be vacated.

V.   CONCLUSION

          A.   Because the federal court judgment was not on the merits,

Tru-Lines  state court case was not barred by res judicata.   The

superior  courts grant of summary judgment is therefore REVERSED,

the  award of attorneys fees is vacated, and the case is REMANDED

to  the superior court for further proceedings on Tru-Lines state

law  claims.


_______________________________
     1     40 U.S.C.  270(a)-(f) (2001).  The Miller Act requires
the prime contractor on a federal construction project to furnish
a  payment  bond  to insure payment to those who  have  a  direct
contractual  relationship with either the prime contractor  or  a
subcontractor.  United States v. Aetna Cas. & Sur. Co., 981  F.2d
448, 450 (9th Cir. 1992).

     2    AS 08.18.151 provides:

          A   person  acting  in  the  capacity  of   a
          contractor may not bring an action in a court
          of   this   state   for  the  collection   of
          compensation for the performance of  work  or
          for   breach   of   a  contract   for   which
          registration  is required under this  chapter
          without   alleging  and  proving   that   the
          contractor was a registered contractor at the
          time  of  contracting for the performance  of
          the work.
          
     3    After taking the matter under advisement and indicating
that  his practice was to provide a written order explaining  his
rulings,  Judge Sedwick stated: It does seem to me apparent  that
theres  .  . . clearly no claim based upon the Miller  Act  here.
This  is not a Miller Act bond and a . . . sub-sub-sub-sub cannot
make such a claim, and its been known for many, many years that .
. . thats not proper.

     4    Judge Sedwick stated: I will consider the other matters
with  respect  to the state law issues.  Im not  ruling  at  this
time.  It does appear to me probable that theres no way this case
can  be  brought  into federal court, in view of the  substantive
state  law requiring contractor registration, but I will look  at
the cases [cited by counsel].

     5     White v. State, Dept of Natural Res., 14 P.3d 956, 959
(Alaska 2000).

     6     Calhoun  v. State, Dept of Transp. & Pub.  Facilities,
857 P.2d 1191, 1193 (Alaska 1993).

     7     Renwick v. State, Bd. of Marine Pilots, 971 P.2d  631,
633 (Alaska 1999).

     8     Engebreth  v. Moore, 567 P.2d 305, 307  (Alaska  1977)
(quoting  Drickersen  v. Drickersen, 546 P.2d  162,  169  (Alaska
1976)).

     9     White,  14  P.3d at 959 (quoting Tope v. Christianson,
959 P.2d 1240, 1243 (Alaska 1998)).

     10     DeNardo  v.  State, 740 P.2d 453, 455  (Alaska  1987)
(internal quotes omitted).

     11    U.S. Const., art. III,  2

     12    See, e.g., United Mine Workers of America v. Gibbs, 383
U.S.  715, 725 (1966); 13B Charles Alan Wright, Arthur R. Miller,
&  Edward H. Cooper, Federal Practice and Procedure  3564, at 66-
67  (2d ed. 1984) [hereinafter Wright].

     13     See,  e.g.,  Montana Catholic  Missions  v.  Missoula
County,  200 U.S. 118, 130 (1906); Mainelli v. Providence Journal
Co., 312 F.2d 3, 5-6 (1st Cir. 1962); 13B Wright, supra note  12,
3564.

     14     13B  Wright, supra note 12,  3564 at 71;  see,  e.g.,
Southpark  Square Ltd. v. City of Jackson, Miss., 565  F.2d  338,
342-43 (5th Cir. 1977).

     15    13B Wright, supra note 12,  3564 at 73 (quoting Hagans
v. Lavine, 415 U.S. 528, 538 (1974)).

     16    18 Wright, supra note 12,  4444, at 392 (citing Wright
Mach.  Corp. v. Seaman-Andwall Corp., 307 N.E.2d 826, 833  (Mass.
1974)).

     17     See e.g., In re Matter of Pacific Marine Ins. Co.  of
Alaska  in  Liquidation,  877 P.2d 264, 267  n.2  (Alaska  1994);
Ostrow  v.  Higgins, 722 P.2d 936, 938 (Alaska  1986);  Moran  v.
Poland, 494 P.2d 814, 816 (Alaska 1972).

     18    U.S. Const., art. III,  2.

     19    See Naartex Consulting Corp. v. Watt, 722 F.2d 779, 792
(D.C. Cir. 1983).

     20     See Rice v. Rice Found., 610 F.2d 471, 474 (7th  Cir.
1979).

     21     Hoefferle Truck Sales, Inc. v. Divco-Wayne Corp., 523
F.2d 543, 549 (7th Cir. 1975).

     22     May  v. Supreme Court of Colorado, 508 F.2d 136,  137
(10th Cir. 1974).

     23    Van Hoose v. Williams,  496 F. Supp. 947, 948 (E.D. Ky.
1980).