Stromberg Metal Works, Inc. v. Press Mechanical, Inc

77 F.3d 928 (7th Cir. 1996)

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Nature of the Case

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Facts

Bechtel hired Press Mechanical (D) to work on the heating, ventilation, and air conditioning system of the power station's diesel generator building. The contract between Bechtel and D calls for the application of Maryland law and requires D to 'bind every subcontractor to . . . the terms of the construction documents as far as applicable to the work performed by the subcontractor'. D engaged P and P1 to do some of the HVAC work required by the Bechtel-Press contract. D issued purchase orders, which provide on the front that the work is to be done 'in strict accordance with the plans, specifications and other contract documents listed below'--which include the master contract that selects Maryland law. Preprinted on the back of each purchase order is this sentence: 'This order shall be governed by the laws of the State of Illinois.' Bechtel was to pay D for work done by a subcontractor only if D certifies that the subcontractor has been paid, or that a bond secures payment. According to the complaint, D represented to Bechtel that it had paid more than $425,000 to P, and more than $27,000 to P1, for their work under the subcontracts. Bechtel then reimbursed D. But, the representation was false; D had paid only $18,000 to P and nothing to P1. D is insolvent and has made an assignment for the benefit of its creditors. P and P1 apparently do not have liens on their work. Having paid D, Bechtel is unwilling to pay the subcontractors directly, and D cannot. P sued under the diversity jurisdiction seeking to collect from Lester H. Goldwyn, John P. Goldwyn, and George E. Zielinski, who it believes controlled D and were responsible for the false certification to Bechtel and the nonpayment of the debts on the subcontracts. They invoke the Maryland Construction Trust Fund Statute. One clause of this law, Md. Real Property Code § 9-201(b)(1), provides that funds received by a contractor 'for work done or materials furnished . . . for or about a building by any subcontractor' are held in trust for the subcontractor, and § 9-202 adds: Any officer, director, or managing agent of any contractor or subcontractor, who knowingly retains or uses the moneys held in trust under § 9-201 of this subtitle, or any part thereof, for any purpose other than to pay those subcontractors for whom the money are held in trust, shall be personally liable to any person damaged by the action. P's claim exceeds $50,000, but P1's claim does not, so the immediate question is: does the supplemental jurisdiction permit a court to hear a claim by a party whose loss does not meet the jurisdictional minimum? In Clark v. Paul Gray, Inc., 306 U.S. 583, (1939), the Supreme Court held not, but 28 U.S.C. § 1367, enacted in 1990, may have altered that result. The district court, in this case, followed the majority view and dismissed P1's claim for want of jurisdiction. This appeal followed.