Michael P. Hammond, the Assistant Superintendent of the Mid-Western Division, to contact F&D and to inquire into the status of American with respect to F&D's claims department. At that time, Pora Construction Company, a client of USF&G, had expressed an interest in working with American on certain tunnel construction projects. Pora was primarily a general building contractor which first expanded its business operation into the field of tunnel construction in and around 1977. Mr. Hammond contacted F&D on January 19, 1979, and was told by F&D the nature and terms of the Baltimore settlement and that F&D had an outstanding claim for the $100,000.00 paid by F&D to the Bank for the release of the guarantee and $38,000.00 on other bonds or claims. Affidavit of Michael P. Hammond, Exhibit C.
In March, 1979, Pora requested bonding for an estimated $7,000,000.00 to $8,000,000.00 dollar contract involving tunnel construction for the Metropolitan Sanitary Sewer District of Chicago in which the drilling of the tunnel would be subcontracted to American. Mr. Hammond noted his underwriting analysis with respect to the bonding request on the face of the Telex message received from the Chicago branch office which requested authorization with notations indicating that the bond request would be denied because of the nature and size of the project and the lack of experience by Pora with respect to tunnel construction. Affidavit of Michael P. Hammond, Exhibit C. Hammond also noted on the Telex beneath the name "American Structures," the words "can't be bonded." Mr. Hammond admits that he had prior knowledge of the financial difficulties of American by reason of the January, 1979 communication with F&D, but states that his decision to decline Pora's request for bonding was based solely upon his underwriting judgment with respect to Pora and its inexperience with tunnel construction. Affidavit of Michael P. Hammond, paragraph 8.
In March, 1980, USF&G had its third contact with American. On that occasion, Pora requested authorization and bonding for a $4 million dollar construction contract with the Metropolitan Sanitary Sewer District of Chicago for the excavation of an open cut sewer and construction of a deep shaft in which American would be a "silent joint venture partner" to perform the deep shaft portion of the contract. Robert J. Feehery, the Superintendent of the Bond Department of the Chicago branch office, noted in his underwriting analysis that American "has no surety" and that American had only a net worth of $465,603.00 as of January 31, 1979. Affidavit of Robert J. Feehery, Exhibit C. Mr. Feehery requested further information from Willard R. Holley, the then Superintendent of the Mid-Western Division, with respect to American. Affidavit of Robert J. Feehery, Exhibit A. The home office conditionally approved Pora's request for bond authorization with respect to the Chicago project on the condition that the drilling contractor, whether American or any other contractor who would perform the drilling for the deep shaft portion, obtain independent bonding. American was unable to obtain independent bonding.
The evidence is uncontroverted that tunnel construction is considered to be generally one of the most hazardous types of construction activity and that various factors including the size of the project, the experience of the contractor, and the net worth of the contractor's business, must be considered by a bond underwriter. In the present case, the evidence is uncontroverted that Pora had little or no experience in tunnel construction and that it needed to subcontract any expected drilling work to other contractors because of its inexperience. American's financial statement of January 31, 1979, readily demonstrates that American's assets were restricted as collateral for the loans and lines of credit extended by the Bank. There is no evidence of any motive by USF&G to enter a conspiracy with F&D to boycott the plaintiffs. Rather, the evidence is uncontroverted that USF&G based its decisions solely upon its own perception of valid business reasons and that its underwriting analysis was based upon its reluctance to furnish bonding to Pora for tunnel construction work because of Pora's little or no experience with that type of construction activity. See, e.g., Tose v. First Pennsylvania Bank, N.A., supra, 648 F.2d at 895 ("A business's refusal to enter a transaction, even a transaction with potential for a substantial profit, cannot support an inference that it acted in contradiction of its own economic interests in the face of substantial unrebutted and unimpeached evidence that its refusal was consistent with its own best interests."); Venzie Corp. v. United States Mineral Prod. Co., Inc., supra, 521 F.2d at 1314-1315. Plaintiffs' contention that USF&G conspired with other surety companies to boycott plaintiffs is founded upon pure speculation. There are no objective facts or reasonable inferences which can be drawn in support of plaintiffs' theory. See Tose v. First Pennsylvania Bank, N.A., supra, 648 F.2d at 895. For these reasons, after a full review of the present record, the Court finds that there is no probative evidence in support of plaintiffs' theory that USF&G entered into a conspiracy to boycott plaintiffs and, therefore, USF&G's motion for summary judgment will be granted.
F&D, as noted earlier, provided bid, payment and performance bonds for American from 1971 to 1976. Following the settlement of the Baltimore litigation, F&D refused to provide bonding to American with respect to a number of projects. Plaintiffs present their strongest evidence against F&D. However, Section 1 of the Sherman Act "does not prohibit unilateral activity . . . there must be proof of more than solitary conduct, there must be proof of concerted action." Tose v. First Pennsylvania Bank, N.A., supra, 648 F.2d at 893. Summary judgment must also be awarded to F&D on the antitrust conspiracy claim because there is no probative evidence of an agreement between the named defendants, F&D, USF&G, and Aetna, to boycott the plaintiffs. There is no evidence within the present record of "'a unity of purpose or a common design and understanding, or a meeting of the minds in an unlawful arrangement'" between any of the alleged co-conspirators. See Tose v. First Pennsylvania Bank, N.A., supra, 648 F.2d at 893 (quoting American Tobacco Co. v. United States, 328 U.S. 781, 810, 90 L. Ed. 1575, 66 S. Ct. 1125 (1946)). For these reasons, F&D's motion for summary judgment will be granted.
III. Civil Rights Claim
Plaintiffs assert that defendant surety companies have individually and in concert denied the plaintiffs of their civil rights because of their refusal to provide bonding with respect to public contracts in violation of 42 U.S.C. § 1983. Section 1983 provides a cause of action against any party who "under color of" state law deprives another of rights or privileges secured by the Constitution or federal law. A claim for relief under 42 U.S.C. § 1983 must embody at least two elements: (1) a deprivation of a right "secured by the Constitution and the laws" of the United States, and (2) deprivation of a right "under color of" state law. Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 155, 56 L. Ed. 2d 185, 98 S. Ct. 1729 (1978). Defendant surety companies contend that they are entitled to summary judgment because there is no "state action."
Surety companies are licensed and regulated by various state governments. Bid, performance and payment bonds are usually required with respect to construction of public projects in order to protect against any potential defaults by the builder contractors and to assure completion of the project. Nevertheless, surety companies are private insurance industry entities subject only to public regulation.
Plaintiffs present two theories in support of a finding of "state action." First, plaintiffs contend that surety companies perform a "public function" by their guarantee of the construction of public work projects. Plaintiffs maintain that the various governmental authorities, which require contractors to be bonded, delegate to the surety companies the public function of selecting and determining which contractors have sufficient responsibility and abilities to work on necessary public construction projects. Without bonding, plaintiffs argue, a contractor cannot bid on a particular public construction project or work on that project. The relevant test for determining state action under the public function concept is whether "the function performed has been 'traditionally the exclusive prerogative of the State.'" Rendell-Baker v. Kohn, 457 U.S. 830, 102 S. Ct. 2764, 73 L. Ed. 2d 418, 50 U.S.L.W. 4824, 4829 (1982). Moreover, "that a private entity performs a function which serves the public does not make its acts state action." Rendell-Baker v. Kohn, supra, 457 U.S. at 842, 50 U.S.L.W. at 4829. In the present case, private surety companies provide a valuable service by providing bid, payment and performance bonds to help guarantee the construction of public works. However, under no circumstances do surety companies undertake the construction of public works or render decisions which public works are to be constructed for the benefit of the public. For these reasons, the role of surety companies in the public works area is rather limited and does not rise to the level of the performance of a public function which was formerly "the exclusive prerogative of the State." See Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 157-161, 56 L. Ed. 2d 185, 98 S. Ct. 1729 (1978) (limited nature of public function exception).
Second, plaintiffs propose to find "state action" under the "close-nexus" test. Jackson v. Metropolitan Edison Co., 419 U.S. 345, 42 L. Ed. 2d 477, 95 S. Ct. 449 (1975). The relevant test is as follows:
. . . the inquiry must be whether there is a sufficiently close nexus between the State and the challenged action . . . so that the action of the latter may be fairly treated as that of the State itself, Jackson v. Metropolitan Edison Co., 419 U.S. 345, 351, 42 L. Ed. 2d 477, 95 S. Ct. 449 (1975), citing Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 176, 32 L. Ed. 2d 627, 92 S. Ct. 1965 (1972), or whether the State has so far insinuated itself into a position of interdependence with [the defendants] that it must be recognized as a joint participant in the challenged activity. Burton v. Wilmington Parking Authority, 365 U.S. 715, 725, 6 L. Ed. 2d 45, 81 S. Ct. 856 (1961).
Bethel v. Jendoco Const. Corp., 570 F.2d 1168, 1176 (3d Cir. 1978). In Bethel v. Jendoco Const. Corp., supra, the Third Circuit held that discrimination practiced by contractors receiving large amounts of public funds for the construction of government projects was not actionable under 42 U.S.C. § 1983 because of the absence of state action. In the present case, plaintiffs note the fact that surety companies are licensed and regulated by the states and that surety bonds are essential in the construction of public works. Nevertheless, "the mere fact that a business is subject to regulation does not by itself convert its action into that of the State for purposes of the Fourteenth Amendment." Blum v. Yaretsky, 457 U.S. 991, 102 S. Ct. 2777, 73 L. Ed. 2d 534, 50 U.S.L.W. 4859, 4862 (1982) (quoting Jackson v. Metropolitan Edison Co., 419 U.S. 345, 350, 42 L. Ed. 2d 477, 95 S. Ct. 449 (1975)). The role of the surety companies is extremely limited with respect to the construction of public work projects and there is no sufficiently close nexus between the awarding of contracts by local governmental authorities to the lowest bidders and the decisions of surety companies to provide bonding to contractors wishing to submit bids on publicly authorized construction contracts. Surety companies provide a valuable service to local governmental authorities. However, a position of interdependence does not exist so as to confer state action on the decisions of surety companies whether or not to provide bonding to certain contractors. For these reasons, defendants' motion for summary judgment on the civil rights claim under 42 U.S.C. § 1983 must be granted.
IV. Pendent State Law Claims
Counts III through VI of plaintiffs' complaint assert various pendent state law claims against all three defendant surety companies, F&D, USF&G, and Aetna. Counts VII through XI assert additional pendent state law claims against F&D. "Pendent jurisdiction is a doctrine of discretion, not of plaintiff's right." United Mine Workers v. Gibbs, 383 U.S. 715, 726, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966). Many of the state law claims arise from plaintiffs' contentions that defendants conspired to boycott plaintiffs, see Counts IV-VI, while others are based upon theories of breach of contract, business and personal libel, and tortious interference with contractual and business relationships. See Counts III, VII-XI. The Court has awarded summary judgment to defendants on the two principal federal law claims -- the antitrust and civil rights claims. Due to the dismissal of the federal law claims prior to trial, the Court finds that it would be inappropriate, under all the facts and circumstances of the present case, to hear the state law claims which are best left to be decided in state court. For these reasons, the pendent state law claims will be dismissed without prejudice. United Mine Workers v. Gibbs, supra, 383 U.S. at 726; Tully v. Mott Supermarkets, Inc., 540 F.2d 187, 196 (3d Cir. 1976). See also Weaver v. Marine Bank, 683 F.2d 744 (3d Cir. 1982).
An appropriate Order will be entered.
AND NOW, TO WIT, this 19th day of August, 1982, for the reasons stated in the foregoing Memorandum, IT IS ORDERED as follows:
1. Defendants' motion for summary judgment against plaintiffs on Count I of plaintiffs' complaint is hereby granted and judgment is entered in favor of defendants and against plaintiffs.
2. Defendants' motion for summary judgment against plaintiffs on Count II of plaintiffs' complaint is hereby granted and judgment is entered in favor of defendants and against plaintiffs.
3. Counts III-XI are dismissed without prejudice because there are no federal questions left to be tried.
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