City of Yorkville, also known as UNITED CITY OF YORKVILLE FOR THE USE v. AMERICAN SOUTHERN INSURANCE COMPANY and OCEAN ATLANTIC SERVICE CORPORATION

In the
United States Court of Appeals
For the Seventh Circuit
No. 10-3229
CITY OF YORKVILLE, also known as
UNITED CITY OF YORKVILLE
FOR THE USE AND BENEFIT OF
AURORA BLACKTOP INCORPORATED,
Plaintiff-Appellant,
v.
AMERICAN SOUTHERN INSURANCE COMPANY and
OCEAN ATLANTIC SERVICE CORPORATION,
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.
ARGUED MARCH 29, 2011—DECIDED AUGUST 12, 2011
Before ROVNER, WILLIAMS, and HAMILTON, Circuit Judges.
WILLIAMS, Circuit Judge. 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

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2 No. 10-3229
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 sug-
gesting 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 jurisdic-
tion 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’ representa-
tions 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 Con-
trol 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 improve-
ments.”
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

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No. 10-3229 3
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 sub-
division 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 deter-
mined that the public improvements or other improve-
ments 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 Atlan-
tic 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

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4 No. 10-3229
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 comple-
tion 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 Proce-
dure 12(b)(1). The district court granted the motion,
finding that Aurora did not have standing to assert
claims on the bonds because it was not a third-party
beneficiary to the bonds. Aurora appeals.
II. ANALYSIS
A. Appellate Jurisdiction
Early on in this appeal we were concerned that the
order appealed from might not be a “final decision” with-
in the meaning of 28 U.S.C. § 1291 because it appeared

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No. 10-3229 5
that the district court’s order failed to dispose of Aurora’s
case against Ocean Atlantic, the other defendant in this
lawsuit. We ordered Aurora to explain why the appeal
should not be dismissed.
Aurora filed a memorandum asserting that we have
jurisdiction because the district court dismissed its com-
plaint for lack of subject matter jurisdiction under
Rule 12(b)(1) with prejudice, and entered judgment.
Aurora also claimed, however, that the case was improp-
erly removed to federal court. American Southern re-
sponded that it agreed with Aurora that the order dis-
missing Aurora’s case is a final appealable order, but
argued that Aurora waived the removal issue by failing
to object below.
The district court dismissed Aurora’s complaint with
prejudice for lack of subject matter jurisdiction and closed
the case by entering judgment. The dismissal of Aurora’s
lawsuit was final, and we have jurisdiction over this
appeal. Banks v. Sec’y of Ind. Family & Soc. Servs. Admin.,
997 F.2d 231, 237 (7th Cir. 1993) (“This court has juris-
diction over this appeal because dismissal of an action
for lack of subject matter jurisdiction is a final judg-
ment.”); see also Hill v. Potter, 352 F.3d 1142, 1144-45 (7th
Cir. 2003) (“The test [for finality] is whether the district
court has finished with the case.”); In re Slimick, 928 F.2d
304, 307 n.1 (7th Cir. 1990) (“In an ordinary civil case,
a complete act of adjudication ends the litigation on
the merits and leaves nothing for the court to do but
execute the judgment.”).
Aurora also forfeited its challenge to American South-
ern’s defective removal. Aurora claimed that removal

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6 No. 10-3229
was improper because Ocean Atlantic never consented
to removal, and the consent of all defendants is gen-
erally required to remove. A motion to remand a case
on any basis other than lack of subject matter juris-
diction must be made within 30 days after the filing of
the notice of removal. 28 U.S.C. § 1447(c). Failure to join
all defendants when a case is removed to federal court
is a waivable procedural defect. McMahon v. Bunn-O-
Matic Corp., 150 F.3d 651, 653 (7th Cir. 1998) (plaintiff
forfeited claim that removal was improper because,
although only one defendant signed the notice of
removal, plaintiff did not raise the defect before the
court within 30 days); In re Cont’l Cas. Co., 29 F.3d 292,
294 (7th Cir. 1994) (“The plaintiff has a right to remand
if the defendant did not take the right steps when re-
moving, but the plaintiff also may accept the defendant’s
choice of a federal forum. Procedural defects in removal . . .
may be waived or forfeited.”). Because Aurora did not
move to have the case remanded within 30 days, it for-
feited its challenge to American Southern’s removal.
In fact, even if it had not, removal would have been
proper because the parties disclosed at oral argument
that Ocean Atlantic was never served and defendants
who have not been served need not join in a removal
petition. See Shaw v. Dow Brands, Inc., 994 F.2d 364, 369
(7th Cir. 1993).
B. Standing to Sue as Third-Party Beneficiary
In this case, we must decide whether Aurora
has standing as a third-party beneficiary to enforce the
subdivision bonds at issue. “In essence the question of

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No. 10-3229 7
standing is whether the litigant is entitled to have the
court decide the merits of the dispute or particular is-
sues.” Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d
440, 444-45 (7th Cir. 2009) (affirming dismissal of plain-
tiff’s case under Rule 12(b)(1) upon finding that plaintiff
did not have standing to sue on state law contract the-
ory). The parties do not dispute that Illinois law applies.
See Davis v. G.N. Mortg. Corp., 396 F.3d 869, 879 (7th Cir.
2005) (“In a case where subject matter jurisdiction in
federal court is premised on diversity jurisdiction under
28 U.S.C. § 1332, the court applies the substantive law
of the forum state.”).
“A contract of a surety involves a direct promise to
perform the obligations of another person in the event
such person fails to perform as required by his contract.”
Vee See Constr. Co., Inc. v. Luckett, 430 N.E.2d 91, 93 (Ill.
App. Ct. 1981). Aurora is not a party to the subdivision
bonds (the surety agreement) since American Southern
issued the bonds to Ocean Atlantic in favor of the City
of Yorkville. But Aurora claims that it is an intended
beneficiary and may therefore sue on the bonds.
In Illinois, if a contract is entered into for the
direct benefit of a third person who is not a party to the
contract, that person may sue on the contract as a third-
party beneficiary. Carson Pirie Scott & Co. v. Parrett, 178
N.E. 498, 501 (Ill. 1931). The test is whether the benefit
is direct, in which case the person may sue, or incidental,
in which case the person may not. Id. The intent to
benefit the third party must affirmatively appear from
the language of the contract. Carson, 178 N.E. at 501. If
the intent to benefit others is not explicitly provided for

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8 No. 10-3229
These principles are illustrated in Restatement with the 1
following examples:
1. P contracts to build a house for O. Pursuant to the
contract, P and S both execute a payment bond to O
(continued...)
in the contract, “its implication at least ‘must be so
strong as to be practically an express declaration.’ ”
Barney v. Unity Paving, Inc., 639 N.E.2d 592, 596 (Ill.
App. Ct. 1994). The parties’ intent is to be gleaned from
a consideration of all of the contract and the circum-
stances surrounding the parties at the time of its execu-
tion. Id.
The Restatement (Third) of Suretyship and Guaranty
provides some helpful guidance in determining whether
a subcontractor is a third-party beneficiary to a surety-
ship agreement. The Restatement distinguishes between
“payment” bonds and “performance” bonds. See RESTATE-
MENT (THIRD) OF SURETYSHIP AND GUARANTEE § 69(a)
(1996). When a “payment” bond is involved, the con-
tractor typically promises the owner of the project to
pay for all labor and materials, and the surety agrees
to be liable with respect to that promise. Id. The laborers
and suppliers therefore have rights as third-party benefi-
ciaries against the surety. See id. In contrast, when a
“performance” bond is involved, there is no promise to
pay laborers and suppliers of materials. Id. The surety
promises to be liable only for the fulfillment of the con-
tractor’s duty. Id. The laborers and suppliers have
no rights against the surety because the surety has
not promised to fulfill the contractor’s duty to them. Id.1

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No. 10-3229 9
(...continued) 1
whereby they promise O that all of P’s debts for labor
and materials on the house will be paid. P later em-
ploys C as a carpenter and buys lumber from L. C and
L are intended beneficiaries of S’s promise to O.
2. P contracts to build a house for O, and to deliver the
house free of liens. In connection with that contract,
S provides a performance bond whereby S agrees to
fulfill P’s obligations pursuant to the construction
contract. P later employs C as a carpenter and buys
lumber from L, and fails to pay both of them. C and L
have no rights against S.
Id.
In accordance with these general principles, Illinois
courts tend to find third-party beneficiary status where
an agreement contains language to the effect that the
surety will be responsible to third parties if the contractor
is unable to fulfill its obligation to them. In Carson Pirie
Scott & Co. v. Parrett, for example, the Supreme Court
of Illinois found that a supplier of hotel linens could sue
as a third-party beneficiary on a contract between the
hotel owners and a surety because the contract pro-
vided that the surety would pay for the goods if the
hotel owners could not. 178 N.E. at 502-03. Likewise, in
Neenah Foundry Co. v. National Surety Corp., although the
bond was labeled a “performance” bond, the surety had
agreed to provide coverage “for the work performed and
for the payment of claims for labor performed and materials
furnished.” 197 N.E.2d 744, 747 (Ill. App. Ct. 1964). The
court gleaned from that language an intent to protect

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10 No. 10-3229
the subcontractors, and noted that if the surety wanted
to limit its liability it could have done so expressly. Id. at
748-49; see also East Peoria Cmty. High Sch. Dist. No. 309
v. Grand Stage Lighting Co., 601 N.E.2d 972, 975 (Ill. App.
Ct. 1992) (contractor’s promise “to submit satisfactory
evidence [to the school] that all indebteness had been
paid” was intended to protect subcontractor who
could not have obtained a mechanic’s lien on a public
project); Avco Delta Corp. Canada Ltd. v. United States,
484 F.2d 692, 702-05 (7th Cir. 1973) (subcontractors were
entitled to sue on an agreement between a contractor
and an owner because the contract provided for the
creation of a “retainage account” that would be paid to
the contractor only after the contractor provided an
affidavit that stated that all bills for materials, labor, and
supplies had been paid in full); Phillips Co. v. Constitution
Indem. Co. of Philadelphia, 68 F.2d 304, 306 (7th Cir. 1933)
(promise to “completely pay for said building” was
intended to protect subcontractors).
Conversely, subcontractors are generally not ac-
corded third-party beneficiary status where the surety
agreement does not contain language suggesting that
the surety’s obligation to pay runs to third parties. In
Searles v. City of Flora, the bond at issue simply stated
that the surety would hold the city harmless and pay
any loss and damage to the city occasioned by the
failure or default of the contractor. 80 N.E. 98, 99-100 (Ill.
1906). The bond did not include any language con-
cerning payment to third parties for labor or materials,
and therefore the court concluded that unpaid subcon-
tractors could not sue on the bond. Id.; see also Young v.

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No. 10-3229 11
Gen. Ins. Co. of Am., 337 N.E.2d 739, 740-41 (Ill. App. Ct.
1975) (bond stated that “no right of action shall accrue
on this bond for the use of any person other than the
Owner named herein” and therefore limited the liability
of the surety to the owner); In re T. Brady Mech. Servs.
Inc., 129 B.R. 559, 561-62 (Bankr. N.D. Ill. 1991) (bond
obliged surety to pay “claimants,” defined as those
having “a direct contract with the principal for labor
or material,” and because the subcontractors did not
have “a direct contract with the principal” they were
not third-party beneficiaries).
The subdivision bonds at issue here do not contain
any language suggesting that Ocean Atlantic’s obliga-
tion runs to anyone other than the City of Yorkville. The
bonds state that they are “for the purpose of guaranteeing
the installation” of various public improvements. There
is no language, for example, to the effect that American
Southern is guaranteeing payment for labor and materi-
als. Cf. Carson, 178 N.E. at 502-03. There is also no
language requiring that anyone other than the City of
Yorkville be paid. Cf. East Peoria, 601 N.E.2d at 975
(clause required proof that subcontractor had been
paid); Avco, 484 F.2d at 702-05 (contract required af-
fidavit that materials and labor were paid for). In fact,
the only reference to the subcontractors in the sub-
division bonds is in a provision that states that the City
of Yorkville may demand payment when it determines
that the improvements covered by the bond have been
or are likely to be the subject of liens or other claims by
contractors, subcontractors, and third parties. This lan-
guage, however, only specifies the circumstances in

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12 No. 10-3229
which the City of Yorkville can make a demand on the
bonds; it imposes no obligation on American Southern
with respect to the subcontractors.
Aurora urges us to look to Ocean Atlantic’s letter rec-
ommending that the City of Yorkville redeem the bonds,
as well as to the City of Yorkville’s demand letter, in
determining whether the contracting parties intended to
benefit the subcontractors. But Illinois law provides that
the intent of the parties must be gleaned from the cir-
cumstances surrounding the parties at the time the
contract is executed. Bates & Rogers Constr. Corp. v.
Greeley & Hansen, 486 N.E.2d 902, 906 (Ill. App. Ct. 1985).
The two letters were prepared between two and three
years after the bonds were issued, and therefore shed
little, if any, light on the intent of the parties at the time
of contracting. Further, the bonds provide that “[t]he
Surety’s obligation to the City is based solely on this
Subdivision Bond engagement between this Surety and
the City and is not subject to instruction from our
customer [Ocean Atlantic].” This language, which Aurora
does not otherwise challenge, precludes consideration
of Ocean Atlantic’s letter.
Aurora also contends that the entire point of requiring
a contractor to obtain a bond is to ensure that subcon-
tractors are paid. But while the bonds may have been
procured to ensure that the City of Yorkville eventually
gets its public improvements clear of liens, this does
not mean that American Southern’s obligation under
the bonds runs to the subcontractors. “Liability to a third-
party must affirmatively appear from the contract’s

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No. 10-3229 13
language and from the circumstances surrounding the
parties at the time of its execution . . . .” Ball Corp. v.
Bohlin Bldg. Corp., 543 N.E.2d 106, 107 (Ill. App. Ct. 1989).
Here, it does not. And we cannot expand or enlarge
American Southern’s liability “simply because the situa-
tion and circumstances justify or demand further or
other liability.” Id. Moreover, it is not as if Aurora
does not have a remedy if it cannot sue to enforce the
bonds. Unlike in East Peoria, where the subcontractor
could not have obtained a mechanic’s lien, Aurora re-
corded a mechanic’s lien on the subdivision property
in the amount Ocean Atlantic owes to it. Cf. 601 N.E.2d
at 975. In sum, because the subdivision bonds do not
contain any language suggesting that American
Southern will assume Ocean Atlantic’s liability to the
subcontractors in the event of Ocean Atlantic’s default,
the decision of the district court must be affirmed.
III. CONCLUSION
The judgment of the district court is AFFIRMED.
8-12-11

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