                                                                                                                           Opinions of the United
1996 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


9-13-1996

HB Gen Corp v. Manchester Partners
Precedential or Non-Precedential:

Docket 95-5396




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                UNITED STATES COURT OF APPEALS
                    FOR THE THIRD CIRCUIT

                         ____________

                         NO. 95-5396
                         ____________

                     HB GENERAL CORP.;
                  HB LIMITED REALTY CORP.

                               Appellants
                               v.

                  MANCHESTER PARTNERS, L.P.

                      Defendant/Third-Party Plaintiff
                                v.

                        H.B. PARTNERS,
         L.P. AND VANDERBILT DEVELOPMENT CORPORATION

                         Third-Party Defendants

              ___________________________________

        On Appeal From the United States District Court
                 For the District of New Jersey
                  (D.C. Civ. No. 94-cv-05160)
              ___________________________________

                     Argued: March 21, 1996

          Before: BECKER, McKEE, Circuit Judges, and
POLLAK, District Judge.

(Filed September 13, 1996)


PETER D. ISAKOFF, ESQUIRE (ARGUED)
JAMES W. ROBERTSON, ESQUIRE
Weil, Gotshal & Manges
1615 L Street, NW
Washington, DC 20036

FREDERIC K. BECKER, ESQUIRE
Wilentz, Goldman & Spitzer, P.A.
90 Woodbridge Center Drive
P.O. Box 10
Woodbridge, NJ 07095

Attorneys for Appellants, HB General Corp;
HB Limited Realty Corp.
GAGE ANDRETTA, ESQUIRE (ARGUED)
ARTHUR S. GOLDSTEIN, ESQUIRE
JENNIFER E. MORRIS, ESQUIRE
Wolff & Samson
5 Becker Farm Road
Roseland, NJ 07068

Attorneys for Appellees-Defendants/Third-Party
Plaintiffs, Manchester Partners, L.P.


                  ___________________________

                      OPINION OF THE COURT
                  ___________________________

BECKER, Circuit Judge.
     This is a diversity suit arising out of a dispute among the
members of a small limited partnership, HB Partners, L.P.
Plaintiffs HB General Corp. and HB Limited Corp., brought suit in
the district court against the third partner, Manchester
Partners, L.P., seeking a declaratory judgment that Manchester
had breached the Partnership Agreement. Although there is
complete diversity among the three partners, Manchester argues
that the Partnership itself -- which shares the citizenship of
all of the parties -- is an indispensable party whose joinder
destroys diversity jurisdiction. The district court agreed with
Manchester and dismissed the case. Resolution of the other
partners' appeal turns on the interplay between the "technical,
precedent-bound" rule that, for diversity jurisdiction purposes,
a limited partner is considered a citizen of each state in which
its partners are citizens, and the flexible, pragmatic federal
procedural rules of joinder.
     We reverse. Applying the joinder rules pragmatically, we
hold that, because all of the partners of this small limited
partnership are before the district court, joinder of the
partnership entity is not required. Specifically, we conclude
that, given proper protective provisions in the judgment,
proceeding in the absence of the Partnership will cause no
prejudice to Manchester; that the Partnership is effectively
represented by the partners and consequently suffers no prejudice
from its exclusion; that whether or not the plaintiffs' claims
are "derivative" is immaterial; and that Manchester's
counterclaims can be heard in this federal court action and thus
there is no risk of piecemeal litigation. For these reasons, the
requisites of Federal Rule of Civil Procedure 19 are satisfied.
We also hold that under Delaware law, the source of any cause of
action plaintiffs have for breach of the Partnership Agreement,
they are real parties in interest within the meaning of Federal
Rule of Civil Procedure 17.

                 I. Facts and Procedural History
     HB Partners, L.P. (the Partnership) was formed in October
1991, to develop three properties in Manchester, Vermont for
commercial leasing. At its inception, the Partnership consisted
of one general partner, plaintiff HB General Corp., and two
limited partners, plaintiff HB Limited Realty Corp. and defendant
Manchester Partners, L.P.. HB General and HB Limited (the HB
entities) are controlled by Ben Hauben, a major developer of
retail stores in Vermont. They are both Delaware corporations
with their principal places of business in Vermont. Manchester
is organized under New Jersey law and all of its partners are New
Jersey residents. The Partnership was formed under Delaware law,
and Delaware law governs construction of the Partnership
Agreement.
     Under that Agreement, Manchester was to provide the bulk of
the Partnership's capital. It contributed $990,000 at the
Partnership's formation and was to provide additional capital up
to a total of $1,980,000 in response to capital calls made by the
general partner, HB General. The Partnership Agreement provides
that HB General may call for additional contributions of capital
whenever the Partnership will hold less than $500,000 in cash or
cash equivalents in the ensuing thirty days. Each capital call
can be for up to $500,000, of which ninety-nine percent is to be
paid by Manchester and one percent by HB General.
     HB General made a series of capital calls which were met by
Manchester without incident. However, problems arose in the
summer of 1994. On June 10, 1994, HB General made a capital call
for $250,000, of which Manchester's share was $247,500.
Manchester sent a check for this amount, but placed conditions on
its use, demanding that the funds be held in escrow until all
building permits and required approvals were obtained. HB
General found these conditions improper and returned the check to
Manchester. On August 11, 1994, HB General again made a capital
call, this time for $400,000, $396,000 of which was due from
Manchester. Manchester notified HB General by letter dated
September 13, 1994, that it would not make the capital
contribution.
     The Partnership Agreement provides that if Manchester fails
to make a requested capital contribution, it will be considered
to have withdrawn from the Partnership and shall have no further
rights as a partner. In such event, Manchester becomes a
subordinated creditor of the Partnership and is entitled only to
a return of its capital contributions at a specified time in the
future. The HB entities assert that Manchester's failure to meet
the August 11 capital call has triggered this provision. They
brought this declaratory judgment action in the district court,
seeking a declaration that Manchester has lost its status as a
limited partner and is now a subordinated creditor. Federal
jurisdiction was asserted on the basis of diversity of
citizenship.
     According to Manchester, however, the parties' dispute is
much more complicated than whether Manchester failed to meet a
simple capital call. Manchester asserts that at the time of the
August 11 capital call, the Partnership was significantly behind
schedule in developing the Vermont properties, and that HB
General had failed to meet numerous requirements of the
Partnership Agreement. Manchester claims that because of these
problems, it had informed HB General -- prior to the final
capital call -- that it would exercise its "redemption option."
This option, provided for in the Partnership Agreement, allows
Manchester to have its Partnership interest "redeemed" at a price
specified by formula in the event that the Partnership fails to
commence construction on two of the three properties (the
Manchester Square II Property and the Riverbend Property) by
October 10, 1994. The agreement states that if the Partnership
does not pay the redemption price, Manchester's sole remedy is to
compel a sale of any undeveloped parcels then owned by the
Partnership.
     Manchester maintains that by August 11, 1994, when HB
General made the final capital call, HB General knew both that
the Partnership could not commence construction on the Manchester
Square II Property and the Riverbend Property by October 10,
1994, and that Manchester intended to exercise its redemption
option. Manchester claims that HB General made the capital call
in bad faith to force Manchester to choose between infusing a
substantial sum of cash into the Partnership just prior to
exercising its right of redemption -- money that might not be
recoverable given the redemption option's limited remedy -- or
defaulting on its obligation.
     According to Manchester, it intended to file suit to force
HB General to recognize Manchester's right to exercise its
redemption option, but before it could do so, the HB entities
filed this action. Manchester therefore counterclaimed against
HB General and HB Limited, and against third-party defendants,
the Partnership itself and Vanderbilt Development Corporation
(another entity controlled by Ben Hauben). Manchester complains
that because of the Partnership's failure to commence
construction as scheduled and to recognize Manchester's right to
exercise its redemption option, the plaintiffs breached the
Partnership Agreement, their fiduciary duties to Manchester, and
their covenant of good faith and fair dealing. Manchester seeks,
inter alia, the following relief: (a) specific performance of
those provisions of the Partnership Agreement giving Manchester
the right to exercise its redemption option and to compel the
sale of the properties; (b) attachment, foreclosure and sale of
the Partnership properties and the other properties for which
Partnership funds have been expended; (c) imposition of a
constructive trust on all the properties; and (d) damages.
     After Manchester unsuccessfully moved to transfer the case
to the United States District Court for the District of Vermont,
Manchester filed a parallel action in Vermont state court,
seeking essentially the same relief as it seeks in federal court.
Manchester then moved to dismiss this federal action on the basis
that the Partnership was an indispensable party whose joinder
would destroy diversity. The district court granted Manchester's
motion. Applying Federal Rule of Civil Procedure 19(a), the
court held that the Partnership itself has significant interests
in this litigation and should be joined if feasible. The court
then concluded under Rule 19(b) that the Partnership is
indispensable, even if joinder is not feasible, in view of
prejudice to Manchester and to the Partnership that would arise
if the Partnership is excluded. Because, for diversity
jurisdiction purposes, a limited partnership is considered a
citizen of each state in which its partners (both general and
limited) are citizens, Carden v. Arkoma Associates, 494 U.S. 185
(1990), joinder of the Partnership would destroy diversity of
citizenship. Thus, the district court dismissed the case for
lack of subject matter jurisdiction.
     We review the district court's Rule 19(a) determination that
joinder is required if feasible under a plenary standard to the
extent that it rests on conclusions of law and under a clear
error standard as to any subsidiary findings of fact. Janney
Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399, 404
(3d Cir. 1993). We review for abuse of discretion the court's
Rule 19(b) determination that a person is indispensable and that
dismissal is required because the person's joinder is not
feasible. Id. at 403.

                          II. Rule 19(a)
     Federal Rule of Civil Procedure 19 determines when joinder
of a particular person is compulsory. A court must first
determine whether the person should be joined pursuant to Rule
19(a). If Rule 19(a) is satisfied but joinder is "not feasible"
-- because, inter alia, joinder would destroy diversity
jurisdiction -- the court must apply Rule 19(b) to determine
whether, "in equity and good conscience," the party is
"indispensable." If the court determines that the party is
indispensable, the action must be dismissed.
     We agree with the district court that, pursuant to Rule
19(a), this Partnership should be joined if feasible. Under Rule
19(a), a person should be joined if:
     (1) in the person's absence complete relief cannot be
     accorded among those already parties, or (2) the person
     claims an interest relating to the subject of the
     action and is so situated that the disposition of the
     action in the person's absence may (i) as a practical
     matter impair or impede the person's ability to protect
     that interest or (ii) leave any of the persons already
     parties subject to a substantial risk of incurring
     double, multiple, or otherwise inconsistent obligations
     by reason of the claimed interest.
Fed. R. Civ. P. 19(a). Assuming that the Partnership has
interests as an entity, a question to which we will turn
presently, the Partnership clearly has an interest in this case:
Manchester's obligation to provide capital -- the alleged breach
of which is the basis of the HB entities' suit -- ran to the
Partnership, see 4 Alan R. Bromberg & Larry E. Ribstein, Bromberg
and Ribstein on Partnership § 15.04(g), at 15:34 (1994) (stating
that the partnership itself has a claim for nonpayment of a
limited partner's contribution to the partnership); and, if
Manchester remains a partner it will force the sale of the
Partnership's real property. Given the Partnership's interests,
joinder of the Partnership is required under Rule 19(a)(2) if
feasible: the Partnership might be able to bring identical
claims against Manchester, or, alternatively, the Partnership's
claims might be extinguished in this action by the HB entities.

                         III. Rule 19(b)
                         A. Introduction
     Although Rule 19(a) requires joinder if feasible, joinder is
not feasible in this case because of the Supreme Court's ruling
in Carden v. Arkoma Associates, 494 U.S. 185 (1990). Carden held
that, for diversity jurisdiction purposes, a limited partnership
is considered a citizen of each state in which its partners are
citizens. Thus, although there is complete diversity without
joinder of the Partnership because the suit is brought by two
Delaware and Vermont citizens against a New Jersey citizen,
diversity will be destroyed if the Partnership, a citizen of
Vermont, New Jersey, and Pennsylvania, is joined. Because
joinder is therefore not feasible, this case should be dismissed
if the Partnership is deemed an indispensable party. The
question, then, is whether this case can, "in equity and good
conscience," proceed without the Partnership as a party, Fed. R.
Civ. P. 19(b). We conclude that the district court abused its
discretion in holding that the case cannot so proceed.
     In contrast to Carden's jurisdictional rule, which the
Supreme Court acknowledged to be "technical, precedent-bound, and
unresponsive to policy considerations," Carden, 494 U.S. at 196,
whether a person is indispensable depends on "pragmatic
considerations," Fed. R. Civ. P. 19 Advisory Committee Notes to
the 1966 Amendment; see Provident Tradesmens Bank & Trust Co. v.
Patterson, 390 U.S. 102, 116 n.12 (1968). Rule 19(b) lists
several factors to consider in deciding whether a person is
indispensable:
     first, to what extent a judgment rendered in the
     person's absence might be prejudicial to the person or
     those already parties; second, the extent to which, by
     protective provisions in the judgment, by the shaping
     of relief, or other measures, the prejudice can be
     lessened or avoided; third, whether a judgment rendered
     in the person's absence will be adequate; fourth,
     whether the plaintiff will have an adequate remedy if
     the action is dismissed for nonjoinder.

Fed. R. Civ. P. 19(b). Applying these factors, the district
court dismissed the case, concluding that exclusion of the
Partnership would prejudice the Partnership's interests and,
because of the possibility that the Partnership itself could
later sue on the same claims, would prejudice Manchester's
interests; that protective provisions in the judgment could not
lessen this prejudice; and that the plaintiffs have an adequate
remedy if the suit is dismissed because of the identical
litigation filed by Manchester in Vermont state court. The court
also decided that the HB entities' suit is a derivative action,
and found guidance in cases holding that a partnership is an
indispensable party in derivative actions. Manchester echoes all
of these reasons and offers, as an additional reason for
dismissal, that its counterclaims against the Partnership cannot
be heard in federal court. We conclude that none of the reasons
offered for dismissal is meritorious.

                    B. Manchester's Interests
     Taking the easiest question first, we conclude that
protective provisions in the judgment can effectively avoid any
prejudice to Manchester that might be caused by excluding the
Partnership from the litigation. We acknowledge that Manchester
would be prejudiced if this litigation will not bind the
Partnership itself, thus allowing the Partnership to later bring
an identical claim. But the Partnership, like a marionette,
cannot make a move unless some human being pulls the strings.
And all the people who, under the Partnership Agreement, have the
power to cause the Partnership to bring suit -- probably only HB
General, see Partnership Agreement § 5.2, App. 142 ("No Limited
Partner in its capacity as Limited Partner shall take part in the
conduct or control of the business of the Partnership or have any
right or authority to act for or bind the Partnership."), but in
no case people other than the present parties, HB General, HB
Limited, and Manchester -- are before the court. The court can
therefore enjoin all the partners from bringing a subsequent suit
on behalf of the Partnership.
     Furthermore, the court can require HB General to cause the
Partnership to release its claim against Manchester as a
condition of judgment, thus ensuring that even if one of the
current partners assigns its partnership interest to a new
person, that person cannot initiate suit on behalf of the
Partnership. See Partnership Agreement § 6.1, App. 142 (Subject
to certain limitations, "the General Partner is authorized, in
furtherance of the business of the Partnership, to make
decisions, take actions and enter into and perform contracts of
any kind necessary, proper, convenient or advisable to effectuate
the purposes of the Partnership.") In short, protective
provisions in the judgment can avoid all prejudice to Manchester,
and thus prejudice to Manchester is not a reason to dismiss this
case.

                  C. The Partnership's Interests
     The district court also decided, and Manchester argues, that
exclusion of the Partnership would prejudice the Partnership's
interests. We disagree. Although indispensability under Rule 19
is a question of federal law, state law determines the nature of
the interests of all the individuals concerned. See Provident
Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 125 n.22
(1968); Hertz v. Record Publishing Co., 219 F.2d 397, 399-400 (3d
Cir.), cert. denied, 349 U.S. 912 (1955). The relevant state law
here is that of Delaware, as the partnership is organized
pursuant to Delaware law, Partnership Agreement Art. III, App.
137-38, and Delaware law is the source of any cause of action the
Partnership may have for Manchester's breach of contract, seePartnership
Agreement § 17.5, App. 174 ("[T]his Agreement shall
be governed by and construed in accordance with the laws of
Delaware . . . .").
     First we must decide whether, under Delaware law, the
Partnership has interests as an entity in this case.
Historically, the common law considered partnerships to be
collections of individuals rather than distinct jural entities
with their own interests. See 1 Bromberg & Ribstein, supra §
1.03, at 1:20; Puerto Rico v. Russell & Co., 288 U.S. 476, 480
(1933); Silliman v. DuPont, 302 A.2d 327, 331 (Del. Super. Ct.
1972), aff'd, F.I. Du Pont, Glore, Forgan & Co. v. Silliman, 310
A.2d 128 (Del. 1973). However, today there is much ambivalence
about the appropriate characterization of partnerships. See 1
Bromberg & Ribstein, supra § 1.03, at 1:19 to 1:20, 1:40.
Delaware, like most states, has not adopted either a pure
aggregate or pure entity theory of partnerships, but seems to
treat partnerships differently for different purposes. SeeSilliman, 302
A.2d 332 n.4 (noting that the evolution of the
Uniform Partnership Act has been viewed as a "realistic
accommodation of entity theory to aggregate practice which leaves
unresolved many problems concerning the legal nature of
partnerships . . . ."). Limited partnerships, with their
limitations on limited partner liability and control, are clearly
more entity-like than general partnerships, but even these are
not treated as entities in all contexts. See 3 Bromberg &
Ribstein, supra § 11.03(a), at 11:27; cf. Silliman, 302 A.2d at
327 (recognizing the lack of a coherent view of the nature of
partnerships in a case involving a limited partnership).
     We conclude that, under Delaware law, the Partnership has
interests as an entity in this case. Delaware treats
partnerships -- even general ones -- as entities for purposes of
owning property, see generally 1 Bromberg & Ribstein, supra §
1.03(c)(1), at 1:23 to 1:25. For example, a partnership can
acquire and convey real property in its own name, Del. Code Ann.
tit. 6, § 1508(c); an individual partner has only limited rights
to possession and assignment of partnership property, id. §
1525(b); an individual partner's right in partnership property is
not subject to attachment or execution, except on a claim against
the partnership, id.; and an individual partner cannot devise
partnership property, id.. Moreover, this Partnership has
several property interests that are implicated by this
litigation. Most obviously, if Manchester wins this litigation,
it will compel a sale of the Partnership's undeveloped real
property. In addition, a partnership's causes of action are
themselves partnership property, see 2 Bromberg & Ribstein, supra§
5.03(d), at 5:21, and the Partnership may have a cause of
action that will be effectively decided in this case. Manchester
has allegedly breached a duty to the Partnership, and thus it
appears that the Partnership itself has a cause of action against
Manchester. See 4 id. § 15.04(g), at 15:34 (stating that the
partnership itself has a claim for nonpayment of a limited
partner's contribution to the partnership). Thus, under Delaware
law, the Partnership, as an entity, has interests in this case.
     That said, we do not believe the Partnership's interests
would, as a practical matter, be prejudiced by excluding it from
the action. Even though the Partnership has its own interests,
it is an artificial entity: its interests must ultimately derive
from the interests of the human beings that are its members
(albeit through the medium of other partnerships and
corporations). The exact relationship between the Partnership's
interests as an entity and those of the individual partners has
not been addressed by the Delaware courts. But, following Rule
19's pragmatic approach, we are guided by common sense. A
partnership's interests as an entity consist of an aggregation of
those interests of each of the individual partners that are
relevant to the purpose of the partnership. Thus, at least in
certain cases, it is possible that a partnership's interests can
be effectively represented in litigation by participation of its
partners.
     We believe that to be the case here. This partnership
consists of at most three partners, all of whom are before the
court. Although each of the partners may arguably bring to bear
some interests (the nature of which no one has identified) that
are distinct from those of the Partnership, we have no doubt that
the Partnership's interests in this case are adequately
represented by the partners. If the Partnership has a claim
against Manchester and the right to retain its real property,
these interests will be effectively advanced by the HB entities.
And even if the HB entities' interests are not entirely
consistent with those of the Partnership, they are not
antagonistic. Furthermore, to the extent the HB entities'
interests diverge from the Partnerships's interests, Manchester
can protect them.
     This case is thus analogous to Delta Financial Corp. v. Paul
D. Comanduras & Associates, 973 F.2d 301 (4th Cir. 1991). There,
the Fourth Circuit stated, in an action between the only two
partners of a limited partnership:
          Even if the partnership entity may under some
     circumstances be a necessary or indispensable party to
     litigation involving the constituent partners, which we
     do not suggest, we are of opinion that Vanguard [the
     partnership] is not necessary or indispensable to the
     instant dispute. This action arises out of a strictly
     internal conflict between the partners, all of whom,
     after our decision today, will be before the district
     court. PDS has failed to establish that Vanguard
     itself has any interest distinct from the interests of
     the several partners. Thus, we are satisfied that
     "complete relief [may] be accorded among those already
     parties," and that Vanguard claims no interest
     different from the interest of the partners that may be
     impaired by the imposition of the case and that
     Vanguard's absence will not "leave any of the persons
     already parties subject to a substantial risk of
     incurring double, multiple, or otherwise inconsistent
     obligations."
Id. at 303-04 (citations omitted); see also DM II, Ltd. v.
Hospital Corp., 130 F.R.D. 469, 473 n.5 (N.D. Ga. 1989) (stating,
in an action brought by some but not all partners, "Joinder of
each non-party partner would ordinarily satisfy Rule 19, since
the interests of the partnership would be adequately
represented"). Although in some cases the interests of the
partners may sufficiently diverge from those of the partnership
that the partnership is an indispensable party, we simply cannot
conceive of any interest the Partnership has as an entity in this
case that will not be advanced by the three partners.

                      D. Derivative Actions
     The district court and Manchester also attach much
significance to whether this action is a derivative action. In
their view, the HB entities' action is derivative and they
believe this provides a special reason that the Partnership must
be joined. They cite to many cases finding the Partnership to be
an indispensable party in derivative actions. See, e.g.,
Bankston v. Burch, 27 F.3d 164, 167-68 (5th Cir. 1994); Buckley
v. Control Data Corp., 923 F.2d 96, 98 (8th Cir. 1991).

                  1. Is this Action Derivative?
     As a preliminary matter, we are not at all certain that this
is a derivative action. It is true that Delaware courts have
stated the general rule that whether an action is derivative or
direct depends on whether the harm alleged by the plaintiff is
independent of harm suffered by the corporation or partnership
itself. See Kramer v. Western Pacific Industries, Inc., 546 A.2d
348, 351-52 (Del. 1988); Litman v. Prudential-Bache Properties,
Inc., 611 A.2d 12, 15 (Del. Ch. 1992); see also generally 12B
Fletcher's Cyclopedia of Corporations § 5911, at 483-84. And
here the harm alleged by the HB entities -- breach of
Manchester's obligation to provide capital to the Partnership --
was suffered by the partners only through its harm to the
Partnership.
     But, in this case brought by those in control of the
Partnership, the action may still not be derivative. The
derivative action device, with its attendant demand requirement,
was developed to aid investors who have no control over a company
redress harms to the company in the face of management's
inaction. See Ross v. Bernhard, 396 U.S. 531, 534 (1970); 2
Bromberg & Ribstein, supra s 5.05(a), at 5:35 ("The substantive
distinction [between direct] enforcement of a partnership right
by fewer than all the partners [and a derivative action] is not
always clear but seems to be this: In a derivative suit, the
plaintiff partner is typically acting against the wishes of those
partners who have decisionmaking authority for enforcement of the
partnership right . . . ."); see also Del. Code Ann. tit. 6, §
17-0001 (stating, in the subchapter entitled "Derivative
Actions," "A limited partner may bring an action in the Court of
Chancery in the right of a limited partnership to recover a
judgment in its favor if general partners with authority to do so
have refused to bring the action or if an effort to cause those
general partners to bring the action is not likely to succeed.")
(emphasis added).
     Here, the action was brought in part by the general partner,
who has authority to act for the Partnership. In Delaware,
general partners have the power to sue directly on behalf of the
partnership on the partnership's claims. See Thompson Door Co.
v. Haven Fund, 351 A.2d 864, 865 (Del. 1976) ("Each [general]
partner has the power to use ordinary legal process to enforce
obligations owed the partnership and therefore may engage counsel
to sue on behalf of the firm."); Partnership Agreement § 6.1,
App. 142 (Subject to certain limitations, "the General Partner is
authorized, in furtherance of the business of the Partnership, to
make decisions, take actions and enter into and perform contracts
of any kind necessary, proper, convenient or advisable to
effectuate the purposes of the Partnership."); 4 Bromberg &
Ribstein, supra § 15.02(b), at 15:13, & § 15.02(e), at 15:16 to
15:17. The power to sue "on behalf" of a partnership does not
mean that the partnership itself must be named as a party:
although Delaware has a "common name" statute, allowing
partnerships to sue and be sued in the partnership name, see Del.
Code Ann. tit. 10, § 3904, its "use, although often convenient,
is not mandatory." Furek v. University of Delaware, 594 A.2d
506, 513 (Del. 1991); see, e.g., Verlaque v. Charles A. Zonko
Builder, Inc., 1989 WL 112029 (Del. Super. Ct. Sept. 11, 1989)
(action brought by plaintiff "individually and on behalf" of a
partnership). Thus, the HB entities can sue directly to enforce
Manchester's obligation to the Partnership, and do not need to
resort to a derivative action.
     Another reason this action may not be derivative is that the
HB entities may have the right to bring suit directly as
individuals. The basis for any cause of action here is
Manchester's alleged breach of the Partnership Agreement. Both
HB General and HB Limited are parties to the agreement, and
breach of a Partnership Agreement has been held to constitute an
individual as well as a partnership claim. See 4 Bromberg &
Ribstein, supra § 15.04(h), at 15:37 & n.35. Thus the HB
entities can bring this suit through a number of different means,
and the action need not be characterized as derivative.

    2. The Immateriality of the Characterization of this Suit
                          (a) To Rule 19
     For purposes of this appeal, we need not decide, however,
whether, under state law, the HB entities are suing derivatively,
directly on behalf of the Partnership, or directly as
individuals. As far as Rule 19 is concerned, state law is
relevant only in determining the interests of those affected by
the litigation. See Provident Tradesmens Bank & Trust Co. v.
Patterson, 390 U.S. 102, 125 n.22 (1968); Hertz v. Record
Publishing Co., 219 F.2d 397, 399-400 (3d Cir.), cert. denied,
349 U.S. 912 (1955). Once these interests are determined,
federal law governs the balancing of interests in determining
indispensability. See Patterson, 390 U.S. at 125 n.22; Hertz,
219 F.2d at 400. Thus, even if the relevant state law requires
joinder of a partnership in derivative actions and actions on
behalf of the partnership in cases brought in the state's courts,
that will not affect the balancing of interests under Rule 19.
See Hertz, 219 F.2d at 399-400 ("Even if, in a suit in a
Pennsylvania court, such officers are indispensable as a
procedural requirement, they are not necessarily indispensable in
a federal court.").
     Moreover, the characterization of this action as derivative
or on behalf of the Partnership has no impact on our earlier
analysis of the interests of the Partnership and the partners.
The only significant consequence of such a characterization for
determining the relevant interests is that the Partnership itself
has a cause of action. But we considered the Partnership's
potential cause of action and its implications in that earlier
analysis.
     We recognize that the Supreme Court has stated, in the
corporations context, that the corporation is an indispensable
party in stockholder derivative actions. See Ross v. Bernhard,
396 U.S. 531, 538 (1970); Koster v. Lumbermens Mut. Casualty Co.,
330 U.S. 518, 522 n.2 (1947); Davenport v. Dows, 85 U.S. (18
Wall.) 626, 627 (1873); see also Guerrino v. Ohio Casualty
Insurance Co., 423 F.2d 419, 422 (3d Cir. 1970). If meant as a
general rule, this statement is in tension with the Court's
admonitions that "Whether a person is 'indispensable,' that is,
whether a particular lawsuit must be dismissed in the absence of
that person, can only be determined in the context of particular
litigation," and that "[t]here is no prescribed formula for
determining in every case whether a person . . . is an
indispensable party." Provident Tradesmens Bank & Trust Co. v.
Patterson, 390 U.S. 102, 118 & n.14 (1968) (citations and
internal quotation marks omitted). But even if it is the rule
that the corporation is indispensable in a shareholder's
derivative action, the partnership context in general, and this
case in particular, are distinguishable.
     Unlike partnerships, the corporation's status as a distinct
jural entity is deeply rooted in our law; the bright lines that
come with this status are one of the corporate form's major
attractions. Thus, a clear rule for joinder may be uniquely
appropriate for the corporation context. And, generally, shares
in corporations are much more quickly and easily transferred than
partnership interests, making a determination of whether the
aggregation of stockholder's interests sufficiently represents
the corporation extremely difficult. Partnerships lack
consistent entity-treatment, and, at least for small
partnerships, the determination of whether the partners'
interests align with those of the partnership is not difficult.
In this case, the partnership consists of essentially two (though
formally three) members, and we are easily able to determine that
the individual partners effectively represent the Partnership.

                          (b) To Rule 17
     Of course, the state-law characterization of an action as
derivative or on behalf of another might affect joinder via Rule
17. Rule 17(a) states that "[e]very action shall be prosecuted
in the name of the real party in interest," and that an action
shall be dismissed if the real party in interest is not
substituted or joined. The Supreme Court, in stating that the
corporation is an indispensable party in a stockholder's
derivative action, stated that the corporation is the real party
in interest. Ross v. Bernhard, 396 U.S. 531, 538 (1970). We
conclude, however, that Rule 17 does not require the
partnership's joinder even if the HB entities' claims are
derivative or otherwise on behalf of the Partnership.
     The real party in interest rule ensures that under the
governing substantive law, the plaintiffs are entitled to enforce
the claim at issue. See Lubbock Feed Lots, Inc. v. Iowa Beef
Processors, Inc., 630 F.2d 250, 256-57 (5th Cir. 1980); Virginia
Elec. & Power Co. v. Westinghouse Elec. Corp., 485 F.2d 78, 83
(4th Cir. 1973), cert. denied, 415 U.S. 935, and cert. denied sub
nom. Stone & Webster Engineering Corp. v. Virginia Elec. & Power
Co., 415 U.S. 935 (1974); 6A Charles Alan Wright et al., Federal
Practice and Procedure § 1543, at 334 (2d ed. 1990). There may
be multiple real parties in interest for a given claim, and if
the plaintiffs are real parties in interest, Rule 17(a) does not
require the addition of other parties also fitting that
description. See Wright et al. supra, at 340; see also, e.g.,
Fed. R. Civ. P. 17(a) ("An executor, administrator, guardian,
bailee, trustee of an express trust, a party with whom or in
whose name a contract has been made for the benefit of another,
or a party authorized by statute may sue in that person's own
name without joining the party for whose benefit the action is
brought . . . ."). Thus, insofar as the HB entities are
authorized to bring suit under Delaware law -- even derivatively
or otherwise on behalf of the Partnership -- they are also real
parties in interest.
     This conclusion is informed by the fact that the original
purpose of the real party in interest rule was permissive -- to
allow an assignee to sue in his or her own name. Fed. R. Civ. P.
17 Advisory Committee Notes to the 1966 Amendment. The "modern
function of the rule in its negative aspect is simply to protect
the defendant against a subsequent action by the party actually
entitled to recover, and to ensure generally that the judgment
will have its proper effect as res judicata." Id. As noted
above, any doubt as to the preclusive effect of this litigation
on the Partnership can be resolved by protective provisions in
the judgment.
     In sum, this action may well not be derivative but, at all
events, the characterization of the suit is immaterial to either
Rule 19 or Rule 17.

                  E. Manchester's Counterclaims
     Manchester offers one reason for dismissal not relied on by
the district court: that the Partnership is an indispensable
party to Manchester's counterclaims but that joinder would
destroy subject matter jurisdiction over the counterclaims
because Manchester and the Partnership share citizenship in New
Jersey. If Manchester cannot pursue its counterclaims without
participation of the Partnership and the Partnership must be
excluded from the litigation, Manchester would have a strong
argument for dismissal. The third factor of Rule 19(b) --
"whether a judgment rendered in the person's absence will be
adequate" -- considers the extent to which exclusion of an
interested person would leave significant matters unadjudicated.
See Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S.
102, 111 (1968) ("We read the Rule's third criterion . . . to
refer to this public stake in settling disputes by wholes,
whenever possible . . . ."). However, as we shall presently
explain, the Partnership can be joined as to Manchester's
counterclaims, without destroying subject matter jurisdiction.
     Complete diversity is required only when federal court
jurisdiction is exercised under the federal diversity
jurisdiction statute, 28 U.S.C. § 1332. See State Farm Fire &
Casualty Co. v. Tashire, 386 U.S. 523, 530-31 (1967). Under the
Constitution, diversity jurisdiction requires only minimal
diversity among the parties, i.e., at least one defendant and one
plaintiff need be citizens of different states. Id. Here the
district court has statutory authority to exercise jurisdiction
over Manchester's counterclaims under the supplemental
jurisdiction statute, 28 U.S.C. § 1367.
     28 U.S.C. § 1367 provides that, in general, if the district
court has jurisdiction over one claim, it can maintain
jurisdiction over claims that lack an independent basis of
jurisdiction if those claims "are so related to claims" within
the court's jurisdiction "that they form part of the same case or
controversy under Article III of the United States
Constitution." The rule applies even to claims asserted by or
against additional parties. Id. Although the statute places
certain limits on a court's ability to exercise supplemental
jurisdiction over claims by or against non-diverse additional
parties when the basis for the original claim is diversity
jurisdiction, those limits only apply when the additional claims
are brought by plaintiffs. See Development Finance Corp. v.
Alpha Housing & Health Care, Inc., 54 F.3d 156, 160-61 (3d Cir.
1995). Indeed, we have specifically held that in a diversity
action, the district court may exercise supplemental jurisdiction
over a defendant's counterclaim against non-diverse parties
joined as third-party defendants to the counterclaims. See In re
Texas Eastern Transmission Corp. PCB Contamination Insurance
Coverage Litig., 15 F.3d 1230, 1236-38 (3d Cir.), cert. denied
sub nom. Texas Eastern Corp. v. Fidelity & Cas. Ins. Co., 115 S.
Ct. 291 (1994).
     Thus, the only remaining question is whether Manchester's
counterclaims are "so closely related to [the HB entities'
claims] that they form part of the same case or controversy under
Article III of the United States Constitution." Claims are part
of the same case or controversy if they share significant factual
elements. See Sinclair v. Soniform, Inc., 935 F.2d 599, 603 (3d
Cir. 1991) ("Claims are part of the same constitutional case if
they "derive from a common nucleus of operative fact . . . .")
(quoting United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966));
White v. County of Newberry, 985 F.2d 168, 172 (4th Cir. 1993)
("The claims need only revolve around a central fact pattern.").
     Manchester's counterclaims rely on essentially the same
facts as does its defense to the HB Entities' claims.
Manchester's primary defense is that HB General's final capital
call was ineffective because the Partnership could not commence
construction as scheduled and thus that Manchester appropriately
exercised its redemption option before the capital call was due.
Manchester's counterclaims are that the Partnership, along with
the HB entities and Vanderbilt Development Corporation (a Vermont
corporation with its principal place of business in Vermont),
breached the Partnership Agreement and the covenant of good faith
and fair dealing due to its failure to recognize Manchester's
right to redemption and its attempted conversion of Manchester's
partnership interest into that of a subordinated creditor. Both
the defense and the counterclaims require proof that construction
was not commenced as scheduled; that, under the Partnership
Agreement, Manchester had the right to exercise the redemption
option; and that Manchester did exercise the redemption option.
Manchester's counterclaims are thus within the supplemental
jurisdiction of the district court.
     In sum, joinder of the Partnership on the counterclaims will
not destroy subject matter jurisdiction over the counterclaims
even though Manchester and the Partnership share citizenship in
New Jersey.

                          IV. Conclusion
     For the reasons we have explained, the district court's
decision to dismiss this action for failure to join the
Partnership was an abuse of discretion. Because all the partners
of this small limited partnership are before the court, the
exclusion of the Partnership entity causes no prejudice to
defendant Manchester or to the Partnership. The presence of all
the partners ensures that the district court can fashion
protective provisions in the judgment to protect Manchester from
a subsequent suit and that the interests of the Partnership will
be effectively represented. Furthermore, plaintiffs HB entities
can proceed without the Partnership whether or not the action is
derivative under state law: that characterization is only
relevant to determine the relative interests involved, which, as
we have shown, will not be prejudiced by exclusion of the
Partnership. Finally, Defendant Manchester can bring its
counterclaims against the Partnership in this action under the
district court's supplemental jurisdiction, and thus there is no
risk of piecemeal litigation. The judgment of the district court
will be reversed, and the case remanded for further
proceedings.
