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. e du/thir dc ir c uit_1996/73UNITED 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 Plainti ff

v.

H.B. PARTNERS,

L.P. AND VANDERBILT DEVELOPMENT CORPORATIO N

Third-Party Defendants

___________________________________

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

___________________________________

Argued: March 21, 1996

Before: BECKER, McKEE, Circuit Judges, a nd 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 disp ute among the members of a small limited partnership, HB Partners , L.P. Plaintiffs HB General Corp. and HB Limited Corp., b rought suit in the district court against the third partner, Manch ester Partners, L.P., seeking a declaratory judgment that Manchester had breached the Partnership Agreement. Although t here is complete diversity among the three partners, Manche ster argues that the Partnership itself -- which shares the cit izenship of all of the parties -- is an indispensable party who se joinder destroys diversity jurisdiction. The district cour t agreed with

Manchester and dismissed the case. Resolution of t he other partners' appeal turns on the interplay between the "technical, precedent-bound" rule that, for diversity jurisdict ion purposes, a limited partner is considered a citizen of each s tate in which its partners are citizens, and the flexible, pragma tic federal procedural rules of joinder. We reverse. Applying the joinder rules pragma tically, we hold that, because all of the partners of this smal l 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 jud gment, proceeding in the absence of the Partnership will c ause no prejudice to Manchester; that the Partnership is ef fectively represented by the partners and consequently suffer s no prejudice from its exclusion; that whether or not the plainti ffs' claims are "derivative" is immaterial; and that Manchester 's

counterclaims can be heard in this federal court ac tion and thus there is no risk of piecemeal litigation. For thes e reasons, the requisites of Federal Rule of Civil Procedure 19 ar e satisfied. We also hold that under Delaware law, the source of any cause of action plaintiffs have for breach of the Partnershi p Agreement, they are real parties in interest within the meanin g of Federal

Rule of Civil Procedure 17.

I. Facts and Procedural History HB Partners, L.P. (the Partnership) was formedin October1991, to develop three properties in Manchester, Ve rmont for

commercial leasing. At its inception, the Partners hip 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 Limit ed (the HB entities) are controlled by Ben Hauben, a major dev eloper of retail stores in Vermont. They are both Delaware c orporations with their principal places of business in Vermont. Manchester is organized under New Jersey law and all of its pa rtners are New Jersey residents. The Partnership was formed under Delaware law, and Delaware law governs construction of the Partne rship
Agreement. Under that Agreement, Manchester was to provid e the bulk of the Partnership's capital. It contributed $990,000 at the Partnership's formation and was to provide addition al capital up to a total of $1,980,000 in response to capital cal ls made by the general partner, HB General. The Partnership Agree ment provides that HB General may call for additional contributio ns of capital whenever the Partnership will hold less than $500,0 00 in cash or cash equivalents in the ensuing thirty days. Each capital call can be for up to $500,000, of which ninety-nine per cent is to be paid by Manchester and one percent by HB General. HB General made a series of capital calls whic h were met by Manchester without incident. However, problems aro se 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 placedconditions on its use, demanding that the funds be held in escrowuntil all building permits and required approvals were obtain ed. HB General found these conditions improper and returne d the check to Manchester. On August 11, 1994, HB General again m ade a capital call, this time for $400,000, $396,000 of which was due from Manchester. Manchester notified HB General by lett er dated September 13, 1994, that it would not make the capi tal

contribution. The Partnership Agreement provides that if Man chester fails to make a requested capital contribution, it will b e considered to have withdrawn from the Partnership and shall ha ve no further rights as a partner. In such event, Manchester bec omes a subordinated creditor of the Partnership and is ent itled only to a return of its capital contributions at a specifie d time in the

future. The HB entities assert that Manchester's f ailure to meet the August 11 capital call has triggered this provi sion. They brought this declaratory judgment action in the dis trict 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 faile d to meet a simple capital call. Manchester asserts that at th e time of the August 11 capital call, the Partnership was signifi cantly behind schedule in developing the Vermont properties, and that HB General had failed to meet numerous requirements of thePartnership Agreement. Manchester claims that beca use of these

problems, it had informed HB General -- prior to th e final capital call -- that it would exercise its "redempt ion option." This option, provided for in the Partnership Agreem ent, allows Manchester to have its Partnership interest "redeem ed" at a price specified by formula in the event that the Partners hip fails to commence construction on two of the three propertie s (the Manchester Square II Property and the Riverbend Pro perty) by October 10, 1994. The agreement states that if the Partnership does not pay the redemption price, Manchester's sol e remedy is to compel a sale of any undeveloped parcels then ownedby the Partnership. Manchester maintains that by August 11, 1994, when HB General made the final capital call, HB General kne w both that the Partnership could not commence construction on the Manchester Square II Property and the Riverbend Property by Oc tober 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 p rior to exercising its right of redemption -- money that mi ght not be recoverable given the redemption option's limited r emedy -- or defaulting on its obligation. According to Manchester, it intended to file s uit to force HB General to recognize Manchester's right to exerc ise its redemption option, but before it could do so, the H B entities

filed this action. Manchester therefore countercla imed against HB General and HB Limited, and against third-party defendants, the Partnership itself and Vanderbilt Development C orporation (another entity controlled by Ben Hauben). Manches ter complains that because of the Partnership's failure to commen ce construction as scheduled and to recognize Manchest er's right to exercise its redemption option, the plaintiffs brea ched the Partnership Agreement, their fiduciary duties to Ma nchester, and their covenant of good faith and fair dealing. Man chester seeks, inter alia, the following relief: (a) specific per formance of those provisions of the Partnership Agreement givin g 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) impositio n of a constructive trust on all the properties; and (d) d amages. After Manchester unsuccessfully moved to trans fer the case

to the United States District Court for the Distric t 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 actio n on the basis that the Partnership was an indispensable party who se joinder would destroy diversity. The district court grante d Manchester's motion. Applying Federal Rule of Civil Procedure 1 9(a), the court held that the Partnership itself has signific ant interests in this litigation and should be joined if feasible . The court then concluded under Rule 19(b) that the Partnershi p is indispensable, even if joinder is not feasible, in view ofprejudice to Manchester and to the Partnership that would arise

if the Partnership is excluded. Because, for diver sity jurisdiction purposes, a limited partnership is con sidered a citizen of each state in which its partners (both g eneral and limited) are citizens, Carden v. Arkoma Associates, 494 U.S. 185 (1990), joinder of the Partnership would destroy di versity of citizenship. Thus, the district court dismissed th e case for lack of subject matter jurisdiction. We review the district court's Rule 19(a) dete rmination that joinder is required if feasible under a plenary sta ndard to the

extent that it rests on conclusions of law and unde r a clear error standard as to any subsidiary findings of fac t. 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 indispens able 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 pursu ant to Rule 19(a). If Rule 19(a) is satisfied but joinder is " not feasible" -- because, inter alia, joinder would destroy diver sity 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, pursuan t to Rule 19(a), this Partnership should be joined if feasibl e. Under Rule 19(a), a person should be joined if: (1) in the person's absence complete relief ca nnot be accorded among those already parties, or (2) t he 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 pr actical matter impair or impede the person's ability t o protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incur ring double, multiple, or otherwise inconsistent ob ligations by reason of the claimed interest. Fed. R. Civ. P. 19(a). Assuming that the Partnersh ip 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 a lleged breach

of which is the basis of the HB entities' suit -- r an to the Partnership, see 4 Alan R. Bromberg & Larry E. Ribs tein, Bromberg and Ribstein on Partnership § 15.04(g), at 15:34 (1 994) (stating that the partnership itself has a claim for nonpaym ent 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 1 9(a)(2) if feasible: the Partnership might be able to bring i denticalclaims against Manchester, or, alternatively, the P artnership'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 feasib le, joinder is not feasible in this case because of the Supreme Co urt's ruling in Carden v. Arkoma Associates, 494 U.S. 185 (1990) . Carden held that, for diversity jurisdiction purposes, a limite d partnership

is considered a citizen of each state in which its partners are citizens. Thus, although there is complete diversi ty without joinder of the Partnership because the suit is brou ght by two Delaware and Vermont citizens against a New Jersey citizen, diversity will be destroyed if the Partnership, a c itizen of Vermont, New Jersey, and Pennsylvania, is joined. Because joinder is therefore not feasible, this case shouldbe dismissed if the Partnership is deemed an indispensable party . The question, then, is whether this case can, "in equit y and good conscience," proceed without the Partnership as a p arty, Fed. R. Civ. P. 19(b). We conclude that the district court abused its discretion in holding that the case cannot so proce ed. In contrast to Carden's jurisdictional rule, w hich the Supreme Court acknowledged to be "technical, preced ent-bound, and unresponsive to policy considerations," Carden, 494 U.S. at 196, whether a person is indispensable depends on "pragm atic considerations," Fed. R. Civ. P. 19 Advisory Commit tee 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 p erson is indispensable: first, to what extent a judgment rendered in t he person's absence might be prejudicial to the p erson or those already parties; second, the extent to w hich, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice ca n be lessened or avoided; third, whether a judgment rendered in the person's absence will be adequate; four th, whether the plaintiff will have an adequate re medy 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 inter ests and, because of the possibility that the Partnership its elf could later sue on the same claims, would prejudice Manch ester's interests; that protective provisions in the judgme nt could not lessen this prejudice; and that the plaintiffs have an adequate remedy if the suit is dismissed because of the iden tical litigation filed by Manchester in Vermont state cou rt. The court

also decided that the HB entities' suit is a deriva tive action, and found guidance in cases holding that a partners hip is an indispensable party in derivative actions. Manches ter echoes all of these reasons and offers, as an additional reaso n for dismissal, that its counterclaims against the Partn ership cannotbe heard in federal court. We conclude that none o f 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 effective ly avoid any prejudice to Manchester that might be caused by exc luding the Partnership from the litigation. We acknowledge th at Manchester would be prejudiced if this litigation will not bin d the Partnership itself, thus allowing the Partnership t o later bring an identical claim. But the Partnership, like a ma rionette, cannot make a move unless some human being pulls th e strings. And all the people who, under the Partnership Agree ment, have the power to cause the Partnership to bring suit -- pro bably only HB General, see Partnership Agreement § 5.2, App. 142 ("No Limited Partner in its capacity as Limited Partner shall ta ke part in the

conduct or control of the business of the Partnersh ip or have any right or authority to act for or bind the Partnersh ip."), but in no case people other than the present parties, HB G eneral, HB Limited, and Manchester -- are before the court. T he court can therefore enjoin all the partners from bringing a s ubsequent 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 o ne of the current partners assigns its partnership interest t o 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 aut horized, 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, prote ctive 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 Mancheste r argues, that exclusion of the Partnership would prejudice the Pa rtnership'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. Se e Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 125 n.22 (1968); Hertz v. Record Publishing Co., 219 F.2d 39 7, 399-400 (3d Cir.), cert. denied, 349 U.S. 912 (1955). The rele vant state law here is that of Delaware, as the partnership is org anized 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 con tract, 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 l aw, thePartnership has interests as an entity in this case

.

Historically, the common law considered partnership s to be collections of individuals rather than distinct jur al entities with their own interests. See 1 Bromberg & Ribstei n, 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 partnersh ips. 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, bu t seems to treat partnerships differently for different purpos es. SeeSilliman, 302 A.2d 332 n.4 (noting that the evolution of the Uniform Partnership Act has been viewed as a "reali stic accommodation of entity theory to aggregate practic e which leaves unresolved many problems concerning the legal natur e of partnerships . . . ."). Limited partnerships, with their limitations on limited partner liability and contro l, are clearly more entity-like than general partnerships, but eve n these are

not treated as entities in all contexts. See 3 Bro mberg & 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 partners hip). We conclude that, under Delaware law, the Part nership has interests as an entity in this case. Delaware trea ts partnerships -- even general ones -- as entities fo r purposes of owning property, see generally 1 Bromberg & Ribstei n, supra § 1.03(c)(1), at 1:23 to 1:25. For example, a partne rship can acquire and convey real property in its own name, D el. Code Ann. tit. 6, § 1508(c); an individual partner has only l imited rights to possession and assignment of partnership propert y, id. § 1525(b); an individual partner's right in partnersh ip property is not subject to attachment or execution, except on a claim against the partnership, id.; and an individual partner can not devise partnership property, id.. Moreover, this Partners hip has several property interests that are implicated by t his litigation. Most obviously, if Manchester wins thi s litigation, it will compel a sale of the Partnership's undevelo ped real property. In addition, a partnership's causes of a ction are themselves partnership property, see 2 Bromberg & R ibstein, supra§ 5.03(d), at 5:21, and the Partnership may have a ca use of action that will be effectively decided in this cas e. Manchester has allegedly breached a duty to the Partnership, a nd thus it appears that the Partnership itself has a cause of action against Manchester. See 4 id. § 15.04(g), at 15:34 (statin g 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 i n this case. That said, we do not believe the Partnership's interests would, as a practical matter, be prejudiced by excl uding it from the action. Even though the Partnership has its ow n interests, it is an artificial entity: its interests must ult imately derive from the interests of the human beings that are its members(albeit through the medium of other partnerships an d

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, fo llowing Rule 19's pragmatic approach, we are guided by common se nse. 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 partici pation of its
partners. We believe that to be the case here. This par tnership 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 iden tified) that are distinct from those of the Partnership, we have no doubt that the Partnership's interests in this case are adequa tely represented by the partners. If the Partnership ha s 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 enti rely consistent with those of the Partnership, they are not antagonistic. Furthermore, to the extent the HB en tities' 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 Vanguar d [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 d istrict court. PDS has failed to establish that Vangu ard itself has any interest distinct from the inte rests 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 th at may be impaired by the imposition of the case and tha t Vanguard's absence will not "leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise incon sistent 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. 1 989) (stating, in an action brought by some but not all partners, "Joinder of each non-party partner would ordinarily satisfy Rul e 19, since the interests of the partnership would be adequatel y represented"). Although in some cases the interest s of thepartners 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 partner s.

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 a nd they believe this provides a special reason that the Par tnership must be joined. They cite to many cases finding the Par tnership to be an indispensable party in derivative actions. See, e.g., Bankston v. Burch, 27 F.3d 164, 167-68 (5th Cir. 19 94); Buckley v. Control Data Corp., 923 F.2d 96, 98 (8th Cir. 19 91).

1. Is this Action Derivative? As a preliminary matter, we are not at all cer tain that this

is a derivative action. It is true that Delaware c ourts have stated the general rule that whether an action is d erivative or direct depends on whether the harm alleged by the p laintiff 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 gen erally 12B Fletcher's Cyclopedia of Corporations § 5911, at 48 3-84. And here the harm alleged by the HB entities -- breach of Manchester's obligation to provide capital to the P artnership -- 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 demandrequirement, was developed to aid investors who have no control over a company redress harms to the company in the face of managem ent'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 partn ership right by fewer than all the partners [and a derivative ac tion] is not always clear but seems to be this: In a derivative suit, the plaintiff partner is typically acting against the w ishes of those partners who have decisionmaking authority for enfo rcement of the partnership right . . . ."); see also Del. Code Ann . tit. 6, § 17-0001 (stating, in the subchapter entitled "Deriv ative Actions," "A limited partner may bring an action in the Court of Chancery in the right of a limited partnership to r ecover a judgment in its favor if general partners with auth ority 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 ge neral partner, who has authority to act for the Partnership. In D elaware, general partners have the power to sue directly on behalf of the partnership on the partnership's claims. See Thomp son 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 Agreem ent § 6.1, App. 142 (Subject to certain limitations, "the Gene ral Partner is authorized, in furtherance of the business of the P artnership, to make decisions, take actions and enter into and per form contracts of any kind necessary, proper, convenient or advisa ble to effectuate the purposes of the Partnership."); 4 Br omberg & 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 partnersh ip does not mean that the partnership itself must be named as a party: although Delaware has a "common name" statute, allo wing 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. Charle s A. Zonko Builder, Inc., 1989 WL 112029 (Del. Super. Ct. Sept . 11, 1989) (action brought by plaintiff "individually and on b ehalf" of a partnership). Thus, the HB entities can sue direct ly 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 derivati ve is that the HB entities may have the right to bring suit direct ly as individuals. The basis for any cause of action her e is Manchester's alleged breach of the Partnership Agre ement. Both HB General and HB Limited are parties to the agreem ent, and breach of a Partnership Agreement has been held to constitute an individual as well as a partnership claim. See 4 B romberg & Ribstein, supra § 15.04(h), at 15:37 & n.35. Thus the HB entities can bring this suit through a number of di fferent means,

and the action need not be characterized as derivat ive.

2. The Immateriality of the Characterization of this Suit (a) To Rule 19 For purposes of this appeal, we need not decid e, 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 & Tr ust Co. v. Patterson, 390 U.S. 102, 125 n.22 (1968); Hertz v. Record Publishing Co., 219 F.2d 397, 399-400 (3d Cir.), ce rt. denied, 349 U.S. 912 (1955). Once these interests are dete rmined, federal law governs the balancing of interests in d etermining 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 s tate's courts, that will not affect the balancing of interests und er 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 in dispensable in
a federal court."). Moreover, the characterization of this action as derivativeor on behalf of the Partnership has no impact on ou r earlier

analysis of the interests of the Partnership and th e partners. The only significant consequence of such a characte rization for determining the relevant interests is that the Part nership itself

has a cause of action. But we considered the Partn ership's potential cause of action and its implications in t hat earlier analysis. We recognize that the Supreme Court has stated , in the corporations context, that the corporation is an in dispensable 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 C asualty Insurance Co., 423 F.2d 419, 422 (3d Cir. 1970). I f meant as a general rule, this statement is in tension with the Court's admonitions that "Whether a person is 'indispensabl e,' that is, whether a particular lawsuit must be dismissed in t he absence of that person, can only be determined in the context of particular litigation," and that "[t]here is no prescribed for mula 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) (citatio ns and internal quotation marks omitted). But even if it is the rule that the corporation is indispensable in a sharehol der's derivative action, the partnership context in gener al, 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 brigh t 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, gene rally, shares in corporations are much more quickly and easily tr ansferred than partnership interests, making a determination of wh ether the aggregation of stockholder's interests sufficiently represents the corporation extremely difficult. Partnerships lack consistent entity-treatment, and, at least for smal l partnerships, the determination of whether the part ners' interests align with those of the partnership is no t difficult. In this case, the partnership consists of essential ly two (though formally three) members, and we are easily able to determine that the individual partners effectively represent the P artnership.

(b) To Rule 17 Of course, the state-law characterization of a n action as derivative or on behalf of another might affect joi nder via Rule 17. Rule 17(a) states that "[e]very action shall b e prosecuted in the name of the real party in interest," and tha t an action shall be dismissed if the real party in interest is not substituted or joined. The Supreme Court, in stati ng that the corporation is an indispensable party in a stockhol der's derivative action, stated that the corporation is t he real party in interest. Ross v. Bernhard, 396 U.S. 531, 538 ( 1970). We conclude, however, that Rule 17 does not require th e partnership's joinder even if the HB entities' clai ms arederivative or otherwise on behalf of the Partnershi p.

The real party in interest rule ensures that u nder the governing substantive law, the plaintiffs are entit led to enforce the claim at issue. See Lubbock Feed Lots, Inc. v. Iowa Beef Processors, Inc., 630 F.2d 250, 256-57 (5th Cir. 19 80); Virginia Elec. & Power Co. v. Westinghouse Elec. Corp., 485 F.2d 78, 83 (4th Cir. 1973), cert. denied, 415 U.S. 935, and ce rt. 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 cl aim, and if the plaintiffs are real parties in interest, Rule 1 7(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 w hom or in

whose name a contract has been made for the benefit of another, or a party authorized by statute may sue in that pe rson's own name without joining the party for whose benefit th e action is brought . . . ."). Thus, insofar as the HB entitie s are authorized to bring suit under Delaware law -- even derivatively or otherwise on behalf of the Partnership -- they a re also real parties in interest. This conclusion is informed by the fact that t he original purpose of the real party in interest rule was perm issive -- to allow an assignee to sue in his or her own name. F ed. R. Civ. P. 17 Advisory Committee Notes to the 1966 Amendment. The "modern function of the rule in its negative aspect is simp ly to protect the defendant against a subsequent action by the pa rty actually entitled to recover, and to ensure generally that t he judgment will have its proper effect as res judicata." Id. As noted above, any doubt as to the preclusive effect of thi s litigation on the Partnership can be resolved by protective pr ovisions in the judgment. In sum, this action may well not be derivative but, at all events, the characterization of the suit is immater ial 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 ind ispensable party to Manchester's counterclaims but that joinde r would destroy subject matter jurisdiction over the counte rclaims because Manchester and the Partnership share citize nship in New Jersey. If Manchester cannot pursue its countercla ims without participation of the Partnership and the Partnershi p must be excluded from the litigation, Manchester would have a strong argument for dismissal. The third factor of Rule 1 9(b) -- "whether a judgment rendered in the person's absenc e will be adequate" -- considers the extent to which exclusio n of an interested person would leave significant matters u nadjudicated.

See Provident Tradesmens Bank & Trust Co. v. Patter son, 390 U.S. 102, 111 (1968) ("We read the Rule's third criterio n . . . 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 Manche ster's counterclaims, without destroying subject matter ju risdiction. Complete diversity is required only when feder al court jurisdiction is exercised under the federal diversi ty 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 def endant 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 supplemen tal 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 maint ain jurisdiction over claims that lack an independent b asis of jurisdiction if those claims "are so related to cla ims" within the court's jurisdiction "that they form part of th e same case or controversy under Article III of the United States Constitution." The rule applies even to claims ass erted by or against additional parties. Id. Although the stat ute places certain limits on a court's ability to exercise sup plemental jurisdiction over claims by or against non-diverse additional parties when the basis for the original claim is di versity jurisdiction, those limits only apply when the addi tional 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 supplementa l jurisdiction over a defendant's counterclaim against non-diverse parties joined as third-party defendants to the counterclai ms. See In re Texas Eastern Transmission Corp. PCB Contamination Insurance Coverage Litig., 15 F.3d 1230, 1236-38 (3d Cir.), c ert. denied sub nom. Texas Eastern Corp. v. Fidelity & Cas. Ins . Co., 115 S. Ct. 291 (1994). Thus, the only remaining question is whether M anchester's counterclaims are "so closely related to [the HB en tities' claims] that they form part of the same case or con troversy under

Article III of the United States Constitution." Cl aims are part of the same case or controversy if they share signi ficant factual elements. See Sinclair v. Soniform, Inc., 935 F.2d599, 603 (3d Cir. 1991) ("Claims are part of the same constituti onal case if they "derive from a common nucleus of operative fac t . . . .") (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 fac t pattern."). Manchester's counterclaims rely on essentially the same

facts as does its defense to the HB Entities' claim s. Manchester's primary defense is that HB General's f inal 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 Corporat ion (a Vermontcorporation 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 Ma nchester's right to redemption and its attempted conversion of Manchester's partnership interest into that of a subordinated cr editor. Both the defense and the counterclaims require proof tha t construction was not commenced as scheduled; that, under the Par tnership Agreement, Manchester had the right to exercise the redemption option; and that Manchester did exercise the redemp tion option. Manchester's counterclaims are thus within the supp lemental jurisdiction of the district court. In sum, joinder of the Partnership on the coun terclaims will not destroy subject matter jurisdiction over the co unterclaims even though Manchester and the Partnership share ci tizenship in
New Jersey.

IV. Conclusion For the reasons we have explained, the distric t court's decision to dismiss this action for failure to join the Partnership was an abuse of discretion. Because al l the partners of this small limited partnership are before the co urt, the exclusion of the Partnership entity causes no preju dice to defendant Manchester or to the Partnership. The pr esence of all the partners ensures that the district court can fa shion protective provisions in the judgment to protect Ma nchester from a subsequent suit and that the interests of the Par tnership will be effectively represented. Furthermore, plaintiff s 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 involv ed, which, as we have shown, will not be prejudiced by exclusion of the Partnership. Finally, Defendant Manchester can bri ng its counterclaims against the Partnership in this actio n under the district court's supplemental jurisdiction, and thu s there is no risk of piecemeal litigation. The judgment of the district court will be reversed, and the case remanded for further proceedings.