1996 Decisions

Opinions of the United

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Precedential or Non-Precedential: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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Recommended Citation

"HB Gen Corp v. Manchester Partners" (1996). 1996 Decisions. Paper 73.

http://digitalcommons.law.villanova.edu/thirdcircuit_1996/73
 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.