1995 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-26-1995

Development Fin. Corp. v Apha Housing & Health

Care, Inc.

Precedential or Non-Precedential:

Docket 94-3519

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Recommended Citation

"Development Fin. Corp. v Apha Housing & Health Care, Inc." (1995). 1995 Decisions. Paper 111.

http://digitalcommons.law.villanova.edu/thirdcircuit_1995/111
UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

 

No. 94-3519 

 

DEVELOPMENT FINANCE CORPORATION; 

THE NATIONAL HOUSING AND HEALTH CARE TRUST, INC., 

 Appellees, 

v. 

ALPHA HOUSING & HEALTH CARE, INC., 

 Appellee, 

v. 

 JOHN SOWER; WILBUR DOVE, 

 Third Party Defendants. 

SYLVAN ASSOCIATES, INC.,* 

 (*Pursuant to Rule 12(a), F.R.A.P.) 

 Appellant. 

 

ON APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF PENNSYLVANIA 

(D.C. No. 94-cv-00627) 

 

Argued March 10, 1995 

Before: HUTCHINSON, ALITO, and SAROKIN, Circuit Judges

 (Opinion filed: April 26, 1995) 

 

John Alan Conte 

Robert A. Krebs (argued) 

Conte, Melton & D'Antonio 

300 Ninth Street 

Conway, PA 15207 

 Attorneys for Appellant
George E. Pallas (argued) 

Andrea B. Dillon 

Cohen & Huntington, P.C. 

1515 Market Street, Suite 818 

Philadelphia, PA 19102 

 Attorneys for Appellees

 Development Finance Corp. 

 and The National Housing 

 and Health Care Trust,

 Inc.

Louis Pomerico 

Pomerico, Leymarie, Clark & 

Punture 

1406 East Washington Street 

New Castle, PA 16101 

 Attorney for Appellee

 Alpha Housing & Health 

 Care, Inc.

 

OPINION OF THE COURT 

 

SAROKIN, Circuit Judge: 

 Sylvan Associates, Inc. ("Sylvan" or "applicant"), the sole 

member of defendant Alpha Housing & Health Care, Inc. ("Alpha"), 

a nonprofit corporation, appeals from the denial of its motion to 

intervene as a third-party plaintiff in an action for breach of 

contract. Sylvan wishes to argue that the contracts between 

plaintiffs and defendant were ultra vires, a claim that defendant 

itself is prohibited from raising under Pennsylvania law. 

I. 

 Plaintiff Development Finance Corp. ("DEFCO") entered into a 

contract to assist defendant in arranging financing for the 
acquisition of nursing home facilities. After defendant 

purchased two facilities, it entered into a contract with 

plaintiff The National Housing and Health Care Trust, Inc. 

("National Housing") whereby National Housing would assist in the 

management of the nursing homes. DEFCO and defendant 

subsequently executed another contract providing for revised 

terms of payment for DEFCO's services. DEFCO and National 

Housing now sue for defendant's alleged breach of the agreements. 

Federal jurisdiction for the original claims is based on the 

diversity of citizenship between plaintiffs and defendant, 

pursuant to 28 U.S.C. §1332. 

 Sylvan first moved to intervene as of right as a defendant, 

in order to assert as a defense that the agreements between 

plaintiffs and defendant were ultra vires. The district court 

denied the motion, Appendix ("App.") at 63, and Sylvan did not 

appeal. 

 Recasting its argument, Sylvan again moved to intervene as 

of right, this time as a third-party plaintiff, in an effort to 

enjoin performance of defendant's contracts with plaintiffs 

pursuant to 15 Pa.C.S. §5503(a)(1). The action asked the 

district court to grant plaintiffs only "such compensation as may 

be equitable," as the Pennsylvania statute provides. The 

district court denied the motion without a written decision. 

App. at 111. Sylvan filed a timely notice of appeal, and we have 

jurisdiction under 28 U.S.C. §1291 because the denial of a motion 

to intervene as of right is a final, appealable order. United 
States v. Alcan Aluminum, Inc., 25 F.3d 1174, 1179 (3d Cir. 

1994). 

II. 

 We review the denial of a motion to intervene as of right 

for abuse of discretion. Alcan Aluminum, 25 F.3d at 1179; Brody 

v. Spang, 957 F.2d 1108, 1115 (3d Cir. 1992). However, we will 

reverse "only if we find the district court 'has applied an 

improper legal standard or reached a decision we are confident is 

incorrect.'" Alcan Aluminum, 25 F.3d at 1179 (quoting Brody, 957 

F.2d at 1115). 

 We must begin with a jurisdictional issue. As the party 

asserting jurisdiction, Sylvan bears the burden of showing that 

its claims are properly before the district court. Packard v. 

Provident Nat'l Bank, 994 F.2d 1039, 1045 (3d Cir.), cert.

denied, 114 S.Ct. 440 (1993). 

 Sylvan and Alpha are both incorporated under the laws of 

Pennsylvania. It is axiomatic that the federal judiciary's 

diversity jurisdiction depends on complete diversity between all 

plaintiffs and all defendants. See 28 U.S.C. §1332; Strawbridge 

v. Curtiss, 7 U.S. (3 Cranch) 267 (1806); Singh v. Daimler-Benz 

AG, 9 F.3d 303, 305 (3d Cir. 1993). Sylvan concedes that there 

is no diversity of citizenship between itself and Alpha; both are 

Pennsylvania corporations. Intervenor's Brief at 20. 

 Sylvan contends that the district court has supplemental 

jurisdiction over its claim pursuant to 28 U.S.C. §1367(a), the 

recent codification of common law "pendent" and "ancillary" 

jurisdiction. Section 1367(a) provides 
 Except as provided in subsections (b) and (c) . . . in any 

civil action of which the district courts have original 

jurisdiction, the district courts shall have supplemental 

jurisdiction over all other claims that are so related to 

claims in the action within such original jurisdiction that 

they form part of the same case or controversy under Article 

III of the United States Constitution. Such supplemental 

jurisdiction shall include claims that involve the joinder 

or intervention of additional parties. 

28 U.S.C.A. §1367(a) (1993). 

 A. §1367(b)

 Subsection (b)'s limitation on the general grant of 

supplemental jurisdiction raises the most obvious problems for 

Sylvan: 

 In any civil action of which the district courts have 

original jurisdiction founded solely on section 1332 of this 

title, the district court shall not have supplemental 

jurisdiction . . . over claims by persons . . . seeking to 

intervene as plaintiffs under Rule 24, when exercising 

supplemental jurisdiction over such claims would be 

inconsistent with the jurisdictional requirements of section 

1332. 

28 U.S.C.A. §1367(b) (1993) (emphasis added). Sylvan does not 

dispute that the district court's original jurisdiction was 

"founded solely on section 1332" and that Sylvan has captioned 

its motion as one to intervene as a plaintiff. App. at 64. At 

first glance, then, §1367(b) would appear to deprive the district 

court of jurisdiction over Sylvan's claim against Alpha. 

 District courts considering §1367(b) have generally 

concluded that in a diversity action, the section eliminates 

supplemental jurisdiction over the claims of a plaintiffintervenor who shares citizenship with a defendant. See Deere & 

Co. v. Diamond Wood Farms, 152 F.R.D. 158, 160 (E.D.Ark. 1993); 
Yorkshire Partnership v. Pacific Capital Partners, 154 F.R.D. 

141, 142 (M.D.La. 1993); MCI Telecommunications Corp. v. Logan 

Group, 848 F.Supp. 86, 87-89 (N.D.Tex. 1994); Manhattan Fire & 

Marine Ins. Co. v. Northwestern Regional Airport Comm'n, 1993 

U.S. Dist. LEXIS 6858 at *4 (W.D.Mich. March 25, 1993). See also

Krueger v. Cartwright, 996 F.2d 928, 933 n.6 (7th Cir. 1993) 

(§1367(b) would have deprived court of supplemental jurisdiction 

over claim of party who shared citizenship with defendant in 

diversity action, had party moved to intervene as plaintiff). 

 We are aware of only one case to the contrary. See Colonial 

Penn Ins. Co. v. American Centennial Ins. Co., 1992 WL 350838 at 

*3-4 (S.D.N.Y. 1992). 

 Leading commentators generally agree that in a diversity 

action, §1367(b) eliminates supplemental jurisdiction over claims 

of plaintiff-intervenors who share citizenship with a defendant. 

See 7C Charles A. Wright, Arthur R. Miller & Mary K. Kane, 

Federal Practice and Procedure, §1917 at 47 (1994 Supp.) (Section 

1367(b) "specifically prohibits the exercise of [supplemental] 

jurisdiction in diversity cases for persons seeking to intervene 

as plaintiffs under Rule 24"); 3B James Wm. Moore et al., Moore's 

Federal Practice ¶24.18 (2d ed. 1993), at 24-182 ("§1367(b) makes 

one change in prior practice by eliminating supplementary 

jurisdiction over a party who intervenes, even if by right, as a 

plaintiff in a diversity action if that party does not meet the 

requirements for diversity jurisdiction"); 28 U.S.C.A. §1367 

(1993), David Siegel, Practice Commentary, "The 1990 Adoption of 
§ 1367, Codifying 'Supplemental' Jurisdiction" ("Practice 

Commentary"), at 833. 

 1. Alignment

 Before rushing to deny Sylvan's bid to participate in this 

action, however, we must consider a fundamental principle of 

federal jurisdiction, a principle associated with, but not 

limited to, diversity jurisprudence. In determining the 

alignment of the parties for jurisdictional purposes, the courts 

have a "duty" to "'look beyond the pleadings and arrange the 

parties according to their sides in the dispute.'" Indianapolis 

v. Chase Nat'l Bank, 314 U.S. 63, 69 (1941) (quoting Dawson v. 

Columbia Trust Co., 197 U.S. 178, 180 (1905)). Opposing parties 

must have a "'collision of interests'" over the "'principal 

purpose of the suit.'" Id. (quoting Dawson, 197 U.S. at 181 and 

East Tennessee, V. & G. R. v. Grayson, 119 U.S. 240, 244 (1886)). 

 In this circuit we have described the alignment inquiry as 

one which "obliges the court to penetrate the nominal party 

alignment and to consider the parties' actual adversity of 

interest." In re Texas Eastern Transmission Corp. PCB 

Contamination Ins. Coverage Litigation, 15 F.3d 1230, 1240-41 (3d 

Cir.), cert. denied, ___ U.S. ___, 115 S.Ct. 291 (1994). See

also Employers Ins. of Wausau v. Crown Cork & Seal Co., 905 F.2d 

42, 46 (3d Cir. 1990). 

 In Texas Eastern, we determined that a district court had 

"erroneously reasoned that realignment was a principle associated 

exclusively with diversity jurisdiction." 15 F.3d at 1242 

(emphasis added). Realignment "in fact represents a broader 
principle of judicial interpretation of statutes conferring 

jurisdiction in federal courts, where the statutory conferral of 

jurisdiction is predicated upon the adversarial relationship of 

the parties." Id. at 1240. Thus, "where party designations have 

jurisdictional consequences," we must align the parties before 

determining jurisdiction. Texas Eastern, 15 F.3d at 1241 

(realigning partes for jurisdictional analysis under Foreign 

Sovereign Immunities Act, 28 U.S.C. §1330). See also Chicago, R. 

I. & P. R. Co. v. Stude, 346 U.S. 574 (1954) (realigning parties 

for jurisdictional analysis under the removal statute, 28 U.S.C. 

§1440). 

 Under §1367(b), party designations clearly have profound 

jurisdictional consequences. In two recent cases we have noted 

the strikingly different treatment §1367(b) affords the claims of 

plaintiffs as opposed to those of defendants. See Texas Eastern, 

15 F.3d at 1237-38; Janney Montgomery Scott, Inc. v. Shepard 

Niles, Inc., 11 F.3d 399 (3d Cir. 1993). See also Practice 

Commentary at 832 ("[§1367(b)] is concerned only with efforts of 

a plaintiff to smuggle in claims that the plaintiff would not 

otherwise be able to interpose . . . The repetition of the word 

'plaintiff' at several rule-citing junctures in subdivision (b) 

makes this clear"). Accordingly, we must align the parties 

before applying §1367(b). 

 The "principal purpose" of the suit by DEFCO and National 

Housing is to enforce their agreements with Alpha. Both Alpha 

and Sylvan seek to set aside the agreements, paying at most the 

"equitable compensation" required by 15 Pa.C.S. §5503(a). 
Although Sylvan's claim nominally opposes Alpha, in fact the 

basic interests of Alpha and Sylvan coincide with each other and 

collide with those of DEFCO and National Housing over the 

principal issue of the case. The "actual adversity of interest" 

pits Alpha and Sylvan against DEFCO and National Housing. 

Consequently, Sylvan must be aligned with Alpha as a defendant. 

Sylvan's motion to intervene should be treated as raising a 

cross-claim against Alpha and a counterclaim against DEFCO and 

National Housing. 

 2. Counterclaims and cross-claims of an intervenor-defendant

 The plain language of §1367(b) limits supplemental 

jurisdiction over claims of plaintiffs against "persons made 

parties under Rule 14, 19, 20, or 24," and of parties who join or 

intervene as plaintiffs pursuant to Rule 19 or 24. 28 U.S.C.A. 

§1367(b). The section has little to say about defendants. 

 We have twice held that in a diversity action, the district 

court has jurisdiction over a defendant's counterclaim against 

non-diverse parties joined as third-party defendants to the 

counterclaim. Texas Eastern, 15 F.3d at 1237-38; FDIC v. 

Bathgate, 27 F.3d 850, 874 (3d Cir. 1994). In Texas Eastern we 

specifically pointed out that §1367(b) "by its terms" does not 

extend to a defendant's counterclaims, and further that the 

joinder of "non-diverse counterclaim defendants do[es] not 

destroy diversity jurisdiction . . . because there is complete 

diversity of citizenship between the original parties." Texas 

Eastern, 15 F.3d at 1238. 
 Similarly, in Janney Montgomery Scott, an investment banker 

sued an obligor for breach of contract in a diversity action. In 

holding that a co-obligor was not a necessary party to the 

action, we stated that if defendant moved to implead the coobligor on a claim for contribution, the district court would 

have supplemental jurisdiction, despite the common citizenship of 

the defendant/third-party plaintiff and the third-party 

defendant. Janney Montgomery Scott, 11 F.3d at 412, n.15. 

 When faced by a party alignment very similar to the one 

here, the district court in Colonial Penn concluded that §1367(b) 

did not eliminate jurisdiction over a claim asserted by a nondiverse intervenor against the original plaintiff. The district 

court aligned the intervenor as a defendant though the party 

called itself a plaintiff, treated its claim as a counterclaim, 

and exercised jurisdiction. 1992 WL 350838 at *3-4. See also

Practice Commentary at 833 (suggesting §1367(b) does not 

eliminate supplemental jurisdiction over counterclaim raised by 

non-diverse defendant-intervenor). 

 We are aware of only one case in which a court considered 

the application of §1367(b) to a cross-claim by one co-defendant 

against another, non-diverse co-defendant, where federal 

jurisdiction over the original claims depended on §1332. There, 

a district court held that §1367(b) does not eliminate 

supplemental jurisdiction. Meritor Sav. Bank v. Camelback Canyon 

Investors, 783 F.Supp. 455, 457 (D.Ariz. 1991). 

 Considerations of judicial economy also counsel in favor of 

limiting §1367(b) to its plain language, rather than extending 
its jurisdictional bar to claims raised by intervening 

defendants. Where an intervenor's claims are so entangled with 

the original claims and parties, banishing the non-diverse claim 

to state court would not serve the goal of judicial efficiency, 

 Finally, we have held that the 1990 Judicial Improvement Act 

codified the Supreme Court's treatment of ancillary jurisdiction. 

Texas Eastern, 15 F.3d at 1237-38 and n.7. Extending §1367(b) to 

bar a counterclaim or cross-claim by an intervening defendant 

would contradict the pre-1990 common law of "ancillary 

jurisdiction," which encompassed counterclaims by a defending 

party pulled into court against his will, as well as claims by 

another person whose rights might be irretrievably impaired 

unless he could assert them in an existing federal court action. 

Owen Equipment and Erection Co. v. Kroger, 437 U.S. 365, 375-76 

(1978). As discussed infra, applicant's rights could be 

irretrievably impaired if it is excluded from the instant 

proceeding. 

 We conclude that §1367(b) does not deprive the district 

court of supplemental jurisdiction over a counterclaim or crossclaim raised by an intervening defendant, even where the 

intervenor shares citizenship with an original party. 

 B. §1367(a)

 Turning to §1367(a) itself, the parties do not dispute that 

district court had original jurisdiction over the claims against 

Alpha brought by DEFCO and National Housing, pursuant to 28 

U.S.C. §1332. We conclude easily that because the claims of 

DEFCO, National Housing, and Sylvan all concern performance of 
the agreements with Alpha, Sylvan's claims are "so related to 

claims in the original action . . . that they form part of the 

same case or controversy." 

 Having determined that (1) the jurisdictional principle of 

alignment applies to §1367(b); (2) proper alignment requires us 

to treat applicant as a defendant; (3) §1367(b) does not 

eliminate supplemental jurisdiction over a cross-claim or 

counterclaim raised by an intervening defendant; and (4) 

applicant has satisfied the elements of §1367(a), we conclude 

that a failure to exercise supplemental jurisdiction over 

Sylvan's claims would be an abuse of discretion. 

III. 

 Sylvan moved to intervene pursuant to Fed. R. Civ. P. 

24(a)(2).1 Rule 24(a) authorizes intervention where 

 (1) the application for intervention is timely; (2) the 

applicant has a sufficient interest in the litigation; (3) 

the interest may be affected or impaired, as a practical 

matter by the disposition of the action; and (4) the 

interest is not adequately represented by an existing party 

in the litigation. 

Alcan Aluminum, 25 F.3d at 1181. 

 

 1Rule 24(a)(2) provides: 

 Upon timely application anyone shall be permitted to 

intervene in an action . . . when the applicant claims an 

interest relating to the property or transaction which is 

the subject of the action and the applicant is so situated 

that the disposition of the action may as a practical matter 

impair or impede the applicant's ability to protect that 

interest, unless the applicant's interest is adequately 

represented by existing parties. 
 DEFCO and National Housing concede that Sylvan's application 

is timely and that it has an interest in the transactions which 

are the subject of the litigation. Plaintiffs' Brief at 8. To 

address the final two elements of Sylvan's proof, however, we 

must clarify the interest conceded by plaintiffs. 

 Sylvan asserts it has an interest "in maintaining Alpha's 

continued viability and tax exempt status in addition to insuring 

[sic] that Alpha acts in accordance with its corporate purposes 

and powers." Intervenor's Brief at 11. We agree that Sylvan 

shares with Alpha an interest in the latter's "continued 

viability," which may be threatened by specific performance of 

the contracts, as well as limiting Alpha to actions authorized by 

its charter and by-laws. 

 Regarding defendant's tax-exempt status, the same statute 

that confers the exemption also mandates that "no part of the net 

earnings of [the corporation] inures to the benefit of any 

private shareholder or individual." 26 U.S.C.A. §501(c)(3) 

(1988). DEFCO is itself a nonprofit corporation, so its contract 

with Alpha may comply with the private inurement rule; on the 

other hand, the text of the contracts may violate the rule. See

App. at 18, 21, 27-28. We express no opinion on this ultimate 

issue, nor as to whether partial payment on the contracts 

violates §501(c)(3). 

 Sylvan also refers us to unspecified U.S. Department of 

Treasury regulations which may be implicated by Alpha's 

contracts. In its Answer, Alpha invoked "OMB A-122." App. at 

41. We take this as a reference to Office of Management and 
Budget Circular A-122, "Cost Principles for Nonprofit 

Organizations," 45 Fed.Reg. 46022 (July 8, 1980). Neither Alpha 

nor Sylvan refers to a particular passage in this lengthy 

document, but we note that the Circular mandates that only 

"reasonable" costs for professional services are allowable uses 

of certain government grants, contracts or awards. Id., 45 

Fed.Reg. at 46023, 46031. Presumably Alpha and Sylvan wish to 

argue that the agreements with DEFCO and National Housing provide 

"unreasonable" compensation for professional services, as the 

government defines "reasonable," and thus court-ordered payment 

of "unreasonable" compensation would violate the Circular. We 

again express no opinion as to whether performance of the 

contracts has or would violate OMB Circular A-122. Whether the 

threat arises under §501(c)(3) or OMB Circular A-122, we do agree 

that Sylvan has an interest in preserving defendant's tax 

exemption. 

 A. impairment of interest

 We have held that the third element of intervention pursuant 

to Rule 24(a)(2) requires us to assess the practical consequences 

of the litigation. Incidental effects on legal interests are 

insufficient; "rather, there must be 'a tangible threat' to the 

applicant's legal interest." Brody, 957 F.2d at 1122-23 (quoting 

Harris v. Pernsley, 820 F.2d 592, 601 (3d Cir.), cert. denied, 

484 U.S. 947 (1987)). We have also pointed out that the 

possibility of a subsequent collateral attack by an applicant 

will not preclude an applicant from demonstrating that his 

interest would be impaired, particularly in light of "our policy 
preference which, as a matter of judicial economy, favors 

intervention over subsequent collateral attacks." Brody, 957 

F.2d at 1123. 

 The instant litigation presents a "tangible threat" to 

Sylvan's interest in the preservation of Alpha's tax exemption 

and in the corporation's continued viability. Moreover, an 

adjudication of Alpha's obligations to DEFCO and National Housing 

could preclude Sylvan from maintaining a state court action 

pursuant to 15 Pa.C.S. §5503 to ensure that Alpha acts pursuant 

to its corporate powers and purposes. Thus, Sylvan's legal 

interests could be impaired by disposition of the instant case. 

 B. Inadequacy of representation

 Finally, an applicant has "'[t]he burden, however minimal . 

. . to show that his interests are not adequately represented by 

the existing parties.'" Brody, 957 F.2d at 1123 (quoting Hoots 

v. Pennsylvania, 672 F.2d 1133, 1135 (3d Cir. 1982)). 

 In its Answer, Alpha does not defend on the grounds that its 

contracts with DEFCO and National Housing are void as illegal. 

App. at 40-42.2 The Pennsylvania Supreme Court applies "the 

general rule that an agreement which violates a provision of a 

statute, or which cannot be performed without violation of such a 

provision, is illegal and void." American Ass'n of Meat 

Processors v. Casualty Reciprocal Exch., 588 A.2d 491, 495, 527 

Pa. 59, 68 (1991). An illegal contract can never provide the 

 

 

2Alpha does raise the defense of impossibility of performance 

because the "trust agreements" themselves prevent private 

inurement. See Answer ¶38, App. at 41. 
basis for a cause of action: "The law when appealed to will have 

nothing to do with it, but will leave the parties just in the 

condition in which it finds them." Id. (quoting Dippel v. 

Brunozzi, 74 A.2d 112, 114-15, 365 Pa. 264 (1950)). Alpha is not 

barred from contending that the contracts violate §501(c)(3) or 

OMB Circular A-122, but its Answer does not set forth the 

defense.3 

 If the district court determines that Alpha's contracts 

violated §501(c)(3) or OMB Circular A-122, however, the contracts 

might still be enforceable; Alpha would simply lose its tax 

exemption. Hence Sylvan wishes to argue that, even if not void 

as illegal, Alpha's contracts are voidable as unauthorized by its 

corporate charter or by-laws. See, e.g., Bolduc v. Board of 

Supervisors, 618 A.2d 1188, 1190-91, 152 Pa.Commw. 248 (Pa.Commw. 

1992)(contract voidable when entered into by township acting 

beyond its corporate powers), appeal denied, 625 A.2d 1195, 533 

Pa. 662 (1993). Alpha has not and may not raise the defense of 

ultra vires. 15 Pa.C.S. §5503; Downing v. School Dist., 61 A.2d 

133, 138, 360 Pa. 29, 40 (1948)("a corporation which has received 

and retained the benefits and advantages of a contract should not 

be allowed to escape its obligations upon a plea of ultra 

vires"); Wagner v. Somerset County Memorial Park, Inc., 93 A.2d 

 

 

3Under the Pennsylvania and federal rules, illegality is an 

affirmative defense which must be pleaded, but under Pennsylvania 

law the defense is not waived by failure to plead it. 

Fed.R.Civ.P. 8(c); Pa.R.Civ.P. 1030(a); American Ass'n of Meat 

Processors, 588 A.2d at 495-96. 
440, 442, 372 Pa. 338 (1953); American Mut. Liability Ins. Co. v. 

Bollinger Corp., 402 F.Supp. 1179, 1186 (W.D.Pa. 1975). 

 Sylvan alleges that defendant's charter empowers it to 

undertake only those activities permitted by §501(c)(3), and thus 

a transaction yielding private inurement would be ultra vires. 

See Motion to Intervene, App. at 71-72.4 See also By-Laws, 

Supplemental Appendix ("S.A.") at 143. In addition, Sylvan 

alleges that the charter authorizes Alpha to pay only reasonable 

compensation for services rendered. App. at 72. See also ByLaws, S.A. at 144. 

 Consequently, we conclude that Alpha has not and cannot 

adequately represent Sylvan's interests, as defendant has failed 

to raise the defense of illegality and is statutorily prohibited 

from arguing that the contracts are ultra vires. In sum, Sylvan 

has satisfied its burden under Rule 24(a)(2), and it was an abuse 

of discretion to deny its motion for intervention. 

IV. 

 For the foregoing reasons we will reverse the order of the 

district court and remand for further proceedings consistent with 

this opinion. 

 

 

4The appellate record does not include the corporate charter.