Opinion
CIVIL ACTION NO. 3:01-CV-0253-G.
November 8, 2001.
MEMORANDUM ORDER
Before the court is the motion of the defendant TY Equity Group ("TYE Group") to dismiss the plaintiff's claims against it for lack of subject matter jurisdiction and for failure to join an indispensable party under FED. R. CIV. P. 19. For the reasons set forth below, the motion is granted.
I. BACKGROUND
The plaintiff Benson Lee ("Lee") was the sole limited partner in a limited partnership, Munger Square, Ltd. ("Munger Square"). Brief in Support of Motion to Dismiss ("Motion") at 1; Plaintiff's Brief in Opposition to Defendant's Motion to Dismiss ("Response") at 2. On February 1, 2001, Lee, through his attorney, notified the defendant TYE Group that he was terminating TYE Group as the general partner of Munger Square. Motion at 1; Response at 2. Subsequently, Lee signed a certificate of amendment to the certificate of limited partnership of Munger Square, stating that Dallas Area Properties, Inc. ("DAP") would be the general partner of the partnership. Motion at 1-2. Pursuant to the partnership agreement, TYE Group's interest was converted to a limited partnership interest in Munger Square. Id. at 2. As a result, the current partners of Munger Square are Lee, TYE Group, and DAP. Id.
Although the document was dated February 1, 2001, TYE Group contests this date as the date of signing.
Lee filed this suit against TYE Group seeking a declaratory judgment concerning: (1) the legal relationship between Lee and TYE Group, (2) Lee's rights under the Munger Square partnership agreement, and (3) TYE Group's authority to act on behalf of Munger Square after February 1, 2001. Original Complaint ("Complaint") ¶ 8.
II. ANALYSIS
Rule 19(a) of the Federal Rules of Civil Procedure provides: "A person . . . shall be joined as a party in the action if (1) in the person's absence complete relief cannot be accorded among those already parties. . . ." The advisory committee notes state that "[c]lause (1) stresses the desirability of joining those persons in whose absence the court would be obliged to grant partial or `hollow' rather than complete relief to the parties before the court. The interests that are being furthered here are not only those of the parties, but also that of the public in avoiding repeated lawsuits on the same essential subject matter." Id. Bank of America National Trust and Savings Association v. Hotel Rittenhouse Associates, 844 F.2d 1050, 1054 and n. 5 (3rd Cir. 1988).
TYE Group contends that the claims pled by Lee are actually owned by Munger Square, and that under the case of Bankston v. Burch, 27 F.3d 164 (5th Cir. 1994), Munger Square is a necessary and indispensable party pursuant to FED. R. CIV. P. 19. The court agrees.
In Bankston, a limited partner, Bankston, sued the general partner, Burch, in state court. Burch removed the case to federal court based on the diversity of citizenship between himself and Bankston. 27 F.3d at 166. The parties proceeded with discovery and the case was set for trial. Id. Then, on the day before trial was to begin, Burch filed a motion to dismiss Bankston's claims on the grounds that federal subject matter jurisdiction was lacking. Id. One of the bases for his assertion was that Bankston had "`failed to join the Limited Partnership and the individual limited partners in [the] action . . . as indispensable parties'" under FED. R. Civ. P. 19 and 12(b)(7). Bankston, 27 F.3d at 166. If the limited partnership were joined, diversity would be destroyed, divesting the court of subject matter jurisdiction. Id. The district judge decided to carry the motion with the case and proceeded with trial. Id. After a jury verdict for the plaintiff, the district court entered judgment for the plaintiff. Id. at 167. On appeal, the Court of Appeals ruled that the partnership was an indispensable party and that its joinder would have destroyed diversity. Id. at 168. Even though the partnership had not been joined, the court noted the well established rule that parties "may not manufacture diversity jurisdiction by failing to join a non-diverse indispensable party." Id. Accordingly, the court reversed the judgment, remanded the case to district court, and instructed the district court to remand the case to state court. Id.
In Bankston, the Fifth Circuit recognized the limited rights of limited partners to bring suit regarding partnership affairs, stating that "`. . . the only direct lawsuit against general partners that a limited partner can bring in an individual, non-representative capacity consists of an action for accounting.'" Id. at 167 (quoting Lenz v. Associated Inns and Restaurants Company of America, 833 F. Supp. 362, 379 (S.D.N.Y. 1993)). While "[l]imited partners can, if permitted by statute, sue derivatively to enforce rights belonging to the partnership[,] . . . the partnership is, at a minimum, the real party in interest in a derivative suit." Bankston, 37 F.2d at 167.
The court used the following four factor test identified in FED. R. CIV. P. 19(b) to determine whether a party is indispensable:
(1) to what extent a judgment rendered in the party's absence might be prejudicial to that party or others in the lawsuit;
(2) 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;
(3) whether a judgment rendered in the party's absence will be adequate; and
(4) whether the plaintiff will have an adequate remedy if the party cannot be joined.Bankston, 37 F.3d at 168. Analogizing to an earlier case, Whalen v. Carter, 954 F.2d 1087, 1096 (5th Cir. 1992), in which the court found that a similar judgment would prejudice the partnership's rights and that shaping the relief provided inadequate protection to the partnership's interest, the Bankston court held that the partnership was indispensable in Bankston's suit against Burch. Bankston, 27 F.3d at 167.
The facts of the instant case are indistinguishable from Bankston. Lee's claims for declaratory judgment and for breach of fiduciary duty clearly are derivative claims, not claims for accounting. Munger Square is thus a necessary party to this action. TYE Group, a limited partner in Munger Square, is a Texas corporation; therefore, because a limited partnership takes on the citizenship of all its partners, see Carden v. Arkoma Associates, 494 U.S. 185, 195 (1990), Munger Square is also a Texas citizen. When Munger Square is added as an indispensable plaintiff, citizens of Texas (Munger Square and TXE Group) are on both sides of the dispute, diversity is incomplete, and this case must be dismissed for lack of subject matter jurisdiction.
III. CONCLUSION
For the reasons discussed above, the motion of TYE Group to dismiss Lee's claims against it for failure to join an indispensable party whose joinder would divest this court of subject matter jurisdiction is GRANTED. This case is dismissed for lack of subject matter jurisdiction.