CP Robinson Const. Co. v. National Corp. for Hous. Part.

• Decision Date: 26 April 1974
• Docket Number: No. C-74-15-WS.,C-74-15-WS.
• Citation: 375 F. Supp. 446
• Court: U.S. District Court — Middle District of North Carolina
• Parties: C. P. ROBINSON CONSTRUCTION COMPANY et al., Plaintiffs, v. NATIONAL CORPORATION FOR HOUSING PARTNERSHIPS, Defendant.

375 F. Supp. 446

C. P. ROBINSON CONSTRUCTION COMPANY et al., Plaintiffs, v. NATIONAL CORPORATION FOR HOUSING PARTNERSHIPS, Defendant.

No. C-74-15-WS.

United States District Court, M. D. North Carolina, Winston-Salem Division.

April 26, 1974.

Michael J. Lewis and James G. White, of White & Crumpler, Winston-Salem, N. C., for plaintiffs.

Robert W. Spearman, H. Hugh Stevens, Jr., Raleigh, N. C., for defendant.

MEMORANDUM ORDER

HIRAM H. WARD, District Judge.

This action is presently before the Court on the motion of the defendant, National Corporation for Housing Partnerships (NCHP), for a stay pending arbitration pursuant to Section 3 of the United States Arbitration Act, 9 U.S.C. § 1 et seq., and the plaintiffs' motion to remand to state court for lack of federal jurisdiction. Oral arguments were made before the Court by both parties on April 19, 1974. After due consideration of the arguments of both parties and on the basis of the entire file in this case, the Court grants the defendant's motion for a stay of proceedings pending arbitration and directs the parties to proceed to arbitration in accordance with the terms of the partnership agreement.

Plaintiffs and defendant entered into a written partnership agreement on March 11, 1971, forming the Bingham Heights Limited Partnership (Bingham). The two plaintiffs, C. P. Robinson Construction Company and C. P. Robinson, Jr., are general partners of Bingham. C. P. Robinson Construction Company is a North Carolina corporation, having its principal office at Rural Hall, North Carolina. C. P. Robinson, Jr., is a resident of Forsyth County, North Carolina. Bingham is named as a nominal plaintiff and is a limited partnership organized under the laws of North Carolina and having its principal office at Rural Hall, North Carolina. The defendant, NCHP, is the sole limited partner of Bingham and is a corporation having its principal office in the District of Columbia.

The limited partnership was created to construct a low-income housing project of 160 units in Asheville, North Carolina. The construction and permanent loans of the project are insured by the Department of Housing and Urban Development. The parties to this action made use of communication systems carried across state lines. The mortgage lender and the surety company overseeing the project are out-of-state businesses. Some of the labor and large quantities of materials used in the project are supplied from outside the State of North Carolina. (Major appliances are shipped from Louisville, Kentucky; steel is shipped from Cleveland, Ohio; cement is shipped from Knoxville, Tennessee.) NCHP is a partner in 131 partnerships spread across thirty-two states and is regularly involved in business across state lines.

The defendant, NCHP, was required by the terms of the limited partnership agreement to pay in excess of $70,000 at the final closing of a loan on real estate. That obligation matured in July of 1973 and the defendant failed to pay. On September 7, 1973, the defendant gave notice to C. P. Robinson, Jr., and C. P. Robinson Construction Company that they should be removed as general partners under terms of the partnership agreement because of material violations of their fiduciary duty as partners of Bingham. The defendant set forth a number of claimed violations by plaintiffs including a charge that Robinson Construction Company was unlawfully receiving payments for construction of the project inasmuch as neither the Company nor C. P. Robinson, Jr., had a contractor's license as required by Chapter 87 of the North Carolina General Statutes. Defendant claimed by reason of the breach of fiduciary duty by the general partners, there was no valid debt owing from NCHP to Bingham and Robinson Construction Company.

The general partners denied the removal request of NCHP on September 11, 1973. In turn, NCHP submitted the matter to the American Arbitration Association on November 20, 1973, pursuant to an arbitration clause in the partnership agreement.¹ The Association accepted the issues submitted on November 27, 1973.

On December 19, 1973, the plaintiffs sought and obtained, ex parte, a temporary restraining order from the Superior Court in Forsyth County, North Carolina, prohibiting the defendant from "any further proceedings or attempted proceedings in arbitration." On December 20, 1973, the plaintiffs filed a complaint seeking dissolution of the partnership, contribution and damages from the defendant, and a permanent injunction restraining the defendant from proceeding with arbitration. The defendant removed the action to this court pursuant to 28 U.S.C. § 1441. Jurisdiction of the federal court is based on diversity of citizenship, 28 U.S.C. § 1332.

The defendant urges this Court to stay the proceedings because the issue is referrible to arbitration under Title 9, Section 1 et seq. The plaintiffs contend that the Court lacks jurisdiction to entertain the suit because diversity of citizenship is not present. Additionally, the plaintiffs claim that if federal jurisdiction exists, the substantive law of North Carolina should be applied to the arbitration issue since removal was had under diversity of citizenship and the partnership agreement states its interpretation shall be in accordance with the laws of the State of North Carolina.

The plaintiffs have challenged the jurisdiction of the federal court to provide a forum for this suit. Such a challenge demands careful scrutiny. The United States Arbitration Act does not provide an independent basis of federal jurisdiction. It is only when the federal court has some other basis of jurisdiction such as diversity of citizenship or a federal question that Title 9 can be applied. Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2d Cir. 1959); McDevitt & Street Co. v. Georgia Building Authority, 343 F. Supp. 1238 (D.C.Ga.1972); Joseph Muller Corp. Zurich v. Commonwealth Petrochemicals, Inc., 334 F.Supp. 1013 (D.C. N.Y.1971).

Neither party contends that the jurisdictional amount has not been properly alleged in the pleadings. The face of the plaintiffs' complaint states that all plaintiffs in this action are residents of North Carolina and the defendant is a corporate resident of the District of Columbia. However, plaintiffs cite the case of Fletcher v. Hamlet, 116 U.S. 408, 6 S.Ct. 426, 29 L.Ed. 679 (1886), as standing for the proposition that where a suit is by or against a partnership and diversity of citizenship is claimed, citizenship is determined by that of the individual members. The plaintiff claims application of that principle to the case at bar operates to defeat diversity of citizenship. The reasoning is that NCHP is a District of Columbia resident and a limited partner of Bingham which gives Bingham, as one of the plaintiffs, a citizenship in the District of Columbia. Since a plaintiff and the defendant have the same citizenship, diversity is destroyed.

Under the applicable North Carolina statute a limited partner, such as NCHP, ". . . is not a proper party to proceedings by or against a partnership, except where the object is to enforce a limited partner's right against or liability to the partnership." Uniform Limited Partnership Act, N.C.G.S. § 59-26 (1941). In the case of a third party in litigation with a limited partnership, diversity could be obtained if all the general partners had citizenship different from the third party. Identity of citizenship between the third party and a limited partner would not be fatal to federal jurisdiction. Colonial Realty Corporation v. Bache and Co., 358 F.2d 178 (2d Cir. 1966).

This case involves the exception in the statute cited above in that it is a suit to enforce a limited partner's liability to the partnership. Therefore, NCHP has properly been made a defendant in the proceedings. However, the fact that Bingham is named as a nominal plaintiff in this action for dissolution does not place the defendant in a position of suing himself. The residency of a limited partner, being sued for dissolution and contribution by the general partners is not made the residency of the plaintiff merely by virtue of the limited partnership being named as a nominal plaintiff. In such a case, the citizenship of the limited partnership is determined by the citizenship of each of the individual general partners and diversity of citizenship exists if the limited partner's citizenship is different from that of all general partners. Any other rule would oust federal jurisdiction from all dissolution suits between general and limited partners. In addition, it would require the Court to take the theoretically untenable position that in dissolution suits one party could, at once, be recognized as a plaintiff and a defendant for jurisdictional purposes.

The Court rejects such a rule, and finds that diversity of citizenship does exist and the matter in controversy exceeds the sum of $10,000. Therefore, the Court has jurisdiction over this suit and the plaintiffs' motion to remand to state court is denied.

The defendant, NCHP, claims that an arbitrable issue exists between the parties under the terms of the arbitration clause in the partnership agreement—the arbitration clause being valid and enforceable under Title 9. The defendant moves for a stay of court proceedings and an order to compel arbitration under 9 U.S.C. §§ 3 and 4. The plaintiffs take the position that the written agreement for arbitration is not one evidencing a transaction in commerce and Title 9 would not apply. The plaintiffs would have the Court apply the substantive law of North Carolina which, at the time the partnership agreement was made, did not permit enforcement of contracts to arbitrate future controversies.² Therefore, if North Carolina statutory law controls the facts of this case, the parties would not have entered into a valid arbitration agreement and the Court could not compel arbitration. Cook v. Kuljian, 201 F.Supp....