Sixth Geostratic Energy Drilling Program 1980 v. ANCOR EXPLORATION COMPANY, 81-C-576

• Decision Date: 21 June 1982
• Docket Number: No. 81-C-576,81-C-577 and 81-C-836.,81-C-576
• Citation: 544 F. Supp. 297
• Parties: SIXTH GEOSTRATIC ENERGY DRILLING PROGRAM 1980, Seventh Geostratic Energy Drilling Program 1980, and Eighth Geostratic Drilling Program 1980, Plaintiffs, v. ANCOR EXPLORATION COMPANY, Ancor Petroleum, Inc., Harry E. McPhail, Jr., Docko, Inc., Bluebell Oil and Gas, Inc., Ancor Exploration Co. 1980 Drilling Venture, A/S Docko Corporation, and Ole Gunnar Selvaag, Defendants. FIRST AND SECOND ANCOR-GEOSTRATIC DRILLING PARTNERSHIPS 1980, Plaintiffs, v. SIXTH AND SEVENTH GEOSTRATIC ENERGY DRILLING PROGRAMS 1980, Robert S. Sinn and Jan S. Mirsky, Defendants.
• Court: U.S. District Court — Northern District of Oklahoma

544 F. Supp. 297

SIXTH GEOSTRATIC ENERGY DRILLING PROGRAM 1980, Seventh Geostratic Energy Drilling Program 1980, and Eighth Geostratic Drilling Program 1980, Plaintiffs, v. ANCOR EXPLORATION COMPANY, Ancor Petroleum, Inc., Harry E. McPhail, Jr., Docko, Inc., Bluebell Oil and Gas, Inc., Ancor Exploration Co. 1980 Drilling Venture, A/S Docko Corporation, and Ole Gunnar Selvaag, Defendants.

FIRST AND SECOND ANCOR-GEOSTRATIC DRILLING PARTNERSHIPS 1980, Plaintiffs, v. SIXTH AND SEVENTH GEOSTRATIC ENERGY DRILLING PROGRAMS 1980, Robert S. Sinn and Jan S. Mirsky, Defendants.

Nos. 81-C-576, 81-C-577 and 81-C-836.

United States District Court, N. D. Oklahoma.

May 26, 1982.

As Amended June 21, 1982.

Mack Braly, Tulsa, Okl., Paul C. Kurland, New York City, for Sixth, Seventh and Eighth Geostratic Drilling Programs 1980.

James L. Kincaid, Tulsa, Okl., Jim K. Goodman, Oklahoma City, Okl., for Ancor Exploration Co., Ancor Petroleum, Inc., Harry E. McPhail, Jr., Docko, Inc., Bluebell Oil and Gas, Inc., and Ancor Exploration Co. 1980 Drilling Venture.

ORDER

BRETT, District Judge.

This matter came on for hearing on May 4, 1982 on defendants' Motion to Dismiss. For the reasons set forth below, the motion is denied.

In support of their motion, defendants advance essentially two arguments. First, defendants contend First Ancor-Geostratic Drilling Partnership 1980, Second Ancor-Geostratic Drilling Partnership 1980 and Third Ancor-Geostratic Drilling Program 1980 (hereinafter referred to as "the drilling partnerships" or "the unjoined parties") are indispensable parties to the instant action, and therefore must be joined as plaintiffs or defendants. Second, defendants assert the joinder of these additional parties, all of which are limited partnerships, will destroy diversity of citizenship and thus deprive this Court of subject matter jurisdiction over the instant action. Plaintiffs contend the drilling partnerships are not indispensable parties, but even if they are determined to be such, their joinder will not defeat diversity of citizenship.

I

The Court's review of plaintiffs' Second Verified Amended Complaint discloses numerous claims alleged against the drilling partnerships. In addition, plaintiffs have moved for the appointment of a receiver over the assets of the drilling partnerships. Plaintiffs argue, however, inasmuch as the parties who allegedly are in control of the assets of the drilling partnerships and constitute the general partners of such partnerships are already parties to this action, the Court can provide full relief to plaintiffs without adding the drilling partnerships as parties. Further, plaintiffs contend the addition of the drilling partnerships as parties will afford the Court no greater latitude in fashioning an order of relief than already exists by virtue of the parties presently named in the action.

Rule 19(a) of the Federal Rules of Civil Procedure provides in pertinent part as follows:

A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest. If he has not been so joined, the court shall order that he be made a party.

In the instant matter, defendants have painstakingly set forth in Appendix A to their brief in support of their motion the claims alleged against or the relief sought from or on behalf of the unjoined parties. Having reviewed such appendix and the Second Verified Amended Complaint, the Court concludes it need not individually consider each claim against the unjoined parties to reach the conclusion that such parties are indispensable to the maintenance of this action. Viewed in their totality, the claims for relief asserted against the unjoined parties are so substantial that the Court finds complete and effective relief cannot be fashioned in this case without the joinder of the unjoined parties. Of particular significance at this stage of the case is plaintiffs' motion for appointment of a receiver of the assets of the drilling partnerships. Although plaintiffs maintain these assets are currently under the control of some of the defendants and, therefore, the receivership proceeding is for the benefit of the unjoined parties as well as the plaintiffs, this allegation, even if proved, would not alter the basic fact plaintiffs are seeking to impress a receivership on entities not parties to this action. The Court concludes this request for relief alone is sufficient to require the joinder of the drilling partnerships. Similarly, although plaintiffs assert much of the relief requested will, if granted, actually run in favor of the drilling partnerships, the Court concludes, primarily on the basis of the motion for appointment of a receiver, the drilling partnerships must be joined as party defendants. In summary, in accordance with Rule 19(a), the Court concludes the absence of the drilling partnerships as parties to this action would impair their ability to protect their interests, especially in light of the motion for appointment of a receiver of their assets. See Wright & Miller, Federal Practice and Procedure: Civil § 1604.¹

II

Having decided the drilling partnerships must be added as parties defendant herein, the Court is faced with the question whether such joinder defeats diversity of citizenship and thus deprives this Court of jurisdiction over the subject matter of this action. The Court concludes the joinder of the drilling partnerships does not defeat diversity of citizenship for the reasons set forth below.

As may be observed from the chart below², Messrs. Sinn and Mirsky are residents of New York and Florida, respectively, and each is a general partner in the investor partnerships.³ In addition, each is a limited partner in the drilling partnerships. The Court having determined the drilling partnerships must be added as parties defendant in this action, the question becomes whether the presence of Sinn and Mirsky as limited partners of the defendant drilling partnerships operates to defeat diversity of citizenship between the parties plaintiff and the parties defendant. The inquiry then is whether the citizenship of a limited partnership is determined by reference to the citizenship of its general partners alone, or whether it is determined by reference to the citizenship of the general partners as well as the citizenship of the limited partners.

Although acknowledging the existence of authority to the contrary, defendants contend the better reasoned rule is that stated by the Court of Appeals for the Third Circuit in Carlsberg Resources Corporation v. Cambria Savings and Loan Association, 554 F.2d 1254 (3rd Cir. 1977). In Carlsberg, the Court faced the precise question before this Court and concluded the citizenship of limited partners must be considered in determining whether the requisite diversity exists. As stated by that Court, the primary policy concerns underlying its holding were judicial economy and federalism. 554 F.2d at 1262.

The Carlsberg case features a thorough dissenting opinion written by Judge James Hunter III. In dissent, Judge Hunter examined the realities of the limited partnership as it exists in the modern-day business world and concluded the citizenship of limited partners need not be considered in determining whether diversity exists. Specifically, Judge Hunter addressed the distinction between general and limited partnerships:

In a general partnership, each partner is jointly and equally responsible for the organization affairs. Each can sue on behalf of the partnership. Thus when a general partnership brings suit in federal court, alleging diversity jurisdiction, the court turns to state law and determines that each partner is jointly liable and responsible; therefore, each must be `counted' for diversity purposes.

554 F.2d at 1263. Turning then to state law and noting every state and the Virgin Islands have adopted the Uniform Limited Partnership Act, he observed limited partners are not proper parties to proceedings by or against the limited partnership under section 26 of the Act. He thus concluded, if limited partners are not proper parties to actions by or against the limited partnership, their citizenship should not be considered in determining diversity.

Defendants also advance the case of Grynberg v. B. B. L. Associates, 436 F.Supp. 564 (D.Col.1977) in support of their motion. In Grynberg, the district court followed the holding in Carlsberg primarily on the basis that

The question of federal jurisdiction cannot always be decided according to what various states determine the state substantive law should be.

436 F.Supp. at 568. Grynberg expressed the additional concern that in looking to state law pursuant to Rule 17, Fed.R.Civ.P., dealing with capacity to sue for diversity purposes the Court would be impermissibly expanding the court's jurisdiction in contravention of Rule 82, Fed.R.Civ.P. Thus, although noting the popularity of limited partnerships and their "quasi-corporate characteristics", the Court concluded it was for Congress and not the courts to "add to the burden of the federal docket." 436 F.Supp. at 568.

The issue here presented was first addressed by the Court of Appeals for the Second Circuit in Colonial Realty Corporation v. Bache & Co., 358 F.2d 178 (2nd Cir. 1966). Without elaborate discussion, that Court decided the lower court was correct in finding

Where, as here, there was diversity between

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