U.S. Cellular Inv. Co. of Oklahoma City, Inc. v. Southwestern Bell Mobile Systems, Inc., s. 96-6140

• Decision Date: 17 September 1997
• Docket Number: 96-6146,96-6294,Nos. 96-6140,s. 96-6140
• Citation: 124 F.3d 180
• Parties: UNITED STATES CELLULAR INVESTMENT COMPANY OF OKLAHOMA CITY, INC., an Oklahoma corporation, Plaintiff-Appellee and Cross-Appellant, v. SOUTHWESTERN BELL MOBILE SYSTEMS, INC., a Delaware and Virginia corporation, Defendant-Appellant and Cross-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 180

124 F.3d 180

UNITED STATES CELLULAR INVESTMENT COMPANY OF OKLAHOMA CITY, INC., an Oklahoma corporation, Plaintiff-Appellee and Cross-Appellant, v. SOUTHWESTERN BELL MOBILE SYSTEMS, INC., a Delaware and Virginia corporation, Defendant-Appellant and Cross-Appellee.

Nos. 96-6140, 96-6146, 96-6294.

United States Court of Appeals, Tenth Circuit.

Sept. 17, 1997.

Appeals from the United States District Court for the Western District of Oklahoma. (D.C.No. CIV.-92-2327-M).

G. Blaine Schwabe, III (Sarah A. Hall and J. Matthew Thompson, with him on the briefs) of Gable, Gotwals, Mock, Schwabe, P.C., Oklahoma City, OK, for Plaintiff-Appellee/Cross-Appellant.

Dennis G. Lyons of Arnold & Porter, Washington, DC (Carol L. Tacker, Dallas, TX; Kenneth N. McKinney and Charles C. Green of McKinney, Stringer & Webster, P.C., Oklahoma City, OK; James E. Scarboro of Arnold & Porter, Denver, CO; and Norman M. Sinel, Patrick J. Grant, Ellen T. Noteware, and Paul S. Feira, Of Counsel, Arnold & Porter, Washington, DC, with him on the briefs), for Defendant-Appellant/Cross-Appellee.

Before TACHA, BALDOCK, and KELLY, Circuit Judges.

BALDOCK, Circuit Judge, dissenting from an unpublished order and judgment.

The court's opinion, 1997 WL 575820, would be absolutely correct if, as the court concludes, USC-OK's action against SWBS is a direct one. Unfortunately, the court's conclusion is erroneous. USC-OK's action is derivative in nature. Because the action is derivative, an indispensable party, namely the OKC Partnership, was not before the district court. Because the joinder of the Partnership would have destroyed diversity jurisdiction in the district court, that court lacked jurisdiction to adjudicate this matter. See First Nat'l Bank & Trust Company v. McKeel, 387 F.2d 741, 743 (10th Cir.1967) (if joinder of an indispensable party would oust the court of diversity jurisdiction, then dismissal would be compelled). Accordingly, I dissent.

As this is an action against a general partner for breach of fiduciary duty owed to the OKC Partnership, we first ask whether this action is a direct action or a derivative one. In a diversity case, the characterization of an action is a state law question. See McDaniel v. Painter, 418 F.2d 545, 547 (10th Cir.1969). The Partnership Agreement in this instance provides that Delaware law controls. Thus, under Oklahoma's choice-of-law rules, we look to Delaware law to determine whether this action is direct or derivative. See Okla. Stat. Ann. tit. 15, § 162 (West 1993); Bohannan v. Allstate Ins. Co., 820 P.2d 787, 793-96 (Okla.1991).

Under Delaware law, the distinction between direct and derivative actions, "rests upon the [plaintiff] being directly injured by the alleged wrongdoing." Litman v. Prudential-Bache Properties, Inc., 611 A.2d 12, 15 (Del.Ct.Chan.1992) (treating limited partnership same as corporation to determine the derivative nature of action), amended by, 1992 WL 94369 (Del.Ct.Chan.1992) (unpublished) (amendment irrelevant). The plaintiff's injury must be "separate and distinct from that suffered by other [partners]" and it must exist "independently of any right of the [partnership]." Id. Thus, discerning the nature of an action-derivative or direct-requires an examination of the alleged injury. See id.

The Amended Complaint reveals that USC-OK brought this action for damages to the OKC Partnership. The prayer of the Amended Complaint requested the following relief:

(a) a declaration that defendant's interests in the cellular systems in Oklahoma RSAs 3 and 5 are held on behalf of the partnership;

(b) an injunction requiring defendant to take all measures to transfer its interest in the cellular systems in Oklahoma RSAs 3 and 5 to the partnership;

(c) an accounting of revenues generated by the cellular systems in Oklahoma RSA's 3, 5, and 9 and profits earned therefrom by defendant;

(d) a injunction requiring Southwestern to share with the partnership any and all benefits derived from its applications to provide cellular service in Oklahoma RSAs 3 and 5....

Amended Complaint at 10 (emphasis added). The prayer of each count of the complaint requests a remedy for the OKC Partnership's benefit and alleges injuries specific to the OKC Partnership. Likewise the questions presented in the final pre-trial order also allege injury to the OKC Partnership and request relief in its favor. See generally Final Pretrial Order, Appellant's Appendix, vol. 1, p. 84-107. USC-OK has suffered no discernable separate harm. Accordingly this suit, although not captioned as a derivative action, is pleaded as a derivative action brought for the benefit of the OKC Partnership. Cf. United States Cellular Inv. Co. v. Bell Atlantic Mobile Sys. Inc., 677 A.2d 497 (Del.1996) (action on nearly identical contract brought as a derivative suit).

Because this suit is derivative, the OKC Partnership is the real party in interest. See Fed.R.Civ.P. 17(a). A federal court sitting in diversity must apply the law of the forum state, including its choice-of-law rules, to all substantive issues. See Rocky Mountain Helicopters, Inc. v. Bell Helicopter Textron, Inc., 24 F.3d 125, 128 (10th Cir.1994). Because Oklahoma is the forum state, its law designates whether the OKC Partnership is the real party in interest in this diversity suit. See K-B Trucking Co. v. Riss Int'l Corp., 763 F.2d 1148, 1153 (10th Cir.1985). "If an incorporated or unincorporated association has capacity to sue or be sued as provided under Rule 17(b), it is considered the real party in interest for purposes of enforcing any right it has as an entity." 6A Charles A. Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice and Procedure § 1552, at 394 (1990). A limited partnership or unincorporated association has the capacity to sue or be sued in Oklahoma. See Okla. Stat. Ann. tit. 12, § 2017B (West 1993). Thus, OKC Partnership is the real party in interest in this suit. See Singer v. Singer, 634 P.2d 766, 769-70 (Okla.Ct.App.1981). Notably, the Fifth Circuit has stated that a limited partnership is the real party in interest to a derivative suit seeking relief for an alleged breach of fiduciary duty, see Bankston v. Burch, 27 F.3d 164, 167 (5th Cir.1994), and we have drawn a like conclusion in the corporate context, see Nunn v. Chemical Waste Mgt., Inc., 856 F.2d 1464, 1470 (10th Cir.1988).

Moreover, the OKC Partnership, like any partnership in a derivative suit, is a necessary party. Three circuits have arrived at this conclusion in the limited partnership context. See HB General Corp. v. Manchester Partners, L.P., 95 F.3d 1185, 1190 (3d Cir.1996); Bankston, 27 F.3d at 167-68; Buckley v. Control Data Corp., 923 F.2d 96, 98 (8th Cir.1991). Also, the U.S. Supreme Court has so concluded in the corporate context. See Ross v. Bernhard, 396 U.S. 531, 538, 90 S.Ct. 733, 738, 24 L.Ed.2d 729 (1970). Save possibly for the accounting, the OKC Partnership is the only entity directly interested in the relief sought by USC-OK, which itself has only a derivative interest. As we shall see, resolution of the issues in this suit without the OKC Partnership will impair or impede its ability to protect its interests. See Fed.R.Civ.P. 19(a)(2), (2)(I).

The matter of a party's absence can be raised at any time and should be raised by a court sua sponte. See State Farm Mut. Auto. Ins. Co. v. Mid-Continent Cas. Co., 518 F.2d 292, 294 (10th Cir.1975). We must protect the interests of an absent necessary party, and have a duty to ensure that the best possible parties litigate this suit. Joining the OKC Partnership, however, would destroy diversity and strip the court of subject matter jurisdiction over this suit. See Carden v. Arkoma Assoc., 494 U.S. 185, 195-96, 110 S.Ct. 1015, 1021-22, 108 L.Ed.2d 157 (1990) (holding a partnership is a citizen of each state of which the general or a limited partner is a citizen). Thus, we must determine if the OKC Partnership is an indispensable party under Rule 19(b). If it is, we must dismiss this suit for non-joinder.

To determine whether the OKC Partnership is an indispensable party to this matter, Fed.R.Civ.P. 19(b) requires us to examine (1) the extent to which a judgment rendered in the party's absence might be prejudicial to the party; (2) the extent to which, by protective provisions in the judgment, by 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 action is dismissed for non-joinder.

Applying these factors, two of our sister circuits and one of our district courts have come to the conclusion that an absent partnership is an indispensable party in a derivative suit. See Bankston, 27 F.3d at 167-68; Buckley, 923 F.2d at 98; New York Life Insurance Co. v. Ramco Holding Corp. 938 F.Supp. 754 (N.D.Okla.1996). But cf. HB General Corp., 95 F.3d at 1190 (holding that a partnership was not an indispensable party to an action brought solely for declaratory relief against a limited partner and where every partner was a party to the lawsuit). Moreover, the Supreme Court has held that a corporation (which is treated identically with respect to derivative suits in Delaware, see Litman, 611 A.2d at 15) is an indispensable party to a derivative suit. See Koster v. Lumbermens Mut. Cas. Co., 330 U.S. 518, 520-523, 67 S.Ct. 828, 829-30, 91 L.Ed. 1067 (1947). Applying these factors to our case leads to a like result.

First, the court's entry of a judgment and remedy in this suit prejudices the OKC Partnership. SWBS breached the fiduciary duties it owed to the OKC Partnership, and the OKC Partnership is the only entity directly interested in the money remedy sought in this litigation. The damage award, however, represents only 14.6% of the gains SWBS realized from its wrongful conduct because USC-OK owns only 14.6% of the OKC Partnership. Not only does the court's...