Wroblewski v. Brucher

• Decision Date: 10 March 1982
• Docket Number: No. CIV-81-774-D.,CIV-81-774-D.
• Citation: 550 F. Supp. 742
• Parties: Edward F. WROBLEWSKI, an individual, Plaintiff, v. Peter V. BRUCHER; Arthur W. Morford; Joseph K. Morford, II; Robert E. Lund; LER, Inc., a corporation; AWM, Inc., a corporation; PVB, Inc., a corporation; Scott-Kinnear, Inc., a corporation; OFT Exploration, Inc., a corporation; Petroleum Accounting Systems and Services, Inc., a corporation; Exploration Associates, a limited partnership; Exploration Drilling, a limited partnership; Putnam Ventures, Ltd., a limited partnership; and G.P. Exploration, a partnership, Defendants.
• Court: U.S. District Court — Western District of Oklahoma

550 F. Supp. 742

Edward F. WROBLEWSKI, an individual, Plaintiff, v. Peter V. BRUCHER; Arthur W. Morford; Joseph K. Morford, II; Robert E. Lund; LER, Inc., a corporation; AWM, Inc., a corporation; PVB, Inc., a corporation; Scott-Kinnear, Inc., a corporation; OFT Exploration, Inc., a corporation; Petroleum Accounting Systems and Services, Inc., a corporation; Exploration Associates, a limited partnership; Exploration Drilling, a limited partnership; Putnam Ventures, Ltd., a limited partnership; and G.P. Exploration, a partnership, Defendants.

No. CIV-81-774-D.

United States District Court, W.D. Oklahoma.

March 10, 1982.

Thomas T. Rogers, Neal A. Gerstandt, and James H. Lockhart, Oklahoma City, Okl., for plaintiff.

Stephen P. Friot, Oklahoma City, Okl., for defendants.

ORDER

DAUGHERTY, District Judge.

The Plaintiff, an Oklahoma citizen, brought the instant action alleging, inter alia, fraud and collusion by a general partner in the conversion of the assets of a limited partnership. The Plaintiff alleges that he is one of several limited partners in Exploration Associates, a limited partnership organized under the laws of the State of California and that Joseph K. Morford, II, an individual, a citizen of the State of California, is the sole general partner of Exploration Associates. The Plaintiff joined as party Defendants Joseph K. Morford, II, Exploration Associates, and other individuals, corporations, and limited partnerships. No Defendant is a citizen of Oklahoma. It is asserted that this Court has subject matter jurisdiction of this action by reason of diversity of citizenship and amount in controversy pursuant to 28 U.S.C. § 1332.

The Plaintiff seeks damages herein for the Defendant general partner's alleged breach of his fiduciary duty to manage the assets of the limited partnership for the benefit of the limited partnership and to give a true account therefor. The Plaintiff alleges that the general partner and others fraudulently colluded to defraud the Plaintiff and to convert the assets of the limited partnership to their own use.

The Defendants have filed herein a Motion to Dismiss this case on the basis that complete diversity between the Plaintiff and all of the Defendants is lacking. The Motion is supported by Briefs, and the Plaintiff has filed a Brief in opposition to said Motion.

In support of their Motion, the Defendants have submitted affidavits, not contested by the Plaintiff, showing that the Plaintiff is a limited partner of the Defendant limited partnership, Exploration Associates, which is in turn the sole general partner of Exploration Drilling and Putnam Ventures, Ltd., Defendant, both of which are California limited partnerships. The Defendants contend that the citizenship of each of the limited partners must be considered in determining the citizenship of a limited partnership for diversity purposes and that, therefore, as the Plaintiff is a limited partner of Exploration Associates and is not diverse from himself, the Plaintiff is not diverse from any of the limited partnerships.

Organizations and groups of individuals have generally been categorized for diversity purposes as either corporations, trusts and other represented entities, unincorporated associations and partnerships, general and limited. The Court of Appeals for the Tenth Circuit has held that where the Plaintiff sues an unincorporated association of which he is a member, complete diversity is lacking because the Plaintiff is not diverse from himself. Jett v. Phillips & Associates, 439 F.2d 987 (Tenth Cir.1971). In that case, Phillips & Associates is described as an "enterprise" and an "unincorporated association." If that case applies to limited partnerships of the type involved herein, and if the citizenship of the limited partners of a limited partnership must be counted for diversity purposes, complete diversity does not exist and this Court has no jurisdiction in the instant action.

This Court has previously held that for the purposes of diversity jurisdiction, a limited partnership is a citizen of each State of which a general partner is a citizen. Rocket Oil & Gas Co. v. Arkla Exploration Co., 435 F.Supp. 1303 (W.D.Okl.1977), relying on Colonial Realty Corporation v. Bache & Co., 358 F.2d 178 (Second Cir.1966) (Friendly, J.) cert. denied, 385 U.S. 817, 87 S.Ct. 40, 17 L.Ed.2d 56 (1966), which continues to be followed in the Second Circuit, Lewis v. Odell, 503 F.2d 445 (Second Cir.1974); Boise Cascade Corp. v. Wheeler, 419 F.Supp. 98 (S.D.N.Y.1976), affirmed, 556 F.2d 554. The only other circuit in which a Court of Appeals has ruled on this issue is the Third Circuit, which took the opposite view in Carlsberg Resources Corp. v. Cambria Savings & Loan Assn., 554 F.2d 1254 (Third Cir.1977), which has been followed only in the Third Circuit,¹ except for the case of Grynberg v. B.B.L. Associates, 436 F.Supp. 564 (D.Colo.1977) in this Circuit. Where district courts in other circuits have considered the question, they have agreed with the decision in Colonial Realty Corporation, supra. Williams v. Sheraton Inns, Inc., 514 F.Supp. 22 (E.D.Tenn., N.D.1980); C.P. Robinson Const. Co. v. National Corp. for Housing Partnerships, 375 F.Supp. 446 (M.D.N.C.1974); and the Court of Appeals for the Fifth Circuit, in dictum, has expressed strong approval of it, Lee v. Navarro Sav. Assn., 597 F.2d 421 (Fifth Cir.1979), affirmed, sub nom. Navarro Sav. Assn. v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed. 425 (1980).

However, in affirming the Lee case, the Supreme Court held only that the citizenship of a Massachusetts business trust suing in the names of its trustees should be determined by reference to the citizenship of the trustees only and not also the beneficiary shareholders, so long as the trustees were real and substantial parties to the controversy. The Fifth Circuit had reasoned, from Colonial Realty Corporation, supra, that the trustees, like general partners in a limited partnership, had general control and liability and therefore were the only real parties in interest under Rule 17(a), Federal Rules of Civil Procedure, and the only proper parties to suits involving the trust. Therefore, the Fifth Circuit concluded, only the citizenship of the trustees was relevant to diversity jurisdiction. The Supreme Court, while reaching the same result, rejected the "real party in interest" approach² in favor of the similar but slightly more limited test of whether the named party is a "real party to the controversy." It reasoned only that the trustees "have legal title; they manage the assets; they control the litigation. In short, they are real parties to the controversy." 446 U.S. at 465, 100 S.Ct. at 1784.

The dissent in Navarro Sav. Assn., following the reasoning of the Court of Appeals but reaching the opposite result, argued that the beneficial shareholders in the trust involved therein had such substantial control over the actions of the trustees that, under the law of Massachusetts, that particular trust should be considered a (general) partnership rather than an express trust.³ This analysis seemed to the majority to invite too much threshold litigation over the issue of jurisdiction in a diversity case involving a business trust.⁴

No party in the instant case has questioned the propriety of naming a limited partnership as a party to the suit. As discussed infra, the limited partnership is a proper party and a real party in interest. But the test of jurisdiction is not merely who is named as a party. The statute provides for jurisdiction of civil actions where "the matter in controversy ... is between — (1) citizens of different States ...." As a limited partnership is not a natural individual who would obviously be capable of having citizenship, the question is whether it should be considered to have an artificial "citizenship" as an entity, like a corporation, or the multiple citizenship of all or some subgroup of its members. The Court concludes that it cannot treat a limited partnership as a corporation, although there are good reasons for doing so. Of the alternatives, the Court concludes that the general partners are real parties to the matter in controversy but the limited partners are not. The limited partners are not here, and cannot ordinarily be, parties to an action in which they represent or act on behalf of the limited partnership. But if it is nevertheless assumed that they are parties herein because the partnership is a party, the Court may apply the same standards used by the Supreme Court in Navarro Sav. Assn. v. Lee, supra, in determining whether they are real parties to the controversy.

As the limited partnerships involved herein are solely creatures of state law, we must look to the law of the state of their creation in order to determine their features before applying federal jurisdictional rules to them. They were created under the California version of the Uniform Limited Partnership Act, California Corporation Code §§ 15501, et seq., a uniform State law which has been enacted in nearly all the States of the Union without significant changes. Under the uniform act, a "limited partner" in no sense either (1) holds title to assets of the limited partnership, (2) manages those assets, or (3) controls litigation to which the limited partnership is a party.

(1) TITLE TO ASSETS

In Evans v. Galardi, 16 Cal.3d 300, 128 Cal.Rptr. 25, 546 P.2d 313 (1976), the California Supreme Court held that assets of a California limited partnership were not available to satisfy a judgment against the two limited partners. Even though the limited partners were the sole owners of the corporate general partner, the court held that "the limited partner is given no property interest in the specific partnership assets as such." 16 Cal.3d at 306, 128 Cal. Rptr. at 30, 546 P.2d at 318. The Court then observed that the only property interests of a limited partner in the partnership are rights to a share of...