Delta Financial Corporation, Plaintiff-appellee, v. Paul D. Comanduras & Associates, Defendant-appellant, 973 F.2d 301 (4th Cir. 1992)

Paul D. Comanduras & Associates, Limited (PDC) appeals from an order of the district court directing PDC to arbitrate its disputes with Delta Financial Corporation (Delta) and denying PDC's motion to stay such arbitration pursuant to the automatic stay provisions of 11 U.S.C. § 362. For the reasons set forth below, we vacate the order of the district court and remand for further proceedings.

In October 1987, PDC and Delta entered into a partnership agreement forming the Vanguard Limited Partnership (Vanguard). The initial stated business of the partnership was the acquisition and development of two parcels of land in Loudoun County, Virginia. Under the agreement, PDC was the general partner with sole power to conduct the partnership's development of two large subdivision projects, while Delta participated as a limited partner responsible for providing the necessary financing. The agreement also included a provision stating that " [a]ny dispute or controversy arising under, out of, in connection with or in relation to this Agreement ... shall be determined and settled by arbitration in Loudoun County, Virginia...."

Over the next several years, disputes did indeed arise between PDC and Delta with the result that, on October 22, 1990, Delta filed a complaint against PDC as defendant in the United States District Court for the Eastern District of Virginia. The complaint, which stated that it was "based upon the Federal Arbitration Act, 9 U.S.C. § 1, et seq.," named PDC as the sole defendant and asked for an order compelling PDC to engage in arbitration with Delta in accordance with the partnership agreement. Prior to the hearing on Delta's complaint, Vanguard initiated Chapter 11 bankruptcy proceedings in the United States Bankruptcy Court for the Eastern District of Virginia. At the subsequent hearing in the district court, PDC sought to have Delta's complaint dismissed and, in the alternative, argued that the filing of Vanguard's bankruptcy petition required that the district court proceeding be stayed pursuant to 11 U.S.C. § 362(a) (1) and 11 U.S.C. § 362(a) (3).

The district court on November 2, 1990 granted Delta's motion to compel arbitration, denied PDC's motion for a stay, and denied a motion to intervene on the part of Vanguard. The court indicated that if the arbitration between PDC and Delta began to interfere with Vanguard's bankruptcy proceedings, it would be a matter "between the arbitrator and the Bankruptcy Court." PDC filed a notice of appeal from the district court's order.

In January 1991, Vanguard obtained from the bankruptcy court a stay of the arbitration as to five of the issues that had been proposed for arbitration. On January 14, 1991, this court granted PDC's request for a complete stay of the arbitration pending the appeal of the district court's order.

As an initial matter, both parties have raised jurisdictional questions before us. PDC contends that Delta failed to satisfy the jurisdictional provisions of 9 U.S.C. § 4, which states that an aggrieved party "may petition any United States district court which, save for such [arbitration] agreement would have jurisdiction under Title 28...."

Delta's complaint, as developed subsequently, indicated that diversity of citizenship existed between Delta, a Maryland Corporation, and PDC, a Virginia corporation.¹  During the hearing before the district court, PDC conceded that the two parties were of diverse citizenship, but argued that the limited partnership itself, Vanguard, was an indispensable party to this action under Fed. R. Civ. P. 19(b). Involuntary joinder of Vanguard would destroy the district court's diversity jurisdiction, as the partnership is deemed a citizen of both Maryland and Virginia for diversity purposes. Carden v. Arkoma Associates, 494 U.S. 185, 110 S. Ct. 1015, 108 L. Ed. 2d 157 (1990).

Even if the partnership entity may under some circumstances be a necessary or indispensable party to litigation involving the constituent partners, which we do not suggest, we are of opinion that Vanguard is not necessary or indispensable to the instant dispute. This action arises out of a strictly internal conflict between the partners, all of whom, after our decision today, will be before the district court. PDC has failed to establish that Vanguard itself has any interest distinct from the interests of the several partners. Thus, we are satisfied that "complete relief [may] be accorded among those already parties," that Vanguard claims no interest different from the interest of the partners that may be impaired by the disposition of the case, and that Vanguard's absence will not "leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations." Fed. R. Civ. P. 19(a); see also Curley v. Brignoli, Curley & Roberts Associates, 915 F.2d 81, 91-92 (2d Cir. 1990) (holding, in suit by limited partners against general partners, that limited partnership is not indispensable where all partners are parties to the action), cert. denied, --- U.S. ----, 111 S. Ct. 1430, 113 L. Ed. 2d 484 (1991). Thus, the district court properly rejected PDC's jurisdictional argument related to the nonjoinder of Vanguard.

We also agree with the district court's finding that the jurisdictional amount required by 28 U.S.C. § 1332 was adequately shown. In considering a suit to compel arbitration, the question of jurisdictional amount may be determined by reference to the possible award resulting from the requested arbitration. Davenport v. Proctor & Gamble Mfg. Co., 241 F.2d 511, 514 (2d Cir. 1957); Marcy Lee Mfg. Co. v. Cortley Fabrics Co., 354 F.2d 42, 43 (2d Cir. 1965); 13B C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3569 (1984). In the present case, Delta's complaint indicated that it sought through the arbitration the dissolution of the partnership and liquidation of its assets worth many hundreds of thousands of dollars. It alleged that PDC had failed to dissolve the partnership and liquidate its assets in violation of the partnership agreement. We believe that the district court had before it a sufficient record to determine that the value of Delta's interest upon dissolution under the terms of the partnership agreement could exceed $50,000. We therefore find no error in the district court's determination of its diversity jurisdiction over Delta's petition to compel arbitration.

The jurisdictional question raised by Delta goes not to the jurisdiction of the district court, rather to the appellate jurisdiction of this court. Delta argues that under our decision in Jeske v. Brooks, 875 F.2d 71 (4th Cir. 1989), an appeal from the district court's order compelling arbitration is barred by 9 U.S.C. § 16(b) (2).²  Jeske emphasized that except in cases where the requirements of 28 U.S.C. § 1292(b) are met, no appeal lies from an interlocutory order compelling arbitration. 875 F.2d at 73.

Jeske, however, involved 9 U.S.C. § 16(b) (2) referring to interlocutory orders; 9 U.S.C. § 16(a) (3) explicitly provides that an appeal may be taken from "a final decision with respect to an arbitration...." In arguing that there has been no final decision, Delta points out that the order of the district court ended with a statement indicating that if the parties could not agree on an arbitrator, "each side should submit its nominees to the court and the court will make a decision as to who shall be the arbitrator." On December 10, 1990, the court did indeed name an arbitrator. Delta insists that by retaining jurisdiction in this manner, the district court rendered its November 2nd order interlocutory.

We note that a final order is one "leaving nothing to be done except the execution of the judgment." Bernstein By Bernstein v. Menard, 728 F.2d 252, 253 (4th Cir. 1984) (citations omitted); see Catlin v. United States, 324 U.S. 229, 233, 65 S. Ct. 631, 633, 89 L. Ed. 911 (1945). In the present case, the district court in its November 2nd order finally decided the sole question presented by Delta's complaint, namely, whether an order to compel PDC to arbitrate in accordance with the partnership agreement should be granted. Even if the order of November 2nd was itself, when entered, not a final, appealable order,³  ] a question we do not decide, we are satisfied that, in the absence of any prejudice to Delta, which has not been shown, the court's order of December 10th appointing an arbitrator effectively cured any potential prematurity of PDC's notice of appeal. See, e.g., Dowling v. City of Philadelphia, 855 F.2d 136, 138 (3d Cir. 1988). We accordingly find that the district court's determination is properly before this court as a final decision with respect to an arbitration.

Having considered the jurisdictional issues raised by the parties, we now turn to the issue regarding the proper joinder of parties in the district court. On June 13, 1990, months before this case was filed, PDC filed with the Virginia State Corporation Commission a Fifth Amended Certificate which on its face amended Vanguard's limited partnership agreement. That certificate showed Delta to have been removed as a limited partner and that one Timothy B. Cranch had been installed as a new limited partner of Vanguard. PDC argues that Cranch was a necessary⁴  party to the proceeding below, and that the district court's failure to join him pursuant to Fed. R. Civ. P. 19(a) was error.

We note first that in its filings with the district court Delta disputed the validity of Cranch's being made a partner and of its own removal under the partnership agreement and under the Virginia Revised Uniform Limited Partnership Act, Va.Code Ann. §§ 50-73.1 to 50-73.77. Delta further argued that Cranch was a relative of Paul Comanduras or an employee of PDC and as such had no interest in Vanguard independent of PDC's already-represented interest. The district court, however, made no findings with respect to the validity of Cranch's partnership interest or Delta's removal, the extent of Cranch's interest, or to whether Cranch was in fact a necessary party to this action.

We are of opinion that Cranch, if it is determined that as a limited partner he has a bona fide interest in the partnership, was indeed a necessary party to Delta's action to compel arbitration, and that the district court erred in failing to consider the issue. It would be no more proper to arbitrate in Cranch's absence with respect to his partnership interest, than it would be to litigate with respect to it. Though questions of joinder under Fed. R. Civ. P. 19 ultimately are controlled by federal law, a federal court must look to the state-law relationships between the parties when determining which parties are, as a practical matter, necessary for a just adjudication of the case. See Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 125 n. 22, 88 S. Ct. 733, 746 n. 22, 19 L. Ed. 2d 936 (1968); 7 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure: Civil 2d § 1603 (1986). The partnership agreement plainly provides that, upon termination of the partnership, limited partners as well as general are entitled to a share in the distribution of partnership assets. This provision, if Cranch's interest be valid, clearly would give him an interest in the outcome of the instant suit sufficient to require joinder under Fed. R. Civ. P. 19(a).

The cases are virtually unanimous in holding that in suits between parties to a contract seeking rescission of that contract, all parties to the contract, and others having a substantial interest in it, are necessary parties. See, e.g., Acton Co., Inc. of Mass. v. Bachman Foods, Inc., 668 F.2d 76, 81-82 (1st Cir. 1982); 59 Am.Jur.2d Parties § 97, at 527 (1987). The same principle applies to suits arising out of disputes between multiple claimants to a common fund; all such claimants must be joined if feasible. See Illinois Brick Co. v. Illinois, 431 U.S. 720, 737-39, 97 S. Ct. 2061, 2070-71, 52 L. Ed. 2d 707 (1977). A partnership agreement, at bottom, is nothing more than a special form of contract between the partners, and here one partner, Delta, seeks to compel liquidation of the common, finite properties which are the partnership assets. Thus, Cranch's joinder is necessary both to protect his interest and to ensure that the district court's resolution of the merits of this case is binding and final as to all interested parties.

Moreover, that the Fifth Amended Certificate purports to remove Delta and install Cranch in its place only bolsters our opinion that Cranch's presence in the instant suit is crucial to the district court's ability to fashion complete relief. Indeed, the present uncertainty as to Cranch's status, if allowed to continue by his nonjoinder, would undermine even an arbitrator's ability to resolve the instant conflict. Despite the as yet undecided issue of its validity under state law, the Fifth Amended Certificate was filed with the State Corporation Commission and must, at the present time, be accorded prima facie validity. This certificate was filed with the district court as an attachment to PDC's memorandum in opposition to Delta's motion for an order compelling arbitration; thus the issue clearly was before the court.⁵  When confronted with that certificate, the district court simply should have paused to consider whether the correct parties were in court; its failure to do so was error.

Our decision as to the possible necessity of Cranch's joinder accords with the general principle of partnership law that, in a suit between certain partners over partnership assets or obligations in which the effect, as here, will be a dissolution and liquidation of the partnership, all partners are necessary parties and must be joined if feasible. See, e.g., 68 C.J.S. Partnership § 415(a). Though the predominantly state-law character of partnership disputes, combined with the difficulty in maintaining diversity jurisdiction, see Carden, supra, has resulted in a dearth of federal case law on the subject, the necessity of joining all partners to such a suit is well established. See Stainton v. Tarantino, 637 F. Supp. 1051, 1072 (E.D. Pa. 1986); Gottlieb v. Vaicek, 69 F.R.D. 672 (N.D. Ill. 1975), affirmed without opinion, 544 F.2d 523 (7th Cir. 1976). The treatise writers likewise are in agreement on the point. See, e.g., 59A Am.Jur.2d Partnership § 872 (1987); W. Inman, Gibson's Suits in Chancery § 413 (7th ed. 1982); L. Miller, Hogg's Equity Procedure § 81 (3d ed. 1943); R. Barton, Pleading and Practice in the Courts of Chancery 91 (3d ed. 1926).

The record as it now stands is insufficient to determine either Cranch's status as a limited partner or the extent of his interest in the instant suit.⁶  We do not require dismissal, however, but remand the case so that the district court may develop the record and determine in the first instance whether Cranch indeed must be joined. See F.R.Civ.P. 19(a). Accordingly, without reaching any determination of the merits, we vacate the district court's order compelling arbitration.⁷  We dissolve the stay of arbitration previously entered by us in this case, as our vacation of the arbitration order renders the stay moot.

The judgment of the district court must be vacated and the case remanded for action not inconsistent with this opinion.

VACATED AND REMANDED WITH INSTRUCTIONS.