This case involves a dispute over the handling, sale, and use of funds of a multi-unit residential property in Memphis Tennessee, known as “Crane Manor.” The property was acquired in 2021 by a Delaware limited partnership, Crane Manor US LP (“Crane”), however the project failed to proceed as planned. Allegations arose that one of the Defendants, who controlled the general partner of the limited partnership, sold the property without authorization and misappropriated the proceeds for personal use. The Plaintiffs alleged fraud, breach of fiduciary duty, and other misconduct.

This Decision results from an Application brought by the Plaintiffs for an order directing that Crane could bring the Action in its own name or through one of the other Applicants, and for an attachment order under the Civil Enforcement Act, RSA 2000, c C-15, as against one of the Defendants. The Defendants cross-applied for an order directing the Clerk of the Court to pay their counsel the money previously paid into Court pursuant to an interim without prejudice attachment order. The Defendants also sought the dismissal of the Plaintiff’s Application, the setting aside of the Statement of Claim, and costs.

The Applicants argued that they should be allowed to bring claims on behalf of Crane due to the Defendant’s control over its general partner, which they alleged prevented the partnership from pursuing claims. The Applicants relied on Rule 2.2(1) to establish that they had standing to pursue the Action in the name of Crane. Justice Marion emphasized that Rule 2.2(1) is a permissive Rule that permits an action to be brought by or against a partnership in the partnership’s name, without listing each individual partner. However, the Rule does not determine who has the authority to initiate a claim on behalf of the partnership. The authority must come from someone legally entitled to act for the partnership. Rule 2.2(1) merely provides a mechanism for naming a partnership efficiently in litigation.

Marion J. determined that the Applicants did not have standing to bring an action in the name of Crane because Crane’s “Agreement of Limited Partnership” vests the management of Crane, including the commencement of actions in its name, in its general partner. The Court found that the Applicants did not provide any authority to suggest that the Court should exercise jurisdiction to ignore, override or amend the internal governance rules of Crane, a foreign limited partnership.

Justice Marion also determined that the Court did not have jurisdiction to authorize a derivative action on behalf of Crane for similar reasons. However, even if the Court did have jurisdiction to override the partnership agreements or permit a derivative action on behalf of Crane, Marion J. would decline to do so, finding that only a Delaware court, or the general partner, could approve such actions under Delaware law. Further, the Applicants failed to address standing issues or prove Delaware law, and the principles of judicial comity outweighed interfering with the internal governance of a foreign limited partnership.

The Court struck the claims filed in the name of or on behalf of Crane pursuant to Rule 3.68. Marion J. did not strike the direct claims by Canadian Crane Manor LP (“Canadian Crane”), a significant limited partner of Crane, because some of the claims in the Statement of Claim gave rise to a “reasonable claim” and did not plainly or obviously fail to disclose a valid claim, as contemplated by Rule 3.68(2)(b). However, Justice Marion directed that the Applicants would have one month to correct their pleadings to seek court approval to commence the Action as a derivative action in the name of and on behalf of Canadian Crane.

The Court dismissed the Application for an Attachment Order and directed that the funds paid into Court be returned to the Defendant’s legal counsel.