FAQ: Why are UML Relationship Classes defined outside of the Feature Dataset?
Why are UML Relationship Classes defined outside of the Feature Dataset?
There is a Case Tools limitation where the location of a relationship cannot be controlled. Relationships will always be created under the Workspace if the relationship is between a Table and a Feature Class. If a relationship is created within a Feature Dataset of a model, then the Feature Classes participating must be in the same folder.
The workaround is to create the relationship in ArcCatalog.