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Nature of Suit Code: 160
Nature of Suit: Stockholder's Suits
Cause of Action: 

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United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 10, 2011 Decided May 13, 2011 

No. 10-7037 

PETER J. KNOP, II, INDIVIDUALLY, AND DERIVATIVELY ON 

BEHALF OF AVENIR CORPORATION, 

APPELLEE

v. 

CHARLES G. MACKALL, JR., ET AL., 

APPELLANTS

Appeal from the United States District Court 

for the District of Columbia 

(No. 1:09-cv-00279) 

Jennifer L. Swize argued the cause for appellants. With 

her on the briefs was Michael A. Carvin. 

Russell J. Gaspar argued the cause for appellee. With 

him on the brief was Andrew K. Wible. 

Before: HENDERSON, GRIFFITH, and KAVANAUGH, 

Circuit Judges. 

 Opinion for the Court filed by Circuit Judge

KAVANAUGH. 

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 KAVANAUGH, Circuit Judge: Peter Knop is a shareholder 

in Avenir, a Washington, D.C.-based investment company. 

Knop brought a shareholder derivative suit naming Avenir 

and its three principal officers, Mackall, Keefe, and Rooney, 

as defendants. Knop alleged that Mackall, Keefe, and Rooney 

engaged in various forms of financial misconduct as Avenir’s 

managers. Because Knop brought a shareholder derivative 

suit, he also named the corporation itself, Avenir, as a 

defendant. 

 Knop filed his complaint in the Superior Court of the 

District of Columbia. Defendants removed the case to the 

U.S. District Court for the District of Columbia. Defendants 

asserted that the District Court had jurisdiction because of the 

diversity of state citizenship among the parties. See 28 U.S.C. 

§ 1441(a). The District Court found removal improper 

because of § 1441(b) of Title 28, which allows removal of 

diversity cases “only if none of the parties in interest properly 

joined and served as defendants is a citizen of the State in 

which such action is brought.” This suit was brought in 

Washington, D.C., and defendant Avenir’s primary place of 

business is in D.C. The District Court thus remanded the case 

to the Superior Court. The District Court also awarded Knop 

attorney’s fees incurred as a result of the removal and remand 

proceedings. See id. § 1447(c). 

 In this Court, defendants appeal the District Court’s 

award of attorney’s fees. (The remand decision itself is 

unreviewable under 28 U.S.C. § 1447(d).) Absent unusual 

circumstances, a district court may award attorney’s fees 

when remanding a removed case only if “the removing party 

lacked an objectively reasonable basis for seeking removal.” 

Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005). 

According to defendants, they advanced a reasonable 

argument that the corporation in a shareholder derivative 

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action is only a nominal defendant and does not count for 

purposes of 28 U.S.C. § 1441(b). 

 We review the District Court’s grant of attorney’s fees 

for abuse of discretion. A district court abuses its discretion 

in awarding attorney’s fees for an incorrect removal if the 

removing party had “an objectively reasonable basis” for 

removal. Martin, 546 U.S. at 139, 141. We conclude that 

defendants’ argument for removal was at least reasonable, and 

we therefore reverse the District Court’s judgment awarding 

attorney’s fees to Knop. 

* * * 

 Defendants contend that they had “an objectively 

reasonable basis” to remove Knop’s suit against them to 

federal court. We need not decide whether defendants’ 

argument for removal was correct. We need only decide 

whether it was reasonable. 

 The removal satisfied the threshold requirements of the 

diversity jurisdiction statute: None of the defendants is a 

citizen of plaintiff Knop’s home state, and the amount in 

controversy exceeds $75,000. See 28 U.S.C. § 1332(a). 

 A different federal statute posed the obstacle to 

defendants’ removal. Under 28 U.S.C. § 1441(b), diversity 

actions may be removed “only if none of the parties in interest 

properly joined and served as defendants is a citizen of the 

State in which such action is brought.” On its face, that 

statute would appear to preclude removal here: Avenir was 

joined and served as a defendant in this case, Avenir is a 

citizen of Washington, D.C., and this action was brought in 

Washington, D.C. 

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 Supreme Court precedent makes clear, moreover, that 

Avenir was correctly aligned as a defendant rather than a 

plaintiff in this case. The Court has held that the corporation 

in a shareholder derivative suit should be aligned as a 

defendant when the corporation is under the control of 

officers who are the target of the derivative suit. See Koster v. 

(American) Lumbermens Mut. Casualty Co., 330 U.S. 518, 

523 (1947). The rationale is that the corporation’s actions 

will be hostile to the plaintiff’s suit because the corporation is 

controlled by the defendant officers. See Smith v. Sperling, 

354 U.S. 91, 96-97 (1957). 

 Defendants argue, however, that (i) Avenir is only a 

nominal defendant because it would not be liable to pay a 

resulting judgment and (ii) a nominal defendant is not counted 

for jurisdictional purposes under § 1441(b). Therefore, 

according to defendants, § 1441(b) did not bar them from 

removing this case. 

 Defendants’ initial point – that the corporation in a 

shareholder derivative suit is only a nominal defendant – is 

premised on the unusual nature of shareholder derivative 

suits. In such cases, a corporation’s shareholders bring suit 

against the corporation’s officers. The shareholders are suing 

on behalf of the corporation, alleging that the officers have 

committed some wrong in their management of the 

corporation. If the suit is successful, any recovery goes to the 

corporation, not to the shareholders. See Koster, 330 U.S at 

522-23. Because the corporation is not liable to pay any 

judgment, defendants argue that the corporation in a 

shareholder derivative suit is only a nominal defendant. 

 Defendants contend, furthermore, that the presence of a 

nominal party does not defeat federal jurisdiction based on 

diversity. Defendants point to a series of Supreme Court 

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precedents that suggest as much. See Lincoln Prop. Co. v. 

Roche, 546 U.S. 81, 92-93 (2005) (diversity jurisdiction not 

affected if “a party was named to satisfy state pleading rules, 

or was joined only as designated performer of a ministerial 

act, or otherwise had no control of, impact on, or stake in the 

controversy”) (citations omitted); Navarro Sav. Ass’n v. Lee, 

446 U.S. 458, 461 (1980) (“a federal court must disregard 

nominal or formal parties and rest jurisdiction only upon the 

citizenship of real parties to the controversy”); Salem Trust 

Co. v. Mfrs.’ Fin. Co., 264 U.S. 182, 189-90 (1924) 

(“Jurisdiction cannot be defeated by joining formal . . . 

parties.”); see also District of Columbia ex rel. American 

Combustion, Inc. v. Transamerica Ins. Co., 797 F.2d 1041, 

1047-48 (D.C. Cir. 1986) (“The common-sense conclusion is 

that the District of Columbia is a nominal party and that the 

suit is between private parties whose citizenship will 

determine diversity.”). 

 Defendants’ theory, in short, is that Avenir is only a 

nominal defendant and that nominal defendants do not count 

for purposes of evaluating a removal under 28 U.S.C. 

§ 1441(b). 

 According to Knop, however, a party that is 

indispensable under the joinder rules – and here it is 

undisputed that the corporation in a shareholder derivative 

suit is indispensible under the joinder rules – is by definition 

not a nominal party and must be considered when assessing 

the propriety of removal under 28 U.S.C. § 1441(b). 

 The Supreme Court and this Court have not yet decided 

whether a corporation in a shareholder derivative suit is only a 

nominal party for purposes of 28 U.S.C. § 1441(b). Cf. 

Navarro Sav. Ass’n, 446 U.S. at 462 n.9; American 

Combustion, 797 F.2d at 1047-48. Defendants’ asserted basis 

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for removal – that Avenir is only a nominal defendant and 

therefore should not count for § 1441(b) purposes – has at 

least some logical and precedential force behind it. Indeed, 

the argument is sufficiently persuasive that it has convinced 

one federal district court. See Beck v. CKD Praha Holding, 

A.S., 999 F. Supp. 652, 655 (D. Md. 1998).1

 And another 

federal district court concluded that the argument is at least 

reasonable and therefore not a basis for a fee award. See 

Gamrex, Inc. v. Schultz, No. 10-00380, 2010 WL 3943910 (D. 

Haw. Sept. 9, 2010). Under those circumstances, regardless 

of whether defendants’ argument for removal was correct, we 

cannot say that defendants “lacked an objectively reasonable 

basis for seeking removal.” Martin, 546 U.S. at 141. 

 We reverse the District Court’s judgment awarding 

attorney’s fees to Knop. 

So ordered.

 1

 To be sure, a few courts have gone the other way on the 

merits. See Gamrex, Inc. v. Schultz, No. 10-00380, 2010 WL 

3943910 (D. Haw. Sept. 9, 2010); Khoury v. Oppenheimer, 540 F. 

Supp. 737 (D. Del. 1982); cf. also Gabriel v. Preble, 396 F.3d 10 

(1st Cir. 2005) (corporate defendant in shareholder derivative suit 

counts for purposes of diversity jurisdiction).

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