P ETE R J. K NOP , II., ind ividu ally and derivatively on behalf of AV EN IR CO RP OR

AT ION P la in t if f,
v. CHARLES G. MAC KA LL, JR., et al.,

Defendan ts. UNITED STAT ES DIS TRICT COURT F OR THE D ISTRIC T OF CO LU M BIA

Ci vi l A cti on 09 -00 27 9 (H HK)

M EM OR

AN DU M OP IN ION Pe te r J. K no p b ri ng s th is a c tio n in

his ind ivi du a l c a

pa c ity and de ri vativ e ly

a s a share holder of Avenir Corporation (“Ave nir”) a g ainst Avenir a nd individual defenda

nts Charles G. Mac kall (“Ma ckall”) , Peter C. Kee fe ( “Ke efe ”), a nd J ames H. Rooney

(“Rooney”). K

nop’s de ri vativ e c la ims a lle g e that th e ind ivi du a l de fe nd ants br e a c he d th e ir fi du c iary dutie s o f l oya lty and ca re to Ave nir by

conver ting millions of dollars of Ave nir’s asse ts for per sonal g ain and failingto fulfil their obligations to provide acc urate acc ounting state ments. Knop also alleg es that the individual defe ndants committed fra ud and par

ticipated in a c onspiracy

to defra ud. Be fore the cour

t is Knop’s motion t o rema nd this case to the D.C. Superior Court [ #4] wher e it was filed a

nd his request for

an aw ard of

attorney ’s fe es and c osts. Upon consideration of the motion, the opposition thereto, and the r ecor d of this case , the cour t concludes that the motion mus t be GRANTED
.Acc ordingto Knop, he wa s active in the ma nag ement of the corpor ation until 2000, 1 wh e n d e fe nd ants Ma c ka ll, Ke e fe , a nd Roo ne y a ssume d f

ull mana g e me nt d

uti e s. De fe nd ants , howeve r, conte nd that Knop ce ased a ctive par ticipation in Avenir’s ope rations in the mid-1980s. The c ourt nee d not resolve this dispute beca use it is clear

from the r ecor d that defe ndants had complete c ontrol of Avenir by the time of the e vents g iving r aise to this action.

2 I. BACKG ROUND Knop is a shar eholder

and dire ctor of A venir, a business incorpor ated in 1980 under the 1 laws of the Commonwea lth of Virg inia. Avenir ma intains its principal place of business in the District of Columbia. Individual defe ndants Macka ll, Keef e, and Roone y

are also share holders and dire ctors of A venir. As dire ctors, they hold the positions of Chairman, President, and Manag ing D irec tor respe ctively . Avenir is a c losely -held c orporation; Knop along w ith the individual defenda

nts are its only

four sha reholde rs and dire ctors. In 2005, the individual defe ndants proposed that the Avenir B oard of Direc tors adopt an incentive stock pla

n for the c urre nt manag ers of the firm. The terms of the inc entive plan inc lud e d a

n in c re a se in a dd iti on a l sh are s “ ba se d o n o ne ha lf of the pe rc e nta g e inc re a se in inc ome .” (C omp l. ¶

16 .) Al l sh are ho lde rs we re to r e c e ive an in c re a se in s ha re s, “ but th os e in
a c tiv e mana g e me nt w ou ld b e re wa rd e d w ithhighe r c omp e ns atio n a nd owne rs hip fo r t

he ir eff orts.” (Compl. ¶ 16.) The Boa rd of Dir ector s formally

adopted this incentive pla n by unanimous written conse nt without a meetingin minutes dated J anuar y 18, 2005. The ince ntive plan took eff

ect at the start of the f

iscal y ear (“F Y”) beg inning F ebrua ry 1, 2005, and ending J anuar y 31, 2006. Knop alleg es that the individual defe ndants, beg inning in F Y 2005, and c ontinuing throug h FY 2007, be g an to “pa y themselves in the for

m of salar ies, bonuses and/or c ontributions for their benef it to pension plans maintained by Avenir, a ll available pr ofits of Avenir” secr etly
.No par ty argues that Ave nir is not a rea l party in interest under

Fe d. R. Civ. P . 17(a)
. 2 Def endants c ontend that Rule 17(a) does not g overn statutory standards f

or diversity

jurisdiction, ci t i n g Navarro v. Sav. Ass’n v. Lee, 446 U.S. 458, 463 (1980), and Lincoln Prop. Co. v. Roche, 546 U.S. 81, 93 (2005) to distinguish a r eal pa rty in interest from a

rea l party

to the controve rsy . Impl ic it i n th is a

rgume nt i s th e a ssumpt ion that A ve nir

is a Rul e 17 (a ) r e a l pa

rt y in i nte re st. 3 (C omp l. ¶ 21 .) In a dd iti on , K

no p a lle g e s th at th e ind ivi du a l de fe nd ants be g an li qu idatin gAv e nir assets to pay

their own sala

ries and bonuse s. Acc ordingto Knop, the ef fec t of these a ctions was to rende r Ave nir “unprof

itable.” ( Compl. ¶ 25.) Knop furthe r alleg es that def endants made no mention of these pa

y ments to him. Kn op c omm e nc e d th is a c tio n in the D. C. Su

pe ri or Court , a nd de fe nd ants re mov e d it

to this Court pursuant to 28 U.S.C . § 1441(a) , contendingthat this Court has diversity jurisdiction under 28 U .S.C. § 1332(a)(1)
. II. AN AL YSI S Under 28 U.S.C. § 1441(b), ac tions not arising unde r the Constituti on, treaties or laws of the United States ar e only remova ble if “none of the pa

rties in interest prope rly

joined and ser

ved as def endants is a c itiz en of the State in which such a ction is broug ht.” 28 U.S.C. § 1441(b). This principle applies to the instant ac tion, as Knop’s cla ims are, a s are most shareholder derivative actions, g overne d larg ely by state law. Smith v. Sperling , 354 U.S. 91, 95 (1957) (c i t i n g Cohen v. Be neficial Indus. Loan , 337 U.S. 541, 555-56 (1949)) . Consequently , the cr ux of the issue ra ised by

this mot ion is whether Ave nir is an indispensable pa rty under Rule 19( a). 2 I f Ave nir is an indispensable pa rty , rathe r than a

mere “nominal” pa

rty , the Court must consider Avenir’ s District of Columbia citiz enship in determiningwhether it has diversity

jurisdiction. Un de r t he ru le g ov e rn ingind isp e ns a ble pa rt ie s: A per son who is subject to service of proc ess and whose joinder will not deprive4

the cour t of subject-matter jurisdiction must be joined if. . . that person c laims an interest re lating to the subje ct of the a ction and is so situated that disposing of the action in the per son’s absenc e may ; . . . leave a n exis ting pa

rty subject to a substantial risk of incurr ing double , multipl e, or othe rwise inconsistent oblig ations beca use of the inter est. F e d. R. C iv. P. Ru le 19 (a ). Thus , f or Av e nir to b e an in dis pe ns a

ble pa rt y to t his a c tio n, its interest in the “subje ct of the a ction” must be esse ntial to the Court’s ability to “enter a fina l judgme nt consistent with equity and g ood conscie nce.” Sto ne y broo k Te na nts As s’n. v . A lpe rt , 19 4 F . Su pp . 5 52 , 5 59 (D . Co nn . 1 96 1) . Co nv e rs e ly , c ourt s g e ne ra lly fi nd tha t a de fe nd ant i s nominal “if there is no reasona ble basis for pr edictingthat it will be held liable.” Shaw v. Dow Brands Inc. , 994 F.2d 364, 369 ( 7th Cir. 1993). For a defe ndant to be nominal, a c ourt must find that it is neither nece ssary nor indispensable. Tri-Ci ties Newspapers Inc. v . Tri-Ci ties Printing , 427 F.2d 325, 327 ( 5th Cir. 1970). Def endants be ar the burden of provingthat remova l is proper; if def endants do not mee t their burde n, the Court must remand. J oh ns on -B ro wn v . M

. S t. L LC , 257 F. Supp. 2d 175,177 (D
. D. C
. 2 0 0 3 ) ( ci t i n g Univ. of S. Ala. v. Am. Tobacc o Co. , 168 F.3d 405, 411 ( 11th Cir. 1999)). Where the ne ed for

rema nd is not self-evident, the Court must resolve any ambiguities
conce rningthe proprie ty

of the re moval in favor of rema nd. Id. Fur

thermore , wher e nonremova bility is obvious or contrar

y to well-settled law, c ourts regularly awa rd costs and e x penses incurre d as a r esult of the re moval. J oh ns on -B ro wn , 257 F. Supp. 2d at 181 (citingGarcir v. Amfels, Inc ., 254 F.3d 585, 588 ( 5th Cir. 2001)). A. Av e nirCo r por at ion Is A n Indi spe nsa ble P ar tyTo T his C as e Kn op c onte nd s th at, i n a

sh are ho lde r d e ri vativ e su it, the c or po ratio n is an inhe re ntl y indispensable par

ty in interest. Def

endants c ounter that a

party like Avenir, joined only

to satisfyDef endants c ite Sa

y lab v . H ar for d M ut. In s. Co ., 27 1 F . Su

pp . 2 d 1 12 , 1 16 (D .D .C. 3 2003) in support of the pr oposition t hat “the c itiz enship of pure ly nominal or forma l parties may be disreg arde d” for

the purposes of

remova l. Saylab , howeve r, is not directly applicable here beca use it was not a sha

reholde r der ivative ac tion. Def endants c ite Tri-Ci ties , in support of the proposition that a def endant’ s capa city

for 4 lia bil ity de te rm ine s whe the r i t is a no min a l pa

rt y . 4 27 F .2 d at 32 7. Th e c a pa c ity fo r l ia bil ity is not, however , deter

minative of a de fenda

nt’s indispensability

in a share holder de rivative suit. Be cause the der ivative claim belongto the corpor ation, it is i llogica l for the c orporation to be held liable for

damag es ag ainst itself. 5 equity pleadingrequire ments and ag ainst whom the plaintiff see ks no damag es, is a nominal party and ther efor e is dispensable f rom the diversity

inquiry
. The Supreme Court has held that the c orporation in a shareholde r der ivative ac tion is an indispensable par

ty . See Koster v. (

Am.) Lumbermans Mut. Cas. Co. , 330 U.S. 518, 523 n.2 (1 9 4 7 ) ( s t at i n g “t h e c o rp o ra t i o ni s an i n d i s p en s ab l e p arty” ( ci t i n g City of D av e np or t v . D ows , 18 Wal l. 6 26 , 2 1 L . E d. 93 8 ( 18 73 )) ). Af te r a ll, the c a

us e of a c tio n in a sto c kh old e r d e ri vativ e su it is “not [t he name d plaintiff’s] but the corporation’s.” Id at 523. Ther efor e, the c orporation is t he
rea l party in interest, and the pla intiff is merely actingon its behalf. Id . Thus, as the c laim is that of the c or po ratio n, the c or

po ratio n is the re a l pa

rt y pla int if f, and “ any fi nd ingof

lia bil ity wo uld redound to its benef

it, not it s detriment.” Gee r v. Cox , No. 01-2583-JAR, 2003 W L21254731, at*2 (D. K an. May

21, 2003). The indispensability

of the a lleg edly

wrong ed cor

poration in a shar eholder

derivative action is not dependa

nt on its relationship to t he contr oversy of the c ase or its capa city for 3 liability as def

endants c ontend. Indeed, the relationship of a corpor ation to the share holder 4 derivative action make s such cr iteria inapplica ble. Be cause the share holder de rivative c laim belong s to the alleg edly wrong ed cor

poration,Be cause Avenir is an indispensa ble par ty to this case, it cannot a lso be a nominal par ty . 5 Tri-Ci ties , 427 F.2d at 327. As defe ndants point out, “equity pleadingrules re quire that the c orporation be included 6 as a nominal de fenda

nt in a derivative action so that re s judicata attaches to the f inal judgme nt.” (D e f. Me m. 5 n. 2. ) T his e ns ur e s th at pr e va ili ngof fi c e rs or dir e c tor s w ill no t be su

bje c t to repe ated de rivative c laims by differ ent minority

share holders. King v. W all & Beav er St. Corp., 145 F.2d 377, 379 n.1 ( D.C. Cir. 1944), overruled on othe r grounds by , Jenk ins v. W ash. Convention Ctr., 236 F.3d 6, 11 ( D.C. Cir. 2001). This rule mirrors Rule 19( a)( 1)(B )(ii). 6 Avenir is an indispensa

ble par ty to this action. I t is undisput ed that Knop br ings his der ivative

5 claims on beha lf of Ave nir. Ther efor e, Ave nir is the corpor ate owne r of the sha reholde r de ri vativ e c la ims . A c c or din g ly , a s “ any fi nd ingof

lia bil ity wo uld re do un d to [Av e nir ’s ] be ne fi t, not its detriment,” Gee r, 2003 WL21254731 at *2, Avenir “cla ims an interest re lating to the
su bje c t of the a c tio n” a s r e qu ir e d o f a n in dis pe ns a

ble pa rt y un de r R ule 19 (a). F e d. R. C iv. P. 19(a) . The distinction defe ndants draw betwee n a Rule 17(a ) re al par ty in interest and a

rea l party to the controve rsy

is irreleva

nt here , wher e Ave nir stands as both. Fur thermore , without Avenir, de fenda

nts would theoretica lly

be “subje ct to substantial risk of incurr ing double , multipl e, or othe rwise inconsistent oblig ations.” Fe d. R. Civ. P . 19(a) (1)( B) (ii). 6 Be cause Avenir is an indispensa ble par ty in this shareholder de rivative a ction, the Court must consider its citiz enship when de terminingthe proprie ty of def endants’ r emoval. ConsideringAvenir’ s District of Columbia citiz enship, the re moval of this action fa ils in l ight of 28 U. S.C. § 1 44 1( b) wh ic h p ro vid e s th at a c tio ns g ov e rn e d b y state law a

re on ly re mov a ble if

“ no ne of the pa rt ie s in int e re st p ro pe rl y

joi ne d a nd se rv e d a s d e fe nd ants is a c iti zen of the state in wh ic h s uc h a c tio n is br ou g ht. ” Thus , th is C ourt mus t r e mand

thi s a c tio n to the Sup e ri or Court . B. Attor ney’s F ees A re A ppropriate Under 28 U.S.C. § 1447(c), a

district court “ma

y require pay

ment of just costs and any7

actua l expenses including attorney fee s, incurre d as a r esult of the re moval.” 28 U.S.C. § 14 47 (c ). Whe re no n- re mov a bil ity is o bv iou s o r c ontr ary

to w e ll- se ttl e d la

w, c ourt s r e gula

rl y
awa rd costs and e x penses incur red a s a re sult of the remova l. Johnson-Brown, 257 F. Supp. 2d at 181 (c iting Garcir, 254 F.3d at 588); se e Ga rb iev . D aim le r Ch ry sle r Co rp ., 211 F.3d 407, 410-11 (7th Cir. 2000) (holdingthat court would have abuse d its discretion by not imposi ngfee s beca use “[r]emoval was unjustified under settled law” ). The rule that the wrong ed cor poration is an indispensable pa rty to a share holder derivative action “ha s been se ttled law for ove r a c entury .” King , 145 F.2d at 379 n.1 (citing Gree nberg v. G iannini , 140 F.2d 550, 554 ( 1944)). The Court finds no leg itimate rea son why
remova l was prope r whe n expli cit, binding, a nd well-settled a

uthority holds that corporations
a lle g e d to have be e n b e wr on g e d b y the ir of fi c e rs and dir e c tor s a

re ind isp e ns a

ble pa rt ie s in share holder de rivative a ctions. Koster , 330 U.S. at 523 n.2. Moreove r, it is undisput ed that Avenir is a c itiz en of the forum state, a nd that 28 U.S.C. § 1441(b) prohibits removal whe re a proper ly joined and ser

ved def endant is a c itiz en of the forum state. 28 U .S.C. § 1441(b). The individual defenda

nts’ contention that the nominal def endant e x ception applies he re is fr ivolous. See I brahim v. 1417 N. St. Assocs ., 95 0 F . Su pp . 4 06 , 4 08 (D .D .C. 19 97 ) ( “ Th is C ourt is reluc tant to awar d costs and attorne y fee s in the absenc e of e vidence of [] a fr ivolous filing . . . .”) I t is clear f

rom Knop’s c omplaint that this action ra ise share holder de rivative c laims. The individual defenda

nts must be awar e of the rule that the c orporation in a shareholde r der ivative action is an indispensable party consideringthat they

cite Kos te r and King

in their opposition.Th e ind ivi du a l de fe nd ants argue tha t it is s ig nif ic ant t hat K no p s tate s th at A ve nir

is a 7 no min a l de fe nd ant i n h is c omp la int . ( De f. ’s Op p’ n to Mo t. t o Re mand 1, 5) . T his argume nt i s without merit. W hen used in a share holder de rivative suit, the term “ nominal defe ndant” r efe rs to a cor poration’s a lignment opposite the pla intiff. Smith v. Sperling, 354 U.S. 91, 95 (1957). The c orporation in a shareholde r der ivative suit is often joined as a nominal def endant whe re antag onism ex ists between the c orporate manag ement and the stockholder plaintiff. Id
.
8 (De f.’s Opp’ n to Mot. to R emand 5 n.2.) 7 III . C ON CL USI ON For the fore g oing r easons, the Court grants Knop’ s motion for remand a nd his request for
atto rn e y ’s fe e s and

e xpe ns e s in c ur

re d in c onne c tio n w iththe fr ivo lou s r e mov a l. An a pp ro pr iate order acc ompanies this memorandum.

Henr y H. Kenne dy , J r. United States District J udg e