Frank, 83 F.3d at 161.! Redress for these injuries should have
been sought through a shareholder derivative suit on behalf of
Alaris, not through a direct suit on behalf of Elmhurst.? Mr.
Gibson’s motion to dismiss Count I is therefore granted.

In Count II, Elmhurst alleges breach of contract based on the
Stockholders Agreement signed between Mr. Gibson and Elmhurst,
inter alia. “An action in which the holder can prevail without
showing an injury or breach of duty to the corporation should be
treated as a direct action that may be maintained by the holder in
an individual capacity.” Frank, 83 F.3d at 160. Elmhurst’ s
allegations that Mr. Gibson breached the agreement by failing to
obtain prior approval before using an airplane and a training
facility at least technically do not rely on an injury to Alaris,
but on the fact that the Stockholders Agreement prohibits the
alleged conduct. The damage is nevertheless an injury to Alaris.

It is, however, unnecessary to decide whether this claim can be

' Elmhurst’s reliance on Zokoych v. Spalding, 36 111. App. 3d
654, 344 N.E.2d 805 (1° Dist. 1976), is misplaced. As that court
held, the question is whether the “‘gravamen’ of the pleadings
states injury to the plaintiff upon an individual claim as
distinguished from an injury which indirectly affects the
shareholders or affects them as a whole.” 344 N.E.2d at 813. In
that case, the plaintiff's essential injuries, in being removed as
president and director, not getting back his pledged stock, not
getting his salary, and leaving him as guarantor of the debt of the
company allegedly driven into bankruptcy by defendants, were
individual and separate from the injury to the company.

2 The fact that Alaris is a closely-held corporation does not
alter this analysis or the result. Small, 713 N.E.2d at 643;
Frank, 83 F.3d at 161-162.



prejudice.?

Lb. 2 Buble

Elaine E. Bucklo
United States District Judge

Dated: October [g 1 2003

4 Since I have dismissed this case on jurisdictional grounds
I have not addressed Mr. Gibson’s argument that the claims are
subject to arbitration.



are made in the District of Columbia. Elmhurst’s offices and bank
account are also located in the District of Columbia. Under the
“nerve center” test, Elmhurst has its principal place of business
in the District of Columbia. Since Mr. Gibson is an Illinois
citizen and Elmhurst is a citizen of Delaware (through its
incorporation) and the District of Columbia, there is complete
diversity between the existing parties.
II.

Mr. Gibson argues that the claims brought by Elmhurst as a
direct action should properly be brought, if at all, as a
shareholder derivative suit on behalf of Alaris. If Elmhurst, as
a shareholder, seeks to recover damages for an injury to the
corporation, such a suit must be brought derivatively on behalf of
the corporation. Small v. Sussman, 713 N.E.2d 1216, 1219 (111.
App. 1999). If, however, Elmhurst can claim a distinct personal
injury, the shareholder may bring a direct suit on its own behalf.
Frank v. Hadesman and Frank, 83 F.3d 158, 160 (7 Cir. 1996).

Elmhurst brings two claims against Gibson: breach of fiduciary
duty and breach of contract. In Count I, Elmhurst alleges a breach
of fiduciary duty on the part of Mr. Gibson. Specific acts alleged
include misappropriating Alaris’ assets and usurping business
opportunities from Alaris. These allegations are classic examples

of injuries done to the corporation. Small, 713 N.E.2d at 643-644;


brought as a direct action because it must nevertheless be
dismissed for failure to join a necessary party.

Whether Alaris is a necessary party under Fep. R. Civ. P. 19
depends upon “whether (1) complete relief can be accorded among the
present parties to the lawsuit; (2) the absent party’s ability to
protect its interest will be impaired; and (3) any existing parties
might be subjected to a substantial risk of multiple or
inconsistent obligations unless the absent party is joined.” Extra
Equipamentos E Exportacao v. Case Corp., No. 01 C 8591, 2002 WL
1888540, *2 (N.D. I11. 2002) (Manning, J.). When the absent party
is a party to the contract at issue in the claim, the Seventh
Circuit has held that the party is a necessary one. Id. at *3,
U.S. ex rel. Hall v. Tribal Dev. Corp., 100 F.3d 476, 478 (7 Cir.
1996). Under this analysis, Alaris is a necessary party.
Elmhurst’s breach of contract claim arises under the Stockholders
Agreement, to which Alaris (under its previous name, Gibson &
Associates) is a party. Further, if Alaris is not joined in the
present action, Mr. Gibson may be subject to multiple adverse
judgments arising from the same actions under the same contract.

Since Alaris is a necessary party under Rule 19(a) it
ordinarily should be joined. Joinder in this case, however, will
destroy diversity since Alaris is an Illinois corporation. When
joinder is not possible, “the court shall determine whether in

equity and good conscience the action should proceed among the


‘Minato Order Form (06/97)

Sy United States District Court, Northern District of Illinois

Name of Assigned Judge Elaine E. B Sitting Judge if Other
or Magistrate Judge - Bucklo than Assigned Judge

CASE NUMBER 03 C2840 : DATE 10/15/2003
rea

CASE fo
TITLE cok

[In the following box (a) inilicate tht pi
of the motion being |pres a) I
7

hurst Consulting vs. Gibson

< =
seem boty

motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

MOTION: |

DOCKET ENTRY:

qa) QO Filed motion of { use;
Q)
1)
(4)
@)
©)
”
(8)
(9)

Answer brief to motion due. . Reply to answer brief due .

Ruling/Hearing on set for at

Status hearing[held/continued to] [set for/re-set for] on set for at

Pretrial conference[held/continued to] [set for/re-set for] on set for at

Trial[set for/re-set for] on at

[Bench/Jury trial] [Hearing] held/continued to at

ooaodadag og

This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OOFRCP4(m) (Cl Local Rule 41.1 OFRCP41(a)(1) 01 FRCP41(a)(2).

(10) [Other docket entry] / Defendant’s motion to dismiss the complaint is granted. Accordingly, this
case is dismissed on jurisdictional grounds without prejudice. Any pending motion in this case is
terminated as moot . Any schedule set in this case is also vacated, Enter Memorandum Opinion and Order.

(1) @ [For further detail see order attached to the original minute order.]

No notices required, advised in open court.

No notices required.

o | Notices mailed by judge’s staff.
Notified counsel by telephone.

Dooketing to mail notices.

J¥ | Mail AO 450 form. -

! yisia “sn

Copy to judge/magistrate judge. 14nd 4a ot
courtroom amin Wd St £90€0
MPY deputy’s
initials ee
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central Glerk’s Office mailing deputy initia



parties before it, or should be dismissed, the absent person being
thus regarded as indispensable”. Feo. R. Civ. P. 19(b). When
determining if a party is indispensable four factors are
considered: “(1) the extent to which a judgment entered in the
absence of a party will be prejudicial to those currently before
the court; (2) the extent to which such prejudice can be lessened
or avoided by reshaping the judgment; (3) whether a judgment
entered in a party’s absence will be adequate; (4) whether the
plaintiff will have an adequate remedy if the action is dismissed.”
Moore v. Ashland Oil, Inc., 901 F.2d 1445, 1447 (7 Cir. 1990).
If judgment is entered in this case without the presence of Alaris,
Mr. Gibson will potentially be subject to multiple judgments
resulting from the same alleged actions. Further, Alaris is a
party to the Stockholders Agreement, the contract at issue under
the breach of contract claim, making it a “paradigmatic example of
an indispensable party.” Extra, 2002 WL 1888540 at *7. Finally,
Elmhurst has an adequate alternative forum; it could pursue this
claim against Mr. Gibson in state court, where jurisdiction is not
constrained by 28 U.S.C. §1332.
III.
I grant Mr. Gibson’s motion to dismiss Counts I and II

pursuant to Fep. R. Civ. P. 19. The case is dismissed without



DOCKE TE

IN THE UNITED STATES DISTRICT COURT Cr y 6 2093

FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN: DIVISION

ELMHURST CONSULTING, LLC, a
limited liability company,

Plaintiff,

No. 03 C 2840

WESLEY J. GIBSON, an
individual,

onan

<

Defendant.

MEMORANDUM OPINION AND ORDER

Plaintiff Elmhurst Consulting, LLC (“Elmhurst”) sues Wesley J.
Gibson (“Gibson”), a former officer and director of Alaris
Consulting, Inc. (“Alaris”), for alleged misconduct by Mr. Gibson
that, if true, amounted to fraud and theft from Alaris. According
to Elmhurst, Gibson’s alleged misconduct also hurt it.

Elmhurst is a holding company incorporated in Delaware with
its principal place of business in the District of Columbia.
Elmhurst is wholly owned by Allied Capital (“Allied”), a District
of Columbia corporation. Alaris, an Illinois corporation, was
formerly known as Gibson & Associates, Inc. Elmhurst is a 95
percent shareholder of Alaris; Mr. Gibson is a 3.6 percent
shareholder of Alaris. Elmhurst alleges breach of fiduciary duty
and breach of contract claims against Mr. Gibson. Jurisdiction is
based on diversity of citizenship. Mr. Gibson has moved to

dismiss, arguing that diversity does not exist; that Elmhurst is

Don
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Doey,
Of> - FrEQ

2

4



not the real party in interest; that Alaris is a necessary party,

requiring dismissal for failure to satisfy the diversity of

citizenship requirement, and that the disputes are at any rate

subject to a pending arbitration. I grant the motion to dismiss.
I

Mr. Gibson argues that Elmhurst is a corporate citizen of
Illinois, not the District of Columbia, and therefore the
jurisdictional basis for the claim is destroyed. Federal diversity
jurisdiction requires complete diversity among the parties. A
corporation is a citizen of the state where it is incorporated, as
well as the state where it has its principal place of business. 28
U.S.C. §1332(c). The Seventh Circuit has adopted a “nerve center”
test for determining the location of a corporation’s principal
place of business. Wisconsin Knife Works v. National Metal
Crafters, 781 F.2d 1280, 1282 (7 Cir. 1986). Ordinarily, the
“nerve center” of a corporation is found where the corporation’s
headquarters are located. Id. Only when the “nominal headquarters
isn’t the directing intelligence of the corporation” should this
court look beyond that location. Id. at 1282-83.

In this case, Elmhurst states that its headquarters are
located in the District of Columbia. Nothing before me suggests
that the “directing intelligence” of Elmhurst is not located at its
headquarters. Its sole owner, Allied, is located in the District

of Columbia. All important management and operational decisions