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Knop v. Mackall

August 6, 2009


The opinion of the court was delivered by: Henry H. Kennedy, Jr. United States District Judge


Peter J. Knop brings this action in his individual capacity and derivatively as a shareholder of Avenir Corporation ("Avenir") against Avenir and individual defendants Charles G. Mackall ("Mackall"), Peter C. Keefe ("Keefe"), and James H. Rooney ("Rooney"). Knop's derivative claims allege that the individual defendants breached their fiduciary duties of loyalty and care to Avenir by converting millions of dollars of Avenir's assets for personal gain and failing to fulfil their obligations to provide accurate accounting statements. Knop also alleges that the individual defendants committed fraud and participated in a conspiracy to defraud.

Before the court is Knop's motion to remand this case to the D.C. Superior Court [#4] where it was filed and his request for an award of attorney's fees and costs. Upon consideration of the motion, the opposition thereto, and the record of this case, the court concludes that the motion must be GRANTED.


Knop is a shareholder and director of Avenir,*fn1 a business incorporated in 1980 under the laws of the Commonwealth of Virginia. Avenir maintains its principal place of business in the District of Columbia. Individual defendants Mackall, Keefe, and Rooney are also shareholders and directors of Avenir. As directors, they hold the positions of Chairman, President, and Managing Director respectively. Avenir is a closely-held corporation; Knop along with the individual defendants are its only four shareholders and directors.

In 2005, the individual defendants proposed that the Avenir Board of Directors adopt an incentive stock plan for the current managers of the firm. The terms of the incentive plan included an increase in additional shares "based on one half of the percentage increase in income." (Compl. ¶ 16.) All shareholders were to receive an increase in shares, "but those in active management would be rewarded with higher compensation and ownership for their efforts." (Compl. ¶ 16.) The Board of Directors formally adopted this incentive plan by unanimous written consent without a meeting in minutes dated January 18, 2005. The incentive plan took effect at the start of the fiscal year ("FY") beginning February 1, 2005, and ending January 31, 2006.

Knop alleges that the individual defendants, beginning in FY 2005, and continuing through FY 2007, began to "pay themselves in the form of salaries, bonuses and/or contributions for their benefit to pension plans maintained by Avenir, all available profits of Avenir" secretly.

(Compl. ¶ 21.) In addition, Knop alleges that the individual defendants began liquidating Avenir assets to pay their own salaries and bonuses. According to Knop, the effect of these actions was to render Avenir "unprofitable." (Compl. ¶ 25.) Knop further alleges that defendants made no mention of these payments to him.

Knop commenced this action in the D.C. Superior Court, and defendants removed it to this Court pursuant to 28 U.S.C. § 1441(a), contending that this Court has diversity jurisdiction under 28 U.S.C. § 1332(a)(1).


Under 28 U.S.C. § 1441(b), actions not arising under the Constitution, treaties or laws of the United States are only removable 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." 28 U.S.C. § 1441(b). This principle applies to the instant action, as Knop's claims are, as are most shareholder derivative actions, governed largely by state law. Smith v. Sperling, 354 U.S. 91, 95 (1957) (citing Cohen v. Beneficial Indus. Loan, 337 U.S. 541, 555-56 (1949)). Consequently, the crux of the issue raised by this motion is whether Avenir is an indispensable party under Rule 19(a).*fn2

If Avenir is an indispensable party, rather than a mere "nominal" party, the Court must consider Avenir's District of Columbia citizenship in determining whether it has diversity jurisdiction.

Under the rule governing indispensable parties:

A person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined if. . . that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may; . . . leave an existing party subject to a substantial risk of ...

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