Kelly v. Linn, 4:20-cv-00334

Background

NTCO (Neuropathy Treatment Clinic of Oklahoma, LLC) was formed in 2016 by George Kelly, Warren Linn, and a third party under an Operating Agreement; Linn served as manager and remained the majority owner after the third party conveyed his interest to Kelly.
Kelly sued Linn (July 2020) alleging numerous breaches of fiduciary duty and misappropriation of NTCO assets, asserting individual claims arising from distributions, concealed records, transfers to Linn’s clinics, and usurpation of corporate opportunities.
NTCO moved to intervene as a plaintiff, asserting Kelly’s claims are derivative and thus belong to the company.
The court denied NTCO’s motion to intervene because NTCO’s joinder would destroy complete diversity and 28 U.S.C. §1367(b) bars supplemental jurisdiction over intervenor-plaintiff claims.
The court concluded NTCO is a required party under Rule 19(a) (the real party in interest for derivative claims) but that joinder is not feasible because it would defeat diversity; the court therefore asked Kelly to brief whether the case should be dismissed under Rule 19(b).

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether NTCO may intervene as a plaintiff under Fed. R. Civ. P. 24	NTCO: Kelly’s claims are derivative and NTCO should be allowed to intervene to prosecute them.	Linn: Intervention would not provide an independent basis for federal jurisdiction and joinder would destroy diversity.	Denied — intervention barred because NTCO’s joinder destroys complete diversity and §1367(b) prohibits supplemental jurisdiction over intervenor-plaintiff claims.
Whether Kelly’s claims are derivative or direct	Kelly asserts individual harms (wrongful distributions, concealment, misappropriation) supporting direct claims.	NTCO and court: the alleged harms principally injured NTCO; remedies would flow to the company, making the claims derivative.	Held derivative — majority of claims (misappropriation, failed contributions, usurpation of corporate opportunities) characterize injuries to NTCO, not Kelly individually.
Whether NTCO is a required party under Rule 19(a)	Kelly: case can proceed without NTCO (to be briefed).	Court/NTCO: NTCO is the real party in interest for derivative claims and must be joined.	NTCO is required to be joined under Rule 19(a). Joinder is not feasible because it would destroy diversity.
Whether the action must be dismissed under Rule 19(b) for nonjoinder	Kelly will argue the action can proceed in equity and good conscience without NTCO.	NTCO/Linn: absent NTCO the action is prejudicial and should not proceed; dismissal may be appropriate.	Court did not finally dismiss — court signaled dismissal likely but ordered Kelly to file supplemental briefing on whether the action should be dismissed under Rule 19(b).

Key Cases Cited

Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) (articulates the two-part test to distinguish derivative from direct claims).
Watkins v. Hamm, 419 P.3d 353 (Okla. Civ. App. 2017) (applies Tooley test in Oklahoma context).
Dobry v. Yukon Elec. Co., 290 P.2d 135 (Okla. 1955) (minority shareholder remedies for corporate wrongs are derivative).
Koster v. (Am.) Lumbermens Mut. Cas. Co., 330 U.S. 518 (1947) (derivative actions require the corporation’s presence as a party).
Bagdon v. Bridgestone/Firestone, Inc., 916 F.2d 379 (7th Cir. 1990) (derivative suits must include the corporate entity).
Siloam Springs Hotel, L.L.C. v. Century Sur. Co., 781 F.3d 1233 (10th Cir. 2015) (an LLC’s citizenship follows the citizenship of its members for diversity purposes).
Citizen Potawatomi Nation v. Norton, 248 F.3d 993 (10th Cir. 2001) (summarizes Rule 19 three-step joinder and indispensability analysis).