Knop v. MacKall
645 F.3d 381
D.C. Cir.2011Background
- Knop, a shareholder of Avenir, filed a derivative suit in DC Superior Court alleging financial misconduct by Avenir's officers Mackall, Keefe, and Rooney.
- Avenir was named as a defendant in the derivative suit; the case was removed to the US District Court for the District of Columbia.
- The District Court found removal improper under 28 U.S.C. § 1441(b) because Avenir, a DC citizen, was a party in interest in a DC action.
- The District Court remanded the case to state court and awarded Knop attorney's fees under § 1447(c).
- On review, the DC Circuit assesses whether the removal had an objectively reasonable basis, deciding whether to affirm or reverse the fee award.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Avenir counts for § 1441(b) as a defendant in removal analysis | Knop argues Avenir is indispensable and counts against removal. | Mackall et al. contend Avenir is nominal and does not count for § 1441(b). | Court does not decide correctness; focuses on reasonableness of removal basis. |
| Whether the district court abused its discretion in awarding attorney's fees | Fees were warranted only if removal lacked an objectively reasonable basis. | Removal argument was at least reasonably grounded in authority. | Court reverses the fee award, holding removal had an objectively reasonable basis. |
Key Cases Cited
- Martin v. Franklin Capital Corp., 546 U.S. 132 (U.S. 2005) (fee-shifting if there is an objectively reasonable basis for removal)
- Koster v. (American) Lumbermens Mut. Casualty Co., 330 U.S. 518 (U.S. 1947) (corporation in a derivative suit aligned as defendant when controlled by officers sued)
- Smith v. Sperling, 354 U.S. 91 (U.S. 1957) (corporate actions in derivative suits can be hostile to plaintiff's suit)
- Navarro Sav. Ass'n v. Lee, 446 U.S. 458 (U.S. 1980) (jurisdiction must rest on real parties to the controversy; nominal parties disregard)
- Salem Trust Co. v. Mfrs.' Fin. Co., 264 U.S. 182 (U.S. 1924) (diversity not defeated by joining formal parties)
- Lincoln Prop. Co. v. Roche, 546 U.S. 81 (U.S. 2005) (diversity jurisdiction unaffected where party is named to satisfy pleading rules or has no stake)
- American Combustion, Inc. v. Transamerica Ins. Co., 797 F.2d 1041 (D.C. Cir. 1986) (District of Columbia nominal party and suit is between private parties for diversity purposes)