Walker v. Pope McGlamry Kilpatrick Morrison & Norwood P.C., et al.
MEMORANDUM OPINION AND ORDER directing as follows: (1) the 11 MOTION to Remand is GRANTED; (2) this case is REMANDED to the Circuit Court of Lee County, Alabama; directing the clerk to take appropriate steps to effect the remand; (3) the defendants' 8 MOTION to Dismiss is left for disposition by the state court. Signed by Honorable Judge W. Harold Albritton, III on 8/7/15. Certified copy of Order mailed to Circuit Court clerk Lee County, AL.(djy, )
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
GEORGE W. WALKER, III,
POPE, McGLAMRY, KILPATRICK,
MORRISON & NORWOOD, P.C., et al.,
CIVIL ACTION NO. 3:15-cv-359-WHA
MEMORANDUM OPINION AND ORDER
This cause is before the court on Plaintiff George W. Walker’s Motion to Remand (Doc.
# 11), filed on June 17, 2015. Also before the court are the Response in Opposition by three of
the Defendants (Doc. # 18) and the Plaintiff’s Reply thereto (Doc. # 19). The Plaintiff has also
filed a Supplemental Brief in support of the motion (Doc. # 17). This case, originally filed in the
Circuit Court of Lee County, Alabama, was removed to federal court by the three served
Defendants on May 26, 2015 (Doc. # 1). George Walker is a former partner/shareholder in the
law firm of Pope, McGlamry, Kilpatrick, Morrison & Norwood, P.C. (“Pope McGlamry”). The
three served Defendants, as of the time of removal, are Pope McGlamry, C. Neal Pope (“Pope”),
and C. Neal Pope, P.C. (“Pope, P.C.”). Defendants Paul V. Kilpatrick and Michael L.
McGlamry were unserved at the time of removal but gave their written consent to the removal
effected by the other three Defendants.1 (Doc. # 1 at 3 ¶ 7.)
This memorandum opinion and order will refer to the three served Defendants collectively as “Defendants” for
purposes of simplicity.
The Plaintiff is a citizen of Alabama. Pope McGlamry is a citizen of Georgia, as are the
unserved Defendants. Pope and Pope, P.C. are citizens of Alabama. The Defendants removed
this case on the basis of federal diversity jurisdiction, alleging that the citizenship of Pope and
Pope, P.C. should be disregarded on the basis of fraudulent joinder. The amount in controversy
is met. Defendants argue that fraudulent joinder is applicable in this case and therefore both the
requisite amount in controversy and complete diversity of citizenship exist. In response to the
Defendants’ fraudulent joinder argument, the Plaintiff argues that remand is proper because his
claims against Pope and Pope, P.C. are individual, not derivative in nature, and because there is a
possibility that an Alabama state court would find his Complaint properly states claims against
Defendants Pope and Pope, P.C.2 For the reasons set forth below, the court agrees with the
Plaintiff’s position and concludes that the Motion to Remand is due to be GRANTED.
II. Motion to Remand Standard
Federal courts are courts of limited jurisdiction. See Kokkonen v. Guardian Life Ins. Co.
of Am., 511 U.S. 375 (1994); Burns v. Windsor Ins. Co., 31 F.3d 1092, 1095 (1994); Wymbs v.
Republican State Exec. Comm., 719 F.2d 1072, 1076 (11th Cir. 1983), cert. denied, 465 U.S.
1103 (1984). As such, federal courts only have the power to hear cases that they have been
authorized to hear by the Constitution or the Congress of the United States. See Kokkonen, 511
U.S. at 377. Because federal court jurisdiction is limited, the Eleventh Circuit favors remand of
removed cases where federal jurisdiction is not absolutely clear. See Burns, 31 F.3d at 1095.
The Plaintiff has also argued that remand is proper because the Notice of Removal cites to 28 U.S.C. § 1331,
which provides for removal in federal question cases, instead of 28 U.S.C. § 1332, which provides for removal in
federal diversity cases. (Doc. # 11 at 2 ¶ 2.) The Notice of Removal does invoke § 1331 on the first page, but later
refers to § 1332 on the second page. (Doc. # 1 at 1, 2 ¶ 4.) Because the court finds remand is warranted due to lack
of complete diversity of citizenship, it does not reach the issue of the relevance (or lack thereof) of the Defendants’
Because this case was originally filed in state court and removed to federal court, the
Defendants bear the burden of proving that federal jurisdiction exists. Williams v. Best Buy Co.,
Inc., 269 F.3d 1316, 1319 (11th Cir. 2001).
III. Factual and Procedural Background
The Plaintiff joined the law firm of Defendant Pope McGlamry as a partner in 2011. The
firm was then a limited liability partnership, but it converted to a professional corporation (P.C.)
in 2012. Defendants Pope, Kilpatrick, and McGlamry are members of the Board of Directors of
Pope McGlamry. The Plaintiff’s Complaint alleges that payments to Defendant Pope by Pope
McGlamry are made through Defendant Pope, P.C. The Shareholder Agreement for the firm,
which was signed by Pope on behalf of Pope McGlamry as President, was effective as of
December 11, 2012. The Agreement provides that upon events such as shareholder death,
termination, or retirement, the firm is required to buy the shareholder’s shares. All of the
shareholders own 100 shares of stock under the Agreement. The Shareholder Compensation
Procedure governs shareholder compensation, and provides a formula based on base
compensation and cash flow percentages.
In February 2015, following years of major health issues, the Plaintiff approached
Defendant Pope requesting that he be able to withdraw from the firm due to concerns about his
health. According to the state court Complaint, Pope told him “that they would work things out”
and told him to speak further with Kirk Pope. (Doc. # 1-4 at 5 ¶ 20.) Following several meetings
over the next few months, in April the Board of Directors of Pope McGlamry presented a new
severance plan to the Plaintiff. The new severance plan would govern the Plaintiff’s withdrawal.
The Plaintiff’s Complaint alleges that the new severance plan “wrongfully and drastically
reduced the amount [the Plaintiff] would be paid upon his withdrawal,” and that it was “a
complete departure from the firm’s previous handling of withdrawing partners/shareholders, and
[was] completely lacking in any appraisal of the firm’s value.” (Id. at 6 ¶¶ 21–22.) The Plaintiff
has also alleged that the severance plan “was prepared without [his] input, knowledge or
consent.” (Id. at ¶ 21.) According to the Complaint, under the severance plan, the Plaintiff
would be paid $300,000, compared to $9,000,000 under the previous Shareholder Compensation
Procedure and Shareholder Agreement.
As a result of these events, the Plaintiff filed suit in the Circuit Court of Lee County,
Alabama on April 22, 2015. His Complaint alleges claims for: (1) a declaratory judgment that
the new severance plan is not applicable to him; (2) breach of contract against Pope McGlamry;
(3) oppression/squeeze-out against all of the Defendants; (4) breach of fiduciary duty against all
Defendants; and (5) accounting from Pope McGlamry. The three served Defendants filed their
Notice of Removal on May 26, 2015, on the grounds that the citizenship of Defendants Pope and
Pope, P.C. should be disregarded due to fraudulent joinder. The Plaintiff’s Motion to Remand
followed on June 17, 2015. On July 6, 2015, the Plaintiff notified the court in a Supplemental
Brief (Doc. # 17) that on June 26, 2015, Pope McGlamry sent him a termination letter, which
unilaterally declared his date of withdrawal from the firm as June 17, 2015. The Plaintiff
received the letter on June 29, 2015.
The Defendants argue that federal diversity jurisdiction exists in this case because the
citizenship of Defendants Pope and Pope, P.C. should be disregarded due to fraudulent joinder,
and the remaining Defendants have complete diversity of citizenship with the Plaintiff. There is
no contention that the court has federal question jurisdiction.
“Except as otherwise expressly provided by Act of Congress,” a defendant may remove
from state court any civil case that could have originally been brought in federal court. 28
U.S.C. § 1441(a). District courts have original jurisdiction over civil actions where the amount
in controversy exceeds $75,000 and the action is between citizens of different states. 28 U.S.C.
§ 1332. “Diversity jurisdiction requires complete diversity; every plaintiff must be diverse from
every defendant.” Triggs v. John Crump Toyota, Inc., 154 F.3d 1284, 1287 (11th Cir. 1998).
If joinder is “fraudulent,” then removal may still be appropriate. Id. “To establish
fraudulent joinder, ‘the removing party has the burden of proving [by clear and convincing
evidence] that either: (1) there is no possibility the plaintiff can establish a cause of action
against the resident defendant; or (2) the plaintiff has fraudulently pled jurisdictional facts to
bring the resident defendant into state court.’” Stillwell v. Allstate Ins. Co., 663 F.3d 1329, 1332
(11th Cir. 2011) (alteration in original) (quoting Crowe v. Coleman, 113 F.3d 1536, 1538 (11th
Cir. 1997)). In a third situation, joinder may be fraudulent “where a diverse defendant is joined
with a nondiverse defendant as to whom there is no joint, several or alternative liability and
where the claim against the diverse defendant has no real connection to the claim against the
nondiverse defendant.” Triggs, 154 F.3d at 1287.
The burden on a defendant alleging fraudulent joinder is “a heavy one.” Crowe, 113 F.3d
at 1538. The standard for fraudulent joinder is not one and the same with the standard for a Rule
12(b)(6) motion to dismiss for failure to state a claim. Stillwell, 663 F.3d at 1333. The court’s
function “is not to gauge the sufficiency of the pleadings.” Henderson v. Wash. Nat’l Ins. Co.,
454 F.3d 1278, 1284 (11th Cir. 2006). Instead, the “inquiry is more basic: we must decide
whether the defendants have proven by clear and convincing evidence that no Alabama court
could find this complaint sufficient . . . .” Id. Accordingly, the court “must necessarily look to
the pleading standards applicable in state court, not the plausibility pleading standards prevailing
in federal court.” Stillwell, 663 F.3d at 1334. To defeat a claim of fraudulent joinder, the
Plaintiff’s allegations must be only “sufficient to establish ‘even a possibility that a state court
would find that the complaint states a cause of action against any one of the resident
defendants.’” Id. (quoting Coker v. Amoco Oil Co., 709 F.2d 1433, 1440–41 (11th Cir. 1983)).
In conducting this inquiry, district courts should “evaluate the factual allegations in the light
most favorable to the plaintiff and must resolve any uncertainties about state substantive law in
favor of the plaintiff.” Crowe, 113 F.3d at 1538.
The Defendants’ arguments in favor of federal diversity jurisdiction hinge entirely on the
applicability of fraudulent joinder. Implicit in their arguments is the admission that both Pope
and Pope, P.C. are citizens of Alabama, as is the Plaintiff. If Pope and Pope, P.C. have been
properly joined, then complete diversity of citizenship does not exist. The remaining
Defendants—Pope McGlamry and unserved Defendants Paul V. Kilpatrick and Michael L.
McGlamry—are citizens of Georgia. (Doc. # 1 at 2 ¶ 6, 3 ¶ 7.)
The Defendants argue that both types of fraudulent joinder described in Stillwell have
occurred here. They argue the Plaintiff has fraudulently pled jurisdictional facts because Pope,
P.C. is “essentially defunct” and is not a shareholder of Pope McGlamry. (Doc. # 18 at 6.) The
Defendants also argue that notwithstanding the fact that Pope, P.C. is essentially defunct, even if
it were operational the fact that Defendant Pope is paid through Pope, P.C. does not render it
liable to the Plaintiff on any of his claims. The Defendants do not cite to any evidence to support
their assertion that Pope, P.C. is “essentially defunct.”
The Defendants’ more detailed and substantial argument falls under the second category
of fraudulent joinder described in Stillwell—they contend that there is no possibility that the
Plaintiff could establish a cause of action against Defendant Pope or Defendant Pope, P.C. In
support of this argument, the Defendants assert that the claims alleged against these Defendants
are derivative in nature, and cannot be brought because the Plaintiff has not made the
prerequisite demand on Pope McGlamry as required by Ga. Code Ann., § 14–2–742.
In discussing whether fraudulent joinder is present in this case, the court will focus on the
oppression/squeeze-out and breach of fiduciary duty claims against Defendant Pope, because it
finds that the Defendants have not shown with clear and convincing evidence that there is no
possibility that an Alabama court would find that these claims were sufficiently pled. The court
need not consider other claims, or claims against Defendant Pope, P.C., because there is no
fraudulent joinder if there is “even a possibility that a state court would find that the complaint
states a cause of action against any one of the resident defendants.” Stillwell, 663 F.3d at 1334
A. Under Alabama law, an oppression/squeeze-out claim is individual, not derivative,
As a general matter, Alabama recognizes a claim for oppression/squeeze-out in situations
where “the majority of the shareholders in a close corporation is able to use its right of control to
exert pressure upon, i.e., to ‘squeeze,’ the minority by reducing or eliminating its income.”
Brooks v. Hill, 717 So. 2d 759, 766 (Ala. 1998). The availability of a claim for squeeze-out is
unique to the close corporation context, because “corporate governance in a close corporation
presents a distinct risk that a controlling shareholder will manipulate the corporate structure to
harm minority interests without necessarily harming the corporation itself.” Davis v. Dorsey,
495 F. Supp. 1162, 1168 (M.D. Ala. 2007) (citing Brooks, 717 So. 2d at 765). As the court
recognized in Davis v. Dorsey, “Alabama courts recognize oppression and squeeze-out as a
distinctly individual and direct cause of action.” Id.; see also Stallworth v. AmSouth Bank of
Ala., 709 So. 2d 458, 467 (Ala. 1997) (“The exclusion of a minority stockholder in a close
corporation from employment or participation in management, and the resulting deprivation of
salary for the performance of such duties, is the kind of personalized injury for which an
individual shareholder may seek a remedy via a squeezeout action.”).
Thus, it is abundantly clear from the case law that under appropriate circumstances,
Alabama recognizes an individual claim for squeeze-out. A properly stated claim for oppression
or squeeze-out, therefore, does not require a demand on a corporation because it is not a
derivative claim. Having determined this issue as a general matter, the court must now turn to
the Defendants’ fact-specific arguments as to why, in their view, fraudulent joinder is applicable
in this case.
B. The Defendants have not met their heavy burden to show there is no possibility an
Alabama state court would find the Plaintiff has properly stated claims against
The Defendants have made two distinct arguments as to why the Plaintiff’s squeeze-out
claim in this case must fail under the fraudulent joinder standard.
First, the Defendants argue that the Plaintiff cannot maintain a claim of oppression or
squeeze-out because Pope McGlamry is not a closely held corporation. Specifically, the
Defendants note that Georgia has a category of statutory close corporations, and Pope McGlamry
does not qualify under the statute because there is no statement that the firm is a close
corporation in the articles of incorporation. In response, the Plaintiff argues that Georgia courts
do not require a corporation to qualify as closely held under the statute in order for a shareholder
to assert a direct action in the close corporation context. For support, the Plaintiff cites Stoker, et
al. v. Bellmeade, LLC, et al., which found a direct action proper against a close corporation under
certain circumstances, even when that corporation “was not created pursuant to [the Georgia
close corporation statute].” 615 S.E. 2d 1, 8 (Ga. Ct. App. 2005) (judgment partially reversed on
other grounds). The applicable circumstances for direct actions, according to the Stoker
decision, are present when “the reasons for the general rule requiring a derivative suit do not
Second, the Defendants argue that the Plaintiff cannot maintain a claim of oppression or
squeeze-out, or breach of fiduciary duty, because he is not a minority shareholder. They claim
that because, as the Plaintiff himself specified in his complaint, all of the Pope McGlamry
shareholders hold 100 shares of stock, the Plaintiff is not a minority shareholder and these claims
In response, the Plaintiff has cited to Georgia case law for the proposition that even
where shareholders technically own the same number of shares, some shareholders may be liable
to others as “controlling shareholders.” For example, the decision in Monterrey Mexican
Restaurant of Wise, Inc. v. Leon concerned a corporation in which each of three shareholders
held 1,000 shares of stock. 638 S.E. 2d 879, 882 (Ga. Ct. App. 2006). Among other claims, the
plaintiff alleged a claim of breach of fiduciary duty of fair and equitable treatment of a minority
shareholder by his two fellow shareholders. Id. In his attempt to defeat the breach of fiduciary
duty claim, one of the defendant shareholders argued the claim was not applicable because he
“was himself a minority shareholder.” Id. at 888. The Georgia Court of Appeals found that the
argument “ignore[d] the facts of [the] case.” The court found that “the uncontradicted evidence
shows that [the defendant] held a controlling position among the three shareholders, by virtue of
his prior business experience, his current business connections, and his authority as the ‘boss.’”
Id. The court further concluded that because the two shareholders “together controlled the
majority of the stock . . . the trier of fact was authorized to find that [the defendant] acted as the
controlling shareholder both before and after seizing [the plaintiff’s] stock interest.” Id.
Furthermore, the defendant also owed the plaintiff a fiduciary duty due to his “position as
president and director of the Corporation.” Id.
In support of his arguments that the Defendants in this case have not met their burden, the
Plaintiff has cited to Georgia corporate law decisions. The parties have not engaged in detailed
briefing on the applicable choice of law rules an Alabama court would apply in this case, but
there is some basis to believe Georgia corporate law could apply because Pope McGlamry is a
corporation formed under the laws of Georgia. Regardless, the court is cognizant of the Eleventh
Circuit’s guidance that it “should not weigh the merits of the plaintiff’s claims beyond
determining whether they are arguable under state law, and should resolve uncertainties about
state substantive law in the plaintiff’s favor.” Kimball v. Better Bus. Bureau of W. Fla., No. 1315286, 2015 WL 3461171, at *1 (11th Cir. June 2, 2015) (emphasis added).
Without engaging in an in-depth analysis of the merits of the Plaintiff’s claims in this
case, the court notes with regard to the Defendant’s fact-specific arguments that the Plaintiff
arguably might be able to convince an Alabama court that Georgia corporate law applies, and
that Pope McGlamry can qualify as a close corporation for purposes of the oppression or
squeeze-out claim due to the factors explained in Stoker. Additionally, the Plaintiff might be
able to convince an Alabama court that he can be considered a minority shareholder and
Defendant Pope can be considered a “controlling shareholder” under Monterrey because
Defendant Pope, along with the individual Georgia citizen Defendants, is a member of the Pope
McGlamry Board of Directors, and signed the Shareholder Agreement as its President. The
Complaint also alleges that the Board of Directors adopted the severance plan without a
shareholder vote, and without any notice to or input from the Plaintiff himself.
The court further notes that Alabama pleading standards are relevant in the fraudulent
joinder inquiry. As discussed above, the court “must necessarily look to the pleading standards
applicable in state court, not the plausibility pleading standards prevailing in federal court.”
Stillwell, 663 F.3d at 1334. Alabama still uses “traditional notice-pleading standards.” Mahone
v. R.R. Dawson Bridge Co., LLC, No. 2:14-CV-99-WHA, 2014 WL 2154223, at *3 (M.D. Ala.
May 22, 2014) (Albritton, J.) (citing Crum v. Johns Manville, Inc., 19 So. 3d 208, 212 n.2 (Ala.
Civ. App. 2009)). The purpose of notice pleading in Alabama is “to provide defendants adequate
notice of the claims against them.” Ex parte Int’l Ref. & Mfg. Co., 972 So. 2d 784, 789 (Ala.
2007). Considering the relevant law, in this case the court concludes that to show fraudulent
joinder is applicable, the Defendants are required to establish by clear and convincing evidence
that there is no possibility an Alabama court would find the Plaintiff has satisfied Alabama
notice pleading standards. In light of the arguments and evidence presented, and in light of the
“heavy burden” on the Defendants, the court cannot conclude that the Defendants have made the
requisite showing. The Plaintiff’s briefing has shown that as a general matter, Alabama courts
recognize an individual claim for oppression or squeeze-out in the close corporation context.
The Plaintiff has also set forth case law showing that he has colorable arguments that his claims
are sufficiently pled, at least to the extent that his Complaint “provides the defendants adequate
notice of the claims against them.” Id.
Additionally, aside from their legal arguments, the Defendants have not supplied any
evidence at all, let alone clear and convincing evidence, sufficient to convince the court that
Pope was fraudulently joined in this case. The court cannot conclude that there is “no
possibility” that an Alabama state court would find the Plaintiff has pled a sufficient claim
against Pope. See Stillwell, 663 F.3d at 1334–35; Henderson, 454 F.3d at 1283. Therefore,
fraudulent joinder is not applicable, and the court lacks diversity jurisdiction in this case. The
Motion to Remand is due to be granted.
For the reasons discussed, it is hereby ORDERED as follows:
1. The Motion to Remand (Doc. # 11) is GRANTED.
2. This case is REMANDED to the Circuit Court of Lee County, Alabama. The clerk is
DIRECTED to take appropriate steps to effect the remand.
3. The Defendants’ Motion to Dismiss (Doc. # 8) is left for disposition by the state court.
DONE this 7th day of August, 2015.
/s/ W. Harold Albritton
W. HAROLD ALBRITTON
SENIOR UNITED STATES DISTRICT JUDGE
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?