The Police Retirement System of St. Louis v. Ersek et al
Filing
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ORDER denying 24 Plaintiff's Motion to Remand. By Judge William J. Martinez on 4/23/2015. (alowe)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 14-cv-3404-WJM-CBS
POLICE RETIREMENT SYSTEM OF ST. LOUIS, derivatively on behalf of THE
WESTERN UNION COMPANY,
Plaintiff,
v.
HIKMET ERSEK,
DINYAR S. DEVITRE,
LINDA FAYNE LEVINSON,
MICHAEL A. MILES, JR.,
BETSY D. HOLDEN,
ALAN J. LACY,
WULF VON SCHIMMELMANN,
DENNIS STEVENSON,
ROBERTO G. MENDOZA,
JACK M. GREENBERG,
RICHARD A. GOODMAN,
SOLOMON D. TRUJILLO, and
SCOTT T. SCHEIRMAN,
Defendants,
and
THE WESTERN UNION COMPANY, a Delaware corporation,
Nominal Defendant.
ORDER DENYING MOTION TO REMAND
This shareholder derivative action is brought by Plaintiff The Police Retirement
System of St. Louis (“Plaintiff”) on behalf of The Western Union Company (“Western
Union”) against numerous individual defendants. (Compl. (ECF No. 3).) Defendant
Dinyar S. Devitre (“Defendant”) removed this case from the District Court of Denver
County, Colorado, on December 12, 2014. (ECF No. 1.) Before the Court is Plaintiff’s
Motion to Remand (“Motion”). (ECF No. 24.) For the reasons set forth below, the Court
denies the Motion.
I. DISCUSSION
Jurisdictional issues must be addressed at the beginning of every case and, if
jurisdiction is found to be lacking, the case or claim comes to an immediate end. In re
Franklin Sav. Corp., 385 F.3d 1279, 1286 (10th Cir. 2004). “T he party invoking federal
jurisdiction bears the burden of establishing such jurisdiction as a threshold matter.”
Radil v. Sanborn W. Camps, Inc., 384 F.3d 1220, 1224 (10th Cir. 2004). W hen a case
is originally filed in state court, there is a “strong presumption” against removal. Martin
v. Franklin Capital Corp., 251 F.3d 1284, 1290 (10th Cir. 2001).
Defendant removed the above-captioned action to this Court on the basis of both
diversity and federal question jurisdiction. (ECF No. 1 ¶ 4.) Plaintiff challenges removal
on both bases, contending that the presence of Western Union as a nominal defendant
destroys diversity, and that this case’s relationship to a federal securities class action is
insufficient to confer federal question jurisdiction. (ECF No. 24.)
The parties’ dispute with respect to diversity jurisdiction centers on the question
of whether a nominal defendant should be considered when applying the forum
defendant rule, which states as follows: “A civil action otherwise removable solely on
the basis of [diversity] jurisdiction under section 1332(a) of this title may not be removed
if any 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)(2). Plaintiff argues that
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Western Union, undisputedly a Colorado resident (see Compl. ¶ 19), is a party in
interest that was properly joined and served as a nominal defendant prior to removal,
and therefore that the forum defendant rule bars removal. (ECF No. 24 at 11–15.) In
response to Defendant’s contention that nominal defendants should not be considered,
Plaintiff argues that the plain language of the forum defendant rule does not exclude
nominal defendants, and emphasizes that Western Union’s role in this action is as a
real party in interest, not a truly “nominal” defendant that is named solely as a formality.
(Id. at 11–15.)
Neither party has cited any definitive authority on the issue, and the Court has
found none. Rather, both parties rely on non-binding, non-persuasive district court
opinions to support their positions, which appear split on the question. Compare, e.g.,
Beck v. CKD Praha Holding, A.S., 999 F. Supp. 652, 655 (D. Md. 1998) (holding that
“the nominal corporation is essentially disregarded” for diversity jurisdiction when the
parties in control of the corporation defend a course of conduct attacked by the
shareholder plaintiff), with, e.g., Khoury v. Oppenheimer, 540 F. Supp. 737, 738–39 (D.
Del. 1982) (holding that citizenship of a nominal defendant in a shareholder derivative
action must be considered because it is not a mere formal party and may not be
realigned if “the corporation is under the control of management which is antagonistic to
the plaintiff shareholders”).
The cases cited by the parties discuss two intertwined issues: (1) whether the
nominal defendant is merely a formally named party rather than a party with its own
interest in the suit; and (2) whether the nominal defendant’s interests may be realigned
to the side of the plaintiff such that diversity may be preserved. The first of these issues
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is more easily resolved. The U.S. Supreme Court has held that a trust company which
held the amount in controversy did not destroy diversity, despite being named as a
defendant, because it had no interest in the controversy and was not an indispensable
party. Salem Trust Co. v. Mfrs.’ Fin. Co., 264 U.S. 182, 190 (1924). The role of
Western Union here is far removed from such a superficial level of formality, as its
interests are at precisely the center of the instant litigation. Ross v. Bernhard, 396 U.S.
531, 538–39 (1970) (“The proceeds of the action belong to the corporation and it is
bound by the result of the suit. The heart of the action is the corporate claim.”).
Furthermore, “[a]lthough named a defendant, [the corporation in a derivative suit] is the
real party in interest, the stockholder being at best the nominal plaintiff.” Id. at 538.
Accordingly, the Court concludes that W estern Union’s citizenship may not be
completely disregarded solely because it is denominated “nominal defendant.” See
Gen. Tech. Applications, Inc. v. Exro Ldta., 388 F.3d 114, 121 n.3 (4th Cir. 2004)
(holding that, in shareholder derivative suit, “the legal rights asserted here belong to
[the corporation]. . . . The various defendants are the other real parties in interest.”).
However, the Court must still determine whether Western Union’s interests here
are those of a “part[y] in interest . . . as defendant[]” which would subject it to the forum
defendant rule. 28 U.S.C. § 1441(b)(2). As the U.S. Supreme Court has held:
The ninety-fourth rule in equity contemplates that there may
be, and provides for, a suit brought by a stockholder in a
corporation, founded on rights which may properly be
asserted by the corporation. And the decisions of this court
establish that such a suit, when between citizens of different
states, involves a controversy cognizable in a circuit court of
the United States. The ultimate interest of the corporation
made defendant may be the same as that of the stockholder
made plaintiff; but the corporation may be under a control
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antagonistic to him, and made to act in a way detrimental to
his rights. In other words, his interests and the interests of
the corporation may be made subservient to some illegal
purpose. If a controversy hence arise, and the other
conditions of jurisdiction exist, it can be litigated in a Federal
court.
Doctor v. Harrington, 196 U.S. 579, 587 (1905). The cases cited in the parties’ briefs
fail to achieve any consistency, or even to establish a majority view on the question of
whether such realignment is appropriate here. See Knop v. Mackall, 645 F.3d 381,
383–84 (D.C. Cir. 2011) (noting that “[t]he Supreme Court and this Court have not yet
decided whether a corporation in a shareholder derivative suit is only a nominal party
for purposes of 28 U.S.C. § 1441(b)”; citing cases).
Accordingly, the Court has examined the question and concludes that W estern
Union’s interests in this action are more aligned with Plaintiff’s interests than
Defendants’. As Plaintiff has pled in its Complaint, it brings this action on behalf of
Western Union in order to obtain compensation for monetary and reputational damages
to Western Union. (Compl. ¶ 1.) Plaintiff alleges that the individual defendants, all
directors of Western Union at the relevant time, were responsible for such damages by
breaching their fiduciary duties to Western Union and wasting its corporate assets, and
were consequently unjustly enriched to Western Union’s detriment. (Id. ¶¶ 132–48.)
The Supreme Court’s decision in Ross supports a finding that Western Union’s
interests—the “legal rights asserted here” by Plaintiff, see Gen. Tech., 388 F.3d at 121
n.3—are truly those of the plaintiff in this action, while Plaintiff, the shareholder, is “at
best the nominal plaintiff.” 396 U.S. at 539.
The Court concludes that Western Union’s interests are aligned with Plaintiff’s,
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and that therefore Western Union is not a “part[y] in interest properly joined and served
as defendant[]” which would subject it to the forum defendant rule. 28 U.S.C.
§ 1441(b)(2). Consequently, the Court concludes that there is complete diversity
between the parties, and removal was proper on that basis. See 28 U.S.C. § 1332(a);
id. § 1441(a) (removal is proper where federal court had original jurisdiction over a
case).
Because the Court finds that it has diversity jurisdiction, it need not consider
Plaintiff’s argument that no federal question jurisdiction exists.
II. CONCLUSION
For the foregoing reasons, Plaintiff’s Motion to Remand (ECF No. 24) is
DENIED.
Dated this 23rd day of April, 2015.
BY THE COURT:
William J. Martínez
United States District Judge
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