Chilton et al v. Chilton et al

Filing 113

MEMORANDUM OPINION AND ORDER Dismissing this case without prejudice and directing Clerk to remove this case from the Court's docket. Signed by Judge Thomas E. Johnston on 8/27/2013. (cc: attys; any unrepresented party) (tmr)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
CHARLESTON DIVISION

WILLIAM RUFFNER CHILTON, et al.,

Plaintiffs,
v.

CIVIL ACTION NO. 2:12-cv-02090

ROBERT MAXWELL CHILTON, et al.,

Defendants.

MEMORANDUM OPINION AND ORDER

I.

INTRODUCTION

On March 29, 2013, the Court filed its Memorandum Opinion and Order ruling on the
parties’ various pre-trial motions (ECF 63.) In its Opinion, the Court expressed its concerns that
certain persons who have not been joined in this lawsuit may be necessary parties under Federal
Rule of Civil Procedure 19. (See id. at 16–-17.) Pursuant to the Court’s Order, the parties filed
additional motions and responsive briefing addressing the Court’s concern. This matter is now
ripe for the Court’s review.

II.

LEGAL STANDARD

Under Rule 19(a)(1) of the Federal Rules of Civil Procedure a person
who is subject to service of process and whose joinder will not deprive the court of
subject-matter jurisdiction must be joined as a party if:
(A)

in that person’s absence, the court cannot accord complete relief
among existing parties; or

(B)

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:
(i)

as a practical matter impair or impede the person’s ability to
the interest; or

(ii)

leave an existing party subject to a substantial risk of
incurring double, multiple, or otherwise inconsistent
obligations because of the interest.

If the Court finds that a party is “necessary” under Rule 19(a), the Court must order that
such a person be made a party, not dismiss the case. Fed. R. Civ. P. 19(a)(2). Moreover, a
person “who refuses to join as a plaintiff may be made either a defendant or, in a proper case, an
involuntary plaintiff.” Id. Dismissal is, however, one of two options under Rule 19(b) if the
joinder of a necessary party is not feasible. In that event the Court must determine “whether, in
equity and good conscience, the action should proceed among the existing parties or should be
dismissed.” Fed. R. Civ. P. 19(b). In making that determination, the following factors are
considered:
(1)

the extent to which a judgment rendered in the person’s absence might prejudice
that person or the existing parties;

(2)

the extent to which any prejudice could be lessened or avoided by:

2

(A)
(B)
(C)

protective provisions in the judgment;
shaping the relief; or
other measures;

(3)

whether a judgment rendered in the person’s absence would be adequate; and

(4)

whether the plaintiff would have an adequate remedy if the action were dismissed
for nonjoinder.

Fed. R. Civ. P. 19(b)(1)–(4). “Whether a person is ‘indispensable,’ that is, whether a particular
lawsuit must be dismissed in the absence of that person, can only be determined in the context of
particular litigation.” Va. Elec. & Power Co. v. Westinghouse Elec. Corp., 485 F.2d 78, 86 (4th Cir.
1973) (quoting Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 118 (1968)).
“In determining whether a party is necessary and, then, indispensable, the court must consider the
practical potential for prejudice in the context of the particular factual setting presented by the case
at bar.” Schlumberger Indus., Inc. v. Nat’l Sur. Corp., 36 F.3d 1274, 1286 (4th Cir. 1994) (citing
Provident Tradesmens Bank & Trust Co., 390 U.S. at 124–24 (citation altered)).
Rule 19(a) guarantees that all parties interested in a particular lawsuit have both the
opportunity to affect the outcome and the benefit of finality from a single judgment. Abel v.
American Art Analog, Inc., 838 F.2d 691, 694 (3d Cir. 1988). “By forcing a court to examine the
effects of a suit on parties not before it, Rule 19 of the Federal Rules of Civil Procedure ‘takes . . .
account of the very real, very substantive claims to fairness on the part of outsiders that may arise
in some cases.’ ” Teamsters Local Union No. 171 v. Keal Driveaway Co., 173 F.3d 915, 917–18
(4th Cir. 1999) (citing Provident Tradesmens Bank & Trust Co., 390 U.S. at 125).
The Rule 19 inquiry has two steps. First, a court must determine whether a party is
necessary to a proceeding because of its relationship to the matter under consideration. Id.

3

Second, if a necessary party is unavailable, a court must decide whether the proceeding can
continue in that party’s absence. Id. If the case cannot proceed in the absence of a necessary
party, then that party is deemed indispensable and the action should be dismissed. Id.

III.

DISCUSSION

The procedural background of this case is set forth in the Court’s March 29, 2013,
Memorandum Opinion and Order and need not be repeated here. For the purposes of the present
discussion––that is, whether all persons necessary to this action under Federal Rule of Civil
Procedure 19 have been and can be joined––the allegations and claims asserted in Plaintiffs’
Complaint and the identities of potentially interested persons and entities must be closely
examined.
A.

Plaintiffs’ Claims

In their Complaint, Plaintiffs allege, among other things, that their siblings, Defendants
Robert Maxwell Chilton and Alice Chilton Zuber (the “Chilton Defendants”), and, at times,
United Bank have abused their positions as co-trustees over various trusts established by the
Chilton parties’ now-deceased parents (ECF 13–14, 16, 35–44) Plaintiffs allege that Defendant
Robert Maxwell Chilton engaged in numerous instances of self-dealing as an officer and director
of both family corporations, Twelve Sixty-Six Corporation (“1266 Corp.”) and Kanawha Village
Apartments, Inc. (“KVA”).

(Id at 13–20.)

Plaintiffs allege that both Chilton Defendants

engaged in self-dealing in the management of KVA. (Id. at 16.) They generally claim that the
Chilton Defendants violated their fiduciary duties as a corporate officers and directors.
Plaintiffs further contend that the Chilton Defendants have concocted a proposed merger of
1266 Corp. and KVA based on improper valuations of the companies. They further assert that the
4

directors of 1266 Corp. and KVA “lack objectivity” because their familial relationships with the
Chilton Defendants, “lack independence due to domination or control” by the Chilton Defendants,
and “have failed on a sustained basis to devote attention to ongoing oversight to the proposed
merger, and have failed to make appropriate inquiry which would place the director on notice for
the need of further inquiry.” (Id. at 25.) Plaintiffs further accuse the corporate directors of
breaching their fiduciary duties by allowing the improper valuation of the Chilton family residence
to serve as the basis for the stock exchange ratio for the proposed corporate merger. (Id. at 26.)
Plaintiffs also state that they anticipate that further discovery will show that the Chilton
Defendants have made payments to the directors of 1266 Corp. and KVA “which are not
appropriate given the time and attention they devote to the business of the corporations. ” (Id.)
Plaintiffs also claim that approval of the proposed merger by a majority of the shareholders would
constitute unlawful oppression of the minority shareholders. (Id. at 27.) As a consequence of
such conduct, Plaintiffs allege that the corporate directors’ approval of the proposed corporate
merger is voidable. (Id. at 26.)
In addition to their request that the Court enjoin the merger of 1266 Corp. and KVA,
Plaintiffs also ask the Court, among other things, to: remove the Chilton Defendants as trustees of
the trusts established for Plaintiffs’ benefit, remove the Chilton Defendants as directors and
officers of both corporations, appoint a receiver to preside over the dissolution of both
corporations, terminate all trusts, order an accounting of all transactions pertaining to the trusts
established for Plaintiffs’ benefit, evict Defendant Robert Maxwell Chilton from the Chilton
family home, and award Plaintiffs damages. (Id. at 32–34.)

5

B.

Corporate and trust structures

Plaintiffs’ claims, among other things, seek dissolution of the two closely-held Chilton
family companies, 1266 Corp. and KVA, and the termination of “all trusts.” (ECF 1 at 33–34.) In
conducting the first step of the Rule 19 inquiry, the Court must determine whether there are
persons who have not been joined but who are nonetheless necessary to this case because of their
relationships to the closely-held corporations and trusts that are the subject of this litigation.
1.

1266 Corp. and KVA Corporate Directors and Shareholders

In response to the Court’s request for briefing, the Corporate Defendants tendered a listing
of the shareholders and directors of 1266 Corp. and KVA. (ECF 95–1.) This listing states that,
in addition to the two Chilton Defendants, there are four other directors of 1266 Corp.: (1) Nancy
Maxwell Zuber Gregory of Lake Forest, Illinois; (2) Jane Cline Chilton of Charleston, West
Virginia; (3) William L. Chilton of Charles Town, West Virginia; and (4) Will Rucker of Shelby,
North Carolina. In all, there are twenty-two shareholders of 1266 Corp., fourteen of whom reside
in West Virginia, with the remaining six having Illinois, Kentucky, Washington, and North
Carolina residences.
As for KVA, there are four directors in addition to the Chilton Defendants: (1) Will
Rucker of Shelby, North Carolina; (2) Oscar Nelson, III of Lewisburg, West Virginia; (3) Nancy
Maxwell Zuber Gregory of Lake Forest, Illinois; (4) William Chilton Zuber of Louisville,
Kentucky. There are thirty-three shareholders of KVA. Twelve KVA shareholders are trusts
related to the Chilton family. Another shareholder is the estate of the Caroline Chilton Nelson
Franklin. The remaining twenty shareholders are individuals, six of whom reside in West

6

Virginia, four in North Carolina, another four in Illinois, three in Washington, and two in
Kentucky.
2.

Trusts

The seven trusts that are the subject of this litigation are collectively referenced in
Plaintiffs’ Complaint as the “Robert E. Lee Ruffner Trusts” (ECF 1 at 35) and are more
specifically described in the Chilton Defendants and United Bank’s joint memorandum of law in
support of their motion to join necessary and indispensible parties and its exhibits (ECF 100–1
through 100–7 and ECF 101 at 2.) Based upon the uncontroverted representations of the Chilton
Defendants and United Bank, Defendant Robert Chilton is a trustee for all of the seven trusts,
Defendant United Bank is a co-trustee for six of the trusts, Plaintiff Cynthia Chilton Wilson is a
co-trustee for one trust, and John Barrett (the husband of Plaintiff William Ruffner Chilton’s
daughter, Cynthia Noyes Chilton Barrett) is a co-trustee of one trust. Thus, all trustees are named
parties in this suit with the exception of John Barrett.
The Plaintiffs and the Chilton Defendants are present income beneficiaries under the trusts.
Contingent beneficiaries under the various trusts include: (1) Plaintiffs and the Chilton
Defendants; (2) the children of Plaintiff Cynthia Chilton Wilson; (3) the children of the Chilton
Defendants; and (4) the children of the Plaintiffs’ and Chilton Defendants’ deceased sister, Nancy
Chilton Nelson.
C.

Necessary parties to this case

The Court must ascertain if there are persons who have not been joined who are necessary
parties within the meaning of Federal Rule of Civil Procedure 19(a). This inquiry requires an
examination of the effects of this suit on parties not before the Court. As noted supra, Plaintiffs

7

seek, among other things, for the Court to enjoin the proposed merger of the two closely-held
Chilton family corporations, dissolution of the corporations, and termination of the trusts. Such
relief directly affects the interests, rights, and responsibilities of the corporations’ directors,
officers, and shareholders and the trusts’ trustees and beneficiaries.
1.

1266 Corp.’s and KVA’s directors, officers, and shareholders

Corporate directors and officers are “liable to the corporation or its shareholders as
representing the corporation where the director or officer acts outside the scope of his or her
authority to the injury of the corporation.” 3 Fletcher Cyclopedia of the Law of Corporations §
1021 (Rev. ed. 2011). Under West Virginia law, a corporate veil may be pierced and the
individual shareholders may be held personally liable if, among other things, a court determined
that there had been a diversion of the corporation’s funds or assets for the personal uses of the
shareholders, and the disregard of legal formalities and the failure to maintain proper arm’s length
relationships among related entities.

W. Va. Highlands Conservancy, Inc. v. Public Serv.

Comm’n, 527 S.E. 2d 495, 500 n.14 (W. Va. 1998) (citing Laya v. Erin Homes, Inc., 352 S.E.2d 93
(1986)). Further, West Virginia Code Section 31D-8-831 provides in pertinent part as follows:
(a)

A director is not liable to the corporation or its shareholders for any decision
to take or not to take action, or any failure to take any action, as a director,
unless the party asserting liability in a proceeding establishes that:
(1)

Any provision in the articles of incorporation authorized by
subdivision (4), subsection (b), section two hundred two, article two
of this chapter or the protections afforded by section eight hundred
sixty of this article or article seven-c, chapter fifty-five of this code
interposed as a bar to the proceeding by the director, does not
preclude liability; and

(2)

The challenged conduct consisted or was the result of:
(A)

Action not in good faith; or
8

(B)

A decision: (i) Which the director did not reasonably believe
to be in the best interests of the corporation; or (ii) as to
which the director was not informed to an extent the director
reasonably believed appropriate in the circumstances; or

(C)

A lack of objectivity due to the director’s familial, financial
or business relationship with, or a lack of independence due
to the director’s domination or control by, another person
having a material interest in the challenged conduct: (i)
Which relationship or which domination or control could
reasonably be expected to have affected the director’s
judgment respecting the challenged conduct in a manner
adverse to the corporation; and (ii) after a reasonable
expectation has been established, the director does not
establish that the challenged conduct was reasonably
believed by the director to be in the best interests of the
corporation; or

(D)

A sustained failure of the director to devote attention to
ongoing oversight of the business and affairs of the
corporation, or a failure to devote timely attention, by
making or causing to be made appropriate inquiry when
particular facts and circumstances of significant concern
materialize that would alert a reasonably attentive director to
the need for inquiry;

(E)

Receipt of a financial benefit to which the director was not
entitled or any other breach of the director’s duties to deal
fairly with the corporation and its shareholders that is
actionable under applicable law.

(b) The party seeking to hold the director liable:
(1)

For money damages, has the burden of establishing that:
(A)

(B)

(2)

Harm to the corporation or its shareholders has been
suffered; and
The harm suffered was proximately caused by the director’s
challenged conduct; or

For other money payment under a legal remedy, including
compensation for the unauthorized use of corporate assets, has
9

whatever persuasion burden may be called for to establish that the
payment sought is appropriate in the circumstances; or
(3)

For other money payment under an equitable remedy, including
profit recovery by or disgorgement to the corporation, has whatever
persuasion burden may be called for to establish that the equitable
remedy sought is appropriate in the circumstances.

West Virginia law also provides a statutory scheme for judicial dissolution of a
corporation. See generally W.Va. Code § 31D-14-1431. This statute states that shareholders do
not need to be made parties to a judicial proceeding to dissolve a corporation “unless relief is
sought against them individually.” Id. Thus, if a plaintiff seeks relief against an individual
shareholder, then that person is necessary to the judicial proceeding under West Virginia law.
Plaintiffs have alleged that the Chilton Defendants have colluded with, dominate, and
control the other directors of 1266 Corp. and KVA. Plaintiffs accuse these other directors of
serious breaches of their fiduciary duties as corporate directors that range from permitting
fraudulent valuations of assets to be used to skew the stock exchange ratio for the proposed merger
to accepting inappropriate cash payments. (ECF 1 at 25.) Because of the directors’ alleged
malfeasance, Plaintiffs seek not only removal of the Chilton Defendants as corporate directors, but
dissolution of the companies.
Plaintiffs also take aim at the other shareholders of the two corporations. They anticipate
that if the proposed merger is put to a vote, a majority of the shareholders would vote for the
merger. Plaintiffs allege that such action would constitute “an unlawful act of oppression towards
minority shareholders.” (Id. at 27.)
Despite this ringing indictment of all of the directors of 1266 Corp. and KVA and those
shareholders who would vote in favor of the proposed merger, the only corporate directors and
10

shareholders named by Plaintiffs as defendants are the Chilton Defendants. 1266 Corp. has three
other directors besides the Chilton Defendants. While two of these other directors are West
Virginia residents, the third director is Defendant Alice Chilton Zuber’s daughter, Nancy Maxwell
Zuber Gregory of Lake Forest, Illinois. Similarly, KVA has four other directors in addition to the
Chilton Defendants. One of these directors is a West Virginian. However, the other three, Will
Rucker, William Chilton Zuber, and Nancy Maxwell Zuber Gregory, live in North Carolina,
Kentucky, and Illinois, respectively. Ms. Gregory and Mr. Zuber are residents of the same states
as Plaintiffs, a fact that, as discussed infra, poses a jurisdictional inconvenience for Plaintiffs.
The Court finds that all of the directors of 1266 Corp. and KVA are necessary parties in this
case.1 In their Complaint, Plaintiffs make no secret that they seek to impose personal liability on
the 1266 Corp. and KVA directors. In fact, they cite West Virginia Code Section 31D-8-831, a
statute titled “Standards of liability for directors” in their Complaint. (ECF 1 at 25.) Plaintiffs
accuse the directors of the very conduct that exposes them to personal liability under § 31D-8-831,
including allegations that the directors engaged in actions not taken in good faith or not in the best
interests of the companies, that the directors lacked objectivity due to their familial relationships,
and that they lacked independence because they were controlled by the Chilton Defendants.
Additionally, where Plaintiffs seek to impose individual liability on a shareholder, such persons
under West Virginia Code Section 31D-14-1431 must be made parties to a judicial dissolution
proceeding.

1

Based on the evidence before the Court, it is difficult to ascertain who among the several dozen
shareholders would engage in the alleged unlawful oppression of Plaintiffs’ minority shareholder rights. As
discussed infra, the Court, however, need not determine whether any of the non-board-of-director shareholders is a
necessary party because the presence of two of the necessary directors destroys this Court’s diversity jurisdiction and,
in light of Plaintiffs’ claims, these persons are indispensible to this litigation.

11

The six other directors (Nancy Maxwell Zuber Gregory, Jane Cline Chilton, William L.
Chilton, Will Rucker, Oscar Nelson, III, and William Chilton Zuber) are all persons who may
claim an interest relating to the subject of this action and are so situated that disposing of the action
in their absence may impair or impede their ability to protect the interest or expose them to a
substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of
their interest. Consequently, the Court finds that these six individuals are necessary parties to this
case.
2.

Trustees and trust beneficiaries

The Court must also determine whether there are trustees who have not been joined and
who are necessary to this case. Plaintiffs seek removal of the Chilton Defendants as trustees.
Under West Virginia Code Section 44D-7-706, a court may remove a trustee if the court finds by a
preponderance of the evidence that the trustee has committed a serious breach of trust. W. Va.
Code § 44D-7-706(b)(1). Removal is also appropriate if the court finds that removal best serves
the interests of the beneficiaries where the trustee–-because of unfitness, unwillingness, or
persistent failure–did not administer the trust effectively. W. Va. Code § 44D-7-706(b)(3). In
proceedings for removal of a trustee, the trustee sought to be removed is the principal defendant.
If, however, there are beneficiaries who do not join as plaintiffs, “they should be made parties
defendant.” G. G. Bogert, G. T. Bogert & Amy Hess , Law of Trusts and Trustees § 522 (2012)
Further, where there are several trustees, the co-trustees of the one sought to be removed should
also be made parties to the action. Id.
It appears uncontroverted that the Chilton Defendants and Defendant United Bank serve as
trustees to one or more of the various trusts and that only one trustee of these trusts has not been

12

made a party, namely, John Barrett, Plaintiff William Ruffner Chilton’s son-in-law. Based on the
foregoing principles of trust law, the Court finds that Mr. Barrett is a necessary party who must be
joined.2
Finally, the Court must ascertain whether there are beneficiaries to the trusts who are
necessary parties.

The definition of “beneficiary” under West Virginia Code Section

44D-1-103(c) includes persons who have a “present or future beneficial interest in a trust, vested
or contingent.” Pursuant to West Virginia Code Section 44D-4-411(e), in the absence of the
consent of all trust beneficiaries, a court may approve the termination of a noncharitable
irrevocable trust so long as: (1) the trust could have been terminated under § 44D-4-11(a) & (b)
with the consent of all beneficiaries; and (2) the interests of a beneficiary who does not consent can
be adequately protected.
There is no evidence that all the present and future beneficiaries of the trusts have
consented to termination of the trusts. The present income beneficiaries of the trusts are the
Plaintiffs and the Chilton Defendants. The Chilton Defendants oppose termination of the trusts.
The future income beneficiaries include, among others, the Chilton Defendants’ children, Plaintiff
Cynthia Wilson Chilton’s children, and the children of the Chilton parties’ deceased sister. While
the record fails to effectively map the many branches of the Chilton family tree, it appears that
future income beneficiaries include William Chilton Zuber, a Kentucky resident and Nancy
Maxwell Zuber Gregory, a resident of Illinois. Because there is no evidence that all the trust

2 Based on Plaintiffs’ briefing, John Barrett opposed the proposed merger of 1266 Corp. and KVA. Mr. Barrett is
also the son-in-law of Plaintiff William R. Chilton. As such, it appears his interests in this case are aligned with
Plaintiffs’. However, joinder of Mr. Barrett, a West Virginian, as a voluntary or involuntary plaintiff is not feasible
because it would impact this Court’s diversity jurisdiction. As discussed infra, the Court’s Rule 19 determination,
however, does not depend on sorting out which side of the “v.” Mr. Barrett would fall.

13

beneficiaries have consented or would consent to termination of the trusts and because Plaintiff
has not controverted the Chilton Defendants’ representation in their briefing that there are
beneficiaries who do not consent to the termination of the trusts, the Court cannot find that all
beneficiaries agree with termination of the trusts.
Thus, the question remains whether there are beneficiaries who are not parties must be
joined under Federal Rule of Civil Procedure 19(a). According to Bogert, the parties seeking
termination of a trust must prove that they represent the entire class of beneficiaries. G. G.
Bogert, G. T. Bogert & Amy Hess , Law of Trusts and Trustees § 1007 (2012) Further,
[i]f, in addition to the beneficiaries who apply to the court, there are contingent
beneficiaries who may take an interest in the future on the happening of a certain
event, the trust ought not to be terminated and their interests cut off or in any way
affected, unless the court deems that they are represented by a guardian ad litem or
under the doctrine of virtual representation by which living members of a class may
act for possible future entrants into the class. . . .
Where the court, for any reason, would end the trust as a whole if all the
beneficiaries applied, it may terminate the trust in part, and direct the trustee to
deliver over part of the principal to a beneficiary. On the other hand, it is well
settled that the court will not end the trust as a whole on the request of only a
portion of the beneficiaries.
Id.
Here, Plaintiffs request not just a modification of the trusts, but complete termination.
This is a stout remedy that jeopardizes the financial future of all the contingent beneficiaries.
While virtual representation under West Virginia Code Sections 44D-3-303 and -304 are potential
alternatives to joinder of all beneficiaries, these sections only apply to the extent that there is no
conflict of interest between the party representative and the represented persons. The interests of
the Plaintiffs in seeking immediate termination of all trusts would almost certainly have the effect
of eliminating all financial benefit for the future beneficiaries under the trusts. This proposition
14

clearly presents a conflict of interest. As it stands, all of the trust beneficiaries can rightly claim
an interest in this case and are so situated that disposition of this case in any beneficiary’s absence
may impair or impede their ability to protect their interest. As such, all the beneficiaries must
either be joined or evidence must be tendered to satisfy the Court that each beneficiary’s interest
may be fairly represented by a party representative. To date, no such evidence has been tendered.
D.

Indispensible parties

The Court has found that Nancy Maxwell Zuber Gregory, Jane Cline Chilton, William L.
Chilton, Will Rucker, Oscar Nelson, III, and William Chilton Zuber, as corporate directors of 1266
Corp. and KVA are necessary parties under Federal Rule of Civil Procedure 19(a). The Court has
also found that co-trustee John Barrett and all beneficiaries are necessary parties.3 As noted
earlier, it appears that the most natural alignment of Mr. Barrett, , a West Virginian, would be that
of a plaintiff. In that event, complete diversity would be lacking because of the West Virginia
residencies of the Defendants. Even if the Court assumed that Mr. Barrett were to be joined as a
defendant, the joinder as defendants of Ms. Gregory (an Illinois resident) and Mr. William Chilton
Zuber (a Kentuckian) is not feasible because their joinder destroys complete diversity between all
the Plaintiffs and Defendants.
Thus, the Court must determine pursuant to Rule 19(b) whether, in equity and good
conscience, this case can proceed with the existing parties or must be dismissed. The Court has
examined the factors set forth in Rule 19(b) and finds that the appropriate determination is that this

3 There is insufficient evidence in the record to permit the Court to determine which of the beneficiaries under the
trusts cannot be joined because of their residencies. There is sufficient evidence that Ms. Gregory and Mr. William
Chilton Zuber are beneficiaries who cannot be joined as defendants because they reside in the same states as the
Plaintiffs.

15

case be dismissed. First, as discussed above, Plaintiffs elected to request sweeping remedies,
including dissolution of two corporations and termination of at least seven trusts. That decision
has jurisdictional consequences.

A judgment rendered in the absence of all the corporate

directors, all the trustees, and all beneficiaries (who are not otherwise fairly represented virtually)
has the potential to greatly prejudice their rights as well as the rights of the existing parties.
Nor can the Court find that prejudice to these absent parties could be alleviated by
protective provisions in the judgment, the fashioning of relief, or other measures. In response to
the Court’s direction for briefing on the issue of joinder of necessary persons, Plaintiffs also fault
Defendants for failing to timely move for Rule 19 joinder. Plaintiffs suggest that any problems
relating to the joinder of necessary persons can be resolved by “severing Plaintiffs’ claims against
[the Chilton Defendants] from Plaintiffs’ claims against United Bank, Inc.” (See ECF 98 at 1.)
More particularly, Plaintiffs propose that pursuant to Federal Rule of Civil Procedure 21, the Court
sever Plaintiffs’ self-dealing claims against the Chilton Defendants from any other claims against
them and from any claims against United Bank.4 (Id. at 5–6.) They also propose
to withdraw opposition to the proposed merger of [1266 Corp. and KVA], if it is
conducted in a manner that affords all shareholders of [1266 Corp. and KVA] the
option of a cash-out merger incident to which each dissenting shareholder could
elect to exercise their rights under W. Va. Code § 31D-13-1301(4) to liquidate their
shares by reference to the fair value of their pro rata ownership, without any
discount for lack of liquidity or minority share status.
(Id. at 5.)
Defendants oppose Plaintiffs’ proposed remedy for a variety of reasons and repeat the
many of the arguments they made in their responses to the Court’s request for briefing. (ECF

4 Rule 21 provides: “Misjoinder of parties is not a ground for dismissing an action. On motion or on its own, the
court may at any time, on just terms, add or drop a party. The court may also sever any claim against a party.”

16

104, 105.) Defendants contend that despite the label of “severance” Plaintiffs are really seeking
separate trials pursuant to Rule 42(b). They reason that because Plaintiffs state that any recovery
from the failure to diversify claims is subject to an offset from the recovery on the self-dealing
claims, Plaintiffs are not really seeking separate judgments, as would be the case under a Rule 21
severance. Defendants argue that separate trials under Rule 42(b) are only permitted where the
claims and issues to be tried are separate and distinct. Because Plaintiffs’ Complaint merges the
claims and issues relating to the self-dealing and failure to diversify allegations, Defendants assert
that Plaintiffs may not be allowed separate trials under Rule 42(b).
The Court is not persuaded that Plaintiffs’ proposed remedy does much, if anything, to
alleviate the potential prejudice to the non-joined and necessary corporate directors, the co-trustee,
and the beneficiaries. In their discursive and overly-lengthy Complaint, Plaintiffs have woven the
Chilton Defendants’ alleged and sundry misdeeds into a common narrative to support most if not
all their claims. Trying to segregate factual issues would prove an impossible task. Even if the
Court were to accept Plaintiffs’ hypothesis that no additional parties need be joined for a trial on
the self-dealing claims, a trial on the remaining claims still presents the situation where
non-parties’ interests may be impaired. The fact remains that two of the requested remedies are,
of course, the dissolution of 1266 Corp. and KVA and the termination of several trusts. The Court
cannot envision in equity and good conscience fashioning this requested relief in a manner that
does not prejudice the rights of absent directors, a co-trustee, and non-represented beneficiaries.
As for Plaintiffs criticism that Defendants’ Rule 19 arguments are untimely, the Court notes that,
as here, a court with proper jurisdiction may consider sua sponte the absence of a required person

17

and dism a case for failure to join. Repu
miss
f
o
ublic of Phi
ilippines v. P
Pimentel, 55 U.S. 851, 862
53
(2008).
C
m
ffs
erfectly adequate
Finally, the Court takes much stock in the fact that Plaintif have a pe
i
i
d,
iling a suit i West Vir
in
rginia state c
court. This case
s
remedy if this case is dismissed namely, fi
centers on West Virg
ginian corpor
rations and tr
rusts establis
shed under W Virgini state law. The
West
ia
West Vir
rginia state courts are particularly well-suited to adjudica disputes implicating such
p
ate
matters.
Accordingly, because the are person who are n
A
ere
ns
necessary to this action a who hav not
and
ve
been join as partie because these absen parties’ jo
ned
es,
nt
oinder is not feasible, an because these
t
nd
absent pa
arties are ind
dispensible under Rule 19(b), the cas must be an is DISMISSED.
u
se
and
IV.

CONCLUSI
ION

For the reaso set forth above, the Court DISM
ons
MISSES WI
ITHOUT PREJUDICE this
E
action an DIRECTS the Clerk to remove th case from the Court’s docket.
nd
t
his
m
s
IT IS SO OR
T
RDERED.
The Court DI
T
IRECTS the Clerk to se a copy o this Order to counsel of record
e
end
of
r
and any unrepresente party.
u
ed

ENTER
R:

Aug 27, 2013
gust
3

18