Duffey v. Wheeler, 86-3577
| Decision Date | 02 July 1987 |
| Docket Number | No. 86-3577,86-3577 |
| Citation | 820 F.2d 1161 |
| Parties | Samuel S. DUFFEY, Individual, David Deserio, Individual, Plaintiffs-Appellants, v. D.C. WHEELER, Individual, H. Thomas Hirsch, Individual, H. Thomas, P.C., a Texas Professional Corporation, Challenge Energy, Inc., a Florida Corporation, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
George LaMarca, Williams, LaMarca, Marcucci, Wiggins & Anderson, P.C., West Des Moines, Iowa, Richard S. Webb, IV, Duffey, Judd, Webb & Wood, P.A., Sarasota, Fla., for plaintiffs-appellants.
Ronald Alexander Cyril, Michael A. Connolly, Nelson, Hesse, Cyril, Smith, Widman & Herb, Sarasota, Fla., for defendants-appellees.
Appeal from the United States District Court for the Middle District of Florida.
Before GODBOLD and ANDERSON, Circuit Judges, and SWYGERT *, Senior Circuit Judge.
Jurisdiction of this shareholders derivative action is based solely on diversity of citizenship. In this case, we are asked to decide whether a corporation in a shareholder's derivative action should be realigned as a party plaintiff for diversity purposes when the corporation management is deadlocked.
Challenge Energy, Inc. is a Florida corporation. Plaintiffs Duffey and DeSerio are Florida citizens. Defendants Wheeler, Hirsch, and H. Thomas Hirsch & Associates, P.C. are Texas citizens. It is the status of Challenge Energy for purposes of determining diversity jurisdiction that is at issue in this case, that is, although the corporation was named as a nominal defendant in the complaint, plaintiffs assert that the corporation should be realigned as a party plaintiff.
Duffey owns 17.5% of the outstanding capital stock of Challenge Energy and serves as the corporation's Vice President and Secretary. Wheeler controls 77.5% of the outstanding capital stock and serves as President of Challenge Energy. The corporation has only the two officers and the same two persons are the sole directors. The by-laws provide for a quorum at shareholders meetings of 85% of the shares entitled to vote. Thus, the corporation cannot undertake any action absent an agreement between Duffey and Wheeler. That is, the directors are split evenly, Duffey on one side and Wheeler on the other. Similarly, the shareholders are deadlocked since there can be no quorum without Duffey's 17.5%.
Plaintiffs Duffey and DeSerio filed their complaint in federal court, alleging that any request of the corporation to undertake this action in its own behalf would be futile because management of the corporation was deadlocked. Plaintiffs further alleged that the management's division did not make Challenge Energy antagonistic to the plaintiffs, but merely incapable of undertaking the action on its own behalf. Thus, plaintiffs maintain that naming Challenge Energy as a defendant was a mere formality and that the corporation remained the real party in interest throughout the course of the proceedings.
Defendants Wheeler and Challenge Energy failed to respond to the complaint and a default judgment was rendered against them. Defendants Hirsch and Hirsch & Associates, P.C. filed motions to dismiss for lack of subject matter jurisdiction. Plaintiffs filed a motion to realign defendant Challenge Energy as a party plaintiff. The district court denied plaintiff's motion to realign and granted the motion of defendants Hirsch and Hirsch & Associates, P.C. to dismiss for lack of complete diversity. Plaintiffs appeal from this ruling arguing that in all cases except those in which a corporation is actually controlled by management antagonistic to the plaintiffs the corporation is realigned as a party plaintiff. We agree.
Precedent persuades us that retaining the corporation as a party defendant in a shareholder's derivative action is an exception to the general rule that the corporation is properly realigned as a plaintiff since it is the real party in interest. Koster v....
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.... . failure to join an indispensable party under Rule 19 . . . are expressly preserved against waiver. . . .") 12. See Duffey v. Wheeler, 820 F.2d 1161 (11th Cir. 1987) (In a derivative action brought by one of two shareholders in a close corporation, court allowed corporation to be aligned......
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Saudi Basic Industries Corp. v. Exxonmobil Corp.
.... . failure to join an indispensable party under Rule 19 . . . are expressly preserved against waiver. . . .") 12. See Duffey v. Wheeler, 820 F.2d 1161 (11th Cir. 1987) (In a derivative action brought by one of two shareholders in a close corporation, court allowed corporation to be aligned......
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In re Digimarc Corp. Derivative Litigation
...of acting to bring suit against its officers and directors—where the corporation is "deadlocked." See, e.g., Duffey v. Wheeler, 820 F.2d 1161, 1162-63 (11th Cir.1987); Kartub v. Optical Fashions, 158 F.Supp. 757, 758-59 (S.D.N.Y. Although Federal Rule of Civil Procedure 23.1's pleading requ......
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...not LICOA, as the plaintiffs in the Derivative Complaint because LICOA's management opposes the derivative suit. See Duffey v. Wheeler , 820 F.2d 1161, 1163 (11th Cir. 1987) (corporations are properly aligned as party defendants when management is "actively antagonistic" to the plaintiff, a......
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Professional corporations are jurisdictional corporations.
...Cir. 2002); Edell & Associates, P.C. v. Law Offices of Peter G. Angelos, 264 F.3d 424, 427 (4th Cir. 2001); and Duffey v. Wheeler, 820 F.2d 1161, 1162 (11th Cir. In additon, the Seventh Circuit reaffirmed Cote in Saecker v. Thorie, 234 F.3d 1010 (7th Cir. 2000), and, in a case involving......