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Court Finds Corporation To Be "Antagonistic" To Its Shareholders

A derivative claim is one brought by a shareholder on behalf of the corporation to recover for harm done to the corporation.  Cohen v. Mirage Resorts, Inc., 62 P.3d 720, 732 (Nev. 2003).  However, when a derivative action is initiated, the corporation is named as a nominal defendant.  If, however, the suit is allowed to proceed, then the corporation morphs into the "real" plaintiff.  

A federal court cannot exercise diversity jurisdiction "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).  What does this mean in a derivative suit where the corporation status as a defendant is only nominal?

In Barna Capital Group, Ltd. v. Tong Shipping, 2019 U.S. Dist. LEXIS 55292, a shareholder filed a derivative action on behalf of a Nevada corporation in state court and the defendants removed the action to federal court.  U.S. District Court Judge James C. Mahan, however, found the corporation to be "antagonistic" to the plaintiff, citing management's refusal of the plaintiff's demand and engaging in "dilatory tactics" by initiating an investigation to plaintiff's allegations on the "eve of threatened litigation".  Although Judge Mahan's ruling is supported by precedent holding that antagonism is evaluated when the action is filed, it does not account for the fact that if the action proceeds past the motion to dismiss stage, the corporation will move to the plaintiff's side.

 "Antagonism" is a harsh word.  It is derived from two Greek words - ἀντί (against) and   ἀγωνίζομαι (to contend against).

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