When a shareholder files a derivative suit in state court, the defendants often will try to have the case removed to the federal district court. Federal courts, however, are courts of limited jurisdiction and not every plaintiff can make a “federal case” out of their complaint. When federal court jurisdiction is based on diversity (28 U.S.C. § 1332), the ability to remove (or prevent removal) will depend upon the accident of the citizenship of the parties.
In Gartner v. Pyatt, 2016 U.S. Dist. LEXIS 164281 (D. Nev. Nov. 29, 2016), the plaintiff filed a derivative complaint in Nevada state court. One of the defendants petitioned for removal to the federal district court, alleging that he is a citizen of Kentucky and that all of the other individual defendants are citizens of Colorado, where corporation is based. The corporation, however, was incorporated in Nevada. Would this make a difference? The plaintiff thought so.
The plaintiff argued that the resident defendant rule prevented removal to a federal court if one of the parties “properly joined and served” as a defendant is a citizen of the...
