Carstarphen v. Milsner
United States District Court for the District of Nevada
693 F. Supp. 2d 1247 (2010)
Minority shareholder John Carstarphen (plaintiff) brought a diversity action alleging majority shareholder Richard Milsner (defendant) illegally siphoned away profits from Delaware corporation American Medflight, Inc. Carstarphen, Milsner, and John Dawson had founded American Medflight as equal co-owners, but Milsner acquired beneficial ownership of nearly all Dawson’s shares. Milsner argued Delaware precedent required Carstarphen to bring a derivative action on the company’s behalf, rather than a direct action, unless he showed injury independent from injury to the corporation. But if the company recovered in a derivative action, Milsner would control that recovery and again siphon the money away. Milsner moved to dismiss for failure to join American Medflight as an indispensable party. Meanwhile, the company continued generating revenues as a going concern.
Rule of Law
Holding and Reasoning (Reed, J.)
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