## Facts

- Bridgestone/Firestone, Inc. (“Firestone”) operated a nationwide chain of auto service stores, some of which were separately incorporated with shared ownership between Firestone and the local manager.
- Edward F. Bagdon managed a Firestone store in the Ford City Shopping Center in Chicago and owned 49% of the separately incorporated store entity; Firestone owned 51%.
- Firestone acquired J.C. Penney auto centers and reopened one in the same shopping center, operating it as a Firestone auto service center that competed with Bagdon’s store.
- Bagdon alleged Firestone’s competing operation diverted business and profits from the store corporation, reducing (a) the value of his 49% stock interest and (b) his compensation, including a bonus tied to store performance.
- Bagdon sued Firestone in federal court under diversity jurisdiction, asserting breach of fiduciary duties and seeking damages including lost profits.
- Firestone argued the store corporation was a required party under Federal Rule of Civil Procedure 19 and that joining it would defeat complete diversity.
- A jury found for Bagdon and awarded damages; the district court reduced the award.
- Firestone appealed on the Rule 19/diversity issue; Bagdon cross-appealed the damages reduction.

## Issues

1. Whether Bagdon’s diverted-profits theory alleged an injury to the store corporation (derivative claim) rather than a direct, personal injury to Bagdon.
2. Whether the store corporation was a necessary and indispensable party under Fed. R. Civ. P. 19.
3. Whether joining the store corporation would destroy complete diversity and require dismissal for lack of subject-matter jurisdiction.

## Decision

- The Seventh Circuit vacated the district court’s judgment and remanded with instructions to dismiss for lack of subject-matter jurisdiction.
- The court held the substance of the suit was corporate: the alleged injury was a reduction in the store corporation’s profits, with Bagdon’s losses flowing from that corporate harm.
- The store corporation was necessary and indispensable under Rule 19 because it was the real party in interest on the diverted-profits theory and its absence risked prejudice and inconsistent obligations.
- Because the store corporation shared Illinois citizenship (principal place of business) with Bagdon, its joinder would defeat complete diversity; federal jurisdiction was therefore absent.
- The court did not reach the merits of the fiduciary-duty claims or Bagdon’s cross-appeal on damages.

## Legal Principles

- A shareholder generally may not sue in an individual capacity for injuries to the corporation; diminished share value and reduced distributions from lost corporate profits are derivative harms.
- A plaintiff cannot preserve a direct claim by recasting damages that merely follow from a corporate injury (such as a performance-based bonus tied to corporate profitability) as a separate personal injury.
- Under Fed. R. Civ. P. 19, when the corporation is the entity directly harmed and is the real party in interest, it is typically a necessary and indispensable party to litigation over that harm.
- If an indispensable party’s joinder destroys complete diversity under 28 U.S.C. § 1332, the federal court must dismiss for lack of subject-matter jurisdiction, even after trial.

## Conclusion

The Seventh Circuit treated the diverted-profits allegations as a derivative corporate claim requiring joinder of the store corporation; because joinder defeated complete diversity, the federal judgment was vacated and the case ordered dismissed for lack of jurisdiction.


Bagdon v. Bridgestone/Firestone, Inc., 916 F.2d 379 (7th Cir. 1990)