## Facts

- John Carstarphen co-founded American Medflight, Inc. (AMF), a Delaware air-ambulance corporation, and remained a minority shareholder.
- Richard Milsner, also a founder, became AMF’s controlling shareholder and a director after obtaining beneficial ownership of most of another founder’s shares.
- Carstarphen alleged that after gaining control, Milsner caused AMF to engage in self-dealing transactions that diverted AMF profits and business opportunities to Milsner and Milsner-controlled entities, including Reno Flying Service (RFS).
- Carstarphen alleged these transactions devalued and diluted the economic value of his minority interest.
- Carstarphen also alleged that a proposed buyout offer was conditioned on his dismissal of separate litigation against Milsner and others.
- Carstarphen sued in federal court under diversity jurisdiction, pleading breach of fiduciary duty and related claims as direct (not derivative) claims.
- Defendants moved to dismiss, arguing the alleged injuries belonged to AMF and therefore required a derivative action and joinder of AMF as an indispensable party.

## Issues

1. Under Delaware law, did the complaint allege a direct minority-shareholder claim for breach of fiduciary duty, or only a derivative corporate injury requiring suit on the corporation’s behalf?
2. If the claims were derivative in nature, was AMF a required and indispensable party whose non-joinder required dismissal under Federal Rule of Civil Procedure 19?

## Decision

- The court denied the motion to dismiss.
- Applying Delaware’s direct-versus-derivative framework, the court held Carstarphen plausibly alleged an individualized injury as the lone minority shareholder stemming from controller-directed self-dealing and oppression-like conduct.
- Because the claims could proceed directly, AMF was not a required or indispensable party under Rule 19 for purposes of adjudicating Carstarphen’s alleged minority-shareholder injury.

## Legal Principles

- Delaware’s direct/derivative distinction turns on (1) who suffered the alleged harm (corporation versus stockholders individually) and (2) who would receive the benefit of any recovery.
- Diversion of corporate assets or opportunities is generally a corporate harm sounding in derivative claims, but direct claims may lie where a controller’s conduct inflicts a distinct injury on a minority stockholder (including coercive or oppressive conduct in a controller-dominated setting).
- A complaint may state a direct claim where it alleges self-dealing that confers personal benefits on the controller in a manner plausibly targeted at, and harmful to, the minority stockholder’s individual interest, not merely proportional stock-value decline.
- When claims are properly direct between stockholder and controller, the corporation need not be joined as a Rule 19 required party if complete relief can be granted among existing parties without impairing the corporation’s interests or creating inconsistent obligations.

## Conclusion

The court held that the minority shareholder plausibly alleged a controller’s self-interested course of conduct causing individualized harm, permitting direct fiduciary-duty claims under Delaware law and defeating dismissal based on Rule 19 non-joinder of the corporation.


Carstarphen v. Milsner, 693 F. Supp. 2d 1247 (D. Nev. 2010)