Court Opinion

ID: 4552196
Source: CourtListenerOpinion
Date Created: 2020-07-30 20:00:45.943082+00
Date Added: 2024-06-11T13:07:35.799657
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        JUL 30 2020
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

DALE L. MIESEN, an individual who is a          No.    19-35255
shareholder and who is also bringing this
action on behalf of and/or in the right of      D.C. No. 2:18-cv-00270-RMP
AIA Services Corporation and its wholly
owned subsidiary AIA Insurance, Inc.,
                                                MEMORANDUM*
                Plaintiff-Appellant,

 v.

JOHN D. MUNDING, married individual
and the community property comprised
thereof; et al.,

                Defendants-Appellees,

and

AIA SERVICES CORPORATION, an
Idaho corporation; AIA INSURANCE,
INC., an Idaho corporation,

                Defendants.

                   Appeal from the United States District Court
                     for the Eastern District of Washington
                Rosanna Malouf Peterson, District Judge, Presiding

                              Submitted July 9, 2020**

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
                                Seattle, Washington

Before: FERNANDEZ and NGUYEN, Circuit Judges, and BOLTON,*** District
Judge.

      Plaintiff-Appellant Dale L. Miesen (“Mr. Miesen”) is a minority shareholder

of AIA Services Corporation (“AIA Services”) seeking to assert claims related to

legal malpractice against Defendant-Appellee John D. Munding (“Mr. Munding”)

in a derivative capacity on behalf of AIA Services and in a “double derivative”

capacity on behalf of AIA Services’ wholly owned subsidiary, AIA Insurance, Inc.

(“AIA Insurance”). The district court dismissed Mr. Miesen’s claims without

prejudice and denied leave to amend after concluding that (1) it lacked subject-

matter jurisdiction and (2) Mr. Miesen’s two demand letters were insufficient

under Federal Rule of Civil Procedure 23.1. Mr. Miesen appeals. We have

jurisdiction under 28 U.S.C. § 1291, and we affirm. Although the district court

erred in concluding it lacked subject-matter jurisdiction, it correctly dismissed the

Amended Complaint without prejudice and without leave to amend based on the

insufficiency of the Rule 23.1 demand letters.

      1. Diversity jurisdiction exists where an action is between “citizens of

      **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
      ***
             The Honorable Susan R. Bolton, United States District Judge for the
District of Arizona, sitting by designation.

                                          2                                      19-35255
different States” and “the matter in controversy exceeds the sum or value of

$75,000, exclusive of interest and costs.”1 28 U.S.C. § 1332(a). Section 1332

requires “‘complete diversity’ of citizenship, meaning that ‘the citizenship of each

plaintiff is diverse from the citizenship of each defendant.’” Demarest v. HSBC

Bank USA, N.A., 920 F.3d 1223, 1226 (9th Cir. 2019) (quoting Caterpillar Inc. v.

Lewis, 519 U.S. 61, 68 (1996)).

        Complete diversity exists whether AIA Services and AIA Insurance

(collectively, “AIA Entities”) are aligned as plaintiffs or defendants. Mr. Miesen is

a citizen of Texas. Mr. Munding, his wife, and his law firm are citizens of

Washington. The AIA Entities are citizens of Idaho. Mr. Munding argues that

because the Amended Complaint “designated [the AIA Entities] as plaintiffs and

defendants,” and because both AIA Entities are Idaho citizens, diversity

jurisdiction is “destroy[ed].” But subject-matter jurisdiction is not destroyed

because a corporation is listed on both sides of the caption in a derivative action.

See, e.g., Arduini v. Hart, 774 F.3d 622 (9th Cir. 2014) (case proceeded in

diversity where corporation named on both sides); Rosenbloom v. Pyott, 765 F.3d
1137 (9th Cir. 2014) (same); Larson v. Dumke, 900 F.2d 1363 (9th Cir. 1990)

(same). Mr. Munding cites no authority requiring a district court to determine

party alignment where diversity of citizenship exists regardless of alignment.

1
    The parties do not dispute that the amount-in-controversy requirement is met.

                                           3                                   19-35255
Because the parties are completely diverse regardless of alignment, and the

amount-in-controversy requirement is undisputedly met, the district court had

subject-matter jurisdiction.

      2. District court determinations regarding the demand requirement for

derivative actions are reviewed for abuse of discretion. Potter v. Hughes, 546 F.3d
1051, 1056 (9th Cir. 2008). “A district court abuses its discretion when it applies

an incorrect rule of decision, or when it applies the correct rule to factual

conclusions that are ‘illogical, implausible, or without support in the record.’”

Stetson v. Grissom, 821 F.3d 1157, 1163 (9th Cir. 2016) (quoting Rodriguez v.

Disner, 688 F.3d 645, 653 (9th Cir. 2012)). Conclusions of law are reviewed de

novo. Id.

      In his Amended Complaint, Mr. Miesen included excerpts of the two

demand letters he sent to the boards of the AIA Entities. The Federal Rules of

Civil Procedure required Mr. Miesen to “state with particularity . . . any effort . . .

to obtain the desired action from the directors” and to establish that this demand

was “adequate” under applicable state law. Fed. R. Civ. P. 23.1(b); Potter, 546
F.3d at 1055 (citing Fed. R. Civ. P. 23.1). Applicable state law required Mr.

Miesen to make a “written demand . . . upon the corporation to take suitable

action.” Idaho Code § 30-29-742.

      The district court correctly concluded that Mr. Miesen’s letters, as excerpted

                                           4                                     19-35255
in the Amended Complaint, did not make an adequate demand on the boards

because it did not sufficiently describe the action he sought to have the boards take.

Mr. Miesen’s excerpted letters described his proposed claims in terms of “all

possible claims” or similarly generic, conclusory language. The letters failed to

describe with particularity the claims for relief he sought or the factual bases for

those claims. Such language cannot have been expected to provide the boards with

enough information to take “suitable action.” Without knowing the factual bases

for the claims, the boards could not determine the likelihood of the lawsuit’s

success and would have had difficulty weighing factors like the expenses involved

in litigation or whether litigation would further the AIA Entities’ general business

interests. These are considerations the boards were entitled to make. See Daily

Income Fund, Inc. v. Fox, 464 U.S. 523, 533 & n.9 (1984). The district court did

not abuse its discretion by dismissing Mr. Miesen’s Amended Complaint for

failure to meet Rule 23.1’s pleading requirements.

      3. A district court’s denial of leave to amend is reviewed for abuse of

discretion. Gonzalez v. Planned Parenthood of Los Angeles, 759 F.3d 1112, 1114

(9th Cir. 2014). After a party has amended a pleading once as a matter of course,

the Federal Rules of Civil Procedure permit the party to further amend “only with

the opposing party’s written consent or the court’s leave.” Fed. R. Civ. P. 15(a)(2);

Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003).

                                           5                                     19-35255
Leave should be “freely give[n] . . . when justice so requires.” Fed. R. Civ. P.

15(a)(2).

      Here, amendment would have been futile. Mr. Miesen suggests that were he

given leave to amend, he would “quote the entire letters or attach the letters to his

amended complaint.” But the omitted portions of the letters are no more specific,

nor any more relevant, than the excerpts included in the Amended Complaint.

Because amendment could not have cured the deficiencies of the Amended

Complaint, the district court did not abuse its discretion by denying Mr. Miesen’s

request for leave to amend.

      AFFIRMED.

                                          6                                    19-35255