NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUL 30 2020 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT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