FILED NOT FOR PUBLICATION DEC 19 2019 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
KUSUMAM KOSHY, derivatively on No. 18-56159 behalf of nominal defendant Quality Systems, Inc., D.C. No. 8:17-cv-01694-CJC-JPR Plaintiff-Appellant,
v. MEMORANDUM*
CRAIG A. BARBAROSH; et al.,
Defendants-Appellees.
Appeal from the United States District Court for the Central District of California Cormac J. Carney, District Judge, Presiding
Argued and Submitted December 12, 2019 Pasadena, California
Before: N.R. SMITH and WATFORD, Circuit Judges, and HELLERSTEIN,** District Judge.
Kusumam Koshy appeals the district court’s dismissal of her claims against
Defendants and the court’s denial of leave to amend. Koshy argues that the district
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Alvin K. Hellerstein, United States District Judge for the Southern District of New York, sitting by designation. court erred in: (1) concluding that her claims, except those based on the approval
of Defendant Plochocki’s separation agreement, are time-barred and that equitable
tolling does not apply; (2) dismissing the remaining claim for failure to adequately
plead demand futility; and (3) denying leave to amend her complaint on the basis
that amendment would be futile. We have jurisdiction under 28 U.S.C. § 1291,
and we affirm.
1. We review de novo the dismissal of claims for failure to file within the
applicable statute-of-limitations period. See Huynh v. Chase Manhattan Bank, 465
F.3d 992, 996 (9th Cir. 2006). Yet, the “district court’s decision regarding
equitable tolling is ‘generally reviewed for an abuse of discretion, unless the facts
are undisputed, in which event the legal question is reviewed de novo.’” Hensley
v. United States, 531 F.3d 1052, 1056 (9th Cir. 2008) (quoting Santa Maria v. Pac.
Bell, 202 F.3d 1170, 1175 (9th Cir. 2000)).
A. Under California’s discovery rule, “[a] plaintiff has reason to discover a
cause of action when he or she ‘has reason at least to suspect a factual basis for its
elements.’” Fox v. Ethicon Endo-Surgery, Inc., 110 P.3d 914, 919 (Cal. 2005)
(quoting Norgart v. Upjohn Co., 981 P.2d 79, 88 (Cal. 1999)). In other words:
A plaintiff need not be aware of the specific ‘facts’ necessary to establish the claim . . . . Once the plaintiff has a suspicion of wrongdoing, and therefore an incentive to sue, she must decide whether to file suit or sit
2 on her rights. So long as a suspicion exists, it is clear that the plaintiff must go find the facts; she cannot wait for the facts to find her.
Jolly v. Eli Lilly & Co., 751 P.2d 923, 928 (Cal. 1988) (In Bank). Koshy’s claims
are time-barred, because she had “reason at least to suspect a factual basis for its
elements” at the latest when the other lawsuits stemming from the alleged
wrongdoing were filed.
B. “Three factors are taken into consideration when deciding whether to apply
equitable tolling under California law: (1) timely notice to the defendant in the
filing of the first claim; (2) lack of prejudice to the defendant in gathering evidence
to defend against the second claim; and (3) good faith and reasonable conduct by
the plaintiff in filing the second claim.” Hatfield v. Halifax PLC, 564 F.3d 1177,
1185 (9th Cir. 2009). Koshy has cited to no authority for the proposition that
equitable tolling applies in the circumstances here based on the pendency of an
earlier-filed shareholder derivative action brought by a different named plaintiff.
Because Koshy sat on her rights rather than “seek[] an alternate remedy in an
established procedural context,” the district court did not abuse its discretion in
concluding that the doctrine of equitable tolling does not save her claims. Acuna v.
San Diego Gas & Elec. Co., 159 Cal. Rptr. 3d 749, 760 (Ct. App. 2013).
3 2. Federal Rule of Civil Procedure 23.1 requires shareholders to make an effort
“to obtain the desired action from the directors or comparable authority” before
bringing a shareholder derivative suit. Fed. R. Civ. P. 23.1(b)(3)(A). Further, if
the shareholders made no such demand on the board before bringing the derivative
action, they “must ‘plead with particularity the reasons why such demand would
have been futile.’” Towers v. Iger, 912 F.3d 523, 528 (9th Cir. 2018) (quoting
Rosenbloom v. Pyott, 765 F.3d 1137, 1148 (9th Cir. 2014)). “The law of the state
of incorporation governs whether demand is futile.” Tindall v. First Solar Inc.,
892 F.3d 1043, 1046 (9th Cir. 2018). Though the nominal defendant, Quality
Systems, Inc., is a California corporation, California courts generally look to
Delaware law when determining demand futility, because “California and
Delaware law on the demand requirement are identical.” Potter v. Hughes, 546
F.3d 1051, 1054 n.1 (9th Cir. 2008). “[W]e review for abuse of discretion the
district court’s ruling dismissing [a] shareholder derivative suit on the ground of
failure to show demand futility.” Rosenbloom, 765 F.3d at 1147.
To show demand futility, Koshy must allege “particularized facts creating a
reasonable doubt”: (1) of the Defendants’ independence and disinterestedness in
relation to the non-time-barred claim, Beam ex rel. Martha Stewart Living
Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1049 (Del. 2004), or (2) that “the
4 challenged transaction was otherwise the product of a valid exercise of business
judgment,” Aronson v. Lewis, 473 A.2d 805, 814 (Del. 1984), overruled on other
grounds by Brehm v. Eisner, 746 A.2d 244, 255 (Del. 2000). The district court did
not abuse its discretion in finding that Koshy failed to adequately allege demand
futility, because (1) she failed to provide allegations that any member of the Board
was interested specifically in the approval of Plochocki’s separation agreement,
and (2) she failed to demonstrate why the separation agreement violated the
business judgment rule.
3. “We review the denial of leave to amend for an abuse of discretion, but we
review the question of futility of amendment de novo.” United States v. United
Healthcare Ins. Co., 848 F.3d 1161, 1172 (9th Cir. 2016) (citation omitted). Under
Free access — add to your briefcase to read the full text and ask questions with AI
FILED NOT FOR PUBLICATION DEC 19 2019 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
KUSUMAM KOSHY, derivatively on No. 18-56159 behalf of nominal defendant Quality Systems, Inc., D.C. No. 8:17-cv-01694-CJC-JPR Plaintiff-Appellant,
v. MEMORANDUM*
CRAIG A. BARBAROSH; et al.,
Defendants-Appellees.
Appeal from the United States District Court for the Central District of California Cormac J. Carney, District Judge, Presiding
Argued and Submitted December 12, 2019 Pasadena, California
Before: N.R. SMITH and WATFORD, Circuit Judges, and HELLERSTEIN,** District Judge.
Kusumam Koshy appeals the district court’s dismissal of her claims against
Defendants and the court’s denial of leave to amend. Koshy argues that the district
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Alvin K. Hellerstein, United States District Judge for the Southern District of New York, sitting by designation. court erred in: (1) concluding that her claims, except those based on the approval
of Defendant Plochocki’s separation agreement, are time-barred and that equitable
tolling does not apply; (2) dismissing the remaining claim for failure to adequately
plead demand futility; and (3) denying leave to amend her complaint on the basis
that amendment would be futile. We have jurisdiction under 28 U.S.C. § 1291,
and we affirm.
1. We review de novo the dismissal of claims for failure to file within the
applicable statute-of-limitations period. See Huynh v. Chase Manhattan Bank, 465
F.3d 992, 996 (9th Cir. 2006). Yet, the “district court’s decision regarding
equitable tolling is ‘generally reviewed for an abuse of discretion, unless the facts
are undisputed, in which event the legal question is reviewed de novo.’” Hensley
v. United States, 531 F.3d 1052, 1056 (9th Cir. 2008) (quoting Santa Maria v. Pac.
Bell, 202 F.3d 1170, 1175 (9th Cir. 2000)).
A. Under California’s discovery rule, “[a] plaintiff has reason to discover a
cause of action when he or she ‘has reason at least to suspect a factual basis for its
elements.’” Fox v. Ethicon Endo-Surgery, Inc., 110 P.3d 914, 919 (Cal. 2005)
(quoting Norgart v. Upjohn Co., 981 P.2d 79, 88 (Cal. 1999)). In other words:
A plaintiff need not be aware of the specific ‘facts’ necessary to establish the claim . . . . Once the plaintiff has a suspicion of wrongdoing, and therefore an incentive to sue, she must decide whether to file suit or sit
2 on her rights. So long as a suspicion exists, it is clear that the plaintiff must go find the facts; she cannot wait for the facts to find her.
Jolly v. Eli Lilly & Co., 751 P.2d 923, 928 (Cal. 1988) (In Bank). Koshy’s claims
are time-barred, because she had “reason at least to suspect a factual basis for its
elements” at the latest when the other lawsuits stemming from the alleged
wrongdoing were filed.
B. “Three factors are taken into consideration when deciding whether to apply
equitable tolling under California law: (1) timely notice to the defendant in the
filing of the first claim; (2) lack of prejudice to the defendant in gathering evidence
to defend against the second claim; and (3) good faith and reasonable conduct by
the plaintiff in filing the second claim.” Hatfield v. Halifax PLC, 564 F.3d 1177,
1185 (9th Cir. 2009). Koshy has cited to no authority for the proposition that
equitable tolling applies in the circumstances here based on the pendency of an
earlier-filed shareholder derivative action brought by a different named plaintiff.
Because Koshy sat on her rights rather than “seek[] an alternate remedy in an
established procedural context,” the district court did not abuse its discretion in
concluding that the doctrine of equitable tolling does not save her claims. Acuna v.
San Diego Gas & Elec. Co., 159 Cal. Rptr. 3d 749, 760 (Ct. App. 2013).
3 2. Federal Rule of Civil Procedure 23.1 requires shareholders to make an effort
“to obtain the desired action from the directors or comparable authority” before
bringing a shareholder derivative suit. Fed. R. Civ. P. 23.1(b)(3)(A). Further, if
the shareholders made no such demand on the board before bringing the derivative
action, they “must ‘plead with particularity the reasons why such demand would
have been futile.’” Towers v. Iger, 912 F.3d 523, 528 (9th Cir. 2018) (quoting
Rosenbloom v. Pyott, 765 F.3d 1137, 1148 (9th Cir. 2014)). “The law of the state
of incorporation governs whether demand is futile.” Tindall v. First Solar Inc.,
892 F.3d 1043, 1046 (9th Cir. 2018). Though the nominal defendant, Quality
Systems, Inc., is a California corporation, California courts generally look to
Delaware law when determining demand futility, because “California and
Delaware law on the demand requirement are identical.” Potter v. Hughes, 546
F.3d 1051, 1054 n.1 (9th Cir. 2008). “[W]e review for abuse of discretion the
district court’s ruling dismissing [a] shareholder derivative suit on the ground of
failure to show demand futility.” Rosenbloom, 765 F.3d at 1147.
To show demand futility, Koshy must allege “particularized facts creating a
reasonable doubt”: (1) of the Defendants’ independence and disinterestedness in
relation to the non-time-barred claim, Beam ex rel. Martha Stewart Living
Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1049 (Del. 2004), or (2) that “the
4 challenged transaction was otherwise the product of a valid exercise of business
judgment,” Aronson v. Lewis, 473 A.2d 805, 814 (Del. 1984), overruled on other
grounds by Brehm v. Eisner, 746 A.2d 244, 255 (Del. 2000). The district court did
not abuse its discretion in finding that Koshy failed to adequately allege demand
futility, because (1) she failed to provide allegations that any member of the Board
was interested specifically in the approval of Plochocki’s separation agreement,
and (2) she failed to demonstrate why the separation agreement violated the
business judgment rule.
3. “We review the denial of leave to amend for an abuse of discretion, but we
review the question of futility of amendment de novo.” United States v. United
Healthcare Ins. Co., 848 F.3d 1161, 1172 (9th Cir. 2016) (citation omitted). Under
a “futility analysis, ‘dismissal without leave to amend is improper unless it is clear,
upon de novo review, that the complaint could not be saved by any amendment.’”
United States v. Corinthian Colls., 655 F.3d 984, 995 (9th Cir. 2011) (cleaned up)
(quoting Krainski v. Nevada ex rel. Bd. of Regents of Nev. Sys. of Higher Educ.,
616 F.3d 963, 972 (9th Cir. 2010)). The Federal Rules of Civil Procedure promote
a policy favoring leave to amend, stating that “[t]he court should freely give leave
when justice so requires.” Fed. R. Civ. P. 15(a)(2). “[T]his policy is to be applied
with extreme liberality,” Desertrain v. City of Los Angeles, 754 F.3d 1147, 1154
5 (9th Cir. 2014) (quoting Morongo Band of Mission Indians v. Rose, 893 F.2d 1074,
1079 (9th Cir.1990)).
Despite this general policy, we affirm the district court’s denial of leave to
amend, because Koshy “has failed to set forth any facts”—before either the district
court or this court—“which [s]he could add to save h[er] complaint.” Janas v.
McCracken (In re Silicon Graphics Inc. Secs. Litig.), 183 F.3d 970, 991 (9th Cir.
1999), superseded by statute on other grounds; see also Halkin v. VeriFone Inc.,
(VeriFone Secs. Litig.), 11 F.3d 865, 872 (9th Cir. 1993) (affirming the district
court’s dismissal of an action with prejudice where plaintiffs failed to “point to
facts which might be added to save their complaint”).
AFFIRMED.