Taylor et al v. Hawley Troxell Ennis & Hawley LLP et al
Filing
1203
MEMORANDUM DECISION AND ORDER - Plaintiff Dale Miesens Motion to Certify (Dkt. 1148 ) is DENIED. Plaintiff Dale Miesens Amended Request for Judicial Notice (Dkt. 1153 ) is DENIED. The Hawley Troxell Defendants Motion to Dismiss (Dkt. 1067 ) is G RANTED. The derivative claims brought against them and the Individual and CropUSA Defendants who joined (Dkt. 1090 ) are DISMISSED WITH PREJUDICE in accordance with the decision above. Each partys status report is due within fourteen (14) days of this order. Signed by Judge David C. Nye. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (jd)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
DALE L. MIESEN, an individual who is
a shareholder and who is also bringing
this action on behalf of and/or in the right
of AIA Services Corporations and its
wholly owned subsidiary AIA Insurance,
Inc.,
Case No. 1:10-cv-00404-DCN
MEMORANDUM DECISION AND
ORDER
Plaintiff,
v.
HAWLEY TROXELL ENNIS &
HAWLEY LLP, et al.,
Defendants.
I. INTRODUCTION
Pending before the court are the Hawley Troxell Defendants’1 Motion to Dismiss
(Dkt. 1067) and Plaintiff Dale Miesen’s Motion to Certify (Dkt. 1148) and Amended
Request for Judicial Notice2 (Dkt. 1153). The Motion to Dismiss is joined by Defendants
James Beck, Michael Cashman, Connie Henderson, and R. John Taylor (the “Individual
1
The Hawley Troxell Defendants consist of Hawley Troxell Ennis & Hawley LLP, Gary D. Babbitt,
D. John Ashby, and Richard A. Riley.
2
By way of this request, Miesen asks the Court to take judicial notice of certain documents for purposes of
resolving the Motion to Dismiss. The Hawley Troxell Defendants responded in opposition to this request.
Dkt. 1163. Miesen replied. Dkt. 1170. There are additional requests for judicial notice throughout the
briefing of the Motion to Dismiss.
MEMORANDUM DECISION AND ORDER - 1
Defendants” or the “Controlling Defendants”),3 and by Crop USA Insurance Agency, Inc.,
and Crop USA Insurance Services, LLC (collectively, “CropUSA”). Dkt. 1090.
The Court held a hearing on these matters on March 9, 2022, and took the motions
under advisement. Now, for the reasons stated below, the Court GRANTS the Motion to
Dismiss, DENIES the Motion to Certify, and DENIES the Amended Request for Judicial
Notice.
II. BACKGROUND
This case began in 2010 as a shareholder derivative lawsuit on behalf of AIA
Services Corp. and AIA Insurance, Inc. (the “AIA Entities”). Now, the Hawley Troxell
Defendants, joined by the Individual Defendants and CropUSA, move to dismiss Miesen’s
shareholder derivative claims on the grounds that Miesen failed to satisfy the demand
requirements.
The Motion to Dismiss centers on the demand requirements for shareholder
derivative litigation. Miesen relies on a series of five demand letters that began in 2008 and
concluded in 2016. Interspersed between these letters are various amended complaints.
Because shareholder demands must be given 90 days before a complaint is filed, Idaho
Code § 30-29-742, the Court first reviews the timeline of the five demand letters and the
complaints in this action.
The first demand letter is dated July 21, 2008 (the “July 2008 Demand”). Dkt. 23-
3
Throughout the filings in this case, this group of Defendants is sometimes referred to as the “Individual
Defendants” and other times as the “Controlling Defendants.”
MEMORANDUM DECISION AND ORDER - 2
9.4 It is from Michael Bissel, an attorney, on behalf of Donna Taylor (a shareholder of the
AIA Entities) and Reed Taylor (who was not a shareholder) and was addressed to the AIA
Entities’ board of directors.
After the July 2008 Demand, Donna Taylor and Miesen filed the original Complaint
in this case on August 11, 2010. Dkt. 1. A few months later, Donna Taylor filed the First
Amended Complaint on November 22, 2010. Dkt. 23. Miesen was not a plaintiff in the
First Amended Complaint.
Then on April 3, 2012, attorney Rod Bond emailed the attorneys representing the
AIA Entities. Dkt. 67-33. This is the second demand letter (the “April 2012 Demand”).
That same year, various shareholders, including Miesen, made a demand at a shareholder
meeting on July 16, 2012 (the “July 2012 Demand”). Dkt. 67-42.
On June 13, 2016, Bond sent a demand letter (the June 2016 Demand”) on behalf
of Miesen to the board of directors of the AIA Entities. Dkt. 148-2. A week later, on June
20, 2016, the Second Amended Complaint was filed. Dkt. 137. Miesen rejoined as a
plaintiff in the Second Amended Complaint.
Two months later, on August 23, 2016, Bond sent another demand letter (the
“August 2016 Demand”) on behalf of Miesen to the AIA Entities’ board of directors. Dkt.
186-2. Finally, the Third Amended Complaint, which is the operative complaint, was filed
on April 24, 2017. Dkt. 211. Donna Taylor was dropped as a plaintiff in the Third Amended
Complaint.
4
The five demand letters are included across various docket entries. However, the Court uses the docket
citations provided in the Third Amended Complaint.
MEMORANDUM DECISION AND ORDER - 3
For convenience, the following table outlines each of the demands and the various
complaints in order:
Description
Docket
Letter from attorney Michael Bissel on behalf of
Donna Taylor and Reed Taylor addressed to the
AIA Entities’ board of directors.
Filed by Donna Taylor and Dale Miesen
Dkt. 23-9
Dkt. 1
First Amended
Complaint
November 22, 2010
April 2012
Demand
April 3, 2012
July 2012 Demand
July 16, 2012
Dale Miesen dropped as a plaintiff
Dkt. 23
June 2016
Demand
June 13, 2016
Second Amended
Complaint
June 20, 2016
August 2016
Demand
August 23, 2016
Third Amended
Complaint
April 24, 2017
Letter from attorney Rod Bond on behalf of Dale Dkt. 148-2
Miesen addressed to the AIA Entities’ board of
directors
Miesen rejoins as a plaintiff
Dkt. 137
July 2008 Demand
July 21, 2008
Complaint
August 11, 2010
Email from attorney Rod Bond to attorneys Dkt. 67-33
representing the AIA Entities
Demand made at shareholders’ meeting
Dkt. 67-42
Letter from attorney Rod Bond on behalf of Dale Dkt. 186-2
Miesen addressed to the AIA Entities’ board of
directors
Donna Taylor dropped as a plaintiff
Dkt. 211
This is not the only derivative lawsuit Miesen has brought on behalf of the AIA
Entities. Importantly, on June 30, 2020, the Ninth Circuit ruled in a parallel case, Miesen
v. Munding, that the June 2016 Demand was legally insufficient. 822 Fed. App’x 546
MEMORANDUM DECISION AND ORDER - 4
(2020). To be clear, this is the same demand letter referenced in this action, but the Ninth
Circuit was ruling on a different case—case number 2:18-cv-00270-RMP, filed in 2018 in
the Eastern District of Washington. The parties dispute the effect of the Ninth Circuit’s
Munding ruling on the present case, and that dispute is, unsurprisingly, the central issue in
the Motion to Dismiss.
After the Hawley Troxell Defendants filed their Motion to Dismiss, Miesen filed a
Motion to Certify and an Amended Request for Judicial Notice. Both of those filings
involve issues raised by the Motion to Dismiss. Because of the relationship between the
three motions, the Court addresses all of them in this Order.
III. DISCUSSION
Before the Court reviews the Motion to Dismiss, it must first review the Motion to
Certify as the resolution of that matter must precede the Court’s review of the broader
questions at issue. See All. for Prop. Rights & Fiscal Resp. v. City of Idaho Falls, 742 F.3d
1100, 1108 (9th Cir. 2013) (citing Thompson v. Paul, 547 F.3d 1055 (9th Cir. 2008))
(“There is a presumption against certifying a question to a state supreme court after the
federal district court has issued a decision.”). The Court will then review the Amended
Request for Judicial Notice since that request asks the Court to take judicial notice of
certain facts related to the Motion to Dismiss. After the Court resolves both of those
preliminary motions, the Court will address the Motion to Dismiss.
A. Motion to Certify (Dkt. 1148)
In the Motion to Certify, Miesen asks that this Court certify five questions to the
Idaho Supreme Court. Four of those questions relate to the Motion to Dismiss, and the fifth
MEMORANDUM DECISION AND ORDER - 5
question relates to a pending motion for summary judgement. Those questions are quoted
below:
May a derivative demand be excused when there is not a duly elected, fully seated,
and lawfully functioning board of directors?
Can any party other than the corporation challenge the adequacy of derivative
demands?
Is the board of director’s failure to request a shareholder to clarify or provide
additional information a waiver of the right to challenge the adequacy of the
derivative demands?
Is the adequacy of a derivative demand relaxed or excused when the corporate
insiders are concealing virtually all matters from shareholders and refusing to
engage in proper fundamental corporate governance?
Does Idaho recognize the adverse domination doctrine or similar doctrine that holds
the statutes of limitations do not run and/or are tolled because the corporation has
been controlled by unlawfully acting directors and the corporation has no
knowledge of what occurred under the adverse interest exception?
For the following reasons, the Court DENIES the Motion to Certify with respect to
all five questions.
1. Legal Standard
Idaho Appellate Rule 12.3 provides that a United States District Court may certify
a question of law to the Idaho Supreme Court if two conditions are met: (1) the question
certified is a controlling question of law in the pending action as to which there is no
MEMORANDUM DECISION AND ORDER - 6
controlling precedent in the decisions of the Idaho Supreme Court; and (2) the immediate
determination of Idaho law with regard to the certified question would materially advance
the orderly resolution of the litigation in the United States Court. Idaho App. R. 12.3(a);
see also White v. Valley Cnty., 2012 WL 13018504, at *1 (D. Idaho Aug. 10, 2012).
Certification is generally beneficial to assure that state law will be applied uniformly
and in accordance with the interpretations given by each state’s high court, state courts will
have the benefit of having the final say on a matter of state law, and the federal courts can
avoid the difficult task of attempting to divine how a state court would rule on a matter of
state law. See Lehman Bros. v. Schein, 416 U.S. 386, 391 (1974) (noting that certification
“does, of course, in the long run save time, energy, and resources and helps build a
cooperative juridical federalism”).
“Use of the certification procedure in any given case rests in the sound discretion of
the federal court.” Micomonaco v. Washington, 45 F.3d 316, 322 (9th Cir. 1995).
2. Analysis
The Court in its discretion does not find that Miesen meets either of the requirements
for certification. For clarity, the Court reviews each question separately.
a. Question About Derivative Demand Excuse
Both parties agree that the governing statutes for demand here are Idaho Code
Sections 30-1-742 and 30-29-742.5 They also both agree that Idaho has expressly done
away with the futility exception to the demand requirement. Despite that, Miesen argues
5
Idaho Code § 30-1-742 was in effect when the complaint in this case was filed on August 11, 2010. The
requirements for making a derivative demand were recodified as Idaho Code § 30-29-742 on July 1, 2015.
MEMORANDUM DECISION AND ORDER - 7
that the Idaho Supreme Court would excuse the demand requirement where there is not a
duly elected, fully seated, and lawfully functioning board of directors.
This is not an appropriate question to certify because it is not a question of law but
rather a question of the application of facts, not yet proven in this case, to well-settled law.
The Idaho Supreme Court has made clear that Idaho state law does not include a
futility exception to the demand requirement. McCann v. McCann, 61 P.3d 585, 593 (Idaho
2002) (“[T]he futility exception no longer applies to the demand requirement as set forth
in the statute.”); see also Kugler v. Nelson, 374 P.3d 571, 578 (Idaho 2016); Mannos v.
Moss, 155 P.3d 1166, 1173 (Idaho 2007). Miesen argues that the Idaho Supreme Court
“would reach a different result here” because the facts are different. Dkt. 1148-1, at 9. Such
a position is pure speculation and, frankly, in opposition to clear caselaw. This is not a
situation where there is no controlling precedent in the decisions of the Idaho Supreme
Court. That precedent is easily found in McCann and other Idaho Supreme Court cases.
This Court will not certify a case to the Idaho Supreme Court to see if it will distinguish
McCann based on facts not yet proven.
Finally, the Court notes this case started over a decade ago. The Court does not find
that certifying this question would materially advance the orderly resolution of the
litigation. Rather, it would likely unnecessarily extend the length of litigation since this
Court is well equipped to apply the applicable facts to well-settled Idaho state law. For that
additional reason, the Court will not certify the first question.
b. Question About Who Can Challenge the Adequacy of a Demand
The second question is whether only the corporation can challenge the adequacy of
MEMORANDUM DECISION AND ORDER - 8
a shareholder demand.6 Unlike the prior question, this question does not rely on factual
determinations but is indeed a question of law. However, certification is inappropriate here
because there is Idaho Supreme Court precedent on this issue.
Miesen argues that no Idaho appellate court decisions have resolved which parties
can challenge the adequacy of a shareholder demand. He contends that the Idaho Supreme
Court would hold that only the underlying corporation can challenge the adequacy of a
shareholder demand.
However, the Idaho Supreme Court has, in prior cases, accepted demand
challenges—even when brought by parties other than the corporation. See, e.g., McCann,
61 P.3d at 594 (affirming dismissal of derivative action where a shareholder raised the
issue of the demand requirement); Mannos v. Moss, 155 P.3d 1166, 1173 (Idaho 2007)
(affirming dismissal of derivative action where parties other than the corporation raised the
issue of the demand requirement). Furthermore, the Ninth Circuit recently affirmed the
Eastern District of Washington’s decision to dismiss a derivative action because Idaho’s
demand requirement was not met, which issue was raised by parties other than the
corporation.7 Munding, 822 Fed. App’x 546.
6
The parties quibble about the use of the word “standing” in this context. On occasion, Miesen has phrased
this question as a question about whether the Hawley Troxell Defendants and the Individual and CropUSA
Defendants have standing to challenge the adequacy of a shareholder demand. The Hawley Troxell
Defendants argued this is not an issue of standing, citing to Stonebrook Construction, LLC v. Chase Home
Finance, LLC, 277 P.3d 374, 377 (Idaho 2012), which explains that “standing is a subcategory of
justiciability” and “not at issue when evaluating the merits of a defense.” Id. (cleaned up). Miesen replied
by explaining that he used the term “standing” because other federal courts have used it in this context. Dkt.
1148-1, at 15 n.7. Regardless of the proper term, the Court understands that what is at issue is whether a
party other than the corporation may challenge the adequacy of the demand.
7
This is the same Munding case in which the Ninth Circuit held that the June 2016 Demand was inadequate.
MEMORANDUM DECISION AND ORDER - 9
Thus, the Court finds it has adequate precedent upon which to rely and certification
of this subject is not warranted.
c. Question About Whether the Board Should Have Asked for Clarification
Miesen asserts that the board of directors failed to ask for clarification upon receipt
of the demands, and he believes the Idaho Supreme Court would, upon certification, hold
that such failure waives the demand requirement. Thus, he wants certified the question of
whether the board of director’s failure to request that a shareholder clarify or provide
additional information acted as a waiver to the right to challenge the adequacy of the
derivative demands.
This question does not meet the certification requirements. First, it is dependent on
a factual determination that the board of directors failed to meet a duty and thus does not
involve a controlling question of law. Second, Idaho Supreme Court precedent is, again,
clear that there is no futility exception to the demand requirement. McCann, 61 P.3d at 593.
Certification is not an avenue to challenge existing caselaw but rather to resolve
unanswered questions.
For purposes of the Motion to Dismiss, the Court will apply the facts as plead in the
Third Amended Complaint to the well-established precedent from the Idaho Supreme
Court that there is no futility exception to the demand requirement. Provided with this
sufficient precedent, this Court can assess how the facts as plead interplay with well-settled
state law.
Finally, as is true for the other proffered questions, certification would likely
unnecessarily extend the length of litigation.
MEMORANDUM DECISION AND ORDER - 10
d. Question About Whether the Standard Should Be Relaxed
The fourth question again posits that the Idaho Supreme Court may relax or excuse
the standard based on the facts of this case. To reiterate, certification is not appropriate
where the Idaho Supreme Court has already addressed an issue, even if “not precisely in
the context of the facts of this action.” Miller v. Four Winds Intern. Corp., 827 F. Supp. 2d
1175, 1188 (D. Idaho 2011). The Idaho Supreme Court has addressed the demand
requirement, its statutory exceptions, and the lack of a futility exception. McCann, 61 P.3d
at 593. The Court will not certify this question.
e. Question About Adverse Domination Doctrine
The final question Miesen requests this Court to certify is whether Idaho law
recognizes the adverse domination doctrine or some other doctrine that tolls the statute of
limitations when the corporation is controlled by rogue directors. This question involves
defenses raised in two motions for summary judgment. Dkts. 1071, and 1077. In this
regard, this question is different since the other questions all relate to the present motion to
dismiss.
“Adverse domination is an equitable doctrine which tolls statutes of limitations for
claims by corporations against its officers, directors, lawyers and accountants while the
corporation is controlled by those acting against its interests.” Resol. Tr. Corp. v. Grant,
901 P.2d 807, 811 (Okl. 1995). Predicting whether a state would adopt or reject the adverse
domination doctrine, the Sixth Circuit reviewed caselaw from different jurisdictions and
concluded that the adverse domination doctrine is dependent upon the state’s discovery
rule or the lack thereof:
MEMORANDUM DECISION AND ORDER - 11
Notably, other courts considering the question of adverse domination
have focused on whether state law would apply a discovery rule to the
relevant claim for purposes of the statute of limitations. See, e.g., Wilson v.
Paine, 288 S.W.3d 284, 287–88 (Ky. 2009); FDIC v. Smith, 320 Or. 420,
980 P.2d 141, 137 (1999); Resolution Trust Corp. v. Scaletty, 258 Kan. 348,
891 P.2d 1110, 1115–16 (1995). As one court explained, “adverse
domination shares the same theoretical underpinnings as the discovery rule.”
Wilson, 288 S.W.3d at 287; see also Cedar Rapids Lodge & Suites, LLC v.
JFS Dev., Inc., 789 F.3d 821, 824–25 (8th Cir. 2015). But, as several of our
sister circuits have also concluded, adverse domination may be inconsistent
with a particular state’s tolling doctrines and policies regarding the strict
construction of its statutes of limitation. See Wilson, 288 S.W.3d at 288 n.2
(citing cases interpreting Ark., Ga., and Va. Law); Beck v. Lazard Freres &
Co., 175 F.3d 913, 914 (11th Cir. 1999) (interpreting Fla. Law).
Antioch Co. Litig. Trust v. Morgan, 644 Fed. App’x 579, 582 (6th Cir. 2016).
Similarly, the District of Oregon concluded that “the doctrine of adverse domination
is a corollary of the discovery rule.” Resol. Tr. Corp. v. Smith, 872 F. Supp. 805, 813 (D.
Or. 1995). Thus, because Oregon had adopted a discovery rule, the court reasoned that
Oregon would likewise probably adopt the adverse domination doctrine. Id. at 814. On
appeal, the Ninth Circuit certified the question to the Supreme Court of Oregon, which
“use[d] the discovery rule as a starting point in [its] analysis” and held that Oregon does
indeed recognize the adverse domination doctrine. FDIC v. Smith, 980 P.2d 141, 146–147
(Or. 1999).
More recently, the Ninth Circuit affirmed, without certifying the question, a district
court’s decision to not apply the doctrine, concluding that Nevada would not adopt the
adverse domination doctrine since it was inconsistent with the state’s sole actor rule.
USACM Liquidating Tr. v. Deloitte & Touche, 754 F.3d 645, 649 (9th Cir. 2014).
This Court has also declined to apply the adverse domination doctrine with respect
MEMORANDUM DECISION AND ORDER - 12
to the Idaho Uniform Fraudulent Conveyance Act because the Court found that the doctrine
was inconsistent with the “exacting statutory language” of the statute, which “extinguishes
a claim after the four-year period unless the one-year discovery rule applies.” Klein v.
Capital One Financial Corp., 2011 WL 3270438, at *7 (D. Idaho July 29, 2011).
While there is no Idaho Supreme Court precedent precisely on the issue of the
adverse domination doctrine, there is clear precedent rejecting the discovery rule for the
statute of limitations governing legal malpractice claims, which is Idaho Code § 5-219(4).
Elliott v. Parsons, 918 P.2d 592, 594 (Idaho 1966) (“In accordance with the legislature’s
rejection of a discovery rule, the statute begins to run when there is ‘some damage,’ not
when the party claiming malpractice discovers the damage.”); Martin v. Clements, 575
P.2d 885, 886–87, 889 (Idaho 1978) (“In view of the clear legislative intent of amended
I.C. § 5-219(4), we expressly decline to create a new ‘discovery’ exception for legal
malpractice actions.”). “Idaho has explicitly rejected a ‘discovery rule’ for the tolling of
statutes of limitations in malpractice cases . . . .” Werner v. American-Edwards
Laboratories, Inc., 745 P.2d 1055, 1058 (Idaho 1987). There are only two exceptions,
which are both codified in Idaho Code § 5-219(4), and they apply only for malpractice suits
where a foreign object is left in the body and where negligence is fraudulently concealed.
Id.; Idaho Code § 5-219(4).
What’s more, the Idaho Supreme Court has expressly rejected judicially constructed
tolling doctrines. Wilhelm v. Frampton, 158 P.3d 310, 312 (Idaho 2007). “Statutes of
limitations in Idaho are not tolled by judicial construction but rather by expressed language
of the statute.” Id. (quoting Indep. Sch. of Boise City v. Callister, 539 P.2d 987, 991 (1975)).
MEMORANDUM DECISION AND ORDER - 13
Since Miesen is asking about the application of a non-statutory tolling doctrine, the Court
is satisfied that the Idaho Supreme Court has answered the question as to whether such
tolling doctrines are applicable. Not only would the adverse domination doctrine be
contrary to Idaho’s rejection of the discovery rule, but it would also be contrary to the clear
holding in Wilhelm.
Miesen argues, in the alternative, that this Court should certify a question about
whether Idaho law recognizes the adverse interest exception. Under the adverse interest
exception, as applied elsewhere, “a corporation is charged with knowledge of what its agent
knows, unless the agent’s relations to the subject matter are so adverse as to practically
destroy the relationship.” Smith, 980 P.2d at 429 (cleaned up). Miesen contends that the
statute of limitations should not accrue until a party knows of the claim and that a
corporation does not have the knowledge of its agent’s actions if the agent’s interests are
sufficiently adverse to the corporation’s. Again, this is a non-statutory tolling doctrine,
which doctrine the Idaho Supreme Court rejected in Wilhelm. 158 P.3d at 312. Therefore,
the Court will not certify a question to the Idaho Supreme Court regarding either the
adverse domination doctrine or the adverse interest exception.
3. Conclusion
The Court will not certify any of the five questions Miesen requests to the Idaho
Supreme Court. None of the questions meet the certification requirements of Idaho
Appellate Rule 12.3. Accordingly, the Court DENIES the Motion to Certify.
B. Amended Request for Judicial Notice (Dkt. 1153)
A few days after filing the Motion to Certify, Miesen filed a motion requesting the
MEMORANDUM DECISION AND ORDER - 14
Court to take judicial notice of affidavit testimony. The Hawley Troxell Defendants filed
a response brief objecting to the request. Dkt 1163. Miesen then filed a reply brief, and in
that, he asked the Court to take judicial notice of additional materials—the Hawley Troxell
Defendants’ billing records. Dkt. 1170. The Hawley Troxell Defendants objected to this
request as well. Dkt. 1173.
The affidavit testimony Miesen seeks to admit references a complaint filed in a
different case and the July 2008 Demand, both of which were attached as exhibits to the
affidavit. Miesen requests judicial notice of these exhibits to the extent that they are part of
the relevant affidavit testimony. The purpose of this request is to “establish[] that the AIA
Entities’ purported directors were well aware of the specific transactions and legal action
being requested” by the July 2008 Demand. Dkt. 1153, at 3–4.
The affidavit testimony itself is from John Taylor. Miesen requests the Court take
judicial notice of the following portions from paragraphs 21, 22, and 28 of the affidavit:
21.
Although the original complaint filed in the Reed Taylor case was a
two-count complaint seeking relief against the AIA Entities and myself
personally with regard to the Stock Redemption Agreement within a year that
original complaint had been amended five times to add my ex-wife Connie
Taylor, Jim Beck and his wife Corrine, the CropUSA Entities and others and
to assert many of the identical issues that are present in this litigation.
Attached as Exhibit “O” hereto is the Fifth Amended Complaint in the Reed
Taylor Case. As I confirmed to Mr. Bond during his questioning in the course
of a during a four day deposition “at issue” in the Reed Taylor Case was (1)
the formation and ownership of CropUSA, (2) the business relationship of
the AIA entities and the CropUSA entities in terms of assets, employees,
master marketing agreements and administrative agreements, (3) the 2001
exchange of Series C preferred shares of AIA Services that were converted
to common shares of CropUSA, (4) 2001 purchase of a parking lot, (5) the
transactions between AIA Services and Pacific Empire Radio Corporation
(“PERC”), (6) assertions of conflicts of interest, (7) issues pertaining to the
Trustmark Settlement, (8) CropUSA asset sale to Hudson Insurance, (9)
MEMORANDUM DECISION AND ORDER - 15
consulting payments received by me, (10) my compensation from AIA
Services, (11) the attorney fees paid on behalf of the individual defendants
in the Reed Tylor case, (12) the loans between CropUSA and AIA Services,
and (13) compensation of the AIA Services’ directors. Based on these
allegations, in addition to the assertion of a breach of the stock redemption
agreement, Reed Taylor asserted, among other, claims for fraud, director
liability, breach of fiduciary duty, and conspiracy of all named Defendants.
22.
I also note that the Fifth Amended Complaint, like the present
litigation, sought to challenge AIA Services’ guarantee of CropUSA’s loan.
In this regard, in October 2006 HTEH prepared an attorney opinion letter
regarding a loan transaction involving the CropUSA Entities and Lancelot
Investors Fund, L.P. and to which AIA insurance was to be a guarantor to the
loan transaction.
....
28.
Thereafter, in a letter dated July 21, 2008, Donna Taylor in her
identified capacity as a Series A Preferred Shareholder in AIA Services made
demand upon AIA Services for corrective action pursuant to Idaho Code 301-742. Like the Complaint in Reed Taylor’s case, Donna Taylor’s letter
asserted the existence of 27 matters to which she asserted liability existed
including, but not limited to the alleged usurpation of a corporate opportunity
with regard to the CropUSA Entities, illegal loan guarantees as well as
assertions of fraud, misappropriation and breach of fiduciary duties. A true
and correct copy of this correspondence is attached is attached as Exhibit
“S.” As the docket in this matter reflects, this present action purporting to be
a derivative case was not commenced until August 11, 2010.
Dkt. 1153, at 4.
Ordinarily, a district court may not consider evidence outside of the pleadings when
ruling on a motion to dismiss unless it converts the motion into a motion for summary
judgment. United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003). “A court may,
however, consider certain materials—documents attached to the complaint, documents
incorporated by reference in the complaint, or matters of judicial notice—without
converting the motion to dismiss into a motion for summary judgment.” Id. at 908. Because
MEMORANDUM DECISION AND ORDER - 16
Miesen wishes this Court to consider this evidence, which is outside of the pleadings, he
requests that the Court take judicial notice of it.
A court may take judicial notice of documents that are not subject to reasonable
dispute and are capable of accurate and ready determination by resort to sources whose
accuracy cannot be reasonably questioned. Fed. R. Evid. 201(b). “[A]djudicative facts
appropriate for judicial notice are typically different from facts found in affidavits
supporting litigation positions, which often present facts subject to dispute.” Henderson v.
Oregon, 203 Fed. App’x 45, 52 (9th Cir. 2006). Miesen has not demonstrated that the facts
he seeks to introduce are not subject to reasonable dispute. His only argument here is that
John Taylor, who is a defendant in this case (though not one of the Hawley Troxell
Defendants) provided this affidavit testimony under penalty of perjury. That makes it no
different than other affidavits that present facts subject to dispute.
Moreover, at the Rule 12(c) motion to dismiss stage, the Court is concerned with
the allegations in the pleadings. In the operative complaint, the Third Amended Complaint
(Dkt. 211), Miesen alleges that “[o]n July 21, 2008, Donna Taylor, another shareholder of
AIA Services, served a written derivative demand letter on the Boards of Directors of AIA
Services and AIA Insurance.” Dkt. 211, at ¶ 172. Miesen also alleges that in another case,
the Hawley Troxell Defendants filed a motion for stay expressly for the purpose of
“conduct[ing] an inquiry into the demand made by Donna Taylor.” Id. at ¶ 173. Miesen’s
present request for judicial notice is for the purpose of “establishing that the AIA Entities’
purported directors were well aware of the specific transactions and legal action being
requested” of Donna Taylor’s demand letter. Dkt. 1153, at 4. If the directors’ awareness is
MEMORANDUM DECISION AND ORDER - 17
necessary in evaluating the merits of the Motion to Dismiss, however, the Court need look
no further than these allegations in the Third Amended Complaint that the directors were
aware of the demand and the underlying issues. There is no need for additional information
from Miesen.
Miesen also requests that the Court take judicial notice of the Hawley Troxell
Defendants’ billing records because he believes they prove “that the HT Defendants and
the so-called boards of directors were fully aware of the HT Defendants’ tortious conduct—
the AIA Entities were paying the HT Defendants to conduct legal research regarding the
HT Defendants’ conduct and liability.” Dkt. 1170, at 5. The Hawley Troxell Defendants
object, contending that “Plaintiff’s request for judicial notice inappropriately argues
inferences that Plaintiff wants the Court to draw from the information and his arguments
invite the Court to speculate about Defendants’ subjective understanding of allegations.”
Dkt. 1163, at 3. The Court agrees with the Hawley Troxell Defendants’ assessment.
“Judicial notice under Fed. R. Evid. 201 is appropriate to take judicial notice of
adjudicative facts. To the extent that [the request] presents additional argument . . . , Rule
201 does not provide authority for the Court to consider the arguments . . . .” Golden W.
Holdings, LLC v. BBT Holdings, LLC, 2010 WL 4853301, at *11 (D. Idaho Nov. 22, 2010)
(cleaned up).
For these reasons, the Court DENIES the Amended Request for Judicial Notice
(Dkt. 1153).
C. Motion to Dismiss (Dkt. 1067)
The Hawley Troxell Defendants predicate their Motion to Dismiss on the
MEMORANDUM DECISION AND ORDER - 18
inadequacy of the five written demands. They argue that Miesen failed to meet the demand
requirements before bringing suit and that, as a result, the derivative claims should be
dismissed. In response, Miesen contends that prior orders in this case preclude the Court
from dismissing his claims on this ground and that he met the demand requirement.
1. Preliminary Matters
There are a few preliminary matters the Court must address before reaching the
merits of the Motion to Dismiss.
a. Judicial Notice
First, because this case would not be what it is today without excessive filings and
repetitive arguments, the parties fight another judicial notice battle in the briefing for the
Motion to Dismiss, and that argument spilled over into their response and reply briefs
regarding a motion for page extension. See Dkt. 1199, at 2 n.2 (“The Court notes that in
his opposition to the Motion for Overlength Reply, Miesen objected to and argued against
the Hawley Troxell Defendants’ request for judicial notice within their overlength reply.
That issue will be dealt with when the Court takes up the Motion to Dismiss.”).
The parties agree that the Court should take judicial notice of the five demand
letters.8 The Court grants that request.
The Hawley Troxell Defendants also request that the Court take judicial notice of
the demand letter at issue in the Eastern District of Washington case Miesen v. Munding,
8
Miesen has both agreed and disagreed that the Court should take judicial notice of the June 2016 Demand.
Compare Dkt. 1131, at 8, with Dkt. 1149, at 7. He insists that the Court should only take judicial notice of
the June 2016 Demand if it includes the Second Amended Complaint. The Court does not need to take
judicial notice of the Second Amended Complaint, but the Court also recognizes Miesen’s position that the
June 2016 Demand is best understood in the context of the Second Amended Complaint.
MEMORANDUM DECISION AND ORDER - 19
which is the same as the June 2016 Demand letter in the instant case, as well as the amended
complaint in Munding.9 The Court grants this request and takes judicial notice of both
Munding filings, which are included in the record at Docket 1138, at 35–45 (Demand), and
Docket 1138, at 46–112 (Amended Complaint).10 See Reyn’s Pasta Bella, LLC v. Visa
USA, Inc., 442 F.3d 741, 746 (9th Cir. 2006) (explaining a court “may take judicial notice
of court filings and other matters of public record”).
Miesen also argues that the Court should not take judicial notice of the two Munding
decisions. The Hawley Troxell Defendants did not ask the Court to take judicial notice of
these decisions because the Court does not need to take judicial notice of court decisions
in order to consider them.
For his own part, Miesen asks that the Court also take judicial notice of (1) AIA
Services’ Amended Articles of Incorporation; (2) AIA Services’ Restated Bylaws; (3) the
Idaho State Bar membership records for John Taylor and Connie Henderson; (4) the AIA
Petition for Court Appointed Inquiry dated August 14, 2018; and (5) Reed Taylor’s Fifth
9
Miesen objects to this request because the Hawley Troxell Defendants did not attach the Munding filings
to their Motion to Dismiss. Instead, they provided the information whereby the Court and other parties
could locate the materials on PACER. They then included the filings with their reply brief after the Court
had issued a ruling on a separate judicial notice question and stated, “On a closing note, in the future, any
party asking the court to take judicial notice of any records—whether they are public or not—should attach
those records to their briefs in the appropriate manner.” Dkt. 1119, at 3 (cleaned up). The Court does not
find the request improper even though the Hawley Troxell Defendants originally failed to attach the
documents in the Motion to Dismiss and later attached them in their reply brief—which came after the
Court directed the parties to attach records for judicial notice to their briefs. By including the filings in their
reply brief, the Hawley Troxell Defendants corrected the problem identified by the Court.
10
The case number for Miesen v. Munding in the Eastern District of Washington is No. 2:18-CV-270-RMP.
In that case, the docket number for the demand is 8-13, and the docket number for the amended complaint
is 10.
MEMORANDUM DECISION AND ORDER - 20
Amended Complaint filed in Taylor v. AIA Services, et al.11 Dkt. 1131, at 8–9. The Court
denies this request since none of these documents are pertinent to the Motion to Dismiss.
b. Who May Challenge the Adequacy of the Demand
The second preliminary issue is who may challenge the adequacy of a shareholder
demand. Miesen argues that only the AIA Entities may challenge the adequacy of the
demand. This ties back to the second question for which Miesen sought certification:
whether only the corporation can challenge the adequacy of a shareholder demand. Having
denied certification, the Court now looks to the relevant precedent to answer this question.
As previously noted, the Idaho Supreme Court has, in prior cases, accepted demand
challenges, even when brought by parties other than the corporation. See, e.g., McCann, 61
P.3d at 594 (affirming dismissal of derivative action where a shareholder raised the issue
of the demand requirement); Mannos, 155 P.3d at 1173 (affirming dismissal of derivative
action where parties other than the corporation raised the issue of the demand requirement).
Furthermore, the Ninth Circuit recently affirmed the Eastern District of Washington’s
decision to dismiss a derivative action because Idaho’s demand requirement was not met,
which issue was raised by parties other than the corporation. Munding, 822 Fed. App’x.
546. Accordingly, the Court concludes that under Idaho state law, parties other than the
corporation may challenge the adequacy of a shareholder demand.
11
Taylor v. AIA Services, et al. is a separate case though involving some of the same parties. Many of the
allegations in the present lawsuit revolve around actions relating to or occurring in the Taylor v. AIA
Services, et al. lawsuit. Dkt. 211 at ¶¶ 94, 99, 108, 109, 111, 115, 164, 174, 176, 177, 189, 243.
MEMORANDUM DECISION AND ORDER - 21
c. Supplemental Authority
After the Motion to Dismiss was fully briefed, Miesen filed a Notice of
Supplemental Authorities. Dkt. 1171. In it, he brings to the Court’s attention an additional
eight authorities, which he believes support his various legal theories:
28 U.S.C. § 636(c)
Black’s Law Dictionary entry for “dilatory”
Seaport Citizens Bank v. Dippel, 735 P.2d 1047, 1050–51 (Idaho 1987)
Melgard v. Moscow Idaho Seed Co., 251 P.2d 546, 550 (Idaho 1952)
Steelman v. Mallory, 716 P.2d 1282, 1285 (Idaho 1986)
Haberman v. Wash. Pub. Power Supply Sys., 744 P.2d 1032, 1060 (Wash. 1987)
Note, Defenses in Shareholders’ Derivative Suits—Who May Raise Them, 66 Harv.
L. Rev. 342, 343 & 346 (1952)
Taylor v. AIA Servs. Corp., 261 P.3d 829, 841 (Idaho 2011)
La Voy Supply Co. v. Young, 369 P.2d 45, 49 (Idaho 1962)
The Hawley Troxell Defendants objected to the Notice of Supplemental Authorities,
arguing that the purpose of supplemental authorities is to bring to attention new authorities
that were not available when the issue was briefed. Dkt. 1173. None of the authorities
Miesen adds here are new. Moreover, Miesen cites to all but the “dilatory” definition and
28 U.S.C. § 636(c) in his Motion to Certify. Dkt. 1148-1, at 12–15.
“The purpose of a Notice of Supplemental Authority is to inform the Court of a
newly decided case that is relevant to the dispute before it, not a venue for submission of
MEMORANDUM DECISION AND ORDER - 22
additional argument or factual evidence.” B St. Grill & Bar LLC v. Cincinnati Ins. Co., 525
F. Supp. 3d 1008, 1013 (D. Ariz. 2021). While Miesen does not make lengthy arguments
in his Notice of Supplemental Authorities, it is not lost on the Court that the purpose of this
filing is simply to bolster arguments already presented to the Court by adding caselaw, a
dictionary definition, and a law review note from the 1950s—in addition to brief lines of
argument, such as “the so-called directors owed Miesen fiduciary duties to deal with him
fairly in response to the five derivative demands.” Dkt. 1171. Because this filing does not
notify the Court of new authority, or even useful authority not already provided elsewhere,
the Court STRIKES Miesen’s Notice of Supplemental Authority as improper.
To this point, the Court has been generous in this case allowing for filings outside
of the briefing schedule set forth in Local Rule 7.1. The Court has also been generous with
page extensions. However, the Court cannot ignore that this case has over 1,200 docket
entries and that the instant motions have several additional filings on top of the ordinary
motion, response, and reply briefs. The Court cautions the parties that it expects
compliance with Local Rule 7.1. If the parties need to file something outside of what is
allowed under Local Rule 7.1, the parties should request leave from the Court.
d. Compliance with Procedural Orders
Finally, Miesen argues that the Motion to Dismiss violates two procedural orders in
this case, and as such, he believes the Court should strike the defenses relating to demand
adequacy and award fees and costs.
The first of the two orders Miesen refers to is a footnote in an order issued by United
States Magistrate Judge Candy W. Dale in 2016, which states, “The Court would have
MEMORANDUM DECISION AND ORDER - 23
expected (and expects in the future) grounds for dismissal to have been raised in response
to the motion to amend instead of misleading representations that Defendants did not
oppose Plaintiffs’ motion to amend. The notices of non-opposition were not consistent with
Rule 1.” Dkt. 178, at 3. Judge Dale was addressing how Miesen proposed to amend his
complaint to add additional defendants. At that time, the Hawley Troxell Defendants filed
non-opposition notices, the Court allowed amendment, but then the Hawley Troxell
Defendants moved for dismissal because the added defendants destroyed diversity
jurisdiction. Id.
Miesen contends that because the Hawley Troxell Defendants did not raise the
demand adequacy issue when he last amended his complaint, that doing so now is dilatory
and in violation of Judge Dale’s order. The Court disagrees. Judge Dale’s admonition was
directed at the specific behavior at that time. Much has changed since then. What’s more,
this was not a formal order, but a reminder that the Court strives to adhere to Rule 1’s
mandate in ensuring the efficient and effective resolution of any cases.
The second “order” Miesen refers to relates to the Court’s preferences regarding
motion practice, which states, “Chief Judge Nye expects that counsel, prior to filing a
motion to dismiss based upon Iqbal-Twombly, will contact opposing counsel, advise them
of the perceived shortcomings in the allegations of the complaint, and attempt to reach
agreement for the filing of an amended complaint.”12 The Hawley Troxell Defendants
apparently did not contact opposing counsel before filing the Motion to Dismiss; however,
12
https://www.id.uscourts.gov/district/judges/nye/Motion_Practice.cfm
MEMORANDUM DECISION AND ORDER - 24
the Motion to Dismiss is not based upon whether of factual allegations in the complaint
satisfy Iqbal-Twombly, rather the Motion to Dismiss is based on the adequacy of the
demands. The Court’s guidance regarding motions to dismiss seeks to avoid unnecessary
motions where the concerns raised could be resolved if the plaintiff amended the complaint
to include factual allegations needed to state a claim and satisfy Iqbal-Twombly. That is
not at issue here. If the demands are inadequate, amending the Complaint would not
remedy the cause for dismissal. While the Court expects communication and good faith
between opposing counsel throughout litigation, the Court will not strike the defenses, nor
award fees and expenses, merely because counsel for the Hawley Troxell Defendants did
not contact Miesen’s counsel in advance of filing the non-Iqbal-Twombly Motion to
Dismiss. Again, the document Miesen relies on is not a formal “order,” but rather the
Court’s preferences to streamline litigation.
Having resolved the preliminary issues, the Court now proceeds to evaluate the
merits of the Motion to Dismiss.
2. Legal Standard
Rule 12(c) of the Federal Rules of Civil Procedure states, “After the pleadings are
closed—but early enough not to delay trial—a party may move for judgment on the
pleadings.” The standard governing a Rule 12(c) motion for judgment on the pleadings is
“functionally identical” to that governing a Rule 12(b)(6) motion. United States ex rel.
Caffaso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054 n. 4 (9th Cir. 2011). “For
purposes of the motion, the allegations of the non-moving party must be accepted as true,
while the allegations of the moving party which have been denied are assumed to be false.”
MEMORANDUM DECISION AND ORDER - 25
Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1550 (9th Cir. 1989).
“Judgment on the pleadings is proper when the moving party clearly establishes on the face
of the pleadings that no material issue of fact remains to be resolved and that it is entitled
to judgment as a matter of law.” Id. “However, judgment on the pleadings is improper
when the district court goes beyond the pleadings to resolve an issue; such a proceeding
must properly be treated as a motion for summary judgment.” Id.
As with traditional motions to dismiss, if a court grants a motion for judgment on
the pleadings, leave to amend should be granted unless “the Court is satisfied that an
amendment could not cure the deficiency.” Harris v. Cnty. of Orange, 682 F.3d 1126, 1135
(9th Cir. 2012).
3. Analysis
“Pursuant to Rule 23.1, a putative derivative plaintiff can initiate a derivative action
only if he or she makes an adequate demand on the Board under applicable state law.”
Potter v. Hughes, 546 F.3d 1051, 1055 (9th Cir. 2008). Under Idaho Law, “a shareholder
may not commence a derivative proceeding until he makes a written demand upon the
corporation to take suitable action at least ninety days prior to the commencement of the
action.” Mannos, 155 P.3d at 1172–73.
Idaho Code Section 30-29-74213 specifically provides,
No shareholder may commence a derivative proceeding until:
(a) A written demand has been made upon the corporation to take suitable
action; and
13
As noted, Idaho Code Section 30-1-742 was in effect when the complaint in this case was filed on August
11, 2010. Supra n.5. The requirements for making a derivative demand were recodified as Idaho Code
Section 30-29-742 on July 1, 2015. The statutory language is the same.
MEMORANDUM DECISION AND ORDER - 26
(b) Ninety (90) days have expired from the date delivery of the demand was
made unless the shareholder has earlier been notified that the demand has
been rejected by the corporation or unless irreparable injury to the
corporation would result by waiting for the expiration of the ninety (90) day
period.
“[T]he legislative intent in enacting [this statute] was to no longer recognize
‘futility’ as an exception to the requirement of demand as a condition preceding the
institution of a shareholder’s derivative action.” Mannos, 155 P.3d at 1173 (cleaned up).
The shareholder’s demand effort must be “earnest and sincere, and not a feigned or
simulated, effort to induce the directors to take remedial action.” McCann, 61 P.3d at 592
(quoting 19 Am. Jur. 2d Corporations § 2278, 173–74 (1986)). A demand to merely “take
action” is insufficient. Id. As the Idaho Supreme Court has explained:
Statements should be presented to the directors showing the wrong
complained of, accompanied by sufficient responsible data which will enable
the directors to determine whether litigation could be engaged in with some
hope of success. The shareholder must state facts, not mere general charges
and conclusions.
The demand should give the directors a fair opportunity to initiate the
action which the shareholder wants to undertake, and name the potential
defendants, as well as the shareholder making the demand.
Id. (quoting 19 Am. Jur. 2d Corporations § 2278, 173–74 (1986)).
“Because the law has historically been particularly wary of allowing shareholders
to sue on their corporation’s behalf,” shareholder derivative actions must strictly comply
with the demand and pleading requirements of Federal Rule of Civil Procedure 23.1. Kayes
v. Pac. Lumber Co., 51 F.3d 1449, 1463 (9th Cir. 1995); see also Potter, 546 P.3d at 1058
(noting “strict compliance with Rule 23.1 and applicable substantive law is necessary
before a derivative suit can wrest control of an issue from the board of directors”).
MEMORANDUM DECISION AND ORDER - 27
A written derivative demand is mandatory, and failure to comply with pre-suit
demand requirements necessitates dismissal of a derivative action. See Mannos, 155 P.3d
at 1172–73. “Although dismissals for failure to state a claim are reviewed de novo, [a]
district court’s determination that [the plaintiff] did not comply with Rule 23.1 or [state]
law regarding the demand . . . is reviewed for abuse of discretion.” Potter, 546 F.3d at
1056.
As explained, the Ninth Circuit has already had occasion in a related case to apply
Idaho law governing the demand requirement to one of the demand letters at issue here.
Munding, 822 Fed. App’x 546. The Ninth Circuit upheld the Eastern District of
Washington’s dismissal based on the inadequacy of the demand:
The district court correctly concluded that Mr. Miesen’s letters, as
excerpted 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, 104 S. Ct. 831, 78
L.Ed.2d 645 (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.
Id. at 548–49.
The demand the Ninth Circuit found inadequate is the June 2016 Demand in the
present case. However, the Ninth Circuit’s decision concerned a defendant in that case,
MEMORANDUM DECISION AND ORDER - 28
John Munding, and not any of the Defendants in the present case.
Miesen advances several arguments as to why this Court should not come to the
same conclusion as the Ninth Circuit in Munding.
First, Miesen contends that Judge Dale has already held that the demand letters in
the present case are adequate.14 In 2017, when determining whether to allow Miesen to
amend his complaint over the objection of the Individual and CropUSA Defendants, Judge
Dale reviewed the demand letters and found them adequate. Dkt. 210. At the time, this case
was at a wholly different procedural juncture. There, Judge Dale was determining whether
to allow Miesen to amend his complaint under Federal Rule of Civil Procedure 15(a)(2).
Under Rule 15(a)(2), “[t]he court should freely give leave [to amend] when justice
so requires.” As Judge Dale wrote in her order, “while the decision to grant leave to amend
is within the Court’s discretion, the Court ‘must be guided by the underlying purpose of
Rule 15 to facilitate decision on the merits rather than on the pleadings or technicalities.’”
Dkt. 210, at 12 (quoting United States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981)). Among
the considerations in determining whether to allow amendment is the futility of the
proposed amendment. Id. (citing Moore v. Kayport Package Express, Inc., 855 F.2d 531,
538 (9th Cir. 1989)). “Generally, this determination should be performed with all
inferences in favor of grating the motion.” Id. at 13 (quoting Griggs v. Pace Am. Grp., Inc.,
170 F.3d 877, 880 (9th Cir. 1999)).
14
In addition to his argument about Judge Dale’s holding, Miesen also argues that a 2011 decision written
by District Judge Larry M. Boyle (Dkt. 46) precludes any finding that the demands are inadequate. Judge
Boyle’s 2011 order did not address the demand letters at all—and it could not have mentioned any except
the July 2008 Demand since the other demands all came after Judge Boyle’s order. Therefore, that order
does not impede the Court from concluding that the demand letters are adequate.
MEMORANDUM DECISION AND ORDER - 29
The Individual and CropUSA Defendants objected to allowing amendment, in part
because they believed amendment was futile because the June 2016 Demand and August
2016 Demand were inadequate. Judge Dale disagreed, finding that the demands were
adequate, and thus, under the liberal standard of Rule 15(a)(2), allowed amendment.
Miesen argues that the law of the case doctrine applies and that the Motion to
Dismiss is an improper motion for reconsideration. The Hawley Troxell Defendants
disagree and emphasize that they were not among the Individual and CropUSA Defendants
who objected to amendment of the complaint. Alternatively, if the standards for
reconsideration apply, the Hawley Troxell Defendants contend that reconsideration would
be appropriate in light of Munding.
“The law of the case doctrine originated in the courts as a means of ensuring the
efficient operation of court affairs.” City of L.A., Harbor Div. v. Santa Monica Baykeeper,
254 F.3d 882, 888 (9th Cir. 2001). “When a court applies the law of the case doctrine to its
own prior decisions (or those of a coordinate or equal court), the traditional formulations
of the doctrine must be conceived as rules of thumb and not as straightjackets on the
informed discretion and sound practical judgment of the judge.” 18 Moore’s Federal
Practice, § 134.21[1] (3d ed. 2021). Furthermore, “[t]he doctrine simply does not impinge
a district court’s power to reconsider its own interlocutory order . . . .” Santa Monica
Baykeeper, 354 F.3d at 888.
The Court is not faced with reconsidering Judge Dale’s order allowing amendment
of the complaint—that is, the outcome of this decision will not undo or ratify the order
allowing amendment. Rather, the Hawley Troxell Defendants ask the Court to make
MEMORANDUM DECISION AND ORDER - 30
findings that are contrary to Judge Dale’s findings upon which she relied, at least in part,
in her decision allowing amendment. The Court does not undertake this exercise lightly;
however, since Judge Dale’s order over four years ago, the Ninth Circuit has issued its
Munding ruling, which conflicts with Judge Dale’s order. What’s more, the Court is not
bound by this prior order. Accordingly, the Court will review the demand letters consistent
with Munding and reassess whether they are adequate under Idaho law.
Second, Miesen argues that this Court should reach a different conclusion than
Munding because the Ninth Circuit’s and Eastern District of Washington’s opinions are
“irrelevant and inadmissible hearsay.” Dkt. 1131, at 10. This position is ludicrous.
Third, Miesen contends that neither the Ninth Circuit nor the Eastern District of
Washington applied Idaho law in their respective Munding decisions. However, both cases
expressly say that they are applying Idaho law. Munding, 822 Fed. App’x at 548;15 Miesen
v. Munding, 2019 WL 1410899, at *5 (E.D. Wash. Mar. 28, 2019).16 As with his second
argument, Miesen’s argument on this point strains logic.
Miesen’s extreme arguments seem to stem from his frustrations about the outcome
of those cases. Rather than arguing that the Eastern District of Washington and the Ninth
Circuit are not controlling and are unpersuasive authority, Miesen jumps to the outlandish
position that the decisions themselves are hearsay and irrelevant. While the Court will not
entertain Miesen’s ridiculous arguments, it will review his reasonable arguments regarding
15
“Applicable state law required Mr. Miesen to make a ‘written demand . . . upon the corporation to take
suitable action.’ Idaho Code § 30-29-742.”
16
“Consequently, this Court must follow Idaho law, because the AIA Entities are incorporated under Idaho
law according to the amended complaint.”
MEMORANDUM DECISION AND ORDER - 31
the applicability and persuasiveness of Munding. After reviewing Munding, the Court
reviews each of the demand letters.
a. Review of Munding
First, the Court notes that both the Ninth Circuit’s and the Eastern District of
Washington’s Miesen decisions are unpublished. However, Ninth Circuit Rule 36-3
expressly allows citation to unpublished decisions, and while unpublished cases are not
precedential, they can be persuasive.17 Here, the June 2016 Demand letter was reviewed
by the Eastern District of Washington and the Ninth Circuit, and those courts concluded
the demand was inadequate, at least as the letter pertained to John Munding. Because the
June 2016 Demand was reviewed by these courts, the Court finds the two Munding
decisions particularly persuasive.
Second, Miesen filed a petition for certiorari in Munding, and the Supreme Court
denied it. 141 S. Ct. 1464 (Mem.) (2021). Miesen argues that the denial of certiorari does
not support the merits of the Ninth Circuit’s decision. Dkt. 1131, at 10 (citing Brown v.
Allen, 344 U.S. 443, 456 (1953) (“We have frequently said that the denial of certiorari
imports no expression of opinion upon the merits of a case.” (cleaned up))). However, this
argument ignores the practical effect of the denial of certiorari in Munding: in that case,
there is no remaining question about the sufficiency of the demand. The decision is final
that the June 2016 Demand is insufficient under Idaho law in that case. Miesen asks this
17
Under Ninth Circuit Rule 36-3, unpublished decisions are precedential “when relevant under the doctrine
of law of the case or rules of claim preclusion or issue preclusion.” While the demand letter in Munding is
the same as the June 2016 Demand in this case, the Hawley Troxell Defendants do not raise any preclusion
arguments.
MEMORANDUM DECISION AND ORDER - 32
Court to now find that the June 2016 Demand is sufficient under Idaho law in this case.
Third, the Ninth Circuit reviewed the Eastern District Court’s decision for abuse of
discretion. Munding, 822 Fed. App’x at 548. Miesen argues that this standard is incorrect
under Idaho law and that the correct standard of review is de novo. Dkt. 1131, at 20 n.10.
In Potter v. Hughes, the Ninth Circuit held that “the demand requirement for derivative
actions are reviewed for abuse of discretion.”18 546 F.3d 1051, 1056 (9th Cir. 2008).
Miesen cites an Idaho case, in which the Idaho Supreme Court held that the “interpretation
of a statute is a question of law that the Supreme Court reviews de novo.” Bright v. Maznik,
396 P.3d 1193, 1196 (Idaho 2017) (internal quotation omitted). The statute at issue in
Bright was Idaho Code § 25-2805(2) (2015), Idaho’s dog-bite law. Id. The holding in
Bright is wholly inapplicable. “[I]t is well established that rules regarding the appropriate
standard of review, or even the availability of review at all, to be applied by a federal court
sitting in diversity, are questions of federal law.” Freund v. Nycomed Amersham, 347 F.3d
752, 762 (9th Cir. 2003). Indeed, the Ninth Circuit has cited to Potter for the same standard
of review for demand requirements in cases arising under Delaware law,19 Washington
law,20 and Nevada law.21 To the extent Miesen argues that Munding is unpersuasive
18
Miesen has objected to citations of Potter in the Hawley Troxell Defendants’ briefing and in Munding.
Because the Ninth Circuit in Potter was reviewing California law regarding derivative demands, Miesen
contends that citations to Potter indicate application of California law, rather than Idaho law. This is not
true. Courts may cite to federal cases for federal procedural law even if the cases involve differing
substantive state law.
19
20
Tindall v. First Solar Inc., 892 F.3d 1043, 1045 (9th Cir. 2018).
Quinn v. Anvil Corp., 620 F.3d 1005, 1012 (9th Cir. 2010).
21
La. Mun. Police Emp.’s Ret. Sys. v. Wynn, 829 F.3d 1048, 1058 (9th Cir. 2016).
MEMORANDUM DECISION AND ORDER - 33
because it applied the wrong standard of review, Miesen is wrong.
Fourth, Miesen contends the Ninth Circuit did not evaluate the June 2016 Demand
under Idaho state law. As mentioned earlier, the Ninth Circuit expressly stated that it was
applying Idaho law. Munding, 822 Fed. App’x at 548 (“Applicable state law required Mr.
Miesen to make a ‘written demand . . . upon the corporation to take suitable action.’ Idaho
Code § 30-29-742.”). The Eastern District of Washington did as well. Munding, 2019 WL
1410899, at *5 (“[T]his Court must follow Idaho law, because the AIA Entities are
incorporated under Idaho law according to the amended complaint.”); id. (citing Idaho
Code § 30-29-742 for the demand requirement); id. at *6 (“The Court agrees that Plaintiff’s
derivative demands, as replicated in Plaintiff’s amended complaint, do not sufficiently
describe the ‘suitable action’ to satisfy notice under Idaho Code § 30-29-742 . . . .”).
Miesen argues that the two Munding decisions failed to apply Idaho law as
evidenced by their failure to cite McCann and the comments under Idaho Code Section 301-742, and in not following “Idaho’s more relaxed standard for derivative demands.” Dkt.
1131, at 10. The lack of a citation to McCann and the comments is not fatal to either
decision, nor does it indicate that the two courts did not apply Idaho law; however, for
thoroughness, the Court will review both McCann and the comments and compare them to
the holding in Munding.
In his response brief, Miesen includes an excerpt from McCann, which he argues is
contrary to the holding in Munding:
The demand on the directors need not assume a particular form
nor need it be made in any special language. However, the stockholder
must make an earnest and sincere, and not a feigned or simulated, effort
MEMORANDUM DECISION AND ORDER - 34
to include the directors to take remedial action in the corporate name.
Statements should be presented to the directors showing the wrong
complained of, accompanied by sufficient responsible data which will enable
the directors to determine whether litigation could be engaged in with some
hope of success. The shareholder must state facts, not mere general charges
and conclusions.
The demand should give the directors a fair opportunity to initiate the
action which the shareholder wants to undertake, and name the potential
defendants, as well as the shareholder making the demand.
The shareholder should allow sufficient time for the directors to act
upon the demand before initiating the action. The directors’ response must
be obtained, if possible. The shareholder must comply with the reasonable
requests of the directors in an effort to resolve the problems before
commencing an action. Thus, a shareholder may be required to provide
additional information to the directors.
Dkt. 1131, at 19–20 (quoting McCann, 61 P.3d at 591–92) (emphasis in original). Miesen
argues that this excerpt makes clear that Idaho law did not require the “demand to provide
the specific causes of action or provide all of the facts to support such causes of action.”
Dkt. 1331, at 20. In Munding, the Ninth Circuit concluded that the demand’s generic and
conclusory language could not “have been expected to provide the boards with enough
information to take ‘suitable action.’” Munding, 822 Fed. App’x at 548. The Ninth Circuit
explained, “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.” Id. at 548–49. Because of the demand’s inadequacies,
the Ninth Circuit affirmed the lower court’s dismissal of the complaint for failure to meet
Rule 23.1’s pleading requirements.22 While the Ninth Circuit did not cite McCann directly,
22
Miesen contends that Rule 23.1 “plays no role in determining the adequacy of [his] derivative demands
under Idaho law.” Dkt. 1131, at 31; see also id. at 18. Indeed, “although Rule 23.1 clearly contemplates
MEMORANDUM DECISION AND ORDER - 35
it did base its holding on the same law. Notably, McCann also holds that “[t]he shareholder
must state facts, not mere general charges and conclusions” and that the shareholder must
name the potential defendants. 61 P.3d at 591–92. The purpose of stating facts and claims,
even if not the precise claims, is to “give the directors a fair opportunity to initiate the
action which the shareholder wants to undertake.” Id. Munding holds the same.
Miesen also argues that Munding ignores the comments to Section 30-1-742. To be
clear, this Idaho statute does not have comments. Rather, Miesen is referring to the ABA
comments to the Model Business Corporation Act Section 742. See Dkt. 1331, at 20.
Miesen contends that the “Idaho Supreme Court relies on the ABA Comments to interpret
the Idaho Business Corporation Act.” Id. at 20 n.9. For this proposition, Miesen cites to
Wagner v. Wagner, 371 P.3d 807, 811 (Idaho 2016). In Wagner, the Idaho Supreme Court
was interpreting the statutory term “fair value” in Idaho Code Section 30-29-1434(4). 371
P.3d at 811. Referring to the ABA comments, the Court explained, “While the legislature
did not adopt the comments to the MBCA, the comments do provide guidance as to the
meaning of ‘fair value.’” Id. Thus, the ABA comments are not Idaho law, but they may
provide some guidance. The comments Miesen specifically refers to state:
both the demand requirement and the possibility that demand may be excused, it does not create a demand
requirement of any particular dimension. On its face, Rule 23.1 speaks only to the adequacy of the
shareholder representative’s pleadings.” Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 96 (1991). In
Munding, the court was reviewing Miesen’s complaint for what it said about the demand. There, Miesen
did not provide the court with the full demand but rather included excerpts to the demand in the complaint.
Here, Miesen does not include the language from his demands in the Third Amended Complaint; rather, he
refers to them and provides a citation to where they may be found in the record. Dkt. 211, at ¶¶ 171–84.
The Ninth Circuit in Munding evaluated the demands, as excerpted in the complaint, under Idaho law and
found them inadequate. This Court must likewise evaluate the demands under Idaho law, even if not
excerpted in the complaint.
MEMORANDUM DECISION AND ORDER - 36
Section 742 specifies only that the demand shall be in writing. The demand
should, however, set forth the facts concerning share ownership and be
sufficiently specific to apprise the corporation of the action sought to be taken
and the grounds for that action so that the demand can be evaluated. Detailed
pleading is not required since the corporation can contact the
shareholder for clarification if there are any questions. In keeping with
the spirit of this section, the specificity of the demand should not become
a new source of dilatory motions.
The demand is intended to give the derivative corporation itself the
opportunity to take over a suit which was brought on its behalf in the first
place, and thus to allow the directors the chance to occupy their normal status
as conductors of the corporation’s affairs.
Dkt. 1131, at 20 (quoting Mod. Bus. Corp. Act § 742 cmts. 1 & 4 (2002)) (emphasis in
original) (cleaned up). Miesen fails to explain how this is contrary to the holding of
Munding, and if it is indeed contrary, Miesen fails to explain how these comments, which
are not state law, hold greater weight than Munding.
Finally, Miesen contends that Munding is not in harmony with the “more relaxed
standard for derivative demands” in Idaho. Dkt. 1131, at 10. The standard he is referring
to is the standard addressed in McCann, so this is not a unique argument but rather goes
back to the application of McCann.
After reviewing Miesen’s arguments challenging the persuasiveness of Munding,
the Court finds that none of his challenges have merit. Munding is a Ninth Circuit case
regarding the same plaintiff and one of the same demand letters, namely the June 2016
Demand, involved in this case. While Munding is unpublished and thus nonprecedential,23
23
“A court may not prohibit or restrict the citation of federal judicial opinions, orders, judgments, or other
written dispositions that have been: (i) designated as ‘unpublished,’ ‘not for publication,’ ‘nonprecedential,’ ‘not precedent,’ or the like; and (ii) issued on or after January 1, 2007.” Fed. R. App. P.
32.1(a).
MEMORANDUM DECISION AND ORDER - 37
the Court strains to think of a how a case could be more persuasive than this one, which
comes from the court of appeals over this district, has the same plaintiff, and reviews the
same evidence presently at issue.
b. The Five Demands
i. June 2016 Demand – Dkt. 148-2
For the same reasons that the Ninth Circuit found the June 2016 Demand
inadequate, this Court also finds it inadequate. The June 2016 Demand was addressed to
the Board of Directors of the AIA Entities. It was from Rod Bond, who at the time was
legally representing Dale Miesen, Jerry Legg, and Donna Taylor. The letter specifically
stated that it was a derivative demand. The letter concerned legal claims against “Combined
Defendants,” including the Hawley Troxell Defendants and the Individual and CropUSA
Defendants. It demanded that “all possible claims and legal action be immediately taken in
a court of law on behalf of AIA.” Dkt. 148-2, at 2. In forty-four numbered paragraphs, it
then listed, in a generic and conclusory fashion, “all possible claims” relating to various
actions by the AIA Entities and various defendants. The Ninth Circuit concluded that this
demand letter “failed to describe with particularity the claims for relief [Miesen] sought or
the factual bases for those claims.” Munding, 822 Fed. App’x at 548. The Court agrees.
The only way to distinguish the demand allegations here from those at issue in
Munding is if the demands relating to the Hawley Troxell Defendants and the Individual
and CropUSA Defendants are adequate in a way that the demands relating to the defendant
in Munding, namely John Munding, were not. The Court has reviewed the June 2016
Demand’s allegations relating to the various parties and finds no meaningful difference
MEMORANDUM DECISION AND ORDER - 38
between the allegations lobbed against the Hawley Troxell Defendants and John Munding.
A large portion of the demands are to “[p]ursue all possible claims and defenses against
the Combined Defendants.” See Dkt. 148-2. The Combined Defendants include John
Munding, the Hawley Troxell Defendants, and the Individual and CropUSA Defendants.
Thus, with respect to individual demands relating to the Combined Defendants, the Ninth
Circuit’s decision in Munding applies to Hawley Troxell Defendants and the Individual
and CropUSA Defendants.
In addition to the Combined Defendants paragraphs, the June 2016 Demand
contains one specific paragraph for the Hawley Troxell Defendants and one specific
paragraph for John Munding:
11. Pursue all possible claims against Hawley Troxell requiring it to disgorge
all compensation received or paid to Hawley Troxell directly or indirectly
from AIA based on Hawley Troxell’s conflicts of interest, breached fiduciary
duties (including the duties of loyalty) and related malpractice, including,
without limitation, all subsequent payments made by AIA to Hawley Troxell.
...
22. Pursue all possible claims against John Munding and Crumb & Munding
(or such other firm Mr. Munding is operating through) for malpractice,
breach of fiduciary duties and to disgorge all attorneys’ fees, costs and
expenses paid to them directly or indirectly by AIA for the California
Lawsuit as Mr. Munding intentionally violated his duties owed to AIA,
including, without limitation, his duties of loyalty owed to AIA and by taking
direction and action benefitting other defendants (including John’s) and
placing their interests in front of AIA and by representing CropUSA, AIA
and other parties when there were conflicts of interest in doing so and Mr.
Munding knew that he could not properly represent AIA’s interests and when
he had no intention of doing so. Demand is further made to pursue all
possible claims against Mr. Munding and Crumb & Munding for improperly
failing to assert that the guarantees and settlement agreements entered into
by AIA were not authorized and were thus illegal or ultra-vires and by
allowing AIA to enter into them in the first place. Mr. Munding places his
interests in earning fees ahead of AIA’s interests.
MEMORANDUM DECISION AND ORDER - 39
Dkt. 148-2, at 5, 7–8. Comparing these two paragraphs, the Court cannot find any instance
where the allegations against the Hawley Troxell Defendants is less generic or less
conclusory than the allegations against John Munding, thus warranting different treatment.
The allegations against CropUSA are likewise generic and conclusory. Beyond the
paragraphs relating to the Combined Defendants, there are only two paragraphs directed
towards CropUSA in the June 2016 Demand:
18. Pursue all possible claims against the Controlling AIA Defendants,
CropUSA and any other of the Combined Defendants or responsible parties
for all payments made to any and all vendors, creditors, consultants, agents,
customers or other parties owed money by CropUSA, by the Controlling AIA
Defendants, any entity partially or wholly owned by any one of the
Controlling AIA Defendants, or paid at the direction of any one or more of
the Controlling AIA Defendants, including, without limitation, the more
recent hundreds of thousands of dollars in payments AIA made to certain
agents and customers of CropUSA in 2013 and any previously or
subsequently paid for CropUSA and any other entity.
...
34. Pursue all possible claims that CropUSA and other entities (including
Pacific Empire Radio) are the alter-ego of the Controlling AIA Defendants
and thus they are individually liable for all damages.
Dkt. 148-2, at 6, 9. These demands do not sufficiently describe the “suitable action” the
AIA Entities should take. Idaho Code § 30-29-742.
Turning to the Controlling Defendants, the Court notes that the June 2016 Demand
does identify them more frequently. However, this fact does not change the outcome. The
June 2016 Demand still does not go beyond generic and conclusory allegation and does
not identify specific, suitable actions for the AIA Entities to consider pursuing. Rather, it
continues to rely on the phrase “all possible claims” and does not set forth the factual bases
for the claims. Thus, for the same reasons the demand failed in Munding, the demands
MEMORANDUM DECISION AND ORDER - 40
relating to the Controlling Defendants in the June 2016 Demand also fail.
What then remains are the four other demand letters. The Hawley Troxell
Defendants argue that none of these letters fare better than the inadequate June 2016
Demand. They argue that the remaining letters have the same inadequacies as the June
2016 Demand and/or other inadequacies. Below is a review of each demand:
ii. July 2008 Demand – Dkt. 23-9
The earliest demand letter is the July 2008 Demand. The Hawley Troxell
Defendants argue this letter is even more lacking than the June 2016 Demand. The Court
agrees.
The June 2016 Demand letter is addressed to the AIA Entities’ Board of Directors.
It is written by attorney Michael Bissell on behalf of Donna Taylor and Reed Taylor. In
the letter, the Taylors demanded that the Board of Directors:
[T]ake action against the law firms of Hawley Troxell Ennis & Hawley;
Clements, Brown & McNichols; Quarles & Brady; together with the
responsible attorneys of said firms (and any other firms which have
wrongfully represented the entities) for violating the applicable Rules of
Professional Conduct, malpractice, breach of fiduciary duties, and aiding and
abetting, including, without limitation, all acts related to or involving the
following claims and/or causes of action: [list].
Dkt. 23-9, at 1. The list did not describe with particularity the claims for relief or the factual
bases for those claims.24 Therefore, like the June 2016 Demand, this letter “cannot have
24
Here is a sampling of that list:
...
2. Taking action against the best interests of AIA Services and/or AIA Insurance;
...
5. Issuing inappropriate opinion letters to lenders and auditors;
...
MEMORANDUM DECISION AND ORDER - 41
been expected to provide the boards with enough information to take ‘suitable action.’”
Munding, 822 Fed. App’x at 548. As the Hawley Troxell Defendants point out, “[t]he letter
fails to ascribe any of the 27 alleged causes of action to any particular law firm or lawyer,
and fails to even identify a lawyer who was purportedly liable or describe how they were
allegedly involved.” Dkt. 1067-1, at 12.25
Miesen fails to argue that the July 2008 Demand is any clearer than the June 2016
Demand. Instead, he contends that it is sufficient under Idaho law, flatly ignoring Munding.
He also argues that the board could have asked for clarification if any demand was lacking
in information. While the board could have asked for clarification, it was not required to
do so.
Because the July 2008 Demand does not go beyond general and conclusory
allegations, it is inadequate under Idaho law.
iii. April 2012 Demand – Dkt. 67-33
The April 2012 Demand is a four-paragraph email from attorney Rod Bond, on
7. Preventing claims from being made against present and past directors, including, without
limitation, R. John Taylor, Michael Cashman, James Beck and Connie Taylor;
...
10. Failing to take action against interested directors and parties who took part in fraud,
conspiracy and other illegal activities, including, without limitation, R. John Taylor, James
Beck, Michael Cashman and Connie Taylor;
11. Breaching fiduciary duties (including the duty of loyalty owed to AIA Services and
AIA Insurance;
...
22. Failing to comply with contractual obligations owed to Reed and Donna;
...
27. Accepting payment of attorneys’ fees and costs which should have been allocated to
other parties, including, without limitation, fees and costs that should have been paid by
Crop USA, R. John Taylor, James Beck, Michael Cashman and Connie Taylor.
25
While the demand does mention attorney Richard Riley, it describes him as “a witness.” Dkt. 23-9, at 3.
MEMORANDUM DECISION AND ORDER - 42
behalf of Donna Taylor, Dale Miesen, LeeAnn Hostetler, Kay Hanchett, Jerry Legg, and
Bobette Ruddell, to the “Counsel and Board of Directors of AIA Services and AIA
Insurance.” Dkt. 67-33. The demand itself is a single paragraph, included in its entirety:
Demand is hereby made to the board of directors of AIA Services and AIA
Insurance to; (1) cease all efforts to withdraw the $400,000 in the court
registry in Taylor v. AIA Services; (2) cease paying any attorneys’ fees or
costs for John Taylor, Michael Cashman, and James Beck; (3) secure the
mortgage of the Lewis Clark Hotel; (4) cease all compensation to the
foregoing individuals; (5) hold annual shareholder meetings; (6) comply with
all applicable Bylaws and Articles of Incorporation of the corporations; and
(7) make full disclosure to all shareholders of all of the inappropriate and
illegal transactions which have occurred over the years. Obviously,
complying with the Bylaws, Articles of Incorporation and Idaho law results
in the present purported board members being conflicted from taking any
action whatsoever, including withdrawing the $400,000 held in the court
registry or taking any other funds or assets from the corporations.
Id. Simply put, that demand is not a derivative demand. While it directs the Board to take
certain actions, it does not direct the Board to initiate an action against any other party. See
McCann, 61 P.3d at 592. It does not include “[s]tatements . . . presented to the directors
showing the wrong complained of, accompanied by sufficient responsible data which will
enable the directors to determine whether litigation could be engaged in with some hope of
success.” Id. (quoting 19 Am. Jur. 2d Corporations § 2277, 172–73 (1986)). The email
presents no legal claims and makes no reference to litigation.
Furthermore, while the text of the email says it is addressed to “Counsel and Board
of Directors of AIA Services and AIA Insurance,” the email was not sent to the Board of
Directors, only to attorneys David Risely, John Ashby, Gary Babbitt, and James LaRue.
Id. The Idaho Supreme Court has held that demand letters are insufficient when delivered
to a corporation’s attorney and not sent to the directors themselves. McCann, 61 P.3d at
MEMORANDUM DECISION AND ORDER - 43
592.
Accordingly, the Court finds the April 2012 Demand inadequate.
iv. July 2012 Demand – Dkt. 67-42
The July 2012 Demand encompasses demands made by various shareholders,
including Miesen, at a shareholder meeting. The Hawley Troxell Defendants argue that the
July 2012 Demand is insufficient for two primary reasons: (1) it fails to demand action
against the Hawley Troxell Defendants, and (2) the demands are vague and factually
unsupported and thus insufficient for the same reasons the June 2016 Demand was
insufficient in Munding.
The July 2012 Demand does not name any of the Hawley Troxell Defendants. Under
Idaho law, a derivative demand must “name the potential defendants” so that the directors
may determine whether to litigate the claim. McCann, 61 P.3d at 592 (quoting 19 Am. Jur.
2d Corporations § 2278, 173–74 (1986)). The only hint of a claim against the Hawley
Troxell Defendants comes as a reference to the present case:
That R. John Taylor, Connie Taylor Henderson, James Beck, Michael
Cashman, JoLee Duclos and Aimee Gordon be barred from serving as
directors or officers of the Company based upon the ongoing malfeasance,
conflicts of interest, failure to act in good faith, breaches of fiduciary duties
(including the duties of loyalty, care and good faith) and other acts and/or
omissions committed under their direction, participation and/or
acquiescence, including, without limitation, those acts and/or omissions
identified in the First Amended Complaint in Donna J. Taylor v. Hawley
Troxell Ennis & Hawley, R. John Taylor, Michael Cashman, James Beck, et
al., United States District Court for the District of Idaho, Civil No. l:10-cv00404-MLB (the “Federal Court Case”), which said First Amended
Complaint is incorporated by reference herein, and that legal action be taken
against them.
Dkt. 67-42, at 1. The Court does not find that this reference is sufficient to have given the
MEMORANDUM DECISION AND ORDER - 44
AIA Entities fair opportunity to review and pursue possible claims against the Hawley
Troxell Defendants.
Of course, the Individual and CropUSA Defendants joined this Motion to Dismiss,
so this demand letter must also be reviewed as it pertains to them. Like the April 2012
Demand, the July 2012 Demand fails as a derivative demand. Almost all of the demands
are for the AIA Entities to take some action not involving litigation. See generally Dkt. 6743. To be sure, at the start of each shareholder’s demands is a line calling it a derivative
demand, but calling a document a derivative demand does not automatically make it so.
There are only four unique paragraphs that mention anything about pursuing legal action:26
1. That R. John Taylor, Connie Taylor Henderson, James Beck, Michael
Cashman, JoeLee Duclos and Aimee Gordon be barred from serving as
directors or officers of the Company based upon the ongoing malfeasance,
conflicts of interest, failure to act in good faith, breaches of fiduciary duties
(including the duties of loyalty, care and good faith) and other acts and/or
omissions committed under their direction, participation and/or
acquiescence, including, without limitation, those acts and/or omission
identified in the First Amended Complaint in Donna J. Taylor v. Hawley
Troxell Ennis & Hawley, R. John Taylor, Michael Cashman, James Beck, et
al., United States District Court for the District of Idaho, Civil No. 1:10-cv00404-MLB (the “Federal Court Case”), which said First Amended
Complaint is incorporated by reference herein, and that legal action be taken
against them.
...
3. That Paul D. Durant be appointed as the President of AIA Services
Corporation and AIA Insurance, Inc., to be duly compensated, and to operate
those entities in the best interests of the corporations and their shareholders
(with an emphasis on recovering damages and sums from majority
shareholder R. John Taylor and Connie Taylor Henderson and others for the
benefit of the corporations and their innocent shareholders) and to retain
and/or terminate such employee(s) and/or officer(s) as he deems appropriate
to properly operate the corporations and pursue any claims set forth in the
First Amended Complaint in the Federal Court Case and similar or other
26
Each of the fourteen shareholders made a separate demand, but they are largely identical.
MEMORANDUM DECISION AND ORDER - 45
claims against named and unnamed parties. Mr. Durant should also be
authorized to appoint other parties to the Board of Directors to serve until the
next annual meeting as provided under the Restated Bylaws.
4. That the Company (regardless of Mr. Durant’s appointment as an officer
or director of the Company), and Paul D. Durant if appointed as an director
and/or officer, be authorized to pursue the claims and causes of actions
identified in the First Amended Complaint filed in the Federal court Case
through the date of this Demand and for all related acts after the date of this
Demand, including, without limitation, requesting and praying for punitive
damages against the parties named in the Federal Court Case and any other
responsible parties named in this Demand. A copy of said First Amended
Complaint is incorporated by reference herein and is already in the
possession of the Company and its purported officers and purported directors
(a copy can also be obtained from PACER (the online filing system for the
United States District Court for the District of Idaho)).
...
18. Nothing in this Demand should be construed as a waiver or limitation of
any claims, causes of action, and/or relief requested presently asserted by the
undersigned in the First Amended Complaint in the Federal Court Case. This
Demand is intended to supplement and assert demand for action to pursue
claims, causes of action, and damages asserted in the First Amended
Complaint and to include causes of actions, claims and damages accrued
since the undersigned’s last demand. By making this Demand, Donna Taylor
is also asserting additional claims and relief to add to her claims in the
Federal Court Case and to include the presently pled claims and other claims
through the present time and/or as set forth above. Donna Taylor asserts that
her presently pled claims have all been adequately covered by her prior
derivative demand letters and this Demand is not a waiver of any claims
presently pled in the Federal Court Case.
Dkt. 67-43, at 7, 10.27 These paragraphs do not state the legal claims Miesen wanted the
AIA Entities to pursue, nor do they give any factual background to support legal claims.
To the extent that the demand is to pursue the claims already in the Federal Court Case,
i.e., the instant case, that is not a pre-suit demand. See Idaho Code § 30-29-742; Mannos,
155 P.3d at 1172–73 (“[A] shareholder may not commence a derivative proceeding until
27
Paragraphs 1, 3, and 4 are identical across all of the shareholders’ demands. However, only Donna
Taylor’s demand includes paragraph 18.
MEMORANDUM DECISION AND ORDER - 46
he makes a written demand upon the corporation to take suitable action at least ninety days
prior to the commencement of the action.”). For these reasons, the July 2012 Demand is
inadequate.
v. August 2016 Demand – Dkt. 186-2
The Hawley Troxell Defendants contend that the August 2016 Demand is
substantially similar to the June 2016 Demand and is likewise insufficient. The Court
agrees.
The
same
defects
in
the
June
2016
Demand
plague
the
August 2016 Demand. Miesen has failed to show that there is any meaningful difference
in the August 2016 Demand that makes it sufficient under Idaho law where the June 2016
Demand is not.
c. Miesen’s Arguments About the Demand Standard Being Excused or Relaxed
Notwithstanding the inadequacies of the demands, Miesen argues that the Idaho
Supreme Court would excuse or relax the demand standard under the facts of this case.
Miesen contends that the directors of the AIA Entities are rogue malfeasants so the demand
requirement should be excused or relaxed.28 What this argument ignores, is that under
Idaho law there is no futility exception to the demand requirement. McCann, 61 P.3d at
593; Mannos, 155 P.3d at 1173. While Miesen tactfully avoids the word “futile” in his
filings, what he is essentially arguing is that because the AIA Entities did not have proper
corporate governance and the directors were engaged in tortious conduct, demand was
futile and thus unnecessary. The semantics do not change the underlying argument.
28
This argument relates to the first and fourth questions in the Motion to Certify.
MEMORANDUM DECISION AND ORDER - 47
Accordingly, Miesen was not excused from the demand standard set forth in Idaho Code
Section 30-29-742 nor is that standard altered in this case.
At the hearing, Miesen also argued that although the Eastern District of Washington
and the Ninth Circuit were right in their Munding conclusions,29 the Court should come to
a different conclusion here because the demands should be read in the full context of what
the board of directors knew about the underlying shareholder complaints. Miesen contends
that the two Munding courts only had the demand to review, and in that vacuum, the
demand was inadequate. The current case is different according to Miesen because this
Court has fuller record before it to demonstrate that the board of directors knew what
specific actions and concerns the demands regarded.30 In essence, Miesen argues the board
knew what the shareholders meant even if the shareholders did not spell it out in any of the
demand letters.
The Court cannot accept this argument. The demand requirement is a pre-condition
to filing a derivative shareholder lawsuit. Idaho Code § 30-29-742; see also Mannos, 155
P.3d at 1172–73. Idaho law provides no futility exception or any other like exception.
McCann, 61 P.3d at 593. Failure to make an adequate demand results in dismissal of the
lawsuit. Miesen’s argument is creative but ultimately no different than a futility argument:
29
This concession was a sharp departure from the position in Miesen’s brief where he argued that those
decisions were hearsay, irrelevant, and inapplicable.
30
At the motion to dismiss stage, the Court is concerned not with the whole record but with the pleadings.
Of course, Miesen asked the Court to take judicial notice of some documents for the purpose of establishing
that the board of directors knew what the derivative demands meant. The Court denied those requests,
noting that the Third Amended Complaint included allegations that the directors were aware of the demands
and the underlying issues.
MEMORANDUM DECISION AND ORDER - 48
Miesen should not be held to the demand requirement because the circumstances were such
that the board knew what was happening and was not pursuing legal action.31 Boards of
directors commonly know of the underlying concerns and complaints at issue in derivative
litigation, but that knowledge does not excuse a demand requirement under state law.
Indeed, accepting this argument would remove any effect from the requirement for
a written pre-suit demand. To illustrate, a shareholder could inform the board of directors
of a perceived wrong. The next day, the shareholder could send an email to the board
saying, “Pursuant to our conversation yesterday, this is a derivative demand that the
corporation pursue all legal claims.” That “demand” in the context of the earlier
conversation could satisfy the demand requirement under Miesen’s theory. But how would
a court review it for adequacy? The court would need to look beyond the written demand
itself, removing nearly all legal significance from the demand and placing the focus instead
on what the board knew or did not know about the alleged wrong. This would be an onerous
burden indeed. Delving into the subjective understanding of individual board members and
evaluating those thoughts against the sufficiency of any demand is a bridge too far.
At the hearing, Miesen failed to identify any caselaw to support his theory that the
standard for reviewing demand adequacy should take into consideration what the board
knew. Rather, he argued that this principle is implicit in Idaho caselaw regarding derivative
demands. The Court disagrees. The relevant caselaw from the Idaho Supreme Court does
not look beyond the demand itself when reviewing it for adequacy. See McCann 61 P.3d
31
This is not to say that this argument would be successful if Idaho had a futility exception.
MEMORANDUM DECISION AND ORDER - 49
at 592 (determining whether the plaintiff met the demand requirement based on the
derivative demand letter rather than the prior communications).
4. Summary
The derivative demand requirement is a mandatory precondition to bringing a
derivative action. Miesen failed to satisfy the derivative demand under Idaho law. Although
Judge Dale originally found the letters to be adequate, the Court now has the benefit of a
Ninth Circuit case on this exact matter. Furthermore, Judge Dale’s ruling was interlocutory.
While the law of the case doctrine strives for consistency, it also allows for changed
circumstances. Said differently, even had this been brought as a motion for partial
reconsideration of Judge Dale’s prior findings, the Court could have come to the same
conclusion it did today.
Thus, after over eleven years since this case began, the Court must DISMISS
Miesen’s derivative claims against the Hawley Troxell Defendants, the Individual
Defendants, and CropUSA. Because amending the complaint would not remedy the
inadequacies of the Complaint, the Court must also DISMISS these derivative claims
WITH PREJUDICE.
D. What Remains
This case is frankly a procedural mess with over 1,200 docket entries. The Third
Amended Complaint had eleven counts, some of which have already been dismissed in
whole or in part. What’s more, Miesen contends that some of these counts are not derivative
claims but are direct claims, and the Hawley Troxell Defendants disagree, at least as to the
claims brought against them. And not to be forgotten, this case also has third-party claims,
MEMORANDUM DECISION AND ORDER - 50
crossclaims, and counter-crossclaims. Additionally, there are ten pending motions
remaining in this case, and the Court has stayed briefing on those motions. Some of those
motions may now be moot.
In the interest of judicial economy, the Court instructs each party in this case,
including those not involved with the present motions, to file a concise status report, no
more than five pages, explaining what issues remains in this case—including the status of
any pending motions. Each party should address which of their claims still exist and/or
which of the claims brought against them still exist. The parties should cite to the docket
to explain which claims have been dismissed. The status reports are due within fourteen
days of this order. The Court will then review the status reports and determine how to
proceed with the case, including whether to moot any motions, direct further briefing on
issues in dispute in the status reports, and/or whether to lift the briefing stay on the
remaining motions.
IV. CONCLUSION
In summary, the Court DENIES Miesen’s Motion to Certify (Dkt. 1148), DENIES
the Miesen’s Amended Request for Judicial Notice (Dkt. 1153), and GRANTS the Hawley
Troxell’s Motion to Dismiss (Dkt. 1067), which was joined by the Individual and CropUSA
Defendants (Dkt. 1090). Accordingly, the derivative claims brought against the Hawley
Troxell Defendants and the Individual and CropUSA Defendants are DISMISSED WITH
PREJUDICE.
MEMORANDUM DECISION AND ORDER - 51
V. ORDER
The Court HEREBY ORDERS:
1. Plaintiff Dale Miesen’s Motion to Certify (Dkt. 1148) is DENIED.
2. Plaintiff Dale Miesen’s Amended Request for Judicial Notice (Dkt. 1153) is
DENIED.
3. The Hawley Troxell Defendants’ Motion to Dismiss (Dkt. 1067) is GRANTED.
The derivative claims brought against them and the Individual and CropUSA
Defendants who joined (Dkt. 1090) are DISMISSED WITH PREJUDICE in
accordance with the decision above.
4. Each party’s status report is due within fourteen (14) days of this order.
DATED: May 5, 2022
_________________________
David C. Nye
Chief U.S. District Court Judge
MEMORANDUM DECISION AND ORDER - 52
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