Dennis v. Hart, s. 12–55241
| Citation | 724 F.3d 1249 |
| Decision Date | 31 July 2013 |
| Docket Number | 12–55282. 12–55291.,Nos. 12–55241,12–55266,s. 12–55241 |
| Parties | Ronald DENNIS, derivatively on behalf of PICO Holdings, Inc., Plaintiff–Appellant, v. John R. HART; Ronald Langley; Ronald G. Deuster; Richard D. Ruppert; Julie H. Sullivan; Kristina M. Leslie; Carlos C. Campbell; Kenneth J. Slepicka; PICO Holdings, Inc., Nominal Defendant, Defendants–Appellees. George Assad, Derivatively on Behalf of PICO Holdings, Inc., Plaintiff–Appellant, v. John R. Hart; Ronald Langley; Robert G. Deuster; Richard D. Ruppert; Julie H. Sullivan; Kristina M. Leslie; Carlos C. Campbell; Kenneth J. Slepicka, Defendants–Appellees, PICO Holdings, Inc., Nominal Party. Ronald Dennis, derivatively on behalf of PICO Holdings, Inc., Plaintiff–Appellee, v. John R. Hart; Ronald Langley; Ronald G. Deuster; Richard D. Ruppert; Julie H. Sullivan; Kristina M. Leslie; Carlos C. Campbell; Kenneth J. Slepicka; PICO Holdings, Inc., Nominal Defendant, Defendants–Appellants. George Assad, Derivatively on Behalf of PICO Holdings, Inc., Plaintiff–Appellee, v. John R. Hart; Ronald Langley; Robert G. Deuster; Richard D. Ruppert; Julie H. Sullivan; Kristina M. Leslie; Carlos C. Campbell; Kenneth J. Slepicka, Defendants–Appellants, PICO Holdings, Inc., Nominal Party. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
OPINION TEXT STARTS HERE
Kathleen A. Herkenhoff (argued), The Weiser Law Firm, P.C., San Diego, CA; Robert B. Weiser, Brett D. Stecker, Jeffrey J. Ciarlanto, and Joseph M. Profy, The Weiser Law Firm, P.C., Berwyn, PA, for Plaintiff–Appellant–Cross–Appellee George Assad.
Louis N. Boyarsky (argued), Lionel Z. Glancy, and Michael Goldberg, Glancy Binkow Goldberg LLP, Los Angeles, CA, for Plaintiff–Appellant–Cross–Appellee Ronald Dennis.
Robert W. Brownlie (argued) and Gerard A. Trippitelli, DLA Piper LLP (US), San Diego, CA, for Defendants–Appellees–Cross–Appellants John R. Hart, Ronald Langley, Robert G. Deuster, Richard D. Ruppert, Julie H. Sullivan, Kristina M. Leslie, Carlos C. Campbell and Kenneth J. Slepicka and nominal party PICO Holdings, Inc.
Appeal from the United States District Court for the Southern District of California, William Q. Hayes, District Judge, Presiding. D.C. No. 3:11–cv–02271–WQH–WVG, 3:11–cv–02269–WQH–BGS.
Before: SIDNEY R. THOMAS, BARRY G. SILVERMAN, and RAYMOND C. FISHER, Circuit Judges.
The Dodd–Frank Wall Street Reform and Consumer Protection Act requires corporations to hold periodic advisory votes on executive compensation. Nominal defendant PICO Holdings, Inc. held such a vote, and a majority of shareholders expressed dissatisfaction with PICO's executive compensation policies. Soon thereafter, the plaintiffs in these consolidated cases filed shareholder derivative suits in California state court, alleging that PICO's compensation policies violated state law. The defendants removed the cases to federal court and argued that Dodd–Frank bars the suits. The district court dismissed portions of each case and remanded the remaining portions for lack of jurisdiction. As we explain below, removal of these cases was improper and the district court lacked jurisdiction to do anything other than remand them to state court. Accordingly we vacate the decisions of the district court with instructions to remand the cases to state court. We dismiss the defendants' cross-appeals for lack of jurisdiction.
The Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank) provides that, at least every three years, public companies must conduct a shareholder vote “to approve the compensation of executives.” 15 U.S.C. § 78n–1(a)(1). However, these “say-on-pay” votes “shall not be binding on the issuer or the board of directors of an issuer, and may not be construed ... (1) as overruling a decision by such issuer or board of directors; (2) to create or imply any change to the fiduciary duties for such issuer or board of directors; [or] (3) to create or imply any additional fiduciary duties for such issuer or board of directors.” Id. § 78n–1(c).
Nominal defendant PICO Holdings, Inc. is a California holding company. In 2010, it reported negative net income and free cash flow.1 Disappointing financial results notwithstanding, PICO's board of directors (the Board) increased executive compensation in 2010. Shareholders, it appears, were not happy with this. In a May 2011 advisory vote mandated by Dodd–Frank, 61 percent of shareholders voted against the 2010 compensation package. The Board took no action in response to the vote.
After the vote, the plaintiffs in these cases filed shareholder derivative actions in California state court against PICO and the members of the Board. Plaintiff Ronald Dennis asserted claims for breach of fiduciary duty, gross mismanagement, contribution and indemnification, abuse of control, waste, and unjust enrichment. In the “prayer for relief” section of his complaint, he also requested a declaration “that the adverse May 13, 2011 advisory shareholder vote on the PICO Board's executive compensation rebutted the business judgment surrounding the PICO Board's decisions to increase executive compensation in 2010.” Plaintiff George Assad asserted claims for breach of fiduciary duty in association with the Board's issuance of false and misleading statements,the Board's compensation practices, and the Board's failure to respond to the say-on-pay vote. Assad also asserted an unjust enrichment claim.
The defendants removed both cases to federal court. The defendants moved to dismiss both cases, and both plaintiffs moved to remand. In Dennis, the district court dismissed the request for declaratory judgment for failure to state a claim. It then held that the remaining claims did not state a federal claim or involve a substantial issue of federal law, declined to exercise supplemental jurisdiction and remanded the case to state court. In Assad, the district court dismissed the count alleging the Board breached its fiduciary duty by failing to respond to the adverse say-on-pay vote. It then held that the remaining claims did not state a federal claim or involve a substantial issue of federal law, declined to exercise supplemental jurisdiction and remanded the case to state court.
In each case, the plaintiff appealed the dismissal of parts of his case, and the defendants cross-appealed the district court's decision remanding the remainder of the case to state court rather than dismissing it on the merits.
Orders denying remand and granting Federal Rule of Civil Procedure 12(b)(6) motions to dismiss are both reviewed de novo. See Proctor v. Vishay Intertechnology Inc., 584 F.3d 1208, 1218 (9th Cir.2009).
Unless Congress has expressly provided otherwise, a defendant may remove to federal court “any civil action brought in a State court of which the district courts of the United States have original jurisdiction.” 28 U.S.C. § 1441(a). “If a case is improperly removed, the federal court must remand the action because it has no subject-matter jurisdiction to decide the case.” ARCO Envtl. Remediation, L.L.C. v. Dep't of Health & Envtl. Quality of Mont., 213 F.3d 1108, 1113 (9th Cir.2000). “As a general rule, ‘the presence or absence of federal-question jurisdiction is governed by the well-pleaded complaint rule, which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint.’ ” Id. (quoting Caterpillar, Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987)) (alterations omitted).
The defendants argue that the well-pleaded complaint rule confers federal jurisdiction because the say-on-pay vote precipitated plaintiffs' suits and the complaints are suffused with references to the vote. This is insufficient to support federal jurisdiction under the well-pleaded complaint rule. See id. (). Federal-question jurisdiction does not attach here, because the plaintiffs' complaints allege state—not federal—causes of actions. “As the master of the complaint, a plaintiff may defeat removal by choosing not to plead independent federal claims.” Id. at 1114. The defendants argue that federal jurisdiction nevertheless exists under (1) Section 27 of the Securities Exchange Act of 1934 (Exchange Act), (2) the “significant federal issue” rule and (3) the complete preemption doctrine. We consider each argument in turn.
The defendants argue that the Exchange Act confers federal jurisdiction. Section 27 of the Exchange Act vests federal courts with exclusive jurisdiction over actions “brought to enforce any liability or duty created by [the Exchange Act] or the rules and regulations thereunder.” 15 U.S.C. § 78aa(a). Section 27 is inapplicable because the plaintiffs' suits do not seek to enforce any liability or duty created by the Exchange Act or the rules and regulations thereunder. Nothing in either complaint alleges any implicit or explicit violation of the say-on-pay provision or any other provision of the Exchange Act. On the contrary, the parties agree that PICO did what the Act requires: it held a vote. The suits allege violations of state law and seek to enforce liabilities created by state law.
The defendants' reliance on Sparta Surgical Corp. v. National Association of Securities Dealers, Inc., 159 F.3d 1209 (9th Cir.1998), is misplaced. There, we held that Section 27 conferred federal jurisdiction over a suit alleging that the National Association of Securities Dealers (NASD) had violated its own rules about whether to de-list an offering. See id. at 1211–12. We explained that NASD rules are created under federal law and “[t]he Exchange Act requires [NASD] to comply ... with [its] own rules.” Id. at 1212. Sparta therefore held that “subject...
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