HALE v. VICTOR CHU No. 09-3262.
614 F.3d 741 (2010)
Lyric H. HALE, et al., Plaintiffs-Appellants, v. VICTOR CHU, et al., Defendants-Appellees.
United States Court of Appeals, Seventh Circuit.
Decided August 9, 2010.
David M. Simon (argued), Wildman, Harrold, Allen & Dixon, Chicago, IL, for Defendants-Appellees.
Before BAUER, FLAUM and TINDER, Circuit Judges.
BAUER, Circuit Judge.
The district court dismissed a derivative action that was brought on behalf of a dissolved corporation. We affirm.
Plaintiffs Lyric Hale, Michael Grainger, and Dr. Ronald Michael, individually and as derivative representatives of China Online, Inc., filed a corporate derivative lawsuit against defendants China Online, Victor Chu, Pansy Ho Chiu-King, and Stanley Ho Chiu-King, in the Circuit Court of Cook County, Illinois.
Pending before the district court were two motions. First, the plaintiffs filed a motion to remand the action to state court, arguing that complete diversity did not exist as China Online was a necessary party (and not fraudulently joined) because a corporation is a necessary party defendant in a derivative action. Second, Chu filed a motion to dismiss, arguing fraudulent joinder and failure to state a claim.
Before ruling on these motions, the district court ordered the parties to file supplemental briefs addressing the following issues:
6/2/2009 Minute Order.
After reviewing the supplemental briefs, the district court denied the plaintiffs' motion to remand and granted Chu's motion to dismiss.
In denying the motion to remand, the district court concluded that China Online was a fraudulently joined defendant because there was no possibility that the plaintiffs' complaint could state a derivative cause of action against China Online. In reaching this conclusion, the district court noted that China Online was dissolved prior to the plaintiffs filing their action and that under Delaware law, dissolution of a corporation terminates an individual's status as a shareholder of the corporation, which bars the individual from bringing a derivative action on behalf of the dissolved corporation. Hale v. China Online, Inc., No. 08 C 5548, 2009 WL 2601357, *2 (N.D.Ill. Aug. 21, 2009) (citing Giordano v. Marta, No. CIV. A. 11613, 1998 WL 227888, at *4 (Del.Ch. April 28, 1998)) (plaintiff was no longer stockholder of dissolved corporation and never complained or took any action with respect to the dissolution and therefore no longer had standing to sue derivatively on behalf of corporation). The district court further held that even if the plaintiffs had standing to bring a derivative action, they failed to make the requisite demand upon China Online's former board of directors before instituting suit and failed to plead demand futility. Hale v. China Online, Inc., 2009 WL 2601357, at *3.
Similarly, in granting Chu's motion to dismiss, the district court found that the plaintiffs' complaint failed to state a claim:
The plaintiffs appealed. On appeal, the plaintiffs agree that they could not bring a derivative lawsuit in the name of China Online because it was dissolved before they filed this lawsuit. Appellants' Br. at 12. However, they argue that the district court should not have dismissed their complaint because there were sufficient facts before it to establish that the complaint, while styled as a derivative lawsuit brought on behalf of China Online, was really a lawsuit brought directly by China Online and that "substance should prevail over form." Appellants' Br. at 14. The plaintiffs make this contention despite never arguing to the district court that the complaint asserted direct claims by China Online. The plaintiffs also seek remand so that the district court can address whether there is personal jurisdiction over Chu (the district court had previously denied Chu's motion to dismiss for lack of personal jurisdiction as moot).
We review a district court's order granting a motion to dismiss de novo. Tamayo v. Blagojevich,
Here, the plaintiffs do not object to the district court's ruling that dismissed their derivative action. Instead, they argue that the district court should have known that their complaint, which was styled as a derivative action and that stated "China Online, as a derivative plaintiff," was really a direct action brought by China Online in its own name.
It is well-established that a party waives the right to argue an issue on appeal if he fails to raise that issue before the trial court. Moulton v. Vigo County,
We conclude that the plaintiffs have waived this argument. And, because allegations in the complaint did not plausibly suggest that the plaintiffs had a right to relief, we conclude that the district court correctly dismissed the complaint. Once
For the reasons stated above, we AFFIRM the district court's order.
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