Pаul Dubach brought this suit against George Weitzel and Thomas Welter for converting to their own use a certificate of deposit (“CD”) belonging to the parties’ jointly owned corpоration. The District Court 1 dismissed Dubach’s action: the federal securities law claims because the CD was not a security, and the shareholder derivative claims because no jurisdictional basis remained. We affirm.
I.
Dubach, Weitzel, and Welter were shareholders in a corporation called Iowa Wisconsin Capital (“IWC”). IWC’s assets included a $100,000 CD purchаsed from Dupaco Credit Union. In 1994, as a result of separate litigation between the parties, Dubach discovered that Weitzel and Welter had pledged the CD as collаteral for personal loans, in the amounts of $50,000 to each of them.
Dubach brought suit in federal court, alleging that Weitzel’s and Welter’s conversion and encumbrance of the CD constituted violations of the Securities Act of 1933, 15 U.S.C. §§ 77a — 77aa (1994), the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a— 78hh-l (1994), and the Investment Company Act of 1940, 15 U.S.C. §§ 80a-l — 80a-52
The aрpellees moved to dismiss Dubach’s complaint, arguing that federal securities laws did not apply to the CD and that the shareholder derivative claims had no independent bаsis for federal jurisdiction. In response, Dubach reasserted his federal securities law claims. The District Court dismissed the complaint.
II.
The District Court correctly determined that the CD was not a security for the purposes of the federal securities laws. The Supreme Court’s decision in
Marine Bank v. Weaver,
This certifícate of deposit was issued by a federally regulated bank which is subject to the comprehensive set of regulations governing the banking industry. Deposits in federally regulated banks are protected by the reserve, reporting, and inspection requirements of the federal banking laws; advertising relating to the interest paid on deposits is also regulated. In addition, deposits are insured by the Federal Deposit Insurance Corporation_ It is unnecessary to subject issuers of bank certificates of deposit to liability under the antifraud provisions of the federal securities laws since the holders of bank certificates of deposit are abundantly protected under the federal banking laws. We thеrefore hold that [this] certificate of deposit ... is not a security.
Id.
at 558-59,
The Court then went on to examine whether the agreement pledging the CD in exchange for consideration could be considered a security, though the CD itself was not. The Court held that the instrument did not fall within the definition of a security because it involved only private and unique interests, in contrast to “[t]he unusual instruments found to constitute securities in prior cases[, which] involved offers to a number of potential investors, not a private transaction.” Id. at 559-60,
Credit unions are regulated by law, see 12 U.S.C. §§ 1751-1795k (1994); Iowa Code §§ 533.1—533.67 (1997), and the reasoning in
Marine Bank
disposes of Dubach’s argument that the CD was a security. The CD’s issuance was a conventional commercial transаction. To apply federal securities law would “double-coat” the transaction. Compare
Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Further, the pledge of the CD did not alter its nature. Dubach urges that even if the CD as issued were not a security, Weitzel and Welter “transformed the [$100,000] CD
Finally, neither the pledge of the CD nor the resulting issuance of promissory notes was a transaction requiring the investor рrotections of federal securities laws. Courts have extended these laws to cover investing schemes that, though constructed of banking transactions, elude the consumer protections of banking law. For instance, where a broker engaged in excessive buying and selling of CDs in order to maximize his commissions, this Court held that the CDs should be treated as securities to the extent that banking laws did not insure the investor’s resultant losses.
Olson v. E.F. Hutton & Co.,
III.
We now address whether the District Court should consider the remaining shareholder derivative claims. In his Complaint, Resistance to Motion to Dismiss, and Brief in Support of Plaintiffs Resistance to Motion to Dismiss, Dubach consistently and exclusively referred to the shareholder derivative claims as pendent claims. Though the complaint mentioned diversity jurisdiction, it improperly used the word “rеsident” instead of “citizen” to plead such jurisdiction. See 28 U.S.C. § 1332 (1994). As the District Court noted, when Dubach received notice of this procedural defect from the appelleеs’ motion to dismiss, he reiterated his “reliance upon the federal nature of his claims for jurisdiction.” Order at 6. He did not seek to amend the complaint, either to allege citizenship properly or to recharacterize the pendent claims as diversity-based claims.
Plaintiff asks us to allow him to amend the Complaint now to allege diversity jurisdictiоn properly. This Court has discretion to allow amendment on appeal. 28 U.S.C. § 1653 (1994). However, under these circumstances — where Dubach had notice of a jurisdictional defect in his claims, had the opportunity to correct it in the District Court, but failed to do so — it would be unfair to the appellees to allow amendment at this late stage. At the oral argument we noted that Section 1653 allows “[d]efective allegations of jurisdiction [to] ... be amended, upon terms, in the ... appellate courts,” and suggested that in these cirсumstances plaintiffs might be allowed to amend if they would undertake to pay the fees and expenses that defendants had had to incur because of plaintiffs’ delay in attempting to correct their pleadings. This offer was rejected.
The shareholder derivative claims thus depend on the federal securities law claims for federal jurisdictiоn, and may not be heard now that the latter have been properly dismissed on the pleadings. This action is without prejudice to the right of the plaintiff to litigate his state-law claims in a state court of competent jurisdiction.
We therefore affirm the judgment of the District Court.