Document: 337 U.S. 541 69 S.Ct. 1221 93 L.Ed. 1528 COHEN et al.v.BENEFICIAL INDUSTRIAL LOAN CORPORATION. BENEFICIAL CORPORATION v. SMITH a . Nos. 442, 512. Argued April 18, 1949. Decided June 20, Messrs. Philip B. Kurland, New York City, Charles Hershenstein, Jersey N.J., for Hannah Cohen, Ex'x and another. [Argument of Counsel from page 542 intentionally omitted] Mr. John M. Harlan, Beneficial Industrial Loan corporation. Justice JACKSON delivered the opinion Court. 1 The ultimate question here is whether federal court, having jurisdiction stockholder's derivative action only because parties are diverse citizenship, must apply statute forum state which makes plaintiff, if unsuccessful, liable all expenses, including attorney's fees, defense requires security their payment as condition prosecuting action. 2 Petitioners' decedent brought in United States District Court an right Corporation, Delaware corporation doing business Jersey. defendants were certain its managers directors. complaint alleged generally that since 1929 individual engaged continuing successful conspiracy to enrich themselves at expense Specific charges mismanagement fraud extended over period eighteen years assets allegedly wasted or diverted thereby said exceed $100,000,000. stockholder had demanded institute proceedings recovery but, by control corporation, prevented it so. This stockholder, therefore, sought assert One 16,000 stockholders, he owned 100 more than two million shares, so his holdings, together with 150 shares held intervenor, approximated 0.0125% outstanding stock market value never exceeded $9,000. 3 was 1943, various been taken therein when, 1945, enacted involved.1 Its general effect make plaintiff small interest expenses fees fails good entitle indemnity before case can be prosecuted. These conditions made applicable pending actions. corporate defendant therefore moved require security, pointed by-laws might required indemnify defendants, averred bond $125,000 would appropriate. 4 enactment not such when 7 F.R.D. 352. Appeals contrary reversed, Cir., 170 F.2d 44, we granted certiorari. 336 917, 639. 5 Appealability. 6 At threshold met Court's order refusing appealable one. Title 28 U.S.C. § 1291, U.S.C.A. provides, did predecessors, appeal 'from final decisions district courts,' except direct this provided. Section 1292 allows appeals also interlocutory orders, decrees judgments, material they indicate purpose allow orders other judgments have irreparable on rights parties. It obvious that, Congress allowed those terminate action, appealable. disallow any decision tentative, informal incomplete. Appeal gives upper court power review, one intervention. So long matter remains open, unfinished inconclusive, there may no intrusion appeal. But upon application concluded closed sense taken. 8 Nor does permit appeals, even fully consummated decisions, where but steps towards judgment will merge. combine review stages proceeding effectively reviewed corrected results. step toward disposition merits merged judgment. When time comes, too late present conferred statute, applicable, lost, probably irreparably. We conclude matters embraced appealed nature affect, affected by, case. 9 appears fall class finally determine claims separable from, collateral to, asserted important denied independent cause itself appellate consideration deferred until whole adjudicated. has given provision practical rather technical construction. Bank Columbia Sweeney, Pet. 567, 569, 265; River Rouge Improvement Co., 269 411, 414, 46 144, 145, 70 339; Cobbledick States, 309 323, 328, 60 540, 542, 84 783. 10 hold claimed ingredient considerat it. do mean every fixing subject Here presents serious unsettled question. If admitted clear involved exercise discretion amount reconsideration time, appealability different 11 Since appeal, petition No. 512, whereby asserts compel mandamus, dismissed. 12 Constitutionality. 13 Petitioners deny validity under both Federal Constitutions. latter ultimately courts, determination, shall presume circumstances conforms State constitution. 14 Constitutional questions consider, give effect, either diversity nondiversity case, violates Constitution States. 15 background litigation deals notice. As enterprise increasingly advantages incorporation, management became vested almost uncontrolled handling people's money. vast aggregate funds committed came drawn considerable extent numerous scattered holders interests. director effective accountability. That created strong temptation profit personally trust. code tolerant practices. Corporate laws lax self-enforcing, face gravest abuses, singularly impotent obtaining redress abuses 16 Equity relief who standing bring civil law against faithless directors managers. Equity, however, him into corporation's shoes seek restitution could demand own. first vindicate own usual, perpetrated wrongs able obstruct remedy, equity hear adjudge through defendant, albeit nominal remedy born helplessness chief regulator afforded incentive avoid least grosser forms betrayal stockholders' argued, without reason, little check abuses. 17 Unfortunately, provided opportunity abuse neglected. Suits sometimes real wrongs, realize nuisance value. They bought off secret settlements body share owners compounded suing mollified payments assets. litigations aptly characterized professional slang 'strike suits.' And these suits commonly irresponsible large former put less risk often within capacity readiness compromise 18 need measure evils produced hand redressed other. Legislature Jersey, like states,2 considered them sufficient warrant some remedial measures. 19 very regulation legislature wide powers. Whatever theory entity, wholly artificial creation whose internal relations between stockholders dependent most complete penetrating regulation, public authority form Directors managers, technically trustees, occupy positions fiduciary nature, nothing prohibits imposing strictest responsibility, liability accountability, assuming office consequence holding 20 Likewise, brings suit derived assumes position, trustee perhaps, character. He sues, himself alone, representative comprising similarly situated. interests hands, diligence, wisdom integrity. while chosen manager, election forward represent them. self-chosen volunteer champion. oblige place litigating adjudicating processes disposal representative, standards accountability considers protect elects represent. significance found necessary ago Rules3 now Rules Civil Procedure4 impose procedural regulations plenary type litigation. 21 In considering specific objections way exercised particular should unnecessary say concerned go constitutionality. policy similar statutes controversies amply debated legal literature5 us judge, and, hence remark upon. invalidate legislation embody highest provide best conceivable remedies. set aside courts fact, such, sponsored promoted advantage it.6 dealing difficult controversial subjects, experience verify disclose weaknesses defects teach lessons applied amendment. Within area constitutionality, states restrained devising experiments, think dubious, effort preserve maximum creating same eliminate much possible evils. 22 transgresses Due Process Clause, Amend. 14, being 'arbitrary, capricious unreasonable;' Equal Protection Clause singling out burden heavily; Contract art. 1, 10, cl. renders unconstitutionally retroactive. 23 contention see slightest merit. Plaintiff's entertained largely contract base law, none impaired legislation. 24 offends judge terms, interpretation yet. imposes 'the reasonable counsel incurred' (emphasis supplied) defendant. increase progress reveals inadequate decrease proved excessive. A terms courts. No susceptible nature. cannot seriously unreasonable use violate provides character adjudged unsustainable. urged requirement foreclose resort available judicial protection rights. Of course, kind costs necessity bearing deterring effect. deal power, wisdom; think, notwithstanding tendency, close met. 25 denies equal based fact enables owns 5% $50,000 value, proceed elect smaller interest. forbidden one's financial interest, measures injury misconduct redressed, faith responsibility seeks act custodian indication volunteers burdens grievance putting claim capitalize harassment ways precluding lawsuits,' unable classification purposes, percentage injured unconstitutional Where amount, necessarily somewhat arbitrary. many lines just above below line perfectly protection. taxpayer $10,000.01 income equality tax rate $9,999.99, re uire returns figure. 49.99% company's Board 50.01% name entire Board. is, draw considerations proportion rare one, constitutional objection point chosen. 26 applies actions enactment, entered, void retroactivity. While cases, manner application; nor appear settled what be. creates new incurred previous enactment. admit construction plaintiff's begins Act passed perhaps 'may include periods. not, construe absence events On basis retroactivity amounts stay further unless furnished future, extend destruction existing past events. 27 mere retrospectively render unconstitutional. Blount Windley, 95 173, 180, 424; Western Union Telegraph Co. Louisville & N.R.Co., 258 13, 42 258, 66 437; Chase Securities Corp. Donaldson, 325 304, 65 1137, 89 1628. Looking indicated, retroactive any, certainly drastic prejudicial decisions. find bare course express indicated. contended derives Deleware corpuration governs trial likely involve conflict apply, Klaxon Stentor Electric Mfg. 313 487, 61 1020, 85 1477; Griffin McCoach, 498, 1023, 1481, 134 A.L.R. 1462, full credit. now. avail escape available, sitting State, later consider. 29 conclude, far concerned, Jersey's valid grounds. 30 Applicability 31 Decision Act, First 1652, provides: 'The several states, treaties Un ted Acts otherwise provide, regarded rules cases apply.' Erie R. Tompkins, 304 64, 58 817, 82 1188, 114 1487, meaning. Tompkins progeny wrought far-reaching change relation administers system details related conduct business. Guaranty Trust York, 326 99, 1464, 2079, 160 1231. substantial argument provisions procedure substantive law. 32 Even agree procedural, applicable. lawyers call always exhaust regulating procedure. merely With main takes course. However, existed before, institutes puts claims. Such usual goes beyond know 'costs.' create liability, clearly substantive. meaning resulted after end Therefore, prescribed insured entitling outlay incurred. disregarded device. 33 urged, Rule Procedure maintain recognized rule alone prevails. verified oath show transaction complains thereafter devolved operation words, used litigate purchased become party speculation done corporations. showing collusive confer forth facts endeavored obtain itself. dismissed compromised approval notice members class. neither exempt liabilities, disclosure None observed court. 34 reason why stated 1231, apply. 35 erred declining fix reasonably exacted prosecution suit. 36 affirmed. 37 Affirmed. 38 DOUGLAS, whom FRANKFURTER concurs, dissenting part. 39 Though belongs entitled enforce wrongdoers. add iota subtract prescribes method Each governing institution favor affect adversely. principle define, qualify delimit relate 40 costs, regulates instituting defines 41 RUTLEDGE, dissenting. I am accord DOUGLAS views Jackson Woods Interstate Realty 535, 1235. noted my dissent Ragan Merchants Transfer Warehouse 530, 1233. 43 Without undertaking discuss each detail, three demonstrate extreme going submitting Congress, properly belongs. guise applying 1487. outside regulate exclusively states. 44 What gloss rule, decisional well statutory, determining apart limitations assertion—whether exists. accept view insofar involves wise administration though grave doubt solid foundation. 45 ruling deciding 'merely another sits,' situation doors suitor, Not true bar raised purely obstacle. There sound historical believing purposes clause afford reasons policy, e.g., original intent judgment, consequences implications impairing Congress' proper sphere accepted dichotomy familiar 'procedural-substantive' endless discussion, hardly needs repeated here. Suffice actually situations substance interwoven rational separation becomes well-nigh impossible. But, so, dispense making distinction. For, stands govern Judges division. constituent elements Siamese twins blood brothers. made, how mechanically reference courts' open closed, policies accommodating incidents suits. 47 borderland area, far. thing decide Pennsylvania tort injuries inflicted specified determination outcome York.1 another, view, opposing party's event claimant unsuccessful. Whether conceived right, controlling identified former. lies governed shuts requirements concerning complied with. 48 Procedure, sanction Cohen If, borders tinge aspect, then questioned whether, local sitting, Rule's aver 'that shareholder ..' For strict abstract seem 'substantive' bond, etc And, highly doubtful, automatic mechanical substantive-procedural dichotomy, limitation litigation, control. See Moore, Practice (2d Ed.) 3493—3506. 49 myself enact aspect. Notwithstanding closely affecting me conceive invalidity. regulations, modes methods conducting capable displacing respects respective controversies. 50 Accordingly reverse affirm Chapter 131, Laws N.J.S.A. 14:3—15 17, pertinent part follows: '1. instituted maintained domestic foreign holder voting trust certificates representing total par capital five per centum (5%) * excess fifty thousand dollars ($50,000.00), entitled, stage complainant complainants connection therewith pursuant certificate equitable principles, recourse termination thereafter, increased ecreased '2. '3. take immediately actions, future proceedings.' 61-b, General Corporation Law, Consol. Laws, c. 23; Pa. Stat.Ann. 1322; 989, Maryland, 1945; Wisconsin Stat. 180.13 (1945). Old 94, 104 ix; 27, 226 649, 656. 23(b), Hornstein, Problems Stockholders' Derivative Suits, Col.L.R. 574; Directors' Expenses id. 301; Koessler, Stockholder's Suit: Comparative View, 238; Aspects 1; Carson, Current Phases Actions Against Directors, Mich.L.R. 1125; P. E. Jackson, Reorganization Concept Effect 61-b A5 Am.Bankr.Rev. 323; Further Cornell L.Q. 431; House, Coudert-Mitchell N.Y.U.L.Q.Rev. 377; Death Knell California L.R. 123; Zlinkoff, American Investor Constitutionality 54 Yale L.J. Douglas, Who Do Direct, Harv.L.R. 1305. Daniel Family Security Life Insurance 220, 550. problem apparently presented consistent, remand, current treat exactly sitting: arose tort, 'declined issue law,' 80, 823, i.e., law.' Id. initiated 'a citizen Southern company State.' 69, 818 added). Accordingly, construed, remand tort. sole determined mention probable attitude 98 49. Brandeis retired follow doctrine resolution cases. 1477.

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