Source: https://supreme.justia.com/cases/federal/us/396/531/
Timestamp: 2019-04-25 17:52:27+00:00

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The right to trial by jury preserved by the Seventh Amendment extends to a stockholder's derivative suit with respect to those issue as to which the corporation, had it been suing in its own right, would have been entitled to a jury trial.
The Seventh Amendment to the Constitution provides that, in "[s]uits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved." Whether the Amendment guarantees the right to a jury trial in stockholders' derivative actions is the issue now before us.
of trust, gross misconduct, willful misfeasance, bad faith, [and] gross negligence." Both the individual defendants and Lehman Brothers were accused of breaches of fiduciary duty. It was alleged that the payments to Lehman Brothers constituted waste and spoliation, and that the contract between the corporation and Lehman Brothers had been violated. Petitioners requested that the defendants "account for and pay to the Corporation for their profits and gains and its losses." Petitioners also demanded a jury trial on the corporation's claims.
"there are substantial grounds for difference of opinion as to this question, and . . . an immediate appeal would materially advance the ultimate termination of this litigation,"
the District Court permitted an interlocutory appeal. 28 U.S.C. § 1292(b). The Court of Appeals reversed, holding that a derivative action was entirely equitable in nature, and no jury was available to try any part of it. 403 F.2d 909. It specifically disagreed with DePinto v. Provident Security Life Ins. Co., 323 F.2d 826 (C.A. 9th Cir.1963), cert. denied, 376 U.S. 950 (1964), on which the District Court had relied. Because of this conflict, we granted certiorari. 394 U.S. 917 (1969).
been suing in its own right, would have been entitled to a jury.
"not merely suits, which the common law recognized among its old and settled proceedings, but suits in which legal rights were to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized, and equitable remedies were administered. . . . In a just sense, the amendment then may well be construed to embrace all suits which are not of equity and admiralty jurisdiction, whatever may be the peculiar form which they may assume to settle legal rights."
Parson v. Bedford, 3 Pet. 433, 28 U. S. 447 (1830).
"why the defendants' right to a jury trial should be taken away because the present plaintiff cannot persuade the only party having a cause of action to sue how the liability, which is the principal matter, can be converted into an incident of the plaintiff's domestic difficulties with the company that has been wronged?"
led to the whole matter being disposed of in equity,"
Such was the prevailing opinion when the Federal Rules of Civil Procedure were adopted in 1938. It continued until 1963, when the Court of Appeals for the Ninth Circuit, relying on the Federal Rules as construed and applied in Beacon Theatres, Inc. v. Westover, 359 U. S. 500 (195), and Dairy Queen, Inc. v. Wood, 369 U. S. 469 (1962), required the legal issues in a derivative suit to be tried to a jury. [Footnote 9] DePinto v. Provident Security Life Ins. Co., 323 F.2d 826. It was this decision that the District Court followed in the case before us, and that the Court of Appeals rejected.
in the same action, there is a right to jury trial on the legal claims which must not be infringed either by trying the legal issues as incidental to the equitable ones or by a court trial of a common issue existing between the claims. The Seventh Amendment question depends on the nature of the issue to be tried, rather than the character of the overall action. [Footnote 10] See Simler v. Conner, 372 U. S. 221 (1963). The principle of these cases bears heavily on derivative actions.
The heart of the action is the corporate claim. If it presents a legal issue, one entitling the corporation to a jury trial under the Seventh Amendment, the right to a jury is not forfeited merely because the stockholder's right to sue must first be adjudicated as an equitable issue triable to the court. Beacon and Dairy Queen require no less.
If, under older procedures, now discarded, a court of equity could properly try the legal claims of the corporation presented in a derivative suit, it was because irreparable injury was threatened and no remedy at law existed as long as the stockholder was without standing to sue and the corporation itself refused to pursue its own remedies. Indeed, from 1789 until 1938, the judicial code expressly forbade courts of equity from entertaining any suit for which there was an adequate remedy at law. [Footnote 12] This provision served "to guard the right of trial by jury preserved by the Seventh Amendment and to that end it should be liberally construed." Schoenthal v. Irving Trust Co., 287 U. S. 92, 287 U. S. 94 (1932). If, before 1938, the law had borrowed from equity, as it borrowed other things, the idea that stockholders could litigate for their recalcitrant corporation, the corporate claim, if legal, would undoubtedly have been tried to a jury.
equity, were destroyed. In a civil action presenting a stockholder's derivative claim, the court, after passing upon the plaintiff's right to sue on behalf of the corporation, is now able to try the corporate claim for damages with the aid of a jury. [Footnote 13] Separable claims may be tried separately, Fed.Rule Civ.Proc. 42(b), or legal and equitable issues may be handled in the same trial. Fanchon & Marco, Inc. v. Paramount Pictures, Inc., 202 F.2d 731 (C.A.2d Cir.1953). The historical rule preventing a court of law from entertaining a shareholder's suit on behalf of the corporation is obsolete; it is no longer tenable for a district court, administering both law and equity in the same action, to deny legal remedies to a corporation merely because the corporation's spokesmen are its shareholders, rather than its directors. Under the rules, law and equity are procedurally combined; nothing turns now upon the form of the action or the procedural devices by which the parties happen to come before the court. The "expansion of adequate legal remedies provided by . . . the Federal Rules necessarily affects the scope of equity." Beacon Theatres, Inc. v. Westover, 359 U.S. at 359 U. S. 509.
Practice ¦ 38.3  (2d ed.1969); 3B id. ¦ 23.02 . Although at least one post-merger court held that the device was not available to try legal issues, [Footnote 14] it now seems settled in the lower federal courts that class action plaintiffs may obtain a jury trial on any legal issues they present. Montgomery Ward & Co. v. Langer, 168 F.2d 182 (C.A. 8th Cir.1948); see Oskoian v. Canuel, 269 F.2d 311 (C.A. 1st Cir.1959), aff'g 23 F.R.D. 307; Syres v. Oil Workers Int'l Union, Local 2, 257 F.2d 479 (C.A. 5th Cir. 1958), cert. denied, 358 U.S. 929 (1959). 2 W. Baron & A. Holtzoff, Federal Practice and Procedure § 571 (Wright ed.1961).
¦¦ 23.02, 23.1.16 (2d ed.1960). After adoption of the rules there is no longer any procedural obstacle to the assertion of legal rights before juries, however the party may have acquired standing to assert those rights. Given the availability in a derivative action of both legal and equitable remedies, we think the Seventh Amendment preserves to the parties in a stockholder's suit the same right to a jury trial that historically belonged to the corporation and to those against whom the corporation pressed its legal claims.
whether the corporation's other claims are also properly triable to a jury. Dairy Queen, Inc. v. Wood, 369 U. S. 469 (1962). The decision of the Court of Appeals is reversed.
See, e.g., Curriden v. Middleton, 232 U. S. 633 (1914); Whitehead v. Shattuck, 138 U. S. 146 (1891); 5 J. Moore, Federal Practice ¦ 38-11  (2d ed.1969).
1 W. Blackstone, Commentaries *475; cf. 11 U. S. Patterson's Adm'r, 7 Cranch 299 (1813); Bank of Kentucky v. Wister, 2 Pet. 318 (1829).
Prunty, The Shareholders' Derivative Suit: Note on Its Derivation, 32 N.Y.U.L.Rev. 980 (1957), treats the development of the equitable remedy.
Delaware & Hudson Co. v. Albany & S. R. Co., 213 U. S. 435 (1909); Doctor v. Harrington, 196 U. S. 579 (1905); Quincy v. Steel, 120 U. S. 241 (1887); Hawes v. Oakland, 104 U. S. 450 (1882). Soon after Hawes v. Oakland, supra, the preconditions to a shareholder's suit were promulgated as Equity Rule 94, 104 U.S. IX, which became Equity Rule 27, 226 U.S. 656 (1912), then Fed.Rule Civ.Proc. 23(b), 308 U.S. 690 (1938), and is now Fed.Rule Civ.Proc. 23.1, 383 U.S. 1050 (1966).
See Koster v. Lumbermens Mut. Cas. Co., 330 U. S. 518, 330 U. S. 522-523 (1947); Ashwander v. TVA, 297 U. S. 288 (1936). See also 13 W. Fletcher, Cyclopedia of the Law of Private Corporations § 5941.1 (1961 ed.); 2 G. Hornstein, Corporation Law and Practice § 716 (1959); 4 J. Pomeroy, Equity Jurisprudence § 1095, p. 278 (5th ed.1941). Insofar as the stockholders may have been asserting their own direct interest, they closely resemble other class action plaintiffs who could proceed, before merger, only in equity.
The dilemma of the stockholder seeking treble damages for the corporation became real and complete in United Copper Co. v. Amalgamated Copper Co., 244 U. S. 261 (1917), where the stockholder-plaintiff sought treble damages in an action at law. The Court rejected the claim by reiterating the traditional view that a shareholder was without standing to sue at law on a corporate cause. The treble damage action was a legal proceeding, and only the corporation could bring it. The Court of Appeals for the Second Circuit has held that the federal rules have resolved the dilemma, and that derivative actions for treble damages under the antitrust laws are now proper. Fanchon & Marco, Inc. v. Paramount Pictures, Inc., 202 F.2d 731 (C.A.2d Cir.1953). Cf. Ramsburg v. American Inv. Co. of Ill., 231 F.2d 333 (C.A. 7th Cir.1956). See generally Comment, Federal Antitrust Law -- Stockholders' Remedies For Corporate Injury Resulting From Antitrust Violations: Derivative Antitrust Suit and Fiduciary Duty Action, 59 Mich.L.Rev. 904 (1961).
"not because the suit should have been at law, but because the bill failed to show that complainant had made sufficient effort to induce the directors to enter suit."
244 U.S. at 244 U. S. 264-265, n. 2. Delaware & Hudson Co. v. Albany & S. R. Co., supra, n 4, involved a derivative suit for money damages due under a lease. The stockholders' right to sue was sustained; no jury trial issue appears to have been raised.
See, e.g., Goetz v. Manufacturers' & Traders' Trust Co., 154 Misc. 733, 277 N.Y.S. 802 (Sup.Ct.1935); Isaac v. Marcus, 258 N.Y. 257, 179 N.E. 487 (1932); Morton v. Morton Realty Co., 41 Idaho 729, 241 P. 1014 (1925); Neff v. Barber, 165 Wis. 503, 162 N.W. 667 (1917); Robinson v. Smith, 3 Paige Ch. 222, 231, 233 (N.Y. 1832); 4 W. Cook, Corporations § 734 (8th ed.1923); S. Thompson & J. Thompson, Law of Corporations § 4661 (Supp. 1931); 6 id., § 4653 (3d ed.1927).
The possibility that the merged federal practice altered the procedures in derivative suits was early recognized, Fanchon & Marco, Inc. v. Paramount Pictures, Inc., supra, n 6, but, until the action of the District Court below, DePinto was alone in holding that a right to a jury trial existed in derivative actions. Cf. Richland v. Crandall, 259 F.Supp. 274 (D.C.S.D.N.Y.1966). See also Metcalf v. Shamel, 166 Cal.App.2d 789, 333 P.2d 857 (1959); Steinway v. Griffith Consol. Theatres, 273 P.2d 872 (Okla.1954).
See Koster v. Lumbermens Mut. Cas. Co., 330 U. S. 518 (1947); Meyer v. Fleming, 327 U. S. 161, 327 U. S. 167 (1946); Davenport v. Dows, 18 Wall. 626 (1874).
"If in a suit in equity a matter ordinarily determinable at law arises, such matter shall be determined in that suit according to the principles applicable, without sending the case or question to the law side of the court."
Farmers Co-operative Oil Co. v. Socony-Vacuum Oil Co., 43 F.Supp. 735 (D.C.N.D. Iowa 1942).
Other equitable devices are used under the rules without depriving the parties employing them of the right to a jury trial on legal issues. For example, although the right to intervene may in some cases be limited, United States for the Use and Benefit of Browne & Bryan Lumber Co. v. Massachusetts Bonding Ins. Co., 303 F.2d 823 (C.A.2d Cir.1962); Dickinson v. Burnham, 197 F.2d 973 (C.A.2d Cir.), cert. denied, 344 U.S. 875 (1952), when intervention is permitted generally, the intervenor has a right to a jury trial on any legal issues he presents. See 3B J. Moore, Federal Practice ¦ 24.16 (2d ed.1969); 5 id. ¦ 38.38. A similar development seems to be taking place in the lower courts in interpleader actions. Before merger interpleader actions lay only in equity, and there was no right to a jury even on issues that might, under other circumstances, have been tried to a jury. Liberty Oil Co. v. Condon Nat. Bank, 260 U. S. 235 (1922). This view continued for some time after merger, see Bynum v. Prudential Life Ins. Co., 7 F.R.D. 585 (D.C.E.D. S.C.1947), but numerous courts and commentators have now come to the conclusion that the right to a jury should not turn on how the parties happen to be brought into court. See Pan American Fire Cas. Co. v. Revere, 188 F.Supp. 474 (D.C.E.D.La.1960); Savannah Bank & Trust Co. v. Block, 175 F.Supp. 798 (D.C.S.D. Ga.1959); Westinghouse Elec. Corp. v. United Elec. Radio & Mach. Workers of America, 99 F.Supp. 597 (D.C.W.D.Pa.1951); John Hancock Mut. Life Ins. Co. v. Yarrow, 95 F.Supp. 185 (D.C.E.D.Pa.1951); 2 W. Barron & A. Holtzoff, Federal Practice and Procedure § 556 (Wright ed.1961); 3A J. Moore, Federal Practice 1122.14 (2d ed.1969). But see Pennsylvania Fire Ins. Co. v. American Airlines, Inc., 180 F.Supp. 239 (D.C.E.D.N.Y.1960); Liberty Nat. Life Ins. Co. v. Brown, 119 F.Supp. 920 (D.C.M.D.Ala.1954).
In holding as it does that the plaintiff in a shareholder's derivative suit is constitutionally entitled to a jury trial, the Court today seems to rely upon some sort of ill-defined combination of the Seventh Amendment and the Federal Rules of Civil Procedure. Somehow, the Amendment and the Rules magically interact to do what each separately was expressly intended not to do, namely, to enlarge the right to a jury trial in civil actions brought in the courts of the United States.
suit does indeed have a constitutional right to a trial by jury. This holding has a questionable basis in policy [Footnote 2/5] and no basis whatever in the Constitution.
was recognized by courts of law. [Footnote 2/7]"
This has been not simply the "general" or "prevailing" view in the federal courts, as the Court says, but the unanimous view with the single exception of the Ninth Circuit's 1963 decision in DePinto v. Provident Security Life Ins. Co., 323 F.2d 826, a decision that has since been followed by no court until the present case.
law side of the court."
226 U.S. 654. These applicable principles included the right of jury trial. [Footnote 2/9] Consequently, when the Court said in United Copper Co. v. Amalgamated Copper Co., 244 U. S. 261, 244 U. S. 264, that "it is clear" that the remedy of a stockholder seeking to enforce the rights of a corporation -- whatever their nature -- is not in law, but in equity, it was not because there were "procedural impediments" to a jury trial on any "legal issues." Rather, it was because the suit itself was conceived of as a wholly equitable cause of action.
"should not be read as attempting to authorize liability to be enforced otherwise than through the verdict of a jury in a court of common law."
These pre-1938 cases, then, firmly establish the unitary, equitable basis of shareholders' derivative suits and in no way support the Court's holding here. But, the Court says, whatever the situation may have been before 1938, the Federal Rules of Civil Procedure of that year, at least as construed in our decisions more than 20 years later in Beacon Theatres, Inc. v. Westover, 359 U. S. 500, and Dairy Queen, Inc. v. Wood, 369 U. S. 469, in any event, require the conclusion reached today. I can find nothing in either of these cases that leads to that conclusion.
that a plaintiff could not avoid a jury trial by joining legal and equitable causes of action in one complaint.
But the present case is not one involving traditionally equitable claims by one party and traditionally legal claims by the other. Nor is it a suit in which the plaintiff is asserting a combination of legal and equitable claims. For, as we have seen, a derivative suit has always been conceived of as a single, unitary, equitable cause of action. It is for this reason, and not because of "procedural impediments," that the courts of equity did not transfer derivative suits to the law side. In short, the cause of action is wholly a creature of equity. And whatever else can be said of Beacon Theatres and Dairy Queen, they did not cast aside altogether the historic division between equity and law.
instance, often involves issues of fact which, if damages had been sought, would have been triable to a jury. Does this mean that, in a suit asking only for injunctive relief, these factual issues must be tried to the jury, with the judge left to decide only whether, given the jury's findings, an injunction is the appropriate remedy? Certainly the Federal Rules make it possible to try a suit for an injunction in that way, but, even more certainly, they were not intended to have any such effect. Yet the Court's approach, it seems, would require that, if any "legal issue" procedurally could be tried to a jury, it constitutionally must be tried to a jury.
The fact is, of course, that there are, for the most part, no such things as inherently "legal issues" or inherently "equitable issues." There are only factual issues, and, "like chameleons, [they] take their color from surrounding circumstances." [Footnote 2/12] Thus, the Court's "nature of the issue" approach is hardly meaningful.
As a final ground for its conclusion, the Court points to a supposed analogy to suits involving class actions. It says that, before the Federal Rules, such suits were considered equitable, and not triable to a jury, but that, since promulgation of the Rules, the federal courts have found that "plaintiffs may obtain a jury trial on any legal issues they present." Of course, the plaintiff any obtain such a trial even in a derivative suit. Nothing in the Constitution or the Rules precludes the judge from granting a jury trial as a matter of discretion.
But even if the Court means that some federal courts have ruled that the class action plaintiff in some situations has a constitutional right to a jury trial, the analogy to derivative suits is wholly unpersuasive. For it is clear that the draftsmen of the Federal Rules intended that Rule 23, as it pertained to class actions, should be applicable, like other rules governing joinder of claims and parties, "to all actions, whether formerly denominated legal or equitable." [Footnote 2/13] This does not mean that a formerly equitable action is triable to a jury simply because it is brought on behalf of a class, but only that a historically legal cause of action can be tried to a jury even if it is brought as a class action. Since a derivative suit is historically wholly a creation of equity, the class action "analogy" is, in truth, no analogy at all.
The Court's decision today can perhaps be explained as a reflection of an unarticulated but apparently overpowering bias in favor of jury trials in civil actions. It certainly cannot be explained in terms of either the Federal Rules or the Constitution.
Where a new cause of action is created by Congress, and nothing is said about how it is to be tried, the jury trial issue is determined by fitting the cause into its nearest historical analogy. Luria v. United States, 231 U. S. 9; see James, Right to a Jury Trial in Civil Actions, 72 Yale L.J. 655.
See, e.g., Ettelson v. Metropolitan Life Ins. Co., 137 F.2d 62, 65; 5 J. Moore, Federal Practice ¦ 38.07 and cases cited therein.
The principle that the Rules effected no enlargement or restriction of the right of jury trial has "received complete judicial approbation." 5 J. Moore, Federal Practice ¦ 38.07 and cases cited therein.
Virtually every state and federal court that has faced this issue has similarly reasoned to the same conclusion. See, e.g., Goetz v. Manufacturers' & Traders' Trust Co., 154 Misc. 733, 277 N.Y.S. 802 (Sup.Ct.); Metcalf v. Shamel, 166 Cal.App.2d 789, 333 P.2d 857; Liken v. Shaffer, 64 F.Supp. 432; Miller v. Weiant, 42 F.Supp. 760. The equitable nature of the derivative suit has been recognized in several decisions of this Court. See, e.g., Cohen v. Beneficial Industrial Loan. Corp., 337 U. S. 541, 337 U. S. 547-548. It was also reflected in the adoption of Equity Rule 94 in 1882, and Rule 27 of the Equity Rules of 1912 which established the preconditions to bringing shareholders' derivative suits in the federal courts. These rules are the forerunners of Rule 23(b) of Fed.Rule Civ.Proc. of 1938, and of Fed.Rule Civ.Proc. 23.1 (1966), which now controls the initiation of such suits. See 3B J. Moore, Federal Practice ¦ 23.1.15.
See, e.g., J. Frank, Courts on Trial 110-111 (1949). Certainly there is no consensus among commentators on the desirability of jury trials in civil actions generally. Particularly where the issues in the case are complex -- as they are likely to be in a derivative suit -- much can be said for allowing the court discretion to try the case itself. See discussion in 5 J. Moore, Federal Practice ¦ 38.02 .
Robinson v. Smith, 3 Paige Ch. 222 (N.Y.); Attorney General v. Utica Ins. Co., 2 Johns.Ch. 371 (N.Y.), discussed in Prunty, The Shareholders' Derivative Suit: Notes on its Derivation, 32 N.Y.U.L.Rev. 980.
Note, The Right to a Jury Trial in a Stockholder's Derivative Action, 74 Yale L.J. 725, 730.
See, e.g., N. Lattin, The Law of Corporations, c. 8, § 3; 2 G. Hornstein, Corporation Law and Practice § 730; 13 W. Fletcher, Cyclopedia of the Law of Private Corporations § 5931 (1961 ed.); 5 J. Moore, Federal Practice ¦38.38.
See Southern R. Co. v. City of Greenwood, 40 F.2d 679.
Moreover, since the suit was brought after the promulgation of Equity Rule 23 it seems evident that here, too, it was not merely "procedural impediments" that prevented the antitrust claim from being tried to a jury, but presumably the fact that no matter arising in a derivative suit -- whatever its "inherent nature" -- was considered to be one "ordinarily determinable at law."
See discussion in 74 Yale L.J. at 736-737.
James, supra, n. 1, at 692. As Professor Moore has put it, "Whether issues are legal or equitable may, of course, depend upon the manner in which they are presented. . . ." 5 J. Moore, Federal Practice ¦ 38.04, n. 40. And he, along with virtually every other commentator, concludes that, if the issues are presented in a shareholder's derivative suit, they are equitable, and the plaintiff has no constitutional right to have them tried by a jury. 5 J. Moore, Federal Practice ¦ 38.38.
Original Committee Note of 1937 to Rule 23. Moreover, as Professor Moore points out, certain class actions could be maintained at law in the federal courts even before the Federal Rules. 5 J. Moore, Federal Practice ¦ 38.38.

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