Legal Document

396 U.S. 531 90 Supreme Court Reporter 733 24 United States Reports Lawyer’s Edition 2d Series KF101.8 U54 729 Howard ROSS and Bernard Ross, as Trustees for Lena Rosenbaum, Petitioners,v.Robert Atlantic BERNHARD et al. Number 42. Argued Nov. 10, 1969. Decided Feb. 2, 1970. William E. Haudek, New York City, pertitioners. Marvin Schwartz, respondents. Mr. Justice WHITE delivered the opinion of Court. 1 The Seventh Amendment to Constitution provides that in '(s)uits at common law, where value controversy shall exceed twenty dollars, right trial by jury be preserved.' Whether guarantees a stockholders' derivative actions is issue now before us. 2 Petitioners brought this suit federal court against directors their closed-end investment company, Lehman Corporation corporation's brokers, Brothers. They contended Brothers controlled corporation through an illegally large representation on board directors, violation Investment Company Act 1940, 54 Statutes-at-Large 789, 15 Code KF62 § 80a—1 seq., used control extract excessive brokerage fees from corporation. were accused converting corporate assets 'gross abuse trust, gross misconduct, willful misfeasance, bad faith, (and) negligence.' Both individual defendants breaches fiduciary duty. It was alleged payments constituted waste spoliation, contract between had been violated. requested 'account pay profits gains its losses.' also demanded claims. 3 On motion strike petitioners' demand, District held shareholder's his cause action judged if itself plaintiff. Only initial claim speak tried judge. 275 F.Supp. 569. Convinced 'there are substantial grounds difference question * immediate appeal would materially advance ultimate termination litigation,' permitted interlocutory appeal. 28 1292(b). Appeals reversed, holding entirely equitable nature, no available try any part it. 403 Federal Reporter, 2nd 909. specifically disagreed with DePinto versus Provident Security Life insurance Co., 323 826 (C.A.9th Cir. 1963), cert. denied, Garsuch De P, 376 950, 84 965, 11 969 (1964), which relied. Because conflict, we granted certiorari 394 917, 89 1190, 22 450 (1969). 4 We reverse event does preserved extend stockholders hold attaches those issues corporation, it suing own right, have entitled jury. 5 preserves litigants suits law— 6 'not merely suits, law recognized among old settled proceedings, but legal rights ascertained determined, contradistinction alone recognized, remedies administered. In sense, amendment then may well construed embrace all not equity admiralty jurisdiction, whatever peculiar form they assume settle rights.' Parsons Bedford, Breedlove & Robeson, Pet. 433, 447, 7 L.Ed. 732 (1830). However difficult define precision line dealing matters, Whitehead Shattuck, 138 146, 151, 276, 277, 34 873 (1891), some proceedings unmistakably triable Amendment, example, parties damages person or property, libel slander, recovery land, conversion personal property.1 Just clearly, although artificial being, commonly sue sued usual forms action, least State. See Paul Virginia, 8 Wall. 168, 19 357 (1869). viewed entity separate device permitting carry business sued, enforce carrying time adopted.2 refused, however, permit call managers account law. possibilities abuse, thus presented, ignored officers directors. Early 19th century, provided relief both country England. Without detailing these developments,3 suffices say remedy country, first dealt Dodge Woolsey, 18 How. 331, 401 (1856), redress only faithless third who damaged threatened properties whom refused pursue. made suit, officers, parties. As elaborated cases, one precondition valid could sued; another proceed after suitable unless excused extraordinary conditions.4 Thus dual nature stockholder's action: first, plaintiff's behalf and, second, merits itself.5 9 Derivative posed problems bill suit. Our concern cases based upon Does such claims stockholder without violate Amendment? 10 arose context treble under antitrust laws. Fleitmann Welsbach Street Lighting 240 27, 36 233, 60 505 1916). Noting set up alone, Holmes observed plaintiff, 'no can doubt law,' inquired 'why defendants' should taken away because present plaintiff cannot persuade party having sue,—how liability principal matter converted into incident domestic difficulties company has wronged'? Id., 28, S.Ct., 234. His answer did state good equity. Agreeing there Fed.Rule Civ.Proc. 23.1, 383 1050 asserted failure concerned insist rights, different system, led whole being disposed equity,' he concluded when penalty triple sought, statute plainly anticipated read 'attempting authorize enforced otherwise than verdict law.' 28—29, Although decision obvious overtones, rationale grounded laws.6 Where penal involved, authoritative parallel system squarely passing applicability presented pre-merger What gleaned Court's opinions7 inconsistent general understanding, reflected decisions secondary sources, properly resolve kind pleaded complying rules.8 12 Such prevailing Rules Civil Procedure adopted 1938. continued until 1963 Ninth Circuit, relying applied Beacon Theatres Incorporated Westover, 359 500, 79 948, 988 (1959), Dairy Queen Wood, 369 469, 82 894, 44 (1962), required jury.9 826. followed case us rejected. 13 presaged DePinto. Under joined same must infringed either trying incidental ones existing depends rather character overall action.10 Simler Conner, 372 221, 83 609, 691 (1963). principle bears heavily actions. 14 noted aspects: historically matter; which, issues, demand trial. implied Fleitmann, magically presentation pressed 'is corporation's.' Koster Lumbermens Mut. Cas. 330 518, 522, 67 828, 831 (1947). necessary action; proceed. named defendant, real interest, best nominal proceeds belong bound result suit.11 heart claim. If presents issue, entitling forfeited adjudicated court. require less. older procedures, discarded, irreparable injury existed long standing pursue remedies. Indeed, 1789 1938, judicial code expressly forbade courts entertaining adequate law.12 This provision served 'to guard end liberally construed.' Schoenthal Irving Trust 287 92, 94, 53 50, 51, 77 185 (1932). If, borrowed equity, other things, idea litigate recalcitrant claim, legal, undoubtedly 16 Of course, occur, similar impact. Actions longer action—a 'civil action'—in available. Purely procedural impediments party, destroyed. civil presenting able aid jury.13 Separable separately, 42(b), handled Fanchon Marco, Paramount Pictures, Inc., 202 731 (C.A.2d 1953). historical rule preventing obsolete; tenable district court, administering deny spokesmen shareholders rules, procedurally combined; nothing turns devices happen come 'expansion necessarily affects scope equity.' Theatres, U.S., 509, 956. 17 Thus, before-merger class largely even might, circumstances, Judge Moore, Practice 38.38(2) (2d ed. 1969); 3B id., 23.02(1). post-merger issues,14 seems lower plaintiffs obtain present. Montgomery Ward Langer, 168 182 (C.A.8th 1948); see Oskoian Canuel, 269 311 (C.A.1st 1959), aff'g 23 F.R.D. 307; Syres Oil Workers international Union, Local 23, 257 479 (C.A.5th 1958), 358 929, 315, 302 (1959). W. Barron Holtzoff, 571 (Wright 1961). described 'true' action. 562.1. inclined agree description, extent recognizes ways allowing heard law.15 23.02(1), 23.1.16(1) 1969). After adoption rules obstacle assertion juries, however acquired assert rights. Given availability remedies, think belonged instant is, part, one. sought money damages. There allegations complaint breach duty, ordinary negligence. behalf, jury's determination, minimum, broker circumstances unnecessary decide whether Queen, (1962). reversed. 20 so ordered. 21 Decision STEWART, THE CHIEF JUSTICE HARLAN join, dissenting. constitutionally trial, today rely sort ill-defined combination Procedure. Somehow interact do what each separately intended do, namely, enlarge States. terms, extend, '(i)n Suits All means reach limited 1791 adopted.1 therefore unaffected Similarly, Rule 38 bearing simply inviolate '(t)he declared Amendment.' Rule, like itself, neither restricts nor enlarges trial.2 Indeed rightly legislation authorizing Rules, Congress 'shall abridge, enlarge, modify substantive litigant.' 48 1064. 2072. N Dec. Immigration Nationality Decisions take plain, simple, straight-forward language mean promulgation before, constitutional So, apparently, every discussed issue.3 Since, concedes, seem me follow most elementary logic jury.4 Today tosses aside history, over 100 years firm precedent indeed questionable basis policy5 Constitution. 25 begins assuming 'dual nature' While get conceded equitable, once says though itself. then, said, shareholder. conceptualization basis. For fact originally England, Rather, initially corporation—not parties—and conceived beneficiary trustee.6 shareholder not, therefore, indirectly directly unfaithful fiduciary. Later enlarged encompass harming 'the postulated 'corporate action' never thought describe actual law.'7 commentators, including cited postulating analytic duality recognize practice always treated single exclusively might suit.8 26 'general' 'prevailing' view says, unanimous exception Circuit's 826, since case. 27 discount rendered adopted, '(p)urely impediments' somehow blocked exercise right. shaky premise build argument. But position still further weakened eliminated, early 1912. Equity year 'matter ordinarily determinable law' 'be determined according principles applicable, sending side court.' 226 654. These applicable included trial.9 Consequently, said Copper Amalgamated 244 261, 264, 37 510, 61 1119, 'it clear' seeking corporation—whatever nature—is 'procedural 'legal issues.' wholly true 505, relies pre-Federal-Rules derivatively Treble considered punitive, imply defendant Court, potential abuse: order deprive solution dismiss 'should attempting 29, how draw sustenance decision. stand proposition diametrically opposed seeks establish; statutory laws, maintained. dismissed.10 29 pre-1938 firmly establish unitary, shareholders' way support here. But, situation year, our more later 988, 44, conclusion reached today. find leads conclusion. 30 injunction instituting declaratory judgment certain moving picture distribution contracts answered counterclaimed He factual relating counterclaim. counterclaim, hear submitting counterclaim affirmed, ground estoppel defeat defendant's full raised Similarly avoid joining causes complaint. 31 stated 1938 diminish jurisdiction particulars. effort force facts mold succeed. Those involved separable Their fit pattern where, retained despite enjoined subsequent involving controversy.11 32 traditionally other. Nor asserting For, seen, single, reason, impediments,' transfer side. short, creature And else cast altogether historic division 33 history cavalierly dismissed, can, artificially broken down elements. lead virtual elimination jurisdiction. An injunction, instance, often involves asking injunctive jury, judge left whether, given findings, appropriate remedy? Certainly make possible way, certainly effect. Yet approach, seems, issue' are, things inherently issues' 'equitable 'like chameleons (they) color surrounding circumstances.'12 'nature approach hardly meaningful. 35 final conclusion, points supposed analogy found 'plaintiffs present.' course Nothing precludes granting discretion. ruled situations unpersuasive. clear draftsmen pertained governing joinder parties, actions, formerly denominated equitable.'13 class, Since derivate creation 'analogy' truth all. perhaps explained reflection unarticulated apparently overpowering bias favor trials terms See, e.g., Curriden Middleton, 232 633, 458, 58 765 (1914); (1891); 38.11(5) Blackstone, Commentaries *475; cf. Bank Columbia Patterson's Adm'r, Cranch 299, 351 (1813); President Directors Commonwealth Kentucky Wister, 318, 437 (1829). Prunty, Shareholders' Suit: Notes Its Derivation, N.Y.U.L.Rev. 980 (1957), treats development remedy. Delaware Hudson Albany S.R. 213 435, 540, 862 (1909); Doctor Harrington, 196 579, 355, 49 606 (1905); City Quincy Steel, 120 241, 520, 624 (1887); Hawes Oakland, 104 450, 827 (1882). Soon supra, preconditions promulgated IX, became 656 (1912), 23(b), 308 690 (1938), Fed.Rules (1966). 522 523, 830—831, 91 1067 (1947); Ashwander TVA, 297 288, 56 466, 80 688 (1936). Fletcher,Cyclopedia Law Private Corporations 5941.1 (1961 ed.); G. Hornstein, 716 (1959); Pomeroy, Jurisprudence 1095, Page 278 (5th 1941). Insofar direct closely resemble proceed, merger, dilemma complete 1119 (1917), stockholder-plaintiff rejected reiterating traditional cause. treble-damage proceeding bring Second Circuit resolved laws proper. Cf. Ramsburg American Inv. Ill., 231 333 (C.A.7th 1956). generally Comment, Antitrust Stockholders' Remedies Corporate Injury Resulting From Violations: Suit Fiduciary Duty Action, 59 Mich.L.Rev. 904 (1961). (1887), 'a purely corporation,—damages contract' failed show complainant sufficient induce enter suit.' 264—265, n. 3, 511. 4, due lease. sustained; appears raised. Goetz Manufacturers' Traders' 154 Misc. 733, 277 Supplement 802 (Sup.Ct.1935); Isaac Marcus, 258 N.Y. 257, 179 Northeastern KF135 N59 487 (1932); Morton Realty 41 Idaho 729, 241 Pacific P2 1014 (1925); Neff Barber, 165 Wis. 503, 162 Northwestern N69 667 (1917); Robinson Smith, Paige Ch. 222, 231, 233 (N.Y.1832); Cook, 734 (8th 1923); S. Thompson Thompson, 4661 (Supp.1931); 4653 (3d 1927). possibility merged altered procedures 6, below Richland Crandall, 259 274 (D.C.S.D.N.Y.1966). Metcalf Shamel, 166 Cal.App.2d 857 Steinway Griffith Consol. 273 872 (Okla.1954). indicate, 'legal' considering, custom reference questions; sought; third, practical abilities limitations juries. factors, requiring extensive possibly abstruse inquiry, obviously apply. James, Right Jury Trial Actions, 72 Yale L.J. 655 Meyer Fleming, 327 161, 167, 66 382, 386, 595 (1946); Davenport Dows, 626, 938 (1874). Judicial 1911, 267, 1163, re-enacting Sept. 24, 1789, 16, 82, provided: 'Suits sustained adequate, appear conclusions 1915, March Southern R. Greenwood, 40 679 (D.C.W.D.S.C.1928); 2.05 1967). 'If arises, matters Farmers Co-operative Socony-Vacuum 43 735 (D.C.N.D.Iowa 1942). Other depriving employing them issues. intervene limited, Use Benefit Browne Bryan Lumber Massachusetts Bonding 303 823 1962); Dickinson Burnham, 197 973 Cir.), denied 344 875, 73 169, 97 678 (1952), intervention generally, intervenor presents. 24.16(7) 38.38(3). A taking place interpleader Before merger lay Liberty Condon Nat. Bank, 260 235, 118, (1922). Bynum Prudential 585 (D.C.E.D.S.C.1947), numerous commentators turn Pan Fire Revere, 188 474 (D.C.E.D.La.1960); Savannah Block, 175 798 (D.C.S.D.Ga.1959); Westinghouse Elec. Radio Mach. America, 99 597 (D.C.W.D.Pa.1951); John Hancock Yarrow, 95 (D.C.E.D.Pa.1951); 556 1961); 3A 22.14(4) Pennsylvania Airlines, 180 239 (D.C.E.D.N.Y.1960); Brown, 119 920 (D.C.M.D.Ala.1954). new created Congress, about tried, fitting nearest analogy. Luria States, 9, 101; 655. Ettelson Metropolitan Cir., 137 62, 65; 38.07(1) therein. effected enlargement restriction 'received approbation.' Virtually faced similarly reasoned (Sup.Ct.); 857; Liken Shaffer, D.C., 64 432; Miller Weiant, 42 760. several Cohen Beneficial Industrial Loan Corp., 337 541, 547—548, 69 1221, 1226, 93 1528. 94 1882, 1912 established bringing courts. forerunners 23(b) 23.1 (1966), controls initiation suits. 3B. 23.1.15(1). Frank, Courts 110—111 (1949). consensus desirability generally. Particularly complex—as likely suit—much discretion discussion 38.02(1). 222 (N.Y.); Attorney General Utica Johns., 371 (N.Y.), 980. Note, Stockholder's 74 725, 730. N. Lattin, Corporations, chapter 8, 3; 730; Fletcher, Cyclopedia 5931 38.38(4). 679. Moreover, evident here, too, prevented presumably arising suit—whatever 'inherent nature'—was 'ordinarily L.J., 736—737. 1, 692. Professor Moore put it, 'Whether may, depend manner presented. *' 38.04(1), 40. he, along virtually commentator, concludes Original Committee Note 1937 23. out, maintained Rules. 38.38(2).

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