Ross v. Bernhard, 396 U.S. 531 (1969)
Ross v. Bernhard, 396 U.S. 531 (1969)
531
90 S.Ct. 733
24 L.Ed.2d 729
Petitioners brought this derivative suit in federal court against the directors of
their closed-end investment company, the Lehman Corporation and the
corporation's brokers, Lehman Brothers. They contended that Lehman Brothers
controlled the corporation through an illegally large representation on the
corporation's board of directors, in violation of the Investment Company Act of
1940, 54 Stat. 789, 15 U.S.C. 80a1 et seq., and used this control to extract
excessive brokerage fees from the corporation. The directors of the corporation
were accused of converting corporate assets and of 'gross abuse 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.
3
On motion to strike petitioners' jury trial demand, the District Court held that a
shareholder's right to a jury on his corporation's cause of action was to be
judged as if the corporation were itself the plaintiff. Only the shareholder's
initial claim to speak for the corporation had to be tried to the judge. 275
F.Supp. 569. Convinced that '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, Garsuch v. De P, 376 U.S. 950, 84 S.Ct. 965, 11 L.Ed.2d 969
(1964), on which the District Court had relied. Because of this conflict, we
granted certiorari 394 U.S. 917, 89 S.Ct. 1190, 22 L.Ed.2d 450 (1969).
We reverse the holding of the Court of Appeals that in no event does the right
to a jury trial preserved by the Seventh Amendment extend to derivative actions
brought by the stockholders of a corporation. We hold that the right to jury trial
attaches to those issues in derivative actions as to which the corporation, if it
had been suing in its own right, would have been entitled to a jury.
The Seventh Amendment preserves to litigants the right to jury trial in suits at
common law
'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 jury 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.' Parsons v. Bedford, Breedlove &
Robeson, 3 Pet. 433, 447, 7 L.Ed. 732 (1830).
However difficult it may have been to define with precision the line between
actions at law dealing with legal rights and suits in equity dealing with equitable
matters, Whitehead v. Shattuck, 138 U.S. 146, 151, 11 S.Ct. 276, 277, 34 L.Ed.
873 (1891), some proceedings were unmistakably actions at law triable to a
jury. The Seventh Amendment, for example, entitled the parties to a jury trial
in actions for damages to a person or property, for libel and slander, for
recovery of land, and for conversion of personal property.1 Just as clearly, a
corporation, although an artificial being, was commonly entitled to sue and be
sued in the usual forms of action, at least in its own State. See Paul v. Virginia,
8 Wall. 168, 19 L.Ed. 357 (1869). Whether the corporation was viewed as an
entity separate from its stockholders or as a device permitting its stockholders
to carry on their business and to sue and be sued, a corporation's suit to enforce
a legal right was an action at common law carrying the right to jury trial at the
time the Seventh Amendment was adopted.2
8
10
The question arose in this Court in the context of a derivative suit for treble
damages under the antitrust laws. Fleitmann v. Welsbach Street Lighting Co.,
240 U.S. 27, 36 S.Ct. 233, 60 L.Ed. 505 1916). Noting that the bill in equity set
up a claim of the corporation alone, Mr. Justice Holmes observed that if the
corporation were the plaintiff, 'no one can doubt that its only remedy would be
at law,' and inquired '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'? Id., at 28, 36 S.Ct., at 234. His answer was
that the bill did not state a good cause of action in equity. Agreeing that there
Fed.Rule Civ.Proc. 23.1, 383 U.S. 1050 right asserted for the company, or the
failure of the defendants concerned to insist upon their rights, or a different
state system, has led to the whole matter being disposed of in equity,' he
concluded that when the penalty of triple damages is sought, the antitrust
statute plainly anticipated a jury trial and 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.' Id., at 2829, 36 S.Ct., at 234. Although the decision
had obvious Seventh Amendment overtones, its ultimate rationale was
grounded in the antitrust laws.6
11
Where penal damages were not involved, however, there was no authoritative
parallel to Fleitmann in the federal system squarely passing on the applicability
of the Seventh Amendment to the trial of a legal claim presented in a premerger derivative suit. What can be gleaned from this Court's opinions7 is not
inconsistent with the general understanding, reflected by the state court
decisions and secondary sources, that equity could properly resolve corporate
claims of any kind without a jury when properly pleaded in derivative suits
complying with the equity rules.8
12
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, 79 S.Ct. 948, 3 L.Ed.2d 988
(1959), and Dairy Queen Inc. v. Wood, 369 U.S. 469, 82 S.Ct. 894, 8 L.Ed.2d
44 (1962), required the legal issues in a derivative suit to be tried to a jury.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.
13
Beacon and Dairy Queen presaged DePinto. Under those cases, where equitable
and legal claims are joined 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.10 See
Simler v. Conner, 372 U.S. 221, 83 S.Ct. 609, 9 L.Ed.2d 691 (1963). The
principle of these cases bears heavily on derivative actions.
14
We have noted that the derivative suit has dual aspects: first, the stockholder's
right to sue on behalf of the corporation, historically an equitable matter;
second, the claim of the corporation against directors or third parties on which,
if the corporation had sued and the claim presented legal issues, the company
could demand a jury trial. As implied by Mr. Justice Holmes in Fleitmann,
legal claims are not magically converted into equitable issues by their
presentation to a court of equity in a derivative suit. The claim pressed by the
stockholder against directors or third parties 'is not his own but the
corporation's.' Koster v. Lumbermens Mut. Cas. Co., 330 U.S. 518, 522, 67
S.Ct. 828, 831 (1947). The corporation is a necessary party to the action;
without it the case cannot proceed. Although named a defendant, it is the real
party in interest, the stockholder being at best the nominal plaintiff. The
proceeds of the action belong to the corporation and it is bound by the result of
the suit.11 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.
15
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.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, 94, 53 S.Ct.
50, 51, 77 L.Ed. 185 (1932). If, before 1938, the law and 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.
16
Of course, this did not occur, but the Federal Rules had a similar impact.
Actions are no longer brought as actions at law or suits in equity. Under the
Rules there is only one actiona 'civil action'in which all claims may be
joined and all remedies are available. Purely procedural impediments to the
presentation of any issue by any party, based on the difference between law and
equity, was 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.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 509, 79 S.Ct., at 956.
17
Thus, for example, before-merger class actions were largely a device of equity,
and there was no right to a jury even on issues that might, under other
circumstances, have been tried to a jury. 5 J. Moore, Federal Practice 38.38(2)
(2d ed. 1969); 3B id., 23.02(1). Although at least one post-merger court held
that the device was not available to try legal issues,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 23, 257
F.2d 479 (C.A.5th Cir. 1958), cert. denied, 358 U.S. 929, 79 S.Ct. 315, 3
L.Ed.2d 302 (1959). 2 W. Barron & A. Holtzoff, Federal Practice and
Procedure 571 (Wright ed. 1961).
18
Derivative suits have been described as one kind of 'true' class action. Id.,
562.1. We are inclined to agree with the description, at least to the extent it
recognizes that the derivative suit and the class action were both ways of
allowing parties to be heard in equity who could not speak at law. 15 3B J.
Moore, Federal Practice 23.02(1), 23.1.16(1) (2d ed. 1969). 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.
19
In the instant case we have no doubt that the corporation's claim is, at least in
part, a legal one. The relief sought is money damages. There are allegations in
the complaint of a breach of fiduciary duty, but there are also allegations of
ordinary breach of contract and gross negligence. The corporation, had it sued
on its own behalf, would have been entitled to a jury's determination, at a
minimum, of its damages against its broker under the brokerage contract and of
its rights against its own directors because of their negligence. Under these
circumstances it is unnecessary to decide whether the corporation's other
claims are also properly triable to a jury. Dairy Queen, Inc. v. Wood, 369 U.S.
469, 82 S.Ct. 894, 8 L.Ed.2d 44 (1962). The decision of the Court of Appeals is
reversed.
20
It is so ordered.
21
22
Mr. Justice STEWART, with whom THE CHIEF JUSTICE and Mr. Justice
HARLAN join, dissenting.
23
24
The Seventh Amendment, by its terms, does not extend, but merely preserves
the right to a jury trial '(i)n Suits at common law.' All agree that this means the
reach of the Amendment is limited to those actions that were tried to the jury in
1791 when the Amendment was adopted.1 Suits in equity, which were
historically tried to the court, were therefore unaffected by it. Similarly, Rule
38 of the Federal Rules has no bearing on the right to a jury trial in suits in
equity, for it simply preserves inviolate '(t)he right of trial by jury as declared
by the Seventh Amendment.' Thus this Rule, like the Amendment itself, neither
restricts nor enlarges the right to jury trial.2 Indeed nothing in the Federal Rules
can rightly be construed to enlarge the right of jury trial, for in the legislation
authorizing the Rules, Congress expressly provided that they 'shall neither
abridge, enlarge, nor modify the substantive rights of any litigant.' 48 Stat.
1064. See 28 U.S.C. 2072. I take this plain, simple, and straight-forward
language to mean that after the promulgation of the Federal Rules, as before,
the constitutional right to a jury trial attaches only to suits at common law. So,
apparently, has every federal court that has discussed the issue.3 Since, as the
Court concedes, a shareholder's derivative suit could be brought only in equity,
it would seem to me to follow by the most elementary logic that in such suits
there is no constitutional right to a trial by jury.4 Today the Court tosses aside
history, logic and over 100 years of firm precedent to hold that the plaintiff in a
shareholder's derivative suit does indeed have a constitutional right to a trial by
jury. This holding has a questionable basis in policy5 and no basis whatever in
the Constitution.
25
The Court begins by assuming the 'dual nature' of the shareholder's action.
While the plaintiff's right to get into court at all is conceded to be equitable,
once he is there the Court says his claim is to be viewed as though it were the
claim of the corporation itself. If the corporation would have been entitled to a
jury trial on such a claim, then, it is said, so would the shareholder. This
conceptualization is without any historical basis. For the fact is that a
shareholder's suit was not originally viewed in this country, or in England, as a
suit to enforce a corporate cause of action. Rather, the shareholder's suit was
initially permitted only against the managers of the corporationnot third
partiesand it was conceived of as an equitable action to enforce the right of a
beneficiary against his trustee.6 The shareholder was not, therefore, in court to
enforce indirectly the corporate right of action, but to enforce directly his own
equitable right of action against an unfaithful fiduciary. Later the rights of the
shareholder were enlarged to encompass suits against third parties harming the
corporation, but 'the postulated 'corporate cause of action' has never been
thought to describe an actual historical class of suit which was recognized by
courts of law.'7 Indeed the commentators, including those cited by the Court as
postulating the analytic duality of the shareholder's derivative suit, recognize
that historically the suit has in practice always been treated as a single cause
tried exclusively in equity. They agree that there is therefore no constitutional
right to a jury trial even where there might have been one had the corporation
itself brought the suit.8
26
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.
27
The Court would have us discount all those decisions rendered before 1938,
when the Federal Rules of Civil Procedure were adopted, because it says that
before the promulgation of the Rules, '(p)urely procedural impediments'
somehow blocked the exercise of a constitutional right. In itself this would
seem a rather shaky premise upon which to build an argument. But the Court's
position is still further weakened by the fact that any '(p)urely procedural
impediments' to a jury trial in a derivative suit were eliminated, not in 1938, but
at least as early as 1912. For Rule 23 of the Equity Rules of that year provided
that if a 'matter ordinarily determinable at law' arose in an equity suit it should
'be determined in that suit according to the principles applicable, without
sending the case or question to the law side of the court.' 226 U.S. 654. These
applicable principles included the right of jury trial.9 Consequently, when the
Court said in United Copper Co. v. Amalgamated Copper Co., 244 U.S. 261,
264, 37 S.Ct. 509, 510, 61 L.Ed. 1119, that 'it is clear' that the remedy of a
stockholder seeking to enforce the rights of a corporationwhatever their
natureis 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.
28
This was also true in Fleitmann v. Welsbach Street Lighting Co., 240 U.S. 27,
36 S.Ct. 233, 60 L.Ed. 505, on which the Court so heavily relies even though it
was a pre-Federal-Rules case. In Fleitmann the plaintiff sued derivatively to
enforce a corporate right of action for treble damages under the antitrust laws.
Treble damages were considered punitive, and the statute was read to imply a
right in the defendant to a jury trial. In his opinion for the Court, Mr. Justice
Holmes recognized the potential for abuse: derivative rather than corporate
actions could be brought in order to deprive the defendant of his right to a jury
trial. The Court's solution was to dismiss the bill because the antitrust statute
'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.' Id., at 29, 36 S.Ct.,
at 234. I do not see how the Court today can draw sustenance from this
decision. Rather, the Fleitmann case seems to me to stand for a proposition
diametrically opposed to that which the Court seeks to establish; namely, the
proposition that because a derivative action is wholly equitable, there is no
right to a jury trial. The Court in Fleitmann simply held that since there was a
statutory right to a jury in all actions for treble damages under the antitrust laws,
a derivative suit seeking such damages could not be maintained. Thus the bill
had to be dismissed.10
29
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, 79 S.Ct. 948, 3 L.Ed.2d 988, and Dairy Queen, Inc. v. Wood, 369
U.S. 469, 82 S.Ct. 894, 8 L.Ed.2d 44, in any event require the conclusion
reached today. I can find nothing in either of these cases that leads to that
conclusion.
30
31
It is true that in Beacon Theatres it was stated that the 1938 Rules did diminish
the scope of federal equity jurisdiction in certain particulars. But the Court's
effort to force the facts of this case into the mold of Beacon Theatres and Dairy
Queen simply does not succeed. Those cases involved a combination of
historically separable suits, one in law and one in equity. Their facts fit the
pattern of cases where, before the Rules, the equity cases where, before the
Rules, the equity court would have disposed of the equitable claim and would
then have either retained jurisdiction over the suit, despite the availability of
adequate legal remedies, or enjoined a subsequent legal action between the
same parties involving the same controversy.11
32
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.
33
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.
34
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.'12 Thus the Court's 'nature of the issue' approach is hardly
meaningful.
35
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 may 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.'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 derivate suit is historically wholly a
creation of equity, the class action 'analogy' is in truth no analogy at all.
36
See, e.g., Curriden v. Middleton, 232 U.S. 633, 34 S.Ct. 458, 58 L.Ed. 765
(1914); Whitehead v. Shattuck, 138 U.S. 146, 11 S.Ct. 276, 34 L.Ed. 873
(1891); 5 J. Moore, Federal Practice 38.11(5) (2d ed. 1969).
Delaware & Hudson Co. v. Albany & S.R. Co., 213 U.S. 435, 29 S.Ct. 540, 53
L.Ed. 862 (1909); Doctor v. Harrington, 196 U.S. 579, 25 S.Ct. 355, 49 L.Ed.
606 (1905); City of Quincy v. Steel, 120 U.S. 241, 7 S.Ct. 520, 30 L.Ed. 624
(1887); Hawes v. City of Oakland, 104 U.S. 450, 26 L.Ed. 827 (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.Rules Civ.Proc. 23.1, 383 U.S. 1050 (1966).
See Koster v. Lumbermens Mut. Cas. Co., 330 U.S. 518, 522 523, 67 S.Ct. 828,
830831, 91 L.Ed. 1067 (1947); Ashwander v. TVA, 297 U.S. 288, 56 S.Ct.
466, 80 L.Ed. 688 (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, 37 S.Ct. 509, 61 L.Ed. 1119 (1917), where the stockholderplaintiff 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).
For example, in Amalgamated Copper the Court noted that in City of Quincy v.
Steel, 120 U.S. 241, 7 S.Ct. 520, 30 L.Ed. 624 (1887), a shareholder's bill in
equity that sought to enforce 'a purely legal claim of the corporation,damages
for breach of contract' was dismissed, '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 264265, n. 3, 37
S.Ct., at 511. 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.
8
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, & 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).
10
11
See Koster v. Lumbermens Mut. Cas. Co., 330 U.S. 518, 67 S.Ct. 828, 91 L.Ed.
1067 (1947); Meyer v. Fleming, 327 U.S. 161, 167, 66 S.Ct. 382, 386, 90 L.Ed.
595 (1946); Davenport v. Dows, 18 Wall. 626, 21 L.Ed. 938 (1874).
12
The Judicial Code of 1911, 267, 36 Stat. 1163, re-enacting the Act of Sept.
24, 1789, 16, 1 Stat. 82, provided: 'Suits in equity shall not be sustained in
any court of the United States in any case where a plain, adequate, and
complete remedy may be had at law.'
13
It would appear that the same conclusions could have been reached under
Equity Rule 23 and the Law and Equity Act of 1915, Act of March 3, 1915, 38
Stat. 956. See Southern R. Co. v. City of Greenwood, 40 F.2d 679
15
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
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, 73 S.Ct. 169, 97 L.Ed. 678
(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(7) (2d ed. 1969); 5 id., 38.38(3). 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, 43 S.Ct. 118, 67 L.Ed. 232 (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 22.14(4) (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).
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, 34 S.Ct. 10, 58
L.Ed. 101; see James, Right to a Jury Trial in Civil Actions, 72 Yale L.J. 655.
See, e.g., Ettelson v. Metropolitan Life Ins. Co., 3 Cir., 137 F.2d 62, 65; 5 J.
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(1) 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, D.C., 64 F.Supp. 432; Miller
v. Weiant, D.C., 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, 547548, 69 S.Ct. 1221, 1226,
93 L.Ed. 1528. 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(1).
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.
10
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 suitwhatever its 'inherent nature'was
12
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(1), 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(4).
13