Cohen v. Beneficial Indus. Loan Corp.
337 U.S. 541 (1949)

Annotate this Case

U.S. Supreme Court

Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541 (1949)

Cohen v. Beneficial Industrial Loan Corp.

No. 442

Syllabus

1. Under 28 U. S. C. §1291, appeal may be taken from an order of a Federal District Court denying a corporation's motion that the plaintiff in a stockholder's derivative action be required, pursuant to a state statute, to give security for reasonable expenses of the defendants, in connection with the action. Pp. 337 U. S. 545-547.

(a) The matters embraced in such an order are not of such an interlocutory nature as to affect, or to be affected by, a decision on the merits. P. 337 U. S. 546.

(b) The order is appealable because it is a final disposition of a claimed right which is not an ingredient of the cause of action and does not require consideration with it. Pp. 337 U. S. 546-547.

2. A state statute providing that, in any stockholder's derivative action pending at the time of its enactment or thereafter brought, in which the plaintiff's interest as a shareholder is less than 5% of the value of all outstanding shares and has a market value of less than 50,000, he may be required at any stage of the proceeding to give security for the reasonable expenses, including counsel fees, which the corporation may incur or for which it may become liable, does not violate the Federal Constitution. Pp. 337 U. S. 547-555.

(a) The Federal Constitution does not oblige a state to place its litigating and adjudicating processes at the disposal of a plaintiff in a stockholder's derivative suit, at least without imposing standards of responsibility, liability and accountability which it considers will protect the interests he elects himself to represent. Pp. 337 U. S. 547-551.

(b) The statute here involved does not violate the Contract Clause of the Constitution. P. 337 U. S. 551.

(c) For a state to close its courts to this type of litigation if the condition of reasonable security is not met does not violate the Due Process Clause. Pp. 337 U. S. 551-552.

Page 337 U. S. 542

(d) The limitation of the requirement of the statute to stockholders whose interest is less than 5% and has a market value of less than $50,000 does not violate the Equal Protection Clause of the Constitution. Pp. 337 U. S. 552-553.

(e) Assuming that the statute will not be construed as imposing liability for expenses incurred before its enactment, or perhaps before the granting of security in a particular case, the provision making it applicable to actions pending at the time of its enactment does not give it such a retroactive effect as to render it unconstitutional under the Due Process Clause. Pp. 337 U. S. 553-554.

3. That a corporation which was the subject of a stockholder's derivative action in New Jersey was organized under the laws of Delaware does not make inapplicable a New Jersey statute providing that the plaintiff may be required to give security for reasonable expenses of the corporation. Pp. 337 U. S. 554-555.

4. A federal court, having jurisdiction of a stockholder's derivative action only because of diversity of citizenship, must apply a statute of the forum State which makes the plaintiff, if unsuccessful, liable for reasonable expenses, including attorney's fees, of the defense and provides that the corporation may require the plaintiff to give security for their payment as a condition of prosecuting the action. Pp. 337 U. S. 543-545, 337 U. S. 555-557.

(a) A statute which so conditions the stockholder's action cannot be disregarded by the federal court as a mere procedural device. Pp. 337 U. S. 555-556.

(b) A different result is not required by Rule 23 of the Federal Rules of Civil Procedure, since there is no conflict between that rule and the state statute. P. 337 U. S. 556.

170 F. 2d 44, affirmed.

A Federal District Court, having jurisdiction of a stockholder's derivative action solely because of diversity of citizenship, denied a motion to require the plaintiff to post security for reasonable expenses incurred by the defense, as required by a statute of the forum State. 7 F.R.D. 352. The Court of Appeals reversed. 170 F.2d 44. This Court granted certiorari. 336 U. S. 917. Affirmed, p. 337 U. S. 556.

Page 337 U. S. 543

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