Ross v. Bernhard
Headline: Shareholders gain jury trials for legal claims in derivative lawsuits as Court rules such issues (like contract and negligence damages) must be decided by a jury, affecting corporations, directors, and brokers.
Holding: The Court held that the Seventh Amendment guarantees a jury trial for legal issues in shareholder derivative suits that the corporation would have had a right to jury-trial on, such as contract and negligence damage claims.
- Allows juries to decide legal damage claims in shareholder derivative lawsuits.
- Exposes directors and corporate brokers to jury trials on contract and negligence claims.
- Requires courts to identify and submit legal issues to juries in derivative suits.
Summary
Background
A group of shareholders sued the directors of their closed-end investment company, Lehman Corporation, and the company’s broker, Lehman Brothers. They alleged that the broker controlled the board in violation of the Investment Company Act of 1940 and that directors and the broker extracted excessive brokerage fees, converted corporate assets, breached fiduciary duties, violated the brokerage contract, and engaged in gross negligence and bad faith. The shareholders asked the court to recover profits and losses for the corporation and demanded a jury trial on the corporation’s claims. The district court allowed an interlocutory appeal after denying the jury demand, and the Court of Appeals held derivative actions were entirely equitable with no jury right.
Reasoning
The Supreme Court asked whether the Seventh Amendment requires a jury for legal issues in a shareholder’s derivative suit. The Court ruled that the Amendment preserves a jury right for those parts of a derivative action that, if the corporation itself had sued, would have been triable to a jury. The Court emphasized the difference between a shareholder’s equitable right to bring the suit and the corporation’s legal claim, and concluded money-damage claims like contract and negligence claims are legal issues entitled to jury resolution. The Court reversed the Court of Appeals.
Real world impact
The ruling means courts must treat legal claims in derivative suits as jury issues when a corporation would have had that right, while equitable questions remain for judges. It does not decide the underlying facts or final liability; those questions still must be tried.
Dissents or concurrances
Justice Stewart, joined by the Chief Justice and Justice Harlan, dissented, arguing historical practice and the Federal Rules do not expand the Seventh Amendment right to guarantee juries in derivative suits.
Opinions in this case:
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