396 U.S. at 538 n.10
Petitioners, who were stockholders in the Lehman Corporation, a closed-end investment company, brought a derivative action in federal district court against the corporation's directors and its brokers, Lehman Brothers.1 They alleged that Lehman Brothers had obtained control through an illegally large representation on the board in violation of the Investment Company Act of 1940 and used that control to extract excessive brokerage fees from the corporation.2
The complaint charged the directors with converting corporate assets and with gross abuse of trust, gross misconduct, willful misfeasance, bad faith, and gross negligence.3 It also accused both the directors and Lehman Brothers of breaching fiduciary duties, committing waste and spoliation, and violating the brokerage contract.4 Petitioners requested that the defendants account for and pay to the corporation their profits and gains and its losses. They demanded a jury trial on the corporation’s claims.5
The district court denied the motion to strike the jury demand in part. It held that only the shareholder’s initial claim to speak for the corporation would be tried to the judge while the corporation’s underlying claims would be tried to a jury if the corporation itself had brought suit.6 Finding substantial grounds for difference of opinion, the district court certified the question for interlocutory appeal under 28 U.S.C. § 1292(b).7 The Court of Appeals for the Second Circuit reversed, holding that a derivative action is entirely equitable in nature and that no jury is available to try any part of it.8 Because of the conflict among the circuits, the Supreme Court granted certiorari.9
Whether the Seventh Amendment guarantees the right to a jury trial in stockholders’ derivative actions?10
The Seventh Amendment preserves the right to jury trial in suits at common law.11 It applies where legal rights are to be ascertained and determined, in contradistinction to those where equitable rights alone are recognized and equitable remedies are administered.12 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.13 Although the shareholder’s right to sue on behalf of the corporation is historically an equitable matter, the claim pressed is the corporation’s own, and legal claims are not converted into equitable issues by their presentation in a derivative suit.14
Yes. The corporation’s claims include allegations of ordinary breach of contract and gross negligence.15 These allegations seek money damages for excessive brokerage fees and related losses.16 Such claims present legal issues that would entitle the corporation to a jury trial if it had sued in its own right.17 Petitioners sought an accounting and payment to the corporation for profits, gains, and losses arising from the brokerage contract violation and director negligence.18 These remedies sound in law rather than equity.19
The dual nature of the derivative action requires the court first to adjudicate the shareholder’s equitable standing to sue. That threshold determination does not strip the corporation’s underlying legal claims of their jury-trial character.20 Beacon Theatres and Dairy Queen instruct that the legal issues must be tried to a jury and cannot be subordinated as incidental to equitable matters.21 The Federal Rules of Civil Procedure eliminated purely procedural barriers that once confined derivative suits to equity courts. This change allows the legal claims to be resolved with a jury after the standing issue is resolved by the court.22 The district court correctly separated the issues by reserving the standing question for the judge while preserving the jury right on the corporation’s contract and negligence claims.23
The Seventh Amendment guarantees the right to a jury trial on the legal claims presented in the stockholders’ derivative action.24
Related opinions on this issue
Joined by The Chief Justice And Mr. Justice Harlan
Justice Stewart, joined by the Chief Justice and Justice Harlan, dissented on the ground that a shareholder’s derivative suit has always been a single, unitary equitable cause of action with no constitutional right to a jury trial.25 He emphasized that the Seventh Amendment preserves but does not enlarge the jury right, and that the Federal Rules expressly cannot abridge or enlarge substantive rights including the scope of jury trial.26 In his view, historical precedent uniformly treated derivative suits as equitable even when the underlying corporate claim was legal, and Beacon Theatres and Dairy Queen addressed separable legal and equitable claims rather than the integrated equitable nature of a derivative action.27
The dissent concluded that the majority’s approach lacked any basis in the Constitution or the Rules and reflected an improper bias toward jury trials in civil cases.28