Ross v. Bernhard
396 U.S. 531 (1970)
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Rule of Law:
The Seventh Amendment's guarantee of a jury trial extends to stockholders' derivative suits for legal claims that the corporation, if suing on its own behalf, would be entitled to have tried by a jury.
Facts:
- Bernhard and other stockholders of the Lehman Corporation, a closed-end investment company, initiated a lawsuit on behalf of the corporation.
- The suit was against the corporation's directors and its brokerage firm, Lehman Brothers.
- Bernhard alleged that Lehman Brothers controlled the corporation through illegally large representation on its board of directors.
- It was claimed that Lehman Brothers used this control to extract excessive brokerage fees from the Lehman Corporation.
- Bernhard also accused the directors of breach of fiduciary duty, gross negligence, and breach of contract, resulting in the waste and conversion of corporate assets.
- The stockholders sought an accounting and the payment of damages to the corporation for its losses.
Procedural Posture:
- Bernhard and other stockholders filed a derivative suit against the directors of Lehman Corporation (Ross et al.) and its brokers in federal District Court.
- Bernhard demanded a jury trial for the corporation's claims.
- The defendants moved to strike the jury demand.
- The District Court denied the motion to strike, holding that the right to a jury depended on the nature of the underlying corporate claim.
- The District Court certified its order for an interlocutory appeal.
- The U.S. Court of Appeals, with the defendants as appellants, reversed the District Court's decision, holding that derivative suits are entirely equitable and thus carry no right to a jury trial.
- The Supreme Court granted certiorari to resolve a conflict among the circuits.
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Issue:
Does the Seventh Amendment guarantee a right to a jury trial for the legal issues presented in a stockholder's derivative action?
Opinions:
Majority - Justice White
Yes, the Seventh Amendment guarantees a right to a jury trial for the legal issues in a stockholder's derivative action. A derivative suit has a dual nature: first, the stockholder's equitable right to sue on behalf of the corporation, and second, the corporation's underlying claim against the defendants. While the first question is for the judge, the character of the second determines the right to a jury. Citing Beacon Theatres, Inc. v. Westover, the court reasoned that the right to a jury trial depends on the nature of the issue to be tried, not the character of the overall action. Since the Federal Rules of Civil Procedure merged law and equity, there is no longer a procedural barrier to trying legal claims before a jury within an equitable action. If the corporation's claim involves legal rights and seeks legal remedies (like money damages for breach of contract or negligence), the Seventh Amendment right to a jury trial is preserved for those issues, regardless of their presentation within the procedural context of a derivative suit.
Dissenting - Justice Stewart
No, the Seventh Amendment does not guarantee a jury trial in a stockholder's derivative action. The dissent argues that derivative suits are historically and fundamentally creatures of equity, to which the Seventh Amendment's preservation of jury trials in 'Suits at common law' does not apply. Justice Stewart contends that the majority improperly combines the Seventh Amendment and the Federal Rules of Civil Procedure to create a right that neither was intended to provide; the Rules were explicitly not meant to 'abridge, enlarge, nor modify' substantive rights, including the right to a jury trial. The dissent views the derivative suit as a single, unitary equitable action, not a divisible one with separate legal and equitable components. It warns that the majority's 'nature of the issue' approach could logically lead to the virtual elimination of all non-jury trials in equity.
Analysis:
This decision significantly expanded the right to a jury trial under the Seventh Amendment by extending it into the historically equitable realm of shareholder derivative suits. By bifurcating the derivative action into an equitable standing issue and a substantive corporate claim, the Court solidified the principle from Beacon Theatres and Dairy Queen that the nature of the underlying claim dictates the availability of a jury. This precedent ensures that the procedural vehicle of a derivative suit cannot be used to strip defendants of their right to have legal claims, like those for money damages, decided by a jury. It has had a lasting impact on corporate litigation, requiring courts to parse complaints to identify legal issues for jury consideration, even within complex, equity-born lawsuits.
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