Surowitz v. Hilton Hotels Corp.
383 U.S. 363 (1966)
Rule of Law:
A plaintiff's verification of a shareholder derivative complaint satisfies Federal Rule of Civil Procedure 23(b) when it is based on good faith reliance on a competent advisor's thorough investigation, even if the plaintiff does not personally understand the complex legal and financial allegations.
Facts:
- Dora Surowitz, a Polish immigrant with a limited education and English vocabulary, invested over $2,000 in Hilton Hotels Corporation stock upon the advice of her son-in-law, Irving Brilliant.
- Brilliant was a Harvard Law School graduate with a master's degree in economics and worked as a professional investment advisor; he and his family also owned over $50,000 in Hilton securities.
- In December 1962, Hilton Hotels announced a plan to purchase a large amount of its own stock, which concerned Brilliant.
- Brilliant and his attorney, Walter Rockier, conducted an extensive, months-long investigation into the stock purchase plan.
- Their investigation led them to conclude that corporate officers and directors were engaging in fraudulent schemes, including stock price manipulation and improper asset purchases, to enrich themselves at the corporation's expense.
- Based on the investigation, Rockier prepared a detailed complaint, which Brilliant read and explained to Surowitz.
- Surowitz, trusting her son-in-law's judgment and noting that her dividends had stopped, agreed to file the suit and verified the complaint, attesting that she believed the allegations to be true.
Procedural Posture:
- Dora Surowitz filed a shareholder derivative suit against the officers and directors of Hilton Hotels Corporation in a U.S. District Court.
- The defendants' counsel took Surowitz's oral deposition, which revealed she did not understand the complaint's detailed allegations.
- The defendants moved to dismiss the complaint, arguing it was a 'sham pleading' because of her lack of knowledge.
- In response, Surowitz's attorney filed affidavits from himself and Surowitz's son-in-law detailing their extensive pre-filing investigation.
- The District Court granted the defendants' motion and dismissed the case with prejudice.
- Surowitz (appellant) appealed to the U.S. Court of Appeals, which affirmed the district court's dismissal.
- Surowitz (petitioner) then petitioned the U.S. Supreme Court for a writ of certiorari, which was granted.
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Issue:
Does a plaintiff's verification of a shareholder derivative complaint, based on reliance on a competent advisor's investigation rather than personal understanding of the complex allegations, render the complaint a 'sham' that must be dismissed under Federal Rule of Civil Procedure 23(b)?
Opinions:
Majority - Justice Black
No. A plaintiff's verification of a shareholder derivative complaint based on good faith reliance on a competent advisor's investigation does not render the complaint a 'sham' subject to dismissal under Rule 23(b). The purpose of the verification requirement in Rule 23(b) is to discourage baseless 'strike suits,' not to erect procedural barriers that prevent unsophisticated but meritorious litigants from having their day in court. Here, the record demonstrates that the lawsuit is not a strike suit, but is based on a careful and diligent investigation conducted by qualified individuals. Mrs. Surowitz, an investor with a real financial stake, acted reasonably in relying on the advice of her expert son-in-law. To dismiss her case because she cannot personally explain complex financial transactions would defeat the fundamental purpose of the Federal Rules, which is to administer justice by allowing bona fide complaints to be adjudicated on their merits. The rules must protect small investors like Mrs. Surowitz from corporate insiders, not bar them from seeking legal recourse.
Concurring - Justice Harlan
No. I agree with the Court's decision to reverse the dismissal. Rule 23(b) requires that a derivative suit complaint be verified by oath, but it does not strictly mandate that the verification must be from the plaintiff shareholder. In circumstances such as these, the affidavit submitted by the plaintiff's counsel, Mr. Rockier, which details the extensive investigation, can be considered an adequate verification. This reasonable interpretation of the Rule provides a sufficient basis for allowing the case to proceed.
Analysis:
This decision represents a purposive, rather than a strictly literal, interpretation of the Federal Rules of Civil Procedure, emphasizing that their primary goal is to facilitate justice on the merits. It establishes that the verification requirement for shareholder derivative suits is a tool to filter out frivolous litigation ('strike suits'), not a technicality to bar legitimate claims brought by unsophisticated plaintiffs. The ruling protects small, vulnerable investors by allowing them to rely on the expertise of competent counsel and advisors, ensuring that access to the courts is not limited to those with personal knowledge of complex corporate finance. This precedent solidifies the role of derivative actions as an essential mechanism for holding corporate management accountable.
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