Ross v. Bernhard/Dissent Stewart

by Potter Stewart

United States Supreme Court

396 U.S. 531

Ross  v.  Bernhard

 Argued: Nov. 10, 1969. --- Decided: Feb 2, 1970

Mr. Justice STEWART, with whom THE CHIEF JUSTICE and Mr. Justice HARLAN join, dissenting.

In holding as it does that the plaintiff in a shareholder's derivative suit is constitutionally entitled to a jury trial, the Court today seems to rely upon some sort of ill-defined combination of the Seventh Amendment and the Federal Rules of Civil Procedure. Somehow the Amendment and the Rules magically interact to do what each separately was expressly intended not to do, namely, to enlarge the right to a jury trial in civil actions brought in the courts of the United States.

The Seventh Amendment, by its terms, does not extend, but merely preserves the right to a jury trial '(i)n Suits at common law.' All agree that this means the reach of the Amendment is limited to those actions that were tried to the jury in 1791 when the Amendment was adopted. ^[1] Suits in equity, which were historically tried to the court, were therefore unaffected by it. Similarly, Rule 38 of the Federal Rules has no bearing on the right to a jury trial in suits in equity, for it simply preserves inviolate '(t)he right of trial by jury as declared by the Seventh Amendment.' Thus this Rule, like the Amendment itself, neither restricts nor enlarges the right to jury trial. ^[2] Indeed nothing in the Federal Rules can rightly be construed to enlarge the right of jury trial, for in the legislation authorizing the Rules, Congress expressly provided that they 'shall neither abridge, enlarge, nor modify the substantive rights of any litigant.' 48 Stat. 1064. See 28 U.S.C. § 2072. I take this plain, simple, and straight-forward language to mean that after the promulgation of the Federal Rules, as before, the constitutional right to a jury trial attaches only to suits at common law. So, apparently, has every federal court that has discussed the issue. ^[3] Since, as the Court concedes, a shareholder's derivative suit could be brought only in equity, it would seem to me to follow by the most elementary logic that in such suits there is no constitutional right to a trial by jury. ^[4] Today the Court tosses aside history, logic and over 100 years of firm precedent to hold that the plaintiff in a shareholder's derivative suit does indeed have a constitutional right to a trial by jury. This holding has a questionable basis in policy ^[5] and no basis whatever in the Constitution.

The Court begins by assuming the 'dual nature' of the shareholder's action. While the plaintiff's right to get into court at all is conceded to be equitable, once he is there the Court says his claim is to be viewed as though it were the claim of the corporation itself. If the corporation would have been entitled to a jury trial on such a claim, then, it is said, so would the shareholder. This conceptualization is without any historical basis. For the fact is that a shareholder's suit was not originally viewed in this country, or in England, as a suit to enforce a corporate cause of action. Rather, the shareholder's suit was initially permitted only against the managers of the corporation-not third parties-and it was conceived of as an equitable action to enforce the right of a beneficiary against his trustee. ^[6] The shareholder was not, therefore, in court to enforce indirectly the corporate right of action, but to enforce directly his own equitable right of action against an unfaithful fiduciary. Later the rights of the shareholder were enlarged to encompass suits against third parties harming the corporation, but 'the postulated 'corporate cause of action' has never been thought to describe an actual historical class of suit which was recognized by courts of law.' ^[7] Indeed the commentators, including those cited by the Court as postulating the analytic duality of the shareholder's derivative suit, recognize that historically the suit has in practice always been treated as a single cause tried exclusively in equity. They agree that there is therefore no constitutional right to a jury trial even where there might have been one had the corporation itself brought the suit. ^[8]

This has been not simply the 'general' or 'prevailing' view in the federal courts as the Court says, but the unanimous view with the single exception of the Ninth Circuit's 1963 decision in DePinto v. Provident Security Life Ins. Co., 323 F.2d 826, a decision that has since been followed by no court until the present case.

The Court would have us discount all those decisions rendered before 1938, when the Federal Rules of Civil Procedure were adopted, because it says that before the promulgation of the Rules, '(p)urely procedural impediments' somehow blocked the exercise of a constitutional right. In itself this would seem a rather shaky premise upon which to build an argument. But the Court's position is still further weakened by the fact that any '(p)urely procedural impediments' to a jury trial in a derivative suit were eliminated, not in 1938, but at least as early as 1912. For Rule 23 of the Equity Rules of that year provided that if a 'matter ordinarily determinable at law' arose in an equity suit it should 'be determined in that suit according to the principles applicable, without sending the case or question to the law side of the court.' 226 U.S. 654. These applicable principles included the right of jury trial. ^[9] Consequently, when the Court said in United Copper Co. v. Amalgamated Copper Co., 244 U.S. 261, 264, 37 S.Ct. 509, 510, 61 L.Ed. 1119, that 'it is clear' that the remedy of a stockholder seeking to enforce the rights of a corporation-whatever their nature-is not in law but in equity, it was not because there were 'procedural impediments' to a jury trial on any 'legal issues.' Rather, it was because the suit itself was conceived of as a wholly equitable cause of action.

This was also true in Fleitmann v. Welsbach Street Lighting Co., 240 U.S. 27, 36 S.Ct. 233, 60 L.Ed. 505, on which the Court so heavily relies even though it was a pre-Federal-Rules case. In Fleitmann the plaintiff sued derivatively to enforce a corporate right of action for treble damages under the antitrust laws. Treble damages were considered punitive, and the statute was read to imply a right in the defendant to a jury trial. In his opinion for the Court, Mr. Justice Holmes recognized the potential for abuse: derivative rather than corporate actions could be brought in order to deprive the defendant of his right to a jury trial. The Court's solution was to dismiss the bill because the antitrust statute 'should not be read as attempting to authorize liability to be enforced otherwise than through the verdict of a jury in a court of common law.' Id., at 29, 36 S.Ct., at 234. I do not see how the Court today can draw sustenance from this decision. Rather, the Fleitmann case seems to me to stand for a proposition diametrically opposed to that which the Court seeks to establish; namely, the proposition that because a derivative action is wholly equitable, there is no right to a jury trial. The Court in Fleitmann simply held that since there was a statutory right to a jury in all actions for treble damages under the antitrust laws, a derivative suit seeking such damages could not be maintained. Thus the bill had to be dismissed. ^[10]

These pre-1938 cases, then, firmly establish the unitary, equitable basis of shareholders' derivative suits and in no way support the Court's holding here. But, the Court says, whatever the situation may have been before 1938, the Federal Rules of Civil Procedure of that year, at least as construed in our decisions more than 20 years later in Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 79 S.Ct. 948, 3 L.Ed.2d 988, and Dairy Queen, Inc. v. Wood, 369 U.S. 469, 82 S.Ct. 894, 8 L.Ed.2d 44, in any event require the conclusion reached today. I can find nothing in either of these cases that leads to that conclusion.

In Beacon Theatres the plaintiff sought both an injunction preventing the defendant from instituting an antitrust action and a declaratory judgment that certain moving picture distribution contracts did not violate the antitrust laws. The defendant answered and counterclaimed for treble damages under the antitrust laws. He demanded a jury trial on the factual issues relating to his counterclaim. The district court held that even though there were factual issues common to both the complaint and the counterclaim, it would first hear the plaintiff's suit for equitable relief before submitting the counterclaim to a jury. The Court of Appeals affirmed, and this Court reversed, upon the ground that if the equitable claim were tried first, there might be an estoppel which would defeat the defendant's right to a full jury trial on all the factual issues raised in his counterclaim. Similarly in Dairy Queen the Court simply held that a plaintiff could not avoid a jury trial by joining legal and equitable causes of action in one complaint.

It is true that in Beacon Theatres it was stated that the 1938 Rules did diminish the scope of federal equity jurisdiction in certain particulars. But the Court's effort to force the facts of this case into the mold of Beacon Theatres and Dairy Queen simply does not succeed. Those cases involved a combination of historically separable suits, one in law and one in equity. Their facts fit the pattern of cases where, before the Rules, the equity cases where, before the Rules, the equity court would have disposed of the equitable claim and would then have either retained jurisdiction over the suit, despite the availability of adequate legal remedies, or enjoined a subsequent legal action between the same parties involving the same controversy. ^[11]

But the present case is not one involving traditionally equitable claims by one party, and traditionally legal claims by the other. Nor is it a suit in which the plaintiff is asserting a combination of legal and equitable claims. For, as we have seen, a derivative suit has always been conceived of as a single, unitary, equitable cause of action. It is for this reason, and not because of 'procedural impediments,' that the courts of equity did not transfer derivative suits to the law side. In short, the cause of action is wholly a creature of equity. And whatever else can be said of Beacon Theatres and Dairy Queen, they did not cast aside altogether the historic division between equity and law.

If history is to be so cavalierly dismissed, the derivative suit can, of course, be artificially broken down into separable elements. But so then can any traditionally equitable cause of action, and the logic of the Court's position would lead to the virtual elimination of all equity jurisdiction. An equitable suit for an injunction, for instance, often involves issues of fact which, if damages had been sought, would have been triable to a jury. Does this mean that in a suit asking only for injunctive relief these factual issues must be tried to the jury, with the judge left to decide only whether, given the jury's findings, an injunction is the appropriate remedy? Certainly the Federal Rules make it possible to try a suit for an injunction in that way, but even more certainly they were not intended to have any such effect. Yet the Court's approach, it seems, would require that if any 'legal issue' procedurally could be tried to a jury, it constitutionally must be tried to a jury.

The fact is, of course, that there are, for the most part, no such things as inherently 'legal issues' or inherently 'equitable issues.' There are only factual issues, and, 'like chameleons (they) take their color from surrounding circumstances.' ^[12] Thus the Court's 'nature of the issue' approach is hardly meaningful.

As a final ground for its conclusion, the Court points to a supposed analogy to suits involving class actions. It says that before the Federal Rules such suits were considered equitable and not triable to a jury, but that since promulgation of the Rules the federal courts have found that 'plaintiffs may obtain a jury trial on any legal issues they present.' Of course the plaintiff may obtain such a trial even in a derivative suit. Nothing in the Constitution or the Rules precludes the judge from granting a jury trial as a matter of discretion. But even if the Court means that some federal courts have ruled that the class action plaintiff in some situations has a constitutional right to a jury trial, the analogy to derivative suits is wholly unpersuasive. For it is clear that the draftsmen of the Federal Rules intended that Rule 23 as it pertained to class actions should be applicable, like other rules governing joinder of claims and parties, 'to all actions, whether formerly denominated legal or equitable.' ^[13] This does not mean that a formerly equitable action is triable to a jury simply because it is brought on behalf of a class, but only that a historically legal cause of action can be tried to a jury even if it is brought as a class action. Since a derivate suit is historically wholly a creation of equity, the class action 'analogy' is in truth no analogy at all.

The Court's decision today can perhaps be explained as a reflection of an unarticulated but apparently overpowering bias in favor of jury trials in civil actions. It certainly cannot be explained in terms of either the Federal Rules or the Constitution.

Notes

1. Where a new cause of action is created by Congress, and nothing is said about how it is to be tried, the jury trial issue is determined by fitting the cause into its nearest historical analogy. Luria v. United States, 231 U.S. 9, 34 S.Ct. 10, 58 L.Ed. 101; see James, Right to a Jury Trial in Civil Actions, 72 Yale L.J. 655.
2. See, e.g., Ettelson v. Metropolitan Life Ins. Co., 3 Cir., 137 F.2d 62, 65; 5 J. Moore, Federal Practice 38.07(1) and cases cited therein.
3. The principle that the Rules effected no enlargement or restriction of the right of jury trial has 'received complete judicial approbation.' 5 J. Moore, Federal Practice 38.07(1) and cases cited therein.
4. Virtually every state and federal court that has faced this issue has similarly reasoned to the same conclusion. See, e.g., Goetz v. Manufacturers' & Traders' Trust Co., 154 Misc. 733, 277 N.Y.S. 802 (Sup.Ct.); Metcalf v. Shamel, 166 Cal.App.2d 789, 333 P.2d 857; Liken v. Shaffer, D.C., 64 F.Supp. 432; Miller v. Weiant, D.C., 42 F.Supp. 760. The equitable nature of the derivative suit has been recognized in several decisions of this Court. See, e.g., Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 547-548, 69 S.Ct. 1221, 1226, 93 L.Ed. 1528. It was also reflected in the adoption of Equity Rule 94 in 1882, and Rule 27 of the Equity Rules of 1912 which established the preconditions to bringing shareholders' derivative suits in the federal courts. These rules are the forerunners of Rule 23(b) of Fed.Rule Civ.Proc. of 1938, and of Fed.Rule Civ.Proc. 23.1 (1966), which now controls the initiation of such suits. See 3B. J. Moore, Federal Practice 23.1.15(1).
5. See, e.g., Frank, Courts on Trial 110-111 (1949). Certainly there is no consensus among commentators on the desirability of jury trials in civil actions generally. Particularly where the issues in the case are complex-as they are likely to be in a derivative suit-much can be said for allowing the court discretion to try the case itself. See discussion in 5 J. Moore, Federal Practice 38.02(1).
6. Robinson v. Smith, 3 Paige Ch. 222 (N.Y.); Attorney General v. Utica Ins. Co., 2 Johns., Ch. 371 (N.Y.), discussed in Prunty, The Shareholders' Derivative Suit: Notes on its Derivation, 32 N.Y.U.L.Rev. 980.
7. Note, The Right to a Jury Trial in a Stockholder's Derivative Action, 74 Yale L.J. 725, 730.
8. See, e.g., N. Lattin, The Law of Corporations, c. 8, § 3; 2 G. Hornstein, Corporation Law and Practice § 730; 13 W. Fletcher, Cyclopedia of the Law of Private Corporations § 5931 (1961 ed.); 5 J. Moore, Federal Practice 38.38(4).
9. See Southern R. Co. v. City of Greenwood, 40 F.2d 679.
10. Moreover, since the suit was brought after the promulgation of Equity Rule 23 it seems evident that here, too, it was not merely 'procedural impediments' that prevented the antitrust claim from being tried to a jury, but presumably the fact that no matter arising in a derivative suit-whatever its 'inherent nature'-was considered to be one 'ordinarily determinable at law.'
11. See discussion in 74 Yale L.J., at 736-737.
12. James, supra, n. 1, at 692. As Professor Moore has put it, 'Whether issues are legal or equitable may, of course, depend upon the manner in which they are presented. * * *' 5 J. Moore, Federal Practice 38.04(1), n. 40. And he, along with virtually every other commentator, concludes that if the issues are presented in a shareholder's derivative suit they are equitable and the plaintiff has no constitutional right to have them tried by a jury. 5 J. Moore, Federal Practice 38.38(4).
13. Original Committee Note of 1937 to Rule 23. Moreover, as Professor Moore points out, certain class actions could be maintained at law in the federal courts even before the Federal Rules. 5 J. Moore, Federal Practice 38.38(2).