7 F.R.D. 352 (D.N.J. 1947), C. A. 3033, Cohen v. Beneficial Indus Loan Corp.

Docket Nº:Civil Action 3033.
Citation:7 F.R.D. 352
Opinion Judge:SMITH, District Judge.
Party Name:COHEN (COHEN, Intervener) v. BENEFICIAL INDUSTRIAL LOAN CORPORATION et al.
Attorney:Wall, Haight, Carey & Hartpence, of Jersey City, N. J., for plaintiff. Emerson, Emery & Danzig, of Newark, N. J., for defendant Beneficial Industrial Loan Corporation. Charles Hershenstein, of Jersey City, N. J., for intervener.
Case Date:June 27, 1947
Court:United States District Courts, 3th Circuit, District of New Jersey
 
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Page 352

7 F.R.D. 352 (D.N.J. 1947)

COHEN (COHEN, Intervener)

v.

BENEFICIAL INDUSTRIAL LOAN CORPORATION et al.

Civil Action No. 3033.

United States District Court, D. New Jersey.

June 27, 1947

Stockholder's derivative action by Hannah Cohen, executrix of the estate of Sol Cohen, deceased, against the Beneficial Industrial Loan Corporation, and others, wherein David F. Cohen intervened as a party plaintiff. On corporate defendant's motion to require plaintiff to give security for reasonable expenses, including counsel fees, which may be incurred by it and by other parties defendant for which it may become subject pursuant to law or under equitable principles.

Motion denied.

See also 69 F.Supp. 297.

Page 353

Wall, Haight, Carey & Hartpence, of Jersey City, N. J., for plaintiff.

Emerson, Emery & Danzig, of Newark, N. J., for defendant Beneficial Industrial Loan Corporation.

Charles Hershenstein, of Jersey City, N. J., for intervener.

SMITH, District Judge.

This is a stockholder's derivative action brought by the plaintiff on behalf of the corporate defendant and against the individual defendants, the officers and directors of the corporate defendant. The jurisdiction of the court is based solely upon the alleged diversity of citizenship.

The action is before the Court at this time on the motion of the corporate defendant to require the plaintiff ‘ to give security for the reasonable expenses, including counsel fees, which may be incurred by it * * * and by the other parties defendant * * * for which it may be come subject pursuant to law, * * * or under equitable principles.’ The corporate defendant asserts a right to such security under section 15, chapter 3, Title 14 of the Revised Statutes of New Jersey, R.S. 14:3-15, N.J.S.A. 14:3-15, hereinafter designated as the General Corporations Act, the pertinent provisions of which follow: ‘ In any action instituted or maintained

Page 354

in the right of any domestic or foreign corporation by the holder or holders of shares, or of voting trust certificates representing shares, of such corporation having a total par value or stated capital value of less than five per centum (5%) of the aggregate par value or stated capital value of all the outstanding shares of such corporation's stock of every class, exclusive of shares held in the corporation's treasury, unless the shares or voting trust certificates held by such holder or holders have a market value in excess of fifty thousand dollars ($50,000.00), the corporation in whose right such action is brought shall be entitled, at any stage of the proceeding before final judgment, to require the complainant or complainants to give security for the reasonable expenses, including counsel fees, which may be incurred by it in connection with such action any by the other parties defendant in connection therewith for which it may become subject pursuant to law, its certificate of incorporation, its by-laws or under equitable principles, to which the corporation shall have recourse in such amount as the Court having jurisdiction shall determine upon the termination of such action . The amount of such security may thereafter, from time to time, be increased or decreased in the discretion of the court having jurisdiction of such action upon showing that the security provided has or may become inadequate or is excessive.’ (Emphasis by the Court.)

It is the contention of the corporate defendant that the quoted statute creates a right of substantive character which must be enforced in this court under the doctrine of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487. We cannot agree with thie contention. The statute does not grant to the corporate defendant an absolute right to counsel fees and expenses upon the successful termination of the action. The statute grants to the corporate defendant nothing more than a right to require security for the payment of counsel fees and costs, their allowance to await determination by the court upon termination of the action. This right is remedial and not substantive. Boyd v. Bell, D.C., 64 F.Supp. 22, 24. See also Pusey & Jones Co. v. Hanssen, 261 U.S. 491, 497, 43 S.Ct. 454, 67 L.Ed. 763.

The stockholders derivative suit is a remedy peculiar to equity and, as in other suits in equity, the jurisdiction of the court of chancery to award counsel fees and costs as between party and party, as distinguished from the right of a party to require security for their payment, is governed by section 131...

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