## Facts

- Minority stockholders of MacFadden Publications, Inc. brought a stockholder derivative action alleging misapplication of corporate funds and waste by former directors, officers, and others, seeking an accounting and damages.
- The corporation was joined as a nominal defendant, as is typical in derivative litigation.
- Plaintiffs collectively owned an extremely small interest (about $350 in market value at suit commencement), far below statutory thresholds.
- New York General Corporation Law § 61-b required derivative plaintiffs who held less than 5% of shares or shares valued over $50,000 to post security for defendants’ reasonable litigation expenses, including attorneys’ fees.
- The corporation moved for security under § 61-b.
- Special Term ordered plaintiffs to post $40,000 security within 60 days, but permitted a motion to vacate if additional stockholders joined as plaintiffs within that period sufficient to satisfy § 61-b.
- In a separate special proceeding, Special Term ordered that plaintiffs be allowed to inspect the stock book and stockholder list to solicit additional stockholders to join the derivative action.
- The Appellate Division upheld § 61-b’s constitutionality and the $40,000 security amount, but struck the provision allowing later joinder to eliminate the security requirement; it also reversed the inspection order as unnecessary given its timing ruling.
- The Court of Appeals granted review of both the derivative-action order and the inspection proceeding.

## Issues

1. Whether New York General Corporation Law § 61-b (security for expenses in certain stockholder derivative actions) is constitutional.
2. Whether § 61-b’s ownership/value thresholds are determined only as of the time the security motion is made, or may be satisfied through later joinder of additional plaintiffs to avoid security.
3. Whether a stockholder may obtain inspection of the corporation’s stock book and stockholder list to solicit additional stockholders to join a derivative action in order to satisfy § 61-b.

## Decision

- The Court of Appeals held § 61-b constitutional.
- The Court rejected the Appellate Division’s rigid treatment of § 61-b as foreclosing later case-management adjustments, emphasizing that lower courts retain discretion in applying the statute in the context of derivative litigation.
- The Court reversed the Appellate Division in both matters and remitted for determination of the discretionary questions, including how the security order and inspection request should be handled.

## Legal Principles

- A statute requiring security for defendants’ reasonable litigation expenses in a stockholder derivative action, when plaintiffs lack a minimum ownership stake (5% or $50,000 in value), is a permissible procedural regulation and does not violate constitutional guarantees.
- Although § 61-b measures eligibility for exemption from security by plaintiffs’ holdings as of the time of the security motion, courts retain equitable discretion over derivative-action administration, including the amount and management of security and related joinder considerations.
- Requests to inspect stock books and stockholder lists in aid of derivative litigation, including to communicate with other stockholders about joining the suit, are committed to judicial discretion and are not categorically barred by § 61-b.

## Conclusion

The Court of Appeals upheld New York’s derivative-suit security-for-expenses statute while reaffirming that trial and intermediate courts must exercise equitable discretion in managing security, joinder-related developments, and stockholder-list inspection requests connected to derivative litigation.


Baker v. MacFadden Publications, Inc., 300 N.Y. 325, 90 N.E.2d 876 (N.Y. 1950)