## Facts

- Shareholders (as trustees) of Lehman Corporation filed a stockholders’ derivative action in federal court on the corporation’s behalf.
- The complaint alleged that Lehman Brothers controlled the corporation through an unlawfully large presence on the board, violating the Investment Company Act of 1940.
- It further alleged that this control was used to extract excessive brokerage fees from the corporation.
- The directors and Lehman Brothers were accused of breaches of fiduciary duty and related misconduct, including conversion, waste, and contractual violations.
- Plaintiffs sought an accounting and payment to the corporation for defendants’ gains and the corporation’s losses.
- Plaintiffs demanded a jury trial on the corporation’s claims.

## Issues

1. Whether the Seventh Amendment guarantees a jury trial in a stockholders’ derivative action on issues that would be triable to a jury if the corporation sued in its own name.
2. Whether the derivative form of action, historically associated with equity, eliminates a jury-trial right on underlying legal claims for damages.

## Decision

- The Supreme Court reversed the Second Circuit.
- The Court held that the Seventh Amendment jury-trial right applies in a derivative suit as to issues that would entitle the corporation to a jury if it were the plaintiff.
- The Court recognized two components in a derivative action: (1) the shareholder’s right to sue for the corporation (for the judge), and (2) the corporation’s underlying claim (jury if legal in nature).
- The Court rejected treating the entire derivative action as categorically equitable for jury-trial purposes.

## Legal Principles

- The Seventh Amendment inquiry turns on the nature of the issues to be tried, not the overall label attached to the action.
- A derivative suit contains an equitable representative/standing component and a separate component consisting of the corporation’s substantive claim.
- When the underlying corporate claim is legal (such as a claim for money damages analogous to common-law causes of action), the parties are entitled to a jury on those legal issues notwithstanding the derivative procedural posture.
- The corporation is the real party in interest on the underlying claim, and the derivative mechanism cannot be used to defeat a jury right that would exist in a direct corporate action.

## Conclusion

A stockholders’ derivative action does not extinguish the Seventh Amendment jury-trial right on underlying legal issues; courts must separate the equitable issue of the shareholder’s authority to sue from the corporation’s substantive claims and provide a jury where the corporation would have been entitled to one.


Ross v. Bernhard, 396 U.S. 531 (1970)