Ross v. Bernhard
396 U.S. 531 (1970)
- Ross was a shareholder who was involved in a derivative suit in which the shareholders of a corporation alleged that Bernhard had beached a contract with the corporation.
- In a derivative suit, the corporation is the one with the claim. As a shareholder, Ross only has standing to sue because he will be damaged as a result of the corporation being damaged. That’s why this is a derivative suit. It’s a form of a class-action lawsuit.
- There was a question as to whether this should be heard as an equity claim or a law claim. This was important because legal claims were traditionally brought in a law court, where you have the right to a jury trial. On the other hand, equity courts do not have a right to a jury trial.
- Derivative suits were traditionally brought in equity courts because shareholders didn’t have standing to sue in a law court.
- However, the claim here would have clearly been a legal claim if the suit was brought by the corporation itself.
- By this time, the court systems had been merged and the Trial Court had no idea whether to use a jury or not.
- The US Supreme Court found that the two pieces of the case should be decoupled. The first part, when determining whether Ross had standing to sue could be handled as an equity claim, decided by a judge, but once the case went to trial, it would be considered a law claim and there would be a right to a jury trial.
- “The historical rule of preventing a court of law from entertaining a shareholder’s suit on behalf of the corporation is obsolete; it is no longer tenable for a district court, administering both law and equity in the same action, to deny legal remedies to a corporation, merely because the corporation’s spokesmen are its shareholders rather than its directors.”
- In a dissent, it was argued that the “legal nature” of an issue should be determined by considering:
- The pre-merger custom with reference to such questions,
- The remedy sought, and
- The practical abilities and limitation of juries.
- This was a very controversial statement. It was basically saying that if the question was complicated, it may be beyond the capabilities of a jury to decide! There were a lot of citations to this dissent by people who were trying to not have a jury trial. However, it has pretty much been struck down by the courts.