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Eisenberg v. Flying Tiger Line, Inc. - 451 F.2d 267 (2d Cir. 1971)

Rule:

If the gravamen of the complaint is injury to the corporation, the suit is derivative, but if the injury is one to the plaintiff as a stockholder and to him individually and not to the corporation, the suit is individual in nature and may take the form of a representative class action.

Facts:

Plaintiff Eisenberg filed a suit on behalf of himself and all other stockholders of defendant corporation to enjoin its reorganization and merger. Defendant moved for an order requiring plaintiff to comply with N.Y. Bus. Corp. Law § 627, which required anyone suing derivatively on behalf of a corporation to post security for the corporation's costs. The trial court granted the motion and dismissed the suit after plaintiff failed to post security. Plaintiff sought review.

Issue:

Does the filing of stockholder action claiming deprivation of any voice in the affairs of the corporation require the posting of security?

Answer:

No.

Conclusion:

The court reversed, holding that the action filed by plaintiff Eisenberg was personal and not derivative and thus, the obligations to post security for derivation actions was inapplicable.

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