Cohen v. Benefit Indus. Loan Corp.

337 U.S. 541, 69 S. Ct. 1221 (1949)

 

RULE:

A small class of decisions finally determine claims of right separable from, and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated. The United States Supreme Court has long given 28 U.S.C.S. § 1291 this practical rather than a technical construction.

FACTS:

Plaintiff filed a shareholder derivative complaint that alleged defendants engaged in a continuing and successful conspiracy to enrich themselves at the expense of the corporation. Plaintiff alleged mismanagement, fraud, and that corporate assets were wasted or diverted. The issue presented was whether a federal court was required to apply 1945 N.J. Laws 131, which rendered plaintiff liable for the reasonable expenses and attorney's fees of the defense if plaintiff was unsuccessful in her shareholder suit. 1945 N.J. Laws 131 also entitled the corporation to require security for the payment of the defense expenses. The court held that the New Jersey statute applied in federal courts, and the district court erred in declining to fix the amount of indemnity reasonably to be exacted as a condition of further prosecution of the suit. The court affirmed the judgment of the appellate court and noted the deterring effect of the statute to shareholder suits.



ISSUE:

Was the federal court required to apply 1945 N.J. Laws 131, which rendered plaintiff liable for the reasonable expenses and attorney fees of the defense if her shareholder suit was unsuccessful?

ANSWER:

Yes.

CONCLUSION:

The court held that the statute applied in federal courts and that the district court erred in declining to fix the amount of indemnity as a condition of further prosecution of the shareholder suit. The court held that it was within the power of the state to require security for the payment of defense expenses in the event plaintiff was unsuccessful in her shareholder suit.

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