Friday, December 27, 2013

Cohen v. Beneficial Industrial Loan Corp. case brief

Cohen v. Beneficial Industrial Loan Corp. case brief summary
337 U.S. 541 (1949)

CASE SYNOPSIS
Certiorari was granted to review a judgment of the United States Court of Appeals for the Third Circuit. 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 fees of the defense if her shareholder suit was unsuccessful.

CASE 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.

DISCUSSION

  • 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. 
  • 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.

CONCLUSION
The court affirmed the judgment of the appellate court. 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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