Citation. Cohen v. Benefit Indus. Loan Corp., 337 U.S. 541, 69 S. Ct. 1221, 93 L. Ed. 1528, 1949 U.S. LEXIS 2149 (U.S. June 20, 1949)
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Facts. Plaintiff, currently deceased and also represented by the executor of his estate, filed this activity in 1943 in federal court because of diversity. The complain asserts that since 1929 the managers and directors that Defendant corporation have actually abused your positions to enrich us personally in ~ the expense of the corporation. In 1945, brand-new Jersey happen a legislation that forced shareholders who hosted less than 5% that the full shares and also less 보다 $50,000 to pay the legal bills of the defendant corporation if the fit was unsuccessful. Defendant want Plaintiff to write-up a $125,000 bond come ensure lock would satisfy that potential burden. Plaintiff suggested that applying the state to them would be unconstitutional since it to be enacted after they initially carried suit and because it was an unconstitutional hindrance to carry a suit. They additionally argue the it is a procedural issue that need to not be followed by the commonwealth courts.

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Issue. The problem is whether new Jersey’s statute requiring the payment of legitimate fees in the occasion of an not successful derivative suit have to be adhered to by the commonwealth courts.

Held. The brand-new Jersey statute have to be followed since the state is no a procedural issue than would certainly preempt commonwealth rules. The state is constitutional, and also can be used on continuous litigation, as long as the attorney’s fees spanned are specifically the fees accrued post-enactment that the statute. Further, the state does not violate the Contract clause of the United says Constitution since the necessity to salary opposing legal fees is a justifiable necessity to stop frivolous lawsuits.

Dissent. The dissent argued that the statute was aimed in ~ procedural matters, and as such have to be preempted by federal Rules the Procedure.Discussion. Shareholder derivative suits will still need to follow applicable state laws.

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Claims are in ~ their rights to determine exactly how they want to resolve contending interests, and also plaintiffs are not going to be able to avoid the state law by explain diversity and using the federal courts.