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



PROCEDURE:Appellant challenged the dismissal of his suit by the United States District Court for the Eastern District of New York after he failed to post security for costs in compliance with N.Y. Bus. Corp. Law § 627.


FACTS:FACTS: Eisenberg (P) sued to enjoin a plan of reorganization and merger. It was a derivative action. Flying Tiger Line, Inc. (D) moved to require P to post security under N.Y. Bus. Corp. Law § 627. That motion was granted and P was given 30 days to post $35,000 in security. P did not comply and the action was dismissed. P appealed. The suit was brought on by a series of corporate maneuvers that left the 4.5 million original shares of the company as those of a holding company rather than those of the operating company. P contends that the end result of the plan was to deprive minority stockholders of any vote or any influence over the affairs of the company.

ISSUE:Whether a shareholder brings a suit alleging that the corporation has diluted his ability to vote his shares, is that a derivative suit?

RULE: An action seeking to overturn a reorganization and merger that deprived an acquired corporation's shareholders from having a voice in the surviving corporation's business operations is a personal action rather than a derivative action under the New York statute requiring the posting of security for the corporation's costs.

HOLDING:The United States District Court for the Eastern District of New York, dismissed the action after stockholder failed to post security for corporation's costs and stockholder appealed. The Court of Appeals, held that action seeking to overturn reorganization and merger the effects of which was that business operations were confined to a wholly owned subsidiary of holding company whose stockholders were the former stockholders of defendant corporation was a “personal action” and not “derivative” within meaning of New York statute requiring posting of security for corporation's costs. Reversed.