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

If a corporate shareholder feels that a corporation is being mismanaged to the detriment of shareholders or the corporation itself, then the shareholder might file a legal action to prevent or compel specific corporate acts. In Eisenberg versus Flying Tiger Line, Incorporated, we explore the difference between two types of lawsuits a shareholder might file, derivative suits and representative class actions.

Max Eisenberg, a New York resident, was a minority stockholder of The Flying Tiger Line, a Delaware corporation. In 1969, the corporation engaged in a reorganization and merger that involved the creation of two new entities, one to be used as a holding company and the other as a new operating company. The original Flying Tiger Line was merged into the holding company, with the original stockholders receiving an equivalent number of shares in the new entity.

Eisenberg filed a state-court suit on behalf of himself and other minority stockholders to enjoin the reorganization. He alleged that the reorganization effectively diluted the voting rights of minority stockholders by leaving them with shares in a holding company, thus preventing them from voting on any matters related to the business’s actual operations.

Flying Tiger Line removed the suit to the United States District Court for the Eastern District of New York and filed a motion to require Eisenberg to post security for the corporation’s litigation expenses based on New York Business Corporation Law section 627. The statute stated that if a stockholder bringing a derivative suit on behalf of a corporation owned less than 5 percent of the corporation’s stock, then the stockholder was required to post security at the corporation’s request to cover the reasonable expenses that the corporation might incur during the suit.

The district court granted the motion and required Eisenberg to post security in the amount of $35,000. When Eisenberg refused to comply, the district court dismissed his suit. Eisenberg appealed to the Second Circuit, arguing that he wasn’t required to post security because his suit was a class action, not a derivative suit.

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