Gentleman’s Agreement: The Antisemitic Origins of Restrictions on Stockholder Litigation

Lawrence E. Mitchell, Case Western University School of Law


In 1944, an amendment to the New York Business Corporations Law gave corporations sued derivatively the right to require any plaintiff who was not a significant stockholder to post a bond that would ensure payment of the corporation 's litigation expenses if the suit failed. By making such suits too expensive for plaintiffs, the amendment effectively eliminated derivative suits, and therefore the only mechanism available to these stockholders to vindicate their rights. This securities law example demonstrates a general need for caution in enacting legislation to regulate even unpopular or aggressive litigation; such regulation may in fact deny individuals the ability to enforce legal obligations and vindicate their legal rights.

In this paper, the author relies on several bodies of empirical evidence to argue that deeply ingrained antisemitism in the New York bar informed the adoption of the 1944 amendment: at the time, the plaintiffs' bar in New York City was predominantly Jewish and the defence bar was predominantly not Jewish. He closely examines the Wood Report, a study of derivative suits which was used to justify the amendment, and concludes that its rhetoric portrayed derivative suits in a demeaning manner. The Report also had significant flaws in its methodology, including the small sample size examined. Furthermore, the main sample of plaintiffs used in the report were Jewish. Finally, the author uses data collected in 1931 and 1960 to further illustrate the strong disadvantages suffered by Jewish lawyers in New York at a time described as the "high tide" of antisemitism in America.