"2. Was the order of Special Term, appealed from herein, properly made?" The constitutionality of this section of the General Corporation Law has been upheld in Lapchak v. Baker ( 298 N.Y. 89) where it was held that the courts must assume that the Legislature inquired and found (1) justification for making special provision in respect of derivative suits brought by holders of relatively small amounts of the corporation's stock, and (2) occasion for requiring plaintiffs in such suits to give reasonable security for litigation expenses of defendants therein. The section applies to actions "instituted or maintained in the right of any foreign or domestic corporation by the holder or holders of less than five per centum of the outstanding shares".

The Legislature could further take cognizance of the notorious fact that the bringing of groundless derivative suits by irresponsible persons has in some jurisdictions approached the character of a "racket." ( Cohen v. Beneficial Industrial Loan Corp. (1949), supra, 337 U.S. 541, 548-549; Lapchak v. Baker (1948), 298 N.Y. 89, 94-95 [ 80 N.E.2d 751].) It has been suggested that the representative suit has not been abused by the bringing of "strike suits" in California as it has in some eastern states.

The State rent control statute reveals the dissatisfaction of the Legislature with some of the results of the former Federal process of rent control (L. 1950, ch. 250, § 1). The Legislature, then, had reasons of its own for not following more closely than it did the pattern of the Federal system of rent control and, this being so, it is not for this court to say that the Legislature was bound to take a different course (see Lapchak v. Baker, 298 N.Y. 89, 95, and cases there cited). The freezing of rents in the city of New York as of one date (March 1, 1949) and elsewhere in the State as of another date (March 1, 1950) is denounced by the plaintiff landlord as a wholly arbitrary classification.

And the restrictions which both jurisdictions impose upon that right imply a fundamental agreement that corporate management ought to be protected from the abuse of this legal weapon, even though this protection is gained at the expense of the stockholders' right to protect their property. See Lapchak v. Baker, 298 N.Y. 89, 94-95, 80 N.E.2d 751, 753 (1948). See footnote 5, supra.

" Lapchak v. Baker, 298 N.Y. 89, 80 N.E.2d 751; Baker v. MacFadden Publications, 300 N.Y. 325, 90 N.E.2d 876; Cohen v. Beneficial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221. Although the questions before us do not directly involve the first count of the complaint, a brief recital of the facts there alleged will aid discussion of the second count.

It cannot be seriously contended that R.S. 14:3-15 would be unconstitutional as applied to any suit commenced after the date of its approval. The substantial question raised on this appeal on this aspect of the case is, we think, answered fully and clearly by the decision of Chief Judge Loughran in Lapchak v. Baker, 298 N.Y. 89, 80 N.E.2d 751, dealing with the constitutionality of Section 61-b of the General Corporation Law of New York. The contrary view is succinctly presented by Zlinkoff in his virile article entitled "The American Investor and the Constitutionality of Section 61-b of the New York General Corporation Law."

The evils were well known. Cohen v. Beneficial Loan Corp., 37 U.S. 541, 548, 69 S.Ct. 1221, 93 L.Ed. 1528; Lapchak v. Baker, 298 N.Y. 89, 94, 80 N.E.2d 751. But the evils were not one-sided. It was also recognized that the development of the corporate entity had brought in its wake abuses on the part of those trusted with corporate management. Congressional and legislative inquiries in recent times have exposed rampant and extensive wrongful practices on the part of fiduciaries of corporations which led to various statutes aimed at preventing and curbing such practices.

         Does the amended complaint plead a stockholders' derivative action, or an action in the stockholder's own right? If it is derivative, then the corporation is entitled to security under Section 61-b of the New York General Corporation Law. See Lapchak v. Baker, 298 N.Y. 89, 80 N.E.2d 751 and Baker v. McFadden Publications, Inc., 300 N.Y. 325, 90 N.E.2d 876. The requirement of the New York statute as to the security must be enforced in the Federal courts.

instituted or maintained in the right of any . . . corporation by the holder or holders of less than five per centum of the outstanding shares of any class of such corporation's stock . . . unless the shares . . . held . . . have a market value in excess of fifty thousand dollars, the corporation in whose right such action is brought shall be entitled at any stage of the proceedings before final judgment to require the plaintiff or plaintiffs to give security for the reasonable expenses, including attorney's fees, which may be incurred by it in connection with such action and by other parties defendant in connection therewith for which it may become subject pursuant to [§ 61-a] of this chapter, to which the corporation shall have recourse in such amount as the court having jurisdiction shall determine upon the termination of such action." The general discussion of the "security for expenses" or "anti-strike suit" provisions in the following authorities leave no doubt about the matter: Lapchak v. Baker, 298 N.Y. 89, 80 N.E.2d 751 (1948); Cohen v. Beneficial Industrial Loan Corp., supra; Murdock v. Follansbee Steel Corp., 213 F.2d 570 (3d Cir. 1954); Security For Expenses Legislation — Summary, Analysis, and Critique, supra; Hornstein, New Aspects of Stockholders' Derivative Suits, 47 Colum. L. Rev. 1 (1947); Reader, Suits Against Corporations, sura, at p. 7. Indeed, it was this very disparity of treatment, based on the size of the stockholders' interest, that grounded an unsuccessful attack on the constitutionality of New Jersey's "security for expenses" provision in Cohen v. Beneficial Industrial Loan Corp., supra. Thus, because § 516C does not provide a right in the corporation to recover "reasonable expenses, including attorneys' fees," from an unsuccessful plaintiff, and because the corporation can recover such expenses under § 516B only by having recourse to the security provided for therein, and because the plaintiff here had not been and could not be required to give such security, it necessarily follows that

None of the decisions cited in the majority opinion or in the briefs supports a reversal of the judgment entered upon the order of the unanimous Appellate Division, holding this amended complaint to be insufficient in law. The action is patently an attempt by a shareholder, holding an infinitesimally small proportion of the outstanding shares, to evade the public policy expressed by the Legislature in the enactment of section 61-b of the General Corporation Law, and analyzed by this court in no uncertain terms in Lapchak v. Baker ( 298 N.Y. 89), without pretending to comply with the requirements of that section, prompted by the multitude of minority stockholder suits at the instance of shareholders owning no substantial interest in the enterprise. The endeavor here is to escape the requirements of that section by changing the label on an action for waste or misappropriation against directors or majority shareholders.