Eisen v. Carlisle & Jacquelin – Oral Argument – February 25, 1974

Media for Eisen v. Carlisle & Jacquelin

Audio Transcription for Opinion Announcement – May 28, 1974 in Eisen v. Carlisle & Jacquelin


Warren E. Burger:

We’ll hear arguments next in 73-203, Eisen against Carlisle & Jacquelin.

Mr. Fine, I think you may proceed whenever you’re ready.

Aaron M. Fine:

Mr. Chief Justice and may it please the Court.

This case is before the Court on a writ of certiorari to the Court of Appeals for the Second Circuit to review its decision dismissing the action as a class action.

The grant of certiorari requested the parties to brief and to argue in addition to the questions presented, a question of the jurisdiction of the Court of Appeals.

The other questions, include the manageability of the large class action, who must be given notice, who should pay for the notice and the scope of discretion of the District Court.

Turning first to the jurisdiction of the Court of Appeals, jurisdiction was asserted on two grounds.

First of all, the Court in 1968 in reversing the District Court said that it retained jurisdiction and secondly, the defendants say that it has jurisdiction anyway under the Collateral Order Doctrine.

Originally, jurisdiction was assumed in the Court of Appeals under what became known as the “”death knell”” doctrine when the class action in the first instance was dismissed by Judge Tyler in the District Court, and on the plaintiff’s appeal, the Court of Appeals held that to dismiss the class action would in effect bring it to an end, and the class would never get any chance of review.

Now, if the “death knell” doctrine was incorrectly decided, later when the case was decided on the merits by the Court of Appeals in what became known as Eisen II, when it said “We retain jurisdiction,” it would obviously have had no jurisdiction to retain, and the defendants concede that.

We however, adhere to our view originally expressed in our position to their petition for certiorari before this Court and the “death knell” doctrine came up for review, and that petition was denied, that it was soundly decided by the Second Circuit.

Now it has been considerably eroded since then.

For example, the Third Circuit in Hackett against General Host Corporation, rejected it entirely.

But what happened in Hackett I think shows how wise the Second Circuit was in adopting the “death knell” doctrine because after Hackett refused to hear the appeal in that consumer antitrust case brought by a and on behalf of purchasers of bread following a conviction for price fixing in the Philadelphia area.

The case was dropped by the plaintiff, because it couldn’t proceed without having a class action to support it and consequently, the question of the class never got to be reviewed.

Our submission is different.

We submit that while the Court of Appeals said in reversing the District Court, when the District Court dismissed the class action, that it retained jurisdiction, what it actually did was to relinquish jurisdiction because it reversed.

And this is unlike cases where Court of Appeals may remand the record for further findings because the record before it is insufficient to enable it to render a decision and meanwhile, no decision is rendered.

Here, a decision was rendered so that the court said it retained jurisdiction, but it really didn’t.

In fact, the defendants were so confused about their role that when they came up before the Court of Appeals for the final time, this time trying to reverse the District Court, because the District Court had sustained the class action in every respect, they didn’t know who they were, and they designated themselves as appellees even though they have lost.

So there is a complete paradox and anomaly, and the Court of Appeals having rendered this decision saying in fact that it retained it.

Turning to the collateral order doctrine under Cohen, that has no application for a number of reasons.

First of all, the class action determination is, in the language of Cohen, but a step toward the final judgment in which it will merge.

Rule 23 (c) prescribes that judgment will be entered for/or against the class, as the Court recently noted in its opinion in American Pipe against the State of Utah.

And it is a step which has to be taken in every class action, because under Rule 23 (c) 1, the court is required as soon as practicable after the class action is brought to make the class action determination.

Warren E. Burger:

Well, then what you’re saying, is there any suggestion or are you suggesting that a circumstance can arise where the determination of the District Court on the class action is unreviewable because of the way it’s moved back and forth between the District Court and the Court of Appeals?

Aaron M. Fine:

I think it’s unreviewable at this stage of the case.

As a matter of fact, the Court of Appeals reached out to decide all sorts of questions that were only tentatively decided by the District Court that were not ripe for decision, and that should have awaited a complete record in the District Court in the same way as many decisions of the District Court are not reviewable in initial stages of the case.

And in any event, as Mr. Justice Blackmun pointed out in his concurrence in the State of Utah case, Rule 23 specifically provides that the order of the District Court sustaining the class, or even denying the class maybe altered or amended prior to decision on the merits, and Judge Tyler in fact said in his opinion on which he was reversed here that the response to the kind of notice that he had ordered might prompt him to change his mind and disallow the class, so that this is the kind of order that Cohen certainly doesn’t contemplate will be reviewed now, because it might be changed.

William H. Rehnquist:

Mr. Fine, was Cohen the basis for the Court of Appeals holding an Eisen I that it had jurisdiction to review Judge Tyler’s original order?

Aaron M. Fine:

Yes, Your Honor.

Cohen and Gillespie, they held there that this was in effect something that would irreparably harm the class, because this was the only way the class could get review.

It’s like the case where an attachment is released and unless there’s immediate review, the object of the attachment maybe gone.

But here, the Congress is that the defendant’s preserve their right to review, which the plaintiff didn’t have in Cohen, and wouldn’t have had if the “death knell” doctrine hadn’t been applied.

The defendants at the end of this case, when judgment is entered will have the right to review on all of these questions, and at that point it could very well be that Judge Tyler will have modified his order, will have reduced the class, might have eliminated the class entirely, changed it in many possible ways.

Warren E. Burger:

What can you do about the payment of the order, requiring the payment of costs for notice?

Aaron M. Fine:

Well, that’s no different, Your Honor, from discovery orders.

For example, in TWA against Hughes.

The defendant there was ordered to comply with discovery which the defendant said would cost in the petition for certiorari are filed in this Court $5 million, but nevertheless, the discovery order, as all discovery orders are held to be, was held to be interlocutory and not appealable, and —

Warren E. Burger:

Well, do you think that’s quite the same as requiring the defendant to advance the costs through notice?

Aaron M. Fine:

I think it is, Your Honor, because the rule doesn’t impose the burden of costs on the plaintiff.

It says the court shall direct notice to the class, and so it obviously, unless the court is the one that is supposed to pay for notice under that specific language.

It obviously gives the court the power to decide who should pay for the notice.

And here, just like in a case where the defendant may be subjected to the cost on preparing to try an antitrust case have to pay for the transcript, have to pay for discovery, but under the antitrust laws, the plaintiff isn’t required and cannot be required to put up any security for those costs.

The defendant there as the defendant here has to look to whatever judgment is entered at the end of the case in its favor if such a judgment is entered, and collecting that judgment if it gets a judgment for costs that should not —

William H. Rehnquist:

But your security for cause Mr. Fine, is traditionally when the costs are taxed at the end of the case, expenditures that you have incurred to your own travel, or your own pay to a court reporter, you maybe able to tax against the opposite party.

But it strikes me that it’s similar to what the Chief Justice said, this isn’t quite the same thing as that?

Aaron M. Fine:

Well, Your Honor, I think there is some instances for example, where a master is appointed and the parties are required to advance the expenses of the master before the end of the case, and there may be a division I think under the equity powers, under Rule 54 (b) to allocate those costs.

But in any event, this is no different from the discovery cases from the standpoint of finality on appeal because you may recall that Hickman versus Taylor came before this Court, because Mr. Fortenbaugh, the Philadelphia lawyer who was asserting the privilege against producing his work products papers there, had to undergo a citation for contempt before he could get review. We are not at this stage in this case.

The defendants have not said whether they will comply with the order or they won’t comply with the order and certainly, this is no different from the discovery cases.

For example, United States versus IBM which is before you on petition for certiorari.

Until the defendants have taken some irrevocable step with respect to the order of the District Court.

Suppose they say “We won’t put up the costs?”

Well, there are all sorts of alternatives.

They might be held in contempt, in which case depending I suppose on whether it’s civil or criminal contempt under the IBM case, they might have a right to review.

On the other hand, the court might say, “Well, if they won’t put up the costs, we are going to say that this would have the effect of a Rule 23 class action even without notice to the class for certain results, for example, for binding the defendants as against the prospect of one way intervention, and so on.”

So that this is no different certainly from the discovery cases even if it were thought to be slightly different from the standpoint of the defendant’s advancing costs at this point, from the standpoint of finality.

Potter Stewart:

Mr. Fine, what if we not only agreed with you, but went further and came to the conclusion that this late date that the “death knell” doctrine as developed in the Second Circuit is wholly inappropriate and improper, that there was no right to appeal whatsoever in Eisen I from the District Court’s first disposition of this case, what would be the result?

Will this move us all back to square one, do you think?

Aaron M. Fine:

I doubt it Your Honor.

Aaron M. Fine:

I think it would move us back to the District Court and under his powers expressly given under Rule 23, Judge Tyler hopefully would then say that he was wrong the first time, he was right the second time and would reinstate his second decision upholding the class.

Potter Stewart:

Well, he’s right.

But to what you’d have then is, was his first decision and with an opportunity for you to try to convince him that he was wrong?

Aaron M. Fine:

I think that’s right, Your Honor.

Potter Stewart:

Having erased everything that the Court of Appeals has done in the meantime, right?

Aaron M. Fine:

That’s right.

Now, I would like to point to another distinction in Cohen that involved the general applicability of a statute, and the question in Cohen as phrased by another panel of the Second Circuit in the Weight Watchers case was whether a decision will settle a point once for all as it did in Cohen, or will open the way to a flood of appeals concerning the propriety of a District Court’s ruling on the facts of a particular suit.

Now, the Court of Appeals here has held that in some cases, costs can be imposed on the defendants.

Cases where they may have a duty, for example, a corporation’s duty to its stockholders, but here, the Court of Appeals has said that in some cases, the District Court may impose cost in others and particularly in this case, they said it’s inappropriate.

So what they are really doing is interfering with the District Court’s discretion depending on how they view the facts of a particular case.

Furthermore, turning really, not to the question of appealability, but advancing somewhat to the question of the propriety of putting the cost on the defense, here the District Court found in these findings were not upset by the Court of Appeals, because the court simply said the District Court didn’t have jurisdiction to make them, that the New York Stock Exchange had violated its duty under the Exchange Act to protect the odd-lot investors who are the class in this case.

And the violation of that duty, in which it was aided and abetted by the other defendants, certainly is no different from the kind of duty were no less in scope than the duty which the Court of Appeals said could be the basis for putting costs on the defendants in another kind of case.

So for that reason, Cohen doesn’t apply because this is really a decision on a case-by-case basis.

And many District Courts have routinely since Rule 23 was amended, allocated the costs between the parties without any thought that they were doing anything wrong, and the Court of Appeals here says in some cases they should be able to do that.

So that I submit that a general rule which this Court would be asked to apply, that in no case can costs be allocated, should not be adopted, and since the question of a general rule isn’t involved, the defendants had no right of appeal.

Now, turning to the issue of manageability —

Potter Stewart:

Just before we leave the question of appealability, I understand that the “death knell” doctrine was originally developed in the Second Circuit and is adhered to there.

Then it’s been given some sort of halfway recognition in the Ninth Circuit, but explicitly disagreed with in the Third Circuit, and what is the other one, what’s the state of the law on that in the other Circuits?

Aaron M. Fine:

I think in the Fifth Circuit it’s recognized.

I believe there are number of cases in the Fifth Circuit where it’s been recognized, but I think that the two Circuits which have definitely ruled on it —

William J. Brennan, Jr.:

Are the Second and the Third?

Aaron M. Fine:

— for and against on are the Second and the Third.

On the issue of manageability, it’s not an issue at all in class actions maintained under 23 (b) 102, which would be for example, actions for an accounting, for a trust fund, or here an action for injunctive relief.

And the Second Circuit, just summarily, in its first decision where it reversed dismissal of the class action said this can’t be a (b) (2) action because the advisory committee note says that that doesn’t apply to situations exclusively or predominantly for the recovery of damages.

Now, this case isn’t exclusively or predominantly for the recovery of damages.

This case seeks and has sought from the very first in the complaint requests, very substantial injunctive relief.

For example, the SEC special study of the odd-lot markets which was the basis really for this case, found that an engineering firm Ebasco had concluded in 1955 that very large cost savings could be put into effect if the odd-lot defendants automated their operations.

And Judge Tyler found in July of 1972 that as of that date, those recommendations have not only not been implemented, they hadn’t even been considered, so there is still a substantial need for injunctive relief here to reduce the costs of the odd-lot defendants, because as the court found, reduction of those costs would necessarily have a beneficial result for the class, because it would mean that the odd-lot differential, which is the basis of this case, a charge that it was inflated and fixed in violation of the antitrust laws would necessarily be affected and reduced.

Yet the Court of Appeals ruled out the (b) (2) action as a matter of law.

But manageability enters into the rule only under (b) (3) actions those that are what were formerly known as spurious class actions, but since your decision in the Utah case are known as truly representative suits like all of the others.

Aaron M. Fine:

And manageability in (b) (3) actions under the language of the Rule is only one factor to be considered in deciding whether the class action is superior to other available methods for the fair and efficient adjudication of the controversy.

And here, the Court of Appeals said both in the “death knell” opinion and in the second opinion that the class action is the only feasible method for adjudicating this controversy, because the individual class members, like Eisen have such small states that they’re not going to come forward with individual suits.

And yet, having held twice that this is the only feasible method, and the rule saying that manageability is only to be considered in the light of whether the class action is superior to other available methods, the Court of Appeals dismisses it as the class action.

Aside from the language of the Rule itself, however, the difficulties of management which the Court of Appeals perceived in this action are just not so.

First of all, it didn’t even consider what the rule specifically provides and that is that you can have a class action on the common question of liability.

That part of the class action is certainly sound.

But here, the District Court also found that gross damages can be determined that on the basis of a common formula, and estimated for the entire class.

As a matter of fact, the odd-lot defendants know exactly what they charged to the class as a whole, because the charge was their income, and if the District Court is right that the formula can be adopted, then we know what part of that total charge, that aggregate charge was an over charge.

Now, certainly, as to the two million and the quarter class members whose individual transactions, the defendant stipulated are recorded on computer tapes and can be derived from those computer tapes.

Constituting 56% of the transactions of the class as a whole, what is the difficulty in managing that if you have a formula that you can apply across the board?

This is no different from the utility cases where refunds are routinely ordered when some rate is found to have been too high.

And in fact, in the Panhandle Eastern Pipeline case, the court pointed out that refunds were made to over a million ultimate consumers with reasonable promptness and without serious controversy under the supervision of a master.

Similarly in the Illinois Bell Telephone case in the days when people have to copy records like Bob Crotchet sitting on a stool, and before the days of the computer, refunds were made of $17 million to over a million people entitled to the refunds.

So if you have a formula, there’s really no great problem in managing, especially with the assistance of data processing, and from personal experience I know that these burdens do not fall necessarily on the court, they are assumed by counsel, by accountants, and by data processing firms.

And here, you have two and a quarter million class members who stand to receive and recover a tangible amount without undue difficulties of management.

But they have been put out of court, because the Court of Appeals erroneously concluded and held that Judge Tyler had said “That the only way that this class could be managed would be by the so-called fluid recovery.”

That is a future reduction of the odd-lot differential.

William H. Rehnquist:

Mr. Fine, as a procedural practical matter, you say that these burdens are largely assumed by accounting firms or data processing firms.

How are they compensated? Is this prior to final judgment or afterwards?

Aaron M. Fine:

It comes up in two contexts, first in a settlement or after final judgment.

Now, in a settlement context they are usually compensated out of the fund.

If it comes up after the final judgment, then the defendants under such decisions of this Court as Mills against the Electric Auto-Lite Company are liable for the costs.

William H. Rehnquist:

And you don’t have to worry about it until either you have agreed on a settlement, or until after final judgment?

Aaron M. Fine:

That’s right.

That only comes up at the time of distribution, which is after settlement or judgment.

Now, it’s true that the plaintiff’s counsel suggested in the District Court that if six million class members have to go through that ancient records, and he said “In that narrow sense, it would be impracticable.”

So he suggested what became known as the fluid class recovery that is equitable relief, fashioning a remedy for future reduction of the odd-lot differential, and that would benefit certainly odd-lot investors as whole and those who overlapped the class who would pay the overcharge during the period in the suit.

The District Court didn’t adopt that saying only it merited consideration that individual claims could be satisfied to the extent filed, that the fluid class recovery might then be appropriate for distribution of the unclaimed remainders.

And if you have the formula kind of distribution for those whose identities are on tape, then you may even be able to cut out a large part of the claims procedure.

Lewis F. Powell, Jr.:

Mr. Fine, you said the District Court hasn’t taken a position as to what would be done with the unclaimed remainder.

Lewis F. Powell, Jr.:

What would you suggest be done with it?

Aaron M. Fine:

Well, I think there are many alternatives Your Honor.

First of all, the defendants could say it should go back to them, and they will have the opportunity to argue that after judgment is entered as the rule contemplates for the total amount of damages for the class as a whole.

Secondly, it could be applied to reduce the odd-lot differential in the future.

It could be done under the general equity powers of the court, which it certainly has under Case against Borak to fashion any remedy to make the Securities Act effective.

And that’s the kind of thing that was done in the Bebchick case.

Warren E. Burger:

Well, Bebchick was quite a different kind of a case, wasn’t it?

It wasn’t a class action?

Aaron M. Fine:

It wasn’t a class action, but you have class actions where the same approach was taken.

The Metro Homes case in Michigan was a class action where there had been an illegal exaction of a tax than held to be unlawful, and there the court held that the taxing authority had to pay over the entire amount and couldn’t get back any part of the amount illegally collected, even though individuals didn’t come forward to consume the entire amount.

So that what I’m saying is that although Bebchick was a different case, it provides part of the substantive law, the equitable principles on which the court can rely in fashioning a remedy whether the action is a class action or not a class action.

It really makes no difference almost Mr. Justice Powell to make another answer to your question.

Suppose notice goes out to the two million and then there is a judgment liability and the fund is created, they can then be told you have a refund due to you, and the same notice can be published for those who can’t be identified, assuming that they will read the notice.

And if you like, you can assign your claim for the benefit of future odd-lot investors.

That’s exactly the kind of thing that was approved by the Second Circuit in the Pfizer case.

So there are all sorts of possibilities, but certainly at this point, we don’t have to go into them, because that —

Byron R. White:

Mr. Fine, he explained here he talked about the — has such a small claim that he won’t bother to file at all.

If that’s so, just his silence is rather an insecure insubstantial way of saying that he’s waived his claim?

Aaron M. Fine:

Well, people with small claims —

Byron R. White:

Or that he’s made an assignment to somebody?

Aaron M. Fine:

That’s just one of the possibilities to be considered and I have had experience in class actions where people would claim of as much as $10.00 in a class where some people had claims of thousands of dollars.

The Plumbing Fixtures Antitrust case pursued their claims for the $10.00 just as diligently as those with the bigger claims.

It meant a lot to them. Just because these claims are small, doesn’t mean that it doesn’t mean a lot to these investors.

As a matter of fact, these defendants have taken full page ad saying they’re addressed to the odd-lot investors as to the little guys.

These are the little guys that people who do not have by and large enough money to invest very much and so these small amounts do mean a lot to them.

But in any event, that was all tentative and not necessarily to be decided, and certainly not to be ruled out by the Court of Appeals on a sort of advisory opinion basis.

Now, turning to individual notice, it’s not required in (b) (2) actions for an injunction and under the decisions like Hansberry and Lee, and Ben-Hur against Cauble, adequacy of representation is the hallmark of due process and class actions, not individual notice.

For example, those precluded by the judgment in Ben-Hur never had notice of the prior class action which precluded them.

Under (b) (2), individual notice is not required by the rule, and the defendants concede it.

Now, under 23 (c), the court is directed direct the members the best notice practicable under the circumstances including individual notice to all members who can be identified through reasonable effort.

Aaron M. Fine:

It doesn’t mandate individual notice where it’s not practicable or where identification entails more than a reasonable effort.

And here, the Court of Appeals in effect held that the claims of the silent members of the class are more theoretic than real, they are not going to want to have an opportunity to opt out to conduct their own litigation.

They’re going to rely on the class and the results of the class so that the kind of notice ordered by the District Court here certainly conforms to the language of the rule which is a rule of reason, that it’s the best notice practicable under the circumstances, because to have a requirement of any other kind notice and the case where the class consists of small claimants would mean that the class action rule could never be used if you had a stringent notice requirement to protect their interests.

Byron R. White:

Did the Court of Appeals look at this case as a (c) —

Aaron M. Fine:

(b) (3) action where that kind of notice required a (b) (3) actions have to be given.

Now —

Byron R. White:

What about (b) (2)?

Aaron M. Fine:

Well, it could be looked as a (b) (2) action and there are a number —

Byron R. White:

Court of Appeals says it wasn’t.

Aaron M. Fine:

It says it wasn’t.

I say it was.

I say it was (b) (2) and (b) (3) and where its hybrid that exposed —

Byron R. White:

You also say (b) (1)?

Aaron M. Fine:

(b) (1) where it’s hybrid.

Byron R. White:

But the Court of Appeals could —

Aaron M. Fine:

It said no.

No (b) (1) either.

Byron R. White:

Let’s assume it’s neither 1 or 2, but it is 3.

Aaron M. Fine:

Well, there are a number —

Byron R. White:

Then what about the notice requirements?

Aaron M. Fine:

There are a number of decisions that say that if it can be viewed as (b) (1) or (b) (2), you view it as (b) (1) or (b) (2) even if it’s also a (b) (3).

Byron R. White:

But let’s assume, let’s assume that it isn’t.

Aaron M. Fine:

It isn’t —

Byron R. White:

Let’s assume you must look at it as a (b) (3) —

Aaron M. Fine:

If you must look at it as a (b) (3) action then the question is what’s reasonable notice within the intendment of the rule, and what are the interests to be served by notice.

Now one of the interests to be served by individual notice —

Byron R. White:

Doesn’t the rule just say that you serve notice?

Aaron M. Fine:

No, it says the court shall direct to the members of the class the best notice practicable under the circumstances.

And in Mullane, this case —

Potter Stewart:

In theory and it goes on and it says —

Aaron M. Fine:

Well, it says including individual notice to all members who can be identified through a reasonable effort.

Potter Stewart:


Aaron M. Fine:

But, first —

Byron R. White:

How do you read that?

The Court of Appeals read that as that is the kind of notice that must go in any event?

Aaron M. Fine:

Yes, whatever the effort and whatever the circumstances.

First of all, we say the best notice of practicable under the circumstances qualifies the rest of the rule, but on the record here, even if it doesn’t, the defendant’s evidence was that generating the individual names and addresses would be very laborious, their witnesses so testified, very expensive.

Certainly beyond any reasonable effort on the plaintiff’s part and they offered to furnish the names and addresses undertaking an unreasonable effort only to make the plaintiff to pay for individual notice.

In other words, they were trying to get the key to their own salvation by saying “Well, we don’t care what the effort.

We’ll generate these names and addresses.”

And that will be the end of the case.

So that if you simply take the second part of the rule, I submit that it really doesn’t require individual notice in this case, and the best notice practicable under the circumstances of this case is exactly the kind of notice that the District Court ordered.

And this isn’t a case like Mullane or Schroeder, where individual notice was really important at that stage of the case because persons were about to be deprived of their property interests.

Here in Eisen, what’s involved at this point is the effort to create the common fund, and later when the fund is created, notice will go out to everyone who can be individually identified, because then they’ll have mistaken what is done with the distribution of the fund.

Potter Stewart:

Well, that’s a very specific purpose for a sit to notice though, Mr. Fine, isn’t there?

And that is to give the member of the class an opportunity to opt out, if it is important?

Aaron M. Fine:

That’s right, but that —

Potter Stewart:

Or to hire his own lawyer if he wants to.

It’s all spelled out in the statute —

Aaron M. Fine:

That’s right, but —

Potter Stewart:

And it’s quite unlike (b) (1) or (b) (2), (b) (2) which is primarily an injunctive action.

Aaron M. Fine:

But you still have to look at the purpose to be served by the emeritus when it talks in terms of the best notice practicable under the circumstances.

The advisory committee notes that in many cases the interests of the class members to whom that notice would be directed, the more —

Byron R. White:

But Mr. Fine, what if you lose your case?

Aaron M. Fine:

Well —

Byron R. White:

Here talk about a fund then once we win the case then we can give people notice.

What if you lose?

The people you didn’t give notice to are barred.

Aaron M. Fine:

That’s right, but the Court of Appeals found that their interests, because their claims are so small and more theoretic than practical anyway, they would not bring in individual suits anymore than Eisen could bring an individual suit without the class.

Byron R. White:

And yet you say their interests are substantial enough that for a failure to respond should be interpreted as a waiver.

Aaron M. Fine:

Well, that’s only one possibility Your Honor, that may or may not be adopted depending upon the circumstances at that stage of the case, but certainly —

Byron R. White:

But they’re not barred?

Aaron M. Fine:

They are barred, Your Honor.

They are barred unless —

Byron R. White:

Well, isn’t that one of the purposes of the notice to make sure that they have a chance not to be barred?

Aaron M. Fine:

Although they are barred as I think the advisory committee its decisions points out it’s something that they could litigate subsequently.

In other words, it’s not decided in the first case, the res judicata effect of the judgment.

That’s something that they would have a chance, if they wanted to, to litigate later, but the chances —

Byron R. White:

They can always have a chance of litigating —

Aaron M. Fine:

Well, that —

Byron R. White:

I thought one of the, maybe names of amending the rules as to —

Potter Stewart:

Make it res judicata.

Byron R. White:

— was to bar people.

Aaron M. Fine:

That’s right, but in —

Byron R. White:

Well, if it’s right, where is it wrong?

Aaron M. Fine:

Well, it’s right, but res judicata depends on the Hansberry and Lee, and such cases as that on adequacy of representation.

Byron R. White:

Well, so the rule really didn’t accomplish itself?

Aaron M. Fine:

I don’t know whether the rule was necessary.

I don’t think there’s any decision of this Court that the defendants point to, to the effect that in what we’ve previously known as spurious class actions, if you had adequacy of representation, but not complete notice that that wasn’t res judicata, perhaps it was, perhaps it should be the Ben-Hur case where everyone’s interests are really common just as they are when they are going after a common fund.

Now, in the cost of notice, I think I’ve covered that to some extent already, the Court is said you have to direct notice.

If the parties have to direct notice, I submit that that can be decided on an equitable basis, and here, even without the evidentiary hearing, the Court of Appeals, I mean, the District Court would’ve been justified in taking judicial notice of the fact that these SEC’s own special study had found that the defendant exchange had breached its duty these odd-lot investors.

And what is really so wrong about making the exchange, which is supposed to protect investors, and which didn’t, pay for notifying them that they have an opportunity to get some kind of recourse, if that is the only recourse that they have.

And perhaps, the whole question of individual notice, Mr. Justice White, could be eliminated as a problem if you would hold that the defendants can be made for the entire individual notice here.

Byron R. White:

Let’s assume you lost your case again.

Aaron M. Fine:


Byron R. White:

Horrible thought, but assume you lost it, what about — what about the cost of notice, who’s going to pay for all that?

Aaron M. Fine:

Well, under Rule 54 (d), I think equitable principles could be applied.

It depends on the equities of this situation.

Byron R. White:

Can they be passed to the plaintiff?

Aaron M. Fine:

Not necessarily, Your Honor.

Byron R. White:

But probably?

Aaron M. Fine:

No, not even probably.

There’s a case —

Byron R. White:

But you don’t have to say that or otherwise you would have to put up the bond?

Aaron M. Fine:

No, I say, well there is no bond provision for any plaintiff under the anti trust law.

Suppose you’re put out of business by an antitrust violator, and he’s taken away your opportunity to make any money and you just have enough money to pay for say your [Attempt to Laughter] own transcripts, but you certainly don’t have enough money to pay for the defendant’s costs, taxable costs, that they incur in defending the suit.

Does it mean that if you’re put out of business, but for some reason you lose your antitrust suit, you have to put up a bond?

Or in the contrary —

William H. Rehnquist:

But if you lose your antitrust suit, presumably you wouldn’t put out a business by those defendants?

Aaron M. Fine:

Well, that’s something that might depend on the jury.

I don’t think you can —

William H. Rehnquist:

Well, but that’s the way we resolve those questions.

If a jury says the defendants win, the plaintiffs didn’t have an antitrust?

Aaron M. Fine:

There’s a case where a plaintiff established that the defendant had violated the Robinson-Patman Act, but the jury found he hadn’t been damaged, and the judgment was entered for the defendants, but the court still taxed the cost to the defendants because they had violated the law.

And I think in principle and in equity, it’s no different from what the special study of the SEC shows here, that is the exchange breached its duty to investors and perhaps this cost should be put on the exchange simply on that basis alone and never made a taxable cost.

Why shouldn’t the exchange pay for it?

They are supposed to protect investors and the SEC has found that they didn’t and perhaps it won’t be held to be an antitrust violation even then I say, the costs are equitably to be imposed on the defendants in this case.

I will reserve some time for reply if I may?

Warren E. Burger:

Very well Mr. Fine.

Mr. Milburn.

Devereux Milburn:

Mr. Chief Justice and may it please the Court.

Mr. Jackson and I, Mr. Jackson represents the stock exchange, and I represent the odd-lot houses, are dividing our time.

Basically equally and just to give you a plan on what we intend to do, I will deal with the question of jurisdiction.

I will deal with the question of expanding and correcting some of the facts.

I will deal with manageability and with notice.

Mr. Jackson will deal with the substantive aspects of Rule 23.

He will deal with fluid recovery, mini-hearing, and the costs of notice, and policy considerations.

I would like to commence with arguing briefly as to jurisdiction, which was requested in the grant of certiorari in this case.

We believe that we at the Court of Appeals, had jurisdiction.

Mainly because we have had from us extracted a sum of $19,000.00 or it is intended to be extracted from us to finance a case against ourselves, and if we are successful by the plaintiff’s own admission, no chance of recovering it.

Devereux Milburn:

We have had inflicted upon us what we consider an illegal and unlawful mini-hearing, a truncated hearing on the merits prior to trial, and prior to jury trial which we have requested.

We have been subjected to, or we are told that we will be subjected to such inadequate notice that the rights of the class will be denied, that res judicata will be denied to us, that the chance of plaintiffs is opting out, plaintiff members or the plaintiff class opting out will be denied to us because of the inadequacy of the notice.

We have also seen a misconstruction of Section 4 of the Clayton Act, as it applies to the odd-lot houses and a misconstruction of Section 6 of the exchange Act as it applies to the stock exchange.

We submit that because of all these violent actions taken by Judge Tyler against us that this case comes clearly under the doctrine of Cohen against Beneficial Loan.

Cohen said that when matters were too important to be denied review, too independent to require postponement until the whole case is decided that they should be adjudicated at the time.

William H. Rehnquist:

Mr. Milburn, why isn’t Mr. Fine right on the $19,000.00 business under Hickman against Taylor?

That if you want to raise that as an issue on appeal, you don’t simply pay when the court tells you to pay.

You go to jail for contempt an appeal for contempt citation.

Devereux Milburn:

Well, I think that that is a possibility, but we feel that we have a right under the Cohen doctrine to appeal at this time, and I would find, I am just guessing, that my clients might have some objection to following the course you suggest and maybe going to jail pending on appeal.

I haven’t discussed it with him, but I’m guessing.[Laughter]

Now, I would like —

Potter Stewart:

But, after Eisen I in this Court, didn’t you — there was a petition for certiorari here, was it not?

Devereux Milburn:

Yes, sir.

Potter Stewart:

Which brought by you or your client?

Devereux Milburn:

That is correct.

Potter Stewart:

Which was denied?

Devereux Milburn:

That’s correct Your Honor.

Potter Stewart:

Your client and its counsel still the same view that the “death knell” doctrine is an invalid doctrine?

Devereux Milburn:

Your Honor, we stand by our brief in the petition for certiorari in that case.

However, in this case if Judge Kaufman is reversed, then as I think some instead, we will be back with Judge Tyler, the 1966 Judge Tyler and we prefer and I think one could assume from what’s happened since that Judge Tyler might, as he is permitted to by the rule, he might change his opinion.

And he might reinstate Tyler II, as I call it, and Tyler II (a).

Now, looking at the opinions in the en banc decision and what is gone, the water that has gone under the bridge, I cannot see how we would be denied a 1291 (b) certification.

So, we would be back in the Court of Appeals.

We would be back here and we would’ve played ring around the rosie with — for a considerable period of time.

Potter Stewart:

You think the question of the validity of the “death knell” rule is before us here?

Devereux Milburn:

I do.

I think that this Court has an absolute right and jurisdiction to decide that question.

I still think that if they decide against Judge Kaufman and overrule Judge Kaufman that we have a right to be here under the subsequent activities under Cohen.

I don’t —

Potter Stewart:

Well, quite apart from the —

Devereux Milburn:

Quite apart.

Potter Stewart:

— retain jurisdiction.

Devereux Milburn:

Yes, I think in Eisen I, you have a conflict in the circuits that you mentioned, and certainly this Court has jurisdiction, and probably a responsibility to resolve it at this time.

But we also feel that we are here under Cohen, and under the things that were done to us under Cohen and that this Court should take this case.

Now, I would like to refer in that connection to the case of Schlagenhauf against Holder.

In that case, this Court decided that they were deciding Rule 35, a question under the Rule 35.

It was a matter of first impression at that time, but it was a rule promulgated by this Court.

And this Court indicated that it felt a responsibility to put at rest all the controversy under Rule 35.

Now, I don’t think that anybody can deny that the status of Rule 23 below is a mess, and I would hope that this Court would assume the responsibility now that we’re here before you with this case which has so many facets to it, I would hope that you would have assume the responsibility of deciding the case.

Now, if I may proceed to consideration, short brief consideration of the facts.

We all know that this case is six million people.

The class involves six million people.

Eisen II was decided and there were only 3.5 million, but has grown to six million by just a little investigation and by stipulation of fact.

Now, the enormity of this class, I know bothered Judge Medina, and I know it must bother every judge in the Federal Courts.

Now, 6% of those people live abroad and speak foreign languages.

The class is diverse.

I would refer probably I think the best affidavit on our appendix is rather of Mr. Smith of Merrill Lynch on (a) 53, in which he lists 25 different kinds of investors, by no means an exhaustive list, 15 types of orders which can be changed and interchanged in such a way that 15 isn’t the figure, but at many times 13.

It must be remembered that at all times, in this case, Mr. Eisen can sue in his own behalf.

That he can obtain trebled damages for whatever damage he received and he can receive attorney’s fees.

I submit that the fact show that this class is unmanageable just by size alone, but I will discuss that more fully when I get to manageability and to notice.

The plaintiff in his reply brief states that the court’s finding regarding the defendant’s antitrust violations and Exchange Act 6 violations are not before this Court for review because they were not reversed by the Court of Appeals.

Well, my favorite reading is Judge Medina’s opinion, and I am very familiar with it, and I have found that in three different places, he has said that the findings and the rulings of Judge Tyler as to the merits of the case, in other words, our antitrust liability, the exchange of Section 6 liability are vacated.

And he has also pointed out that under his opinion, Judge Tyler had no right to consider the merits, and I do think they are before this Court, and I say that and that they have been vacated and are of no effect.

Now, the only other thing I have is that plaintiff continues to say in his brief and in oral argument that the stipulations says that 56% of the class member’s transactions are unpaid.

The stipulation says that 56% of the transactions on the New York Stock Exchange are unpaid, and I think that you will realize that those are two different things.

When we’re dealing with class members, we’re not dealing with transactions on the New York Stock Exchange.

Well that leads me into the question of manageability.

We have a brand new theory which has been put forth by the plaintiff in his reply brief.

This has never been argued before.

It’s never been briefed before, and the plaintiff is asking this Court to ask as a Court of first resort, and decide this incredibly complicated subject.

Devereux Milburn:

He has suggested that we now mail checks to 2,250,000 people with what they are entitled to, That sounds very simple, but I might point out that —

Potter Stewart:

Just a minute, Mr. Milburn, he has suggested that you now mail checks, before you won the case?

Devereux Milburn:

As soon as the formula is arrived at, which the plaintiff says that Judge Tyler has arrived at a formula that he will apply that formula, and then will be able to tell what the damages are, and what is due to these two million people who are readily identifiable.

Potter Stewart:

If as or when you’ve lost the case?

Devereux Milburn:

If as or when we’ve lost the case.

I’m talking yes, if as or when we’ve lost the case and I’m talking on the point of manageability.

Now but this just doesn’t stop when we lose it, somebody’s got to receive this month.

Potter Stewart:

Just doesn’t stop, you say with notice, it stops with —

Devereux Milburn:

It stops the distribution.

Potter Stewart:

It never stops your point?

Devereux Milburn:

If we lose, right.

Now, even Judge Tyler in his second and third opinions envisages the filing of claims by members of the class who have been injured.

He never applied a formula. He didn’t ever invented the formula to apply to the individuals who might present claims.

Now, it’s very even, I might just even on the notice which he suggests might be adequate on (a) 224, to 225, he suggests that the claimants will have to describe the type of transaction they have entered into.

Now, it’s very easy to say that this can be obtained from the tapes.

Well, it’s easy to say, but it probably can’t be done, and if it can be done, it can be done only at immense expense.

The odd-lot houses do not deal with customers.

We deal with the commission houses on the New York Stock Exchange.

We have nothing to do with customers.

A great many of customers don’t even know we exist.

They order their stock from their broker, and their broker deals with us if it’s an odd-lot.

Now, we have a tape, and that tape has on it all the transactions of the day, and all the transactions for the commission houses.

Now, that tape does not have any names or addresses.

It does have an account number.

The 14 warehouses, and now I might point out where there are now nine warehouses, five have disappeared or ceasing to do business, but they have tapes and we can match our tapes with them and our account numbers with their tapes, and we can get the names and addresses, and it is a very simple proposition.

It is not what the plaintiff’s attorney had described, it is simple.

And we can do it, and we have offered to do it, and I think that because we offered to do it in that way, that the obtainable of reasonable effort, it might be even be said that anything you get for nothing is you obtain with reasonable effort, but this requires no effort.

We will pay for it, and we will hand it to him.

But now, we still have these two million people.

We have maintained all along that if you put in a market order, it costs us a certain amount of money to handle it.

Devereux Milburn:

If you put in one of these incredibly intricate orders which you referred to in the affidavits of the brokerage houses, it costs a lot of money to handle, a lot of money I am using figuratively.

But, in some cases, we may lose, on handling one of those, but in others we may not.

And in that way, each transaction we maintain before we pay anybody, we should have a right to defend ourselves to say not only was it not excessive, but it wasn’t enough.

And that we should do that in each individual case.

Who are we as defendants that we should be denied the right to come face to face with people who say we owe them money, and say no you don’t.

Are we required to pay money to people that we don’t owe money to?

I maintain Your Honors that we are not.

Byron R. White:

But you object to the formula?

Devereux Milburn:

I don’t think there was a formula.

Byron R. White:

But then you’re objecting to a formula?

Devereux Milburn:

I’m objecting to a formula, and I’m objecting, if there is one to the application willy-nilly to two million people, a great many of whom we don’t owe.

Byron R. White:

If there was one, the District Court arrived at one which you denied, the Court of Appeals didn’t disturb it, did it?

Devereux Milburn:

Well, I don’t know what the formula was.

Byron R. White:


Devereux Milburn:

If they did know, if we’re talking 5% they talked about, the $3.18 and the $20.00 —

Byron R. White:

What is your opposition talking about in their brief when it says “Applying the formula to these two million?”

What formula is he referring to?

Devereux Milburn:

I have been endeavoring to say I don’t know.

I don’t think Judge Tyler reached a formula to deal with these two million people, or with individual claims.

I think Judge Tyler said “If you have an individual claim, you’ve got to come in and file it.”

Now, I think I might call attention to the fact that I think the plaintiff’s attorney, I think I’d mentioned this briefly, has misinterpreted the testimony of Mr. Martin who worked for Walston, and who which is now not doing this kind of business. We never said —

Warren E. Burger:

We’ll resume there right after lunch Mr. Milburn.

Devereux Milburn:

Thank you.

[Luncheon Recess]

Warren E. Burger:

Mr. Milburn.

Devereux Milburn:

Mr. Chief Justice, and may it please the Court.

I left dwelling on Mr. Martin’s testimony.

I’d like to finish that in about one sentence.

The laborious process which the attorney for the plaintiff referred to is the laborious process of matching transactions to odd-lot customers.

It is not the process of identifying names and addresses of the odd-lot customers.

Devereux Milburn:

Now, if I could turn briefly to the subject of notice.

It seems to me that the District Court’s error in this respect was his feeling that Rule 23 and due process, the notice required under those sections is the question is whether a stringent and harsh notice will vitiate the class action device if the plaintiff is unable to pay the notice.

Now, I would like to divide the discussion of notice into two questions.

First, we have the rule itself, and secondly we have due process.

Every court that has dealt with the subject of notice, and that is every court, have said that notice must conform with the rule and with due process.

Now, I would like to submit to this Court that we have here a rule.

We have in (c) 3 — (c) 2 excuse me, we have the requirement which I’m sure you’re familiar with, but it’s one sentence.

“In any class action, maintained under subdivision (b) (3), the court shall direct to the members of the class, the best notice practicable under the circumstances including the individual notice to all members who can be identified through reasonable effort.”

I would submit to this Court that we have a question here of the English language.

I submit that there is no question as to what that sentence means.

There is no question as to what it means insofar as individual notice to those who can be identified with reasonable effort means.

There is no way that I can see and the attorneys for the plaintiffs have tried in their briefs and in oral arguments to twist one clause to modify another clause.

But I submit that if it is read as we all understand our language, that it does require individual notice to all members who can be identified through a reasonable effort.

That is what the rule says, and I submit that that rule must be complied with.

The second string to my bow is this —

William O. Douglas:

A notice by publication would not be adequate?

Devereux Milburn:

It would not be adequate under this section of the rule, Your Honor.

I also —

Potter Stewart:

Because of the use of the word “individual?”

Devereux Milburn:

Because of the use of the clause following including, beginning with the word “including.”

Potter Stewart:

Well, word including individual notice to all members?

Devereux Milburn:


Now the second string to my bow, as I was saying is that —

William O. Douglas:

The part of the due process, as you know the publication, the newspaper is individual notice for some purposes?

Devereux Milburn:

Requires individual notices?

William O. Douglas:


Devereux Milburn:

Yes sir.

I further submit that due process requires this type of individual notice.

And further, that the notice provided by Judge Tyler is hopelessly inadequate.

If I might quote Judge Medina, “It’s a fuss.”

Devereux Milburn:

Out of these six million people, we are giving notice to 2000 people who have 10 or more odd-lot transactions.

We are giving notice to 5000 odd-lot out of six million selected at random.

We are publishing in New York, in Los Angeles, and in California, and in the Wall Street Journal, nothing.

Nobody is taking care of in Middle America.

Two-thirds of the six million people, is stipulated, are not in New York, California, or will probably not be reached by the newspapers in those localities.

Now, if we have that, I would cite to this Court I’m sure necessarily Mullane, which sets forth your rules as to due process.

Mullane had some what might be called language with loose language and it was tightened by Schroeder almost immediately thereafter.

And Schroeder said “If anyone can be very easily identified, he is entitled to individual notice.”

William H. Rehnquist:

What if you know his name, but can’t find his address?

Devereux Milburn:

I would say that we couldn’t give him individual notice.

We couldn’t mail a letter.

I would put him with the other four million that can’t be identified and hope that he will be served by publication, but not the type of publication suggested by Judge Tyler in his opinion.

Thank you very much.

Warren E. Burger:

Very well Mr. Milburn.

Mr. Jackson.

William Eldred Jackson:

Mr. Chief Justice, and may it please the Court.

The basic issue in this case, and this was the basic difference between the Court of Appeals and the District Court, is the question whether a rule of procedure may be used to effect changes in substantive law.

The Court of Appeals, we submit, correctly held no, and in doing so it reversed District Court determinations, which were based on the premise that in the interest of liberal interpretation of Rule 23 and in the interest of punishing alleged wrongdoers, this case must proceed as a class action at any price.

And the price, which the District Court exacted, was the bending and indeed the breaking of established constitutional and legal principles of substantive law, all in order to let Mr. Eisen act as the self-appointed champion of the rights of six million class members scattered throughout the United States and the free world.

Now, Rule 23 was utilized to order substantive law in this case by the District Court, we submit, on the three points of notice which was woefully inadequate under the rule and under the constitution as Mr. Milburn has said.

Secondly, by the creation of the fluid recovery device for the class as a whole; thirdly, by the preliminary hearing on the merits followed by an order that the defendants pay forthwith without recovery, 90% of the cost of communicating with the class.

And these radical departures from substantive law were decreed by the District Court, because otherwise, the action was plainly unmanageable as a class action, as plaintiff’s counsel conceded at 196 of the appendix, when he urged a fluid recovery, because he said that if each of the six million class members had to present his own personal claim for damages, the class indeed would not be manageable.

Now, we submit, Your Honors that it’s really not at all significant that class actions had their origins in equity.

They’re still procedural devices and that is the whole thrust of Rule 23.

Its purpose as can be divined from its face, and as appears from the notes of the revisers, which are printed at pages 18 in following of the supplementary appendix, was that Rule 23 was designed to provide a means of bringing together in a single forum, existing claims, large or small, of actual individual plaintiffs for the purpose of achieving judicial economy and efficiency, and uniformity of decision, where it is possible to do so without sacrificing procedural fairness.

This rule, I submit Your Honors, confers no substantive rights on any litigant.

The intended beneficiaries of this rule are the courts.

The purpose is to avoid the multiple litigation of claims which otherwise would be litigated in different forums.

The purpose is to assist the judiciary and incidentally to reduce its case load.

There is nothing in Rule 23 or in its history about facilitating retribution for wrongdoers, alleged wrongdoers.

William Eldred Jackson:

There is nothing in the rule that tilts the scales for or against plaintiffs or defendants, as is assumed by some commentators and was assumed by the District Court.

Mr. Fine’s discourse on flexible remedies and his citation this morning of the Borak case as an example of the creativeness of the Federal judiciary in not letting wrongs go unpunished, rather misses the point, because all of his cases, including the Borak case didn’t each — reach the question of creating a flexible or inventive remedy for ill-gotten gains, until after liability had been determined on the merits.

And those cases are not properly considerable in determining at the outset of a litigation whether the suit should be permitted to be maintained as a class action or not.

The rule of course, as this Court well knows, was promulgated under the Rules Enabling Act, which provides in very specific terms that such rules may not, shall not abridge in large or modify any substantive right and shall preserve the right to trial by jury.

Now, in the pending of substantive law as to notice requirements, in that area I’d like to add a few words to what Mr. Milburn has already said.

Mr. Fine has attempted to avoid the notice problems, indeed the manageability problems by suggesting that this case could well be a (b) (1) or a (b) (2) case, rather than a (b) (3) case.

Well, I think it’s significant that all judges who have considered this case, including Judge Tyler have agreed that this can only be regarded as a (b) (3) case.

Judge Tyler certainly found to this effect in his first opinion in 1966 at 95 of the appendix, in which he said that notice was required by the rule, and the rule of course requires notice in (b) (3) actions.

Beyond that, Mr. Fine seeks to put this case into the (b) (1) or (b) (2) category by arguing that it’s really an injunctive case.

Well let’s look at that.

The injunction, the injunctive claims, claim for injunctive relief is appended to a claim for money damages, and what is sought to be enjoined by this complaint is the odd-lot differential which was established in 1951 and permitted by the SEC.

Now, since that time that differential has been twice changed, first, in 1966 at the express direction of the SEC to the New York Stock Exchange, and then later in 1972 by a rule of the exchange itself.

So it is evident I think, that the claim for injunctive relief in the complaint is now moot.

In any event, Judge Tyler in basing his estimate of damage claims in this case, for the period 1962 to 1966, did so by comparison with the 1966 rate as the proper rate.

So that it seems to us that the suggestion of this late date, that this is an injunctive case, flies in the face of the facts and in view of the obvious problems which this case creates for itself, because it’s essentially a money damage case.

Let me turn now to the —

Potter Stewart:

Sorry Mr. Jackson, now there not some Federal Court decisions that have said that if a case is in fact for money damages and for an injunction that notice need not be given, where we told that by your brother at the bar here?

William Eldred Jackson:

I believe he intimated that that was the case.

I don’t know of any such case.

I don’t think that that result could be constitutionally defended if there were truly adversarial situations, such as there is here, in which a large class of consumers seeks to in effect to recover against the supplier.

Potter Stewart:

Your view would be that the plaintiff would have to forgo his money damage claim if —

William Eldred Jackson:

Or give the notice.

Potter Stewart:

— or give the notice.

William Eldred Jackson:

Yes, Your Honor, that’s right.

Turning to the next invention of substantive law which we believe to be completely unjustified by Rule 23 and its true purposes, I come to the question of the so-called fluid recovery for the class as a whole.

Now of course it’s a fundamental principle of our law that money damages are recoverable only by persons who are injured by illegal conduct who can prove damages flowing from such conduct.

And this principle is of course enacted in the Section 4 of the Clayton Act, which is here involved, any person injured in his business and property, and so on.

And the same principle of compensatory recovery is recognized in the line of cases which have construed Section 6 of the Exchange Act which is here alleged to be the basis for the exchanges’ liability.

But, the plaintiff has conceded that this case could not proceed as a class action if this fundamental principle of substantive law were to be observed, if all class members were required to prove their damages, and it was on this basis in order to save the class action at all costs that the District Court ruled that it would make an award of damages to the class as a whole, that class members could file claims and prove their damages and if they did so, they could recover damages, but for the great bulk of the class as a whole, the differential would be reduced in the future until the total award was exhausted.

Well now, we submit, Your Honors, that there is no such thing as a class as a whole.

William Eldred Jackson:

A class is not an entity which is entitled to collect damages in its own right.

A class is a collection of claimants, and that we think is the teaching of this Court’s decision in Snyder versus Harris at 394 U.S.

An award of damages to the class as whole by reduction of the differential in the future would do two things.

First, it would benefit future purchasers and sellers of odd-lots who are not purchasers and sellers in 1962 to 1966, and thus not members of the class and thus not persons who are injured by any of the defendant’s allegedly illegal conduct.

And secondly, such a device would not compensate past traders who may not trade in the future.

And furthermore, this device except as to those few class members who might file claims were denied to the defendants of their constitutional right to a jury trial on the damaged issues and I refer to this Court’s case decision in Curtis against Loether of last week.

In addition, what the District Court proposed here by way of a rate reduction in the future would plainly usurp the exclusive jurisdiction of the SEC under the Exchange Act.

Courts have no power to fix odd-lot rates in the first instance under the Congressional scheme of regulation of exchanges expressed in the Exchange Act.

That function is confided to the SEC and the statute enacts standards which must be applied for rate making under its mandate.

And the court’s injection of itself into this area of rate making is contrary to the long line of decisions of this Court which forbid judicial intrusion into areas reserved by statute for agency expertise.

Finally, in the catalog of substantive law changes effected in the name of Rule 23, we come to the preliminary hearing on the merits, and the resulting order that the defendants should pay 90% of the cost of giving notice.

This of course, we believe to be a clear violation of the defendants Fifth Amendment rights to due process and their Seventh Amendment rights to a jury trial.

William J. Brennan, Jr.:

I suppose, Mr. Jackson you’d make that argument if the percentages were reversed?

William Eldred Jackson:


Any order to pay any part of the cost, yes, Your Honor.

William H. Rehnquist:

Well, Mr. Jackson, how about the situation where you want to take someone’s deposition out of town and your opponent comes in and says “We just can’t, we’re poor.

We can’t afford.”

Now frequently, a court will, as a condition to allowing a deposition that they will require the defendant to advance the travel cost to be paid by plaintiff’s attorney’s fees, is that so different from this?

William Eldred Jackson:

I think it is, Your Honor.

In the first place, this is not a poor man’s case, even though Mr. Eisen is not willing to pay the cost of notice.

After all, he is an investor in odd-lots of stock on the exchange.

But certainly, the analogy to the in forma pauperis case is not implied.

I’m quite aware that on occasion, courts do order the opposite party to advance certain costs, but those I don’t believe that this practice is generally resorted to where it’s apparent that the costs can never be recovered, as is the case here.

We have a bill of cost in the Court of Appeals of some $11,000.00 which will never be recovered.

And I don’t think that it’s possible to say as Mr. Fine does, well this is no worse than discovery costs.

Everybody realizes that this is an incident of litigation.

I agree that in a litigation, every party has to pay his own cost of discovery, whether it’s five million for TWA, or what, but that’s quite different from compelling a party to pay his adversary’s cost, the cost of financing the litigation against him, and these costs of giving notice are those which should be borne by the plaintiff, because he has elected to represent this class.

In order to be an adequate representative, he surely has to communicate with them.

That is his expense, and there certainly is no warrant for putting all that expense on the defendants.

William H. Rehnquist:

I suppose he can avoid that cost by simply electing to proceed individually?

William Eldred Jackson:

There’s nothing to prevent that.

He can proceed individually.

In times gone by when there was not such an allure for class actions, people did proceed individually as Test cases, where there was some substantial principle to be vindicated, there’s nothing to prevent that here.

Furthermore, he has the prospect of treble damages, and more than that his legal fees will be paid for, because they’re not limited under the case law by the amount of his recovery.

Potter Stewart:

If he wins.

William Eldred Jackson:

If he wins, yes Your Honor, only if he wins.

If he loses, he takes the chance of every litigant.

Warren E. Burger:

I suppose when one of the litigants asks to take a deposition in a distant place faced with the situation that I understood Mr. Justice Rehnquist referred to, he is asking to use the court’s machinery, and that’s a distinction, the defendants here, the odd-lot traders are asking the court to do anything?

William Eldred Jackson:

That’s right Mr. Chief Justice.

They are not.

They are asking to be let alone.

Mr. Fine argued, rather eloquently I thought, that the exchange should be made to pay all of the costs, because it failed to protect investors.

Well now, he’s trying to uphold the decision of Judge Tyler, but Judge Tyler didn’t find any such thing as that, nor is there any SEC determination that the exchange failed to protect the investors.

Indeed, the very differential complaint of here was permitted to go into effect by the SEC in 1951, and in 1966, it was changed at the direction of the SEC.

Mr. Fine has also attempted to justify settling the cost of notice on the exchange alone, by analogizing the case to those involving corporations where Judge Medina rightly said “This may be a situation where the plaintiffs don’t have to pay the cost of notice, where they’re shareholders in the corporation.”

Well it’s perfectly obvious I think that there is no proper analogy between shareholders of a corporation who own the corporation, and customers of member firms of the exchange.

Now, the final —

Byron R. White:

Mr. Jackson, I take it that even if there isn’t a proper class of six million, if the plaintiff had been willing to put up costs of notice and accept the job of giving notice to two million identifiable people, what should have kept that class action from going forward, if the plaintiff had been willing to give notice and pay for it?

William Eldred Jackson:

The cost of individual notice to the readily identifiable members of the class?

I should say Your Honor, if that were the case, that notice would not be an obstacle to the class as continuing.

Byron R. White:

What would’ve been?

William Eldred Jackson:

Well, I think the question of manageability, Your Honor.

Byron R. White:

Still manageability?

William Eldred Jackson:

Oh! Yes.

Consider the problem is posed by very large class actions where the alleged class is enormous, as is true here, and where each individual member of that class possesses a very small claim.

That is this case and that is the case which is very difficult to manage.

Why is that, because the claims are so small.

In this case the District Court estimated that the average claim when trebled would range from $3.00 or so to $20.00.

That’s the average that the range of the averages after trebling.

As against that, the cost of administration would be very substantial.

William Eldred Jackson:

The District Court said $500,000.00, that was several years ago before the effects of recent inflation.

Now, in that kind of a situation, they’re bound to be problems of manageability even beyond the inherent problem of whether you’re going to turn courthouses into coliseums, as the Second Circuit has said, in order to administer two million claims.

The testimony of Deputy Clerk Murphy in the record here, as to the experience of what that court and its clerk’s office went through in the drug cases where there was a settlement, not a litigation, will show I think this Court some of the inherent problems of manageability that —

Byron R. White:

Well, what is so inherently difficult, let’s just take a name out of the two million, now what’s so inherently difficult about figuring out what that one person is claim is, or in deciding it?

William Eldred Jackson:

Well, as Mr. Milburn has stated —

Byron R. White:

There isn’t any formula?

William Eldred Jackson:

There’s no formula.

Now, Judge Tyler did assume for the purposes of estimating the damaged claims, and only for the purpose of estimating, 5%, 5% overcharge and it was on that basis that he reached the outlandish figures that he did.

That was not based on evidence.

It cannot be based on evidence because as Mr. Milburn said, there is such a diversity of orders.

There is such a diversity of expense involved in executing diverse orders that no simple formula of excess is possible.

In each case, you have to see what kind of an order the man put in, how long it took to execute it, and consider all the other factors there involved.

This case is not susceptible of a simple formula, as has been the case in other situations.

William H. Rehnquist:

So even if you find that there was an antitrust violation, the damage formulation might be a matter of difference in each individual case?

William Eldred Jackson:

it would require individual claims, and that’s another reason why it’s unmanageable.

Thurgood Marshall:

When you come to see in court, these people don’t have time to come to court, do they?

William Eldred Jackson:

No, Your Honor, they don’t have to come in person, but they do have to communicate with the court and with the clerk’s office and we know the difficulties from other situations.

The mystification that these class members have when they receive a notice, they call it the clerk as Deputy Clerk Murphy testified and said “What’s it mean?

Explain it to us.”

And some of them sometime it’s called —

Thurgood Marshall:

They can explain it for that, that’s normal court work, (Inaudible)

William Eldred Jackson:

Well —

Thurgood Marshall:

I’m just wondering whether you are pushing this manageability point too far by saying that the court building has to be used.

They could set up a master or somebody to work this out outside of the court building, outside of New York City, out in Westchester, couldn’t they?

William Eldred Jackson:

Yes, of course Your Honor.

It’s not a question of —

Thurgood Marshall:

Where the computers are, the IBM place out there?

William Eldred Jackson:

Not a question of the physical space in the courtroom, but —

Thurgood Marshall:

Oh, that was the only court —

William Eldred Jackson:

— but the court’s facilities and its auspices and its personnel.

Thurgood Marshall:


Warren E. Burger:

Mr. Fine, you have about eight minutes left.

Aaron M. Fine:

Thank you.

Mr. Chief Justice, and may it please the Court.

First, with respect to the formula at page A212 of the appendix, the District Court opinion states “The defendants consistently have stressed the number of variations and the type of odd-lot transactions, implying that this would necessitate a separate calculation of damage for each individual transaction.”

Although originally influenced by this argument in light of the availability of such information and records discussed above, I now reject it.

As the Court of Appeals has pointed out moreover, the defendants make the same charge to all buyers and sellers no matter what the type of transaction.

In other words, the defendants lived by a formula so it’s more than likely that the damages can be assessed by a formula.

Byron R. White:

Well, more than likely, but he didn’t decide what the formula was?

Aaron M. Fine:


Byron R. White:

I couldn’t find anything on the A11 or A212 that would —

Aaron M. Fine:

All that we’re suggesting is that —

Byron R. White:

— that would help you make out two million checks.

Aaron M. Fine:

— that in light of the comments of Judge Tyler, it’s more than likely that this case will be manageable pursuant to a formula.

And if you —

William J. Brennan, Jr.:

Well you don’t suggest then that he’s already devised a formula?

Aaron M. Fine:

No, he hasn’t devised one, because we have to go through the trial.

William J. Brennan, Jr.:

Oh! I misunderstood you earlier —

Aaron M. Fine:

No, but we have to go through the trial on the question of damages to find out exactly what the overcharge was.

What we’re saying is, it would be applied across the board to every single transaction under Judge Tyler’s reasoning.

Warren E. Burger:

You think now that the evidence would validate that conception?

Aaron M. Fine:

That’s right, and if it isn’t clear that’s certainly something that should be made clear by the District Court and it could be made clear.

Warren E. Burger:

There’s no evidence on the subject one way or the other right now, is there really?

Aaron M. Fine:

Well, I think the fact that he has found that common question predominate, and this is one of the common questions that he thought predominated, and the basis that he’s used for it is sufficient on which to proceed at this time.

Warren E. Burger:

You mean in the mini-hearing so-called?

Aaron M. Fine:

I think this was before the mini-hearing.

Warren E. Burger:

On what evidence did he rely then?

Aaron M. Fine:

On the basis of the SEC special study where they pointed out that exactly the same rates have been charged.

That all the members of the class including those who would otherwise prefer to abide by the status quo will be helped if the rates are found to be excessive.

If the rates are found to be excessive, they’ll be found to be excessive for everyone who is subjected to them in the past, and hopefully if we are right that the Ebasco (ph) study means there’s still some cushion or fat in the rates for those in the future.

Warren E. Burger:

Could the SEC deal with this in the general area of the injunctive relief that was sought?

Aaron M. Fine:

No, Your Honor, they did not.

Now, secondly Mr. Jackson said that we change the substantive law by seeking judgment for the class as a whole.

Well, judgments for class as a whole are routinely entered in Securities Act cases.

In the Gerstle against Gamble-Skogmo case, there was a judgment for the whole class affirmed by the Second Circuit.

The question then is, after the judgment has been entered, who can make claims about against the fund and what should be done with any residue?

That is something for later determination as I argued before.

On the question of practicability governing the entire notice rule, our reply brief refers to an article by Professor Kathleen and other authorities who support this kind of notice in this kind of case.

In fact, there is no commentary on the notice ordered by Judge Tyler, no scholarly commentary that I know of, which says that the notice is insufficient.

Indeed, Judge Medina said that under certain circumstances, a publication may amount to the best notice practicable, particularly where requirement of a different form of notice would prevent potentially meritorious claims from being litigated.

That’s the case here.

I think it’s particularly ironic that the defendants say they can get the names and addresses from the tapes, but can’t get anything else.

And the cost that they’re volunteering to undertake of generating the names and addresses from the tapes is more, according to their witnesses, than the cost that they would have to pay if they went in accordance with Judge Tyler’s notice.

In other words, they’re willing to pay more so that we can be put out of court.

Now, I do think that public respect for the law must be considered, and just because these are small claimants as distinguished for example from the three million shareholders of AT&T, who undoubtedly if they were a proxy violation affecting them, could come into court and presumably use the class action devise to protect their interests.

I think that the small claimant’s interests have to be satisfied just like those of the large claimants, or the claims of large individual corporations that can afford to come in and sue for violation of the antitrust laws.

Now, I refer by analogy to what Mr. Justice Stewart said in U.S. versus Students Challenging Regulatory Agency Procedures that to deny standing, which is the analogy I draw here, would mean that the most injurious and widespread governmental actions could be questioned by nobody, we cannot accept that conclusion.

Similarly here, we can’t accept the conclusion that the more widespread of violation of the antitrust or securities laws, and the smaller the resources of the victims, the less effective the remedy.

I think the defendants would like to be able to limit all classes to the 19th Century class approved by this Court in Smith against Swormstedt, which was described by the Court as consisting of traveling of the worn-out Methodist preachers, but in this day of mass frauds where we have the National Student Marketing case, and the Equity Funding case, and the Penn Central case, if you affirm the Second Circuit here, you may very well put tremendous obstacles in the ways of cases like that.

Potter Stewart:

Mr. Fine, throughout your brief, there was mention of the fact that the statute to have limitations may run as to many members of this class, and that therefore, that affects the necessity of notice, I gather?

I’m not sure I understood that.

Aaron M. Fine:

I think, Your Honor, in light of your decision in the Utah case —

Potter Stewart:

Doesn’t Utah take care of that problem?

Aaron M. Fine:

— we have two years left.

Potter Stewart:

I thought so.

Aaron M. Fine:

It was in and out of class status here, and I think we can tackle of the different periods of time, we have about two years —

Potter Stewart:

The American Pipe takes care of that argument?

Aaron M. Fine:

I think so.

Potter Stewart:

Thank you.

Warren E. Burger:

Thank you gentlemen.

Warren E. Burger:

The case is submitted.