Eisen v. Carlisle & Jacquelin Reply Brief for the Petitioner

    IN' T H E

Supreme Court of the United States
October Term , 1973.

No. 73 -203 .

M O R T O N  E ISE N , on Behalf of Himself and All Other Pur­
chasers and Sellers of “ O dd-Lots” on the New York Stock 
Exchange Similarly Situated,

Petitioner.
v.

C A R L IS L E  & JA C Q U E L IN  and D eC O P P E T  & D O R E M U S, 
Each Limited Partnerships Under New York Partnership 
Law, Article 8 and N E W  Y O R K  STO C K  E X C H A N G E , 
an Unincorporated Association.

On Writ of Certiorari to the United States Court of Appeals 
for the Second Circuit.

REPLY BRIEF FOR THE PETITIONER.

M ordeoai R osenfeld,
233 Broadway,

New York, New York. 10007

H arold E . K ohn ,
A aron M. F ine ,
A llen D. B lack ,
A rthur  M. K aplan ,

1700 Market Street,
Philadelphia, Pennsylvania. 19103

Attorneys for Petitioner.

International Printing Co., 711 So. 50th St., Phila., Pa. 19143 — Tel. (215) 727-8711



INDEX.

I. Introduction ...................................................................  1

II. No U ndue D ifficulties A re L ikely to Be E n­
countered in Management of the Class A ction .. 7

III. E ntry of Judgment for the A ggregate Damages of 
the Class as a W hole and D isposition of A ny 
U nclaimed R esidue U nder the Equity Powers of 
the Court W ould Not Impair Substantive R ights
of the Defendants.........................................................  12

IV. T he R ight to Jury Trial Does Not Pose Diffi­
culties of Managem ent ................................................ 18

V. T he Notice Prescribed by the D istrict Court 
Meets the Standards of Due Process and R ule 23 21

VI. Requiring Defendants to Share the Cost of 
Notice Does Not V iolate T heir Fifth or Seventh 
A mendment R ights ...........................................................  24

V II. T he D istrict Court’s Orders Sustaining the Class
A ction W ere Not A ppealable.......................................  26

A. There Was No Appealability as of R ig h t .................  26
B. The Court of Appeals Had N o Retained Jurisdiction 29

V III. T he D istrict Court’s Orders D id Not V iolate the
Enabling A ct or Principles of Fa irn ess ................ 29

IX. T he Interests of Justice R equire Reversal of the
Decision of the Court of A ppeals .................................   32

Page



TABLE OF CASES CITED.

American Pipe and Construction Co. v. Utah, —  U. S. — ,4 2
U. S. L. W . 4155 (January 16, 1974) ........................... 12, 26, 40

Baird v. Franklin, 141 F. 2d 238 (2d Cir.), cert, denied, 323
U. S. 737 (1944) .......................................................................  16

Bermudez v. United States Department of Agriculture, —  F. 2d 
— , 17 FR  Serv. 2d 1153 (D . C. C ir.), cert, denied, 42
U. S. L. W . 3348 (December 10, 1973) .............................. 7, 40

Bigelow v. R K O  Radio Pictures, Inc., 327 U. S. 251 (1946) . .20,41 
Bivens v. Six Unknown Agents of the Federal Bureau of Nar­

cotics, 403 U. S. 388 (1971) ..................................................  16
Blue Cross of Va. v. Commonwealth of Va., 176 S. E. 2d 439

(Va. Sup. Ct. 1970) ....................... .......................................... 6
Brown v. Board of Education, 347 U. S. 483 ( 1 9 5 4 ) ...............  39
City of Philadelphia v. American Oil Company, 53 F. R. D. 45

(D . N. J. 1971) ........................................................................ 10,36
Cohen v. Beneficial Industrial Loan Carp., 337 U. S. 541

(1949) ......................................................  27,28
Crane Co. v. American Standard, Inc., F. 2d , CCH Fed.

Sec. L. Rep. ]j 94,327 (2d Cir., December 19, 1 9 7 3 ) ........  17
Daar v. Yellow Cab Co., 67 Cal. 2d 695, 433 P, 2d 732 (1967) 12
Dickinson v. Burnham, 197 F. 2d 973 (2d C ir.), cert, denied,

344 U. S. 875 (1952) ...............................................................  9 ,19
Dickinson v. Petroleum Conversion Corporation, 338 U. S. 507

(1950) .......................................................................................... 14,19
Dolgow v. Anderson, 43 F. R. D. 472 (E . D. N. Y. 1968) , .  .34, 35 
Eastern Railroad Presidents Conference v. Noerr Motor

Freight, 365 U. S. 127 (1961) ............................................... 36
Epstein v. Weiss, 50 F. R. D. 387 (E . D. La. 1970) ............... 9
Escott v. BarChris, 283 F. Supp. 643 (S . D. N. Y. 1968) . . .  31
Feder v. Harrington, 52 F. R. D. 178 (S. D. N. Y. 1970) . . .  9, 19 
Federal Power Commission v. Interstate Natural Gas Com­

pany, 336 U. S. 577 (1949) .....................................................15,18
Feit v. Leasco Data Processing, 332 F. Supp. 544 (E . D. N. Y.

1971) ........................................  31,34
Fischer v. Wolfinbarger, 55 F. R. D. 129 (W . D. Ky., 1971) . 23

Page



TABLE OF CASES CITED (Continued).

Page
Gardner v. Awards Marketing Corp., 55 F. R. D. 460 (D.

Utah, 1972) ........................................................................  23
Gerstle v. Gamble-Skogmo, Inc., 478 F. 2d 1281 (2d Cir.

1973) .......................................... ............................. 9 ,12,31
Gould v. American-Hawaiian Steamship Company, 362 F.

Supp. 771 (D . Del. 1973) ...................................................9, 12, 31
Griggs v. Duke Power Company, 401 U. S. 424 (1971) ........... 40
Hanna v. Plumer, 380 U. S. 460 (1 9 6 5 ) ......................................  30
Hanover Shoe Co. v. United Shoe Machinery, 392 U. S. 481

(1968) .........................................................................................  41
Hansberry v. Lee, 311 U. S. 32 (1940) ....................................19,24
Harkless v. Sweeny Independent School District, 278 F. Supp.

632, (S . D. Tex. 1968), rev’d on other grounds, 427 F. 2d 
319 (5th Cir. 1970), cert, denied, 400 U. S. 991 (1971) . .  26

Hodgson v. Wheaton Glass Co., 446 F. 2d 527 (3d Cir. 1971) 14,16 
Hohmann v. Packard Instrument Company, 399 F. 2d 711 (7th

Cir. 1968) ................................................................................... 19
IBM  Corp. v. United States, 1973-2 CCH Trade Cases f  74,833

(2d Cir. 1973) ................. ............ ........................... ................  28
Independent Broker-Dealers’ Trade Association v. SEC, 442

F. 2d 132 (D . C. Cir.), cert, denied, 404 U. S. 828 (1971) 17
In Re Antibiotic Antitrust Actions, 333 F. Supp. 278 (S . D.

N. Y . 1971), mandamus denied sub nomine Pfizer, Inc. v.
Lord, 449 F. 2d 119 (2d Cir. 1971) .......................... .8 ,9 ,19 , 21

J. I. Case v. Borak, 377 U. S. 426 (1 9 6 4 ) .................................... 16,17
Kaplan v. Lehman Bros., 371 F. 2d 409 (7th Cir. 1967), cert.

denied, 389 U. S. 954 .................................... ...........................  5
Kohn v. American Metal Climax, 322 F. Supp. 1331 (E . D.

Pa., 1971), aff’d in part rev’d in part 458 F. 2d 255 (3d
Cir. 1972), cert, denied 409 U. S. 874 (1973) ................... 31, 36

Lamb v. United Security Life Company, 59 F. R. D. 44 (S. D.
Iowa, 1973) .................................... ..................................... .. 23

Lindy Bros. Builders, Inc. v. American Radiator & Standard 
Sanitary Corp., 341 F. Supp. 1077 (E . D. Pa. 1972), rev’d 
487 F. 2d 161 (3d Cir. 1973) ................................................  36



TABLE OF GASES CITED (Continued).

• i? ,u Page
Market Street Railway Co. v. Railway Commission, 171 P. 2d

875 (1966) ............. ............ ........... ............................... ............  15
Maryland & Virginia ..Milk Producers Association V-, United

States, 362 U. S. 458 (1960) . .................................. .. 5
Metro Homes, Inc. v. City of Warren, 19 Mich. App. 664 

(1969), leave to appeal denied, 383 Mich. 761, cert, denied,
398 U. S. 959 (1970) ............................................ . . . . . ...........12

Mills v. Electric Auto-Lite Co., 396 U. S. 375 (1970) ."............17, 37
Mississippi Publishing Corporation v. Murhpree, 326 U. S. 438

(1946) . , ......................................................................................  29
Panhandle Eastern Pipe Line Co. v. Federal Power Commis­

sion, 179 F. 2d 896 (8th Cir. 1950) ....................................11,15
Papilsky v. Berndt, CCH Fed. Sec. L. Rep. f  93,592 (2d Cir.

1972) .....................................................................    30
Partain v. First National Bank of Montgomery, 59 F. R. D. 56

(M . D. Ala. 1973) ................................................................9 ,10 ,19
PB W  Stock Exchange v. SEC, 485 F. 2d 718 (3d Cir. 1973) 18
Pfizer, Inc. v. Lord, 449 F. 2d 119 (2d Cir. 1971) .................  28
Philadelphia Electric Co. v. Anaconda American Brass Co.,

43 F. R. D. 452 (E. D. Pa. 1968) ........................................  36
Porter v. Warner Holding Co., 328 U. S. 395 (1 9 4 6 ) ...............  14
Ralston v. Volkswagenwerk A. G., 1973 CCH Trade Cases

f  74,772 (W . D. Mo. 1973) ................................................... 40
Republic Natural Gas Company v. State of Oklahoma, 334 U. S.

62 (1948) ....................................................................................  28
Robinson v. Loriliard Corporation, 319 F. Supp. 835 (M . D.

N. C. 1970), aff’d in part rev’d in part 444 F. 2d 791 
(4th Cir.), cert, denied 404 U. S. 1006 (1971) . . . . . .  31

Schechtman v. Wolfson, 244 F. 2d 537 (2d Cir. 1957) ........... 4
SEC v. Texas Gulf Sulphur Co., 312 F. Supp. 77 (S . D. N. Y.

1970), aff’d in part, rev’d in part, 446 F. 2d 1301 (2d 
Cir.), cert, denied, 404 U. S. 1004 (1971) . . . ___ . . . . . .  16



Sibbach v. Wilson & Co., 312 U. S. 1 (1941) ...........................  30
Siegel v. Chicken Delight, 311 F. Supp. 847 (N . D. Cal. 1970), 

aff’d in part rev’d in part 448 F. 2d 43 (9th Cir. 1971),
cert, denied 405 U. S. 955 (1972) ....................................  31

Silver v. New York Stock Exchange, 373 U. S. 341 (1963) . .  4, 17
Smith v. Swormstedt, 57 U. S. 288 (1853) ............................... 32
Snyder v. Harris, 394 U. S. 332 (1969) ....................................  13
Stamps v. Detroit Edison Co., 365 F. Supp. 87 (E . D. Mich.

1973) ............................................................................................. 32
State of West Virginia v. Chas. Pfizer & Co., Inc., 440 F. 2d 

1079 (2d Cir.), cert, denied sub nomine, Cotier Drugs,
Inc. v. Chas. Pfizer & Co., 404 U. S. 871 (1971) ............... 15

Supreme Tribe of Ben Hur v. Cauble, 255 U. S. 356 (1921) . .  41
Swift & Co. Packers v. Compania Colombiana Del Caribe,

S. A., 339 U. S. 684 (1950) .........    28
Taylor v. Salmon, 4 Myl. & Gr. 134 (1838) ..............................  42
Telex Corporation v. International Business Machines Corp.,

1973 CCH Trade Cases 74,774 (N . D. Okla., 1973) . . .  31
Thill Securities Corp. v. New York Stock Exchange, 433 

F. 2d 264 (7th Cir. 1970), cert, denied, 401 U. S. 994
(1971) ......................................................................................... 4,18

Thill Securities Corp. v. New York Stock Exchange, 469 F. 2d
14 (7th Cir. 1972) .................................................................... 27

Turner v. Fouche, 396 U. S. 346 (1970) ....................................  40
Union Carbide and Carbon Corporation v. Nisley, 300 F. 2d 

561 (10th Cir.), cert, denied sub nomine Wade v. Union 
Carbide and Carbon Corporation, 371 U. S. 801 (1962) . .  9,19 

United Mine Workers v. Pennington, 381 U. S. 657 (1965 ) 5
United States v. American Oil Company, 456 F. 2d 1043 (3d 

Cir.), cert, denied sub nomine American Oil Company v.
City of Philadelphia, 409 U. S. 893 (1972) .......................  31

United States v. Borden Co., 308 U. S. 188 (1 9 3 9 ) ............. 4
United States v. Johnson, 73 U. S. [6 Wall.] 792 (1868) . . .  29
United States v. Klein, 106 F. 2d 213 (3d Cir.), cert, denied,

308 U. S. 618 (1939) .............................................................  16
United States v. Socony-Vacuum Oil Co., 310 U. S. 150

(1940)

TABLE OF CASES CITED (Continued).

Page

4



TABLE OF CASES CITED (Continued).

Page

University of Southern California v. Cost of Living Council,
472 F. 2d 1065 (Temp. Emerg. Ct. App. 1972) ...............  14

Van Gemmert v. Boeing, 259 F. Supp. 125 (S. D. N. Y.
1966) .............................................................................................  22

Wainwright v. Kraftco Corp., 54 F. R. D. 532 (N . D. Ga.,
1972) ................      23

Weeks v. Bareco Oil Co., 125 F. 2d 84 (7th Cir. 1941) ........  32
Wolfson v. Solomon, 54 F. R. D. 584 (S . D. N. Y . 1972) . .  8
Zahn v. International Paper Company, —  U. S. — , 42 U. S.

L. W . 4087 (December 17, 1973) ........................................  13
Zenith Corp. v. Hazeltine Research, Inc., 395 U. S. 100

(1969) ....................................................................................  20

MISCELLANEOUS.

Page

Chafee, Some Problems of Equity (1950) ..................... 14,20,23,42
F. R. C. P. Rule 2 3 ................................ ..................................... 7, et seq.
Clayton Act, § 4 ................................................................................  14
Damage Distribution in Class Actions: The Cy Pres Remedy,

39 U. Chi. L. Rev. 448 (1972) ..............................................  16
Dole, The Settlement of Class Actions for Damages, 71 Colum.

L. Rev. 971 (1971) .................................................................  30
Federal Rules of Civil Procedure, Rule 5 6 .................................... 32
Kaplan, A  Prefatory Note, 10 B. C. Ind. & Comm. L. Rev.

497 (1969) ..................................................................... ............  33
Kaplan, Continuing Works of the Civil Committee; 1966 

Amendments of the Federal Rules of Civil Procedure, 81
Harv. L. Rev. 356 (1967) .......................................... 15,22,24,33

Note, Collateral Attack on the Binding Effect of Class Action
Judgments, 87 Harv. L. Rev. 589 (1974) ...........................  24



MISCELLANEOUS (Continued).
Page

Note, Managing The Large Class Action: Eisen v. Carlisle and
Jacquelin, 87 Harv. L. Rev. 426 (1973) ....................... 15, 20, 24

Proceedings of the Pennsylvania Bar Institute, Harrisburg,
Pa., December 7, 1973: Remarks of Phillip H. Strubing,
Esq.................................................................................. . . . . . 3 7 , 3 8 , 3 9

Rules Enabling Act, 28 U. S. C. § 2072 ....................................  29
Schrag, Christian Science Monitor, February 6, 1974, p. 1 . .  39
Securities and Exchange A ct:

Section 19, 15 U. S. C. § 78s ................................................... 17
Section 25 (a ), 15 U. S. C. § 7 8 y ............................................ 17, 18
Section 27, 15 U. S. C. § 7 8 a a ........................... ....................  17

United States Constitution:
Fifth Amendment ...................................................................  24
Seventh Am endm ent................      24

Weinstein, “ Some Reflections on the ‘Abusiveness’ of Class
Actions”  58 F. R. D. 299 (1973) ........................................  34

28 CFR Chap. 1 § 50.6 (1968) .........................................................  6
28 U. S. C. § 2042 ..............................................................................  16



PETITIONER’S REPLY BRIEF.

I.

INTRODUCTION.

Running throughout the defendants’ brief and under­
lying all of their arguments is the suggestion that the 
conduct of the odd-lot dealers in jointly fixing the odd-lot 
differential was regulated by the New York Stock Ex­
change and approved by the SEC (E . g Resp. Br., pp. 
13-16, 21, 76-77, 106). That theme is based on a state of 
the facts that simply does not exist. It is anchored to 
two entirely false premises:

(1) that the Exchange in fact regulated the odd- 
lot differential in the period in suit, through “ settled 
practice” ; and

(2) that both the Exchange and the SEC partici­
pated in the fixing of the odd-lot differential in 1951, 
and found it reasonable.

The facts are (1) that the Exchange did not regulate the 
odd-lot differential in any way whatsoever, either by prac­
tice or by rule; and (2) that neither the SEC nor the 
Exchange investigated or approved the increase in the 
odd-lot differential in 1951.

Defendants’ version of the facts is unsupported by 
evidence. Plaintiff’s version of the facts is fully supported 
not only by the undisturbed findings of the District Court,1 
but also by the findings of the SEC Special Study of the 
Securities Markets (1963).2

1. The Court of Appeals did not reverse the District Court’s 
findings as erroneous, but held only that the findings did not properly 
bear on the issue of allocating the cost of notice.

2. The Report of the Special Study of Securities Markets of the 
Securities and Exchange Commission, H. R. Doc. No. 95, Part 2. 
88th Cong., 1st Sess. (1963) (hereinafter cited as: Special Study) 
was introduced as Plaintiff’s Exhibit 1 at the preliminary hearing 
before the District Court.



2 Petitioner’s Reply Brief

With respect to the claim of Exchange regulation of 
the odd-lot differential, the Special Study found:

1. “ The Exchange has allowed the odd-lot differ­
ential to be established by the odd-lot firms themselves 
rather than by Exchange rule, apparently on the 
theory that a price differential as distinguished from 
a fee or commission is a matter for negotiation be­
tween the odd-lot firms and other member firms.”  
(Special Study, pp. 199-200)

In 1941 the Exchange itself wrote to the SEC:

“ The Exchange has not had, nor does it now 
have, any rules fixing the differential at which odd-lot 
dealers in 100-share unit stocks should deal, since this 
has been and is regarded solely as a matter between 
the odd-lot dealers and the commission houses with 
which they deal. Therefore it is felt that it would be 
inappropriate for the Exchange to take any action 
with respect to either approving or disapproving the 
present proposed change.”  (Special Study, p. 180)

2. “ The New York Stock Exchange apparently is 
the only registered national securities exchange which 
does not attempt to regulate the amount of the odd-lot 
differential.”  (Special Study, p. 181)

3. “ A  duopoly dominating a large and important 
public business would seem a classic case for rate regu­
lation, and the Exchange has clear statutory authority 
to regulate, yet it has failed to exercise its jurisdiction 
and thereby disavowed responsibility. Nor has the 
Commission ever formally exercised its authority 
under sections 11(b) and 19(b) of the Exchange Act



Petitioner’s Reply Brief 3

with respect to the differential or other aspects of 
odd-lot dealer activities.”  (Special Study, p. 200)

4. The Exchange did not approve the 1951 in­
crease. ‘ ‘ The New York Stock Exchange was informally 
advised of the proposal and Exchange officials report­
edly expressed the view that the Exchange had no 
jurisdiction and [therefore] would not oppose the in­
crease.”  (Special Study, p. 181). “ A  1961 memoran­
dum from the Exchange’s Floor Department to the 
Board of Governors noted that, ‘ The records do not 
indicate that the increase was ever considered by the 
Advisory Committee or the Board of Governors of the 
Exchange.’ ”  (Special Study, p. 181, n. 404).

The defendants’ claim that the SEC approved the 
1951 differential increase “ after a two-day hearing”  
(Resp. Br., pp. 15, 76) is likewise utterly false. There 
was no such hearing, and no such approval.

The exhibit which defendants cite to establish the SEC 
“ hearing”  (Preliminary Hearing, Def. Ex. J) shows only 
an informal meeting attended by two members of the 
Commission staff, an assistant to the Commission chair­
man, and the attorney for the two odd-lot dealers. No 
evidence was offered or introduced, and no argument was 
made to the Commission itself. The result of the meeting 
was not SEC approval of the differential as reasonable 
(as defendants would lead the Court to believe), but merely 
a failure to object to the increase, based in large part 
upon the Commission’s expressed doubt that it had juris­
diction to object, Special Study, p. 182.

Not until its letter to the Exchange dated June 16,1966, 
did the SEC take any affirmative action to require the Ex­
change to regulate the odd-lot differential. Then, and only 
then, did the Exchange for the first time undertake such 
regulation.



4 Petitioner ’s Reply Brief

Defendants’ entire argument, based on antitrust im­
munity 3 falls with the fiction that the Exchange and the 
SEC had in fact regulated the odd-lot differential prior to 
1966. In the absence of regulation by rule or by genuine 
and active practice, the immunity issue is governed by this 
Court’s decisions in United States v. Borden Co., 308 U. S. 
188 (1939), and United States v. Socony-Vacuum Oil Co., 
310 U. S. 150, 225-26 (1940),4 5 and not by the cases cited by 
defendants.® In those cases the Exchange had actually 
exercised its regulatory powers, unlike the complete ab­
sence of regulation in Socony, in Borden, and in this case. 
In Borden, this Court held:

“ We are unable to find that such a grant of im­
munity by virtue of the inaction, or limited action, of 
the Secretary has any place in the statutory plan. We 
cannot believe that Congress intended to create ‘ so 
great a breach in historic remedies and sanctions’.”  
308 U. S. at 198.

Moreover, it has been clear since Silver v. New York 
Stock Exchange, 373 U. S. 341 (1963), that even where 
regulation has taken place, self-regulation by the Exchange 
is exempt from the antitrust laws ‘ ‘ only if necessary to 
make the Securities Exchange Act work, and even then only 
to the minimum extent necessary.”  373 U. S. at 357. In 
Thill Securities Corp. v. New York Stock Exchange, 433 
F. 2d 264 (7th Cir. 1970), cert, denied, 401 U. S. 994 (1971), 
the Court denied the Exchange immunity, holding that any

3. Significantly, no defendant pleaded immunity in its answer to 
the Complaint.

4. Cf. Schechtman v. Wolfson, 244 F. 2d 537, 539 (2d Cir 
1957).

5. Resp. Br., pp. 74-75.



“ exemption must be based on a showing of true necessity.”  
433 F. 2d at 269.6

In this case it is inconceivable that an odd-lot differ­
ential artificially inflated by price-fixing is somehow a ‘ ‘ true 
necessity ”  to making the Exchange Act work. Indeed, the 
defendants offer no explanation whatever why an excessive 
differential is needed to make the Act work. They have 
simply claimed immunity, ipsi dixerunt.

In this ease the defendants not only fixed the price at 
which odd-lots were traded on the New York Exchange, but 
as the SEC Special Study found, also conspired to set the 
same differential on the regional exchanges, and coerced 
the Boston Exchange to increase its differential, despite its 
initial unwillingness to do so. Special Study, pp. 181-85.7

Defendants’ statement that they acted “ openly and 
under the scrutiny of the SEC and the Department of 
Justice”  (Resp. Br., p. 21) gives an extraordinarily wrong 
impression, in light of the conclusions of the SEC Special 
Study and the strictures in the letter of Assistant General 
McLaren, upon which defendants rely.8 The Justice De­

6. Thill effectively overrules Kaplan v. Lehman Bros., 371 F. 2d 
409 (7th Cir. 1967), cert, denied, 389 U. S. 954 (Chief Justice W ar­
ren dissenting) upon which defendants rely.

7. By such conduct the defendant odd-lot dealers involved out­
siders on other Exchanges in their price-fixing, thereby relinquishing 
any antitrust immunity they might otherwise have had. Cf. Maryland 
& Virginia Milk Producers Association v. United States, 362 U. S. 
458, 472 (1960 ); United Mine W orkers v. Pennington, 381 U  S 
657, 669 (1965).

8. The letter, in fact, states that:
“ Historically, the odd-lot differential rates have been fixed by 
agreement between Carlisle and DeCoppet, who together have 
put pressure on regional exchanges and others not to deviate 
from them” (Def. Exh. D, p. 2 ).

It also concludes that the defendants’ “ traditional propensity to resist 
technological change”  was a deliberate policy designed to thwart com­
petition (Id. at 3, 4 ). In summary, Mr. McLaren stated that in the 
absence of initiation of “ affirmative Commission action”  to require the 
automation of odd-lot trading, the Department would have to consider 
the “ exercise of antitrust jurisdiction” (Id. 3, 5).

Petitioner’s Reply Brief 5



6 Petitioner’s Reply Brief

partments’ decision in 1969 not to oppose a merger was 
in no way determinative of the rights of Eisen and the class 
as to price fixing during the period from 1962 to 1966.® It 
did not even amount to “ consent”  to the merger (Resp. 
Br., p. 44), nor did it commit the Department itself not to 
take action in the future. See 28 CFR, Chap. 1 § 50.6 
(1968); Blue Cross of Va. v. Commonwealth of Va., 176
S. E. 2d 439 (Va. Sup. Ct. 1970).

Antitrust immunity, in addition, is irrelevant to 
private enforcement of the Exchange Act. The record 
fully supports the District Court’s findings and its conclu­
sion that “ plaintiff and the class he represents are more 
than likely to prevail at trial.”  (A289).

Despite defendants’ extended discussion of “ the sub­
stantive law ’ the District Court’s findings of fact and con­
clusions of law regarding the defendants’ antitrust and 
Exchange Act violations are not properly before the Court 
for review. The Court of Appeals did not reverse those 
findings or conclusions as erroneous, but rather held only 
that the findings did not bear on allocating the cost of notice. 
Moreover, the defendants have never raised the correctness 
of those findings and conclusions as a question presented 
for review, either in this Court or in the Court of Appeals.

Nevertheless, because defendants have repeatedly 
raised the issue in their Brief, the foregoing reply is in 
order. 9

9. Indeed, the McLaren letter confirms that the abuses found by 
the Special Study continued through the remainder of the period in 
suit:

“ To summarize, our recent investigation of the operations 
of Carlisle and DeCoppet confirms the continued applicability 
of the Special Study’s basic analysis and criticism of odd-lot 
dealing methods on the N. Y . S. E.”  {Id. at 5 ).



II.

NO UNDUE DIFFICULTIES ARE LIKELY TO BE 
ENCOUNTERED IN MANAGEMENT OF THE CLASS

ACTION.

A substantial part of the defendants’ brief is devoted 
to an issue that may never arise—“ fluid class recovery”  
as a method of dealing with any residue of damages in­
capable of being refunded to individual class members. 
The District Court’s view of “ fluid class recovery”  was 
necessarily inchoate and tentative, no more than a reference 
to a possible form of ultimate relief and wholly inappro­
priate for review at this early stage of the case.10 By con­
centrating their argument on “ fluid class recovery” , the 
defendants have contrived to misconstrue and exaggerate 
the issue of manageability, ignoring the plain language of 
Rule 23.

An action may be maintained as a class action under 
Rule 23(b)(3) if the Court finds that common questions 
predominate, “ and that a class action is superior to other 
available methods for the fair and efficient adjudication of 
the controversy. The matters pertinent to the findings in­
clude : . . . the difficulties likely to be encountered in the 
management of a class action.”  (Emphasis added). That 
is the only part of Rule 23 which refers to manageability. 
Manageability is thus not an issue as to the 23(b) (1) or (2) 
aspect of this case. See, e.g., Bermudez v. United States 
Department of Agriculture, —- F. 2d 17 FR Serv. 2d 
1153 (D. C. Cir.), cert, denied, 42 U. S. L. W. 3348 (Decem­
ber 10, 1973).

Petitioner's Reply Brief 7

10. The District Court held that " . . .  the fluid class recovery 
might then be appropriate for distribution of the unclaimed re­
mainder.”  (A 217). See also Rule 23(d ) : . . The orders
may be amended as may be desirable from time to time.”



8 Petitioner’s Reply Brief

Moreover, with, respect to the Rule 23(b) (3) aspects of 
the case, “ difficulties in management are of significance 
only if they make the class action a less ‘ fair and efficient’ 
method of adjudication than other available techniques. 
This perspective is particularly important . . . where the 
defendants, after reciting potential manageability prob­
lems, seem to conclude that no remedy is better than an 
imperfect one.”  In Re Antibiotic Antitrust Actions, 333 
F. Supp. 278, 282 (S. D. N. Y. 1971), mandamus denied sub 
nomine Pfizer, Inc. v. Lord, 449 F. 2d 119 (2d Cir. 1971). 
Cf. Wolf son v. Solomon, 54 F. R. I). 584, 592 (S. I). N. Y. 
1972) (“ In fact, the class action is not only a superior 
method, it is often the only feasible one” ). In this case 
defendants assert theoretical manageability problems, not 
in support of an alternative remedy, but to prevent any 
remedy at all. But even such theoretical “ problems”  are 
of far less magnitude than defendants assert.

First, 56 per cent of the class members ’ odd-lot trans­
actions are preserved on computer tapes, along with the 
members’ names and addresses (A185). In addition, as the 
District Court found, damages here can be calculated by 
one formula applicable to every transaction (A211-12 and 
A201). The Court of Appeals did not disturb this finding. 
Accordingly more than half the damages sustained may be 
paid out routinely, simply by applying a formula to the 
tape records, as in the case of the payment of corporate 
dividends to millions of shareholders.

Trial on the underlying common issues—the conspiracy 
to fix excessive odd lot rates and the New York Stock Ex­
change’s failure to regulate such rates—would be no dif­
ferent whether there were a single plaintiff, a class of a 
thousand, or of millions. The trial between the representa­
tive plaintiff and the defendants will dispose not only of 
the underlying questions of liability but also of the measure



Petitioner’s Reply Brief 9

of damages. Dickinson v. Burnham, 197 F. 2d 973, 981 (2d 
Cir.), cert, denied, 314 U. S. 875 (1952); Union Carbide and 
Carbon Corporation v. Nisley, 300 F. 2d 561, 589 (10th Cir.), 
cert, denied sub nomine Wade v. Union Carbide and Carbon 
Corporation, 371 U. S. 801 (1962). See, Epstein v. Weiss, 
50 F. R. D. 387, 393 (E. D. La. 1970); Feder v. Harrington, 
52 F. R. D. 178, 183 (S. D. N. Y. 1970); In Re Antibiotic 
Antitrust Actions, supra; Partain v. First National Bank 
of Montgomery, 59 F. R. D. 56, 59 (M. D. Ala. 1973).

No undue difficulty is likely to be encountered in mak­
ing distribution to those class members whose identities
and transactions are recorded on tape, and whose damages 
can be individually computed by a common formula.

Distribution of damages which can be computed by a 
formula common to the class as a whole is routine in class 
actions. For example, in Gould v. American-IIawiian 
Steamship Company, 362 F. Supp. 771 (D. Del. 1973), a 
class action tried on behalf of a class consisting of several 
thousand minority shareholders, the court found that the 
defendants were liable for proxy violations. The court 
ordered that: “ Judgment shall be entered against said 
defendants in favor of the plaintiff class”  in an amount to 
be paid in accordance with a common formula.11

In a similar situation, the Second Circuit affirmed, as 
modified, an award in favor of a shareholder class in 
Gerstle v. Gamble-Skogmo, Inc,, 478 F. 2d 1281 (2d Cir. 
1973). In both Gould and Gerstle the awards were made in 
favor of the class as a whole, leaving for future determina-

11. The formula used in Gould was as follows: “ $8.25 (the 
amount of the premium per share determined to have been received 
by Litton and Monroe) multiplied by the number of shares in the 
class, and by the 1,050,000 shares owned by Litton and Monroe, and 
divided by 10,632,000 (the number of shares of McLean common 
stock issued and outstanding prior to the merger).”  Gould v. 
American-Hawaiian Steamship Co., D. Del., C. A. No. 3707/3722 
(Order dated October 23, 1973). ’



10 Petitioner’s Reply Brief

tion what should be done with any part of the recovery 
which, for one reason or another, cannot be distributed. 
See also, Partain v. First National Bank of Montgomery, 
supra, 59 F. R. D. at 59.

Both defendants and the Court of Appeals make much 
of a purported concession of plaintiff’s counsel that the 
case is unmanageable absent the fluid class recovery. There 
was no such broad concession. Plaintiff’s counsel had ex­
pressed his concern in the District Court that if each of six 
million class members “ had to present his own personal 
claim for damages, the class, indeed, would not be manage­
able.”  (A196), He recognized “ that it would be impossible 
for each member of the class to expend hours or days comb­
ing his ancient files in order to recover—at best-—ten or 
twenty dollars.”  (A198). In that light, he proposed that 
“ a reduction in the odd-lot differential in the future would 
do substantial justice.”  (A197). Counsel did not concede 
that the action was unmanageable within the meaning of 
Rule 23,12 through use of direct payments based on defend­
ants records. Clearly the “ combing of ancient files”  
would be unnecessary with respect to the more than 
2,000,000 class members whose identities and transactions 
are recorded on tape, and whose damages can be computed 
by the common formula.13

12. Defendants place so much emphasis on this “ concession”  as 
to raise the question v/hether any substance beyond the “ concession” 
supports their assertions of unmanageability.

13. The Amicus Brief of Southern California Edison Company 
urging affirmance of the decision of the Court of Appeals, recognizes 
that in Eisen (in alleged contrast to environmental cases of special 
concern to that Amicus) “ . . . damages are mathematically computa­
ble, assuming liability.”  (Amicus Br., p. 6 ). In City of Philadelphia 
v. American Oil Company, 53 F. R. D. 45, 65 (D . N. J. 1971), cited 
by the defendants (Resp. Br., p. 42) the Court distinguished Eisen 
on the ground that, “ The court in Eisen was able to make specific 
findings with respect to the average odd-lot transaction and average 
odd-lot differential per transaction. . . .  In addition, the court in



Petitioner’s Reply Brief 1 1

The District Court did not hold that the class action 
was unmanageable unless recourse were had to fluid class 
recovery. The court expressly held that individual recovery 
would not be ruled out: ‘ ‘ Individual claims may be satisfied 
to the extent they are filed, but the fluid class recovery 
might then be appropriate for distribution of the unclaimed 
remainder.”  (A217).

The primary concern of the District Court was 
“ whether, if liability were established, a specific amount of 
damages in fact could be determined without having each 
member of the class file an individual claim.”  (A211).

The record sustains, and the decision of the District 
Court does not preclude the direct-payment form of relief, 
commonly used in class actions and analogous situations, 
with respect to more than half of the odd-lot transactions 
during the period in suit.13 14 With respect to the remainder, 
notice will elicit further claims, and the question of what to 
do with any residue is entirely premature.

The prospects of achieving a substantial recovery on 
behalf of the individual class members are thus real enough 
to overcome the concern expressed by the Court of Appeals 
that individual class members would not benefit from any 
recovery. The District Court clearly planned that the 
class members would benefit, though it quite properly did 
not choose a particular distribution program, prior to trial 
on liability and damages.

13. (Cont’d.)
Eisen had at its disposal several detailed and specific documents 
which would be of value in assisting the court in awarding damages 
if liability were found.” (e.g. the Special Study).

14. Refunds were made to more than 1,000,000 ultimate con­
sumers “ with reasonable promptness and without serious controversy 
or criticism”  under the supervision of a special master in Panhandle 
Eastern Pipe Line Co. v. Federal Power Commission, 179 F. 2d 896, 
899 (8th Cir. 1950). The administrative costs were taxed against 
the defendants, and eventually paid in part by the defendants and in 
part from the residue portion of the fund.



1 2 Petitioner’s Reply Brief

III.

ENTRY OP JUDGMENT FOR THE AGGREGATE DAM­
AGES OF THE GLASS AS A WHOLE AND DISPOSI­
TION OF ANY UNCLAIMED RESIDUE UNDER THE 
EQUITY POWERS OF THE COURT WOULD NOT IM­
PAIR SUBSTANTIVE RIGHTS OF THE DEFENDANTS.

Rule 23 requires that the judgment in any class action 
run to the entire class.

Rule 23(c)(3) requires that the judgment describe 
those whom the court finds to be members of the class and 
hence bound by the judgment. In Rule 23(b)(1) or (2) 
actions, the judgment is required to “ include and describe 
those whom the court finds to be members of the class.”  
In Rule 23(b)(3) actions, the judgment is required to “ in­
clude and specify or describe those to whom the notice pro­
vided in subdivision (c)(2) was directed, and who have 
not requested exclusion, and whom the Court finds to be 
members of the class.”  (Emphasis added). Where the 
common questions determined in a (b)(3) action include a 
uniform measure of damages applicable across the board 
to every transaction, and the number of transactions is 
known, an aggregate class judgment is appropriate, as rec­
ognized, for example, in Gould v. American-Hawaiian 
Steamship Company, supra; Gerstle v. Gamble-STiogmo, 
supra; Daar v. Yellow Cab Co., 67 Cal. 695, 433 P. 2d 732 
(1967); and Metro Homes, Inc. v. City of Warren, 19 Mich. 
App. 664 (1969), leave to appeal denied, 383 Mich. 761 
cert, denied, 398 U. S. 959 (1970).

In such circumstances, the entry of a single class 
judgment is consistent with this Court’s recent analysis of 
the 1966 revision of Rule 23 in American Pipe and Con­
struction Co. v. Utah, — U. S. —, 42 U. S. L. W. 4155



Petitioner’s Reply Brief 13

(January 16, 1974). The Court held the Rule, by preclud­
ing one-way interventions in what were previously labelled 
as “ spurious”  class actions, converted them from, mass 
joinder devices, as which they had sometimes been re­
garded, into true class actions in which the class members 
are bound by the judgment whether favorable or adverse.18

In the early history of the class action device at equity, 
the representative plaintiff was regarded as the true surro­
gate of the members of the class, as Professor Chafee has 
shown. Judgment was traditionally entered in favor of 
the representative for the benefit of the class as a whole, 
and what was done with the fund then became his concern 
as trustee for the class, under the supervision of the Court, 
not the concern of the defendants, who had been adjudged 
liable for the full recovery. Chafee recounts how “ repre­
sentative suits involving money claims were adjudicated in 
equity as a matter of course from early times . . . Class 
suits originated in Chancery, . . . and courts were long 
inclined to keep them there. This was not just historical 
nostalgia. A jury might well be bewildered by this queer 
multipartite proceeding. . . . And the old-time machinery 
of the law courts was not well adapted to handling a class 
money judgment. . . .  If the representatives . . . success­
fully collected the judgment, how could a law court compel 15

15. The Court’s reasoning in American Pipe and Construction 
Co. disposes of the defendants’ argument that the prior decisions in 
Snyder v. Harris, 394 U. S. 332 (1969) and Zahn v. International 
Paper Company, —  U. S. — , 42 U. S. L. W . 4087 (December 17, 
1973) preclude entry of judgment in favor of the class as a whole. 
Those decisions rejected attempts to expand federal diversity jurisdic­
tion. They emphasized the continuing importance of the class action 
where federal statutes confer jurisdiction without regard to the amount 
in controversy. As noted in Zahn: “ Of course, Congress has exempted 
major areas of federal question jurisdiction from any jurisdictional 
amount requirements, . . .  the exemption being so widely applicable, 
in fact, that the Court in Snyder v. Harris, 394 U. S., at 341, dis­
counted the impact of its holding in federal [question] cases.” Zahn 
v. International Paper Company, supra, n. 11.



14 Petitioner’s Reply Brief

them to distribute the money among the members of the 
class? No doubt, they held the money under some sort of 
trust, but the job of compelling every trustee to do his 
duty belongs to equity.”  Chafee, S ome P roblems op 
E quity (1950), Ch. VII, pp. 285-86.

In other words, distribution of the fund is the concern 
of the court, not of the defendants. Cf. Hodgson v. Wheaton 
Glass Co., 446 F. 2d 527, 535 (3d Cir. 1971).

This Court employed the same analysis in Dickinson 
v. Petroleum Conversion Corporation, 338 U. S. 507 (1950) 
holding:

“ The court’s reservation of jurisdiction to super­
vise the distribution of the shares of stock and the 
provision for further proceedings to determine the 
individual shares in the aggregate recovery allowed 
did not in any manner affect [defendant] Petroleum’s 
rights. What the court reserved was essentially super­
visory jurisdiction over the distribution among the 
class of the recovery awarded the intervenors as the 
class ’ representatives. ’ ’ 338 U. S. at 515.

Quite apart from the judgment favoring the entire 
class, the court’s general equity powers also extend to re­
quiring the defendants to pay over the aggregate amount of 
the overcharge. Such equity powers may be exercised 
without express provision as an adjunct of a statutory 
scheme. Porter v. Warner Holding Co., 328 U. S. 395 
(1946), a decision which the defendants mention in passing, 
but make no real effort to distinguish (Resp. Br,, p. 45). 
See also, University of Southern California v. Cost of Liv­
ing Council, 472 F. 2d 1065, 1070 (Temp. Emerg. Ct. App. 
1972).

Entry of judgment for the aggregate damages of 
the class as a whole does not deprive the defendants of any



Petitioner’s Reply Brief 15

substantive rights. As the Amicus Brief of the States of 
Alabama, Alaska, et al., points out, entry of judgment in 
favor of a class as a whole is not precluded by any sub­
stantive language of §4 of the Clayton Act. “ . . . [A] 
‘ person . . . injured in his business or property’ is no 
less a person because his name is unknown, and the dam­
ages are no less ‘ actual’ because they have been proved 
by a representative rather than a collection of individ­
uals.”  (Alabama Br., p. 23).16 The disposition of any 
residue by means of fluid recovery would ‘ ‘not modify sub­
stantive rights,”  and is supported by sound precedent. 
Note, Managing The Large Class Action: Eisen v. Carlisle 
and Jacquelin, 87 Harv. L. Rev. 426, 446-451 (1973).

Disposition of an unclaimed residue falls within the 
equity powers of the court. Federal Power Commission v. 
Interstate Natural Gas Company, 336 U. S. 577 (1949); 
Market Street Railway Co. v. Railway Commission, 171 P. 
2d 875 (1966); Panhandle Eastern Pipe Line Co. v. Federal 
Power Commission, supra,. Reduction of the odd-lot charge 
provides one equitable solution. Recourse to the cy pres 
doctrine would provide another. That was the solution ap­
proved by the Second Circuit in State of West Virginia v. 
Chas. Pfizer & Co., Inc., 440 F. 2d 1079 (2d Cir.), cert, denied 
sub nomine, Cotier Drugs, Inc. v. Chas. Pfizer & Co., 404 
IT. S. 871 (1971), where the unclaimed residue was used by

16. The framers of the Rule rejected a requirement that class 
members “ opt-in”  to a class action, adopting instead the view that 
the anonymity of class members who do not opt-out does not affect 
the viability of their claims. Kaplan, Continuing Works of the Civil 
Committee;  1966 Amendments of the Federal Rules of Civil Proce­
dure, 81 Harv. L. Rev. 356, 398. “ In the circumstances, delineated 
in subdivision ( b ) ( 3 ) ,  it seems fair for the silent to be considered 
as part of the class. Otherwise, the (b ) (3 ) type would become a 
class action which was not that at all— a prime point of discontent with 
the spurious action from which the Advisory Committee started its 
review of Rule 23.”  See also Rule 2 3 ( c ) ( 2 ) ( B )  (Pet. Br., p. 4 ).



16 Petitioner’s Reply Brief

the states for public purposes.17 See also, Damage Distribu­
tion in Class Actions: The Cy Pres Remedy, 39 IT. Chi. 
L. Eev. 448 (1972).18

Defendants’ argument that the “ fluid class recovery”  
is contrary to the requirements for recovery under Section 
6 of the Exchange Act is without merit. They do not dis­
pute the holding of cases such as J. I. Case v. Borak, 377 
IT. S. 426 (1964), and Bivens v. Six Unknown Agents of the 
Federal Bureau of Narcotics, 403 U. S. 388 (1971) that 
“ federal courts may use any available remedy to make good 
the wrong done” . Cf. SEC v. Texas Gulf Sulphur Co., 312 
F. Supp. 77, 90-94 (S. D. N. Y. 1970), aff’d in part, rev’d in 
part, 446 F. 2d 1301 (2d Cir,), cert, denied, 404 IT. S. 1004 
(1971). Defendants cite Baird v. Franklin, 141 F. 2d 238 
(2d Cir.), cert, denied, 323 U. S. 737 (1944), as limiting 
recovery under Section 6 of the Exchange Act to those in­
jured. Baird v. Franklin held on the facts that the breach 
of duty committed by the Exchange was not the proximate 
cause of injury to the plaintiffs, but indicated that an action 
would otherwise lie.

Furthermore, Eisen involves a claim for equitable re­
lief. The Eisen complaint requests specific equitable relief, 
including judgment “  [directing defendant New York Stock 
Exchange to regulate and reduce the amount of the differ­
ential and to take into account in such regulation the

17. The defendants do not so much as mention the Second 
Circuit’s decision in Pfizer. They argue that the District Court’s 
decision is inapplicable since it arose in a settlement context. The 
power of the District Court to deal with the residue was at issue on 
the appeal (albeit between different plaintiff classes). The rights of 
non-claiming class members, purportedly asserted by defendants, are 
no different whether the fund has resulted from settlement or litiga­
tion.

18. Escheat is another possibility. See, 28 U. S. C. §2042; 
United States v. Klein, 106 F. 2d 213 (3d Cir.), cert, denied, 308 
U. S. 618 (1939) ; Hodgson v. Wheaton, Glass Co., supra, 446 F. 2d 
at 535.



Petitioner’s Reply Brief 17

amount by which the differential has been excessive in the 
past. 19 It also requests “ . . . such other and further 
relief as may be just.”  (A26). Under Section 27 of the 
Exchange Act, 15 U. S. C. § 78aa, the District Court has 
equity jurisdiction to award damages or such other retro­
spective relief as the merits of the controversy may require. 
Mills v. Electric Auto-Lite Co., 396 U. S. 375 (1970), Crane 
Co. v. American Standard, Inc., F. 2d —, CCH Fed. Sec. 
L. Rep. U 94,327, pp. 95,122-23 (2d Cir., December 19, 1973).

Defendants ’ argument that use of the fluid class device 
would intrude upon the exclusive jurisdiction of the SEC 
is likewise unsound (Resp. Br., pp. 48-52). There is no 
exclusive jurisdiction conferring immunity against the 
violations of the antitrust laws and the securities laws 
herein. Silver v. New York Stock Exchange, supra. Cf. 
J. I. Case v. Borak, supra. See also, pp. 4-5, supra. As the 
Court of Appeals noted in Eisen 11, no adequate administra­
tive remedy exists for Eisen and the plaintiff class (A127), 
so that the model of initial agency action with subsequent 
judicial review is inapposite.20

19. This request for relief has not been rendered moot by sub­
sequent reductions in the odd-lot differential, or merger of the odd-lot 
dealer defendants, as defendants contend (Resp. Br., p. 44). There 
is no showing that such changes have eliminated all taint of the 
defendants’ violations.

20. While the Exchange has twice changed the odd lot differen­
tial, since the period for which damages are sought, neither regula­
tion was promulgated by an SEC order, under Section 19 of the 
Exchange Act, 15 U. S. C. § 78s (Resp. Br., pp. 48-49). Defend­
ants are clearly wrong, therefore, in suggesting that such an order 
is involved, subject to review only by a Court of Appeals under Sec­
tion 25(a) of the Act, 15 U. S. C. § 78y (Resp. Br., p. 49). Changes 
effected by the Exchange itself are subject to review in the district 
courts. Independent Broker-Dealers’ Trade Association v. SEC, 
442 F. 2d 132 (D . C. Cir.), cert, denied, 404 U. S. 828 (1971). 
Cf. P B W  Stock Exchange v. SEC, 485 F. 2d 718 (3d Cir. 1973). 
Furthermore, the plaintiff and the members of the plaintiff class are 
outside the ambit of Section 25 (a ), which circumvents district court



18 Petitioner’s Reply Brief

Fluid recovery entails paying current odd lot traders 
an aggregate amount equal to any damage residue, by 
means of a set-off against current commissions. It is 
simply a way of liquidating a judgment, and encroaches 
upon the jurisdiction of the SEC no more than any money 
judgment for customers encroaches upon the jurisdiction 
of the regulating agency. See, Federal Power Commission 
v. Interstate Natural Gas Company, supra, 336 U. S. at 
582-83.

Any interest of the SEC can be accommodated by in­
viting its participation in the proceedings, a procedure 
adopted by the district court pursuant to the suggestion 
of the court of appeals in Thill Securities Corp. v. New 
York Stock Exchange, supra, 433 F. 2d at 273.20 21

IV.
THE EIGHT TO JURY TRIAL DOES NOT POSE DIFFI­

CULTIES OF MANAGEMENT.

The Amicus Brief of the American College of Trial 
Lawyers (“ ACTL Br. ” ) raises the spectre of 100,000 indi­
vidual jury trials, assuming that only 100,000 claimants 
come forward, so that “ the claims could not be determined 
in a manner consistent with the Constitution in much less 
than 100 years.”  (ACTL Br., p. 5). In a case like Eisen, 
where damages can be calculated on a formula basis, that 
kind of in terrorem argument makes nonsense of class

20. (Cont’d.)
review for parties to SEC proceedings. Since the odd lot differential 
was not the subject of Commission proceedings, the plaintiff and 
class members can not even be argued to have been parties thereto.

21. Objections to the fluid recovery theory, including that based 
upon SEC jurisdiction, are entirely premature, since there is no 
assurance at this time that the District Court will adopt that tech­
nique, rather than another, for the equitable disposition of any residue 
of the class judgment.



Petitioner’s Reply Brief 19

actions, which these Amici seek to reconvert into mass 
joinders. The argument ignores the fundamental principle 
that: “ The class suit was an invention of equity to enable 
it to proceed to a decree in suits where the number of those 
interested in the subject of the litigation is so great that 
their joinder as parties in conformity to the usual rules of 
procedure is impractical.”  Hansberry v. Lee, 311 U. S. 
32, 41 (1940). There is to be one decree, not a multitude. 
Rule 23(c)(3). Only one trial—between the class represen­
tative and the defendants—is necessary to determine the 
common issue of total damage to the members of the class. 
Dickinson v. Burnham, supra, 197 F. 2d at 980-81 (2d Cir. 
1952); Union Carbide and Carbon Corporation v. Nisley, 
supra, 300 F. 2d at 589. See also, Feder v. Harrington, 
supra, 52 F. R. D. at 183; Partain v. First National Bank of 
Montgomery, supra, 59 F. R. D. at 59; and In Re Antibiotic 
Antitrust Actions, supra, 333 F. Supp. at 289 (“ In these 
circumstances the Court cannot conclude that defendants 
are constitutionally entitled to compel a parade of individ­
ual plaintiffs to establish damages.” ). See, Dickinson v. 
Petroleum Conversion Corporation, supra, 338 U. S. at 515 
(quoted at p. 14, supra). Defendants will have a full and 
fair opportunity to litigate all damage issues in the one trial.

Rule 23(d) as promulgated by the Court, provides that, 
“ In the conduct of actions to which this rule applies, the 
court may make appropriate orders: (1) determining the 
course of proceedings or prescribing measures to prevent 
undue repetition or complication in the presentation of evi­
dence or argument; . . . ”  (Pet. Br., p. 4, emphasis added). 
The Advisory Committee Note to Rule 23 recommends that, 
“ The court should consider . . . what measure should be 
taken to simplify the proof and argument.”  39 F. R. D. at 
106 (Resp. Br., p. 26 sa).



20 Petitioner’s Reply Brief

“  ■ ■ ■ [T]he proof of damages which, the district court 
foresaw would have been based upon the defendants’ rec­
ords plus various studies of the odd lot industry. These 
should be every bit as reliable in establishing damages as the 
records and affidavits of individual odd lot customers. Fur­
thermore, as the district court pointed out, an exact com­
putation of damages is unnecessary under the Clayton Act. 
The Supreme Court has articulated the standard as follows: 
‘ The jury may not render a verdict based on speculation or 
guesswork. But the jury may make a just and reasonable 
estimate of the damage based on relevant data.’ [Bigelow v. 
RKO Radio Pictures, Inc., 327 U. S. 251, 264 (1946); see 
Zenith Corp. v. Hazeltine Research, Inc., 395 U. S. 100, 123- 
124 (1969)].”  22 I f the defendants are held liable for all of 
the damages they have caused, that is scarcely an infringe­
ment of their substantive rights.

Defendants’ jury trial argument also fails to consider 
the equitable origin of class actions described by Professor 
Chafee, who suggests that the court should consider class 
suits for damages “ equitable by nature on the analogy of 
bills for an accounting, where the issues are so complex 
that a jury trial furnishes an inadequate remedy.”  (Chafee, 
op. cit., supra, at p. 286). The equitable accounting advo­
cated by Chafee is especially appropriate in dealing with 
the 56 percent of the transactions of the class which are 
recorded on computer tapes in the defendants’ possession.23

In many price fixing and securities actions global dam­
ages can: “  . . .be  accurately computed by reliance on sales 
figures. . . . Most important management decisions in the 
business world in which these defendants operate are made

22. Note, supra, 87 Harv. L. Rev. at 449.

“  American College of Trial Lawyers’ assertion that
. . . the requisite proof is hot available in the books and records 

of the respondents” , (A C T L  Br., p. 4) overlooks these tapes.



Petitioner’s Reply Brief 21

through the intelligent application of statistical and com­
puter techniques and these class members should be en­
titled to use the same techniques in proving the elements 
of their cause of action. The court is confident that they 
can be successfully utilized in the courtroom and that their 
application will allow the consumers to protect their rights 
while freeing the court and the defendants of the specter 
of unmanageability.”  In Re Antibiotic Antitrust Actions, 
supra, 333 F. Supp. at 289.

V.

THE NOTICE PRESCRIBED BY THE DISTRICT 
COURT MEETS THE STANDARDS OF DUE PROCESS 

AND RULE 23.

The defendants submit that the Court of Appeals cor­
rectly held that individual notice is not necessarily required 
by due process in Rule 23(b)(1) and (2) actions (Resp. Br., 
p. 59 n. 19). They declare: “ The Court of Appeals’ de­
cisions (Eisen II and Eisen III) leave ample room for 
effective civil rights and environmental suits. Such suits 
are traditionally brought for injunctive relief arid, under 
the decisions below, would not be subject to the notice re­
quirements specified in Eisen; . . . ”  (Resp. Br., p. 100).24

That necessarily confirms the plaintiff’s position that 
individual notice is not a requirement of due process.

Indeed, the defendants submit that: “ What is impor­
tant is that the judgment naturally benefits all persons 
similarly situated.”  (Resp. Br., p. 100). The notice 
prescribed by the District Court in this case is, therefore, 
by the defendants’ own admission, more than sufficient to

24. Of course, many civil rights class actions, such as those con­
cerning employment discrimination, and some environmental class 
actions, such as the oil spill cases, are brought for damages as well.



22 Petitioner’s Reply Brief

sustain the action for equitable relief.25 26 It is just as clear 
that a damage judgment herein, if the class action is sus­
tained and Eisen wins his case, will “ naturally benefit”  the 
more than 2,000,000 identifiable class members who can be 
reimbursed by formula from the defendants’ transaction 
records, and will benefit additional individual class mem­
bers to the extent that they respond to notice.

Analysis of the interests of the class intended to be 
protected by notice, as described by the defendants them­
selves, supports the program of notice prescribed by the 
District Court. Those interests include the “ individual’s 
right to withdraw from the case, bring his own claim, or 
seek to play a role in management of the action . . . ”  
(Resp. Br., p. 55).

The opportunity to participate is no less significant 
and, indeed, frequently more so in Rule 23(b)(1) and (2) 
actions, where defendants concede that individual notice is 
not required (Resp. Br., p. 59 n. 19 and p. 100). In Eisen, 
where the individual stake is very small, that factor has 
correspondingly little significance, as does the possibility 
of individual suit. Indeed, the defendants themselves as­
sert that there is no risk of inconsistent results, because 
it would be too expensive for individuals to pursue their 
claims separately (Resp. Br., p. 60). The Court of Appeals 
was satisfied in 1968 that: “ . . .the present case appears 
to fall within that class of cases in which ‘ the interests of 
individuals in conducting separate lawsuits’ are more 
‘ theoretic than practical’ . . . ”  (A126).

25. This should, in turn, sustain the notice in its (b ) (3 ) aspect.
“ It will be found that cases satisfying ( b ) ( 1 )  or ( b ) ( 2 )  will also 
pass muster under ( b ) ( 3 ) .  As was perceived in Van Gemmert v. 
Boeing, 259 F. Supp. 125 (S. D. N. Y . 1966), the cases should then 
ordinarily be treated under the former provisions rather than the 
latter.”  Kaplan, op. cit. supra, 81 Harv. L. Rev. at 390 n. 130.



Petitioner’s Reply Brief 23

What remains! Defendants suggest that class mem­
bers are entitled to individual notice because some “ may 
prefer to opt out to avoid discovery, the possibility of as­
sessment of costs, or simply because they are not litigious”  
(Eesp. Br., p. 59). It has been held that members of a class 
(other than the plaintiff and any interveners), who do not 
request exclusion “  . . . are not parties and would not be 
liable for costs . . . ”  Lamb v. United Security Life Com­
pany, 59 F. R. D. 44, 48 (S. D. Iowa, 1973).26 And that, “ If 
class members were automatically deemed parties, all class 
actions would be converted into massive joinders. Such a 
result would emasculate Rule 23.”  Id. For the same 
reason interrogatories to the individual class members have 
been held inappropriate. Fischer v. Wolfinbarger, 55 
F. R. D. 129 (W. D. Ky., 1971); Wainwright v. Kraftco 
Corp., 54 F. R. D. 532 (N. D. Ga., 1972); Gardner v. Awards 
Marketing Corp., 55 F. R. D. 460 (D. Utah, 1972). In the 
circumstances of this case the real concerns of due process 
and Rule 23(c)(2) are well served by the initial notice pre­
scribed by the District Court.

As the Court of Appeals reads the language of Rule 
23(c)(2),27 the phrase “ practicable under the circum­
stances”  does not extend to “ individual notice” . The re­
sult “ is unnecessarily harsh. Given the rule’s requirement 
that only a ‘ reasonable effort’ need be made to identify 
class members it is pointless to require a disproportionate 
effort to notify those who are thus identified. A better 
reading would make the efforts required by these phrases 
comparable. Furthermore, the evidence that the rule was 
designed to satisfy due process without imposing an addi­

26. Cf., Chafee, Some Problems of Equity, Ch. VI, p. 219.
27. “ [ I]n 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 individual notice to all 
members who can be identified through reasonable effort. . . . ”



24 Petitioner’s Reply Brief

tional requirement suggests that practicability must always 
be a consideration in evaluating notice, since it is central 
to the due process test.”  Note, supra, 87 Habv. L. Eev. at 
440.28

Professor Kaplan, as reporter to the Advisory Com­
mittee, was also firmly of the view that practicability was 
intended as the test for individual, as well as other, (c)(2) 
notice. Kaplan, op, cit., 81 Habv. L. Eev., supra, at 396.

VI.

REQUIRING DEFENDANTS TO SHARE THE GOST OF 
NOTICE DOES MOT VIOLATE THEIR FIFTH OR 

SEVENTH AMENDMENT RIGHTS.

The Court of Appeals recognized that in some cases 
defendants can properly be required to advance the cost of 
notice, distinguishing Eisen because it was not a derivative 
suit in which defendants owed a special duty to plaintiffs, 
or a suit against a public utility by its customers in which 
the utility customarily sent monthly bills to plaintiffs 
(A352 n. 5).

The defendants support the holding that in some class 
actions it may be appropriate to require the defendants to 
pay for notice, arguing that: “ Many of the briefs amici 
overlook this careful limitation in the Court of Appeals 
decision,”  (Eesp. Br., p. 63). The New York Stock Ex­
change and its members, the odd-lot dealers, owe no lesser

28. Accord, Note, Collateral Attack on the Binding Effect of 
Class Action Judgments, 87 Harv. L. Rev. 589, 605 (1974 ); . .
[ I ] f  the representation of an absent class member’s interests is found 
to have been adequate, the absentee, in effect, will have had his day in 
court and notice should not be required as an additional due process 
requirement. Support for this approach may be found in the Restate­
ment of Judgments [§ 86, comments (b ) and (h ) (1942)], in Hans- 
berry [v. Lee, 311 U. S. 32 (1940 )], and in other decisions which 
have asserted . . . that adequacy of representation rather than notice 
is the essential prerequisite of due process.”



Petitioner’s Reply Brief 25

duty to the investing publie than a public utility owes to its 
customers. There is certainly no distinction rising to con­
stitutional significance between Eisen and cases in which 
defendants concede that the cost of notice may properly be 
allocated to defendants. In Eisen the plaintiff remains 
liable for costs, should the defendants ultimately prevail 
and, in that event, defendants would have a judgment for 
costs against him.29

The cost of notice in a class action should properly be 
regarded as an ordinary expense of litigation, and within 
the power of the District Court to allocate. The defendants 
attempt to distinguish the cases relating to the cost of dis­
covery (Pet. Br., n. 8 and p. 41) on the ground that: “ Those 
costs are traditional and consistent with the adversarial 
process of litigation—totally different from being required 
to finance a lawsuit against one’s self.”  (Resp. Br., p. 68).

Defendants are not being required to finance a lawsuit 
against themselves (Resp. Br., p. 68).30 The phrase implies, 
incorrectly, that they are being compelled to pay a cost 
required of the individual plaintiff and benefitting only the 
plaintiff and the members of the class.

Rule 23(e)(2) requires that the “ court shall direct”  
notice to the class; it does not state against whom the cost 
should be taxed. Division of the cost of notice has become 
as traditional as discovery costs in the district courts, since 
the 1966 amendment to Rule 23 (Pet. Br., pp. 38-39), and 
here an adversary hearing has determined that plaintiff 
and the class are likely to prevail on the merits.

Defendants benefit, as do the members of the plaintiff 
class, where, as here, notice in conformity with Rule 23 and

29. The plaintiff did not claim that he could not pay any more 
than token costs (Resp. Br., p. 66), but rather that whatever he had 
to put up would be an undue burden on him (A 273).

30. The argument against “ financing a lawsuit against one’s 
self”  could be made more appropriately with regard to costs of dis­
covery, which may benefit only the adverse party.



26 Petitioner’s Reply Brief

the requirements of due process has been ordered by the 
District Court.81 If the defendants prevail on the merits, 
the entire class is bound by the adverse judgment. Cf. 
American Pipe dc Construction v. Utah, supra. The benefit 
to defendants is not theoretical. They complain at some 
length about the alleged inadequacy of the scope of notice 
ordered by the district court, on the ground that defects in 
notice may deprive them of the res judicata effect of the 
judgment (Resp. Br., p. 61).

Because all parties benefit from notice, and because the 
cost of notice is a cost of litigation required by Rule 23, it 
is no denial of due process to require the necessary cost to 
be advanced by the party shown most likely to be ultimately 
liable for it.31 32

The hearing on allocation of the cost of notice did not 
infringe defendants’ right to a jury trial. Costs “ are never 
within the province of the jury.”  HarMess v. Sweeny 
Independent School District, 278 F. Supp. 632, 637 (S. D. 
Tex. 1968), rev’d on other grounds, 427 F. 2d 319 (5th Cir. 
1970), cert, denied, 400 U. S. 991 (1971). In any event, the 
defendants did not request a jury trial on this issue in the 
District Court.

VII.
THE DISTRICT COURT’S ORDERS SUSTAINING THE

CLASS ACTION WERE NOT APPEALABLE.
A. There Was No Appealability as of Right.

Defendants lump together as a single “ final”  decision 
“ appealable of right under 28 U. S. C. §1291”  two sepa­

31. See the Brief of Amicus the Commonwealth of Pennsylvania, 
pp. 5-7.

32. Defendants do not contest the requirement that they ulti­
mately pay for notice, if the plaintiff prevails at trial. At issue is 
their contention that the cost may not be assigned to them in the 
interim, though the District Court has found a great likelihood that 
ultimately they will be found liable (A289-90).



Petitioner’s Reply Brief 27

rate orders of the District Court, entered one year apart 
(Resp. Br., p. 82). The 1971 order (A199) sustained the 
plaintiff’s right to maintain the action as a class action. 
It is separate and distinct from the 1972 order requiring 
the defendants to advance part of the cost of notice (A275). 
Respondents’ appealability arguments based upon the cost 
of notice (Resp. Br., pp. 84-85) are not pertinent to the 
1971 order of the District Court sustaining the class action. 
That order is subject to modification in the District Court 
and is not appealable under the overwhelming weight of 
authority, as cited in Petitioner’s Brief at pp. 21-22. 
Accord, Thill Securities Corp. v. New York Stock, Exchange, 
469 F. 2d 14,17 (7th Cir. 1972).

The April 4, 1972 order, which imposed 90 percent of 
the cost of notice on the defendants was not a final order 
under the doctrine of Cohen v. Beneficial Industrial Loan 
Corp., 337 U. S. 541 (1949). The Court of Appeals itself 
recognized that in some cases imposition of the cost of 
notice on defendants is proper (A352 n. 5). Defendants 
agree, arguing that the Court of Appeals limited its hold­
ing to “ this type of case”  (Resp. Br., pp. 19, 63). As a 
general principle, therefore, the right of the district court 
in class actions initially to allocate the cost of notice to 
defendants in appropriate circumstances is uncontested; 
it is only the particular application in this case that the 
defendants challenge. Cohen does not hold such an 
issue appealable. With regard to such issues, this Court 
said: “ If the right were admitted or clear and the order 
involved only an exercise of discretion as to the amount 
of security, a matter the statute makes subject to recon­
sideration from time to time, appealability would present 
a different question.”  337 U. S. at 547. The decision of 
the Court of Appeals in Eisen fosters the kind of case by



28 Petitioner’s Reply Brief

case piecemeal review which is generally forbidden, and 
to which the Cohen exception does not apply.33

Swift & Co. Packers v. Compania Colombiana Del 
Caribe, S. A., 339 U. S. 684 (1950), relied on by defendants, 
held that an order dissolving the attachment of a ship 
was immediately appealable, but contrasted an order allow­
ing an attachment to stand, which is not. The latter is 
the correct analogy, for the plaintiff will be liable for the 
costs, should defendants prevail at trial.

Interlocutory orders requiring far greater expendi­
ture than that involved here have repeatedly been held 
inappropriate for review in view of the policy of finality. 
See Petitioner’s Brief at pp. 24-25, fn. 8. Cf. IBM Corp. 
v. United States, 1973-2 CCH Trade Cases f[ 74,833 (2d 
Cir. 1973), in which the Second Circuit held that an order 
of the District Court imposing a fine of $150,000 a day 
for civil contempt in refusing to comply with a discovery 
order, was interlocutory and not appealable.

In Republic Natural Gas Company v. State of Okla­
homa, 334 U. S. 62, 70-71 (1948), the Court held that, “  . . . 
[T]he incurring of some loss, before a process preliminary 
to review here is exhausted, is not in itself sufficient to 
authorize our intervention. . . . Merely because a party 
to a litigation may be temporarily out of pocket, is not 
sufficient to warrant immediate review. . . . The policy 
against premature constitutional adjudications demands 
that any doubts in maintaining this burden be resolved 
against jurisdiction. ’ ’

33. The defendants cite the decision in Pfizer, Inc. v. Lord, 449 
F. 2d 119 (2d Cir. 1971) to demonstrate the “ sizeable judicial re­
sources” consumed in that case (Resp. Br., p. 98). The appellate 
court’s observation, in its context, is in point:

“ This litigation has already consumed sizeable judicial resources 
and can be expected to do so. It is not particularly helpful to 
have the defendants seek interlocutory review of each decision 
of the district court with which they disagree.”



B. The Court of Appeals Had No Retained Jurisdiction.

Defendants adhere to the position that the District 
Court’s 1966 order initially denying class status (A93) 
was interlocutory and not appealable (Resp. Br., p. 92). 
If they are correct, the Court of Appeals had no jurisdic­
tion to “ retain” . In any event, the correctness of the 
initial “ death knell”  appeal need not be reached. An 
appellate court cannot reverse the District Court and by 
contradiction purport to retain plenary jurisdiction years 
later. See Petitioner’s Br., pp. 20-21.

The cases cited by the defendants are inapplicable, 
because in each of those cases the appellate court explicitly 
withheld judgment while remanding only for further find­
ings. Cf. United States v. Johnson, 73 U. S. [6 Wall.] 792 
(1868). Here the Court of Appeals explicitly rendered 
judgment of reversal (A133 and A138).

vin,
THE DISTRICT COURT’S ORDERS DID NOT VIOLATE 
THE ENABLING ACT OR PRINCIPLES OF FAIRNESS.

The defendants suggest that the class action orders of 
the District Court would so alter their substantive rights 
as to violate the terms of the Rules Enabling Act, 28 U. S. C. 
§2072 (Resp. Br., pp. 24-25). This Court has held, to the 
contrary, that a procedural rule that subjects defendants to 
the jurisdiction of the courts is not thereby other than 
procedural. In Mississippi Publishing Corporation v. 
Murphree, 326 IT. S. 438, 445-446 (1946), the Court observed 
that:

“ Undoubtedly most alterations of the rules of practice 
and procedure may and often do affect the rights of 
litigants. Congress’ prohibition of any alteration of 
substantive rights of litigants was obviously not ad­

Petitioner’s Reply Brief 29



30 Petitioner’s Reply Brief

dressed to such incidental effects as necessarily attend 
the adoption of the prescribed new rules of procedure 
upon the rights of litigants who, agreeably to rules of 
practice and procedure, have been brought before a 
court authorized to determine their rights. Sibbach 
v. Wilson & Co., 312 U. S. 1, 11-14. The fact that the 
application of Rule 4(f) will operate to subject peti­
tioner’s rights to adjudication by the District Court for 
Northern Mississippi will undoubtedly affect those 
rights. But it does not operate to abridge, enlarge or 
modify the rules of decision by which that court will 
adjudicate its rights. It relates merely to the manner 
and the means by which a right to recover . . .  is 
enforced. ’ ’
In Sibbach v. Wilson & Co., 312 U. S. 1, 14 (1941) the 

Court held that: “ The test must be whether a rule really 
regulates procedure,—the judicial process for enforcing 
rights and duties recognized by substantive law and for 
justly administering remedy and redress for disregard or 
infraction of them.’ ’ Accord: Hanna v. Plumer, 380 U. 8. 
460 (1965). See also, pp. 14-15 supra.

In addition, the defendants rely upon an alleged in 
terrorem effect of Rule 23(b) (3), which they claim amounts 
to “ blackmail”  (Resp. Br., pp. 102-104). It is true that the 
prospect of liability may induce settlement, be it liability 
in an individual action or in a class action.34

34. But there is no reason to suppose that such pressures are 
unfair. If defendants have overcharged vast numbers of people of an 
enormous aggregate sum, it is entirely appropriate that a suit to 
recoup that sum in toto should create great pressure. As Professor 
Dole has pointed out class suits based on meritorious claims are quite 
different from “ strike suits”  based on frivolous claims. Rule 23(e) 
provides safeguards against the latter. See Dole, The Settlement of 
Class Actions for Damages, 71 C o l u m . L. R ev . 971, 974 (1971). 
Cf. Papilsky v. Berndt, 466 F. 2d 251, 254 (2d Cir. 1972). It is the 
result urged by the defendants that is inappropriate, namely that 
guilty defendants should be allowed to keep their illegally gotten 
gains.



Petitioner’s Reply Brief 31

In Telex Corporation v. International Business Ma­
chines Corp., 1973 CCH Trade Cases H 74,774 (N. D. Okla., 
1973), the district court entered judgment in favor of the 
sole plaintiff for $259.5 million. The actual liability in that 
action between individuals was more than twice the maxi­
mum estimated liability in the action at bar, which is con­
ceded by all to be a large class action. Any in terrorem 
effect was presumably far greater there than here.

Defendants’ claim simply is not true, that in conse­
quence of the in terrorem effect or otherwise, all class ac­
tions are settled (Resp. Hr., p. 105).35 Many class actions 
have proceeded to trial. E.g., Gould v. American-IIawaiian 
Steamship Company, supra; Gerstle v. Gamble-Skogmo, 
supra; Escott v. BarChris, 283 F. Supp. 643 (S. D. N. Y. 
1968); Feit v. Leasco Data Processing, 332 F. Supp. 544 
(E. D. 1ST. Y. 1971); Kohn v. American Metal Climax, 322 
F. Supp. 1331 (E. D. Pa., 1971), aff’d in part rev’d in part 
458 F. 2d 255 (3d Cir. 1972), cert, denied 409 U. S. 874 
(1973); Robinson v. Lorillard Corporation, 319 F. Supp. 835 
(M. D. N. C. 1970), aff’d in part rev’d in part 444 F. 2d 791 
(4th Cir.), cert, denied 404 U. S. 1006 (1971); Siegel v. 
Chicken Delight, 311 F. Supp. 847 (N. D. Cal. 1970), aff’d

35. The defendants do not disclose the role of William Simon, 
whom they cite to this Court as a “ commentator”  on class actions 
supporting their in terrorem theory (Resp. Br., p. 103). They 
quote his “ comments” on the very case in which he was counsel of 
record to defendant Humble Oil & Refining Co., without disclosing 
his interest. (City oj Philadelphia v. American Oil Co., supra.)

His client, Humble, did not move for summary judgment in 
the City of Philadelphia proceedings. It had in fact, by the time of 
settlement, pleaded nolo contendere to a related federal price-fixing 
indictment. Nor were the private actions settled as a direct result 
of certification of the governmental and bulk purchaser classes. They 
were settled one-and-a-half years later, after the plaintiffs secured 
and upheld against appeal by, inter alia, Humble Oil & Refining, an 
order permitting inspection of grand jury transcripts. United States 
v. American Oil Company, 456 F. 2d 1043 (3d Cir.), cert, denied 
sub nomine American Oil Company v. City of Philadelphia, 409 U. S. 
893 (1972).



32 Petitioner’s Reply Brief

in part rev’d in part 448 F. 2d 43. (9th Cir. 1971), cert, 
denied 405 U. S. 955 (1972); Stamps v. Detroit Edison Co., 
365 F. Supp. 87 (E. D. Mich. 1973). There is no indication 
that the settling proportion of class actions exceeds the 
settling proportion of other actions.

Finally, Buie 56 of the Federal Buies of Civil Pro­
cedure provides for summary judgment. It affords every 
bit as much protection against alleged “ blackmail”  in class 
actions as it does in other actions.

IX.

THE INTERESTS OF JUSTICE REQUIRE REVERSAL 
OF THE DECISION OF THE COURT OF APPEALS.

The defendants suggest that Buie 23(b) was intended 
solely as a procedural device to achieve economies of time 
and effort, as a “  device for consolidating numerous existing 
claims.”  (Resp. Br., pp. 97 and 26-27). That was only half 
of the dual purpose of the revised Buie.

Although the defendants’ attempt to characterize the 
pre-1966 cases as pertaining only to the avoidance of 
multiple suits, the decisions were clearly otherwise. This 
Court’s decision in Smith v. Swormstedt, 57 IT. S. 288, 302 
(1853), expressed concern lest in the absence of class suits 
no effective adjudication could be had, and held that, “ For 
convenience, therefore, and to prevent a failure of justice, 
a court of equity permits a portion of the parties in interest 
to represent the entire body, and the decree binds all of 
them the same as if all were before the court.”  (emphasis 
added).

The Seventh Circuit observed in Weeks v. Bareco Oil 
Co., 125 F. 2d 84, 88, 90 (7th Cir. 1941), long before the 1966 
revision, that:

“ To permit the defendants to contest liability with
each claimant in a single separate suit, would, in many



Petitioner’s Reply Brief 33

cases give defendants an advantage which would be 
almost equivalent to closing the door of justice to all 
small claimants. This is what we think the class suit 
practice wras to prevent.”

The Advisory Committee Notes do not indicate that 
consolidation of existing claims was the sole purpose of 
Rule 23(b) (3), as defendants contend (Resp. Br., pp. 26 and 
97). To the contrary, the Note to Rule 23(b)(3) specifically 
envisions class certification, where as here the “ amounts at 
stake for individuals may be so small that separate suits 
would be impracticable.”  39 F. R. D. at 104 (Resp. Br., p. 
21sa).

To bolster their position, defendants cite a remark by 
Professor Kaplan, Reporter to the Advisory Committee 
during the 1966 revision, that economy is a goal of Rule 23. 
One goal does not preclude another, and Professor Kaplan 
has observed that:

‘ ‘ The entire reconstruction of the Rule bespoke an inten­
tion to promote more vigorously than before the dual 
missions of the class-action device: (1) to reduce units 
of litigation by bringing under one umbrella what 
might otherwise be many separate but duplicating 
actions; (2) even at the expense of increasing liti­
gation, to provide means of vindicating the rights of 
groups of people who individually would be without 
effective strength to bring their opponents into court 
at all.”  Kaplan, A Prefatory Note, 10 B. C. I nd. & 
Comm . L. R ev. 497 (1969).36

36. See also, Kaplan, Continuing W ork of the Civil Committee: 
1966 Amendments of the Federal Rules, supra, 81 Harv. L. R ev. 
at 398 (for “ small claims held by small people”  the (b ) (3 ) action 
intentionally “ serves something like the function of an administrative 
proceeding” . . . . The alternative of treating such claims and per­
sons “ as null quantities is questionable” ).



34 Petitioner’s Reply Brief

The many disinterested and learned commentaries upon 
Rule 23 cited in Petitioner’s Brief and this Reply Brief 
have generally applauded the operation of Rule 23 in effi­
ciently securing relief from violations of law affecting nu­
merous individuals; for example, the articles by Professors 
Hazard, Homburger, Kaplan, and Miller. District Judge 
Jack Weinstein, formerly a distinguished professor of civil 
procedure at Columbia University, likewise views class 
actions as generally manageable and not abusive. Wein­
stein, “ Some Reflections on the ‘Abusiveness’ of Class 
Actions”  58 F. R. D. 299 (1973).3T Judge Weinstein sounds 
the warning that class actions touch “ on the credibility of 
our judicial system” :

“ Either we are committed to make reasonable efforts 
to provide a forum for adjudication of disputes in­
volving all our citizens-—including those deprived of 
human rights, consumers who overpay for products 
because of antitrust violations, and investors who are 
victimized by insider trading or misleading informa­
tion—or we are not. There are those who will not 
ignore the irony of courts ready to imprison a man 
who steals some goods in interstate commerce while 
unwilling to grant a civil remedy against a corpora­
tion, which has benefitted to the extent of many millions 
of dollars from collusive, illegal pricing of its goods.”  
58 F. R. D. at 305. 37

37. Judge Weinstein is unimpressed by complaints about “ what 
one appellate judge in our circuit has dubbed the elusive Frankenstein 
Monster posing as a class action,”  responding, “ I suggest that the 
monster is neither so large or as terrible as some would have us be­
lieve. The procedure is merely one means for transforming legal 
rights into effective remedies,”  Id. The observation is especially 
compelling, coming as it does from a District Judge who has both 
disallowed and sustained class actions, and seen them through trial. 
E.g., Dolgow v. Anderson, 43 F. R. D. 472 (E . D. N. Y . 1968) and 
Feit v. Leasco, 332 F. Supp. 544 (E . D. N. Y. 1971).



Petitioner’s Reply Brief 35

Judicial efficiency is not achieved by closing the doors 
of justice; it is achieved by efficient procedure in the pursuit 
of justice.

Finally, a statement of the Securities Exchange Com­
mission as cited at some length in Dolgow v. Anderson, 43 
F. R. D. 472, 482-484 (E. D. N. Y. 1968) declares that:

“ The Activities of The Securities and Exchange Com­
mission Do Not Eliminate The Need For Class 
Action Procedure In Private Actions Based on Viola­
tions of the Federal Securities Laws. . . .
“ Since the enforcement activities of this Commission 
do not serve to make whole investors who have been 
injured by a fraudulent course of business and since it 
is economically impracticable in many instances for 
investors individually to pursue available remedies, 
the representative action seems to provide the most 
meaningful method by which their claims may be pur­
sued and the Congressional policy favoring such 
remedies may be vindicated.”

Plaintiff has refrained throughout from citing partisan 
“ authorities” . That principle has, unfortunately, not been 
followed by the defendants who cite Professor Handler, 
William Simon, and the work of the Committee on Rule 23 
and Multidistrict Litigation of the American College of 
Trial Lawyers.38 39 The interests of these concededly eminent 
members of the bar are not disclosed in either the defend­
ants’ brief or the ACTL Amicus Brief. They, and the firms 
in which they are the senior litigators, have in fact been 
involved in a number of cases cited disparagingly, and in­
accurately, in the ACTL Amicus Brief (p. 21).89 Mr. Gates

38. Whose members are also the authors of the A C T L  Amicus 
Brief (A C T L  Br„ p. 22).

39. The description of the American Oil Company litigation in­
cludes only the recoveries of certain sub-classes. It omits to mention



36 Petitioner’s Reply Brief

was counsel for defendant Phelps Dodge in Philadelphia 
Electric Co. v.- Anaconda American Brass Co., 43 F. E. D. 
452 (E. D. Pa. 1968), the brass mill price fixing class action 
litigation. Mr. McAfee represented defendant Bheem. in 
Lindy Bros. Builders, Inc. v. American Radiator & Stand­
ard Sanitary Corp., 341 F. Supp. 1077 (E. D. Pa. 1972), 
rev’d 487 F. 2d 161 (3d Cir. 1973), the plumbing fixtures 
price fixing litigation. His firm Cravath, Swaine & Moore 
represented defendant California Oil Company in City of 
Philadelphia v. American Oil Company, 53 F. E. D. 45 
(D. N. J. 1971), the tri-state gasoline price fixing litigation. 
Mr. Strobing’s firm, Pepper, Hamilton & Scheetz, repre­
sented defendant Sun Oil Co. in the American Oil Company 
case and Crane Co., as a defendant in the plumbing fixtures 
litigation. Mr. Schwartz’ firm, Sullivan & Cromwell, rep­
resented American Standard in the plumbing fixtures liti­
gation. Mr. Simon represented Humble Oil and Refining 
Co. in the American Oil Company case,39 40 and Professor 
Handler represented defendant Texaco therein. They have 
also represented defendants in many class action cases not 
cited in the ACTL Brief.41

To state that distinguished counsel are not disinter­
ested is not to belittle them. But the presence or absence 
of personal interest is necessarily a factor in evaluation, 
and properly should have been disclosed. Cf. Eastern Rail­
road Presidents Conference v. Noerr Motor Freight, 365 
H. S. 127, 140 (1961).

39. (Cont’d.)
the recoveries by 2,946 entities, in the general governmental sub-class, 
who shared between them a net refund of more than $18 million.

40. See Note 35, supra.
41. For example, Mr. Schwartz represents defendant American 

Metal Climax, Inc. in a securities class action tried to a. successful 
conclusion by counsel for the petitioner herein as to liability and 
equitable relief on behalf of the class. Kohn v. American Metal 
Climax, Inc., supra. Following appeal, the case was settled for 
$6,500,000 in cash, and other benefits.



Petitioner’s Reply Brief 37

It may be that the position advocated by these attor­
neys reflects the interests of their regular clients, on whose 
behalf they have opposed class actions in the above eases, 
among others.42 At least one author of the ACTL Amicus 
Brief has in fact expressed views at odds with that Brief, 
when he has stepped outside of his role as advocate. On 
that occasion, Mr. Strubing, addressing the Pennsylvania 
Bar Institute as a faculty member of a recent panel on class 
actions, stated that:

“ As to notice, I predict that the method of notice 
devised by the District Court [in Risen] will be sus­
tained, although the defendants are attacking it. There 
are six million claimants of whom two million are 
readily identifiable from the records of the defendants. 
The District Court decided that of the two million, two 
thousand should be chosen by random and given direct 
notice, actual notice by mail, and that there should be 
in addition publication in some seven or eight or more 
newspapers. Going back to as far as Hansberry and 
Lee and even in state courts, the question of the ade­
quacy of notice in class actions has to my mind always 
been recognized by the courts as depending not on the 
actuality of notice, but on the validity of the repre­
sentation obtained for the plaintiffs as a result of that

42. The A C T L  Amicus Brief opposes class actions because, inter 
alia, counsel for the classes may receive large fees for their efforts. It 
fails to disclose that in the four cases for which fees are cited (A C TL 
Amicus Brief, p. 21) the gross recovery for the classes was more than 
$87,000,000. This Court has encouraged the award of counsel fees 
in such public interest cases. Mills v. Electric Auto-Lite Co., 396 
U. S. 375 (1970). Since counsel fee awards in class actions are sub­
ject to court approval, there is ample protection against abuse.

In any event, the issue of fees is completely irrelevant to certifica­
tion of a class. If the plaintiff class prevails at the trial and a fee is 
subsequently awarded, there will be ample opportunity to litigate 
its propriety. Raising a fee issue now is not only premature, it is 
disingenuously inflammatory.



38 Petitioner’s Reply Brief

notice. If I make myself clear, I understand the courts 
to have held, and I expect the Supreme Court to hold, 
that if as a result of this method of notice in Eisen 
does, as I think it is likely to do, convince the Court 
that sufficient people received actual notice having the 
same interests or representing all the interests involved 
on the plaintiffs’ side, and there is adequate represen­
tation by those who are actually before the court as 
plaintiffs, whether original plaintiffs or ones who sub­
sequently joined, then those unnoticed, whether de­
liberately or by accident (and I should point out that 
no matter what mailing you make some people are not 
going to receive actual notice) is sufficient to bind those 
people, because they have been represented adequately 
in court and that is the basis for sustaining any class 
action.

*  *  *

As to who should pay for the notice, I hesitate to 
make any prediction. There are cases and there have 
been hints in a number of opinions by important courts, 
that there are situations in which the defendant should 
undertake some of the activity, at least with respect 
to notice which would cost money. For example, an 
electric utility which sends bills monthly to its custo­
mers. Obviously, it doesn’t cost much, if anything, 
to stuff an extra piece of paper in the monthly bill. 
On the other hand, whereas here you are going to make 
a defendant put out, I think it is around $90,000 [sic], 
to send out the type of notice ordered, I don’t see how 
the Supreme Court can approve that unless it says 
that the order must have been preceded by a mini­
hearing at which the judge makes a finding of a rea­
sonable probability of success on the part of the plain­
tiff. This, of course, is the standard test in a prelim­



Petitioner’s Reply Brief 39

inary injunction application, a temporary retraining 
order, and was the procedure used by the District Court 
in the Eisen case. ’ ’

Proceedings of the Pennsylvania Bar Institute, Harris­
burg, Pa., December 7, 1973: Remarks of Philip H. 
Strubing, Esq. (Transcribed from recordings of the pro­
ceedings, made available by the Institute to plaintiff’s 
counsel).

The defendants are plainly apprehensive that in re­
stricting the usefulness of class actions the Court of Ap­
peals has too apparently jeopardized civil rights and en­
vironmental cases; so they hasten to suggest that the deci­
sion does not apply to such cases (e . g Resp. Br., pp. 21, 
100). The American College of Trial Lawyers reflects the 
same view (ACTL Br., p. 12). The distinctions which they 
seek to make are patently without substance.43

Indeed, the zeal of the ACTL has led it into an ex­
traordinary error. “ Contrary to the assertions made by 
several of the amici who support petitioner,”  the ACTL 
Brief declares, “ the decision of the Court of Appeals 
would not affect in any significant way the efforts of those 
who seek by litigation to vindicate the civil rights of the 
underprivileged. After all, this Court’s landmark civil 
rights decisions were not rendered in class actions and did 
not depend in any way upon Rule 23.”  (Amicus Br., pp. 
21-22). This statement is contradicted by the leading case 
cited to support it, Brown v. Board of Education, 347 U. S. 
483 (1954) {Id., p. 22), which was undeniably a class action. 
See 347 IT. S. at 495. This, the most significant and far 
reaching civil rights action of the century, was litigated

43. Professor Philip Schrag of Columbia Law School has ob­
served that in Eisen “ if the ruling of the lower court is affirmed, it’s 
a disaster for consumer protection and environmental protection 
groups.”  Christian Science Monitor, February 6, 1974, p. 1.



40 Petitioner’s Reply Brief

as a class action, and was not derailed by unreasonable 
and unnecessary individual notice requirements, because 
what counted was the adequacy of representation.44

The rights of the class in Eisen are important federal 
rights which merit vindication under the antitrust laws 
and the Exchange Act, and should not be sacrificed to the 
cynical view that the remedy is inversely proportional to 
the number of persons injured. Such a holding scarcely 
engenders the respect for law which is already held in low 
enough public esteem. In a variety of situations courts 
require recourse to the class action device in order to 
fashion effective relief. See e.g., Bermudez v. United 
States Department of Agriculture, supra, 17 F. R. Serv. 
2d at 1156-1157.

The defendants’ attempts to mask the devastating 
impact of the Eisen decision are also negated by the great 
concern shown by those Amici who have openly disclosed 
where their own interets lie and perceive a severe threat 
if the Eisen decision is permitted to stand—twenty states 
(whose attorneys general represent the full range of the 
political spectrum), the American Civil Liberties Union, 
the Public Citizen and Consumers Union of the United 
States, and the NAACP Legal Defense Fund.

The fall-out of Eisen is already taking its toll, as dis­
trict courts sense that the law has changed toward limiting 
class actions once again to mere joinder devices.45 Thus in 
Ralston v. Volkswagenwerh A. G., 1973-2 CCH Trade cases 
1174,772 (W. D. Mo. 1973), the Court said l‘Eisen III  is a 
substantial and justifiable departure from the views ex­
pressed in an opinion filed in an earlier appeal in that case,

44. The school desegregation cases are among many civil rights 
cases resolved by the Court as class actions. See e.g., Griggs v. 
Duke Power Company, 401 U. S. 424 (1971) and Turner v. Fouche, 
396 U. S. 346 (1970).

45. But see, American Pipe &  Construction Co. v. Utah, supra.



Petitioner’s Reply Brief 41

and I therefore place little reliance on the substantial body 
o f case law that has developed from the opinion in Eisen 
II . . " . ”  That “ substantial body of ease law”  is now 
threatened, including eases in every Court of Appeals 
where the issue has been presented, holding that Rule 23 
should be liberally construed and wide discretion allowed 
to the district courts “ on the firing line” .

The defendants’ basic thrust is to scoff at the notion 
that violators of the anti-trust laws should he made to repay 
the “ fruits of their violations” . They describe that notion 
as an “ extraordinary position”  (Resp. Br., p. 21), and 
characterize it as “ plaintiff[’s] . . . philosophy”  (Resp. 
Br., p. 21). But nowhere in their 109 page brief do the de­
fendants try to distinguish Hanover Shoe Co. v. United Shoe 
Machinery, 392 U. S. 481, 494 (1968), in which the stated 
purpose of the holding was to insure that violators of the 
antitrust laws would not “ retain the fruits of their illegality 
because no one was available who would bring suit against 
them. ’ ’

The rule of Hanover Shoe that wrongdoers ought not 
be allowed to profit from their wrong is not a rule invented 
by plaintiff in this case; nor is it “ an alleged principle of 
equity ’ ’ (Resp. Br., p. 45). Rather it is a principle that has 
been repeatedly announced by this Court. Accord: Bigelow 
v. RKO Pictures, 327 U. S. 251, 265 (1946), a case also 
ignored by the defendants.

Rather than deciding questions which may never arise 
and are clearly not ripe for review, such as fluid recovery, 
and insisting that the plaintiff must pay for millions of 
individual notices, which he cannot possibly afford and 
which due process does not require, the Court of Appeals 
should have borne in mind that “  . . . class suits were known 
before the adoption of our judicial system, and were in 
use in English Chancery. . . . ”  Supreme Tribe of Ben 
Hur v.Cauble, 255 IT. S. 356, 366 (1921). Instead of strait-



42 Petitioner’s Reply Brief

jacketing the District Court, it would better have taken to 
heart the wisdom of Lord Cottenham in Taylor v. Salmon, 
4 Myl. & Gr. 134,141-2 (1838) that:

“  [It is] the duty of this Court to adapt its prac­
tice . . .  to the existing state of society, and to apply its 
jurisdiction to all those new cases which, from the 
progress daily making in the affairs of men, must con­
tinually arise, and not . . . decline to administer jus­
tice, and to enforce rights for which there is no other 
remedy.”  (Quoted in Chafee, Some Problems of 
Equity, Ch. VI, p. 212).

Respectfully submitted,
M ordecai R osenfelu,

233 Broadway,
New York, New York. 10007

H arold E. K ohn ,
A aron M. F in e ,
A llen D. B lack ,
A rthur  M. K aplan ,

1214I VB Building,
1700 Market Street,
Philadelphia, Pennsylvania. 19103 

Attorneys for Petitioner.