Eisen v. Carlisle & Jacquelin Reply Brief for the Petitioner
Public Court Documents
January 1, 1973
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Brief Collection, LDF Court Filings. Eisen v. Carlisle & Jacquelin Reply Brief for the Petitioner, 1973. fcf86dc3-b09a-ee11-be36-6045bdeb8873. LDF Archives, Thurgood Marshall Institute. https://ldfrecollection.org/archives/archives-search/archives-item/bc27d966-1277-4fc0-9af9-41db82aef676/eisen-v-carlisle-jacquelin-reply-brief-for-the-petitioner. Accessed November 29, 2025.
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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.