417 U.S. 156 (1974), 73-203, Eisen v. Carlisle & Jacquelin

Docket Nº:No. 73-203
Citation:417 U.S. 156, 94 S.Ct. 2140, 40 L.Ed.2d 732
Party Name:Eisen v. Carlisle & Jacquelin
Case Date:May 28, 1974
Court:United States Supreme Court

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417 U.S. 156 (1974)

94 S.Ct. 2140, 40 L.Ed.2d 732



Carlisle & Jacquelin

No. 73-203

United States Supreme Court

May 28, 1974

Argued February 25, 1974




Petitioner brought a class action under Fed.Rule Civ.Proc. 23 on behalf of himself and all odd-lot traders on the New York Stock Exchange for a certain four-year period, charging respondent brokerage firms, which handled 99% of the Exchange's odd-lot business, and respondent Exchange with violating the antitrust and securities laws. There followed a series of decisions by the District Court and the Court of Appeals. The District Court ultimately decided that the suit could be maintained as a class action, and, after finding that some two and a quarter million members of the prospective class could be identified by name and address with reasonable effort and that it would cost $225,000 to send individual notice to all of them, proposed a notification scheme providing for individual notice to only a limited number of prospective class members and notice by publication to the remainder. The District Court then held a preliminary hearing on the merits, and after finding that petitioner was "more than likely" to prevail at trial, ruled that respondents should bear 90% of the costs of the notification scheme. The Court of Appeals reversed and ordered the suit dismissed as a class action, disapproving the District Court's partial reliance on publication notice. The Court of Appeals held that Rule 23(c)(2) required individual notice to all identifiable class members; that the District Court had no authority to hold a preliminary hearing on the merits for the purpose of allocating notice costs; that the entire notice expense should fall on petitioner; and that the proposed class action was unmanageable under Rule 23(b)(3)(D). Petitioner contends that the Court of Appeals had [94 S.Ct. 2143] no jurisdiction to review the District Court's orders, and further, that the Court of Appeals decided the above issues incorrectly.


1. The District Court's resolution of the notice problems constituted a "final" decision within the meaning of 28 U.S.C. § 1291, and was therefore appealable as of right under that section. Pp. 169-172.

(a) Section 1291 does not limit appellate review to "those

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final judgments which terminate an action . . . ," but rather the requirement of finality is to be given a "practical, rather than a technical construction." Cohen v. Beneficial Loan Corp., 337 U.S. 541, 545-546. Pp. 170-172.

(b) The District Court's decision that respondents could lawfully be required to bear the costs of notice involved a collateral matter unrelated to the merits of petitioner's claims and was "a final disposition of a claimed right which is not an ingredient of the cause of action, and does not require consideration with it," Cohen, supra, at 546-547. P. 172.

2. The District Court's resolution of the notice problems failed to comply with the notice requirement of Rule 23(c)(2). Pp. 173-177.

(a) The express language and intent of Rule 23(c)(2) leave no doubt that individual notice must be sent to all class members who can be identified through reasonable effort. Here there was nothing to show that individual notice could not be mailed to each of the two and a quarter million class members whose names and addresses were easily ascertainable, and, for these class members, individual notice was clearly the "best notice practicable" within the meaning of Rule 23(c)(2). Pp. 173-175.

(b) The facts that the cost of sending individual notices would be prohibitively high to petitioner, who has only a $70 stake in the matter, or that individual notice might be unnecessary because no prospective class member has a large enough stake to justify separate litigation of his individual claim, do not dispense with the individual notice requirement, since individual notice to identifiable class members is not a discretionary consideration to be waived in a particular case, but an unambiguous requirement of Rule 23. Pp. 175-176.

(c) Adequate representation, in itself, does not satisfy Rule 23(c)(2), since the Rule speaks to notice, as well as to adequacy of representation, and requires that both be provided. Otherwise no notice at all, published or otherwise, would be required in this case. Pp. 176-177.

3. Petitioner must bear the cost of notice to the members of his class, and it was improper for the District Court to impose part of the cost on respondents. Pp. 177-179.

(a) There is nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether

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it may be maintained as a class action, and, indeed, such a procedure contravenes the Rule by allowing a representative plaintiff to secure the benefits of a class action without first satisfying the requirements of the Rule. Pp. 177-178.

(b) A preliminary determination of the merits may substantially prejudice a defendant, since it is unaccompanied by the traditional rules and procedures applicable to civil trials. P. 178.

(c) Where, as here, the relationship between the parties is truly adversary, the plaintiff must pay for the cost of notice as part of the ordinary burden of financing his own suit. Pp. 178-179.

479 F.2d 1005, vacated and remanded.

POWELL, J., delivered the opinion of the Court, in which BURGER, C.J., and STEWART, WHITE, BLACKMUN, and REHNQUIST, JJ., joined. DOUGLAS, J., filed an opinion dissenting in part, in which BRENNAN and MARSHALL, JJ., joined, post, p. 179.

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POWELL, J., lead opinion

MR. JUSTICE POWELL delivered the opinion of the Court.

On May 2, 1966, petitioner filed a class action on behalf of himself and all other odd-lot1 traders on the New York Stock Exchange (the Exchange). The complaint charged respondents with violations of the antitrust and securities laws and demanded damages for petitioner and his class. Eight years have elapsed, but there has been no trial on the merits of these claims. Both the parties and the courts are still wrestling with the complex questions surrounding petitioner's attempt to maintain his suit as a class action under Fed.Rule Civ.Proc. 23. We granted certiorari to resolve some of these difficulties. 414 U.S. 908 (1973).

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Petitioner brought this class action in the United States District Court for the Southern District of New York. Originally, he sued on behalf of all buyers and sellers of odd lots on the Exchange, but subsequently the class was limited to those who traded in odd lots during the period from May 1, 1962, through June 30, 1966. 52 F.R.D. 253, 261 (1971). Throughout this period, odd-lot trading was not part of the Exchange's regular auction market, but was handled exclusively by special odd-lot dealers, who bought and sold for their own accounts as principals. Respondent brokerage firms Carlisle & Jacquelin and DeCoppet & Doremus together handled 99% of the Exchange's odd-lot business. S.E.C., Report of Special Study of Securities Markets, H.R.Doc. No. 95, pt. 2, 88th Cong., 1st Sess., 172 (1963). They were compensated by the odd-lot differential, a surcharge imposed on the odd-lot investor in addition to the standard brokerage commission applicable to round-lot transactions. For the period in question the differential was l/8 of a point (12 1/2¢) per share on stocks trading below $40 per share and 1/4 of a point (25¢) per share on stocks trading at or above $40 per share.2

Petitioner charged that respondent brokerage firms had monopolized odd-lot trading and set the differential at an excessive level in violation of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and he demanded treble damages for the amount of the overcharge. Petitioner also demanded unspecified money damages from the Exchange for its alleged failure to regulate the differential for the protection of investors in violation of §§ 6 and 19 of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78f and 78s. Finally, he requested attorneys'

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fees and injunctive prohibition of future excessive charges.

A critical fact in this litigation is that petitioner's individual stake in the damages award he seeks is only $70. No competent attorney would undertake this complex antitrust action to recover so inconsequential an amount. Economic reality dictates that petitioner's suit proceed as a class action or not at all. Opposing counsel have therefore engaged in prolonged combat over the various requirements of Rule 23. The result has been an exceedingly complicated series of decisions by both the District Court and the Court of Appeals for the Second Circuit. To understand the labyrinthian history of this litigation, a preliminary overview of the decisions may prove useful.

In the beginning, the District Court determined that petitioner's suit was not maintainable as a class action. On appeal, the Court of Appeals issued two decisions known popularly as Eisen I and Eisen II. The first held that the District Court's decision was a final order, [94 S.Ct. 2145] and thus appealable. In the second, the Court of Appeals intimated that petitioner's suit could satisfy the requirements of Rule 23, but it remanded the case to permit the District Court to consider the matter further. After conducting several evidentiary hearings on remand, the District Court decided that the suit could be maintained as a class action and entered orders intended to fulfill the notice requirements of Rule 23. Once again, the case was appealed. The Court of Appeals then issued its decision in Eisen III, and ended the trilogy by denying class action status to petitioner's suit. We now review these developments in more detail.

Eisen I

As we have seen, petitioner began this action in May, 1966. In September of that...

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