Eisen v. Carlisle & Jacquelin

• Decision Date: 01 May 1973
• Docket Number: 30934.,No. 341,381,Dockets 72-1521,341
• Citation: 479 F.2d 1005
• Parties: Morton EISEN, on Behalf of Himself and All Other Purchasers and Sellers of "Odd-Lots" on the New York Stock Exchange Similarly Situated, Plaintiff-Appellee, v. CARLISLE & JACQUELIN and DeCoppet & Doremus, Each Limited Partnerships under New York Partnership Law, Article 8 and New York Stock Exchange, an Unincorporated Association, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

479 F.2d 1005 (1973)

Morton EISEN, on Behalf of Himself and All Other Purchasers and Sellers of "Odd-Lots" on the New York Stock Exchange Similarly Situated, Plaintiff-Appellee, v. CARLISLE & JACQUELIN and DeCoppet & Doremus, Each Limited Partnerships under New York Partnership Law, Article 8 and New York Stock Exchange, an Unincorporated Association, Defendants-Appellees.

Nos. 341, 381, Dockets 72-1521, 30934.

United States Court of Appeals, Second Circuit.

Argued December 12, 1972.

Decided May 1, 1973.

Rehearing and Rehearing Denied May 24, 1973.

Aaron M. Fine, Philadelphia, Pa. (Harold E. Kohn and Allen D. Black, Philadelphia, Pa., and Mordecai Rosenfeld, New York City, on the brief), for plaintiff-appellee.

Devereux Milburn, New York City (Louis L. Stanton, Jr., James E. Massey, and Carter, Ledyard & Milburn, New York City, on the brief), for defendant-appellee Carlisle & Jacquelin.

Francis S. Bensel, New York City (Bud G. Holman and Kelley Drye Warren Clark Carr & Ellis, New York City, on the brief), for defendant-appellee DeCoppet & Doremus.

William E. Jackson, New York City (Russell E. Brooks and Milbank, Tweed, Hadley & McCloy, New York City, on

the brief), for defendant-appellee New York Stock Exchange, Inc.

Before MEDINA, LUMBARD and HAYS, Circuit Judges.

Rehearing and Rehearing En Banc Denied in No. 72-1521 May 24, 1973.

MEDINA, Circuit Judge:

Sufficient factual background for an understanding of the rulings we are about to make in this extraordinary "class action" is to be found in our first opinion Eisen v. Carlisle & Jacquelin, 2 Cir., 391 F.2d 555 (1968), often referred to as Eisen II. On that appeal we remanded the case to the District Court for reconsideration and for findings on specific issues and we retained jurisdiction.¹ While entertaining grave doubts on the questions of notice and manageability, we thought the original rejection of the case as a class action had been too summary, that improper standards had been applied and inadequate consideration given to the specific requirements of amended Rule 23.

After almost five years the case is before us again. While much of the delay is not attributable to further proceedings bearing on issues arising under amended Rule 23, a very considerable amount of the time of Judge Tyler and of the lawyers for the respective parties has, in this interval of five years, been devoted to hearings, the taking of depositions, and the preparation and filing of various District Court opinions, preceded by briefs and extensive oral arguments. Much of this time was devoted to an effort by Eisen's counsel to meet the apparently insurmountable difficulties of notice and manageability by adopting the erroneous and frustrating view that some way must be found to make the case viable as a class action. In the end Judge Tyler was persuaded that the innovations described by Judge Weinstein in his speeches² and in his series of opinions in Dolgow v. Anderson, D.C., 43 F.R.D. 21 (1967); 43 F.R.D. 472 (1968); 45 F.R.D. 470 (1968); 53 F.R.D. 661 (1971); 53 F.R.D. 664 (1971), were authorized by amended Rule 23. These innovations were the preliminary mini-hearing on the merits and the "fluid recovery," both of which will be fully described in due course. It is clear to us that, with or without these innovations, the notice provided by amended Rule 23 to be given "to all members (of the class) who can be identified through reasonable effort" cannot be given, as Eisen refuses to pay or put up any bond to cover this expense, and, if defendants prevail on the merits, they will be unable to recover any amounts expended by them for this purpose. We are also of the opinion that, on the basis of the new evidence now before us, the lawsuit is unmanageable as a class action, and that no preliminary mini-hearing on the merits and no "fluid recovery" procedures are authorized by the text or by any reasonable interpretation of amended Rule 23. Accordingly, we reverse and dismiss the case as a class action. We also vacate the findings of fact and conclusions of law that were made after the preliminary mini-hearing on the merits.

I The Decision Below — 52 F.R.D. 253 1971

In 1968, when the case was previously before us, it was estimated by someone that there were 3,750,000 members of the class, consisting of those who had bought or sold odd lots on the New York Stock Exchange in the period from May 1, 1962 through June 20, 1966. It was then doubtful whether any of the members of the class could be "identified through reasonable effort." Eisen's position then was and now is that, except possibly in the eventuality of the ultimate adoption of Judge Tyler's suggested plan which envisages payment by defendants of 90% of the cost of giving notice, he will not defray any of the expense of giving notice to any of the members of the class, nor will he post any bond to reimburse defendants for any of their disbursements, pursuant to any order of the District Court, made for the purpose of giving any notice.

It now appears that there are 6,000,000 members of the class and of these 2,250,000 can be easily identified.³ Members of the class reside in every state of the United States and most foreign countries. They speak and understand a great variety of modern languages. The damages sought to be recovered were estimated at the time we last considered the case at something between a maximum of $60,000,000 and a minimum of $22,000,000.⁴ Now the estimate has been raised by Eisen's counsel to 120 millions of dollars.

In our prior opinion we stated unequivocally that actual notice must be given to those whose identity could be ascertained with reasonable effort and that "in this type of case" plaintiff must pay the expense of giving notice to these members of the class.⁵ We further stated that if this could not be done there might be no other alternative than the dismissal of the case as a class action. For some reason not clear to us Judge Tyler disregarded these holdings and concluded that he had discretion, even with reference to those members of the class who could be easily identified, to provide for such notice as he thought to be reasonable in the light of the facts of this particular case.

Thus he directed actual notice only to "the approximately 2000 or more class members who had ten or more transactions during the relevant period" and to "5000 other class members selected at random" from the 2,500,000 class members who could easily be identified.⁶ With respect to the rest of the 6,000,000 members of the class, Judge Tyler ordered what, without reciting all the details concerning the schedule of proposed publications, we consider to be a totally inadequate compliance with the notice requirements of amended Rule 23. One of the reasons for this was perhaps because Judge Tyler thought of these first notices, by mail and by publication, as merely the first of a series of notices. Judge Tyler then deferred the question of who should pay for this first round of notices until after a "brief" preliminary hearing on the merits. This is what is called the "mini-hearing." We shall have more to say later about this preliminary mini-hearing on the merits of Eisen's triple damage antitrust claim. Accordingly, the hearing was held "on the issue of the allocation of the costs of notice" and Judge Tyler concluded that the defendants must bear 90% of these expenses.

To describe Judge Tyler's general scheme as it slowly developed in the series of his many opinions⁷ following the remand would be too tedious. The sum and substance of it was that he at last realized that it was highly improbable that any great number of claims would, for a variety of reasons, ultimately be filed by the 6,000,000 members of the class. No claimant in the 6 years of the progress of the action had shown any interest in Eisen's claim. The average odd-lot differential on each transaction had been $5.18. The average individual class member engaging in five transactions would have paid a total odd-lot differential of $25.90. Assuming a 5% illegal overcharge the recovery is approximately $1.30, and when trebled the average class member would be entitled to damages of $3.90. As the costs of administration might run into the millions of dollars, it was not likely that a rush of claimants would eventuate no matter how extensive the publication. As he had surmised in the beginning, and as Chief Judge Lumbard stated in his dissent (Eisen II, 391 F.2d p. 571), the class action was hopelessly unmanageable. So Judge Tyler tried to pull the case out of this morass by resorting to the "fluid recovery," which had been used as a vehicle for carrying out a voluntary settlement in the Drug Cases, State of West Virginia v. Chas. Pfizer & Co., Inc., et al., 314 F.Supp. 710 (S.D.N.Y.1970).⁸

The concept of this "fluid recovery" is very simple. Having decided that there is no conceivable way in which any substantial number of individual claimants can ever be paid, "the class as a whole" is substituted for the 6,000,000 claimants. Thus the first round of notices becomes relatively unimportant. The scheme adopted envisages the first round of notices as sufficient to get the ball rolling. Little is said about Step Two. This involves a trial of the case to a judge and jury on the merits — not a preliminary mini-trial this time, but a real full scale trial of the private triple damage antitrust case. In some way the damages to "the class as a whole" will be assessed and the defendants, it seems to be assumed, will promptly pay this huge sum into court. This sum is supposed to constitute the "gross damages" to "the class as a whole." With the money in hand, the case begins to resemble the Transitron and Drug Cases and from then on we are to have the real notices soliciting the filing of claims, the processing of these claims, the fixing of counsel fees and the payment of the general expenses of administration. As "the class as a whole" will...