Petition — Young v. United States District Court for the Northern District of California
Supreme Court brief1977
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| Sucreme Coun U.S
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: JUN 2 1977
Supreme Court of the United States RODAK, JR., CLER
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Fee eal
October Term 1976
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= %6*1709
ARTHUR YOUNG & COMPANY and OTIS CHANDLER,
Petitioners,
vs.
UNITED STATES DISTRICT COURT, NORTHERN DIS-
TRICT OF CALIFORNIA, HONORABLE WILLIAM T.
SWEIGERT, UNITED STATES SENIOR JUDGE PRESID-
ING; ALBERT A. KAUFMAN; JOE EBNER; JAMES
HOWENSTINE; and THE 5-H INVESTMENT CLUB,
Respondents.
Petition for a Writ of Certiorari to the United States
Court of Appeals for the Ninth Circuit.
ROBERT S. WARREN, PAUL J. BSCHORR,
GIBSON, DUNN & CRUTCHER, WHITE & CASE,
515 South Flower Street, 14 Wall Street,
Los wx. Calif. 90071, New York, New York 10005,
(213) 7000, (212) 732-1040,
RICHARD J. ARCHER, M. LAURENCE POPOFSKY,
SULLIVAN, JONES & ARCHER, HELLER, EHRMAN, WHITE
The Hallidie Building, & McAULIFFE,
130 Sutter Street, 44 Montgomery Street,
San Francisco, Calif. 94104, San Francisco, Calif. 94104,
(415) 397-7667, (415) 772-6000,
Counsel jor Petitioner Counsel for Petitioner
Otis C. , Arthur Young & Company.
Parker & Son, Inc., Law Printers, Los Angeles. Phone 724-6622
SUBJECT INDEX
Page
Se MI ccc schidahdisich icintbncenichnie-bsechienininegtiiiien 2
a ETE GE A ee CS SS Ae a 2
SLES, SR Ne OTE La 3
Constitutional Provision, Statute, and Rules In-
AEE a ee ee 3
I cele 5
Reasons for Granting the Writ .............0...........cc000000 12
I
The Seventh Amendment Right to a Jury Trial
Prohibits the Bifurcation of Jury Trials on In-
separable and Interrelated Issues in Order to
Facilitate Certification of a Class Action Under
Rule 23 of the Federal Rules of Civil Pro-
ED ceadinestinibslaaeienlishnlisnnnintestnsindietennsingnescarennneen 13
A. The Seventh Amendment Right to a Uni-
EE a 16
B. The Issues Reserved by the District Court
for Separate Individual Jury Trials Are
Substantial and Interrelated With “Class”
Issues of Misrepresentation, Omission
IE ‘sink, ctcincasicibinitdesignaiinnadiniinienes 21
C. The “Innovative” Order of the District
Court Will Necessitate an Artificial Sev-
erance of Interrelated Issues and Com-
pel Consideration of Each Before Dif-
TL SEC ere ae 26
ii. iii;
Il Page APPENDIX
The Standard Adopted by the Court of Appeals Page
for Review of the District Court Order Cur- Opinion of the United States Court of Appeals for
tailing Petitioners’ Right to a Jury Trial Con- GD FRR ORIG nin ccciscctcievsccdstcccesccscsccccsses App. Al
flicts With Applicable Decisions of This Court
and Constitutes an Abdication of Effective
Protection of an Important Constitutional
Order Certifying the Kaufman, Ebner and Howen-
stine Actions as Class Actions, Approving the °
SEE TITRE SE te EAT Ba SO 29 | Form and Content of the Proposed Class Action
Notices, and Directing the Manner and Time of
NED nnsiscchonsh:chiditinitibiinessibinenanaecailiiiabibiibtssiea tient, 32 Mailing the Class Action Notices to All Class
Members Ta Baa AU ek hii IS Oe Bo AOE LD ae ae A28
iv.
TABLE OF AUTHORITIES CITED
Cases Page
Albertson’s, Inc. v. Amalgamated Sugar Co., 503 F.
26 459 (1CG Cas, FPGE) ccmiciscninsiscetistiniinns 9
Beacon Theatres, Inc. v. Westover, 359 U.S. 500
CREED cenmiteciemenstie 12, 13, 30, 31
Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975),
cert. den., ........ >. eaiekas » ‘vevedablbindsciiiiediaaaan 21
Blue Chip Stamps v. Manor Drug Stores, 421 U.S.
GED CTGTD) caccccscssecsscsnesensmnnignsnaiianesaaaanne 23
Bogosian v. Gulf Oil Corp., 62 F.R.D. 124 (E.D.
WO, EBTS) | cocsecsectstesesestemmasaae 20
Boise Cascade Securities Litigation, In Re, 420 F.
Supp. 99 (W.D. Wash. 1976) ............2222......-. 14, 15
Casualty Insurance Co. v. Rees Investment Co.,
14 Cal.App.3d 716, 92 Cal.Rptr. 857 (1971) .... 25
Chelsea Assoc. v. Rapanos, 527 F.2d 1266 (6th
0 8) ) ee 22
Chris-Craft Industries, Inc. v. Piper Aircraft Corp.,
480 F.2d 341 (2d Cir. 1973), cert. den., 414
UB, DED ..ncceccescrsecesecersesseeccesiiienainannneeeae 23
C. W. Regan, Inc. v. Parsons, Brinckerhoff, Quade
& Douglas, 411 F.2d 1379 (4th Cir. 1969) ........ 19
Dairy Queen, Inc. v. Wood, 369 U.S. 469 (1962)
v.
Page
Ebner v. Petroleum 2000 Corp., et al., N.D. Cal.
a eee 7, 8, 24
Financial Indus. Fund, Inc. v. McDonnell Douglas
Corp. (10th Cir. 1973), 474 F.2d 514, cert. den.,
ALES SESE TE Ne a 23
Fitzgerald v. United States Lines, 374 U.S. 16
cs enaiisnmetonenenatsoscore 29
Gasoline Products Co. v. Champlin Refining Co.,
| ) Cee 17, 18, 20, 21
Globus v. Law Research Service, Inc., 418 F.2d
1276 (2d Cir. 1969), cert. den., 404 USS.
a csnsusbenibouniocs 23
Goldman, Sachs & Co. v. Edelstein, 494 F.2d 76
TE 31
Hanover Shoe, Inc. v. United Shoe Machinery
Corp., 377 F.24 776 (3rd Cir. 1967), reversing,
a 25
Herzfeld v. Laventhol, Krekstein, Horwath & Hor-
wath, 540 F.2d 27 (2d Cir. 1976) -.......000000..... 22
‘Holdsworth v. Strong, 545 F.2d 687 (10th Cir.
SEES EE 22
Howenstine, et al. v. Petroforce Corp., et al., N.D.
Cal. No. C-74-0957-WTS ......2.. eee. 7, 8, 24
Hupp v. Gray, 500 F.2d 993 (7th Cir. 1974) —...... 25
ICM Realty v. Cabot, Cabot & Forbes Land Trust,
378 F.Supp. 918 (S.D.N.Y. 1974) | ....0......... 22
Jackson v. Oppenheim, 533 F.2d 826 (2d Cir.
EE Ee 23
vi.
} Page
James v. DuBreuil, 500 F.2d 155 (5th Cir. 1974).. 24
Katz v. Carte Blanche Corp., 496 F.2d 747 (3d
Cir. 1974), cert. den., 419 U.S. 885 .................... 19
Kaufman v. Burke, et al., N.D. Cal. No. C-72-1473-
SOT) cncenssensscennsvsieniasnnnsnnsnnbenedetabedpasaptnamnmtnrnatiins 19
Landy v. Federal Deposit Insurance Corporation
(3rd Cir. 1973), 486 F.2d 139, cert. den., 416
CE FED cccnstasimesecinietastnnessncntiatipitnilicsdadaneenninatiions 22
Link v. Mercedes-Benz of North America, Inc., 550
F.2d 860 (3d Cir. 1977), cert. den., ........ US.
14, 15
Master Key Antitrust Litigation, In Re, 528 F.2d
Fee a ee 15
McMerty v. Burtness, 72 F.R.D. 450 (D.Minn.
SODOR: icici: tcnadtsaaniibichslisce tte seeaue ieee! 22, 23
BOVE) nccsiecssinensiarnpresnesntanpeceqnessniinsntateaaiitnta 20, 22
National Auto Brokers Corp. v. General Motors
Corp., 60 F.R.D. 476 (S.D.N.Y. 1973) .......... 28, 29
Pacific Gas & E. Co. v. G. W. Thomas Drayage
etc. Co., 69 Cal.2d 33, 69 Cal.Rptr. 561, 442
P.BG GOR. COG). -vicriccimsinctiintsiinnninanagis diceiiiieinnns 26
Parsons v. Bedford, 28 U.S. (3 Pet.) 433 (1830) .. 13
Raschio v. Sinclair, 486 F.2d 1029 (9th Cir. 1973)
capesevedesesboontineniinnsdbtetinasiiciedipnansstaiiietiiiiaininavectatits 7, 22
Page
REA Express, Inc. v. Interway Corp., 410 F.Supp.
192 (S.D.N.Y. 1976), reversed on other grounds,
- ee GF Te | | ee eee 23
Reliable Volkswagen Co. v. World-Wide Auto.
Corp., 34 F.R.D. 134 (D.N.J. 1963) 2000220000... 19
Rochez, Bros., Inc. v. Rhoades, 491 F.2d 402 (3d
ERE ae a aa 23
Ross v. Bernhard, 396 U.S. 531 (1970) ................ 19
Royal Air Progerties, Inc. v. Smith, 312 F.2d 210
SINE PIII iesnadscctistsdicssiicaliceincidpensittdndmbieticdeiods 24
Schaffner v. Chemical Bank, 339 F.Supp. 329 (S.D.
I. PENNE peneslatninichenteeidithieaencneiniceeapesssnees 20, 27, 28
Securities & Exchange Commission v. GeoTek, 426
F.Supp. 715 (N.D. Cal. 1976) ............................ 6
Shapiro v. Merrill Lynch, Pierce, Fenner & Smith,
_ pg b&b Fy 1. 3b, ) FR NCEreD ene 23
Snyder v. Harris, 394 U.S. 332 (1969) —.......0000..... 18
State of Alabama v. Blue Bird Body Co., Inc., 71
F.R.D. 606 (M.D. Ala. 1976) ...................... 15, 16
Titan Group, Inc. v. Faggen, 513 F.2d 234 (2d Cir.
1975), cert. dem., 423 U.S. S40 ..............222-....0000 22
Turner v. Lundquist, 377 F.2d 44 (9th Cir. 1967)
Union Nacional de Trabajadores, In Re, 502 F.2d
113 (1st Cir. 1974), opinion withdrawn on other
grounds, 527 F.2d 602 (1975) -..................... 31, 32
United Air Lines, Inc. v. Wiener, 286 F.2d 302
(9th Cir. 1961), cert. den., 366 U.S. 924 ...... 19, 20
Page
United California Bank v. Salik, 481 F.2d 1012
| en ereer eee rome oe ee eee oe
United States v. Koenig, 388 F.Supp. 670 (S.D.
8 S| LAE Ce SR Oe ae
U.S. Financial Securities Litigation, In re (M.D.L.
OR RS ee eee ame re
Valentino v. Howlett, 528 F.2d 975 (7th Cir. 1976)
Winkelman v. Blyth & Co., Inc., 518 F.2d 530
(9th Cir. 1975), cert. den., 423 U.S. 929 _........
Rules
Federal Rules of Civil Procedure, Rule 23 ............ 4,
ES Sie Sy METAL es oT = RRO OF Oe I Oe 12, 13,
Federal Rules of Civil Procedure, Rule 23(b)(3) ..
Federal Rules of Civil Procedure, Rule 23(c)(4)
TTI tcsiieiiceiigtaecitaysthleelitiilaiei taal sabia inlaid 18,
Federal Rules of Civil Procedure, Rule 38(a) -.....4,
Federal Rules of Civil Procedure, Rule 42, Ad-
Wiper CMO TEID « ncccceinsccneccncctttccnsmccscossemece
Federal Rules of Civil Procedure, Rule 42(b) ..4, 5,
Securities and Exchange Commission, Rule 10b-5
ty ee eee 7,
24
eating Ae
ix.
Statutes Page
California Code of Civil Procedure, Sec. 338(4 ).... 24
IU Cts CNG OE aaah a cencisemnndenionnsionies 14
Securities Exchange Act of 1933, Sec. 11 (15 U.S.C.
I aN a a 7
Securities Exchange Act of 1933, Sec. 12(2) (15
eI vicincnininibniiiennninenstieninetinn-cigetnistitiensa 7, 24
Securities Exchange Act of 1933, Sec. 13 (15 U.S.C.
(SS a eae 24
Securities Exchange Act of 1933, Sec. 17 (15
I i ce Sa a 7
United States Code, Title 28, Sec. 1254(1) —.......... 2
United States Code, Title 28, Sec. 1291 2.000020. 1
United States Code, Title 28, Sec. 1292(b) -........... 1
United States Code, Title 28, Sec. 2072 -............ 3, 18
United States Constitution, Seventh Amendment ..2, 3
wie 11, 12, 13, 14, 15, 16, 18, 19, 20, 27, 28, 32, 33
Textbook
9 Wright & Miller, Federal Practice & Procedure,
ee Fe: OS ee 28
Supreme Court of the United States
October Term 1976
TI iicciciclialnitttininitn
ARTHUR YOUNG & COMPANY and OTIS CHANDLER,
Petitioners,
vs.
UNITED STATES DISTRICT COURT, NORTHERN DIS-
TRICT OF CALIFORNIA, HONORABLE WILLIAM T.
SWEIGERT, UNITED STATES SENIOR JUDGE PRESID-
ING; ALBERT A. KAUFMAN; JOE EBNER; JAMES
HOWENSTINE; and THE 5-H INVESTMENT CLUB,
Respondents.
Petition for a Writ of Certiorari to the United States
Court of Appeals for the Ninth Circuit.
Petitioners Arthur Young & Company and Otis
Chandler, two of the defendants in securities fraud
actions below, respectfully pray that a writ of certiorari
issue to review the order of the United States Court
of Appeals for the Ninth Circuit, entered in these
proceedings on March 4, 1977, denying petitioners’
petition for a writ of mandamus, prohibition or other
_ propriate writ. That petition sought, inter alia, to
cate and set aside a class action certification order
vifurcai,-* jury trials, entered by the United States
District Court for the Northern District of California
on April 21, 1975.’
1The District Couit refused to certify its order for interlocu-
tory appeal under 28 U.S.C. §1292(b) and the Court of
refused to issue a writ of mandamus compelling the District
Court to certify its order for interlocutory appeal. Additionally,
the Court dismissed petitioners’ appeal, taken pursuant to
U.S.C. $1291, from the class action certification order.
_
The Court of Appeals’ order deprives petitioners
of their Seventh Amendment right to a jury trial by
upholding the District Court’s “novel and innovative’”
class action certification order. To force these pro-
ceedings into the class action form, that order fragments
the basic question of the liability of these defendants
to approximately 1,700 differently situated investors
into a collection of “issues.” It excludes from the class
trial and reserves for later separate jury trials many
substantial issues of liability, as well as damages, despite
the fact that these “issues” are inseparable from and
in fact correlative parts of the questions to be resolved
at the class trial.
Opinions Below.
The opinion and order of the United States Court
of Appeals for the Ninth Circuit is reported at 549
F.2d 686 and appears in the Appendix hereto at pages
Al through A27. ‘The order of the United States
District Court for the Northern District of California,
not reported, appears in the Appendix hereto at pages
A28 through A34.
Jurisdiction.
The order of the United States Court of Appeals
for the Ninth Circuit was entered on March 4, 1977,
and this petition for a writ of certiorari is filed within
90 days of that date. The jurisdiction of this Court
is invoked under 28 U.S.C. §1254(1).
2App. at A24; 549 F.2d at 697.
a
Question Presented.
Are litigants in securities fraud damage actions de-
prived of their Seventh Amendment right to a jury
trial by a federal district court’s order splintering the
basic question of liability into a collection of “issues,”
certifying these actions for class treatment and trial
under Rule 23(b)(3) of the Federal Rules of Civil
Procedure on limited issues only, and excluding there-
from and reserving for later separate trials not only
the issue of individual damages but also many substan-
tial issues of liability that are inseparable from and
in fact correlative parts of the questions to be resolved
at the class trial?
Constitutional Provision, Statute, and Rules Involved.
The constitutional provision involved is the Seventh
Amendment to the United States Constitution.’
The statute involved is the Enabling Act, 28 U.S.C.
§2072.*
8The Seventh Amendment provides:
“In Suits at common law, where the value in controversy
shall exceed twenty dollars, the right of trial by i
shall be served, and no fact tried by a ~p
be otherwise reexamined in any Court of the Uni States,
than according to the rules of the common law.”
428 U.S.C. §2072 provides in pertinent part:
“The Supreme Court shall have the a4 to prescribe
by general rules, the forms of process, > ae.
and motions, and the practice soasedube of ct
courts and courts of appeals of the United States in civil
actions, including admiralty and maritime cases, and appeals
therein.
“Such rules shall not abridge, enlarge or modify
substantive right and shall preserve the right ny trial "b
jury as at common law and as declared by the Seven
Amendment to the Constitution.
* . * *””
a
The rules involved are Rule 23, Rule 38(a), and
Rule 42(b) of the Federal Rules of Civil Procedure.®
*Rule 23, F.R. Civ. P., provides in pertinent part:
“(a) Prerequisites to a Class Action. One or more mem-
bers of a class may sue or be sued as representative
parties on behalf of all only if (1) the class is so numer-
ous that joinder of all members is impracticable, (2) there
are questions of law or fact common to the class, (3) the
claims or defenses of the representative parties are typical
of the claims or defenses of the class, and (4) the
sentative parties will fairly and adequately protect the inter-
ests of the class.
“(b) Class Actions Maintainable. An action may be
maintained as a class action if the prerequisites of subdivi-
sion (a) are satisfied, and in addition:
* * * *
“(3) the court finds that the questions of law or fact
common to the members of the class predominate over
any questions affecting only individual members and that
a class action is superior to other available methods for
the fair and efficient adjudication of the controversy. The
matters inent to the findings include: (A) the interest
of members of the class in individually controlling the
prosecution or defense of separate actions; (B) the extent
and nature of any litigation concerning the controversy
already commenced by or against me of the class;
(C) the desirability or undesirability of concentra the
ye of the claims in the particular forum; (D) the
difficulties likely to be encountered in the management
of a class action.
“(c) Determination by Order Whether Class Action to
be Maintained; Notice; Judgment; Actions Conducted Par-
tially as Class Actions.
* + + *
“(4) When appropriate (A) an action may be brought
or maintained as a class action with res to particular
issues, or (B) a class may be divi into subclasses
and each subclass treated as a class, and the provisions
of this rule shall then be construed and applied accordingly.
* * * *””
Rule 38(a), F.R. Civ. P., provides:
“(a) Right Preserved. The right of trial by jury as
declared by the Seventh Amendment to the itution
or as given by a statute of the United States shall be
preserved to the parties inviolate.”
Rule 42(b), F.R. Civ. P., provides:
“(b) Separate Trials. The court, in furtherance of con-
venience or to avoid prejudice, or when separate trials
—_ =
Statement of the Case.
Petitioners are among the defendants in three separate
securities fraud damage actions, now consolidated and
certified as class actions, pending in the United States
District Court for the Northern District of California
and involving the securities of some ten oil ventures,
each expressly advertised as “speculative”, sold over
an eight-year period primarily by personal contact to
sophisticated, high tax bracket investors seeking tax
write-offs.° The actions were consolidated with a non-
class action by individual investors and an enforcement
action initiated by the Securities and Exchange Commis-
sion. The gravamen of each action was the charge
that Jack Burke, the primary creator and promoter
of the oil ventures, utilized fraudulent schemes to divert
funds from the ventures for his own use and benefit.
The SEC action was dismissed as against petitioner
Chandler on his making certain representations to the
Court and the SEC stipulating that it did not contend
that Chandler intentionally violated any securities laws.
As to petitioner Arthur Young & Company, the SEC
action was tried before United States District Judge
Sweigert during the summer and early fall of 1975.
After thirty-four days of trial, the Court issued an
opinion which found in favor of Arthur Young in all
will be conducive to expedition and economy, may order
a separate trial of any claim, cross-claim, counterclaim,
or third-party claim, or of any separate issue or of any
number of claims, cross-claims, counterclaims,
claims, or issues, always preserving inviolate the t of
trial by jury as declared by the Seventh Amendment to
the Constitution or as given by a statute of the United
States.”
*The smallest investment permitted in any of these ventures
was $5,000 and the largest amount invested was in excess of
$1,000,000.
onltiun
respects. Indeed, the Court found “not a scintilla of
evidence” of intentional wrongdoing or of conduct
amounting to an intent to deceive on the part of
Arthur Young. Moreover, the Court found that Arthur
Young had not acted negligently in performing its
audit responsibilities.’
From 1964 through 1968 Mr. Burke, through his
controlled company, J. B. Oil Company, sold a series
of California intrastate offerings of J. B. Oil Explora-
tion Programs pursuant to permits from the California
Commissioner of Corporations to approximately 500
investors who invested approximately $13 million.®
Because the securities were not registered, no formal
prospectuses were employed in connection with the
marketing of the securities; rather, so-called “offering
circulars” and other literature were distributed. In fact,
however, because of the relatively small number of
investors in the J. B. Programs, Mr. Burke and his
sales executive, Robert Mount, were able to close sales
by making personal sales presentations to each prospec-
tive investor.
In 1969, Mr. Burke caused GeoTek Resources Fund,
Inc. and GTR Management Company to be incorporat-
ed. These entities then formed five limited partnerships
in the years 1969 through 1971 to engage in oil
and gas drilling activities. Limited partnership interests
were sold throughout the United States to approximately
1,200 investors who paid in approximately $17 million.
Prospectuses filed under federal law with the Securities
"Securities & Exchange Commission v. GeoTek, 426 F.Supp.
715 (N.D. Cal. 1976).
‘Interests in these ventures were subsequently exchanged
for stock in corporations known as Petroleum 2000 Corporation
and Petroforce Corporation, created solely for that purpose.
oxtities
and Exchange Commission were issued; however, a
substantial sales force engaged in person-to-person solici-
tation and an army of brokers and investment advisors
actually effected the sales.
In 1972, 1973 and 1974, respectively, certain inves-
tors filed the Kaufman action,’ the Ebner action’
and the Howenstine action" against Mr. Burke, var-
ious other defendants and these petitioners,’ demand-
ing a jury trial in each action. Plaintiffs Ebner and
Howenstine sought to represent the investors in the
1964 through 1968 J. B. Oil Company Programs,
alleging violations of Rule 10b-5 (17 CFR.
§240.10b-5); plaintiff Kaufman claimed to represent
the interests of investors in the five GeoTek funds,
alleging violations of Rule 10b-5 and Sections 12(2)
and 17 of the Securities Act of 1933 (15 U.S.C.
§§771(2), 77q).”
After a series of pretrial proceedings in the District
Court, during which the three actions were consolidated
®*Kaufman v. Burke, et al., N.D. Cal. No. C-72-1473-
10Ebner v. Petroleum 2000 Corp., et al., N.D. Cal. No.
C-73-0176-WTS.
11Howenstine, et al. v. Petroforce Corp., et al., N.D. Cal.
No. C-74-0957-WTS.
12Arthur Young & Company was charged with liability for
reporting on the financial statements of the J. B. Programs,
although its reports were issued after the interests were sold.
See Raschio v. Sinclair, 486 F.2d 1029 (9th Cir. 1973). With
respect to GeoTek, Arthur Young was charged only with re-
ibility for alleged misstatements in the text of prospectuses.
Chandler was charged with having acted, along with other
uncharged parties, as a “finder” of individuals interested in
investing in the J. B. Programs and was a GeoTek director,
along with other charged and not charged individuals.
48Plaintiff Kaufman now contends that his action is also
br t under Section 11 of the Securities Act of 1933 (15
U.S.C. §77k), although this section was not pleaded either
at the i ion or by amendment as a basis for relief. See
App. at A4; 549 F.2d at 689.
endiin
with each other, the individual action and the enforce-
ment action, on April 21, 1975, the District Court
entered its “novel” class action certification order’
that, inter alia:
1. Certified the Kaufman, Ebner, and Howenstine
actions for class treatment as to certain issues only,”
excluding therefrom and reserving for later separate
jury trials (necessarily involving approximately 1,700
investors) the issues of reliance, causation, duty, knowl-
edge of facts allegedly misrepresented or omitted, stat-
utes of limitations, laches, waiver, estoppel, ratification,
unclean hands, pari delicto, and individual damage
considerations.
2. Excluded any evidence of alleged oral representa-
tions.
3. Contemplated a series of subsequent trials of
the excluded issues for each class member in the event
of a favorable decision for plaintiffs in the class trial,
to commence no earlier than 90 days after such a
decision.
The District Court entered this order notwithstanding
the fact that petitioners presented extensive evidence
demonstrating the unsuitability of these actions for
class treatment.’® As the Court of Appeals conceceu:
MApp. at A28 to A34.
The District Court’s order does not indicate what issues
are to be decided at the class trial. However, through the
= of elimination petitioners assume that the issues to
decided are whether selected writings contain misrepresenta-
tions or omissions that would have been material to a “reason-
able” investor.
*Petitioners were extended an unusual opportunity to as-
semble evidence respecting the individual conduct, knowledge
and motivations of a relatively substantial number of investors
by gaining access to the product of an extensive SEC investiga-
tion. Although the class action plaintiffs had the burden of
_— =
“In opposition to the motion to certify the
Classes, petitioners submitted evidence which they
contend demonstrates the impropriety of the class
certifications. They presented their own exhibits
and affidavits, as well as responses given in dis-
covery by named plaintiffs. The evidence which
petitioners presented indicates that some interests
in each of the J. B. Ventures were sold by means
of oral presentations given to investors by Burke
and another defendant. Petitioners contend that
the other defendants, including themselves, did not
participate in these solicitations. In making their
investment decisions, say the petitioners, some of
the investors relied on these presentations, or on
the advice of others, and not on any written
material. Some of these investors had personal con-
tact with the defendants, say petitioners, but
others did not. The petitioners have further shown
that the investors in the J. B. Ventures were
sophisticated investors with high incomes. They
a class certification (see Valentino v. Howlett, 528 F.2d
5, 978 (7th Cir. 1976); Albertson’s, Inc. v. Amalgamated
Sugar Co., 503 F.2d 459, 463 (10th Cir. 1974); Davis v.
Romney, 490 F.2d 1360, 1366 (3d Cir. 1974)), they offered
no such evidence other than the written sales literature upon
which they now base their action. In view of this imbalance
of evidence, and the rare quantity of individual proof able
to be presented by petitioners, it was dismaying that the Court
of Appeals effectively reversed the burden of proof by holding
that petitioners had not “yet demonstrated that the proof of
non-reliance which they expect to submit at the later trial
is of such volume as to be significant to the di 'rict court’s
resolution of the Rule 23 issue” and similarly nad “failed
to demonstrate” that the existence of the other individual issues
are “so prevalent” as to cause extensive additional proof. App.
at A21-A22; 549 F.2d at 695-696. Petitioners respectfully submit
that no class action defendant could develop a greater quantum
of such evidence short of taking the deposition of each potential
class member, a procedure unlikely to be permitted and not
financially tolerable in any event.
—=— =
contend that these investors were looking for risky
investment as tax write-offs, and that some mem-
bers of the Ebner and Howenstine classes were
dissatisfied with the Burke programs as early as
1966 and had made inquiries and complaints to
various agencies some time prior to 1970.
“In addition, the petitioners raise questions
about special arrangements, such as finders’ fees
and kickbacks, which Burke had with some class
members. Furthermore, petitioners note that the
Geotek partnerships were also sold to high income
investors through oral presentations; as set out
in Kaufman’s complaint, and as stated by him
in deposition, he bought his Geotek interest after
such a presentation. Finally, petitioners presented
some evidence relating to the possible conflicts
between the respective class representatives and
their classes. All of this information was, of course,
before the district court when it made its deter-
mination to certify the classes.”"*
The District Court correctly recognized the substan-
tial nature of non-common issues raised by this evidence
and that the three actions could not possibly proceed
as class actions upon these issues. The District Court’s
solution, however, amputating the bulk of the substan-
tive requirements of a securities fraud claim in order
to force these actions into the class action form, (i)
forces petitioners into a class trial in an artificially
created vacuum in which the jury is charged with
determining whether there were “material misrepresenta-
1TApp. at A6-A7; 549 F.2d at 689-690. Although this state-
ment fairly includes the subject matter of the evidence pre-
sented, it does not, of course, elaborate the details of that
evidence in a fashion most favorable to petitioners.
onlin
tions and omissions” in selected writings while being
prevented from receiving evidence as to the individual
circumstances surrounding the presentation and utiliza-
tion of these writings as well as evidence with respect
to the knowledge, sophistication and conduct of each
investor, including particularly the actual knowledge of
each investor of the matters that were being represented,
and (ii) thereby infringes petitioners’ Seventh Amend-
ment right to a unitary trial by jury on inseparable
and interrelated issues.’*
The Court of Appeals’ refusal, by its order of March
4, 1977, to issue a writ of mandamus vacating and
setting aside the District Court’s order erroneously up-
holds this unconstitutional deprivation of petitioners’
right to a jury trial and condemns both petitioners
and the judicial system to the irreparable harm of
a fruitless class trial followed by multiple mini-trials
extending over an indeterminate period of time, unless
petitioners faced with this bleak prospect submit to a
forced settlement.
18Although not central to this petition, the order also (i)
does not comport with the purpose of Rule 23 of the Federal
Rules of Civil Procedure, (ii) twists the substantive law to
accommodate class procedures, and (iii) potentially condemns
itioners as well as the District Court to years of mini-
awsuit jury trials (each involving the full panoply of discovery,
etc.) with individual sophisticated investors who but for the
class certification order had made an informed decision not
to sue. Of course, if this petition is granted these issues as
well will become pertinent to the proceedings before this Court.
=
REASONS FOR GRANTING THE WRIT.
A writ of certiorari is sought from this Court on
the grounds that:
1. The important and recurring constitutional ques-
tion of whether, consistent with the Seventh Amendment
to the United States Constitution, bifurcated jury trials
on inseparable and interrelated issues (forming, prag-
matically viewed, a unitary question of liability) may
be utilized to accommodate the class action procedural
device of Rule 23 of the Federal Rules of Civil Pro-
cedure has not been settled definitively.
2. The absence of guidance on this significant issue
will lead inevitably to the infusion of fatal error into a
substantial number of major business lawsuits pending
in the lower federal courts.”
3. The constricted standard adopted by the Court
of Appeals for review by mandamus of the denial
of petitioners’ effective right to jury trial conflicts with
applicable decisions of this Court requiring that “any
seeming curtailment of the right to a jury trial should
be scrutinized with the utmost care.””
As developed below in Part I, the absence of such defini-
tive guidance has led to substantial confusion on this very
issue in several of the circuits.
2°Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 501
(1959), quoting Dimick v. Schiedt, 293 U.S. 474, 486 (1935).
—
I
The Seventh Amendment Right to a Jury Trial Pro-
hibits the Bifurcation of Jury Trials on Inseparable
and Interrelated Issues in Order to Facilitate Cer-
tification of a Class Action Under Rule 23 of the
Federal Rules of Civil Procedure.
Mr. Justice Story, speaking for this Court in Par-
sons v. Bedford, 28 U.S. (3 Pet.) 433, 446 (1830),
observed that “trial by jury is justly dear to the Ameri-
can people. It has always been an object of deep
interest and solicitude, and every encroachment upon
it has been watched with great jealousy. * * *”
Since that time, this Court consistently has recognized
that the right to trial by jury is an “important consti-
tutional right” (e.g., Dairy Queen, Inc. v. Wood, 369
U.S. 469, 470 (1962)) to be protected from curtail-
ment by inferior courts who might find a jury to
be an impediment to “efficient” adjudication of dis-
putes. E.g., Beacon Theatres, Inc. v. Westover, 359
U.S. 500, 501 (1959).
Nevertheless, this important constitutional right is
currently in jeopardy, and there is confusion in the
inferior federal courts as to its implementation, because
of the seeming exigencies of massive business litigation.
A federal district judge recently concluded that he
should strike plaintiffs’ jury demands in securities fraud
litigation because of his finding that the “factual issues,
the complexity of the evidence that will be required
to explore those issues, and the time required to do
so leads to the conclusion that a jury would not be
=
a rational and capable fact finder.” Jn Re Boise Cascade
Securities Litigation, 420 F.Supp. 99, 103 (W.D. Wash.
1976). The same drastic step has been proposed by
another federal district judge, on his own motion,
in an unreported order filed May 13, 1977, in In
re U.S. Financial Securities Litigation (M.D.L. No.
161, S.D. Cal.).
The District Court below, and district courts in the
Second and Third Circuits, have utilized the tool of “bi-
furcation” to similarly thrust aside procedural impedi-
ments perceived to result from a jury trial. The review
by the Court of Appeals in each circuit suggests the
propriety of the device (and thus assures its implementa-
tion by district judges eager to resolve litigation without
suffering procedural impediments), but actually refrains
from tackling the issue head-on because of self-imposed
limitations upon the standard of review.
The Court of Appeals below hobbled its investigation
into the propriety of the “innovative” certification and
bifurcation order by the unduly limited standard of
mandamus review employed. In Link v. Mercedes-Benz
of North America, Inc., 550 F.2d 860 (3d Cir. 1977),
cert. den., — U.S. —, the Third Circuit Court of
Appeals, sitting en banc, was confronted with the same
Seventh Amendment question in an antitrust action
brought under Section 4 of the Clayton Act. Although
the district court had certified for interlocutory appeal
the question of a bifurcated trial of liability and damage
issues with separate juries for each segment of the
case, a panel of the Circuit had accepted the case
for appeal, and certain members of the Court were
of the opinion that the constitutional issue presented
was “difficult and important” and involved a “present,
=
live controversy” that should be decided,” the appeal
was dismissed as constituting a request for an “ad-
visory opinion.”
A panel of the Court of Appeals for the Second
Circuit dismissed a similar appeal, indicating that the
question of the propriety of a bifurcated jury trial
in a class action context was premature since “one
jury may hear both the liability and damage claims
in this action.” In Re Master Key Antitrust Litigation,
528 F.2d 5, 15 (2d Cir. 1975).. While remarking
generally that “bifurcated trials have frequently been
employed with great success,” /bid., that Court failed
to appreciate that splintered jury trials raise Seventh
Amendment issues quite apart from whether or not
the same jury will hear each segment.
These decisions, along with the instant proceedings,
dramatically demonstrate the need for guidance. In
the absence of a definitive statement from this Court,
the unsettled and contradictory opinions of judges of
the Courts of Appeals provide the district courts with
absolutely no assistance in resolving this important
and recurring constitutional question.”
21550 F.2d at 867.
“The fact that the District Court in Link, supra, certified
the bifurcated jury trial question for interlocutory appeal obvious-
ly indicates that the Court felt the question was a i
one as to which there was substantial ground for difference
of opinion and that the Court needed guidance. Similarly, the
District Court in Boise Cascade, supra, felt that its outright
denial of a jury trial should be certified for interlocutory appeal
but the plaintiffs declined to proceed with the . See
also State of Alabama v. Blue Bird Body Co., Inc., 71 F.R.D.
606 (M.D. Ala. 1976), an antitrust case in which the District
Court recently ordered a national class trial on liability and
separate jury trials in other districts on damages. The Court
certified the question for interlocutory appeal, stating that it
(This footnote is continued on next page)
iti.
But the portent of the statements by the Courts
of Appeals found in the foregoing opinions ensures
continued and extensive experimentation by district
courts with orders which have the direct or at least
practical effect of depriving parties of the right to
trial by jury in complex cases, particularly where a
class certification has been sought. Unless the constitu-
tional issue of the propriety of such experimentation
is faced now, and definitively, a multitude of cases
involving many millions of dollars of alleged liability,
and imposing millions of dollars of expense upon the
participants and the jud‘<ial system, bid fair to produce
only tainted results in the form of voidable judgments
or settlements predicated upon unconstitutional coer-
cion.
A. The Seventh Amendment Right to a Unitary Jury Trial.
Every experienced trial lawyer understands that a
trial, whether before a judge or jury, does not consist
of presentation of a number of isolated and distinct
issues to be resolved seriatim. Rather, it is an attempt
to recreate by description and reenactment a segment
of time during which the plaintiffs and defendants
interrelated in some manner. From that presentation,
the trier of fact forms a judgment as to whether the
defendants acted improperly to the detriment of the
plaintiffs. In a securities fraud litigation context, the
essential determination being made by the trier of fact
is whether or not the defendants have misled the plain-
tiffs to their damage in connection with the purchase
or sale of securities. In resolving this issue, a jury
was of the “strong opinion” that its order involved a controlling
—_ of law as to which there was substantial for
ifference of opinion and that it would not afford action
treatment to case unless its bifurcated jury trial order
was proper. 71 F.R.D. at 616.
0 ee oe ee
ee Oe
=— =
cannot make its determination rationally when pre-
sented with the transaction piecemeal by being offered
nothing but vignettes of both sides of the transaction.
The constitutional right to jury trial to be meaningful
must include the right to a single hearing on all interre-
lated issues, not fragmentary hearings, each in a vacuum
and possibly before different juries.
In 1931, this Court in Gasoline Products Co. v.
Champlin Refining Co., 283 U.S. 494 (1931), refused
to approve the partial retrial of a contract claim on
the issue of damages without retrial of the related
liability issues, because the jury could not adequately
fix the amount of damages unless it was also permitted
to decide the terms of the contract and the dates
of formation and breach. This Court announced the
following test for determining the constitutional pro-
priety of a jury retrial of only a portion of the issues
posed by the litigation:
“Where the practice permits a partial new trial,
it may not properly be resorted to unless it clearly
appears that the issue to be retried is so distinct
and separable from the others that a trial of
it alone may be had without injustice. [Citations
omitted.] Here the question of damages on the
counterclaim is so interwoven with that of liability
that the former cannot be submitted to the jury
independently of the latter without confusion and
uncertainty, which would amount to a denial of
a fair trial.” [Emphasis added.| 283 U.S. at 500.
Although the decision concerned partial retrials after
appellate proceedings, the concepts of the holding are
necessarily equally pertinent to bifurcation of issues
for trial in the first instance.
—
No rules promulgated since the Gasoline Products
decision may or do sanction a reduction in the scope
of a litigant’s Seventh Amendment right to a unitary
jury trial. The Enabling Act, which authorized this
Court to adopt the Federal Rules of Civil Procedure,
clearly provides that those rules “shall not abridge,
enlarge or modify any substantive right and shall pre-
serve the right of trial by jury as at common law
and as declared by the Seventh Amendment to the
Constitution”. 28 U.S.C. §2072. This limitation was
expressly endorsed by this Court in Snyder v. Harris,
394 U.S. 332, 336 (1969). Moreover, the right of
trial by jury as declared by the Seventh Amendment
is expressly preserved inviolate by Rule 38(a) and
also by Rule 42(b), which authorizes federal district
courts to order separate trials on “any separate issue[s]”
subject to the admonishment that a court in exercising
such discretion must “always preserv[e] inviolate the
righ: of trial by jury as declared by the Seventh Amend-
ment to the Constitution. . . .” Significantly, the Ad-
visory Committee Note to the 1966 Amendment to
Rule 42 states:
“In cases . . . in which the parties have a
constitutional or statutory right of trial by jury,
separation of issues may give rise to problems.
See e.g., United Air Lines, Inc. v. Wiener, 286
F.2d 302 (9th Cir. 1961). Accordingly, the pro-
posed change in Rule 42 reiterates the mandate
of Rule 38 respecting preservation of the right
to jury trial.” F.R. Civ. P., Rule 42, Advisory
Committee Note.
Pursuant to the Enabling Act, the provisions of
Rule 23, and particularly Rule 23(c)(4)(A) providing
a
“
ee
—
for certification of a class with respect to particular
issues only, are of course subject to the same admoni-
tion that the right of trial by jury must be preserved
inviolate. It is settled that as an absolute minimum
a litigant in a class action may obtain a jury trial
on any legal issues presented. Ross v. Bernhard, 396
U.S. 531, 541 (1970).
In contexts other than class actions, the lower federal
courts have recognized that separate or bifurcated trials
on certain issues violate a litigant’s Seventh Amendment
right to trial by jury where it does not clearly appear
that the issues severed are so distinct and separable
that a bifurcated trial might be had without injustice.
The Court of Appeals for the Ninth Circuit itself
so held in the case of United Air Lines, Inc. v. Wiener,
286 F.2d 302 (9th Cir. 1961), cert. den., 366 US.
924,” reversing an order of the District Court which
provided for a consolidated trial of liability issues in
twenty-three cases arising from an aircraft disaster,
reserving damages for later individual trials. The Court
of Appeals noted that “the issues of liability and dam-
ages, exemplary or normal, are not so distinct and
separable that a separate trial of the damage issues
may be had without injustice.” 286 F.2d at 306.”
28See also C. W. Regan, Inc. v. Parsons, Brinckerhoff, Quade
& Douglas, 411 F.2d 1379, 1388 (4th Cir. 1969); Reliable
Volkswagen Co. v. World-Wide Auto. Corp., 34 F.R.D. 134,
138-39 (D.N.J. 1963).
“More recently, in the class action context some lower
federal courts have recognized that this same Seventh Amend-
ment restriction on use of the bifurcation device applies. See,
e.g., Katz v. Carte Blanche Corp., 496 F.2d 747, 762 (3d
Cir. 1974), cert. den., 419 U.S. 885; Lah v. Sheil Oil
Co., 50 F.R.D. 198, 200 (S.D. Ohio 1970). Other lower
federal courts have refused to certify purported class actions
because of the severe manageability and lack of superiority
(This footnote is continued on next page)
oii
But it is obvious from the action of the Courts
below and those in the Third and Second Circuits
that the teaching of Gasoline Products has been dissipat-
ed and that the important constitutional right of trial
by a jury of one’s peers will not be protected adequate-
ly. Rather, the reality of trial presentation will be
sacrificed to promoting the efficient disposition of ex-
panded class actions. In accomplishing that unconsti-
tutional result here,” the Court of Appeals, while
acknowledging this Court’s decision in Gasoline Prod-
ucts and its own decision in United Air Lines, uti-
lized an incorrect test to determine whether the Seventh
Amendment requires a unitary jury trial in these pro-
ceedings.” Thus, the Court of Appeals held:
“[W]e cannot say, as a matter of law, that the
reserved issues are so ‘interwoven’ with the class
issues that presentation of all the issues together
at one hearing before one trier of fact is necessary
to comport with the guarantees of the Seventh
Amendment.” App. at Al6; 549 F.2d at 694.
This test, however, is not the test announced by
this Court in Gasoline Products. According to Gasoline
problems created by adherence to the Seventh Amendment right
to trial by ve See Schaffner v. Chemical Bank, 339 F.Supp.
329, 337 (S.D.N.Y. 1972); Bogosian v. Gulf Oil Corp., %
F.R.D. 124, 139 (E.D.Pa. 1973); and Morris v. Burchard,
51 F.R.D. 530, 535 (S.D.N.Y. 1971).
_™The Court of Appeals here appeared to be more concerned
with encou “novel and innovative” experimentation by dis-
trict courts ronted with the perceived exigencies of “modern
litigation of substantial complexity” than with protecting against
a. yg omy — bw Seventh Amendment right to
jury caused s experimentation. . at AIS,
A24; 349 F.2d at 693, 697. " toad
*°The Court of Appeals also applied an improper standard
tr soulow by mantions of te’ Clemens jus" ex
[ee ae ae ee eee a art
ra.
Sem ah teem Mie ema Fm
_
Products the burden is not upon petitioners to demon-
strate “as a matter of law” that the issues reserved
for separate trials are “so interwoven” with the class
issues as to require a unitary jury trial but rather,
as discussed above, the burden is upon those who
advocate separate jury trials to demonstrate that the
reserved issues clearly appear to be so distinct and
separable from the class issues that a trial of the
reserved issues alone may be had without injustice.
B. The Issues Reserved by the District Court for Separate In-
dividual Jury Trials Are Substantial and Interrelated With
“Class” Issues of Misrepresentation, Omission and Mate-
riality.
The transactions at issue, involving direct sales to
approximately 1,700 investors over a period of eight
years, were not impersonal market transactions. The
securities were purchased in fixed price units through
personal solici ations and there was no “market price”
dependent upon information issued by any defendant.”
The “classes” do not purport to include any purchasers
in a secondary market. Consequently, individual proof
will be crucial respecting at least the following insepar-
able and interrelated elements.
Whether the communications to investors were mis-
leading. In determining whether communications to an
27Unlike Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975),
cert. den., —U.S.—, the instant litigation involves no alleged
“fraud on the market”. It is inexplicable that the Court of >
peals purported to find similarities between the facts in Blackie
and those presented in this action. App. at A18; 549 F.2d at 694-
695. There, — shares were traded on the market imper-
sonally; it was alleged that misleading financial statements inflat-
ed the market price until corrected; accordingly, it was not
essential to the claim that individual investors even have known
of the financial statements. No such “fraud on the market”
facts are involved with respect to the securities here at issue.
==
investor were misleading, the trier of fact must analyze
all of the contemporary oral and written communica-
tions in their totality, rather than focusing upon only
one such communication, and must consider the sophis-
tication, motivations and actual knowledge of each
investor, derived from sources other than the black
and white of a prospectus, at least here where dircct
personal sales, entailing numerous oral communica-
tions by salesmen, sophisticated investors and their
advisors, are involved, not broad, impersonal securities
market transactions. See, e.g., Titan Group, Inc. v.
Faggen, 513 F.2d 234, 238-239 (2d Cir. 1975), cert.
den., 423 U.S. 840; United States v. Koenig, 388
F.Supp. 670, 716 (S.D.N.Y. 1974); ICM Realty v.
Cabot, Cabot & Forbes Land Trust, 378 F.Supp.
918 (S.D.N.Y. 1974); McMerty v. Burtness, 72 F.R.D.
450, 455 (D.Minn. 1976); Morris v. Burchard, 51
F.R.D. 530, 534 (S.D.N.Y. 1971).
Whether the complaining investor in fact was misled
by the communications to him—i.e., did he “rely”
and were the statements made the “cause” of his injury.
It is only rational, particularly in situations not involv-
ing impersonal open market transactions, that an invest-
or to recover upon the ground of securities fraud
must demonstrate that the communications made
reached him and were the cause of an investment
decision. This element of a securities fraud claim re-
mains firmly engrained in the law,” as this Court’s
*8Holdsworth v. Strong, 545 F.2d 687, 695-96 (10th Cir.
1976); Herzfeld v. Laventhol, Krekstein, Horwath & Horwath,
540 F.2d 27, 33 (2d Cir. 1976); Titan Group, Inc. v. F
513 F.2d 234, 238-39 (2d Cir. 1975), cert. den., 423 USS.
840; Chelsea Assoc. v. Rapanos, 527 F.2d 1266 (6th Cir.
1975); Raschio v. Sinclair, 486 F.2d 1029, 1030 (9th Cir.
1973); Landy v. Federal Deposit Insurance Corporation (3rd
Cir. 1973), 486 F.2d 139, 167-71, cert. den., 416 U.S. 960;
ee ef
ee a oe
—- =
recent decision in Blue Chip Stamps v. Manor Drug
Stores, 421 U.S 723 (1975), amply illustrates:
“The very real risk in permitting those in respond-
ent’s position [neither purchaser nor seller of se-
curities] to sue under Rule 10b-5 is that the
door will be open to recovery of substantial dam-
ages on the part of one who offers only his
own testimony to prove that he ever consulted
a prospectus of the issuer, that he paid any atten-
tion to it, or that the representations contained
in it damaged him.” [Footnote omitted. Emphasis
added.] 421 U.S. at 746.”
The practical effect of these rules is of course that
in the instant proceedings a careful and rational exam-
ination by a single jury of the total circumstances
surrounding the decision to invest by each of the in-
vestors in the ten oil ventures is necessary to determine
whether any investor actually was misled to his detri-
ment. Even the Court of Appeals’ summary of the
evidence presented by petitioners” reveals that there
Rochez Bros., Inc. v. Rhoades, 491 F.2d 402, 410 (3d Cir.
1974); Financial Indus. Fund, Inc. v. McDonnell Douglas Corp.
(10th Cir. 1973), 474 F.% 514, 517, 521, cert. den., 414
U.S. 874; REA Express, Inc. v. Interway Corp., 410 F. "
192, 199 (S.D.N.Y. 1976), reversed on other grounds, 538
F.2d 953 (2d Cir. 1976); McMerty v. Burtness, 72 F.R.D.
450, 455 (D.Minn. 1976). Some courts have considered the
element of “reliance” under the heading of “causation,” holding
that a misrepresentation, misleading ing statement, or omission must
have a cause in fact relationship with damage suffered or
must be a substantial factor in — . See, eg.,
Jackson v. Oppenheim, 533 F.2d 826 (2d Cir. 1976); Shapiro
v. Merrill Lynch, Pierce, Fenner & Smith, 495 F.2d 228,
239 (2d Cir. 1974); Chris-Craft Industries, Inc. v. Piper Air-
craft Corp., 480 F.2d 341 (2d Cir. 1973), cert. den., 414
U.S. 910; Globus v. Law Research Service, Inc., 418 F.2d
1276, 1291-92 (2d Cir. 1969), cert. den., 404 U.S. 941.
And see opini of Powell, J., joined by Stewart, J.,
and Marshall, y. 421 US. at 757-61, and Blackmun, J., joined
by Douglas, J., and Brennan, J., 421 U.S. at 770-71.
*App. at A6-A7; 549 F.2d at 689-90.
=
are genuine issues indeed as to whether investors in
these various ventures relied upon the miscellaneous
writings selected by plaintiffs or rather upon side deals,
finders’ fees and other benefits conferred by Jack Burke,
oral representations, investment advisors and counselors,
or other factors for which petitioners have no responsi-
bility.
Whether the claims of the various claimant-investors
are barred by virtue of defenses arising from their
conduct. The facts presented by petitioners in opposition
to certification of classes in these proceedings indicate
that the claims of substantial numbers of the purported
investor-class members are subject to defenses of waiver,
estoppel, laches, ratification, unclean hands, statutes
of limitations, and pari delicto. See Winkelman vy.
Blyth & Co., Inc., 518 F.2d 530 (9th Cir., 1975),
cert. den., 423 U.S. 929; James v. DuBreuil, 500
F.2d 155 (Sth Cir. 1974); Turner v. Lundquist, 377
F.2d 44 (9th Cir. 1967); Royal Air Properties, Inc.
v. Smith, 312 F.2d 210 (9th Cir. 1962). For example,
the Ebner action, the Howenstein action and the Kauf-
man action each were brought after the expiration
of the time specified in the applicable statutes of limita-
tions.” In such circumstances, it is well settled that
the plaintiff-investors must carry the burden of demon-
The Rule 10b-5 claims are subject to the three
statute of limitations in Section 338(4) of the California
of Civil Procedure which begins to run when the essential
circumstances of the supposed fraud are, or should have been,
discovered by the plaintiff-investor. United California Bank v.
Salik, 481 F.2d 1012, 1015 (9th Cir. 1973); Plaintiff Kaufman’s
Section 12(2) claim is a t, covered by Section 13 of
the Securities Act of 1933 (15 U.S.C. §77m) which requires
such a claim to be brought “within one year after discovery
of the untrue statement or the omission, or after such discovery
should have been made by the exercise of reasonable diligence.
—_ =
strating an excuse for failure timely to discover the
bases for their purported claims.** Obviously the resolu-
tion of such issues cannot be accomplished rationally
without considering the total circumstances involved,
including the conduct of each investor and the amount
of information that each investor had or learned about
the various oil ventures.
Whether each investor suffered any damage, and
‘ if so, how much. Investors in the oil ventures invested
for the express purpose of obtaining tax benefits and
presumably they did so. Consequently, petitioners sub-
mit that they should be entitled to prove these benefits
with respect to each investor, to the extent not subject
to recoupment by the government in the event of
a judgment in favor of plaintiffs,** since these tax
considerations were at the heart of the investment
decisions in question. In transactions such as the
instant proceedings where tax considerations were para-
mount, no reason whatever exists to deprive petition-
ers of the opportunity to demonstrate, by expert evi-
dence, the complete economic effects of the transactions
upon each of the investors. Resolution of such damage
issues of course can only be made by considering
the totality of the circumstances applicable to each
investor separately.
82. 9., Turner v. Lundquist, 377 F.2d 44 (9th Cir. 1967);
Hupp v. Gray, 500 F.2d 993 (7th Cir. 1974); Casualty Insur-
ance Co. v. Rees Investment Co., 14 Cal.App.3d 716, 92
Cal.Rptr. 857 (1971).
83See the discussion in Hanover Shoe, Inc. v. United Shoe
Machinery Corp., 377 F.2d 776, 792-93 (3rd Cir. 1967),
and the su t reversing opinion by this Court, 392 U.S.
481, 503 (1968).
%4Of course, these tax considerations also are highly relevant
to the motivation of each investor in investing in the first
and to whether each investor in fact relied on any
of the representations made with respect to the investments.
iin
C. The “Innovative” Order of the District Court Will Necessitate
an Artificial Severance of Interrelated Issues and Compel
Consideration of Each Before Different Juries.
The issues discussed in Part I.B above are vital
to both plaintiffs’ and defendants’ cases and, indeed,
constitute most of the matters at issue in these proceed-
ings.
It is simply unimaginable for a jury in a purported
“class trial” to determine rationally whether or not
assorted selected writings issued with respect to un-
registered and registered securities of ten oil ventures
over an eight-year period were “materially misleading”
because of the fault of diverse defendants and for
that jury to do so in an artificially created vacuum
isolated from evidence of (i) the complete presenta-
tion made to each investor, (ii) other considerations
motivating the investor, (iii) the knowledge possessed
by the investor, and (iv) the complete factual con-
text in which the information was imparted to the
investor.” It is equally unimaginable that following
the rendition of such an abstract determination the
fundamental issues of reliance, causation, knowledge
of facts allegedly misrepresented or omitted, statutes
%In the context of eliminating the so-called “plain meaning
rule” from the law of contracts, former Californis® Chief Justice
Traynor pointed out that interpreting a written instrument with-
out reference to factual context would “presuppose a degree
of verbal precision and stability our language has not attained.”
Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co.,
69 Cal.2d 33, 37, 69 Cal. Rptr. 561, 442 P.2d 641 (1968).
ot — —_ “do me ee absolute = constant referents,”
thus “meaning icular words or groups of words
wasien wth Ge *. . . walle Colaemn a6 cummietita Geumiioions
ES ee ee ee er
of their users and their hearers or readers... .”” Cal.2d
at 38. Exclusion of evidence of surrounding circumstances “is
on orn ot paren oe ~~
Ne ee NR IS A
=— =
of limitations, laches, waiver, estoppel, ratification, un-
clean hands, and pari delicto could be adjudicated
rationally by juries playing no role in determining
whether or not the presentation to each investor was
misleading.
Such radical surgery upon the substantive elements
of a securities fraud claim in order to accommodate
the class action procedural device should not be counte-
nanced and plainly is constitutionally prohibited where
the inevitable result is a deprivation of petitioners’
Seventh Amendment right to a jury trial.
The Court of Appeals’ suggestion that there is nothing
in the District Court’s order that would preclude the
same jury that hears the class trial issues from later
hearing the excluded individual issues is a victory of
theory over reality. The District Court’s order provides
that subsequent trials on the individual issues affecting
1,700 investors will occur no sooner than 90 days
after any decision in favor of the plaintiffs in the
class trial.” If it is in fact seriously contended that
one jury is to be retained to hear the class trial together
with trials of the individual issues after expiration of
the 90-day claim period, then the procedure is manifestly
unworkable and imposes unacceptable burdens upon
prospective jurors.”
8¢App. at A31.
37Particularl —— is the following comment of the
court in Schaffner v. Chemical Bank, 339 F.Supp. 329 (S.D.N.Y.
1972):
“Parenthetically, the notion of utilizing a jury trial in
a class suit containing the varied problems certain to abound
herein, is enough to chill any further discussion of the
required superiority of a class claim over other available
methods for the fair and efficient adjudication of the contro-
versy. Such a trial, whether one trial or the multiple
(This footnote is continued on next page)
_
Moreover, the suggestion that a single jury could
in fact constitutionally hear both the class trial and
the subsequent trials of individual issues in these pro-
ceedings loses sight of the nature of the Seventh Amend-
ment right to a unitary jury trial on inseparable and
interrelated issues. Where issues are so related that
each cannot be submitted to a jury independently with-
out confusion and uncertainty which would amount
to a denial of a fair trial, “separate trial, even to
the same jury, would be erroneous.” 9 Wright & Miller,
Federal Practice & Procedure, Civil §2391, at 303-
04.
Petitioners do not contend by the foregoing that
issues may never be excluded from the trial of common
questions in class actions but only that such an ex-
clusion is impermissible and unconstitutional when it
cannot be accomplished without an abandonment of
the underlying restrictions of the Seventh Amendment.
As the court in National Auto Brokers Corp. v. General
Motors Corp., 60 F.R.D. 476 (S.D.N.Y. 1973), recog-
nized:
“It is true that under Rule 23 there may be,
when appropriate, a single trial of common issues
and then separate trials of individual issues. See
Green v. Wolf Corp., 406 F.2d 291, 301 (2d
Cir. 1968), cert. den., 395 U.S. 977, 89 S.Ct.
mini-trials probably required, would withdraw from all other
usefulness for years to come the federal judicial personnel
involved. Where one could muster jurors willing to devote
themselves so indefinitely in time from their accustomed
tasks, is puzzling. And one might relevantly ask—what
= interest would be served by devoting public’s
Seliites in ta uy ond tue tat suites ean ond.
a colossal marshallin , hy — resources and their sup-
porting personnel?” Supp. at 337. See also footnote
24, supra.
eeceumiananen ~te" ”
= Ss
2131, 23 L.Ed.2d 766. But this assumes that
the individual issues can be reasonably split off,
and also assumes that the individual issues can
be handled with some degree of expedition and
efficiency.
“I am confident that neither condition exists
in the present case. In this case, the so-called
common issues such as conspiracy should not be
tried in the abstract in the absence of the flesh-
and-blood claimants to show the alleged effects
of the conspiracy. * * *” [Emphasis added. |
60 F.R.D. at 491.
In the instant proceedings, the Court of Appeals’
order sanctioning a class trial of only portions of the
general liability question likewise has the inevitable
effect of leaving for later trials by various juries the
question of whether any defendant has specific liability
to flesh and blood investors. This order directly violates
this Court’s pronouncement that “[o|nly one trier of
fact should be used for the trial of what is essentially
one lawsuit.” Fitzgerald v. United States Lines, 374
US. 16, 21 (1963).
II
The Standard Adopted by the Court of Appeals for Re-
view of the District Court Order Curtailing Peti-
tioners’ Right to a Jury Trial Conflicts With Ap-
plicable Decisions of This Court and Constitutes
an Abdication of Effective Protection of an Im-
portant Constitutional Right.
Underlying the Court of Appeals’ refusal to issue
a writ of mandamus or other appropriate writ vacating
and setting aside the District Court’s erroneous class
action certification order was its unduly narrow and
— =
technical application of the traditional standards for
review by mandamus.” While in the usual case tests
for mandamus review based upon “clear and indisput-
able error” or “compelling circumstances” may be ap-
propriate, this Court has made clear that a far more
liberal standard is to be applied where the right to
trial by jury has been circumscribed.
Thus, in Beacon Theatres, Inc. v. Westover, 359
U.S. 500 (1959), this Court reversed a decision of
the Ninth Circuit Court of Appeals which had denied
a petition seeking a writ of mandamus to require a
District Court to set aside a ruling proposing to try
in equity, without a jury, issues that were also common
to a legal proceeding to be tried subsequently. In
so holding, this Court applied a standard of review
very different from the stand rd applied by the Court
of Appeals in the instant proceedings:
“We granted certiorari, 356 U.S. 956, because
‘Maintenance of the jury as a fact-finding body
is of such importance and occupies so firm a
place in our history and jurisprudence that any
seeming curtailment of the right to a jury trial
should be scrutinized with the utmost care.’ Dimick
v. Schiedt, 293 U. S. 474, 486.” [Emphasis
added. | 359 US. at 501.
In Dairy Queen, Inc. v. Wood, 369 U.S. 469 (1962),
this Court recognized that its decision in Beacon Thea-
tres “emphasizes the responsibility of the Federal Courts
of Appeals to grant mandamus where necessary to
protect the constitutional right to trial by jury .. .,”
369 U.S. at 472, and this Court further recognized
that even limited inroads upon the right to trial by
88App. at A9-A13; 549 F.2d at 691-92.
—
jury “‘“should seldom be made, and if at all only
when unusual circumstances exist.”’” 369 U.S. at
478 n. 18.
Since the rendition of Beacon Theatres and Dairy
Queen, the Courts of Appeals consistently have recog-
nized that these decisions imposed a greater responsibil-
ity for review by mandamus of federal district court
actions affecting a litigant’s right to trial by jury than
might exist in other circumstances. For example, in
Goldman, Sachs & Co. v. Edelstein, 494 F.2d 76
(2d Cir. 1974), the Court of Appeals for the Second
Circuit stated:
“[T|he Supreme Court, in Beacon Theatres, Inc.
v. Westover, 359 U.S. 500, 511, 79 S.Ct. 948,
3 L.Ed.2d 988 (1959), removed any doubt regard-
ing the propriety of using mandamus to protect
a litigant’s right to a jury trial of issues, citing
Judge Frank’s decision in Bereslavsky v. Caffey,
161 F.2d 499 (2d Cir. 1947). Indeed, in its
later decision in Dairy Queen v. Wood, 369 U.S.
469, 82 S.Ct. 894, & L.Ed.2d 44 (1962), the
Court implied that it is our duty to grant man-
damus in aid of that right. . . .” [Emphasis
added.|] 494 F.2d at 78.
Similarly, in In Re Union Nacional de Trabajadores,
502 F.2d 113 (ist Cir. 1974), opinion withdrawn
on other grounds, 527 F.2d 602 (1975), the First
Circuit Court of Appeals, after acknowledging the “ex-
ceptional circumstances” and “clear and indisputable
error” standards traditionally applicable for issuance of
a writ of mandamus, noted:
“There seems to be some relaxation of this
requirement when the petitioner seeks enforcement
= =
of a right to a jury trial. In a civil case, there
is no doubt that mandamus is appropriate if a
jury trial is being wrongfully denied, even, it would
appear, when the decision whether such right ex-
ists is a close or complicated one.” [Citations
omitted.| 502 F.2d at 115-116.
To the contrary, the Court of Appeals below mis-
takenly applied the “clear and indisputable error” and
“compelling circumstances” standards with full vigor
although petitioners’ rights to trial by jury were at
stake.
Conclusion.
When in a jury case a district court splinters a
basic unitary question of liability into a collection
of “issues” and orders bifurcated trials of those issues,
despite the fact that the issues are inseparable and
in fact correlative parts of the basic liability ques-
tion, the inevitable result is an unconstitutional de-
privation of the litigants’ Seventh Amendment right
to a meaningful trial by jury, whether or not the
same jury may be utilized throughout the bifurcated
proceedings. Such an order is no less unconstitutional
merely because it is rendered to facilitate the use
of the class action procedural devise in complex business
litigation.
The constitutional problem raised by such an order
is not an isolated one but rather is recurring with
ever increasing frequency as the district courts experi-
ment with procedural devices to handle complex litiga-
tion. The Courts of Appeals, however, by adhering
to self-imposed, unduly technical standards for review
of this jury trial issue, have failed to confront the
problem and have instead implicitly sanctioned such
= =
experimentation without providing any guidance to the
district courts concerning Seventh Amendment implica-
tions.
Unless this important constitutional problem is con-
fronted now, and definitively, by this Court, case after
case, particularly those of the greatest magnitude, will
produce only fatally defective products. When this Court
later corrects such results, as it eventually must, it
will be too late for many litigants, including petitioners.
Petitioners therefore respectfully pray that this Court
grant their petition to give guidance now to the dis-
trict courts and relief to those vitally affected by the
order of the Court of Appeals below.
Dated: June 1, 1977.
Respectfully submitted,
ROBERT S. WARREN,
GrBson, DUNN & CRUTCHER,
RICHARD J. ARCHER,
SULLIVAN, JONES & ARCHER,
Counsel for Petitioner
Otis Chandler,
PAUL J. BSCHORR,
WHITE & CASE,
M. LAURENCE PopPoFsky,
HELLER, EHRMAN, WHITE & MCAULIFFE,
Counsel for Petitioner
Arthur Young & Company,
by RoBERT S. WARREN.
APPENDIX.
Opinion.
United States Court of Appeals, for the Ninth Circuit.
Arthur Young & Company et al., Petitioners, v.
United States District Court, etc., Respondent, Albert
Kaufman et al., Real Parties In Interest. No. 75-1990.
Filed March 4, 1977.
Appeal from the United States District Court for
the Northern District of California.
Before BROWNING and CHOY, Circuit Judges,
and LUCAS,* District Judge.
OPINION
LUCAS, District Judge:
This petition is brought pursuant to the All Writs
Statute, 28 U.S.C. § 1651. It arises out of three re-
lated civil actions now pending in the Northern Dis-
trict of California.’ The district judge presiding over
*Honorable Malcolm M. Lucas, United States District Judge
for the Central District of California, sitting by designation.
1These actions are entitled and numbered Albert Kaufman,
etc., v. John P. Burke, etc., et al., No. C-72-1473 WTS (here-
Geotek Resources Fund, Inc., et al., No. C-73-0819 WTS
(hereinafter the “S.E.C. action’), and Edmund H. Shea v. John
P. Burke, No. 73-0899 WTS (hereinafter “Shea”). The S.E.C.
action seeks injunctive i those allegedly involved in
—_*
the cases certified each action as a class action with
respect to certain issues, reserved other issues for sepa-
rate determination, and required the preparation and
mailing of notices to members of the classes. Petitioners,
defendants in one or more of the actions below,”
seek a writ of mandamus, or some other appropriate
writ, that would require the district court in each
case, to vacate and set aside its order and strike
all the class allegations from the complaint. Alternative-
ly, they seek a writ of mandamus which would order
the district court to certify its order for interlocutory
appeal, pursuant to 28 U.S.C. § 1292(b). They have
also filed an appeal from the class certification order
under 28 U.S.C. § 1291. The real parties in interest,
the named plaintiffs below, oppose the petition and
move to dismiss the appeal. We deny the petition
in its entirety and dismiss the appeal.
BACKGROUND*®
Plaintiffs in each of these actions seek damages
and equitable relief for fraudulent investment schemes
of which John Burke, a defendant in the actions below
but not a petitioner here, allegedly was the primary
creator and promoter. From 1964 through 1968, J.
B. Oil Company, a corporation controlled by Burke,
and Edmund Beckwith, defendants in
had been named in the Ebner action, but was dismissed
the ;
v. Barrack, 52A F.2d 891, 900-901, n.16, 17, . denied,
—US.—, 97 S.Ct. 57, 50 L.Ed.2d 75 (1976).
if
initiated the sale of interests in five oil exploration
joint ventures (the “J. B. Ventures”). These interests
were offered by means of written circulars and other
written promotional devices, as well as through oral
solicitations. In 1970, the interests of all investors
in the four 1964 through 1967 J. B. Ventures were
exchanged for stock in Petroleum 2000 Corporation,
a corporation controlled by Burke. In 1971, the interests
in the 1968 J. B. Venture were exchanged for shares
in Petroforce Corporation, another Burke controlled
entity. From 1969 through 1971, Geotek Resources
Fund, Inc., and GTR Management (the “Geotek corpo-
rations”) formed and sold interests in five limited part-
nerships (the “Geotek partnerships”) set up to explore
for both oil and gas. These partnership interests were
sold pursuant to a registration statement and prospectus
filed with the Securities and Exchange Commission.
At all times relevant to this litigation, Burke was
an officer and director of both Geotek corporations.
He originally owned all the outstanding shares of GTR.
The Ebner action, filed February 1, 1973, is based
on the sales of 1964-1967 J. B. Ventures and the
exchange in 1970 of those joint venture interests for
shares in Petroleum 2000. Claims are asserted under
§ 10(b) of the 1934 Securities and Exchange Act
(15 U.S.C. § 78j(b)), and S.E.C. Rule 10b-5 promul-
gated thereunder (17 C.F.R. § 240.10b-5). Plaintiff
Ebner alleges that he bought an interest in the 1965
J. B. Venture and traded that interest for Petroleum
2000 shares in 1970. The certification order designates
Ebner as the class representative for all those who
bought interests in the 1964-1967 J. B. Ventures and
all shareholders of Petroleum 2000 Corporation. This
class consists of 319 investors. The complaint in Ebner
a Yo
alleges, in essence, that misrepresentations and mislead-
ing omissions were made in offering circulars and pro-
motional material disseminated in connection with the
sales of J. B. Ventures and the Petroleum 2000 ex-
change.
Howenstine was filed on May 3, 1974; here again,
§ 10(b) and Rule 10b-5 are the grounds stated for
the relief sought. The named plaintiffs are an individual
investor in the 1968 J. B. Venture and an unincorpo-
rated association of five investors in that venture. The
April 21, 1975 order certifies the class in this action
as all those who bought interests in the 1968 J.
B. Venture and all shareholders of Petroforce Corpora-
tion. There are 187 such investors. The Howenstine
complaint alleges that materially false and misleading
Statements were made in advertising brochures used
to solicit purchases of the 1968 J. B. Venture interests,
in the Venture agreement sent to investors in the
1968 J. B. Venture, in a printed circular that tendered
the Petroforce shares for the J. B. Venture interests
in 1971, and in various financial statements prepared
by Arthur Young & Co. in connection with the sale
and operations of the venture and corporation.
The Kaufman action, filed August 14, 1972, arises
out of the Geotek partnership sales. The complaint is
based upon § 12(2) and § 17 of the 1933 Securities
Act (15 U.S.C. §§ 771(2), 77q), § 10(b) of the
1934 Act, and Rule 10b-5. This plaintiff now contends
that his action is also proper under § 11 of the 1933
Act (15 U.S.C. § 77k), although this section was
not specifically pleaded as a basis for relief.‘ Plaintiff
‘This contention is opposed by petitioners and has been
vigorously argued throughout the Rule 23 proceedings. The
issue, however, has not yet been presented to the district court
iis oe
oniiiinn
Kaufman purchased interests in the first two of the
five Geotek partnerships and, by the district court's
certification order, represents the purchasers of interests
in each of the Geotek partnerships. This class consists
of 1,215 members. The Kaufman complaint describes
petitioners Chandler and Ramo as directors of the
Geotek corporations at all relevant times. Petitioner
Beckwith held, and still holds, various officer positions
with the corporations according to the complaint.
Petitioner Arthur Young & Co. allegedly performed
auditing and other accounting services for the Geotek
corporations and partnerships. All the petitioners are
alleged to have knowingly participated in, and aided
and abetted, the conduct alleged in the complaint.
The complaint sets forth materially false and misleading
statements that allegedly appeared in the prospectuses
issued by the corporations in connection with the sales
of the partnership interests. In addition, the complaint
alleges that Burke made various oral misrepresentations
to plaintiff Kaufman and others regarding the Geotek
partnership.°
for formal decision. The district court class certification order
did not specify the — of federal law under which
trial in these cases oceed. The division of issues
made by the order could interpreted to either approve
class trial of all § 11 liability issues in Kaufman, or to ignore
the § 11 claims in their entirety. Petitioners’ opposition to
the class certification in Kaufman is premised on the non-
existence of § 11 claims in that action. Petitioners have made
no argument that § 11 claims in Kaufman cannot be tried
on a class basis in one trial if the district court concludes
them to have been asserted.
®The claims based on ibly-c' gent oral misrepresenta-
tions made by oe others . investors in the Geotek
partnerships and J. B. Ventures complicate any consideration
of class certification tia these actions, because common issues
presented by the various claimants on these claims may not
(This footnote is continued on next page)
andi
In opposition to the motion to certify the classes,
petitioners submitted evidence which they contend dem-
onstrates the impropriety of the class certifications.
They presented their own exhibits and affidavits, as
well as responses given in discovery by named plaintiffs.
The evidence which petitioners presented indicates that
some interests in each of the J. B. Ventures were
sold by means of oral presentations given to investors
by Burke and another defendant. Petitioners contend
that the other defendants, including themselves, did
not participate in these solicitations. In making their
investment decisions, say the petitioners, some of the
investors relied on these presentations, or on the advice
of others, and not on any written material. Some of
these investors had personal contact with the defendants,
say petitioners, but others did not. The petitioners
have further shown that the investors in the J. B.
Ventures were sophisticated investors with high incomes.
They contend that these investors were looking for
risky investment as tax write-offs, and that some mem-
bers of the Ebner and Howenstine classes were dissatis-
fied with the Burke programs as early as 1966 and
had made inquiries and complaints to various agencies
some time prior to 1970.
In addition, the petitioners raise questions about
special arrangements, such as finders’ fees and kick-
backs, which Burke had with some class members.
Furthermore, petitioners note that the Geotek partner-
ships were also sold to high income investors through
2 ay 0 See oe ee Se Se ae
material. In an apparent attempt to allay the district court’s
concern about these complications, the plaintiffs withdrew all
claims based on oral misrepresentations. Nevertheless, there re-
mains the problem of defenses based on oral misrepresentations,
at least in theory. See page 693 infra.
—_—
oral presentations; as set out in Kaufman’s complaint,
and as stated by him in deposition, he bought his
Geotek interest after such a presentation. Finally, peti-
tioners presented some evidence relating to the possible
conflicts between the respective class representatives
and their classes. All of this information was, of course,
before the district court when it made its determination
to certify the classes.
The class certification order was entered after many
lengthy hearings on the class motions, extensive briefing
by the parties, and serious and careful consideration
of the entire matter by the district judge. An important
feature of this order was that it certified certain issues
for class adjudication but excluded others from the
initial class trial. The order provided for certification
of each action on the following terms:
(a) As to the issues of liability of general
application, excluding the following issues: reliance
or causation, duty owed to the individual claimant
insofar as it may vary depending upon the status
of that claimant, knowledge of the claimant in-
vestor as to the facts allegedly misrepresented
or omitted, statute of limitations, laches, waiver,
estoppel, ratification, unclean hands and pari de-
licto;
(b) As to the issue of damages only to the
extent of determining the value of the | particular
interest received by the investor], together with
loss of profits, if any, within the meaning of
California Civil Code Section 3343, up to the
time of trial.
The order further excluded evidence of defendants’
oral misrepresentations from presentation at the class
—A8—
trial. The order, in addition, set the issues reserved
to be determined: “Upon individual claims to be filed
within ninety days of any judgment in the action in
favor of the plaintiffs.” It also stated that the district
court retained jurisdiction to modify the order at any
time, prior to a decision on the merits of the case.
Class notices were ordered prepared and submitted
for mailing. The motions of the defendants that the
actions not be maintained as class actions were denied.
Upon receipt of the class certification order, peti-
tioners filed a motion for certification of the order
for appeal pursuant to 28 U.S.C. § 1292(b). Shortly
thereafter, they noticed an appeal pursuant to 28 U.S.C.
§ 1291, and then filed the writ petition along with
an application for a stay of the district court proceed-
ings. After hearings in the district court, the district
judge stayed mailing of the class notices and com-
mencement of the trial for a limited time to allow
review of his rulings. The district judge also denied
the motion to certify the class order for interlocutory
appeal, and he later severed the S.E.C. action trial
from the trial of the other actions.
This court issued an order that stayed the trial
and the mailing of the class notices pending disposition
of the writ of mandamus. We then dismissed the petition
for a writ in the Shea action, vacated the stay as
to that case, and ordered that the remainder of the
petition be set down for oral argument. We have heard
argument, and the petition has been submitted for
our consideration.
The petitioners argue that the district court’s order
effectively denies them the Seventh Amendment right
to a jury trial on the issues of their liability and
nh lt A te OT
BR. neces «—~
————
— =
the plaintiffs’ damages. This is true, they assert, because
the issues certified for class treatment by the district
court are not so distinct and separable from the issues
left for later determination that separate trials of those
issues before separate juries can be held consistent
with the Seventh Amendment. See Gasoline Products
v. Champlin Refinery Co., 283 US. 494, 51 S.Ct.
531, 75 L.Ed. 1188 (1931); United Air Lines, Inc.
v. Wiener, 286 F.2d 302 (9th Cir.), cert. denied,
366 U.S. 924, 81 S.Ct. 1352, 6 L.Ed.2d 384 (1961).
The petitioners contend that as a result of this error
each of them faces the prospect of either accepting
millions of dollars in liability by settlement, or going
forward, after a cumbersome class trial, with a series
of burdensome and virtually endless trials on issues
distinctive with each claimant. They further contend
that the certification order does not accord with Fed.R.
Civ.P. Rule 23, and that the cases are not proper
for class treatment because, “individual issues predom-
inate, the actions as class actions are unmanageable,
the class action device is not the superior method
of resolving the controversies presented, and the class
representatives are not adequate fairly to protect the
interests of all investors.”
REVIEW BY MANDAMUS
The Supreme Court has recently stated that “[t]he
remedy of mandamus is a drastic one, to be invoked
only in extraordinary situations.” Kerr v. United States
District Court, etc., 426 U.S. 394, 402, 96 S.Ct. 2119,
2124, 48 L.Ed.2d 725 (1976). In Kerr, the Court
noted decisions that had expanded the use of mandamus
beyond its traditional limited use as a means of confin-
ing a lower court to the “lawful exercise of its pre-
—Alp--
scribed jurisdiction” or compelling it to exercise its
authority when it is its duty to do so,”’” Jd., 426 U.S.
at 402, 96 S.Ct., at 2124, citing Will v. United States,
389 U.S. 90, 95, 88 S.Ct. 269, 273, 19 L.Ed.2d
305, quoting Roche v. Evaporated Milk Assn., 319
U.S. 21, 26, 63 S.Ct. 938, 941, 87 L.Ed. 1185 and
still approved the less restricted definition of “jurisdic-
tion” it had applied in Will v. United States, supra.
See Kerr v. United States, supra, 426 U.S., at 402,
96 S.Ct., at 2124. Nevertheless by its opinion in Kerr,
the Supreme Court emphasized the “extraordinary” na-
ture of the writ, reaffirmed that only exceptional cir-
cumstances amounting to a judicial “usurpation of pow-
er” will justify the invocation of this extraordinary
remedy,® and clarified the proper nature and scope
of our inquiry on review by mandamus.’ The Court
id:
“ee
“As a means of implementing the rule that
the writ will issue only in extraordinary circum-
stances, we have set forth various conditions to
6426 U.S. at 402, 96 S.Ct. at 2124.
"Kerr recognizes a petition for a writ
ae SS ee ee pee
urt
A A i ei at. —
—Al1l—
its issuance. Among these are that the party seeking
issuance of the writ have no other adequate means
to attain the relief he desires, Roche v. Evaporated
Milk Assn., 319 U.S., at 26, 63 S.Ct., at 941,
and that he satisfy ‘the burden of showing that
{his} right to issuance of the writ is “clear and
indisputable.” ’’ Bankers Life & Cas. Co. v. Hol-
land, 346 U.S. [379], at 384, 74 S.Ct. [145],
at 148, [98 L.Ed. 106], quoting United States
ex rel. Bernardin v. Duell, 172 U.S. 576, 582,
19 S.Ct. 286, 287, 43 L.Ed. 559 (1899); Will
v. United States, 389 U.S., at 96, 88 S.Ct., at
274. Moreover, it is important to remember that
issuance of the writ is in large part a matter
of discretion with the court to which the petition
is addressed. Schlagenhauf v. Holder, 379 U.S.
104, 112 n.8, 85 S.Ct. 234, 239, 13 L.Ed.2d
152 (1964); Parr v. United States, 351 US.
[513], at 520, 76 S.Ct. [912], at 917 [, 100 L.
Ed. 1377]. See also Technitrol Inc. v. McManus,
405 F.2d 84 (CA 8), cert. denied, 394 U.S. 997,
89 S.Ct. 1591, 22 L.Ed.2d 775 (1969); Pacific
Car and Foundry Co. v. Pence, 403 F.2d 949
(CA 9 1968).” 426 U.S., at 403, 96 S.Ct., at
2124-25.
The Supreme Court has thus directed us to examine,
on a petition for a writ of mandamus, the degree
of certainty that there was error committed by the
district court and the alternative procedural means avail-
able to either correct the error or remedy the collateral
harm that will flow from the error. If we determine
that the error, if any, is not “clear and indisputable,”
or that there are alternative means available to correct
—Ai2—
the error or remedy the harm, the writ will not issue.
Where the lack of remedy for a collateral harm is
asserted as the ground for issuance of a writ, moreover,
the proponent of the writ must also demonstrate that
the harm will, in all likelihood occur, absent the writ.
Interference with the trial court’s control over its own
proceeding is not a matter to be undertaken lightly
or on the basis of mere speculation by the parties
or the reviewing court about what may occur at some
future date.
Once we have determined that the district court
clearly erred and that the error or the injury which it
causes is not remediable by other means, we may then
decide whether to exercise our discretion to issue the
writ. The primary consideration in any decision to exer-
cise that discretion is the gravity and nature of the error
or harm asserted as a basis for the writ. Other signifi-
cant factors may come into play, however, such as
the effect of issuance of the writ on the proceedings
below when viewed in light of all the circumstances
of the litigation, or some public, judicial, or legislative
policy that, in the particular instance weighs for or
against issuance of the extraordinary writ.
For the reasons given below, we conclude the peti-
tioners have not demonstrated with certainty that the
district judge made a clear and indisputable mistake
in certifying the class issues and separating certain
other issues for individual adjudication. Having failec
to find any error that was “clear and indisputable,”
we need not determine whether remedies alternative
to mandamus exist or whether the gravity and nature
of the harm compels us to exercise our discretion
to issue the writ. We conclude, therefore, that “com-
Om ome
—A13—
pelling circumstances” do not exist under the facts
of this case sufficient to empower us to invoke the
extraordinary remedy.”
LACK OF CLEAR ERROR
Fed.R.Civ.P. 42(b) provides district courts with
the power to order a separate trial of any issues when
such an order is “in furtherance of convenience or
to avoid prejudice, or when separate trials will be
conducive to expedition and economy.” Fed.R.Civ.P.
23(c)(4) allows for class treatment of particular issues
if such treatment is otherwise appropriate under Rule
23. Rule 23(d) provides the trial judge presiding over
any class action with “extensive powers to expedite
the suit with procedural innovations.” Blackie v. Bar-
rack, 524 F.2d 891, 907, n.22 (9 Cir. 1975) cert.
denied, __ U.S. __, 97 S.Ct. 57, 50 L.Ed.2d 75 (1976).
Each of the rules just cited are, of course, subject
to the Seventh Amendment’s guarantee of the right
*We rceive no conflict between our opinion and that
of the in Green v. Occidental Petroleum Corp., 541
F.2d 1335 (9th Cir. 1976). In Green, the “clear and indis-
putable” error furnished the “ circumstances” nec-
essary for the issuance of the writ. In McDonnell Douglas
Corp. v. U. S. Dist. Ct., 523 F.2d 1083, 1097 (9th Cir.
1975), this Circuit issued a writ of mandamus where the
district court’s decision constituted a “clear abuse of discretion”
and the same district j had “reached an identical decision
in a prior case... . e also note the McDonnell Douglas
opinion found the district court’s order was directly contrary
to a recent decision of the Ninth Circuit. This amounts to
adherence to the “clear error” rule we follow here. McDonnell
Douglas, decided prior to Kerr v. United States District Court,
ore, Sn ee Sree oS anene of other relief as i
by Kerr, although it appears teral harm to be red
ty ho mailing of unt to Go chen a matter of
concern in a com a tie an et Soe
Inc. v. United States District Court, 523 F.2d 1073 (9th Cir.
1975) was considered by the court in McDonnell Douglas.
—A14—--
to a jury trial in federal civil cases. The constitutional
right to a jury trial has been held to require trial
of all issues before one jury in some circumstances.
Gasoline Products Co. v. Champlin Refining, supra;
United Air Lines, Inc. v. Wiener, supra. The right
to a unitary jury trial is not an absolute one, however,
Swofford v. B & W, Inc., 34 F.R.D. 15, 20 (S.D.
Tex.1963), affd 336 F.2d 406 (5 Cir. 1964), cert.
denied, 379 U.S. 962, 85 S.Ct. 653, 13 L.Ed.2d 557
(1965); O’Donnell v. Watson Bros. Transportation Co.,
183 F.Supp. 577 (N.D.II. 1960), a principle recognized
by both the Gasoline Products and United Air Lines
decisions. In United Air Lines, for example, this Cir-
cuit expressly refused to hold that such an absolute
right exists, but rather stated that where the questions
sought to be bifurcated were “[s]o interwoven .. .
that the [one] cannot be submitted to the jury inde-
pendently of the [other] without confusion and uncer-
tainty which would amount to a denial of a fair trial
. . . [citing Gasoline Products|,” 286 F.2d, at 306,
the bifurcation was unconstitutional. Furthermore, aside
from any issue of trial by separate juries, there is
no Seventh Amendment requirement that all evidence
be presented to the trier of fact at one hearing. As
stated by the Supreme Court in Gasoline Products:
“All of vital significance in trial by jury is that
issues of fact be submitted for determination with
such instructions and guidance by the court as
will afford opportunity for that consideration by
the jury which was secured by the rules governing
trials at common law. [Citations omitted]. Beyond
this, the Seventh Amendment does not exact the
retention of old forms of procedure.” 283 U.S.
at 498, 51 S.Ct., at 514 (1931).
—A15—
The Supreme Court has not given the problem of
bifurcated jury trial significant consideration since the
_ 1931 Gasoline Products decision, or in the light of
the 1938 adoption of the modern Federal Rules of
Civil Procedure, or the 1966 amendments to Fed.R.
Civ.P. 23 and 42. Nevertheless, we believe Gasoline
Products, with its emphasis on the substance of the
right to a jury trial rather than its form, speaks directly
to contemporary courts faced with modern litigation
of substantial complexity. As long as the form of
trial adopted by the trial court “will afford opportunity
for the consideration by the jury” provided at common
law, there is no violation of the rights to a jury
trial. Gasoline Products Co. v. Champlin Refining Co.,
supra; see also United Air Lines, Inc. v. V/iener, supra.
As set out at page 690 supra, the district court’s
order provides for determination of the issues excluded
from the class certification and trial at the second
trial to take place at least ninety days subsequent
to any judgment in favor of the plaintiffs in the class
trial. Assuming the first trial is heard and the class
of the issues reserved are part of the class plaintiff's
case-in-chief. Rather they represent separate defenses
that may be raised to defeat the claims of certain
jury. There nothing in the district court order that
would a practical matter, and
we nothing inherently wrong with such a It
iin
members of the class. At present, it does not appear
that these defenses will be raised to defeat the claims
of all or many of the class members.” Furthermore,
these defenses are distinct from the class issues in
the cases. At this time, we cannot say, as a matter
of law, that the reserved issues are so “interwoven”
with the class issues that presentation of all the issues
together at one hearing before one trier of fact is
necessary to comport with the guarantees of the Seventh
Amendment. Our conclusion that there was no “clear
error” is supported by an examination of the various
individual and class issues involved in this litigation.
Petitioners contend that the separate issues to be
tried at the first class trial are whether misrepresenta-
tions or omissions of fact were made in connection
with the J. B. Venture or Goetek partnership sales
or the exchange of Petroleum 2000 or Petroforce stock,
whether a particular defendant bears responsibility for
any false or misleading statement so made, and whether
1°The significance of the district court’s separation of certain
liability issues from the class issues for later etermination
is not self-evident. It may be he concluded that such issues
few claims on which the
other hand, it may be he i
substantial but individual for each pa claimant. We are
of the view that if the issues left for later
in fact, substantial ones f
or all or most of the claimants,
they would be amenable to class proof. See Blackie v. Barrack,
supra, 524 F.2d, at 906-07, n.22. This would make the bifurca-
tion unnecessary and allow for full i i
in n
but not on such a large scale as to defeat the conclusion
of predominance of common issues as of
The reservation of these tions for later trial
claims is within the range of procedural devices allowable under
Rule 23(d).
—A17—
the facts misrepresented or omitted were material. The
issues reserved for later determination, say the petition-
ers, are the claimants’ reliance on the alleged misrep-
resentations,"' the extent of the duty owed by the
defendant to the particular claimant, the knowledge
of the individual claimant about the facts allegedly
misrepresented in or omitted from the statements made
by defendants, and other issues concerning the conduct
of each claimant that are relevant to equitable defenses
raised by defendants, such as waiver, estoppel, and
laches, or to a defense based on the statute of limita-
tions. Certain damage issues also will remain.
We find nothing prejudicial =bout the reservation
of the reliance issue. In cases where the securities
fraud is accomplished primarily by not telling potential
investors some fact that would effect the reasonable
investment decisions of investors, there is no need
to prove actual reliance on the omission by any claim-
ant who acted differentiy than would a reasonable
investor possessed of the withheld information. Affili-
ated Ute Citizens of Utah v. United States, 406 US.
128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972); Mills
v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct.
616, 24 L.Ed.2d 593 (1970); Little v. First California
Co., 532 F.2d 1302 (9th Cir. 1976); Blackie v. Bar-
rack, supra. The plaintiffs’ allegations in each of these
actions concern, in large part, defendants’ misleading
omissions. For example, information about Burke’s
We do not interpret the district court’s reservation of
the “reliance or causation” issues as more than a recognition
that reliance can be an element of the proof on the issue
of “causation” in Rule 10b-5 cases. Affiliated Ute Citizens v.
United States, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741
(1972); Blackie v. Barrack, supra. The petitioners do not
contend that the trial judge reserved any item relevant to
causation other than reliance for later determination.
—A18—
background and his mishandling of funds was allegedly
never revealed to any of the investors, and plaintiffs
assert that, the true relationship of petitioner Chandler
to Burke’s sales programs was concealed. We are of
the view the primary causation issues for most of
the claims here will be the materiality of those omis-
sions. The district court has determined that to be
a class issue for each of the cases, and the defendants
do not dispute that finding by the district court.
This Circuit has also expanded the Affiliated Ute
equation of materiality and causation to include those
cases involving misrepresentations that inflate the price
of stock traded on the open market. Blackie v. Bar-
rack, supra, 524 F.2d, at 906. The reason this proof
requirement was eliminated was the “unreasonable and
irrelevant evidentiary burden” it imposes on plaintiffs
in Rule 10b-5 private damage actions arising out of
open market frauds. /bid. In Blackie, this Court recog-
nized investors make their decisions based on a variety
of factors, often unrelated in any direct manner to
specific statements made to them about the investment
by those with actual knowledge about the investment.
Id., at 907. The Blackie opinion also pointed out
the indirect causal relationship between any fraud per-
petrated with respect to a particular open-market issue
and the purchase of the security by the purchaser.
Ibid. We find the Kaufman allegations are analogous
to the Blackie case with respect to the plaintiffs’ need
to prove causation through proof of reliance. The Geo-
tek partnerships were sold pursuant to registration state-
ments and prospectuses filed with the S.E.C. The stand-
ardized statements appearing in the prospectuses were
sent or shown to every investor in the Geotek part-
nerships. Just as the open market purchaser relies on
eee a EN, ty ARTO PR A Se
oo heen ier OR ae Mat) LL) eee re SS =
etnies Niet a
—A19—
the integrity of the market and the price of the security
traded on the open market to reflect the true value
of securities in which he invests, so the purchaser
of an original issue security relies, at least indirectly,
on the integrity of the regulatory process and the
truth of any representations made to the appropriate
agencies and the investors at the time of the original
issue. In Kaufman, the largest of these class actions,
therefore, we perceive no requirements that plaintiffs
prove actual reliance on the false and misleading state-
ments alleged in order to establish the liability of any
wrongdoing defendant to them.
There are separate problems with respect to the
right of the defendants to disprove causation in Kauf-
man or the other cases." Blackie states that the
defendants in cases where causation is proved infer-
entially through materiality of the relevant misstate-
ments may disprove the causal relationship between
defendants’ wrongful conduct and the plaintiffs’ decision
to invest. The defendants in the cases now before
us, at least those, such as petitioners, who did not
take part in the oral solicitation program, may try
to disprove reliance on the omissions or written mis-
representations by a showing that plaintiffs actually
relied on the oral presentations to the exclusion of
reliance on omissions or written misrepresentations.
These issues may be amenable to class proof, see
note 10, supra, but, in any event, the defendants have
relied on isolated instances of alleged non-reliance by
certain claimants, coupled with the existence of the
oral programs, to show they will expend substantial
amounts of court and jury time to disprove reliance.
12The plaintiffs base their claims in Ebner and Howenstine
only on omissions allegedly made by the defendants in connection
with the relevant transactions. a. & Ta meee
the problems these plaintiffs w ace to prove
those claims on a class basis. ”
—A20—
We find these instances of questionable evidentiary
significance for purposes of making a Rule 23 deter-
mination. We do not think the petitioners have yet
demonstrated that the proof of non-reliance which they
expect to submit at the later trial is of such volume
as to be significant to the district court’s determination
on the Rule 23 issues, or this court’s resolution of
the petition.
Another issue left for later individual determination
by the district court’s certification order was the ques-
tion of the relationship of each of the defendants to
each of the plaintiffs, and the duty owed by the par-
ticular defendant to the particular claimant. That this
issue was a major one in the cases arose from the
Ninth Circuit’s decision in White v. Abrams, 495 F.2d
724, (9 Cir. 1975). That case established the “flexible
duty standard” for determining the liability of a par-
ticular defendant to a particular plaintiff under § 10(b)
and Rule 10(b)-5. The holding in White v. Abrams
was predicated, in part, on the assumption that negligent
conduct by a party could, in some circumstances, estab-
lish his liability in a punitive damage action under
Rule 10b-5. Ernst & Ernst v. Hochfelder, 425 US.
185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976) eliminates
negligence, however, from the law of Rule 10b-5 private
damage actions, /d., 425 U.S. 193-194, 96 S.Ct. at
1381. The validity of the White v. Abrams “flexible
duty standard” must, therefore, be seriously questioned.
'8Ernst & Ernst v. Hochfelder may have significant impact
on the substance of the plaintiffs’ claims in this litigation.
Upon remand, we expect that one of the first orders of business
for the district court will be to make a determination of the
validity of the claims against petitioners and other defendants
under the principles of Ernst & Ernst v. Hochfelder. We express
no opinion on the merits of plaintiffs’ claims under Ernst
& Ernst v. Hochfelder.
Oe EE
—A21—
Although “reckless” conduct may still provide a grounds
for recovery under Rule 10b-5 by private plaintiffs,
see Ernst & Ernst v. Hochfelder, 425 U.S. at 193-
194, n.12, 96 S.Ct. at 1381, variations in the relation-
ship between the defendants and the plaintiffs are simply
not as important in a Rule 10b-5 action under Ernst
& Ernst as they were under White v. Abrams. Although
issues concerning variations in the duty owed to par-
ticular claimants were reserved for individual treatment
by the district court, we conclude that those issues
are no longer of substantial independent significance.
Another issue reserved for later determination by
the district court’s order concerns the amount of infor-
mation which any particular claimant had or learned
about the J. B. Ventures, the Geotek partnerships,
or any of the related corporations, either at the time
of the purchase of interests or at some later date prior
to the time the fraud perpetrated by Burke and others
was disclosed to the public. Evidence of such knowl-
edge, say the petitioners, in [sic] relevant to their basic
defenses of non-reliance, and to such other defenses
as waiver, estoppel, laches, and statute of limitations.
To the extent these issues are not common to the
classes, see note 10, supra, we do not think the district
judge erred simply by separating them out for individual
adjudication at the close of the class trial. The peti-
tioners have again failed to demonstrate that the exist-
ence of this issue is so prevalent among the claimants
that they will present much proof on the issue at
the later trial. Absent such a showing, we deem it
entirely appropriate for the district judge to separate
out those issues for later adjudication with respect
to the relatively few claims to which they are pertinent.
We view this as one of the “procedural innovations
—A22—
contemplated by the Ninth Circuit in Blackie v. Bar-
rack, supra, and by Rule 23(d) itself. It does not
deny any party its constitutional rights with respect
to those claimants against whom there will be no
attempt to prove knowledge of the fraud. With respect
to claimants petitioners contend did have such knowl-
edge, we see no reason why these issues cannot be
tried in an expeditious and fair way on a separate
basis. As stated above, note 10, it is apparent that
the district court found the claims of most of the
class members amenable to class resolution, but also
found there were individual issues extant that had
to be tried, if at all, on an individual basis. The
district court concluded that the limited existence of
these issues was not significant enough, however, to
deny class treatment to most of the claims in this
litigation. We conclude that this finding was entirely
justified by the record before that court and before
us on appeal.
We again rely on Blackie v. Barrack, supra, to
dismiss petitioners’ contention that the reservation of
some damage-related issues for resolution subsequent
to the class trial was error. We reach this result not
because the individual and reserved issues do not appear
real as they concern damages suffered by the class
members, but because these damage issues do not,
as a rule, defeat class certification in cases such as
these, and because separation of a trial on damage
issues does not contravene the Seventh Amendment
in this case.
As stated in Blackie, 524 F.2d, at 905:
“The amount of damages is invariably an in-
dividual question and does not defeat class action
—A23—
treatment, E.g., U.S. Financial Securities Litiga-
tion, [64 F.R.D. 443 (S.D.Cal.1974)] at 448
n.5, and cases there cited. Moreover, in this situa-
tion we are confident that should the class prevail
the amount of price inflation during the period
can be charted and the process of computing
individual damages will be virtually a mechanical
task. [citation omitted |.”
It appears to us that after class trial on the primary
damage issues in this case as provided by the district
court’s order, all that will remain is to determine the
amount invested and the interest bought by each claim-
ant, then compute damages for each claimant. We
find no substantial ground for distinction between
Blackie and our cases on this issue.
We also conclude that separation of the trial on
individual damage issues from the class trial in this
securities fraud class action is not a novel procedure,
nor in contravention of the Seventh Amendment. Bifur-
cation of the trial of liability and damage issues is
well within the scope of a trial court’s discretion under
Fed.R.Civ.P. 42(b). Crummett v. Corbin, 475 F.2d
816, 817 (6th Cir. 1973); Idzojtic v. Pennsylvania
Railroad Company, 456 F.2d 1228, 1230 (3d Cir.
1972); Moss v. Associated Transport Inc., 344 F.2d
23 (6th Cir. 1965). The separation of the trial on
the damage issues from the class trial wiil, in these
cases, serve the ends of “economy and expedition.”
As the district court stated In Re Memorex Security
Cases, 61 F.R.D. 88, 103 (N.D.Cal.1973):
“While the court looks with concern upon the
prospect of burdening a jury with the task of
analyzing the damages to each class member even
—A24—
with the assistance of a. master, it must be kept
in mind that that task need not be assumed until
the issue of liability is resolved in favor of the
plaintiffs. [ citations omitted.”
In cases of the magnitude of these, we find it per-
missible to separate the individual damage issues from
trial of the class issues, particularly where, as here,
the damage issues reserved are a discrete aspect of
the case as a whole.
It is a novel and innovative step which the district
judge has taken here. If his judgment proves sound,
it is a step which may result in a significant advance
in methods available to courts to save time and money
for litigants and judges, not only in these law suits,
but also in other complex litigation where the trial
judge and counsel for the parties may find the path
to resolution easier because traveled before. Neither
the courts nor the bar have extensive experience with
actual trial of these complex cases, and, as set out
in note 22 to the opinion in Blackie v. Barrack, supra,
524 F.2d at 906-07, this Court of Appeals has com-
mitted the resolution of many management problems
that arise in such cases to the sound discretion and
experience of the district judge. We refuse to hold
that the steps taken by the trial judge here are error,
therefore, particularly prior to the time, if ever, that
the harm done by the order to the rights asserted
by the petitioners becomes manifest in the record
of these cases and the experience of the parties below.
— =
OTHER RELIEF SOUGHT
In the discussion above, we have set out the reasons
for our denial of the petition for a writ of mandamus."
As noted at page two of this opinion, petitioners have
sought an alternative writ to compel certification of
the class order for interlocutory appeal, pursuant to
28 U.S.C. § 1292(b) and have also filed an appeal
pursuant to 28 U.S.C. § 1291. We dismiss the appeal
filed pursuant to 28 U.S.C. § 1291. This dismissal
is based on Blackie v. Barrack, supra. Blackie held
that interlocutory orders granting class certification are
not appealable in this Circuit pursuant to 28 U.S.C.
§ 1291 until final judgment. We perceive no reason
to reconsider that holding or apply a different rule
to the cases now before us.
The request for a writ to compel certification of
the interlocutory appeal presents a question which is
relatively new to this Circuit. It is a question which
was recently passed upon by this Circuit in the case
of Green v. Occidental Petroleum Corporation, 541
F.2d 1335 (9th Cir. 1976). By 28 U.S.C. § 1292(b),
Congress provided a means by which, in appropriate
circumstances and to further economy of litigation,
full appellate review of important questions can be
had prior to final judgment. By its terms, this narrow
“The petitioners have asked also for a writ of prohibition
or other writ. They have made no arguments for the issuance
of such writs besides those made for the mandamus writ.
We find no reason to decide any alternative writ would be
any more appropriate than a writ of mandamus in this case,
and, therefore, deny this alternative request for relief.
—iip—
exception to the finality rule can not be invoked until
the district judge makes a determination that the order
“involves a controlling question of law as to which
there is substantial ground for difference of opinion
and that an immediate appeal from the order may
materially advance the ultimate termination of the litiga-
tion . . ..” 28 U.S.C. § 1292(b). Thereafter, the
Court of Appeals is vested with discretion to permit
the appeal. The district judge did not make such a
determination here. We hold that mandamus to direct
the district judge to exercise his discretion to certify
the question is not an appropriate remedy, Green v.
Occidental Petroleum Corporation, 541 F.2d 1335 (9th
Cir. 1976); Plum Tree, Inc. v. Stockment, 488 F.2d
754, 755 n.1 (3d Cir. 1973); United States v. 687.30
Acres, 451 F.2d 667, 670 (8 Cir. 1971), cert. den.,
405 U.S. 1026, 92 S.Ct. 1291, 31 L.Ed.2d 486 (1972);
D'Ippolito v. Cities Serv. Co., 374 F.2d 643, 649
(2 Cir. 1967). As long as the district judge is
not of the opinion that the order for which review is
sought meets the criteria of 28 U.S.C. § 1292(b),
it is within his power to deny the motion for certifica-
tion of the appeal. The petitioner’s request for a writ
to compel the certification of an interlocutory appeal,
therefore, is denied.
In accordance with the discussion above, we deny
all relief sought by the petitioners, and dismiss the
15Cf. Note, Interlocutory Appeals in the Federal Courts
Under 28 U.S.C. § 1292(b) (1975), 88 Harv.L.Rev. 607,
616-17.
— =
appeal petitioners have filed pursuant to 28 U.S.C.
§ 1291. Accordingly, there is no basis for continuing
the stay previously entered in these proceedings by
this Court. We vacate the stay, therefore, and remand
the cases to the district court for further proceedings.
IT IS SO ORDERED.
the Class Action Notices to All Class Members.
United States District Court, Northern District of
California.
Securities and Exchange Commission, Plaintiff, v.
Geotek Resources Fund, Inc., et al., Defendants. No.
73-0819 WTS.
Albert A. Kaufman, etc., et al., Plaintiffs, v. John
P. Burke, etc., et al., Defendants. No. 72-1473 WTS.
Joe Ebner, etc., et al., Plaintiffs, v. Petroleum 2000
Corporation, et al., Defendants. No. 73-0176 WTS.
Edmund H. Shea, Jr., Plaintiff, v. John P. Burke,
et al., Defendants. No. 73-0899 WTS.
James Howenstine etc., et al., Plaintiffs, v. Petroforce
Corporation, et al., Defendants. No. 74-0957 WTS.
Filed: April 21, 1975.
The motions of the plaintiffs in the Kaufman, Ebner
and Howenstine actions for an order certifying said
actions as class actions and approving the proposed
class action notices came on for hearing before the
Court on Monday, February 3, 1975.
The Court has considered the briefs, the oral argu-
ments, the affidavits and the other papers submitted
by the parties in support of, and in opposition to,
the plaintiffs’ motions; and the Court has further con-
sidered the briefs, the oral arguments, the affidavits
and the other papers submitted by the parties in support
of, and in opposition to, the motions of defendants
Otis Chandler and Arthur Young & Company for
— att “
—A29—
a determinatjan that the Kaufman, Ebner and Howen-
Stine actions may not be maintained as class actions.
The Court has carefully reviewed and considered
the foregoing matters, together with the entire record
in the above-captioned consolidated actions, and based
upon such review and consideration the Court finds
that in the Kaufman, Ebner and Howenstine actions,
and each of them, (a) the class is so numerous that
joinder of all members is impracticable; (b) there
are questions of law and fact common to the class;
(c) the claims of the named plaintiffs are typical
of the claims of the class; (d) the named plaintiffs
will fairly and adequately protect the interests of the
class; (e) the questions of law and fact common to
the class predominate over any questions affecting only
individual members; and (f) a class action is superior
to other available methods for the fair and efficient
adjudication of the controversy. Accordingly:
A. IT IS HEREBY ORDERED, pursuant to Rules
23(c)(1) and 23(c)(4)(a) of the Federal Rules of
Civil Procedure:
1. The action entitled Albert A. Kaufman v. John
P. Burke, etc., et al., No. 72-1473 WTS, shall be
maintained as a class action on behalf of all purchasers
of interests in the GeoTek Resources Fund 1969-1,
1970-1, 1970-2, 1971-1 and 1971-2 Limited Partner-
ships as to certain issues only:
(a) As to issues of liability of general appli-
cation, excluding the following issues: reliance or
causation, duty owed to the individual claimant
insofar as it may vary depending upon the status
of that claimant, knowledge of the claimant inves-
tor as to facts allegedly misrepresented or omitted,
—AS>—
statute of limitations, laches, waiver, estoppel, rati-
fication, unclean hands and pari delicto;
(b) As to the issue of damages only to the
extent of determining the value of the limited
partnership interests received by investors therein,
together with loss of profits, if any, within the
meaning of California Civil Code Section 3343,
up to the time of trial.
As to the named plaintiff, however, the action will
include all issues, both common and individual.
2. The action entitled Joe Ebner v. Petroleum 2000
Corporation, et al., No. 73-0176 WTS. shall be main-
tained as a class action on behalf of all former co-
owners of the J. B. Oil Company 1964, 1965, 1966
and 1967 Oil Exploration Programs, and all share-
holders of Petroleum 2000 Corporation as to certain
issues only:
(a) As to issues of liability of general appli-
cation, excluding the following issues: reliance or
causation, duty owed to the individual claimant
insofar as it may vary depending upon the status
of that claimant, knowledge of the claimant inves-
tor as to facts allegedly misrepresented or omitted,
statute of limitations, laches, waiver, estoppel, rati-
fication, unclean hands and pari delicto;
(b) As to the issue of damages only to the
extent of determining the value of the interests
received by investors, together with loss of profits,
if any, within the meaning of California Civil
Code Section 3343, up to the time of trial.
As to the named plaintiff, however, the action will
include all issues, both common and individual.
—A31—
3. The action entitled James Howenstine v. Petro-
force Corporation, et al., No. 74-0957 WTS, shall
be maintained as a class action on behalf of all former
co-owners of the J. B. Oil Company 1968 Oil Explora-
tion Program and all shareholders of Petroforce Corpo-
ration as to certain issues only:
(a) As to issues of liability of general applica-
tion, excluding the following issues: reliance or
causation, duty owed to the individual claimant
insofar as it may vary depending upon the status
of that claimant, knowledge of the claimant inves-
tor as to facts allegedly misrepresented or omitted,
statute of limitations, laches, waiver, estoppel, rati-
fication, unclean hands and pari delicto; .
(b) As to the issue of damages only to the
extent of determining the value of the interests
received by investors, together with loss of profits,
if any, within the meaning of California Civil
Code Section 3343, up to the time of trial.
As to the named plaintiff, however, the action will
include all issues, both common and individual.
4. In reserving issues for later determination, the
Court does not intend to rule upon either the legal
or factual sufficiency or necessity of such issues.
5. Evidence of alleged oral misrepresentations by
any of the defendants is to be excluded.
6. As to all issues excluded from class action main-
tenance herein, said excluded issues will be reserved
for future determination upon individual claims filed
hereunder by any member of the classes as above
set forth, such claims to be made within 90 days
after notice to such class members of the decree or
—A32—
judgment herein, if such decree or judgment is in
favor of plaintiffs.
7. The motions of defendants Otis Chandler and
Arthur Young & Company, for orders determining
that the Kaufman, Ebner and Howenstine actions may
not be maintained as class actions, are hereby denied.
8. The Court retains jurisdiction of this action to
correct, modify, annul, vacate and supplement this order
determining the actions to be class actions from time
to time before the decision on the merits.
B. IT IS FURTHER ORDERED, pursuant to
Rules 23(c)(2) and 23(d)(5) of the Federal Rules
of Civil Procedure:
1. That each of the proposed Notices of Pendency
of Class Action, attached hereto as Exhibits A (Kauf-
man notice), B (Ebner notice) and C (Howenstine
notice), and incorporated herein, is hereby approved
as to form and content;
2. That on or before April 28, 1975, counsel
for the named plaintiffs in the Kaufman, Ebner and
Howenstine actions shall cause to be professionally
printed, at the named plaintiffs’ expense, sufficient num-
bers of each Notice of Pendency of Class Action to
be mailed to all members of the three respective classes,
and shall make said printed Notices available for in-
spection by the Court and by counsel for all parties;
3. That on or before April 28, 1975, the Temporary
Receiver shall make available to counsel for the named
plaintiffs in the Kaufman action a complete list of
the names and current mailing addresses of all members
of the class in the Kaufman action, and counsel for
Petroleum 2000 Corporation and Petroforce Corpora-
—A33—
tion shall make available to counsel for the named
plaintiffs in the Ebner and Howenstine actions complete
lists of the names and current mailing addresses of
all members of the classes in the Ebner and Howenstine
actions;
4. That on or before April 28, 1975, the Clerk
of the Court shall make available to counsel for the
named plaintiffs in the Kaufman, Ebner and Howen-
stine actions, at the named plaintiffs’ expense, a suffi-
cient number of envelopes bearing the printed return
address of the Clerk of the Court, for use in mailing
the Notices Of Pendency Of Class Action to the class
members;
5. That beginning on Thursday, May 1, 1975, and
finishing as soon as reasonably practicable thereafter,
counsel for the named plaintiffs in the Kaufman, Ebner
and Howenstine actions shall, at the named plaintiffs’
expense, cause to be mailed to each member of the
three respective classes, by first-class mail with postage
prepaid, in an envelope bearing the printed return
address of the Clerk of the Court, the appropriate
printed Notice Of Pendency Of Class Action;
6. That on Friday, May 9, 1975, counsel for the
named plaintiffs in the Kaufman, Ebner and Howenstine
actions shall file with the Court and serve a written
certificate showing the dates on which, and the persons
to whom, the Notices Of Pendency Of Class Action
were mailed; and
7. That on Monday, June 9, 1975, the Clerk of
the Court shall file the Exclusion Requests and shall
render a written report to the undersigned regarding
the number of Exclusion Requests received by the
Clerk from persons to whom the Notices Of Pendency
Of Class Action were mailed.
—A34—
C. IT IS FURTHER ORDERED that part “B”
of this Order shall be subject to modification at any
time, for good cause shown, upon a properly noticed
motion of any party to the above-captioned consolidated
actions.
D. IT IS FURTHER ORDERED that neither the
named plaintiffs nor their counsel, nor the defendants
nor their counsel, shall have discussions or communica-
tions concerning the class actions with any member
of the three classes in the absence of court approval;
provided that nothing in this paragraph shall be con-
strued to prohibit discussions between any attorneys.
DATED: April 11th, 1975.
/s/ William T. Sweigert
WiLLIAM T. SWEIGERT
UNITED STATES DISTRICT JUDGE
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.