Opposition — Coopers & Lybrand v. Livesay

IN THE

Supreme Court of the United States

October Term, 1976

No. * 6 - 152 7

PUNTA GORDA ISLES, INC., WILBER H. COLE, ALFRED M.

JOHNS, ROBERT J. BARBEE, SAMUEL A. BURCHERS, JR.,

RUSSELL C. FABER, JOHN MATARESE, ROBERT C.

WADE, EARL DRAYTON FARR, JR., JOHN W. DOUGLAS,

D.DS.,

Petitioners,

against

CECIL LIVESAY and DOROTHY LIVESAY, for Themselves and

on Behalf of all Others Similarly Situated,

Respondents.

COOPERS & LYBRAND,

Petitioner,

against

CECIL LIVESAY and DOROTHY LIVESAY, for Themselves and

on Behalf of all Others Similarly Situated,

Respondents.

BRIEF IN OPPOSITION TO PETITIONS

FOR WRITS OF CERTIORARI

To the United States Court of Appeals

for the Eighth Circuit

MELVYN I. WEIssS

One Pennsylvania Plaza

New York, New York 10001

(212) 594-5300

Attorney for Respondents

Of Counsel:

MILBERG WEIsS BERSHAD & SPECTHRIE

RICHARD L. Ross

JEROME M. CONGRESS

—— ee

TABLE OF CONTENTS

Se ID gs oucbuneccensneceasesassus

(a) With Respect To All Petitioners ...........

(b) With Respect To Petitioner Coopers &

a rere (Rakes eee e ne ewes

Statutes and Rules Involved .....................

ey Or ccc ebetsbsevedans

Reasons for Denying the Writ ...................

I—On the Record Below, Allowance Of An Im-

mediate Appeal From The Decertification

Order Was Proper Under The Standards

Employed For Such Appeals In All Circuits

I1—The ‘‘ Death Knell’’ Doctrine As Interpreted

by the Court of Appeals for the Eighth Cir-

cuit Is Fully Consistent With The ‘‘Final

Decision’’ Rule of 28 U.S.C. Section 1291 ..

I1I—The Court of Appeals Did Not Exceed Its

Proper Authority In Holding That Decer-

tification For Alleged Undue Delay By Plain-

tiffs Was An Abuse of the District Court’s

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11

11

14

IN THE

Supreme Court of the United States

October Term, 1976

No.

ry

Vv

Punta Gorpa Istes, Inc., Witper H. Cote, ALFrep M.

Jouns, Ropert J. Barper, Samvet A. Burcuers, Jre.,

Russet, C. Faper, Jonx Matarese, Rosert CC. Wane,

Eart Drayton Farr, Jr., Joux W. Doveras, D.D.S..

Petitioners,

agaist

Crem, Livesay and Dorotuy Livesay, for Themselves and

on Behalf of all Others Similarly Situated,

Respondents.

Coopers & Lysranp,

Petitioner,

against

Crctt Livesay and Dorotuy Livesay, for Themselves and

on Behalf of all Others Similarly Situated,

Respondents.

Ly

Vw

BRIEF IN OPPOSITION TO PETITIONS

FOR WRITS OF CERTIORARI

To the United States Court of Appeals

for the Eighth Circuit

This brief is submitted in opposition to two related

petitions for Writs of Certiorari* which seek review of a

* Respondents received the Petitions for Writs of Certiorari on

June 24, 1977.

judgment of the United States Court of Appeals for the

Kighth Cireuit entered in this action on March 4, 1977,

as to which rehearing was denied on March 28, 1977. In

its decision, the Court of Appeals ruled that the United

States District Court for the Fastern District of Missouri

abused its discretion in decertifying the class herein for

alleged delay by plaintiffs im prosecuting the litigation

when no basis existed for a finding of wrongful delay by

plaintiffs, when ‘*much of the delay in this case is directly

attributable to defendants,’’ and when the District Court

had itself taken action which did not advance the progress

of the litigation. Livesay v. Punta Gorda Isles, Inc., 550

F.2d 1106, 1110-1112 (Sth Cir. 1977) (11a-16a).*

The Court of Appeals based its jurisdiction to hear the

appeal on the ‘‘death knell doctrine’’ under which an im-

mediate appeal lies from an order denying class certification

under 28 U.S.C. § 1291 when the record shows that the

litigation will not proceed absent reversal of such order.

As shown below, the Eighth Circuit’s decision is fully con-

sistent with the decisions of the various circuits which have

expressly adopted the ‘‘death knell’’ doctrine, and the

record would also support appellate jurisdiction in the two

circuits which have rejected the ‘‘death knell doctrine’’.

The present petitions are simply a further attempt by de-

fendants to continue the tactics of delay for which they

were criticized by the Court of Appeals.

* The District Court opinion below is not yet officially reported,

and is set forth as Appendix A to this brief (pages 1a to 2a). The

Eighth Circuit March 4, 1977 opinion is reported at 550 F.2d 1106

and is set forth as Appendix B to this brief (pages 3a to 16a).

ta

Questions Presented

(a) With Respect To All Petitioners

Does an appeal lie under 28 U.S.C. § 1291 from a judg-

ment decertifying a class where the record provides sub-

stantial basis for the Cireuit Court’s conclusion that the

action would not proceed absent reinstatement of the plain-

tiffs as class representatives and the District Judge had

stated at the evidentiary hearing on class certification that

an immediate appeal from denial of class certification would

he appropriate?

(b) With Respect To Petitioner Coopers & Lybrand

Did the Court of Appeals exceed its authority in ruling

that the District Court had abused its discretiva in decer-

tifying the class for delay in prosecuting the litigation

when the delays in the litigation were actually caused by

defendants and by the District Court?

Statutes and Rules Involved

The issues presented involve 28 U.S.C. §§ 1291 and

1292(b), and Rule 23 of the Federal Rules of Civil Proce-

dure, the texts of which appear in Appendix C hereto...

Statement of the Case

In July 1973, plaintiffs (the respondents herein) com-

menced this class action for damages resulting from pur-

chases of securities issued by defendant-petitioner Punta

Gorda Isles, Ine. (‘‘ Punta Gorda’’), a Florida land develop-

ment company, pursuant to a Registration Statement and

Prospectus dated May 2, 1972. The first amended com-

plaint alleges that defendants violated various sections of

the federal securities laws including Sections 11 and 12

(2) of the Securities Act of 1933, 15 U.S.C. $§ 77k, 771(2).

In April 1974, plaintiffs moved for an order determin-

ing that the action proceed as a class action. Shortly there-

after, defendants took plaintiffs’ depositions on all issues

relating to the pending action, including extensive ques-

tioning concerning plaintiffs’ financial resources, antici-

pated expenses of the litigation, and plaintiffs’ intention to

continue the litigation if class certification were denied.

E.g., App. 29a-30a ; 51a-52a; 105a-108a.* Immediately upon

conclusion of such depositions defendant-petitioner Coop-

ers & Lybrand (‘‘Coopers’’) moved to stay all discovery

other than discovery relating to the class action determina-

tion, and Coopers’ motion was granted on May 13, 1974.

The class motion was argued on June 24, 1974. During

the autumn of 1974, the District Court denied a motion by

plaintiffs to lift the stay on substantive discovery but did

not decide the class action motion. Consequently, plaintiffs

petitioned for a writ of mandamus on November 1, 1974

requesting the Eighth Cireuit to order the District Court

to lift its stay on discovery. On November 15, 1974, the

Kighth Cireuit Court of Appeals denied the petition for a

writ of mandamus, but directed that:

‘*Petitioner should request a prompt ruling on

its motion of April 9, 1974 for an order determining

that a class action existed. If an evidentiary hear-

ing is desired, that likewise can be requested. The

trial court should then promptly rule on petitioner’s

motion and remove its stay order and thereafter

permit discovery to proceed on the merits. .. .”’

(App. 175a-176a)

* “App.” references are references to pages of the Joint Appendix

on the Appeal.

————

or

As a result of the Fighth Circuit’s order, an evidentiary

hearing on the class motion was held on December 30, 1974.

At that hearing evidence was presented to the District

Court concerning the extent of plaintiffs’ loss (approxi-

mately $2,650), plaintiffs’ financial position, anticipated

litigation expenses, plaintiffs’ intention to pursue the litiga-

tion if class status were denied, and the extent to which any

other potential class members had manifested an interest

in the litigation. F.g., App. 192a, 209a-210a, 213a-226a,

244a-245a, 272a-274a, 295a-296a. At the conclusion of the

evidentiary hearing, District Judge Wangelin stated that

an immediate appeal would be appropriate if he refused to

certify the class:

‘‘I’m sure you’ve all heard of the quote Dealth

Knell Doctrine, and assuming, without deciding, that

i rule against a class action, I think the record should

be in such shape that plaintiffs could 1291 it, and

go up to the Kighth Cireuit and get an opinion. . .”’

(App. 313a).

On June 19, 1975, Judge Wangelin certified the class,

and on July 25, 1975, plaintiffs moved to dissolve the stay

on substantive discovery pursuant to the prior direction of

the Eighth Cireuit. Defendants opposed such motion and

moved for reconsideration of class status. On October 23,

1975, the District Court denied plaintiffs’ motion to lift

the stay on substantive discovery, lifted the stay on dis-

covery solely to allow discovery of names and addresses

of class members, agreed with defendants that questions

had been raised concerning the adequacy of plaintiffs as

class representatives because plaintiffs had not joined

Punta Gorda’s underwriters as defendants,* and ordered

submission of proposed forms of notice of pendency of

class action.

Proposed notices of pendency were submitted to Judge

Wangelin in November 1975, and Judge Wangelin mailed

to counsel his proposed notice of pendency on March 1,

1976. Further comments upon the proposed notice were

submitted by plaintiffs and defendants, and on April 9,

1976, the District Court mailed to all counsel the final form

of notice of pendency. On receiving such form, plaintiffs

requested from Punta Gorda the names and addresses of

record owners of Punta Gorda securities for a_ period

deemed relevant by plaintiffs so that plaintiffs could pro-

vide notice of the class action to such owners. Punta Gorda

refused to provide such information, and motion practice

ensued concerning plaintiffs’ request for such information

and the differing positions taken by the parties concerning

the proper method of providing notice to the class. While

such motion practice was occurring, defendants moved to

decertify the class on various grounds, including their claim

that plaintiffs had unduly delayed in prosecuting the litiga-

tion.

* New counsel had appeared for plaintiffs on June 30, 1975 in

resvonse to a ruling by the District Court on June 19, 1975 that

plaintiffs’ original counsel had a conflict of interest in his continuing

relationship with Punta Gorda’s underwriters. In an affidavit sworn

to September 4, 1975 and in supplementary information provided at

a pre-trial conference on November 4, 1975, plaintiffs’ new counsel

advised Judee Wangelin of their intention not to sue the underwriters.

Such decision was required because claims against the underwriters

had been barred by the statutes of limitations even prior to new

counsel’s appearance. Plaintiffs’ new counsel had also determined

that the joining of underwriters was unnecessary because the existing

defendants have ample resources to pay any judgment and any under-

writers’ liability was at best secondary. Coopers’ accusation on pages

9-10 of its netition that plaintiffs or their present counsel “suppressed”

conflict of interest problems of plaintiffs’ first attorney is wholly with-

eut foundation and is intended to divert this Court from the issue

which exnresslv gave rise to the decertification—i.e., the question of

undue delay in the litigation.

—

The District Court granted the motion for decertifica-

tion o« September 1, 1976, and only then did the District

Court release its stay on substantive discovery. See la-2a.

As the Court of Appeals held, the District Court expressly

based its decision ‘‘solely on the finding that plaintiffs

were not adequate class representatives because they had

inordinately delayed in prosecuting the litigation. .. .’’

550 F.2d at 1110; 1la.

On appeal, the Eighth Circuit reversed, holding that

the District Court’s finding that plaintiffs were inadequate

class representatives was so erroneous as to constitute an

abuse of discretion. The Court of Appeals addressed itself

carefully to defendants’ and the District Court’s bases for

attributing undue delay to plaintiffs and found that undue

delay by plaintiffs had not been shown. 550 F.2d at 1111-12;

lla-14a. The Cireuit Court agreed that undue delay had

oecurred, bui found that such delay was in large part caused

by defendants and was also attributable to the District

Court :*

‘‘That there has been undue delay in this lawsuit

is beyond question. From examination of the entire

record of this protracted proceeding, however, it

becomes quite clear that much of the delay in this

case is directly attributable to defendants. For ex-

ample, defendants had been granted 14 extensions

of time, totalling approximately 190 days, in which

to file pleadings, motions and other papers. In addi-

* An example of defendants’ delaying tactics noted by the Eighth

Circuit was Punta Gorda’s objecting to plaintiffs’ request for dis-

closure of the names and addresses of registered owners of Punta

Gorda securities on the ground that such information was not in

Punta Gorda’s ion. Since this information was in the posses-

sion of Punta Gorda’s. transfer agent, which agent would be required

to release such information at Punta Gorda’s direction, the Court of

Appeals properly described this objection by Punta Gorda to be “little

else than a delaying tactic”. (S50 F.2d at 1112, ftn. 9; 14a)

tion, defendants have filed motions to reconsider or

modify earlier court orders, which motions have con-

sistently alleged grounds previously ruled upon by

the court. The clear import of this course of conduct

is to make this lawsuit as time-consuming and costly

as possible.

In addition, the district court has on some occa-

sions taken action which did not advance the progress

of this litigation. The court took approximately five

months to decide the class action certification motion

after the evidentiary hearing was held. The court

took approximately four months to approve the form

of notice to the class members. These delays appear

to have been justifiable due to the complex nature

of the questions presented. However, during this

time there was a stay of substantive discovery in

effect. The practical effect of this stay was to pre-

vent the parties from concurrently proceeding to the

merits while the court considered the various proced-

ural questions. In these circumstances, virtually all

the plaintiffs could do to advance the course of this

litigation was to attempt to lift the stay on discovery.

Plaintiffs twice sought to lift this stay and were

twice unsuccessful.

We conclude that the district court order de-

certifying the action as a class action because of

plaintiffs’ failure to prosecute is wholly unsupported

by the record, and we accordingly reverse. We do

not disturb that portion of the order which lifted

the stay on substantive disecovery.’’ (550 F.2d at 1112;

l4a-15a)

The Court of Appeals held that it had jurisdiction to

review the decertification under 28 U.S.C. § 1291 because

9

the denial of class certification sounded the ‘‘death knell’’

of the action. Such determination was based not merely on

the fact that plaintiffs’ individual claim for damages totals

only approximately $2,650.00, but on a review of the ex-

tensive material in the record which demonstrated that it

would be economically senseless for plaintiffs to proceed

with the litigation on an individual basis.* Thus the Court

of Appeals noted that

‘*Plaintiffs, both of whom are employed, have an

aggregate yearly gross income of $26,000. Their

total net worth is approximately $75,000, but only

$4,000 of this sum is in cash. The remainder consists

of equity in their home and investments.

As of December 1974 plaintiffs had already in-

curred expenses in excess of $1,200 in connection

with this lawsuit. Plaintiffs’ new counsel has esti-

mated expenses of this lawsuit to be $15,000. The

nature of this case will require extensive discovery,

much of which must take place in Florida, where most

defendants reside. Moreover, the allegations regard-

ing the prospectus and financial statements will likely

require expert testimony at trial.

After considering all the relevant information in

the record, we are convinced that plaintiffs have sus-

tained their burden of showing that they will not

pursue their individual claim if the decertification

order stands. Although plaintiffs’ total net worth

could absorb the cost of this litigation, ‘it [takes]

* As described above, such material includes deposition testimony

of plaintiffs and testimony of plaintiffs and their former attorney be-

fore the District Court at the evidentiary hearing on the class motion.

Such information was further supplemented by plaintiffs’ present

counsel’s estimate of litigation expenses as presented to the District

Court in September 1975.

10

no great understanding of the mysteries of high

finance to make obvious the futility of spending a

thousand dollars to get a thousand dollars—or even

less.’ Douglas, Protective Committees in Railroad

Reorganization, 47 Harv.L.Rev. 565, 567 (1934). We

conclude we have jurisdiction to hear the appeal.’’

(550 F.2d at 1109-10; 9a-10a) (footnote references

omitted)

The Circuit Court recognized that ‘‘Plaintiffs who seek

to invoke the ‘death knell’ doctrine have the burden of de-

veloping, in the trial court, an adequate factual record upon

which an appellate court may determine whether the action

will proceed absent class certification,’’ and stated that the

‘*preferable way to do this in a post-ruling hearing where

the district court has an opportunity to enter appropriate

findings of fact.’’ The Eighth Circuit noted however that

such a hearing is not necessarily required in all cases, and

held that ‘‘In the instant case, the record of the entire

proceeding contains sufficient facts to allow us to make an

informed judgment on the matter.’’ (550 F.2d at 1110,

ftn. 5; 10a)

The Cireuit Court also dealt expressly with defendants’

argument that the ‘‘death knell’’ doctrine should not apply

heeause the record revealed other class members having

substantial individual claims. The Eighth Circuit rejected

such a characterization of the record, stating that:

‘

‘... the record reveals only that certain class mem-

bers had indicated a willingness to pay part of the

expenses of suit, and even that tangential involve-

ment ceased after the appearance of plaintiffs’ new

counsel.’’ (550 F.2d at 1109, ftn. 2; 8a-9a)*

* Testimony at the evidentiary hearing on class certification with

respect to this question was supplemented by statements of record to

the Circuit Court by counsel for plaintiffs.

11

In consequence, the Circuit Court reversed the order

decertifying the class and remanded for further proceed-

ings consistent with its opinion. The Circuit Court denied

defendants’ motions to stay its mandate pending prepara-

tion of petitions to this Court for issuance of writs of

certiorari, and the Eighth Cirecuit’s mandate issued on

April 13, 1977.

REASONS FOR DENYING THE WRIT

I

On The Record Below, Allowance Of An Immediate

Appeal From The Decertification Order Was Proper

Under The Standards Employed For Such Appeals In

All Circuits.

There would seem to be little basis for disagreement

with the proposition that if in fact a denial of class certifi-

cation effectively terminates a litigation, the denial of class

certification is a final decision and an immediate appeal is

appropriate under 28 U.S.C. § 1291. Recognition that the

practical consequence of a denial of class status can be

the termination of the entire litigation has led a number

of circuits to adopt the ‘‘death knell’’ doctrine under which

denial of class certification is immediately appealable when

it results in the termination of the litigation. E.g., Domaco

Venture Capital Fund vy. Teltronics Services, Inc., 551 F.

2d 508, 509 (2nd Cir. 1977) ; Hooley v. Red Carpet Corp. of

America, 549 F.2d 643 (9th Cir. 1977) ; Oft v. Speedwriting

Pub. Co., 518 F.2d 1143, 1146-49 (6th Cir. 1975); Williams

v. Mumford, 511 F.2d 363, 366-67 (D.C. Cir.), cert. denied,

423 U.S. 828 (1975); Graci v. United States, 472. F.2d 124,

126 (5th Cir.), cert. denied, 412 U.S. 928 (1973); Eisen v.

Carlisle & Jacquelin (Eisen 1), 370 F.2d 119, 120-21 (2nd

Cir. 1966), cert. denied, 386 U.S. 1035 (1967).

12

While two circuits have refused to adopt the ‘‘death

knell’? doctrine, they have recognized the need for a mecha-

nism by which a determination can be made as to whether

or not a denial of class certification is sufficiently critical

to the action to justify an immediate appeal by holding

that the right to an immediate appeal from a denial of

class certification should be determined in the first instance

by the District Court pursuant to a motion for certification

of an interlocutory appeal under 28 U.S.C. § 1292(b). E.g.,

Anschul vy, Sitmar Cruises, Inc., 544 F.2d 1364, 1366-69 (7th

Cir.), cert. denied, 87 Sup. Ct. 272 (1976); Katz v. Carte

Blanche Corp., 496 F.2d 747, 752-53 (3rd Cir.), cert. denied,

419 U.S. 885 (1974).

Plaintiffs submit that an immediate appeal herein was

appropriate under the standards employed in all circuits.

Defendants argue that the result below is inconsistent

with the ruling of the Fifth Cireuit in Gosa v. Securities

Investment Co., 449 F.2d 1330 (Sth Cir. 1971), because

subsequent to the decertifieation order plaintiffs did not

seek an evidentiary hearing at which the District Court

would rule as to whether or not the denial of class certifica-

tion effectively terminated the action. Unlike the situation

in (rosa, however, where the record contained absolutely

no development of relevant facts such as anticipated liti-

gation expenses and the financial condition of the plaintiff

(see 449 F.2d at 1332), the record herein contains such

information in detail. Thus, the Eighth Cireuit explicitly

adverted to the Gosa ruling, but found that the record

contained ample evidence to support its conclusion that

the action would not continue absent an immediate appeal.

(550 F.2d at 1110, ftn. 5; 10a). As shown above in the

Statement of the Case (page 5), the Cireuit Court’s

ruling is consistent with the District Court’s statement

at the conclusion of the evidentiary hearing on the class

13

motion that an immediate appeal from a denial of class

certification would be appropriate under the ‘‘death knell’’

doctrine.

Defendants also argue that the decision of the Eighth

Circuit below is inconsistent with the decision of the Ninth

Cireuit Court of Appeals in Hooley v. Red Carpet Corp. of

America, supra, because the Eighth Circuit refused to rule

that certain statements by plaintiffs’ former counsel at the

evidentiary hearing on the class action concerning the

existence of other purported class members who had al-

legedly evinced some interest in paying some costs of the

action rendered this appeal premature. However, the

Eighth Circuit addressed itself directly to such contention~

and found on the basis of a review of the record only a

prior ‘tangential involvement’’ of certain class members

who ‘‘had indieated a willingness to pay part of the ex-

penses of suit,’’ which tangential involvement ‘‘ceased

after the appearance of plaintiffs’ new counsel.’’ (550 F.2d

at 1109, ftn. 2; 9a) Consequently the Eighth Circuit

decision below would have been justified under the ap-

proach of the Ninth Circuit as stated in Hooley."

Moreover, the District Court’s statement at the close of

the evidentiary hearing on the class motion that an imme-

diate appeal would be proper and desirable in the event

the District Court denied class certification shows that the

appeal would also be proper under the approach adopted

in the Third and Seventh Cireuits which provides for

appeals from denial of class certification pursuant to cer-

tification by the District Judge under 28 U.S.C. § 1292(b).

* While in one portion of the Hooley opinion the Ninth Circuit

spoke of requiring plaintiff to show the lack of a viable claim on the

part of any class member, such language was modified by other state-

ments iin Hooley indicating that the real concern was likelihood

that other class members would in fact pursue the action themselves.

See 549 F 2d at 646.

14

While Judge Wangelin’s statement refers to the death

knell doctrine and to an appeal under Section 1291, his

strong expression of support for an immediate appeal in

the event that he denied class certification satisfies the

requirement in the Third and Seventh Circuits that the

appropriateness of an immediate appeal be determined

initially by the District Court.*

The “Death Knell”’ Doctrine As Interpreted By The

Court Of Appeals For The Eighth Circuit Is Fully Con-

sistent With The “Final Decision” Rule Of 28 U.S.C.

Section 1291.

Contrary to defendants’ arguments, the Eighth Circuit’s

decision does not conflict with the federal policy of allowing

appeals from final decisions as set forth in 28 U.S.C. § 1291

and involves no misallocation of manpower or judicial

functions. Certainly if the litigation is in fact at an end

absent a reversal of the decertification, the time is ripe for

an appeal. The Eighth Cireuit based its decision as to

appealability on ample evidence of record showing that

the action would not go forward if the District Court’s

order remained unchanged, and as shown above, the District

Court itself had expressed its approval of an immediate

appeal from a denial of class status.

Petitioners make the further argument that the death

knell doctrine is unduly favorable to class action plaintiffs

* In light of the District Court’s statements concerning the ap-

propriateness of an immediate appeal, the Eighth Circuit could also

have taken jurisdiction under Gillespie v. United States Steel Corp.,

379 U.S. 148, 154 (1964) where this Court declared that a Court of

Appeals may hear an appeal in a “marginal case” where the questions

presented are “fundamental to the further conduct of the case” and

where “if the District Judge had certified the case to the Court of

Appeals under 28 U.S.C. § 1292(b) (1958 ed.), the appeal unques-

tionably wou'd have been proper. .. .”

15

because appeals are available to plaintiffs from class cer-

tification denials but not to defendants from orders granting

class status. However, under 28 U.S.C. 41291, the issue

must be whether or not a denial of class certification does

in fact bring about the termination of the litigation. If it

does, an appeal must be allowed under 28 U.S.C. § 1291

regardless of the appealability of orders granting class cer-

tification. Plaintiffs submit that so long as a proper finding

is made that the denial of class certification terminates the

litigation, Courts of Appeal have no alternative but to allow

an appeal under 28 U.S.C. § 1291.

As shown above, this appeal would have been proper

under the Ninth Circuit approach as set forth in Hooley v.

Red Carpet Corp. of America, supra. Plaintiffs also submit,

however, that any definition of finality in class actions under

which the litigation is deemed to continue after decertifica-

tion unless plaintiffs affirmatively show that no other class

members have viable claims would place an unreasonable

burden on plaintiffs and would also be inconsistent with the

purposes behind Rule 23 of the Federal Rules of Civil Pro-

cedure. Such an interpretation would encourage the very

proliferation of litigation Rule 23 seeks to avoid. Moreover,

under Rule 23(c)(2), nonparty class members are entitled

to remain passive and allow the class representatives to

protect their interests during the pendency of the class

action. Deuial of the right to an immediate appeal from a

decertification absent proof that other class members with

viable claims are unlikely to intervene is inconsistent with

such policy, because such denial would require a class mem-

ber who prefers to remain passive to intervene or commence

his own litigation in order to protect his position.*

* Requiring class representatives to affirmatively show that no

class member with a viable claim will intervene may also raise ethical

problems, since communications of counsel for plaintiffs with absent

class members aimed at determining whether potential intervenors

exist may be misinterpreted as efforts to solicit litigation.

16

Such inconsistency would be especially striking in the

present case, where special statutes of limitations problems

would have placed considerable pressure on other class

members to intervene, if contrary to the record herein, po-

tential intervenors were in existence. The claims herein

under Section 11 and 12(2) of the Securities Act of 1933

(the ‘£1933 Act’’), 15 U.S.C. $§ 77k, 771(2), are subject to a

limitations period of one year from the date upon which

discovery of misleading statements and omissions ‘‘should

have been made in the exercise of reasonable diligence’’ and

to an absolute three-year limitation. Section 13 of the 1933

Act (15 U.S.C. 477m). Plaintiffs were actively investigat-

ing a lawsuit against the defendants herein in May-June

1973, and the lawsuit was commenced in July 1973. While

the statute of limitations was tolled by commencement of

the class action (see, e.g., American Pipe & Construction Co.

v. Utah, 414 U.S. 538 (1974)), the decertification created a

situation in which absent class members might have been

threatened with loss of their claims if they did not intervene

or commence their own suits prior to appellate review of the

decertification.*

* In their appellate brief, plaintiffs presented as an alternative

cround for jurisdiction the “collateral order doctrine,” under which

appellate jurisdiction exists pursuant to 28 U.S.C. § 1291 to review

orders which finally determine claims separable from the merits which

are too important to be denied review and too independent of the

cause to be deferred until the entire case is adjudicated. Cohen v.

Beneficial Indus. Loan Corp., 337 U.S. 541, 546 (1949). Plaintiffs

submit that in light of the special statute of limitations problem which

was created for absent class members by the decertification and in the

linht of the policy of Rule 23 to allow absent class members to remain

pxssive until proof of claim forms are to be filed, the “collateral order

doctrine” would have been an alternative basis for appellate jurisdic-

tion herein. See also, Rosenn, J., dissenting in Hackett v. General

Host Corp., 455 F.2d 618, 627 et seq. (3rd Cir.), cert. denied, 407

U.S. 925 (1972).

17

Ii!

The Court Of Appeals Did Not Exceed Its Proper

Authority In Holding That Decertification For Alleged

Undue Delay By Plaintiffs Was An Abuse Of The District

Court’s Discretion.

In addition to requesting this Court to grant a Writ

of Certiorari to review the Eighth Circuit’s acceptance of

appellate jurisdiction, petitioner Coopers has requested

that the writ also issue in order to determine whether the

Kighth Cireuit exceeded its powers in ruling that the Dis-

trict Court’s decertification was an abuse of discretion.

Unlike the case of East Texas Motor Freight System, Inc.

v. Rodriguez, 45 U.S.L.W. 4524 (May 31, 1977) upon which

Coopers relies, the Court of Appeals below did not certify

a class in the first instance.* The Eighth Cirenit merely

held that the District Court could not, after certifying a

class, strip the plaintiffs of their status as class representa-

tives on the ground of undue delay in prosecuting the

litigation when the record was clear that the plaintiffs had

not caused undue delay, that the defendants themselves

were responsible for undue delay, and that the District

Court had also contributed significantly to delay. (550 F.

2d at 1110-12; 1la-16a)

Numerous decisions recognize that, while a District

Court has great latitude in deciding whether an action is

maintainable as a class action, the Courts of Appeals may

review such decisions for failure to properly apply legal

criteria and for abuses of discretion. E.g., Shumate d& Co.

v. Nat’l Ass’n of Securities Dealers, Inc., 509 F.2d 147, 155

(Sth Cer.), cert. denied, 423 U.S. 868 (1975); Wetzel v.

* Moreover, in East Texas Motor Freight System, Inc., this Court

expressly stated that it was not holding that a Court of A could

not certify a class in the first instance, but only that Court of

Appeals had erred because the record was clear that plaintiffs in that

action were not proper class representatives. Slip Opinion, p. 7.

18

Liberty Mutual Ins. Co., 508 F.2d 239, 245 (3rd Cir.), cert.

denied, 421 U.S. 1011 (1975); Green v. Wolf Corp., 406

F.2d 291 (2nd Cir. 1968), cert. denied, 395 U.S. 977 (1969).

Respondents submit that the Eighth Circuit’s ruling did

not exeed its lawful powers but simply reversed clear error

by the District Court—an essential function of the appel-

late system. The Court of Appeals has in no way questioned

or limited the District Court’s continuing power to deter-

mine whether or not the action should be maintained as a

class action. The Eighth Circuit has only ruled that the

District Court’s express grounds for decertification have

no basis in the record and that in consequence the decertifi-

cation order was improper.

Coopers’ real reason for seeking a Writ of Certiorari

with respect to the merits of the decision below is re-

flected in Coopers’ concern stated on page 10 of its petition

that, as a result of the Eighth Circuit’s decision, discovery

on the merits in this litigation has at long last begun. Con-

sistent with defendants’ past practice as recognized in the

Kighth Cireuit’s opinion (550 F.2d at 1112; 14a-15a),

Coopers continues to seek new fields for litigating the ques-

tion of class certification so as to find a basis for continuing

to delay the substantive progress of this law suit.

The Eighth Cireuit’s decision was simply a classic

example of a Court of Appeals carrying out its function of

correcting clear error by the District Court. Consequently,

no basis whatsoever exists for issuance of a Writ of Certi-

orari for review of the Eighth Cireuit’s decision on the

merits.

19

Conclusion

On the record below, appellate jurisdiction would have

been proper in any of the circuits which have dealt with

the question of the appealability of denials of class

certification, and the Eighth Circuit’s decision was in full

compliance with the ‘‘final decision’’ rule of Section 1291.

The Court of Appeals did not exceed its authority in re-

versing the District Court’s decertification order as an

abuse of discretion. Accordingly, the petitions for Writs

of Certiorari should be denied.

Dated: New York, New York

July 22, 1977

Respectively submitted,

Metvyn I. Weiss

One Pennsylvania Plaza

New York, New York 10001

(212) 594-5300

Attorney for Respondents

Of Counsel:

Muuserc Weiss Bersuap & SpecTHRIE

Ricuarp L, Ross

JEROME M. ConcrREss

APPENDIX A

In the United States District Court for the

Eastern District of Missouri

Eastern Division

No. 73 C 517 (3)

ry

Vv

Cecil and Dorothy Livesay,

Plaintiffs,

v.

Punta Gorda Isles, Inc., et al.,

Defendants.

ray

Vv

Memorandum

(Filed September 1, 1976)

This matter is before the Court upon the motion of the

various defendants to decertify this lawsuit as a class action.

The basis of the various defendants’ motion is that the

plaintiffs, as class representatives, are failing to prosecute

this action, and are therefore denying the defendaats a

right to a speedy adjudication of the claims against them.

In order to deal with the defendants’ motion, a brief

chronology of events is required. This lawsuit was orig-

inally filed on July 27, 1973. Plantiffs’ original counsel did

not seek a class action hearing until April 9, 1974. On June

19, 1975, this Court, in a Memorandum and Order, declared .

that the ation should proceed as a class action pursuant to

Rule 23(b) (3) of the Federal Rules of Civil Procedure. The

delay between the class action hearing, and this Court’s

certification was due to the substituton of new counsel for

plaintiffs. On October 23, 1975, this Court partially dis-

2a

Appendix A

solved its stay order regarding discovery, and allowed dis-

covery to proceed as to the names and addresses of the

members of the class so that the appropriate class action

notice could be sent. The plaintiffs did not institute dis-

covery to determine the names and addresses of the absent

class members until July 20, 1976.

It is the opinion of the Court that the plaintiffs have

failed to offer adequate excuses for their delay in prose-

cuting this action as a class action. In response to the

motion of the defendants, the plaintiffs have alleged that it

is anomalous for the defendants to attempt to protect the

interests of the members of the class. The Court agrees

that such concern on the part of the defendants involve tears

of the crocodilian variety, however, the plaintiffs misjudged

the true thrust of the defendants’ motion. The defendants

are merely seeking, as is their right, to have a speedy adjudi-

cation of the claims against them. Since this lawsuit has

heen pending for approximately three years, and class

action notices have not gone out more than a year after the

action was certified as a class action, the Court is forced to

the conclusion that there has been a lack of prosecution on

the part of the plaintiffs as class representatives.

Since the plaintiffs seem to have no desire to prosecute

this matter as a class action, the Court will decertify this

matter as a class action, and the lawsuit shall proceed on

the indvidual claims of Cecil and Dorothy Livesay as stated

in the accompanying Order.

Dated this 1st day of September, 1976.

/s/ H. Kennetuo WanGELIN

United States District Judge

3a

APPENDIX B

United States Court of Appeals

For the L.ghth Circuit

No. 76-1881

0-

Cecil Livesay and Dorothy Livesay, for Themselves and on

P. half of All Others Similarly Situated,

Plaintiffs-Appellants,

v.

Punta Gorda Isles, Inc., Wilber H. Cole, Alfred M. Johns,

Robert J. Barbee, Samuel A. Burchers, Jr., Russell C.

Faber, John Matarese, Robert C. Wade, Earl Drayton

Farr, Jr., John W. Douglas, D.D.S., Coopers & Lybrand

(Formerly Lybrand, Ross Bros. & Montgomery),

Defendants- Appellees.

Appeal from the United States District Court for the

Eastern District of Missouri

No. 76-1906

Cecil Livesay and Dorothy Livesay, for Themselves and on

Behalf of Ali Others Similarly Situated,

Petitioners,

v.

Punta Gorda Isles, Inc., Wilber H. Cole, Alfred M. Johns,

Robert J. Barbee, Samuel A. Burchers, Jr., Russell C.

Faber, John Matarese, Robert C. Wade, Earl Drayton

4a

Appendiz B

Farr, Jr., John W. Douglas, D.D.S., Coopers & Lybrand

(Formerly Lybrand, Ross Bros. & Montgomery),

and

Honorable H. Kenneth Wangelin, United States District

Judge,

Respondents.

)

Petition for Writ of Mandamus

Submitted: January 15, 1977

Filed: March 4, 1977

Before Heaney and SrepHensox, Circuit Judges, and

Stuart,* District Judge.

StrerHenson, Circuit Judge.

In these consolidated cases, Cecil and Dorothy Livesay

(plaintiffs) seek review of the district court’s order decer-

tifying their action as a class action. In No. 76-1881, plain-

tiffs appeal from that order. In No. 76-1906, plaintiffs seek

a writ of mandamus compelling the district court to vacate

its decertification order.

On July 27, 1973, plaintiffs filed a complaint seeking

approximately $2650 in individual damages resulting from

their purchase of $5000 worth of debentures and 100 shares

of common stock issued by Punta Gorda Isles, Inc. (Punta

Gorda), a Florida land development corporation, pursuant

to a registration statement and prospectus dated May 2,

1972. The essence of plaintiffs’ claim was that the prospec-

tus and registration statement contained materially mis-

* The Honorable William C. Stuart, United States District Judge

for the Southern District of Iowa, sitting by designation.

emmy

da

Appendiz B

leading statements and omissions.’ The named defendants

were Punta Gorda, certain individuals who were officers

and directors of Punta Gorda, and the accounting firm of

Coopers & Lybrand (Coopers), which had certified the

financial statements in the registration statement and pros-

pectus. Plaintiffs sought to represent a class of approxim-

imately 1,800 persons who had purchased securities at the

May 2, 1972, public offering.

On April 9, 1974, plaintiffs moved pursuant to Fed. R.

Civ. P. 23 to have the action certified as a class action. On

May 13, 1974, the district court granted Coopers’ motion

for a stay of all discovery except discovery relating to the

class action determination. On June 24, 1974, oral argu-

ment on the class action certification motion was held. On

July 16, 1974, the district court denied Coopers’ motion to

strike the class action allegations in the complaint, but did

not at that time certify the class. On September 23, 1974,

the district court denied plaintiffs’ motion to lift the stay

on substantive discovery.

On November 1, 1974, plaintiffs filed a petition for a

writ of mandamus in this court, requesting that the district

court be ordered to lift the stay on substantive discovery.

This court denied the petition by order dated November 15,

1974, but expressed the view that plaintiffs should request

a prompt ruling on their motion for class action certifica-

' Essentially, the complaint alleges: (1) a failure to disclose that

new accounting rules of the American Institute of Certified Public

Accountants would require an adverse restatement of earnings for

1967-1972; (2) a failure to disclose that the earnings consisted of

installment sale contracts where cash would not be received until

future dates; (3) a misleading statement of the ratio earnings to

fixed charges because not based on actual cash flow; and (4) a

failure to disclose that certain Florida ecological regulations would

seriously impede Punta Gorda from developing artificial waterfront

property.

6a

Appendix B

tion and that the district court should promptly rule on the

motion and thereafter permit discovery on the merits.

Livesay v. Punta Gorda Isles, Inc., No. 74-1827 (8th Cir.,

November 15, 1974).

On December 30, 1974, an evidentiary hearing on the

class action certification motion was held in the district

court. On June 19, 1975, the district court entered an order

certifying the action as a Rule 23(b)(3) class action, which

order expressly found plaintiffs to be adequate class repre-

sentatives. The order also held that plaintiffs’ counsel had

a conflict of interest because he had represented one of the

underwriters of the Punta Gorda offering on unrelated

matters. The order deemed this conflict serious because

none of the underwriters had been joined as defendants

in the plaintiffs’ suit. Plaintiffs’ counsel withdrew, and on

June 30, 1975, plaintiffs’ current counsel entered its ap-

pearance.

On Jnly 25, 1975, plaintifts moved to dissolve the stay

on substantive discovery. Coopers opposed the motion and

sought a reconsideration of the order certifying the action

as a class action. On October 23, 1975, the district court

denied plaintiffs’ motion to dissolve the stay. In its order,

the district court expressed concern about the adequacy

of plaintiffs as class representatives, based largely on

plaintiffs’ failure to join any underwriters as defendants.

The court did not, however, decertify the class action at

that time, because it believed that such decertification might

jeopardize the claims of absent class members. The court

directed the parties to prepare forms of notice of the

pendency of the class action to be mailed to the class mem-

bers and also lifted the stay on discovery to the extent that

7a

Appendiz B

plaintiffs could seek the names and addresses of the class

members. The parties submitted proposed forms of notice

in November 1975.

On March 1, 1976, the district court mailed to the parties

its proposed form of notice. Both parties submitted sug-

gested changes, and on April 9, 1976, the district court

mailed to the parties the final form of notice.

On April 20, 1976, plaintiffs’ counsel telephoned counsel

for Punta Gorda and requested the names and addresses

of the initial registered owners (after the underwriters) of

the debentures and common stock sold pursuant to the May

2, 1972, registration statement. By letter dated April 21,

1976, Punta Gorda’s counsel declined to furnish that in-

formation.

On July 9, 1976, plaintiffs requested the district court to

conduct a conference for the purpose of discussing the issues

involved in discovery of the names of class members. On

July 20, 1976, plaintiffs served defendants with a motion to

produce the names and addresses of the initial registered

owners of the stock and debentures. On July 23, 1976,

Coopers filed a motion to decertify the action as a class

action. On July 26, 1976, the conference requested by plain-

tiffs was held at which the district court ordered the parties

to submit briefs, etc. in support of the various pending

motions.

On September 1, 1976, the district court issued a memo-

randum and order decertifying the class action. The court

found that plaintiffs had inordinately delayed in prosecut-

ing the case and were thus not adequate class representa-

tives. The order also lifted the stay on substantive dis-

covery. Subsequently, both parties have engaged in some

discovery on the merits. Plaintiffs now seek review of the

September 1 decertification order by direct appeal (No.

8a

Appendi« B

76-1881) and by a petition for a writ of mandamus (No.

76-1906).

We are confronted with the threshold issue of our juris-

diction to hear an appeal from the district court’s order

decertifying the lawsuit as a class action. Defendants allege

that the order is not a final order which is appealable under

28 ULS.C. § 1291. We disagree.

Orders denying class action certification are reviewable

under 28 U.S.C. ¢ 1291 if they sound the ‘‘death knell’’ of

the action. See, ¢.g., Share v. Air Properties G. Inc., 538 F.

2d 279, 282 (9th Cir.), cert. denied sub nom., Woodruff v.

Air Properties G. Inc., 97 3.Ct. 821 (1976); Ott v. Speed-

writing Pub, Co., 518 F.2d 1148, 1146-49 (6th Cir. 1975) ;

Williams ve Mumford, 511 F.2d 3638, 366 (D.C. Cir.), cert.

denied, 423 USS. 828 (1975); Shayne v. Madison Square

Garden Corp., 491 F.2d 397, 399-401 (2d Cir. 1974); Graci

v. United States, 472 F.2d 124, 126 (Sth Cir.), cert. denied,

412 U.S. 928 (1973); Eisen v. Carlisle & Jacquelin (Eisen

1), 370 F.2d 119, 120-21 (2d Cir. 1966); cert. denied, 386

U.S. 1035 (1967). See also Hartmann v. Scott, 488 F.2d

1215, 1220 (8th Cir. 1973); compare, In-re Cessna Aircraft

Distributorship Antitrust Litigation, 518 F.2d 213 (8th

Cir.), cert. dented, 423 U.S. 947, rehearing denied, 423 U.S.

1039 (1975). Contra, King v. Kansas City Southern In-

dustries, 479 F.2d 1259, 1260 (7th Cir. 1973); Hackett v.

(reneral Host Co., 455 F.2d 618, 621-26 (3d Cir.), cert.

denied, 407 U.S. 925 (1972).

To determine whether a decertification order sounds the

‘‘death knell’’ of the action, we begin by examining the

amount of the class representatives’ individual claim.?

* Defendants allege that because the record reveals other members

of the purported class who have substantial individual claims, the

“death knell” doctrine should not apply. That was the result reached

in Share v. Air Properties G. Inc., supra, 538 F.2d at 283. We do

—_ ee

oa ree ge

9a

Appendix B

Plaintiffs’ individual claim for damages totals approxi-

mately $2,650. Because this claim falls between those cases

where the individual claim is clearly not viable * and those

cases where the individual claim is viable,‘ we must examine

the amount of plaintiffs’ claim in relation to their financial

resources and the probable cost and complexity of the law-

suit. See, e.g., Share v. Air Properties G. Inc., supra, 538

F.2d at 282; Graci v. United States, supra, 472 F.2d at 126;

Korn v. Franchard Corp., 443 F.2d 1301, 1307 (2d Cir.

1971).

Plaintiffs, both of whom are employed, have an aggre-

gate yearly gross income of $26,000. Their total net worth

is approximately $75,000, but only $4,000 of this sum is

in cash. The remainder consists of equity in their home

and investments.

As of December 1974 plaintiffs had already ineurred

expenses in excess of $1,200 in connection with this lawsuit.

Plaintiffs’ new counsel has estimated expenses of this law-

suit to be $15,000. The nature of this case will require

extensive discovery, much of which must take place in

not consider the soundness of that holding, however, because the

case is distinguishable on its facts. In Share the court referred to

class members who were “actively engaged” in the litigation. Here,

the record reveals only that certain class members had indicated a

willingness to pay part of the expenses of suit, and even that tan-

gential involvement ceased after the appearance of plaintiffs’ new

counsel.

* See, e.g., Ott Vv. Speedwriting Pub. Co., supra ($30); Korn vy.

Franchard Corp., 443 F.2d 1301 (2d Cir. 1971) ($386); Green v.

Wolf Corp., 406 F.2d 291 (2d Cir. 1968), cert. denied, 395 U.S. 977

( phnads (“less than $1000”); Eisen v. Carlisle & Jacquelin, supra

($70).

' See, e.¢., Shayne v. Madison Square Garden Corp., supra

($7,482); Falk v. Dempsey-Tegeler & Co., 472 F.2d 142 (9th Cir.

1972) ($14,125); Milberg v. Western Pac. R.R., 443 F.2d 1301

(2d Cir. 1971) ($8,500).

10a

Appendix B

Florida, where most defendants reside. Moreover, the

allegations regarding the prospectus and financial state-

ments will likely require expert testimony at trial.

After considering all the relevant information in the

record, we are convinced that plaintiffs have sustained their

burden *® of showing that they will not pursue their indi-

vidual claim if the decertifieation order stands. Although

plaintiffs’ total net worth could absorb the cost of this

litigation, ‘‘it [takes] no great understanding of the mys-

teries of high finance to make obvious the futility of spend-

ing a thousand dollars to get a thousand dollars—or even

less.’’ Douglas, Protective Committees in Railroad Re-

organizations, 47 Harv. L. Ret. 565, 567 (1934). We con-

clude we have jurisdiction to hear the appeal.

The district court has wide latitude in determining

whether an action may be maintained as a class action. If

the court applies the proper criteria in making this deter-

mination, its decision is reviewable only for an abuse of

discretion. Wright v. Stone Container Corp., 524 F.2d

1058, 1061 (8th Cir. 1975); Shumate v. Nat’l Ass’n of

Securities Dealers, 509 F.2d 147, 155 (Sth Cir.), cert.

denied, 423 U.S. 868 (1975); Kamm vy. California City De-

velopment Co., 509 F.2d 205, 210 (9th Cir. 1975); Wetzel

v. Liberty Mutual Ins. Co., 508 F.2d 239, 245 (8d Cir.),

5 Plaintiffs who seek to invoke the “death knell” doctrine have

the burden of developing, in the trial court, an adequate factual rec-

ord upon which an appellate court may determine whether the action

will proceed absent class certification. Share v. Air Properties G.

Inc., supra, 538 F.2d at 282; Gosa v. Securities Investment Co., 449

F.2d 1330 (Sth Cir. 1971). As the Gosa court indicated, the pre-

ferable way to do this is in a post-ruling hearing where the district

court has the opportunity to enter appropriate findings of fact. No

such hearing was held in the instant case. However, we do not read

Gosa as requiring such a hearing in all cases. In the instant case, the

record of the entire proceeding contains sufficient facts to allow us

to make an informed judgment on the matter.

ee ee

lla

Appendia B

cert, denied, 421 U.S. 1011 (1975); City of New York v.

Int’l Pipe & Ceramics Corp., 410 F.2d 295, 298 (2d Cir.

1969).

Because the decertification order in this case was predi-

cated solely on the finding that plaintiffs were not adequate

class representatives because they had inordinately de-

layed in prosecuting the litigation,® the sole issue * on this

appeal may be simply stated: was the district court’s de-

certification order finding plaintiffs to be inadequate class

representatives so erroneous as to constitute an abuse of

discretion? We answer the question in the affirmative, and

we reverse,

The decertification order was apparently based upon

three distinct periods of delay. The first period of delay

was approximately eight months from the date of filing

* As plaintiffs correctly point out, the decertification order was

phrased in terms of a denial of defendants’ rights to a speedy adjudi-

cation of claims against them. This factor is not a proper criterion

to consider in determining whether plaintiffs will adequately represent

the members of the class. However, a review of the entire record

convinces us that the district court was concerned with plaintiffs’

failure to prosecute the case as it related to their adequacy as class

representatives.

? Plaintiffs also seek to raise the following issucs: (1) that the

decertification order was erroneously predicated on plaintiffs’ failure

to join underwriters as defendants; (2) that the district court ex-

hibited a lack of fair and impartial judicial procedure; (3) that the

district court ordered plaintiffs to follow class action procedures

which violate the federal rules; and (4) that the district court vio-

lated this court’s mandate by not promptly lifting the stay on substan-

tive discovery after certifying the class. The first two claims are de-

void of factual support in the record. The third claim is relevant to

the decertification order only insofar as it alleges that the class action

procedures authorized by the district court impeded the progress of

the litigation. As such, it merely restates the allegation that the delay

was not caused by plaintiffs. The final claim is moot because the

decertification order lifted the stay on substantive discovery. More-

over, as with the third claim. its only relevance to the decertification

order is the allegation that the stay of discovery was a contributing

cause of the delay.

l2a

Appendix B

the complaint until the plaintiffs moved to have the action

certified as a class action. The record indicates that this

period of time was largely devoted to preparing and amend-

ing pleadings and engaging in discovery. We note that

plaintiffs filed their motion to certify shortly after defend-

ants filed their last responses to plaintiffs’ interrogatories.

In these cireumstances, we find little to support a finding

that plaintiffs were dilatory in moving for class action

certification. Furthermore, the general rule is that a delay

prior to moving for class action certification is not a basis

for refusing certification absent some showing of prejudice.

Sev. c.g.. Berustein v. National Liberty Int'l Corp., 407 F.

Supp. 709, 714 (E.D. Pa. 1976) ; Souza v. Scalone, 64 F.R.D.

654, 656 (NLD. Cal. 1974); Boring v. Medusa Portland

Comment Co., 63 F.R.D. 78, 80 (M.D. Pa.), appeal dismissed

without opinion, 505 F.2d 729 (38d Cir. 1974); Feder v.

Harrington, 52 F. RD. 178, 181-82 (S.D.N.Y. 1970); Epstein

v. Weiss, 50 F.R.D. 387, 392 (F.D. La. 1970) No showing

of prejudice was made here.

The second time period referred to in the decertification

order was the 14 month period between the motion for class

action certification and the order certifying the class. The

district court’s decertification order attributed this delay

to the appointment of new counsel for plaintiffs. However,

1i should be noted that new counsel for plaintiffs did not

appear until after the order certifying the class was entered.

The defendants’ only colorable allegation of delay dur-

ing this second period is that plaintiffs were dilatory in mov-

ing for an evidentiary hearing on the class action motion.

The record discloses that the district court indicated during

oral argument that an evidentiary hearing should be held

if the court decided that the issue of individual reliance did

not bar maintaining the suit as a class action. This deci-

lSa

Appendix B

sion was reached on July 16, 1975, and plaintiffs did not

seek an evidentiary hearing until September 20, 1975, a

period of nine weeks. During this nine-week period plain-

tiffs were not inactive. They moved to enjoin the destrue-

tion of documents and also moved to lift the stay on sub-

stantive discovery. We cannot say, and the district court

did not find, that pursuing these avenues was a sign of

inaction, negligence, or a failure adequately to protect the

interests of other class members.

The third period of time mentioned in the decertifica-

tion order is the period from the district court order allow-

ing discovery of the names and addresses of class members

until plaintiffs first sought to discover that information.‘

This period runs from October 23, 1975, to April 20, 1976,

when plaintiffs first requested Punta Gorda’s counsel to

furnish the names and addresses of the initial registered

owners of the securities. Defendants contend that because

plaintiffs have offered no compelling excuse for failing to

request this information more promptly, this delay ipso

facto justified the district court’s finding that plaintiffs are

inadequate representatives. We disagree.

We begin by noting that there has been no showing that

plaintiffs’ failure to request production of this information

at an earlier date has prejudiced the class members. The

* A persuasive argument can be made that this is the only period

of delay upon which the decertification order could properly be

predicated. Because the first two periods of delay occurred prior to

the certification order, defendants could have raised the issue of

feilure to prosecute at that time, but did not. They may now be

foreclosed from raising the issue based on these delays. Kramer v.

Scientifi- Control Corp., 67 F.R.D. 98, 99 (E.D. Pa. 1975). rev'd

in part on other grounds, 534 F.2d 1085 (3d Cir.), cert. denied sub

nom., Arthur Andersen & Co. v. Kramer, 97 S.Ct. 90 (1976). Cf.

In re Cessna Aircratt Distributorship Antitrust Litiection, 518 F.2d

213, 215 (8th Cir.), cert. denied, 423 U.S. 947, rehearing denied,

423 U.S. 1039 (1975).

l4a

Appendix B

netices to the class members could not have gone out until

the final form of notice was approved by the court, which

did not oceur until April 9, 1976. Eleven days later, plain-

tiffs’ attorney telephoned counsel for Punta Gorda and re-

quested that Punta Gorda furnish the names and addresses

of the initial registered owners cf the securities in question.

In a letter dated August 4, 1975, counsel for Punta Gorda

had agreed to furnish this information. However, in

response to the telephone call, counsel for Panta Gorda

wrote a letter to plaintiffs’ counsel refusing to furnish this

information.” In these cireumstances we cannot agree that

plaintiffs were dilatory in seeking the names and addresses

of potential class members. They had every right to ex-

pect that defendants would promptly furnish this informa-

tion. To hold that plaintiffs are inadequate class represen-

tatives beeause they failed to anticipate defendants’ even-

tual objections to discovery would be tantamount to saying

that class representatives must be gifted with prescience.

This we decline to do.

That there has been undue delay in this lawsuit is be-

yond question. From examination of the entire record of

this protracted proceeding, however, it becomes quite clear

that much of the delay in this ease is directly attributable

to defendants. For example, defendants have been granted

14 extensions of time, totalling approximately 190 days, in

which to file pleadings, motions and other papers. In addi-

tion, defendants have filed motions to reconsider or modify

eerlier court orders, which motions have consistently al-

leged grounds previously ruled upon by the court. The

* This refusal was later formalized in objections to plaintiffs’ mo-

tion to produce. One of the objections to this motion was that the

requested information was not in the possession of Punta Gorda, but

in the possession of Punta Gorda’s transfer agent. Because the trans-

fer agent could only release this information at the direction of Punta

Gorda, we find this objection little else than a delaying tactic.

oe A aw

lda

Appendix B

clear import of this course of conduct is to make this law-

suit as time-consuming and costly as possible.

In addition, the district court has on some occasions

taken action which did not advance the progress of this

litigation. The court took approximately five months to

decide the class action certification motion after the eviden-

tiary hearing was held. The court took approximately four

months to approve the form of notice to the class members.

These delays appear to have been justifiable due to the com-

plex nature of the questions presented. However, during this

time there was a stay of substantive discovery in effect.

The practical effect of this stay was to prevent the parties

from concurrently proceeding to the merits while the court

considered the various procedural questions. In these cir-

cumstances, virtually all the plaintiffs could do to advance

the course of this litigation was to attempt to lift the <tav

on discovery. Plaintiffs twice sought to lift this stay and

were twice unsuccessful.

We conclude that the district court order decertifying

the action as a class action because of plaintiffs’ failure to

prosecute is wholly unsupported by the record, and we

accordingly reverse. We do not disturb that portion of the

order which lifted the stay on substantive discovery.

The record in this case compels us to make certain fur-

ther comments. We are dismayed at the utter lack of

cooperation between opposing counsel. The record is re-

plete with instances where relatively minor procedural mat-

ters have mushroomed into full-seale confrontations, with

the concomitant avalanche of briefs, memoranda, ete. By

and large, these matters, could, and should, have been set-

tled informally by the parties or, if necessary, in conference

with the district court.

16a

Appendix B

Even more disturbing is the tone with which these pro-

ceedings have been conducted. All too often the parties

have engaged in personal attacks on opposing counsel and

the distriet court. These baseless allegations are not a sub-

stitute for advocacy based on the facts and the law and they

have no place in our judicial system.

(nm remand, we anticipate that this conduct will not re-

ocenr. If it does, the district court will be foreed to take a

more active role in managing this case to insure that it

progresses as expeditiously as possible consistent with fair-

ness to the parties. See Manuel for Complex Litigation

© 1.10 (1973).

| In No. 76-1881, the order of the district court is reversed

and the cause remanded for further proceedings consistent

herewith. In No. 76-1906, the petition for writ of mandamus

ix dismissed,

A true copy.

Attest:

Clerk, U. S. Court of Appeals, Fighth Cireuit.

—=

17a

APPENDIX C

28 U.S.C. § 1291.—Final decisions of district courts

The ecurts of appeals shall have jurisdiction of appeals

from all final decisions of the district courts of the United

States, the United States District Court for the District

of the Canal Zone, the District Court of Guam, and the

District Court of the Virgin Islands, except where a direct

review may be had in the Supreme Court.

28 U.S.C. § 1292(b).—Interlocutory decisions

(b) When a district judge, in making in a civil action

an order not otherwise appealable under this section, shall

be of the opinion that such 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 litigation, he shall so state in writing in such order.

The Court of Appeals may thereupon, in its discretion,

permit an appeal to be taken from such order, if applica-

tion is made to it within ten days after the entry of the

order: Provided, however, That application for an appeal

hereunder shall not stay proceedings in the district court

unless the district judge or the Court of Appeals or a judge

thereof shall so order.

Rule 23, F.R.Civ.P.—Class Actions

(a) Prereguistres to a Criass Actiox. One or more

members of a class may sue or be sued as representative

parties on behalf of all only if (1) the class is so numerous

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 representative

parties will fairly and adequately protect the interests of

the class.

18a

Appendiz C

(hb) Crass Actions MarytarxasLe. An action may be

maintained as a class action if the prerequisites of sub-

division (a) are satisfied, and in addition:

(1) the prosecution of separate actions by or against

individual members of the class would create a risk of

(.\) inconsistent or varying adjudications with respect

to individual members of the class which would establish

incompatible standards of conduct for the party opposing

the class, or

(B) adjudications with respect to individual members of

the class which would as a practical matter be dispositive of

the interests of the other members not parties to the adjudi-

cations or substantially impair or impede their ability to

protect their interests; or

(2) the party opposing the class has acted or refused to

act on grounds generally applicable to the class, thereby

making appropriate final injunctive relief or corresponding

declaratory relief with respect to the class as a whole; or

(3) the court finds that the questions of law or fact com-

mon to the members of the class predominate over any ques-

tions 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

pertinent to the findings include: (A) the interest of mem-

bers 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 com-

meneed by or against members of the class; (C) the desir-

ability or undesirability of concentrating the litigation of

the claims in the particular forum; (D) the difficulties likely

to be encountered in the management of a class action.

—

19a

Appendiaz C

(c) Derermination By OrpeR Wuetuer Crass Action

to Be Maintarnep; Notice; JupGMENT; Actions ConpUcTeD

PartTiaALLy as Ciass Actions.

(1) As soon as practicable after the commencement of

an action brought as a class action, the court shall determine

by order whether it is to be so maintained. An order under

this subdivision may be conditional, and may be altered or

amended before the decision on the merits.

(2) In any elass action maintained under subdivision (b)

(3), the court shall direct to the members of the class the

best notice practicable under the circumstances, including

individual notice to all members who can be identified

through reasonable effort. The notice shall advise each

member that (A) the court will exclude him from the class

if he so requests by a specified date; (B) the judgment,

whether favorable or not, will include all members who do

not request exclusion; and (C) any member who does not

request exclusion may, if he desires, enter an appearance

through his counsel.

(3) The judgment in an action maintained as a class

action under subdivision (b) (1) or (b) (2), whether or not

favorable to the class, shall include and describe those whom

the court finds to be members of the class. The judgment in

an action maintained as a class action under subdivision (b)

(3), whether or not favorable to the class, shall include and

specify or describe those to whom the notice provided in

subdivision (c) (2) was directed, and who have not re-

quested exclusion, and whom the court finds to be members

of the class.

(4) When appropriate (A) an action may be brought or

maintained as a class action with respect to particular

issues, or (B) a class may be divided into subclasses and

20a

Appendix C

each subclass treated as a class, and the provisions of this

rule shall then be construed and applied accordingly.

(d) Orpers tx Conpuct or Actions. In the conduct of

actions to which this rule applies, the court may make ap-

propriate orders: (1) determining the course of proceed-

ings or prescribing measures to prevent undue repetition or

complication in the presentation of evidence or argument;

(2) requiring, for the protection of the members of the class

or otherwise for the fair conduct of the ection, that notice

he given in such manner as the court may direct to some or

all of the members of any step in the action, or of the pro-

posed extent of the judgment, or of the opportunity of mem-

bers to signify whether they consider the representation

fair and adequate, to intervene and present claims or de-

fenses, or otherwise to come into the action; (3) imposing

conditions on the representative parties or on intervenors ;

(4) requiring that the pleadings be amended to eliminate

therefrom allegations as to representation of absent per-

sons, and that the action proceed accordingly; (5) dealing

with similar procedural matters. The orders may be com-

bined with an order under Rule 16, and may be altered or

amended as may be desirable from time to time.

(e) DismissaL or Compromise. A class action shall not

he dismissed or compromised without the approval of the

court, and notice of the proposed dismissal or compromise

shall he given to all members of the class in such manner as

the court directs.

dill