Petitioners Brief — Coopers & Lybrand v. Livesay
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Tr Supreme Court, U. S. |
FILED
JAN 9 1978
MICHAEL RODAK, JR., CLERK
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1977
J
No. 77-1836
COOPERS & LYBRAND,
Petitioner,
Vv.
CECIL LIVESAY and DOROTHY LIVESAY,
Respondents.
No. 77-1837
PUNTA GORDA ISLES, INC., et ai.,
Petitioners,
Vv.
CECIL LIVESAY and DOROTHY LIVESAY,
Respondents.
On Writs of Certiorari to the United States Court of Appeals
for the Eighth Circuit
BRIEF FOR PETITIONER
COOPERS & LYBRAND
VERYL L. RIDDLE
THOMAS C. WALSH
JOHN J. HENNELLY, JR.
MICHAEL G. BIGGERS
BRYAN, CAVE, McPHEETERS & McROBERTS
500 North Broadway
St. Louis, Missouri 63102
Attorneys for Petitioner
Coopers & Lybrand
HARRIS J. AMHOWITZ
Of Counsel
St. Louis Law Printing Co., Inc., 812 Olive Street 63101 314-231-4477
TABLE OF CONTENTS
Page
NEY 6 icv ks icccecean nave éebednivas oan 1
NE oo ae 6 eke HR E OMEN ORME ERS OES SORES 2
Ce PST EEE TTT SCTE TST TELE T TT 2
Statutes and Rules Involved ...........-..cccceeees 2
EE I oc ich eo bcs ip ceadeacebeenius 3
eS i ccccecccseesséesnaw ne Kens 9
GEE SG. eacpeaeencsedcenssecareusébeeuntbanesn 13
I. The Court of Appeals Did Not Have Jurisdiction of
Respondents’ Purported Appeal From the District
Court’s Order Decertifying This Case as a Class
GE G4 besa ssde eee eReUseeeeesecueeebaos 13
A. Section 1291 Permits Appeals Only From “Fi-
EE cacccdeuseeceedeeaewndnneueds 13
B. The Death Knell Doctrine Is Neither a Valid,
a Desirable, Nor a Necessary Exception to the
Fimality Requirememt ...........ccccceee- 17
1. The death knell doctrine represents an im-
proper interpretation of §1291 ......... 17
2. The death knell doctrine represents an in-
appropriate and undesirable response to
problems created by class action certification
eC rere 23
3. The death knell doctrine is unnecessary as
a result of United Airlines, Inc. v. McDon-
ald, — U.S. —, 53 L.Ed. 2d 423 (1977).. 29
ul
C. Even if the Death Knell Theory Is Appropriate
in Some Instances, the District Court's Decerti-
fication Order in This Case Was Not Appealable 33
Il. The Court of Appeals Exceeded the Proper Scope
of Its Authority in Reversing the District Court's
I ods us hock ee wen ue eke 37
A. The Court of Appeals Exceeded Its Authority
in Reversing the Decertification Order on the
Stated Ground of Lack of Prosecution by Re-
EN We da-ck descend ac che pees eee cc Gs 40
B. The District Court's Decertification Order Was
Also Sustainable on the Ground That Respond-
ents Were Not Adequate Representatives of the
Class for a Number of Other Reasons Appear-
Br ree 43
C. The Court of Appeals Erred in Recertifying the
Class Without Determining Whether It Was
Properly Certified in the First Place ......... 49
PS ais 0 dW links $6060 caterinesaes aan 51
Cases Cited
Abney v. United States, — U.S. —, 52 L.Ed. 2d 651,
aN ne aire Ned ohh cuae ee Teale eo aks 13, 16
Albertson’s, Inc. v. Amalgamated Sugar Co., 503 F.2d 459
SE CUI hea dou dees ccdee ce tkecidca 26
American Pipe & Construction Co. v. Utah, 414 U.S. 538
WUE SNe od Way e548 ease Ce eee ee ok 31
Anschul v. Sitmar Cruises, Inc., 544 F.2d 1364 (7th Cir.),
cert. denied, 429 U.S. 907 (1976) ............ 9, 18, 21
Bachowski v. Usery, 545 F.2d 363 (3d Cir. 1976) ...... 14
Baltimore Contractors, Inc. v. Bodinget, 348 U.S. 176
SN 5 haeae Ges sd ona bauseNoneescdneculus. 22
———iI—_— ee eee
PP er ee
ill
Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975), cert.
denied, 429 U.S. 816 (1976) ......- 66. eee eee eee 31
Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723
SED. Zu cue ce wa Kee en eee sosseneveeresnces 24, 50, 51
Boggs v. Alto Trailer Sales, Inc., 511 F.2d 114 (Sth Cir. .
EE errs Sore ee ee ee Re
Bowe v. First of Denver Mortgage Investors, 562 F.2d 640
SE, GUUD vo cccveccccieeewsesceceesecess 35
Caceres v. International Air Transport Association, 422 F.
ee e, Ce SB . eee eee eee eee 17, 24
Carpenters’ District Council v. Brady Corp., 513 F.2d 1
le rrr re eee eee ee eee 39
Carroll v. United States, 354 U.S. 394 (1957) ...... 9, 22, 24
Catlin v. United States, 324 U.S. 229 (1945) .......... 15
Cheng Fan Kwok v. Immigration & Naturalization Service,
BD TEE, BG GRE onc ccc wc esc ctcesscsccncsens 14
Cinerama, Inc. v. Sweet Music, S.A., 482 F.2d 66 (2d
TE PARRA Te ee eee ee ee 14
City of New York v. International Pipe and Ceramics
Corp., 410 F.2d 295 (2d Cir. 1969) ........-..--, 40
Cobbledick v. United States, 309 U.S. 323 (1940) ...... 14
Cohen v. Beneficial Industrial Loan Corporation, 337 U.S.
EE cheba eh Ket eeeeeseeseecedes 16, 18, 50
Cotten v. Treasure Lakes, Inc., 518 F.2d 770 (6th Cir.),
cert. denied, 423 U.S. 930 (1975) ..... 2.2.65 -20 ee. 18
DiBella v. United States, 369 U.S. 121 (1962) ........ 13
Dickinson v. Petroleum Conversion Corp., 338 U.S. 507
SEED SEG KeSSSECLE SESSA CESS ODOC DOOR ORS H ae
East Texas Motor Freight System, Inc. v. Rodriguez, 431
if) .. PPPeeeeverrrrerene 12, 37, 38, 44, 51
iv
Eisen v. Carlisle & Jacquelin, 370 F.2d 119 (2d Cir.
1966), cert. denied, 386 U.S. 1035 (1967) (Eisen I) passim
Eisen v. Carlisle & Jacquelin, 391 F.2d 555 (2d Cir. 1968)
(Eisen TE)... ccccccccccecuunennee 43
Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (2d Cir.
59735) Golson TE)... oss eave none 17, 23, 31
Fisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974) (Eisen
| rr 15, 17, 19
Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) ...... 50
SL, 23
Fendler v. Westgate-California Corp., 527 F.2d 1168 (9th
Civ. 1975) ... ee scvcccestu ce eeu 40, 43
Gardner v. Westinghouse Broadcasting Company, — U.S.
—, 46 U.S.L.W. 3373 (Dec. 5, 1977) .............. 2
General Motors Corporation v. City of New York, 501
F.28 659 (26 Cle. 1994) ....ccvcccuneee eee 23
Gerstle v. Continental Airlines, Inc., 466 F.2d 1374 (10th
Cle. 1972) .. ccc ccvcsessseucee ee 24
Gillespie v. United States Steel Corporation, 379 U.S. 148
(i MU 18
Gonzales v. Cassidy, 474 F.2d 67 (Sth Cir. 1973) ...... 43,44
Gosa v. Securities Investment Co., 449 F.2d 1330 (Sth
Cle. 8978)... ocecdecescsa ene y
Graci v. United States, 472 F.2d 124 (Sth Cir.), cert. de-
nied, 412 U.S. 928 (1973) ...........ccccce. 23, 25, 33
Hackett v. General Host Corporation, 455 F.2d 618 (3d
Cir.), cert. denied, 407 U.S. 925 (1972) .9, 20, 21, 28, 29, 32
Hansberry v. Lee, 311 U.S. 32 (1940) ................ 43
Harris v. American Investment Company, 523 F.2d 220
(8th Cir. 1975)
Helvering v. Gowran, 302 U.S. 238 (1937) .........--. 39
Herbst v. International Telephone & Telegraph Co., 495
F.2d 1308 (2d Cir. 1974) ... 2.2... oe eee eee 19, 23, 31
Holcombe v. McKusick, 20 How. (61 U.S.) 552 (1857) ... 13
Hooley v. Red Carpet Corporation, 549 F.2d 643 (9th Cir.
Ee eed a cece ecsesecccccncceccces 30, 36
In re Cessna Aircraft Distributorship Antitrust Litigation,
518 F.2d 213 (8th Cir.), cert. denied, 423 U.S. 947
DUDE UR See seeecccedscsacccsccccccces 40
In re Piper Aircraft Distribution System Antitrust Litiga-
tion, 551 F.2d 213 (8th Cir. 1977) ..........--55-- 18
International Controls Corp. v. Vesco, 535 F.2d 742 (2d
cc kaa pace seocccccccecsce 15
Jelfo v. Hickok Manufacturing Co., 531 F.2d 680 (2d Cir.
Leas seeecencecccecccccsces 33
Johnson v. Georgia Highway Express, Inc., 417 F.2d 1122
SE ccc cceccsccccecscccscccscccces 26
Kamm v. California City Development Co., 509 F.2d 205
BM, BUTE cc ccc crc ccccccccsctccscrccccers 26
Kappelman v. Delta Air Lines, Inc., 539 F.2d 165 (D.C.
Cir. 1976), cert. denied, 429 U.S. 1061 (1977) ...... 15
Katz v. Carte Blanche Corporation, 496 F.2d 747 (3d Cir.
en banc), cert. denied, 419 U.S. 885 (1974) ......... 21
King v. Kansas City Southern Industries, Inc., 479 F.2d
>. Je Le 3) |.) Tne 21
Kline v. Coldwell, Banker & Co., 508 F.2d 226 (9th Cir.
DCE Ce ead eas eceseasecsccccccceccccces 32
Kohn v. Royall, Koegel & Wells, 496 F.2d 1094 (2d Cir.
TUE ed asec neces seesceececesccce 19, 23
Korn v. Franchard Corporation, 443 F.2d 1301 (2d Cir.
Seca k ce ceesedcucccccccccccese 18, 19
vi
Kramer v. Scientific Control Corporation, 534 F.2d 1085
es SE 454404 ecsncndedececeeeaaneeeias 18
Lamphere v. Brown University, 553 F.2d 714 (lst Cir.
PPE 6444306406008 s60bd sans ebeaensaae 23
Liberty Mutual Insurance Co. v. Wetzel, 424 U.S. 737
SE 6 4aeavindecdekesdeaneeseesweees 24, 32, 33
Link v. Wabash Railroad Co., 370 U.S. 626 (1962) ..... 42
Lukenas v. Bryce’s Mountain Resort, Inc., 538 F.2d 594
EN + 46404 Chanddeaceusoenameense cen 26
McGourkey v. Toledo & Ohio Central Railway Co., 146
Se Se EE 4.64 0k K0Ks40 becker eure redtr. 15
Metcalfe’s Case, 11 Co. Rep. 28a, 77 Eng. Rep. 1193
Ne OE 9 0 56% S0 ctueniukeeees
Milberg v. Western Pacific Railroad Co., 443 F.2d 1301
Se COON a6n ea cksvhodaukea Ere oEse 18, 19
National Association of Regional Medical Programs, Inc.
v. Mathews, 551 F.2d 340 (D.C. Cir. 1976) cert. denied,
— US. —, $3 L.Ed. 26 270 (1977) .............. 43
Oppenheimer v. F. J. Young & Co., 144 F.2d 387 (2d
Cir. 1944)
Ott v. Speedwriting Publishing Co., 518 F.2d 1143 (6th
Cir. 1975)
Palmore v. United States, 411 U.S. 389 (1973) ......... 14
Parkinson v. April Industries, Inc., 520 F.2d 650 (2d Cir.
renee Pater SE MWA Ethe s nos 19
Republic Natural Gas Co. v. Oklahoma, 334 U.S. 62 (1948) 15
Rutledge v. Electric Hose and Rubber Co., 511 F.2d 668
PS GE Shek hadsekensibelsiease 41, 43
Vil
Samuel v. University of Pittsburgh, 506 F.2d 355 (3d Cir.
EE Fae y, Neen, anne fe ahaa Pa eemn Ree, er 18
Santa Fe Industries, Inc. v. Green, 430 U.S. 462 (1977).. 24
Sapp v. Renfroe, 511 F.2d 173 (Sth Cir. 1975) ....... 39
Sears, Roebuck & Co. v. Mackey, 351 U.S. 427 (1956).. 27
Senter v. General Motors Corporation, 532 F.2d 511 (6th
Ge: (ai cuted e Pe uees cures rene resus eieens 43
Shanferoke Corp. v. Westchester Corp., 293 U.S. 449
A rr ne ee ee ee 22
Share v. Air Properties G. Inc., 538 F.2d 279 (9th Cir.),
cert. denied, 429 U.S. 923 (1976) ............ 18, 33, 35
Shaye v. Madison Square Garden Corp., 491 F.2d 397
ie Gee (ED occ cn ecescuceseeees cues neeeuys 19
Siebert v. Great Northern Development Co., 494 F.2d
OO errr rr rrr Tre reer ee 18
Snyder v. Harris, 394 U.S. 332 (1966) ............-. 20
Susman v. Lincoln American Corp., 561 F.2d 86 (7th
UR GE ec ccc c 0s keckeeedacesésautsawenns 26, 43, 45
Switzerland Cheese Ass’n v. E. Horne’s Market, Inc., 385
ee ee ED. ny ceeceds kk ceedeguseescoucees 27
Thomsen v. Cayser, 243 U.S. 661 (1917) ..........-. 30
United Airlines, Inc. v. McDonald, — U.S. —, 53 L.Ed.
Fe Y. .,, PPrrrer errr ree 11, 29, 30, 36
United States v. New York Telephone Co., — U.S. —,
46 U.S.L.W. 4033 (1977) .........- eee ee eee eee 39
United States v. Procter & Gamble Co., 356 U.S. 677
EE 6-60 6-6dbcs ste Cew eT Ree eee e he ske ee ennees 30
United States v. Nixon, 418 U.S. 683 (1974) ......... 14
United States v. Ryan, 402 U.S. 530 (1971) .........-. 16
West v. Capitol Federal Savings & Loan Assn, 558 F.2d
OTT (10th Cie. 1977) ... ccc cece cc ccccccccccces 23
Vili
Williams v. Mumford, 511 F.2d 363 (D.C. Cir. 1975). .18, 23
Wright v. Stone Container Corp., 524 F.2d 1058 (8th
eb SN Gea ace eee cee sk keen pean aver ebess 40, 41
Wrist-Rocket Mfg. Co. v. Saunders Archery Co., 516 F.2d
846 (8th Cir.), cert. denied, 423 U.S. 870 (1975) .... 15
Statutes and Rules Cited
Act of September 24, 1789, 1 Stat. 73, 83-85 ........ 13
NE a cea esau naan dk moewitanen 3, 50
CT WAGON ne cipher eee bea kena65u ob oareies 3, 50
i i -.64's ene iCEh veh Ceska beeeen ee ae 3
EE hn is beausakeus enneawkedheeeea cet 3
EE on oe oe c unde eueeed bene edune 3,31
a acc vkcvaddhes edit euneouseeeeenka 3
ee ehcp dhs catueewessaubenin 2
le EE ain d cee ete kde heeuawaeesaned passim
FE er ne rns 15, 16
Be UBER. FIRED 2c ccscess 2, 9, 10, 15, 16, 20, 25, 26, 33
ep caknk 3 6shan ke dae eekswedeneeuns 31
Ch NE I ee ee ee ee 3
Federal Rules of Civil Procedure
Dt Di de deb eeesided £6 ebb beatae ee eeds passim
ER a ea Sa in ae een - 30
SN 5 6454-0006 0es Meher seen Chesnes Guus 16, 24
Treatises and Law Reviews Cited
Comment, Appealability of Class Action Determinations,
44 Fordham L. Rev. 548 (1975) ................ 18, 23
ix
Frank, Requiem for the Final Judgment Rule, 45 Tex. L.
SE EE boven cep eenedneenedeeuenseney 24, 27
Handler, Twenty-Third Annual Antitrust Review, 71
ee, Sig SD nn on6 066406666 ceete sone 31
Kaplan, Continuing Work of the Civil Committee; 1966
Amendments to the Federal Rules of Civil Procedure
Ch, SE Gieev. 1. Gav. FOG CURSED occ cccsccccvcess 26
Note, Discretionary Appeals of District Court Interlocu-
tory Orders: A Guided Tour Through Section 1292(b)
of the Judicial Code, 69 Yale L. J. 333 (1959) ...... 14
Note, 44 Fordham L. Rev. 433 (1975) .............. 26
Note, Interlocutory Appeals in the Federal Courts Under
28 U.S.C. §1292(b), 88 Harv. L. Rev. 607 (1975) ... 26
Wright & Miller, Federal Practice & Procedure
EE oc 4h eck CLUE Che RRs SRE R ERE RTE R ORES 16
RD A Te ere eee ry ere eee Te ee ee 18
Miscellaneous
Code of Professional Responsibility
Disciplinary Rule 5-105(A) .............---5-45- 45
NES CINE BeOS nw ccc ecccccccccess 45
Bien) Comsideration S-1S .....cccccccsesccccees 45
1958 U.S. Code Cong. & Admin. News 5262-63 (85th
Come... 26 Goss. 1956) ... 0. cc ccccccccccccceces 25, 26
1977 Annual Report of the Director, Administrative Office
of the United States Courts, Table I, p. 65a ........ 27
Report of American Bar Association Special Committee
Federal Rules of Procedure, 38 F.R.D. 95 (1965) .... 26
Report and Recommendations of the Special Committee of
the American College of Trial Lawyers on Rule 23
DED 60 kc0ok sein 6n0456nsenssenesesesesanes 31
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1977
No. 77-1836
COOPERS & LYBRAND,
Petitioner,
v
CECIL LIVESAY and DOROTHY LIVESAY,
Respondents.
No. 77-1837
PUNTA GORDA ISLES, INC., e¢ ai.,
Petitioners,
v
CECIL LIVESAY and DOROTHY LIVESAY,
Respondents.
On Writs of Certiorari to the United States Court of Appeals
for the Eighth Circuit
BRIEF FOR PETITIONER
COOPERS & LYBRAND
OPINIONS BELOW
The opinion and order of the United States District Court
for the Eastern District of Missouri are not officially reported
but are set forth at pages A-1 to A-3 of the Petition for Writ
of Certiorari filed in No. 76-1836 by Petitioner Coopers & Ly-
brand (hereinafter “Cert. Pet.”). The opinion of the United
States Court of Appeals for the Eighth Circuit is reported at 550
F.2d 1106 and reproduced at Cert. Pet. pp. A-4 to A-16.
JURISDICTION
The judgment of the Court of Appeals was entered on March
4, 1977. Petitioners’ timely petitions for rehearing were denied
on March 28, 1977. Separate Petitions for Writs of Certiorari
were filed on June 23, 1977, by Coopers & Lybrand (No. 76-
1836) and by the other defendants (No. 76-1837) and were
granted on November 14, 1977, at which time the cases were
consolidated for briefing and argument. 46 U.S.L.W. 3332.}
The jurisdiction of this Court is founded on 28 U.S.C. §
1254(1). —
QUESTIONS PRESENTED
1. Is an order of a district court determining that an action
cannot be maintained as a class action appealable pursuant to
28 U.S.C. § 1291 under the “death-knell” doctrine?
2. Did the Court of Appeals exceed the proper scope of its
authority in ordering the district court to re-certify this case as
a class action?
STATUTES AND RULES INVOLVED
This case involves Sections 1291 and 1292(b) of Title 28,
U.S.C., and Rule 23, Fep. R. Civ. P., all of which are set forth
in their entirety in the Addendum to this brief, post.
' On December 5, 1977, the Court granted certiorari in No.
77-560, Gardner v. Westinghouse Broadcasting Company, and set
that case for oral argument in tandem with the instant matter. 46
U.S.L.W. 3373.
STATEMENT OF THE CASE
The Complaint in this case was filed on July 27, 1973, al-
leging violations of Sections 11, 12(2) and 17(b) of the Se-
curities Act of 1933 (15 U.S.C. §§ 77k, 77/(2) and 77q(a));
Section 10(b) of the Securities Exchange Act of 1934 (15
U.S.C. § 78j(b)); and Rule 10b-5 of the Securities and Ex-
change Commission (17 C.F.R. 240.10b-5). Jurisdiction was
invoked under § 22(a) of the 1933 Act (15 U.S.C. § 77v)
and § 27 of the 1934 Act (15 U.S.C. § 78aa). Plaintiffs below,
respondents here, are Cecil and Dorothy Livesay, husband and
wife, who reside in suburban St. Louis, Missouri. Defendants
below, petitioners here are, in No. 76-1836, Coopers & Lybrand,
a national accounting firm, and, in No. 76-1837, Punta Gorda
Isles, Inc., a Florida corporation (“Punta Gorda”) and ten in-
dividuals who are officers and directors of that company (Apdx.
24-26).
In their Complaint, respondents charged that they had been
damaged as‘the result of allegedly false and misleading state-
ments contained in a registration statement and prospectus is-
sued in connection with a public offering of Punta Gorda de-
bentures and common stock on May 2, 1972 (Apdx. 28-33).
Respondents had acquired $5,000 face amount 6% convertible
subordinated debentures and 100 shares of common stock in
the public offering, which they later sold at a loss of $2,650.00.
The complaint, filed on their behalf by a St. Louis lawyer, also
contained class action allegations in which respondents purported
to represent “all of those persons who purchased the above-
described debentures and shares of the common stock of Punta
Gorda during the underwriting and public offering thereof which
occurred on and following May 2, 1972” (Apdx. 27). Damages
were sought in an unspecified amount on behalf of all would-be
class members. No equitable relief was prayed for.
—_—
Although all of Punta Gorda’s officers and directors, as well
as its accountants, were named as defendants in the action, none
of the members of the underwriting group were joined. The
underwriting group was headed by A. G. Edwards & Sons,
Inc., of St. Louis and included, among others, the local St. Louis
brokerage company of I. M. Simon & Co. (Apdx. 88-91, 157).
Respondents first moved for an order certifying the case as a
class action on April 11, 1974, more than nine months after
the initiation of the lawsuit, but did not request a hearing at that
time (Apdx. 5, 85). Oral argument on the class certification
issue was held in the district court in June 1974, at which time
it became apparent that a hearing would be required. During
the pendency of the class action question, the court, at petition-
ers’ request, had stayed discovery on the merits (Apdx. 6, 86).
On November 1, 1974, respondents filed a Petition for Writ
of Mandamus in the Court of Appeals for the Eighth Circuit,
asking that the stay on substantive discovery be lifted (Apdx.
9, 103). In their petition, respondents announced that “[r]Je-
gardless of whether the Court sustains or denies the class action
determination herein [plaintiffs] will at that time commence
full and complete discovery of all issues” (Apdx. 106). The
Court of Appeals denied the Petition on November 15, stating
that:
“[Plaintiffs}] should request a prompt ruling on its [sic]
motion of April 9, 1974 for an order determining that a
class action existed. If an evidentiary hearing is desired,
that can likewise be requested. The trial court shculd then
promptly rule on [plaintiffs] motion and remove its stay
order and thereafter permit discovery to proceed on the
merits . . .” (Apdx. 107-08).
In the meantime, petitioners had taken the deposition of re-
spondent Cecil Livesay. In response to the question whether
he would continue to pursue his individual claim if class action
status were denied, Mr. Livesay said that he was not sure but
that he would leave the decision to his attorney and that if his
attorney said “yes,” he would continue to pursue his individual
claim (Apdx. 72-73).
On November 18, 1974, respondents, in accordance with the
suggestion of the Eighth Circuit, requested a hearing on the
class action question. That hearing was held on December 30.
The evidence revealed that respondents’ counsel also repre-
sented the brokerage firm of I. M. Simon & Co., one of the
underwriters in the Punta Gorda public offering. Additionally,
respondents’ counsel acknowledged that he numbered among
his clients several other members of the proposed class of plain-
tiffs who had sizable claims arising out of that offering:
“ _ . [I]n addition to representing the Livesays, subse-
quent to the filing of this lawsuit, I have been retained by
other individuals to represent them with respect to the
losses arising from the public offering, Punta Gorda.
“Those individuals are the following: Mr. and Mrs.
Joseph Morrissey, who live in—who are neighbors of mine
and have been friends of mine for some twenty-five years.
They called me. They sustained a loss of $140,000.00
“I have been retained to represent a fund in Los Angeles
called The Shareholders. . . . They sustained losses in
excess of half a million dollars... .
“I have been retained to represent a company in Dallas
called Regal Capital Company through their lawyer, a Mr.
Rosenberg from Dallas. Regal Capital is owned by an
individual and he sustained a loss of $18,000.00... .
“I have been retained to represent a Mr. David Kleg
and his wife and child, who live in Salt Lake City, and
they sustained a loss of—I believe $50,000.00” (Apdx.
151-52).
— en
Respondents’ counsel also testified that if class action status
were not granted, the local claimants would intervene in this
case and “I have specific instructions and suits will be filed”
in other jurisdictions on behalf of the nonresident claimants
(Apdx. 153).
After receipt of respondents’ final brief on the class action
certification question on May 26, 1975 (Apdx. 11), the district
court entered an order on June 19, 1975, determining that the
case could proceed as a class action on behalf of some 1800 pur-
chasers of Punta Gorda securities (Apdx. 168). At the same
time, however, the court found that respondents’ counsel, in
view of his representation of I. M. Simon & Co., had a conflict
of interest and ordered him to show cause why he should not be
removed as attorney for the class (Apdx. 11, 169-73). Rather
than contesting the court’s conclusions, counsel withdrew from
the case (Apdx 12, 173).
Almost simultaneously, New York counsel appeared on be-
half of respondents and was asked by the court to make a deter-
mination of the feasibility of joining the underwriters as defend-
ants (Apdx 12, 179). Having received no satisfactory answer,”
the district judge on October 23, 1975, in response to petitioners’
Motion for Reconsideration, or in the Alternative, for Modifica-
tion (Apdx. 12, 178), tentatively refused to revoke his class certi-
fication order but expressed his concern with respondents’ ade-
quacy as representatives of the class, saying that “the presence of
new counsel dces not in itself erase the shadow of inadequate rep-
resentation previously cast . . . .” (Apdx. 187). (The court did
not disband the class at that time for fear of “jeopardiz[ing]
potentially valid claims held by absent class members” (Apdx.
188) but ordered a notice sent to the class members advising
- Respondents later admitted in an affidavit (Apdx. 15) that they
had concluded that the statute of limitations had expired on claims
against the underwriters during the period in which the conflict of
interest issue had been suppressed.
~~
them, inter alia, of the history of the litigation and informing
them “that the Court requests petitions for appointment of new
class representatives or in the alternative, intervention by class
members” (Apdx. 188). That order also directed respondents
to conduct discovery to ascertain the names and addresses of
the members of the class.
Thereafter, while trying to avoid sending out the notice in
the form suggested by the court so as to preserve and solidify
their status as class representatives, respondents failed for six
more months, until April 1976, to request, even informally,
the names of the class members. When they were advised
promptly by counsel for Punta Gorda that the information they
had requested would not accurately reflect the names of the
members of the class (Apdx. 215), respondents again delayed
for three more months until July 20, 1976, before initiating the
discovery which had been directed by the court almost ten
months earlier (Apdx. 200).
Against this backdrop, petitioners, on July 23, 1976, filed
a Motion to Decertify the class action on a number of grounds,
including, in particular, respondents’ inadequacy as class repre-
sentatives and their delay in pursuing the case. On September 1,
1976, the district court entered an order disestablishing the
class action, holding that “[s]ince this lawsuit has been 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” (Cert. Pet., p. A-3). The court thus found it
unnecessary to rule on any of the other grounds raised by peti-
tioners in support of their Motion to Decertify.
Respondents did not request the district court to certify its
order for immediate appeal under the provisions of 28 U.S.C.
$1292(b). They merely filed a notice of appeal and later, in a
_
separate proceeding, sought a writ of mandamus from the
Eighth Circuit. Petitioners filed a motion to dismiss the appeal
(Apdx. 210), which was ordered by a panel of the court to be
taken with the case. The appeal (No. 76-1881) and the man-
damus action (No. 76-1906) were consolidated by the Court
of Appeals for briefing and argument. On March 4, 1977, a
three-judge panel filed an opinion holding (a) that the decer-
tification order was “final” and appealable under $1291 pur-
suant to the “death knell” doctrine and (b) that the district
court's order revoking the class action designation “is wholly
unsupported by the record” (Cert. Pet., pp. A-11, A-15). The
Court of Appeals reversed the judgment of the district court
and effectively ordered the case to be recertified as a class ac-
tion. It did not discuss any of the other reasons suggested for
decertification in petitioners’ Motion to Decertify, nor did it
consider whether the other requirements of Rule 23 had been
met or whether the action had been properly certified in the
first place. Respondents’ petition for a writ of mandamus in
No. 76-1906 was dismissed as moot. Rehearing by the panel
and the court en banc was denied on March 28, 1977 (Cert.
Pet., p. A-19).
Separate petitions for certiorari were filed on June 23, 1977
by Coopers & Lybrand (No. 76-1836) and by Punta Gorda
and the individual defendants (No. 76-1837). Respondents did
not cross-petition from the dismissal of their mandamus action.
On November 14, 1977, both petitions were granted and the
cases consolidated. This brief is being filed on behalf of Coop-
ers & Lybrand, petitioner in No. 76-1836.*
* Certain additional facts will be set forth below in the Argument
where appropriate.
EEE
SUMMARY OF ARGUMENT
The initial—and, we submit, dispositive—question raised by
the Petitions in this Court is whether the Court of Appeals had
jurisdiction to review the district court's order decertifying this
case as a class action. Since respondents did not attempt to
avail themselves of the certification mechanism contained in 28
U.S.C. §1292(b), the Eighth Circuit’s power to hear this case
depends solely on the validity of the controversial “death knell”
exception to the “final decision” requirement of §1291. We
respectfully suggest that the death knell doctrine constitutes an
improper judicial revision of the plain language of §1291 and
that the Third and Seventh Circuits have therefore correctly
rejected the doctrine. Hackett v. General Host Corporation,
455 F.2d 618 (3d Cir.), cert. denied, 407 U.S. 925 (1972);
Anschul v. Sitmar Cruises, Inc., 544 F.2d 1364 (7th Cir.),
cert. denied, 429 U.S. 907 (1976).
An order cannot be deemed “final” unless discontinuation
of the action is the “necessary result” of the order. Carroll v.
United States. 354 US 394, 405 (1957). The decertification
order appealed from here did not operate in any way on re-
spondents’ individual claim of $2650. Hence, any discontinua-
tion of this case would not be the “necessary result” of the
court's order but, rather, would be the voluntary outgrowth of
an economic decision by respondents’ lawyer to abandon the
case once the “in terrorem” prospects of class action recovery
or settlement had disappeared. Respondents acknowledged both
that their personal claim was not de minimis and that they
would permit their attorney to make the decision whether to
prosecute their individual case if the class action were disal-
lowed. Nevertheless, the Court of Appeals, looking only at
the amount of respondents’ claim, their net worth, and the prob-
— _
able cost and complexity of the lawsuit, summarily concluded
that respondents would abandon the litigation if they were
denied the opportunity to represent a class and therefore that
the district court's decertification ruling was final and appealable.
The death knell theory has been widely criticized and is
neither a proper nor a desirable exception to the finality re-
quirement of $1291. It flatly ignores the language of Rule
23, which makes class action rulings conditional and provides
that they may be altered or amended at any time. The doctrine
is discriminatory in that it is available to class action plaintiffs
but not to defendants, thus very likely increasing the number of
class actions in the federal courts. It also unwisely expands the
number of appeals in the federal system and, in the process, re-
quires appellate judges to assume the role of fact-finders on an
ad hoc basis while failing to provide them with a sufficient
record upon which to make the necessary determinations.
The death knell rule effectively creates a separate, protectable
substantive right in the attorney for a class-action plaintiff by
permitting an appeal of a clearly interlocutory order merely be-
cause the attorney considers it economically unfeasible to repre-
sent only the named plaintiff. Finally, as reflected by the record
in the instant case, the availability of a death knell appeal in-
spires the maintenance of litigation by plaintiffs who have little
personal stake in the outcome of the case.
The death knell doctrine is antithetical to the certainty sought
by Congress in enacting § 1291 and to the long-established
policy against piecemeal appeals. It engenders chaos and con-
fusion, and its endorsement by this Court would spawn addi-
tional pleas for new exceptions to the final judgment rule. There
is no good reason why appellate review of class certification de-
nials should not await final judgment like other interlocutory
orders, except in those instances where § 1292(b) can be utilized.
—_
The purpose of the death knell rationale was not to endow
the named class representative with a special right of immediate
appeal but rather to make sure that the refusal to certify does
not forever deprive the members of the purported class of the
opportunity to challenge that refusal in the appellate courts.
Hence, if there ever was a need for the death knell rule, that need
has dissipated in the wake of United Airlines, Inc. v. McDonald,
— U.S. —, 53 L.Ed. 2d 423 (1977). The Court there held that
members of the would-be class may intervene after final judg-
ment to appeal an earlier order denying class certification. Hence,
even if the named plaintiff chooses to abandon his claim, other
putative class members may obtain review of the class action
ruling. The very raison détre of the death knell doctrine has
thus been completely undercut by the United Airlines decision.
Furthermore, even if the death knell rule were a legitimate
concept, the decertification order of the district court in this
case was not appealable. Respondents acknowledged that their
claim was viable, and the record revealed the existence of several
other large claimants who admittedly were ready either to
intervene in respondents’ case or to institute their own actions.
Following its erroneous assumption of jurisdiction, the Court
of Appeals summarily swept aside the district court’s decertifica-
tion order by simply substituting its judgment for that of the
trial judge on the question of whether respondents had diligently
prosecuted the action. The appellate court, on the basis of a
cold record, discounted the facts that respondents had originally
delayed for nine months in seeking class certification and that
they later waited nine additional months before instituting dis-
covery procedures to ascertain the names aad addresses of class
members. In the process of its usurpation of the district judge’s
discretion, the Court of Appeals misconstrued the record and
= =
ordered the class to be recertified without any consideration of
the other factors raised in petitioners’ Motion to Decertify—in-
cluding the suitability vel non of respondents as class cham-
pions, which had been repeatedly questioned by the district
judge. The Court of Appeals also failed to analyze whether the
other requisites of Rule 23 had been met or whether the case
should have been designated for class action treatment in the
first instance.
Rule 23 commits the supervision of class actions to the con-
tinuing sound discretion of the district judge. The Eighth Circuit
exceeded the proper scope of its authority in interfering with
that discretion, and its ruling is irreconcilable with East Texas
Motor Freight System, Inc. v. Rodriguez, 431 U.S. 395 (1977).
—:
<<.
—
ARGUMENT
I. The Court of Appeals Did Not Have Jurisdiction uf Re-
spondents’ Purported Appeal From the District Court’s Order
Decertifying This Case as a Class Action.
A. Section 1291 Permits Appeals Only From “Final
Decisions.”
The Court of Appeals entertained respondents’ appeal on its
merits under 28 U.S.C. § 1291, which reads in pertinent part
as follows:
“The courts of appeals shall have jurisdiction of ap-
peals from all final decisions of the district courts of the
United States. . .”
This Court has said that “‘the final judgment rule is the
dominant rule in federal appellate practice.’ ” DiBella v. United
States, 369 U.S. 121, 126 (1962). The requirement of finality
is of ancient origin and can be traced back in American law to
the Judiciary Act of 1789.* In fact, its roots are in the English
common law, which permitted appeals only from the final dis-
position of an action. See Holcombe v. McKusick, 20 How.
(61 U.S.) 552 (1857); Metcalfe’s Case, 11 Co. Rep. 28a, 77
Eng. Rep. 1193 (K.B. 1615). Just last term, this Court re-
iterated that “there has been a firm Congressional policy against
interlocutory or ‘piecemeal’ appeals and courts have consistently
given effect to that policy. Finality of judgment has been re-
quired as a predicate for federal appellate jurisdiction.” Abney
v. United States, — U.S. —, 52 L.Ed. 2d 651, 658 (1977).
The final judgment rule recognizes that the appellate process
does not exist as a matter of right and should not be used to
+ Sections 21, 22 and 25 of the Act of September 24, 1789, 1
Stat. 73, 83-85.
om * en
disrupt an on-going judicial proceeding. United States v. Nixon,
418 U.S. 683, 690 (1974); Parr v. United States, 351 U.S. 513
(1956). Perhaps Mr. Justice Frankfurter said it best in his oft-
quoted opinion for a unanimous Court in Cobbledick v. United
Staies, 309 U.S. 323, 325 (1940):
“Since the right to a judgment from more than one court
is a matter of grace and not a necessary ingredient of jus-
tice, Congress from the very beginning has, by forbidding
piecemeal disposition on appeal of what for practical
purposes is a single controversy, set itself against enfeebling
judicial administration. Thereby is avoided the obstruction
to just claims that would come from permitting the harass-
ment and cost of a succession of separate appeals from the
various rulings to which a litigation may give rise, from its
initiation to entry of judgment. To be effective, judicial ad-
ministration must not be leaden-footed. Its momentum
would be arrested by permitting separate reviews of the
component elements in a unified cause.”
See also Bachowski v. Usery, 545 F.2d 363, 373-74 (3d Cir.
1976); Note, Discretionary Appeals of District Court Inter-
locutory Orders: A Guided Tour Through Section 1292(b) of
the Judicial Code, 69 YALE L.J. 333, 334 (1959).5
While urging a “practical” construction of jurisdictional stat-
utes, the Court has also cautioned that they must be construed
“with precision and with fidelity to the terms by which Congress
has expressed its wishes.” Palmore v. United States, 411 U.S. 389,
396 (1973), quoting from Cheng Fan Kwok vy. Immigration &
Naturalization Service, 392 U.S. 206, 212 (1968). Taken
literally, the term “final decision” means nothing less than the
order which ends the litigation on its merits and leaves nothing to
* Another obvious purpose for the finality requirement is to post-
pone the appeal on an issue concerning which the trial court might
change its mind. Cinerama, Inc. v. Sweet Music, S.A., 482 F.2d 66.
70 (2d Cir. 1973).
am 15 «=
be done except to execute the judgment. Catlin v. United States,
324 U.S. 229 (1945); Republic Natural Gas Co. v. Oklahoma,
334 U.S. 62 (1948). Long ago, however, it became evident
that it is frequently easier to conceptualize about a “final” de-
cision than to recognize one. In 1892, this Court in McGourkey
v. Toledo & Ohio Central Railway Co., 146 U.S. 536, 544-45
(1892), observed that “probably no question of equity practice
has been the subject of more frequent discussion in this Court
than the finality of decrees. The cases, it must be con-
ceded, are not altogether harmonious.” More recently, Mr.
Justice Powell, speaking for the Court in Eisen v. Carlisle &
Jacquelin, 417 U.S. 156, 170 (1974) (Eisen IV), said:
“While the application of § 1291 in most cases is plain
enough, determining the finality of a particular judicial
order may pose a close question. No verbal formula yet
devised can explain prior finality decisions with unerring
accuracy or provide an utterly reliable guide for the future.”
It is still generally true, however, that a judgment cannot
be deemed “final” within the contemplation of §1291 unless
it disposes of all parties and all issues. See, e.g., Wrist-Rocket
Mfg. Co. v. Saunders Archery Co., 516 F.2d 846 (8th Cir.),
cert. denied, 423 U.S. 870 (1975); Kappeiman v. Delta Air
Lines, Inc., 539 F.2d 165 (D.C. Cir. 1976), cert. denied, 429
U.S. 1061 (1977); International Controls Corp. v. Vesco, 535
F.2d 742 (2d Cir. 1976). While the courts have tried, with
varying degrees of success, to resist the temptation to bend the
final judgment rule to fit a particular case or class of cases,
Congress has sought to ameliorate the occasional harshness of
literal application of the rule by enacting §1292(b), which per-
mits discretionary interlocutory.appeals upon the certification
of the district court and the acquiescence of the appellate court.
This Court has adopted Rule 54(b), Feo. R. Civ. P., in order
to facilitate prompt review of judgments which are in fact final
as to some parties and/or some issues if the trial court certi-
au 16 «=
fies that there is “no just reason for delay” in entering a “final
judgment.”®
In 1949, the Court also recognized an exception to the fi-
nality requirement which would permit prompt appellate con-
sideration of a certain “small class” of interlocutory decisions
which (a) are separable from and collateral to the issues be-
ing contested in the main action, (b) present serious and un-
settled legal questions and (c) are too important to be denied
review. This “collateral order” doctrine was first articulated in
Cohen v. Beneficial Industrial Loan Corporation, 337 U.S. 541
(1949), and has proven effective as a narrow but flexible ex-
ception, as witnessed by its recent invocation in a criminal
context in Abney v. United States, supra. See generally 15
WRIGHT & MILLER, FEDERAL PRACTICE & PROCEDURE §3911
(1976). The Cohen rule was designed to obviate the proba-
bility that important collateral orders might finally determine
rights which would be irreparably lost by the time of final dis-
position of the case. Cohen, supra at 546. Hence, an order
cannot be considered final under Cohen if it could be “subject
to effective review as part of the final judgment in the action.”
Parr v. United States, supra at 519; United States v. Ryan, 402
U.S. 530, 533 (1971).
In all of the semantic struggles fought to confer some meas-
ure of precision on the term “final,” no class of cases has cre-
ated more controversy or disharmony than those involving at-
tempted appeals from district court rulings on requests for
class action certification under Rule 23. Prior to 1966, orders
striking class action allegations were almost universally held
“ The district court was not asked by respondents to certify its
order under either § 1292(b) or Rule 54(b), and no such certifica-
tion was made. Nor is § 1292(a)(1), which deals with appeals from
grants or denials of injunctive relief, implicated here. Respondents
did not seek any injunctive relief ‘n the instant case and have never
attempted to justify the jurisdiction of the Court of Appeals under
§ 1292(a)(1).
—_ =
not to be appealable under §1291. See Caceres v. International
Air Transport Association, 422 F.2d 141, 143 (2d Cir. 1970).
The 1966 amendments to Rule 23, however, created a new set
of “finality” problems and spawned a new appendage to §1291
known as the “death knell” doctrine. That doctrine has suf-
fered through a decade of turmoil and has severely splintered
the various Circuits. This Court has never passed on the legiti-
macy of the death knell rule, and this case presents the appro-
priate vehicle for such a determination.‘
B. The Death Knell Doctrine Is Neither a Valid, a
Desirable, Nor a Necessary Exception to the Finality Re-
quirement.
1. The death knell doctrine represents an improper
interpretation of §1291.
The death knell doctrine was first formulated by the Second
Circuit in Eisen v. Carlisle & Jacquelin, 370 F.2d 119 (2d
Cir. 1966), cert. denied, 386 U.S. 1035 (1967) (Eisen 1).
The court there noted that the individual plaintiff-class repre-
sentative had a stake of only $70 in his lawsuit and stated, /.c.
120, that “[W]e can safely assume that no lawyer of compe-
tence is going to undertake this complex and costly case to
recover $70 for Mr. Eisen.” The Second Circuit declared that,
in refusing to permit the action to proceed as a class action,
the district court had “for all practical purposes” terminated
the litigation and sounded “the death knell of the action.” /d.
7 In Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (2d Cir. 1973)
(Eisen 111), the Court of Appeals had “retained” jurisdiction under
the death knell theory of the order certifying the case as a class
action. This Court in Eisen IV did not adjudge the propriety of that
procedure but ruled instead that the Court of Appeals had jurisdic-
tion under the collateral order doctrine of the order allocating the
cost of class notification.
— 18 —
at 121. Hence, the court concluded that the order was final
and appealable under $1291.
The practical problems inherent in any attempt to apply this
new doctrine on an ad hoc basis are manifold and soon be-
came manifest. In Milberg v. Western Pacific Railroad Co.,
443 F.2d 1301 (2d Cir. 1971), and Korn v. Franchard Corpo-
ration, 443 F.2d 1301 (2d Cir. 1971), the court was faced
with consolidated appeals from two class action denials, one
brought by plaintiffs seeking damages for themselves of $8500
* The court in Eisen | attempted to justify the new death knell rule
as a refinement of the collateral order doctrine of Cohen. Such a char-
acterization ignores the fact that Cohen applies only to orders which
are admittedly not final, whereas the Eisen theory is ostensibly based
on finality. It has generally been recognized that the death knell
doctrine is a concept unto itself, separate and distinguishable from
collateral order reasoning. Share v. Air Properties G. Inc., 538 F.2d
279 (9th Cir. 1976), cert. denied, 429 U.S. 923 (1976); Williams
v. Mumford, 511 F.2d 363 (D.C. Cir. 1975); 15 Wright & MILLER,
FEDERAL Practice & PROCEDURE § 3912, p. 511.
Furthermore, it is abundantly clear that the coilateral order doc-
trine does not fit the situation created by a denial of class action
certification. Kramer v. Scientific Control Corporation, 534 F.2d
1085 (3d Cir. 1976); Cotten v. Treasure Lake, Inc., 518 F.2d 770
(6th Cir.), cert. denied, 423 U.S. 930 (1975); Siebert v. Great
Northern Development Co., 494 F.2d 510 (Sth Cir. 1974). Re-
fusals to certify class actions do not meet any of the criteria of the
Cohen doctrine because (a) they do not “finally” determine any
rights collateral to the main action; (b) they do not usually present
a “serious and unsettled” legal question which is “too important to
be denied review”; and (c) appellate review will not be irreparably
lost if it awaits final judgment. Samuel v. University of Pittsburgh,
506 F.2d 355, 360-61 (3d Cir. 1974); Anschul v. Sitmar Cruises,
Inc., 544 F.2d 1364 (7th Cir.), cert. denied, 429 U.S. 907 (1976);
In re Piper Aircraft Distribution System Antitrust Litigation, 551
F.2d 213, 216-17 (8th Cir. 1977); see 15 WricHt & MILLER
§ 3912, p. 511; Comment, Appealability of Class Action Determina-
tions, 44 FORDHAM L. Rev. 548, 555 (1975). Nor are class certifi-
cation denials appealable under the narrowly construed and little-
used exception of Gillespie v. United States Steel Corporation, 379
U.S. 148, 150 (1964), because they are not “fundamental to the fur-
ther conduct of the case.”
—_~
and the other by an individual claiming only $386." The ma-
jority, while registering doubt as to the wisdom of the doc-
trine at a time when appellate courts “are now being over-
whelmed by an unprecedented number of appeals,” nevertheless
held that the second judgment was “final” but that the first was
not. /d. at 1305. Judge Friendly, concurring, voiced reserva-
tions whether the death knell doctrine “affords a rule that is
truly workable or, indeed, is legally sustainable.” /d. at 1307.
He also suggested that the en banc court should “formulate a
rule that will avoid the necessity of making such ad hoc judg-
ments as have been required in these and other cases and also
will afford equality of treatment as between plaintiffs and de-
fendants,” and he requested “enlightenment from the Supreme
Court.” [bid.
Subsequent Second Circuit cases took note of the “rumblings
of disapproval in our Court” over the death knell doctrine.
Shayne v. Madison Square Garden Corp., 491 F.2d 397, 400
(2d Cir. 1974); Kohn v. Royall, Koegel & Wells, 496 F.2d
1094, 1097 (2d Cir. 1974). In Parkinson v. April Industries,
Inc., 520 F.2d 650 (2d Cir. 1975), the Second Circuit openly
questioned the vitality of its own offspring, and Judge Friendly
announced that his misgivings had crystallized to the point that
he would abolish the death knell doctrine altogether.*”
” Technically, Milberg involved an order denying class suit desig-
nation while Korn, like the instant case, was concerned with revoca-
tion of an earlier class certification. In analyzing the validity or the
application of the death knell doctrine, there is no reason to dif-
ferentiate between initial refusals to certify and orders decertifying
the class.
10 On several occasions, the Second Circuit eschewed en banc
reconsideration of the doctrine in anticipation of resolution of the
death knell question by this Court in Eisen IV. See, e.g., Shayne v.
Madison Square Garden Corp., supra at 400 n.9; Kohn v. Royall,
Koegel & Wells, supra at 1095 n. 6; and the concurring opinions in
Herbst v. International Telephone & Telegraph Co., 495 F.2d 1308,
1317, 1325 (2d Cir. 1974).
—
In the meantime, the death knell theory was attracting few
Supporters outside its home Circuit. In Hackett v. General
Host Corporation, 455 F.2d 618 (3d Cir.), cert. denied, 407
U.S. 925 (1972), the Third Circuit flatly rejected the doctrine
in a case where the individual plaintiffs personal claim, after
trebling, amounted to only $27.00. Judge Gibbons’ penetrating
majority opinion expressed concern that the death knell theory
was unbalanced because it applied only to plaintiffs and not
defendants. He also emphasized that the rule operates primarily,
if not exclusively, in non-diversity cases in which attorneys are
willing to undertake claims on a contingent fee basis, chiefly
under the federal antitrust and securities statutes. Jd. at 623."
After weighing the competing values, the court held that in the
absence of a § 1292(b) certification or the availability of man-
damus, the policy of finality underlying § 1291 should be
deemed paramount to any countervailing considerations which
might favor immediate review of class certification rulings. The
court focused sharply on the inescapable fact that class actions
are more often maintained for the benefit of lawyers than clients
and that the death knell rule actually creates substantive rights
in the plaintiff's attorney:
“Mrs. Hackett’s disinclination to proceed with her law-
suit unless her attorney is allowed to represent many others
besides herself does not move us to convert by an ipse dixit
an order which as to her is clearly interlocutory into a
final appealable order. We come down, then, to the ques-
tion whether . . . we should recognize the attorney de-
prived of the quixotic opportunity of representing one
and one-half million potential claimants . . . as a private
attorney general with standing of his own to appeal the
adverse class action decision. When all is said and done
'! The death knell theory is inoperable in diversity jurisdiction
class actions inasmuch as the named plaintiffs are required to possess
individually viable claims in excess of $10,000 in order to pass the
jurisdictional threshold. Snyder v. Harris, 394 U.S. 332 (1966).
—
this pragmatically is the core issue, though conventional
pieties about the role of the legal profession might suggest
its obfuscation. Realistically, when we are asked to grant
interlocutory appellate review of an adverse class action
determination we are asked to recognize a separate interest
of the attorney sufficient to bring the class action determi-
nation within the ‘collateral order’ doctrine, or to recog-
nize the standing of the attorney's client to assert such an
interest on his behalf. We decline to do either.” Id. at 625
(Emphasis supplied; footnotes omitted.) '*
The Seventh Circuit, in King v. Kansas City Southern In-
dustries, Inc., 479 F.2d 1259 (7th Cir. 1973), also squarely
disapproved the death knell theory, and that determination was
reaffirmed by the Court en banc in Anschul v. Sitmar Cruises,
Inc., 544 F.2d 1364 (7th Cir.), cert. denied, 429 U.S. 907
(1976). In Anschul, the court observed, I.c. 1366-67, that al-
though the death knell doctrine had been born ten years earlier,
“the idea never really has reached maturity.” The court iden-
tified the widespread discontent with the rule as emanating from
its mechanical nature and the fact that it unfairly discriminates
against defendants as well as against other plaintiffs who have
the financial wherewithal to sponsor litigation on their own be-
half.
In evaluating the legitimacy of the death knell doctrine as
an interpretation of § 1291, it is especially noteworthy that an
order which is pronounced “final” by application of the doctrine
does not acquire its “finality” by virtue of any court order but
rather by the voluntary decision of the plaintiff—or, more real-
istically, his lawyer. The decision by the district judge in this
12 The Third Circuit en banc confirmed the rejection of the death
knell doctrine in Katz v. Carte Blanche Corporation, 496 F.2d 747
(3d Cir. en banc), cert. denied, 419 U.S. 885 (1974), and held that
in the absence of certification or mandamus, review of class action
determinations must await final judgment.
—
case was certainly not a “final” judgment in any sense of the
term. It did not operate on respondents’ claim in any way. Re-
spondents still have the same individual claim they have always
had, which is clearly not de minimis and which is viable if they
choose to pursue it. The Court of Appeals, however, surmised
that respondents’ attorney would opt to abandon the case if the
“in terrorem” prospects of a class action recovery or settlement
were withdrawn, and that the ruling of the district court there-
fore constituted a final judgment. It is a source of mystery how
an economic decision by respondents’ counsel can confer finality
on an order that is palpably interlocutory. In Carroll v. United
States, 354 U.S. 394, 405 (1957), it was held that an order is
not final unless discontinuation of the action is the “necessary
result” of the order. The death knell theory cannot be squared
with that reasoning.
The death knell doctrine embodies an unwarranted judicial
revision of § 1291 and disregards the teaching of this Court
that “[a]ppeal rights cannot depend on the facts of a particular
case.” Carroll v. United States, supra at 405. It is also disre-
spectful of the precept that legislation is the province of Con-
gress, not the courts. Speaking of the finality requirement in
Baltimore Contractors, Inc. v. Bodinger, 348 U.S. 176, 181-82
(1955), the Court said:
“This Court, however, is not authorized to approve or
declare judicial modification. It is the responsibility of
all courts to see that no unauthorized extension or reduc-
tion of jurisdiction, direct or indirect, occurs in the federal
system. Shanferoke Corp. v. Westchester Corp., 293 US.
449, 451. Any such ad hoc decisions disorganize practice
by encouraging attempts to secure or oppose appeals with
a consequent waste of time and money. The choices fall
in the legislative domain.”
In light of the foregoing principles, it is scarcely surprising
that most courts have either rejected the death knell theory orig-
—_— po
inally conceived in Eisen I] as an improper interpretation of
§ 1291 or have so circumscribed its use as to render it vir-
tually nugatory.'*
2. The death knell doctrine represents an inappro-
priate and undesirable response to problems created
by class action certification rulings.
There are a number of recurring reasons woven throughout
the various judicial opinions supporting and explaining the sub-
stantial criticism which has been heaped upon the death knell
doctrine. We have already adverted to the oft-repeated observa-
tion that the doctrine is discriminatory by reason of its avail-
ability to plaintiffs but not to defendants.'* Furthermore, since
a ruling adverse to a class action plaintiff is immediately appeal-
able under the doctrine, whereas an order granting class action
status is not, it is likely that the doctrine fosters a subtle but
pervasive systemic bias in favor of plaintiffs in class action
determinations. Any factor which tends to increase the number
1% In addition to the cases already discussed, see, e.g., Lamphere
v. Brown University, 553 F.2d 714 (1st Cir. 1977); Graci v. United
States, 472 F.2d 124 (Sth Cir.), cert. denied, 412 U.S. 928 (1973);
Ott v. Speedwriting Publishing Co., 518 F.2d 1143 (6th Cir. 1975);
Falk v. Dempsey-Tegeler & Co., Inc., 472 F.2d 142 (9th Cir. 1972);
West v. Capitol Federal Savings & Loan Ass’n., 558 F.2d 977 (10th
Cir. 1977); Williams v. Mumford, 511 F.2d 363 (D.C. Cir. 1975).
‘+ In an effort to counteract this obvious and frequently criticized
deficiency in its original death knell formulation, the Second Circuit
has developed a so-called “reverse death knell” procedure for review-
ing grants of class action certification. See Eisen Ill, supra, 479
F.2d at 1007 n. 1; Herbst v. International Telephone & Telegraph
Co., supra. That doctrine, too, has given rise to problems in its ap-
plication, see Kohn v. Royall, Koegel & Wells, supra, and General
Motors Corporation v. City of New York, 501 F.2d 639 (2d Cir.
1974); Comment, Appealability of Class Action Determinations, 44
FORDHAM L. Rev. 548 (1975). However, considerations of funda-
mental fairness dictate that any ruling by this Court endorsing the
death knell doctrine for plaintiffs should also extend its benefits to
defendants. If anything, it would seem more important, more urgent
and, in the long run, more economical, to permit early review of
grants of class action certification than to hear interlocutory appeals
from denials of class action status.
—
of class actions in the federal system, particularly for reasons
extraneous to the purposes of Rule 23, only serves to heighten
the concern repeatedly expressed by this Court for the “danger
of vexatious litigation which could result from widely expanded
class of plaintiffs under Rule 10b-5.” Blue Chip Stamps v.
Manor Drug Stores, 421 U.S. 723, 740 (1975), as quoted in
Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 479 (1977).
As noted earlier, the death knell rule defies the maxim cap-
sulized by this Court in Carroll v. United States, 354 U.S. 394,
405 (1957): “Appeal rights cannot depend on the facts of a
particular case.” It also ignores the further lesson of Carroll, l.c.
406: “Many interlocutory decisions of a trial court may be of
grave importance to a litigant, yet are not amenable to appeal
at the time entered, and some are never satisfactorily review-
able.” The most fundamental fallacy in the death knell theory,
however—and one that is frequently overlooked by the courts—
is that it flies directly in the face of the specific language of Rule
23. Rule 23(c)(1) takes cognizance of the need for constant
supervision by the trial judge over class actions and expressly
provides, with respect to determinations of class action status,
that “an order under this subdivision may be conditional, and
may be altered or amended before the decision on the merits.”
One thoughtful commentator has noted that: “An order that is
tentative, inconclusive, or subject to future review by the lower
court would appear to lack the requisite finality for appeal.”
Frank, Requiem for the Final Judgment Rule, 45 Texas L.
REv. 292, 315 (1966). By definition, then, an order certifying,
decertifying or refusing to certify a class action is subject to
amendment by the trial court and, therefore, is not final. Gerstle
v. Continental Airlines, Inc., 466 F.2d 1374 (10th Cir. 1972);
Caceres v. International Air Transport Association, 422 F.2d
141 (2d Cir. 1970).'*
‘” For the same reason, Rule 54(b) is inapplicable to class action
certification rulings. Rule 54(b) may be employed only with respect
to an order which is final in its own right and cannot be used to confer
finality on an interlocutory order. Liberty Mutual Insurance Co. v.
Wetzel, 424 U.S. 737 (1976).
—
Another serious shortcoming in the death knell rationale is
that it requires the appellate court to make factual determina-
tions, often on an inadequate record, and to engage in un-
bridled conjecture concerning the likelihood of the continuation
of the action on the part of the individual plaintiff. This is an
inefficient utilization of judicial manpower and unnecessarily
burdens the already overworked appellate courts.'® Furthermore,
the death knell inquiry has almost always focused exclusively on
the amount of the named plaintiff's claim, whereas a proper
analysis would also include such factors as the probability of
success, the feasibility of intervention of other interested parties,
the willingness of plaintiff's counsel or other class members to
advance the costs of the litigation, and the difficulty of the issues
presented. In the overwhelming majority of cases, the record
compiled in the district court simply does not address these issues,
and the appellate court is relegated to a guess about the named
plaintiff's intentions.
Problems of this type, as well as the overriding desire for
efficiency in the court system, serve to vindicate the Third Cir-
cuit’s conclusion that §1292(b) certification is the most appro-
priate avenue for review of class-action determinations. Section
1292(b) certification is preferable because the district judge,
who is already familiar with the record and with the some-
times subtle nuances of the litigation, is in the best position to
assess the substantiality of the disputed issues and the econom-
ies of immediate review. The legislative history of §1292(b)
includes the report of a committee of the Tenth Circuit which
summarizes the advantages of certification:
“Requirement that the trial court certify the case as
appropriate serves the double purpose of providing the
16 Unwillingness to engage in such “rank speculation” has
prompted the Fifth Circuit to require the would-be class representa-
tive to establish in the district court the nonviability of his individual
claim. See Gosa v. Securities Investment Co., 449 F.2d 1330, 1332
(Sth Cir. 1971). If the record presented to the Court of Appeals
does not contain an affirmative showing of nonviability, the appeal
will be dismissed for want of jurisdiction. Graci v. United States,
472 F.2d 124 (Sth Cir.) cert. denied, 412 U.S. 928 (1973).
—
appellate court with the best informed opinion that im-
mediate review is of value and at once protects appellate
dockets against a flood of petitions in inappropriate cases.
It is the opinion of the committee that avoidance of ill-
founded applications in the court of appeals for piecemeal
review is of particular concern.”
1958 U.S. Code Cong. & Admin. News, 5262-63 (85th Cong.
2d Sess. 1958): cf. Note, /nterlocutory Appeals in the Federal
Courts Under 28 U.S.C. §1292(b), 88 Harv. L. Rev. 607,
633 (1975); Note, 44 ForDHAM L. Rev. 433, 437 (1975).
Significantly, one of the drafters of the 1966 amendments to
Rule 23 has proposed §1292(b) as the most desirable method
for the prompt testing of class action rulings. Kaplan, Con-
tinuing Work of the Civil Committee: 1966 Amendments to
the Federal Rules of Civil Procedure (I), 81 Harv. L. REv.
356, 390 n. 131 (1967); see also, Report of American Bar
Association Special Committee Federal Rules of Procedure,
38 F.R.D. 95, 104 (1965). And in practice, §1292(b) has
been utilized effectively to review denials of class certification
in a number of cases. E.g., Susman v. Lincoln American Corp.,
561 F.2d 86 (7th Cir. 1977); Lukenas v. Bryce’s Mountain
Resort, Inc., 538 F.2d 594 (4th Cir. 1976); Kamm v. Cali-
fornia City Development Co., 509 F.2d 205 (9th Cir. 1975);
Albertson's, Inc. v. Amalgamated Sugar Co., 503 F.2d 459
(10th Cir. 1974); Johnson v. Georgia Highway Express, Inc.,
417 F.2d 1122 (Sth Cir. 1969).
Endorsement by this Court of the death knell rubric would
inevitably open the door to pleas for even more exceptions to
the final judgment rule. The logical extension of the death
knell doctrine outside the class action context would permit
any plaintiff to appeal from any order if he could convince the
appellate court that he would choose to discontinue the litiga-
tion if his appeal was not allowed. Bearing in mind that the
quest for certainty is the bedrock of the final judgment rule,
it is apparent that the death knell doctrine has chipped away
—=
at that foundation and that the many possible corollaries of
the doctrine could well cause the substitution of chaos and un-
predictability for the certainty sought by Congress.
One of the ironic but inevitable by-products of this flexible
approach to finality is that litigants face the undesirable risk
that failure to appeal from a particular ruling at the time of
its entry will constitute a waiver of the right to appeal at the
conclusion of the case. See Dickinson v. Petroleum Conver-
sion Corp., 338 U.S. 507 (1950); Sears, Roebuck & Co. v.
Mackey, 351 U.S. 427 (1956). Faced with such a perilous
prospect, a prudent lawyer will be forced to appeal many in-
terlocutory orders, including most class certification rulings,
thereby disrupting the adjudicatory process, adding costs and
unwanted delay, and undermining confidence in the trial court.
Frank, Requiem for the Final Judgment Rule, 45 Texas L.
Rev. 292, 317 (1966). Proponents of the death knell doc-
trine appear oblivious or insensitive to its ramifications upon
the dockets of our appellate courts and to the warning of
this Court that the final judgment rule and exceptions thereto
must be approached “somewhat gingerly lest a floodgate be
opened that brings into the exception many pretrial orders.”
Switzerland Cheese Ass'n. v. E. Horne’s Market, Inc., 385 U.S.
23, 24 (1966).'*
The mere existence of the death knell doctrine has still an-
other pernicious effect which is vividly depicted by the record
in this case. By permitting appeals in cases instituted by plain-
tiffs with insignificant amounts at risk, the doctrine encourages
litigation by those who have the least at stake. The record here
reveals that respondents’ original counsel also represented two
of his own neighbors, Mr. and Mrs. Joseph Morrissey, whom
'? More than 19,000 appeals were filed in the federal system in
the fiscal year ending in June 1977, almost three times as many as
in 1966 when Eisen 1 was decided. 1977 Annual Report of the
“ Administrative Office of the United States Courts, Table
. p. 65a.
—
he described as “millionaires” and “friends of mine for some
25 years,” and who had allegedly suffered a loss of $140,000
in the Punta Gorda transaction (Apdx. 151-52). The same
attorney further acknowledged that he had also been retained
by (a) a Fund with a claim for more than $500,000, (b) an
individual and his wife who had allegedly lost $50,000, and
(c) another company which claimed damages in the approxi-
mate amount of $18,000 (Apdx. 152).'* Yet this lawsuit was
instituted only on behalf of respondents, whose alleged losses
totalled $2650, and whose resources are modest, while none of
the major claimants made any attempt to intervene. It is cer-
tainly permissible to infer that this entire action was structured
for the purpose of taking advantage of the death knell theory.
Such tactics should neither be encouraged nor rewarded.
Even if it be assumed that respondents would choose to
abandon their individual claim in the absence of a death knell
appeal, there is an important policy question which should
attend that choice. This Court must consider whether the fed-
eral judicial system should subject itself to the burdensome
cost of interlocutory appeals merely to accommodate claim-
ants whose stake in the proceedings is such that they would
choose not to walk at all if forced to walk alone. If indeed
respondents and their counsel think so little of their claim as
to forsake it, then the sentiments espoused in Hackett may well
dictate that their own appraisal of their claim should be ac-
cepted by the courts:
“Our scarce judicial resources cannot be allocated on
the assumption that they must provide a forum for the
vindication of every individual wrong however slight. . . .
If in some cases . . . the individual claim often will be
so small that neither private nor public lawyers think it
18 Respondents’ original counsel stated that these clients had in-
structed him either to intervene in this case or to file individual suits
on their behalf if this case were not allowed to proceed on a class
basis (Apdx. 153).
— eon
should be litigated, then that decision of the legal mar-
ket place may be the best reflection of a public conscious-
ness that the time of the lawyers and of the court should
best be spent elsewhere.” 455 F.2d at 626.
3. The death knell doctrine is unnecessary as a
result of United Airlines, Inc. v. McDonald, — US.
—, 53 L.Ed. 2d 423 (1977).
In addition to all the foregoing factors militating against the
adoption of the death knell theory, this Court's decision last
term in United Airlines, Inc. v. McDonald, — U.S. —, 53 L.
Ed. 2d 423 (1977), renders the doctrine completely unnec-
essary and superfluous. United Airlines arose out of an action
by a former stewardess named Romasanta challenging United's
“no marriage” rule as discriminatory against females. A few
months after the action began, the district court dismissed the
class action allegations but permitted intervention by twelve
married stewardesses who had previously protested United's
policy. The Court of Appeals refused to entertain an appeal
from the order denying class certification. Several years later,
the parties to the action agreed to settle their differences and,
pursuant to that agreement, the trial court entered a judgment
of dismissal. At that time, upon learning of the named plain-
tiffs’ decision not to appeal the earlier adverse class action rul-
ing, former stewardess McDonald, who was a member of the
Original putative class, filed a motion to intervene and a notice
of appeal of the class action order.
The district court dismissed the application as untimely, but
the Seventh Circuit reversed and held both that the applica-
tion was seasonable and that the denial of class action certifica-
tion some three years earlier was erroneous. This Court, re-
viewing only the intervention question, affirmed, noting that
the refusal to certify could have been appealed “after final judg-
‘=
ment” by the named plaintiffs and that since they were disin-
clined to appeal, McDonald could intervene to prosecute the
appeal.'®
United Airlines has rendered the death knell doctrine ob-
solete. If respondents should litigate their claim to a conclusion,
the class action denial can be tested at that time either by re-
spondents or by other putative class members upon timely mo-
tion to intervene. Conversely, if respondents and their counsel
deem their claim to be unworthy of pursuit and dismiss their
case, other members of the would-be class could then intervene
under the rationale of United Airlines to challenge the propriety
of the district court’s decertification order.*° Inasmuch as the
purpose of the death knell theory is not to facilitate an imme-
diate review of class action rulings but “to make certain that the
refusal to certify does not deprive the members of the purported
class of an opportunity for review in due course of the refusal
on appeal,” Hooley v. Red Carpet Corporation, 549 F.2d 643,
645 (9th Cir. 1977), the United Airlines decision strips the
death knell doctrine of its asserted purpose and permits the grace-
ful early retirement of a well-intentioned idea which is un-
founded in law or logic and unworkable in practice.
* * * * * * *
The death knell doctrine was conceived in the conviction that
the class action was a salutary and efficient utensil for re-
dressing wide-scale wrongdoing. But since the initial surge of
exuberance which accompanied promulgation of new Rule 23 a
1% Implicit in this holding is the determination that the judgment
did not become final and appealable until the entry of the district
court’s order of dismissal following the settlement.
20 There is also authority for the proposition that the named class
representative himself may convert an adverse interlocutory class
certification order into an appealable final judgment if he voluntarily
dismisses his individual action under Rule 41(a). See United States
v. Procter & Gamble Co., 356 U.S. 677 (1958); Thomsen v. Cayser,
243 U.S. 66 (1917).
A te i la te te tenten want cane
eee Seen gee ieSbeee ens + oe
Reena SE
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——
decade ago, there has been an ever-growing school of thought
that the class action device itself is susceptible to more abuses
than the conduct it was designed to cure. Four years ago, in
American Pipe & Construction Co. v. Utah, 414 U.S. 538, 555
(1974), the Court characterized the criticisms of Rule 23 as
both “numerous and trenchant.”?! Although class actions
“have sprouted and multiplied like the leaves of the green bay
tree,” Eisen 111, supra, 479 F.2d at 1018, it is well documented
that they are rarely, if ever, tried and that they serve as a
formidable weapon to extract exorbitant settlements from de-
fendants who cannot afford to run the risk of even a frivolous
suit or to pay the defense costs connected therewith.2? Even
though a claim is completely without merit, the specter of class
action recovery, no matter how remote, frequently induces busi-
nessmen and insurance companies to knuckle under to extortion-
ate settlement demands rather than to risk a catastrophic judg-
ment. Herbst v. International Telephone & Telegraph Corp.,
supra, 495 F.2d at 1313.°%
271 Among the more insidious effects of Rule 23 has been the
tendency of some courts to dispense with proof of certain elements of
a cause of action on an individual basis in order to achieve manage-
ability. For example, there is some authority that class members
need not prove individual reliance in § 10b cases. Blackie v. Bar-
rack, 524 F.2d 891 (9th Cir. 1975), cert. denied, 429 U.S. 816
(1976). Such rulings—and indeed the death knell doctrine itself—
So of the mandate of the Rules Enabling Act, 28 U.S.C.
§ :
“Such rules shall not abridge, enlarge or modify any sub-
Stantive right . . .”
22 See Report and Recommendations of the Special Committee
of the American College oj Trial Lawyers on Rule 23, pp. 15-17
(1972); Handler, Twenty-Third Annual Antitrust Review, 71
CoLuM L. Rev. 1, 9 (1971).
2% Judge Medina, in Eisen III, supra, at 1019, observed that class
actions have been branded as “legalized blackmail,” and commented
that the expenses involved in such a lawsuit “have brought such
pressure on defendants as to induce settlements in large amounts as
the alternative to complete ruin and disaster, irrespective of the metits
=.
The Third Circuit in Hackett correctly perceived that the
fight over the death knell doctrine, which has now finally
reached this Court, is a lawyers’ fight rather than a clients’
fight. In the instant case, the original certification of the class
precipitated the emergence of New York counsel who specialize
in this type of litigation. A ready-made class action, with its
enticing prospect of huge attorneys’ fees, naturally attracts the
lawyers’ attention, but the fact remains that respondents them-
selves stand to recover no more than $2650 in damages whether
the case takes two days or two months to try. If respondents
actually would have abandoned their claim after the class was
disbanded, that decision admittedly would have been that of
their lawyer (Apdx. 72-73). If respondents would walk away
from their lawsuit because their attorney finds it economically
undesirable to represent only them, then we, like the Third
Circuit in Hackett, question whcther the federal system should
have been burdened with the case in the first place. We also
are curious why Mr. Morrissey and the other large claimants
have stayed on the sidelines and permitted respondents to carry
the ball for them, and we suggest that the reason is very likely
found in the death knell theory itself.
The death knell doctrine has not worked, will not work and,
especially since United Airlines, is not needed. This case high-
lights the abuses which it encourages. An appeal is a matter
of legislative grace, not of right, and Congress has specifically
and necessarily restricted the business of the appellate courts.
The death knell theory is a judicially-created exception to §
1291 and, as such, is incompatible with the letter and the spirit
of Liberty Mutual Insurance Co. v. Wetzel, 424 U.S. 737, 746
of the claim.” Judge Duniway, concurring in Kline v. Coldwell,
Banker & Co., 508 F.2d 226, 238 (9th Cir. 1974), put it this way:
“I doubt that plaintiffs’ counsel expect the immense and
unmanageable case that they seek to create to be tried. What
they seek to create will become (whether they intend this re-
sult or not) an overwhelmingly costly and potent engine for the
compulsion of settlements, whether just or unjust.”
—
(1976), where the Court rejected pleas for expansive readings
of § 1291, saying that to accept such an invitation would be to
“twist the fabric of the statute more than it wil! bear”:
“We believe that Congress, in enacting present §§ 1291
and 1292 of Title 28, has been well aware of the dangers
of an overly rigid insistence upon a ‘final decision’ for ap-
peal in every case, and has in those sections made ample
provision for appeal of orders which are not ‘final’ so as to
alleviate any possible hardship.”
Interlocutory review of class action rulings should be under-
taken only pursuant to the provisions of § 1292(b), where ap-
plicable, with the All Writs Act available for use in particu-
larly egregious cases.
C. Even if the Death Knell Theory Is Appropriate in
Some Instances, the District Court’s Decertification Order
in This Case Was Not Appealable.
The shortcomings of the death knell theory and the difficul-
ties inherent in its application are pointedly illustrated by the
Eighth Circuit’s misuse of the doctrine in the instant case. The
named plaintiffs’ claim of $2650 is neither obviously viable nor
patently insubstantial. Thus, as frequently happens in death-
knell situations, the Court of Appeals was required to speculate
on the issue of viability on an inadequate record.** In its un-
“4 A plaintiff seeking to appeal under the death knell rule must
bear the burden of developing a factual record in the district court
showing that the death knell has indeed rung. Share v. Air Properties
G. Inc., 538 F.2d 279, 282 (9th Cir.), cert. denied, 429 U.S. 923
(1976); Jelfo v. Hickok Manufacturing Co., 531 F.2d 680 (2d
Cir. 1976); Ott v. Speedwriting Publishing Co., 518 F.2d 1143,
1148-49 (6th Cir. 1975); Graci v. United States, 472 F.2d 124, 126
(Sth Cir.), cert. denied, 412 U.S. 928 (1973); Gosa v. Securities
Investment Co., 449 F.2d 1330, 1332 (Sth Cir. 1971). “{C]ourts
must be strict in making the plaintiff demonstrate that the order com-
plained of truly means the death of his action.” Share v. Air Proper-
ties G. Inc., supra at 282.
=
accustomed and inappropriate role as fact finder, the court ig-
nored the only evidence appearing in the record on this issue
—evidence which indicated that respondents themselves con-
sidered their claim to be individually viable and worthy of prose-
cution. In his deposition, respondent Cecil Livesay was spe-
cifically asked: “If the Judge were to decide that this case
wasn’t proper for a class action, would you proceed with it on
your own?” His counsel objected to that question as “specu-
lative,” and respondent answered subject to that objection:
“A. I guess—I couldn't give a yes or no. I would have
to consult [my lawyer] and ask him his advice on your
question. And if he said yes, then I would proceed, yes”
(Apdx. 72-73).*°
Furthermore, respondents, in an earlier petition for a writ of
mandamus to the Eighth Circuit (before the initial class certi-
fication}, represented that “regardless of whether the Court
sustains or denies the class action determination herein, [plain-
tiffs] will at that time commence full and complete discovery
on all issues” (Apdx. 106). Consistent with that assurance, re-
spondents did in fact undertake extensive discovery on their
individual claims after the district court revoked class cer-
tification (Apdx. 16).2° Respondents have expressly conceded
the viability of their claim and have avowed their devotion tc
25 Since the decision is that of the attorney rather than the client,
it is not improbable that the judgment whether to proceed will be
influenced, if not controlled, by the availability vel non of a death-
knell appeal. The death knell doctrine would thus be stood on its
head in that the decision whether to pursue the individual claim will
be governed by the availability of a death knell appeal, rather than
vice-versa.
26 The district court docket entries reproduced in the Appendix
detail the activity in that court only through the filing of the Notice
of Appeal on September 29, 1976. ey reflect respondents’
request for production of documents on September 22, but fail to
show that respondents thereafter filed two sets of interrogatories and
two additional requests for documents—all at a time when only
their individual claim was pending.
_—_
its pursuit; therefore even if the death knell doctrine of Eisen /
were applied, the decertification order could not be deemed
“final” or appealable. Bowe v. First of Denver Mortgage In-
vestors, 562 F.2d 640 (10th Cir. 1977).
This case also serves to demonstrate why, if some sort of
death knell rationale is to receive the imprimatur of this Court,
such a rule must, at a minimum, contain the safeguards built
into the doctrine by the Ninth Circuit. That Court has modi-
fied the Eisen I concept by ruling that an order refusing class-
action certification cannot be appealed as “final” unless the
plaintiff affirmatively establishes that no member of the pro-
posed class—whether a named plaintiff or otherwise—possesses
an individually viable claim. In Share v. Air Properties G. Inc.,
538 F.2d 279, 283 (9th Cir.), cert. denied, 429 U.S. 923
(1976), the Ninth Circuit, after correctly holding that the death
knell theory is not properly considered an off-shoot or a corol-
lary of the collateral order doctrine, enunciated its sharply cur-
tailed version of the death knell rule:
“Therefore, we hold that, if after appropriate proceed-
ings and findings with respect to whether any member of
the purported class possesses a cause of action which is
viable if brought individually, it appears such a member
exists, an order of the trial court denying class certifica-
tion does not constitute an appealable order.”
The court in Share refused to subscribe to the view that the
existence of any nonviable claim would sound the death knell
and dismissed the individual plaintiff's appeal because it ap-
peared that another individual had suffered a loss in excess of
$17,000.
In its opinion in this case, the Eighth Circuit purported to
apply the Share formula but seriously misapplied it. The appel-
late panel appeared to read Share as requiring that the indi-
vidually viable claimants be “actively engaged” in the litigation
yn
in order to defeat appealability (Cert. Pet., p. A-9 n.2). The
Eighth Circuit’s perception of Share was clearly incorrect, as
evidenced by the subsequent Ninth Circuit opinion in Hooley v.
Red Carpet Corporation, 549 F.2d 643 (9th Cir. 1977). In
Hooley, the court refused to limit or revise its holding in Share,
and in fact reaffirmed it. Emphasizing that the purpose of the
death knell theory is not to reward the individual named plain-
tiff or his lawyer but to make sure that ultimate review of the
class action question is not foreclosed by the certification ruling,
the court stated, I.c. 645:
“The death knell doctrine is not designed to facilitate
immediate review of refusals to certify an action as a class
action. It is to make certain that the refusal to certify does
not deprive the members of the purported class of an op-
portunity for review in due course of the refusal on appeal.
All opportunity for such review is destroyed if the refusal
will have the practical effect of terminating all effort by
anyone to assert the particular cause of action involved
and to preserve for review on appeal the allegedly erroneous
refusal to certify. To determine whether such destruction
has occurred requires an examination not limited to named
plaintiffs.”**
Again, the wisdom of the restrictions imposed by the Ninth
Circuit is reflected in the instant record. As has been mentioned,
plaintiffs’ original counsel identified at least four of his own
clients having individual claims ranging from $18,000 to $500,-
000. Yet respondents, with their loss of $2650, have been
selected as standard-bearers for the class. The Eighth Circuit,
by mindlessly applying the original Eisen J death knell concept,
by misapplying the Share-Hooley rule, and by ignoring the facts
in the record, has rewarded respondents’ counsel for his prede-
27 Of course, even the modified doctrine developed by the Ninth
Circuit has been rendered expendable by the intervening decision in
United Airlines, Inc. v. McDonald, as discussed above.
— 37 —
cessor’s maintenance of this action solely in the name of his
client who had suffered the least from petitioners’ alleged mis-
chief.
Whether the appealability question is examined under the
original Second Circuit formula of Eisen /] or under the modi-
fied view of the Ninth Circuit in Share and Hooley, the death
knell simply has not rung. The Court of Appeals, therefore,
should have dismissed the appeal.
II. The Court of Appeals Exceeded the Proper Scope of Its
Authority in Reversing the District Court’s Decertification
Order.
If, despite the foregoing argument, this Court should adopt
the death knell doctrine and approve the Eighth Circuit's
utilization of it in this case, it will then be incumbent upon
the Court to face the issue left unresolved last Term in East
Texas Motor Freight System, Inc. v. Rodriguez, 431 U.S. 395,
403 (1977), where the Court said:
ad
. we do not reach the question whether a Court
of Appeals should ever certify a class in the first instance.”
In Rodriguez, three Mexican-American truck drivers filed
suit challenging their employer's “no transfer” policy which,
when considered in conjunction with the seniority system exist-
ing in the collective bargaining agreements between the company
and the unions, was said to constitute racial and ethnic dis-
crimination. In spite of an allegation in their complaint that they
were proceeding on behalf of a class, the plaintiffs did not
move before trial to have the action certified, and the district
court made no certification ruling. When the case ultimately
went to trial, the court dismissed the class action allegations.
After hearing the evidence, the court also rejected the plaintiffs’
—_—
individual claims, holding, inter alia, that they were not quali-
fied for the jobs they sought and, therefore, that they had failed
to make a prima facie case of discrimination.
On appeal by the individual plaintiffs, the Court of Appeals
for the Fifth Circuit (a) reversed the class action determination,
(b) certified a class and (c) imposed class-wide liability on the
company and the union on the basis of the proof adduced at
trial. The court disseunted the individual plaintiffs’ failure to
move for certific: before trial, reasoning that the responsi-
bility for adjudica....g the class question rested on the shoulders
of the district judge, whether or not the named plaintiffs sought
certification.
This Court, in a unanimous opinion, reversed the judgment
of the Fifth Circuit and concluded that “the Court of Appeals
plainly erred in declaring a class action and in imposing upon
the petitioners classwide liability.” Jd. at 403. It ruled that the
appellate court had paid insufficient heed to the plaintiffs’ failure
to request class certification, and observed that “it was evident
by the time the case reached that Court that the named plaintiffs
were not proper class representatives under Fed. Rule Civ.
Proc. 23(a).” /bid. One of the “strong indications” that the
plaintiffs did not adequately represent the class was their failure
to move for class certification prior to trial. The Court of Ap-
peals was chastised for its usurpation of the trial court’s discre-
tionary function and for its failure to recognize that even in
cases involving class-wide racial or ethnic discrimination “care-
ful attention to the requirements of Fed. Rule Civ. Proc. 23
remains nonetheless indispensable.” /d. at 405.
The instant case is even more aggravated than Rodriguez.
Here the Court of Appeals reversed the district court's order
disestablishing the class action, and in effect entered a class
certification order, without any analysis whatsoever of whether
the requirements of Rule 23 had been met in the first place or
—_—
whether the revocation of class certification was sustainable on
any other ground appearing in the record. The Eighth Circuit,
on the basis of a cold record, simply substituted its judgment
for that of the district judge who had been living with the case
for more than three years.
The Court of Appeals disregarded the fact that petitioners’
Motion to Decertify the class action had advanced a number of
separate grounds in support of the requested decertification, in-
cluding, inter alia: (1) inadequacy of respondents as class repre-
sentatives; (2) delay in moving for class certification and in re-
questing a certification hearing; (3) lack of prosecution and
delay in requesting discovery of names and addresses of class
members after certification had been granted; and (4) manage-
ability problems created by the predominance of individual ques-
tions over class questions, particularly as regards the issues of
reliance, causation and the statute of limitations (Apdx. 201-04).
The district court upheld petitioners’ contention that the pro-
tracted delay in seeking the identify of the class members was
unjustifiable and evidenced a lack of diligent prosecution on the
part of respondents as class representatives. The court thus had
no occasion to address the other issues raised by the Motion to
Decertify. The Court of Appeals, disagreeing with the lower
court on the stated ground of lack of prosecution, merely recerti-
fied the class action without considering the other issues raised
by petitioners in their Motion, thereby contravening the well-
accepted principle that an order of a lower court should be
affirmed on appeal if it is sustainable on any ground appearing
in the record. United States v. New York Telephone Co., —
U.S. —, 46 U.S.L.W. 4033, 4035 n. 8 (1977); Helvering v.
Gowran, 302 U.S. 238 (1937); Carpenters’ District Council v.
Brady Corp., 513 F.2d 1 (10th Cir. 1975); Sapp v. Renfroe,
511 F.2d 172 (Sth Cir. 1975).
We submit that the Court of Appeals exceeded its authority
in (a) substituting its judgment for the district court on the
— =
question of lack of prosecution, (b) recertifying the class with-
out considering the numerous other factors bearing on the suit-
ability of respondents as class representatives, and (c) recertify-
ing the class without analyzing whether the remaining require-
ments of Rule 23 were met or whether the case had been
properly certified for class action treatment in the first instance.
A. The Court of Appeals Exceeded Its Authority in Re-
versing the Decertification Order on the Stated Ground of
Lack of Prosecution by Respondents.
The machinery of Rule 23 has been entrusted to the sound
discretion of the district judge who, after all, is the person
who must live with this sometimes unwieldy and hydra-headed
monster known as the class action. The initial determination
of whether a case should proceed on a class basis is discre-
tionary with the district court and must take account of a num-
ber of factors. /n re Cessna Aircraft Distributorship Antitrust
Litigation, 518 F.2d 213 (8th Cir.), cert. denied, 423 U.S. 947
(1975); Fen.tler v. Westgate-California Corp., 527 F.2d 1168
(9th Cir. 1975). That important decision is often facilitated
immeasurably by an in-person observation of conditions and par-
ticipants; it is generally unsuited to adjudication on the basis
of an abstract, impersonal record. In City of New York v. In-
ternational Pipe and Ceramics Corp., 410 F.2d 295, 298 (2d
Cir. 1969), the court, emphasizing the problems associated with
a Class certification ruling, said:
“This issue should not be decided in an abstract or aca-
demic manner but rather in a practical and realistic way
by a trial judge who has knowledge of the actual prob-
lems presented in the courtroom by these multi-plaintiff,
multi-defendant cases.”
An appellate court may overturn a class action ruling only
upon a showing that the trial court abused its discretion. Wright
— —
v. Stone Container Corp., 524 F.2d 1058 (8th Cir. 1975);
Boggs v. Alto Trailer Sales, Inc., 511 F.2d 114 (Sth Cir. 1975);
Rutledge v. Electric Hose and Rubber Co., 511 F.2d 668 (9th
Cir. 1975). Here, by contrast, the appellate court simply sub-
Stituted its judgment for that of the trial judge and, in so doing,
disrupted the balance built into Rule 23 by its authors and
restored by this Court in Rodriguez.
The district court’s finding of respondents’ failure to dili-
gently prosecute this action was made against the background
of the following chronology:
Date Event
July 27, 1973 Complaint filed (Apdx. 1).
April 11, 1974 Respondents first moved for class
certification (Apdx. 5, 85).
November 18, 1974 Respondents first requested evi-
dentiary hearing on class certifi-
cation (Apdx. 108).
June 19, 1975 District court ordered that case
may proceed as class action
(Apdx. 11, 169).
October 23, 1975 District court directed respond-
ents to conduct discovery to as-
certain names of members of
class (Apdx. 13, 186).
April 20, 1976 Respondents sought list of Punta
Gorda securities purchasers by
telephone communication with
counsel for Petitioner Punta
Gorda Isles, Inc. (Apdx. 215).
April 21, 1976 Respondents were advised that
requested list was not available
— pe
and that it was inappropriate in
any event (Apdx. 215).
July 20, 1976 Respondents first filed a request
for production of documents
seeking names and addresses of
prospective class members (Apdx.
14, 200).
The record before the district court thus reflected that re-
spondents had originally delayed for nine months in seeking a
class action determination, a factor specifically recognized by
this Court in Rodriguez as bearing heavily upon their suitability
as class standard-bearers. Although the district court appar-
ently did not consider this original delay as per se disqualifying
to respondents, their subsequent unexcused dilatoriness in failing
for nine additional months after the lift of the stay on discovery
to seek elementary and critical information as to the identity of
the class members was more than the trial judge could tolerate.
Although it may be true, as noted by the Court of Appeals, that
not all of the three-year delay between the filing of the complaint
and the requested discovery of the names of class members was
attributable to respondents, it is simply untenable to assert that
the district judge abused his discretion in finding “that there has
been a lack of prosecution on the part of the plaintiffs as class
representatives.” The district court’s action in decertifying the
class was long overdue and remarkably restrained, and the Court
of Appeals overstepped the bounds of judicial scrutiny in second-
guessing the judgment of the trial judge."
2s In Link v. Wabash Railroad Co., 370 U.S. 626 (1962), the
Court reaffirmed the discretion of the trial judge to purge his docket
of cases which are not diligently pursued. such a rule pertains
where the result is a dismissal of the plaintiff's claim with prejudice,
the instant case is a fortiori because respondents’ individual claim was
untouched by the challenged order.
—— pon
B. The District Court’s Decertification Order Was Also
Sustainable on the Ground That Respondents Were Not
Adequate Representatives of the Class for a Number of
Other Reasons Appearing in the Record.
In order to ensure compliance with the mandatory require-
ments of Rule 23(a)(4), the court in every class action must
“undertake a stringent and continuing examination of the ade-
quacy of representation by the named class representatives at
all stages of the litigation . . .” Susman v. Lincoln American
Corp., 561 F.2d 86, 89 (7th Cir. 1977); National Association
of Regional Medical Programs, Inc. v. Mathews, 551 F.2d 340
(D.C. Cir. 1976), cert. denied, — U.S. —, 53 L.Ed. 2d 270
(1977); Rutledge v. Electric Hose and Rubber Co., supra. In
Eisen Il, 391 F.2d 555, 562 (2d Cir. 1968), the court stressed
the importance of the credentials of the named plaintiffs:
“Traditionally, courts have expressed particular concern
for the adequacy of representation in a class suit because
the judgment conclusively determines the rights of absent
class members. See Hansberry v. Lee, 311 U.S. 32, 61
S.Ct. 115, 85 L.Ed. 22 (1940). Of course, understand-
ably, the standards for representation under the old spurious
class action were not as rigorously enforced, due to the
minimal res judicata effects given to the judgments in these
suits. See Oppenheimer v. F. J. Young & Co., i44 F.2d
387 (2d Cir. 1944). However, as a result of the sweeping
changes in Rule 23, a court must now carefully scrutinize
the adequacy of representation in all class actions.” (Em-
phasis supplied. )
One of the principal criteria for measuring the suitability of
the would-be class champion is the vigor with which he asserts
and prosecutes the claims of the class. Senter v. General Motors
Corporation, 532 F.2d 511 (6th Cir. 1976); Fendler v. West-
gate-California Corp., supra; Gonzales v. Cassidy, 474 F.2d 67
— 44 —
(Sth Cir. 1973). As pointed out above, delay in moving for
class certification, or in otherwise protecting the interests of
the class, bears directly upon the adequacy evaluation. East
Texas Motor Freight System, Inc. v. Rodriguez, supra. But in
the instant case, that delinquency hardly stands alone. To the
contrary, respondents’ leadership was tainted from the outset
by a conflict of interest of their original attorney from which
they never recovered. When the suit was filed, it seemed strange
that the underwriters, who had managed the Punta Gorda public
securities offering, were conspicuously missing from the lineup
of defendants. Information soon surfaced that respondents’ at-
torney also represented one of those underwriters and naturally
provoked a question of possible divided loyalties. In order to
thwart an airing of this issue, respondents stalled the evidentiary
hearing on the cleis action certification. Rather than trying
to dispel the doubts raised about the conflict of interest, re-
spondents sought further to entrench themselves as class repre-
sentatives by seeking discovery on the merits before the class-
action question was adjudicated (Apdx. 96). That request was
denied, and the district court ordered that the issue of respond-
ents’ adequacy, among others, should be fully explored in an
evidentiary hearing (Apdx. 10, 108).
The hearing, held on December 30, 1974, betrayed respond-
ents’ intensive efforts to block exploration of the conflict-of-
interest problem. The evidence revealed that no meaningful in-
vestigation or good-faith determination had been made by re-
spondents’ counsel as to the necessity, desirability or wisdom of
joining the underwriters, and the only feasible explanation for
this infirmity was counsel’s conflict of interest (Apdx. 153-60).
Respondents contended that a thorough investigation of the case
had preceded the filing of their complaint, but the evidence
showed that the entirety of that effort had consisted of counsel’s
casual discussions with two officers of the potential underwriter-
defendants (Apdx. 156-60). Even the predictably self-serving
comments by those officials about their own diligence, however,
—_
suggested that the underwriters should be nained as defendants
in any lawsuit which might be filed (Apdx. 157-59); and
neither respondents nor their attorneys were able to offer any
cogent explanation for not joining the underwriters (Apdx. 71,
160, 182-83).?°
Although respondents and their counsel stoutly denied any
conflict of interest, there was little doubt that respondents’ de-
cision not to sue the underwriters was prompted not by an im-
partial assessment of the merits of the claim but by their at-
torney’s loyalty to one of those underwriters. Accordingly, it
was no surprise when the district court issued an order declar-
ing that counsel’s conflict of interest and apparent violations of
Disciplinary Rule 5-105(A) and Ethical Considerations 5-14
and 5-15 of the Code of Professional Responsibility cast a
shadow on the adequacy of respondents’ representation of the
class (Apdx. 170). While the court certified the case as appro-
priate for class action treatment, it ordered respondents’ original
counsel to show cause why he should not be enjoined from
representing the class. Cf. Susman v. Lincoln American Corp.,
supra. Rather than challenging the court’s findings or attempt-
ing to explain his conduct, counsel simply withdrew from the
action (Apdx. 173-74).
Upon the appearance of respondents’ new counsel on June
30, 1975, the district court promptly inquired what action
they proposed to take regarding the underwriters (Apdx. 179).
Apparently because respondents had concluded that the statute
of limitations had expired on claims against the underwriters
while their first counsel maneuvering to suppress his conflict-
“" We do not suggest that the underwriters should be defendants
in this lawsuit or that there is any merit to a claim against the under-
writers or, for that matter, against any of the petitioners. Rather,
we believe that all of respondents’ claims are spurious and will not
survive the scrutiny of a trial on the merits. The fact remains, though,
that there is absolutely no basis, other than the conflict of interest,
to justify or explain respondents’ variation in treatment between the
underwriters and all other participants in the Punta Gorda offering.
—~ wn
of-interest problem, they made no response to the district
court's inquiry.*° Instead of acknowledging that their inaction
had extinguished a potential claim of the class, they merely
stated that no additional defendants would be named “at the
present time,” thereby conveying the misleading impression
that a suit against the underwriters was still under considera-
tion and a real possibility (Apdx. 183).
When the district court ultimately realized that respondents
had not been completely candid and that the statute of limita-
tions might have expired during their attorney’s concerted ef-
fort to hide his divided loyalties, it expressed serious reserva-
tions about their willingness and ability to protect the interests
of the class. On October 23, 1975, the court issued a directive
to respondents either to join the underwriters or to proffer some
valid reason for not doing so. In the course of that order, the
district judge manifested his distress over the seeming inade-
quacy of respondents’ leadership:
“The Court is presently concernes| with plaintiffs’ ade-
quacy as representative of the class. . . . The presence
of new counsel does not in itself erase the shadow of in-
adequate representation previously cast. . . . Even if
the two absent underwriters aze jcined, the question of
plaintiffs’ adequacy as representatives of the class remains.
Plaintiffs have shown a lack of complete willingness to
protect the interests of all the members of the class
throughout the course of this action. . . . To decertify
this as a class action at this time based on the inadequacy
of representation, however, may jeopardize potentially
valid claims held by absent class members. Notice, there-
fore, should be sent out to the class pursuant to F.R.C.P.
30 In an affidavit filed with the district court on August 16, 1976
(Apdx. 15), respondents’ current counsel stated that upon review
of the applicable law they “had determined that any claims against
underwriters had been barred by the statute of limitations prior to
the date upon which present counsel entered their appearance . . .”
—_—
23(c)(2). In this manner, the members of the class will be
on notice as to the disposition of the present action and
will have the opportunity to choose for themselves if they
wish to be bound by the judgment that will ensue. The
notice will specify first that members may exclude them-
selves from the class upon request, F.R.C.P. 23(c)(2)(A);
that if the class member does not opt out then he will be
bound by the judgment entered, F.R.C.P. 23(c)(2)(B);
that if the class member does not exclude himself he may
enter an appearance through counsel, F.R.C.P. 23(c)(2)
(C); and that the court requests petitions for appointment
of new class representative or in the alternative, interven-
tion by class members, F.R.C.P. 23(d)(2). To explain
the Court's request for petitions or intervention, sufficient
facts of the case will be given in the notice” (Apdx. 187-88;
emphasis added).
This language left little room for speculation as to the course
the court intended to pursue. Respondents were aware that
this order, if implemented, would inevitably eliminate them as
class representatives. If the full story of respondents’ misman-
agement of the lawsuit were disclosed to the other class mem-
bers, respondents would be quickly dethroned as class cham-
pions. Therefore, instead of abiding by the court's October
23rd order, respondents sought to solidify their position by
seeking discovery on the merits while opposing and delaying
implementation of the order. They submitted a form of pro-
posed notice which omitted any reference to the appointment
of a new class representative, and they attempted to formulate
a notice which would not have created any uproar about their
behavior (Apdx. 212-14). They also tried to nullify the antici-
pated effect of distribution of the notice on their control over
the lawsuit by proposing that class members should be pro-
hibited from communicating with the district court. Specif-
ically, they asked the court to instruct class members to send
“communications commenting upon the conduct of this action”
—_
to their attorneys and not to the district court (Apdx. 199,
214). This was nothing but a transparent attempt to impede
the district court’s appraisal of the need or desire for a new
class representative.
At the same time, while striving to delay and dilute the
notification to the class, respondents ignored that portion of
the October 23rd order requiring that “discovery shall proceed
as to finding the names and addresses of the class members”
(Apdx. 189). In spite of this clear directive, respondents did
not initiate even informal attempts to obtain this essential data
until April 1976 and did not institute discovery procedures
under the Federal Rules until July 20, 1976, some nine months
after the entry of the order. They offered no excuse for this
intolerable procrastination other than to say that they gen-
erally preferred to postpone their discovery until after the form
of class notice had been settled. The real, albeit unspoken,
reason for the delay was respondents’ reluctance to hasten the
sending of a form of notice which would likely undermine their
position as leaders of the class and produce a new and more
diligent class representative with, of course, his own counsel.
Considered in its overall context, the district court’s decerti-
fication ruling, though specifically couched in terms of failure
to prosecute, also reflected the court’s repeatedly voiced dis-
enchantment with respondents’ representation of the class.*?
Respondents got off on the wrong foot because of their original
counsel’s conflict of interest and their subsequent attempts to
conceal the consequences of that conflict. The tardiness in seek-
ing names of the class members, when piled on top of the
original delinquency in requesting class certification, displayed
‘1 The Court of Appeals seemed to recognize that the failure to
prosecute did not exist in a vacuum but was merely a facet of the
trial court’s concern about respondents’ adequacy (Cert. Pet., p. A-11
n. 6). Nonetheless, the appellate court unaccountably refused to
consider the other factors bearing on the adequacy question.
—
an insensitivity and infidelity to the high standards demanded
of class leaders. The district court exhibited commendable pa-
tience and tolerance with respondents but finally, exasperated
by their behavior and convinced of their inability to lead the
class, decertified the class on September 1, 1976. That judg-
ment is sustainable for the expressed reason of lack of prose-
cution, as well as for the implicit and interrelated reason of re-
spondents’ overall inadequacy as class representatives.
C. The Court of Appeals Erred in Recertifying the Class
Without Determining Whether It Was Properly Certified
in the First Place.
The judgment of the Court of Appeals illustrates yet an-
other of the fundamental flaws in the death knell theory. When
the district court originally ruled that the case should be main-
tained as a class action, petitioners believed that order to be
erroneous for a number of reasons but were foreclosed from
seeking immediate review of that decision by the final judg-
ment rule. But upon decertification of the class, the Court of
Appeals entertained respondents’ appeal and reinstated the class
action without any analysis of the propriety of the district court’s
initial class action determination. Hence, the one-sidedness of
the death knell doctrine has permitted respondents to obtain
review of an order adverse to them while denying petitioners
any appellate consideration of the propriety of the original class
action designation.
One of the principal defects in the district court’s initial class
action determination stemmed from the inadequacy of respond-
ents’ representation of the class. It was clear error for the Court
of Appeals to recertify the class without analyzing that issue. In
addition, the class should never have been certified because the
individual questions—particularly those involving reliance, cau-
sation and the statute of limitations—predominated over the
—
class questions. For example, claims under §§ 11 and 12 of the
1933 Act must be commenced within one year of discovery,
and since this action was not instituted until 15 months
after the Punta Gorda offering, each member of the class
would be required to prove his own individual compliance with
the limitations requirement. Moreover, subsequent develop-
ments in this Court and in the Eighth Circuit have eroded much
of the rationale underlying the class certification and cast seri-
ous doubt upon the validity of the district court’s original con-
clusion. See Blue Chip Stamps, Inc. v. Manor Drug Stores,
421 U.S. 723 (1975); Ernst & Ernst v. Hochfelder, 425 US.
185 (1976); Harris v. American Investment Company, 523 F.
2d 220 (8th Cir. 1975), cert. denied, 423 U.S. 1054 (1976).
Another essential and inextricably intertwined component
of a class action which is wanting in this case is manageabil-
ity, as required in Rule 23(b)3(D). The Court of Appeals sent
the case back to the district judge without even pausing to
consider whether it could be feasibly handled on a class action
basis. The necessity of individualized investigation of the re-
liance, causation and limitations questions could very well turn
the trial of this case into a trial by ordeal.**
The Eighth Circuit ignored the admonition of this Court in
Cohen v. Beneficial Industrial Loan Corporation, supra, 337
U.S. at 546, that “appeal gives the upper court the power of
review, not one of intervention.” The Eighth Circuit has in-
ileed “intervened” and has effectively certified a class action in
the first instance without any consideration of the stringent re-
quirements of Rule 23. The Court of Appeals has severely,
unnecessarily and unwisely interrupted an on-going lawsuit.
Such interlocutory intervention is ordinarily abhorrent enough,
but when the stakes are as high as those set by Rule 23, the
32 In fact, the district court had announced its intention to recon-
sider its earlier ruling that individual issues of fact did not pre-
dominate (Apdx. 189).
—=
courts must be especially faithful to the strictures of that Rule
because of the potential for abuse lurking in class actions, par-
ticularly in securities cases. See Blue Chip Stamps, Inc. v.
Manor Drug Stores, supra. The superficial approach of the
Eighth Circuit here is a vivid testimonial to the soundness of
the final judgment rule and to the undesirability of piecemeal
review of class action questions. The judgment of the Court of
Appeals is at odds with the mandate of Rodriguez that “care-
ful attention to the requirements of Fed. Rule Civ. Proc. 23
remains nonetheless indispensable.” The district court’s decer-
tification order was aot appealable, but even assuming other-
wise, the Eighth Circuit has far exceeded the proper scope of
its authority.
CONCLUSION
The judgment of the Court of Appeals should be reversed.
Respectfully submitted,
VERYL L. RIDDLE
THOMAS C. WALSH
JOHN J. HENNELLY, JR.
MICHAEL G. BIGGERS
BRYAN, CAVE, McPHEETERS
& McROBERTS
500 North Broadway
St. Louis, Missouri 63102
Attorneys for Petitioner
Coopers & Lybrand
HARRIS J. AMHOWITZ
Of Counsel
January 9, 1978
ADDENDUM
—-
ADDENDUM
TITLE 28, UNITED STATES CODE
§ 1291. Final decisions of district courts
The courts 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.
§ 1292. 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 application is made to it within ten days
after the entry of the order: Provided, however, That applica-
tion 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.
= *
FEDERAL RULES OF CIVIL PROCEDURE
Rule 23. Class Actions
(a) Prerequisites to a Class Action. 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 rep-
resentative parties are typical of the claims or defenses of the
class, and (4) the representative parties will fairly and ade-
quately protect the interests of the class.
(b) Class Actions Maintainable. An action may be main-
tained as a class action if the prerequisites of subdivision (a)
are satisfied, and in addition:
(1) the prosecution of separate actions by or against indi-
vidual members of the class would create a risk of
(A) inconsistent or varying adjudications with respect to in-
dividual members of the class which would establish incom-
patible 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 adjudications
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 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 pertinent 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 members of
the class; (C) the desirability 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.
(c) Determination by Order Whether Class Action to Be
Maintained; Notice; Judgment; Actions Conducted Partially as
Class 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 class action maintained under subdivision (b) (3),
the court shall direct to the members of the class the best no-
tice practicable under the circumstances, including individual
notice to all members who can be identified through reason-
able 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 de-
scribe those to whom the notice provided in subdivision (c) (2)
was directed, and who have not requested 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 each subclass
treated as a class, and the provisions of this rule shall then be
construed and applied accordingly.
(d) Orders in Conduct of Actions. In the conduct of actions
to which this rule applies, the court may make appropriate
orders: (1) determining the course of proceedings or prescribing
measures to prevent undue repetition or complication in the
presentation of evidence or argument; (2) requiring, for the
protection of the members of the class or otherwise for the
fair conduct of the action, that notice be 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 proposed extent of the judgment,
or of the opportunity of members to signify whether they con-
sider the representation fair and adequate, to intervene and
present claims or defenses, or otherwise to come into the ac-
tion; (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
persons, and that the action proceed accordingly; (5) dealing
with similar procedural matters. The orders may be combined
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 be
dismissed or compromised without the epproval of the court,
and notice of the proposed dismissal or compromise shall be
given to all members of the class in such manner as the court
directs.
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.