Reply Brief for the United States — Coopers & Lybrand v. Livesay

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—_—_

Supreme Court, U.S.~ § |

FILED

pai | FEB 22 1978

Supreme Court of the United States oor». c28*

October Term, 1977

No. 76-1836

COOPERS & LYBRAND,

Petitioner,

Vv.

CECIL LIVESAY and DOROTHY LIVESAY,

Respondents.

No. 76-1837

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

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

DR. RUSSELL C. FABER, JOHN MATARESE, ROBERT C.

Mt a EARL DRAYTON FARR, JR., JOHN W. DOUGLAS,

Vv.

Petitioners,

CECIL LIVESAY and DOROTHY LIVESAY,

Respondents.

On WRITS OF CERTIORARI TO THE UNITED STATES COURT

OF APPEALS FOR THE EIGHTH CIRCUIT

BRIEF FOR RESPONDENTS

MELVYN I. WEIss

One Pennsylvania Plaza

New York, New York 10001

Attorney for Respondents

Of Counsel:

LAWRENCE MILBERG

JARED SPECTHRIE

JEROME M. CONGRESS

REED SCHNEIDER

RICHARD L. Ross

MILBERG WEIsS BERSHAD & SPECTHRIE

TABLE OF CONTENTS

SD FP icsctctecitivisinteguiRiniotiisnsnticvtiniailionnceve

(a) With Respect to All Petitioners —.......... a

(b) With Respect to Petitioner Coopers & Ly-

RRR a RE Se sdiddliaiiatdnaaiiatadbiniadla

STATEMENT OF THE CASB ....................-02-.ccccccccecccccccccceceeees

(a) Proceedings to and Including Class Certifi-

SITE Ssssisidieshe eiscseteatie dC ineadladdenatetabiealiainesilelencaiatnaibanians

(b) Proceedings Subsequent to Class Certifica-

RCRA =) ani eee me See ore mre eee

taille

(d) Disposition on Appeal ..................2.2....--...0---+

SE ee eT aE ee ee RICE

pA EF AER SES BR Se ON EAE IRA

Point I—

The Court of Appeals Had Jurisdiction to Con-

sider Respondents’ Appeal From the Order De-

NE CIR I cclecsnindiisinsiennnitthiiecsstniiasinnannindiiniaiionnan

This Court Has Stressed a Practical Interpre-

tation of 28 U.S.C. §1291 Aimed at Avoiding

Piecemeal Appeals, Achieving Economy of

Litigation, and Protecting Substantial Rights

IIE scccccastictsiniiicscesinnstnicnstettcianbbtnlansintyniatnestics

The Death Knell Doctrine Was a Proper Basis

for Appellate Jurisdiction Under 28 U.S.C.

UNTIED cdacissuiasczniibhcdiisiaehsvheeiiieakandpidiesiiabiaiaieitiipesmtbasionans

(a) The Death Knell Doctrine Is Fully Con-

sistent With the Purposes of the Final

I IID ca iccichain alist dastadamnieoniseebetiebinninitics

(b) The Death Knell Doctrine Furthers Im-

portant Purposes of Rule 23 of the Federal

Rules of Civil Procedure ..........0....0....000.......

, 97 S.Ct. 2464 (1977) Does Not Render

the Death Knell Doctrine Unnecessary ......

(d) The Death Knell Doctrine Does Not Dis-

criminate Against Defendants in Class Ac-

EI RP SAAS ES Daas SS

(e) The Ninth Cireuit Version of the Death

Knell Doctrine Would Increase the Com-

plexity of the Litigation Without Serving

the Purposes of the Final Decision Rule ..

(f) The Court of Appeals Had Ample Grounds

for Determining That the Death Knell

Doctrine Was Applicable 200.000.0000.

. The Collateral Order Doctrine Provides Alter-

native Bases for Allowing Respondents an

Immediate Appeal From the Decertification

I scsi sashadiclaiiveicitdemntdadiipetatieebbieneietianiaaianiiiaete alae

. Appellate Jurisdiction May Also Be Sustained

Under Gillespie v. United States Steel Corp.,

SO We Me WII ciccesecennissininsersnssserictcenconnianieasie

. Conditioning an Immediate Appeal on District

Court Certification Under 28 U.S.C. §1292(b)

Would Improperly Deny Respondents Their

Rights Under 28 U.S.C. §1291 000...

. Petitioners’ Argument That the Court Should

Adopt a Rule Aimed at Discouraging Class Ac-

tions Misdescribes the History of Experience

With Class Actions and Ignores the Important

Public Purposes Served by Rule 23

PAGE

Pornt II— PAGE

If This Court Should Decide That the Eighth

Cireuit Lacked Jurisdiction Over the Appeal, the

Court Should Remand This Case to the Eighth

Circuit for Consideration of Respondents’ Man-

EE SP TIITIIIIE sésiciconienttpieliiactaiaicitinlineadietintmpeiailintantian 54

Pornt ITI—

The Court of Appeals Acted Within the Proper

Scope of Its Authority in Reversing the District

Court’s Decertification Order ~....................-cceeeceeeeees 55

1. The Court of Appeals Properly Held That the

District Court Abused Its Discretion in Decer-

tifying the Class for an Alleged Failure to

I TI TI ccictentntehcecsicininctieinttennianns 55

2. The Court of Appeals Properly Reversed the

Order Decertifying the Class —.....0..0...0..........0.000-+ 58

I csissierinsiinsvininictecisiisciearnitinctinainiiiitinpusanitaiiannacssinis 64

Table of Authorities

CasEs:

Abney v. United States, 431 U.S. 651 (1977) .......... 19, 39

Affiliated Ute Citizens of Utah v. United States,

rT 3 SS FS en 63

Airlines Stewards and Stewardesses Association v.

American Airlines, 455 F.2d 101 (7th Cir. 1972) 48

Albemarle Paper Co. v. Moody, 422 U.S. 405 (1975) 55

Alyeska Pipeline Service Co. v. Wilderness So-

— *£ &£ > Ee 2 ean 38

American Pipe and Construction Co. v. Utah, 414

rere 27, 28, 29, 30, 40

Anschul v. Sitmar Cruises, Inc., 544 F.2d 1364

(7th Cir.), cert. denied, 429 U.S. 907 (1976) .... 21, 26, i4

Arenson v. Board of Trade of City of Chicago,

372 F.Supp. 1349 (N.D.Ill. 1974) ....2.2.............eeeee 51

PAGE

Beecher v. Able, CCH Fed.Sec.L.Rep. 94,450

SEEUNLEEs TUITE siistithsiiemirinninidgaichinapicageictammasaieaiaitimans 48, 49

Bisgeier v. Fotomat Corporation, 62 F.R.D. 113

SETLIST; SUITED. siielinepeiinghdeeidasipaitidiadiepmniaitiaiae 63

Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975),

cert. denied, 429 U.S. 816 (1976) ...................... 50, 62, 63

Blank v. Talley Industries, Inc., 390 F.Supp. 1

SENET: SUITED ciscislnicassssetsiinn-<tnsdaniblineehibadapainiiansaeeiuabsiin

Board of School Commissioners v. Jacobs, 420 U.S.

SRD CIPUIED siccssstissicrteseaceeicsnsacenittancsaneiniieteitatendadiinadtiaitiatidids 41

Brennan v. Mid estern United Life Insurance

Company, 286 F.Supp. 702 (N.D.Ind. 1968), aff’d

417 F.2d 147 (7th Cir. 1969), cert. denied, 397

Sy et GEIEIEED cniccecemencienteninndianininniaainens 49

520 Broadway Corp., et al. v. MacArthur, D.Del.,

Nos. 75-172 and 75-173, March 18, 1977 (unre-

RID ccccurnvecnrsissciniicinpenanatiabaanpendiniiii 51

Brown Shoe Co. v. United States, 370 U.S. 294

USTED ‘Scnslcisischncsiioatiiaaatbbaceieaeida deeadbiauadanaaiiddinbanhidda castes 20

Can-Am Petroleum Co. v. Beck, 331 F.2d 371 (10th

IA BIPM ccvessbstesnioscestieaititinetieneiadesinei ati alice, 38

Carey v. Greyhound Bus Co., 500 F.2d 1372 (5th

As SURI ssietetesnsateceiisisiininistsilstaisibehibdienitiasieaianiaaaiidiaaiias 56

Carlisle v. LTV Electrosystems, Inc., 54 F.R.D.

237 (N.D.Tex. 1972), appeal dismissed (No.

72-1065, 5th Cir., June 23, 1972) (unreported

CI ccniincitinnnrenenenteirinninnaniaiitiasiitianinatinamibaseian 35

Catlin v. United States, 324 U.S. 229 (1945) ........ 19

City of New York v. Darling-Delaware, 1977-2

CCH Trade Cases 961,802 (S.D.N.Y. 1977) . 51

Cobbledick v. United States, 309 U.S. 323 (1940) 19, 20

Cohen v. Beneficial Industrial Loan Corp., 337

ee I - CUIIIIIED tc cccisesseaicchisnacenishahitoinssaamaiianatinal 19, 20, 39, 40

Compagnie Nationale Air France v. Port of New

York Authority, 427 F.2d 951 (2d Cir. 1970) .... 32

Competitive Associates, Inc. v. Laventhol, Krek-

stein, Horwath & Horwath, 516 F.2d 811 (2d

Us TU ccndibscinctdicstesbtiiimbieaiieitiitee tied 63

PAGE

Cox Broadcasting Corp. v. Cohn, 420 U.S. 469

GETEED, ‘canshcinssonesteneinslaneninbirisiaennnntnaaiiemeenine 20

Cusick v. N.V. Nederlandsche Combinarie Voor

Chemische Industrie, 317 F.Supp. 1022 (E.D.Pa.

UTED. ictavtacecanesieneneiunes 63

Dandridge v. Williams, 397 U.S. 471 (1970) ........ 54

Dennis v. Saks & Co., 8.D.N.Y., 74 Civ. 4419,

October 6, 1976 (unreported order) ........................ 51

D.H. Overmeyer Co. v. Lofiin, 440 F.2d 1213 (5th

Se aa 48

Dolgow v. Anderson, 43 F.R.D. 472 (E.D.N.Y.

a ca 47

Dolly Madison Industries, Inc. Litigation, No. 70-

2585 (E.D.Pa. 1973) ............. 49

Dorfman v. First Boston Corp., CCH Fed.Sec.L.

Rep. [1973 Transfer Binder] 994,155 (E.D.Pa.

TEED cenniastcnsausacveattssitinsnibineesentinnionntiemindiabnsinniantainibatiieaiies 61

duPont Glore Forgan, Inc. v. American Telephone

& Telegraph Co., 69 F.R.D. 481 (S.D.N.Y.

ae 33, 34, 57

East Texas Motor Freight System, Inc. v. Rodri-

OT 59

Eisen v. Carlisle € Jacquelin (“Eisen IV”), 417

SO fen 19, 23, 37, 39, 40, 61

Eisen v. Carlisle & Jackqelin (“Eisen I’), 370

F.2d 119 (2d Cir. 1966), cert. denied, 386 U.S.

1035 (1967) ..... 21, 22, 23, 25

Eisen v. Carlisle & Jacquelin (“Eisen IT’), 391

6G UG OO ee 22

Ernst &€ Ernst v. Hochfelder, 425 U.S. 185 (1976) 38

Escott v. Barchris Construction Corp., 283 F.Supp.

643 (S.D.N.Y. 1968) -....22...... 49

Federman v. Empire Fire & Marine insurance Co.,

19 F.R.Serv.2d 480 (S.D.N.Y. 1974) 200000 ..

Feit v. Leasco Data Processing Equipment Corp.,

332 F.Supp. 544 (E.D.N.Y. 1971) 00000.

Flowers v. Turbine Support Division, 507 F.2d

1242 (5th Cir. 1975) :

Franks v. Bowman Transportation Co., 424 U.S.

747 (1976)

e ® 6 B

Gardner v. Westinghouse Broadcasting Co., 559

F.2d 209 (3rd Cir. 1977), cert. granted, 46 U.S.

L.W. 3373 (Dee. 5, 1977) ........ EFA Te ee ev Te

Gay v. Waiters and Dairy Lunchmen’s Union, 549

o£ ff fe: Reena

Gelman v. Westinghouse Electric Corp., —— F.2d

(No. 77-1170, 3rd Cir., June 6, 1977) ........

Gerstle v. Gamble-Skoqmo, Inc., 478 F.2d 1281 (2d

I i as a eee

Gillespie v. United States Steel Corp., 379 U.S.

PAGE

Se OMITTED | sccetipnitinseatapeiteigiiamiptiintaedelleasialiasiaaidaminienaas 14, 42, 43

Gould v. American Hawaiian Steamship Co., 362

F.Supp. 771 (D.Del. 1973), judgment vacated,

535 F.2d 761 (3rd Cir. 1976) 22.00...

Graci v. United States, 472 F.2d 124 (5th Cir.),

cert. dented, 412 U.S. 928 (1973) 0000 eee

Green v. Wolf Corp., 406 F.2d 291 (2d Cir. 1968),

cert. denied, 395 U.S. 977 (1969) 0.0000

Guerine v. J & W Investment, Inc., 544 F.2d 863

REE RON celle nan NET a TORO

Hackett v. General Host Corporation, 455 F.2d 618

(3d Cir.), cert. denied, 407 U.S. 925 (1972) ........

Hail v. Heyman-Christiansen, Inc., 536 F.2d 908

I RU SUED esiiiciccielenlebiiiileiahirniailth dad daemanciniaiit

Harris v. American Investment Corp., 523 F.2d 220

(8th Cir. 1975), cert. denied, 423 U.S. 1054 (1976)

Hooley v. Red Carpet Corp., 549 F.2d 643 (9th Cir.

I cha ae rae 16, 22,

Hyrup v. Kleppe, 406 F.Supp. 214 (D.Colo. 1976) ..

In re Cessna Aircraft Distributorship Antitrust

Litigation, 532 F.2d 64 (8th Cir. 1976) 200000.

In re Consolidated PreTrial Proceedings In Am-

pex Securities Cases, N.D.Cal., Master File No.

C-72-360 SW, October 6, 1976 (unreported deci-

GRU cneatrcnisineisiisiindinicidilieee ae

In re Equity Funding Corp. of America Securities

Litigation, C.D.Cal., M.D.L. Docket No. 142, Sep-

tember 29, 1977, (unreported decision) ..................

37, 63

33, 35

In re Four Seasons Securities Laws Litigation, 63

F.R.D. 422 (W.D.Okla. 1974), aff’d, 525 F.2d 500

SES 1 ee eS

In re Franklin National Bank Securities Litiga-

tion, 73 F.R.D. 25 (E.D.N.Y. 1976) appeal pend-

I cscahecesendenehiaereiibits siheadiaslaltinienahhipeiidimeinetmbeniee

In re National Student Marketing Litigation v.

The Barnes Plaintiffs, 530 F.2d 1012 (D.C.Cir.

STI escent scree cemdaelalcih eahaeitepibaainetniiniteceisioniieen

In re Penn Central Securities Litigation, 560 F.2d

FS eee

J.C. Trahan Drilling Contractor, Inc. v. Sterling,

335 F.2d 65 (Sth Cir. 1964) .................cc.ecsecccecescseees

J.1. Case Co. v. Borak, 377 U.S. 426 (1964) ~.........

Jimenez v. Weinberger, 523 F.2d 689 (7th Cir.

1975), cert. denied, 427 U.S. 912 (19) ~

Katz v. Carte Blanche Corp., 496 F.2d 747 (3rd

Cir.) (en bane), cert. denied, 419 U.S. 885

PAGE

& &

Ni eae a 21, 44, 45

Kramer v. Scientific Control Corp., 67 F.R.D. 98

(E.D.Pa. 1975), aff'd in part, rev’d in part on

other grounds, 534 F.2d 1085 (3rd Cir. 1976),

cert, denied sub nom Arthur Anderson & Co. v.

Kramer, 429 U.S. 830 (1976) ..........2..2.----.:ceseecceeeeeeee

Kohn v. American Metal Climaz, Inc., 322 F.Supp.

1331 (E.D.Pa. 1971), aff’d in part, rev’d in part,

458 F.2d 255 (3rd Cir. 1972), cert. denied, 409

ee eee

Knable v. Wilson, 23 F.R.Serv.2d 146 (D.C.Cir.

SITTER "shinesihie dadestalliia eesahhanidaliaeaiatathineiiptnnnhauiiiiiemmensensaionss

Langnes v. Green, 282 U.S. 531 (1931) —....0............

Lindy Bros. Builders Inc. of Philadelphia v. Amer-

ican R & S San Corp., 487 F.2d 161 (3rd Cir.

IN a sa ee ks eee

Link v. Mercedes Benz of North America, Inc.,

550 F.2d 860 (3rd Cir. 1977), cert. denied, ——

es Mme GID ccassininiseninsicneentenatimaeniineanianeianiitignnntens

PAGE

Livesay v. Punta Gorda Isles, Inc., 550 F.2d 1106

(8th Cir. 1977), cert. granted, 46 U.S.L.W.

GT cecssnnreceseosncssintnnpadondiencindiuncetentnetamasidabaiitia 14, 36, 37, 59

Marshall v. Sielaff, 492 F.2d 917 (3rd Cir. 1974).... 25

Mathews v. Eldridge, 424 U.S. 319 (1976) 0.000000... 20, 39

Mills v. Alabama, 384 U.S. 214 (1966)... 20

Mills v. Electric Auto-Lite Co., 396 U.S. 375 (1970) 47, 63

Morton v. Mancari, 417 U.S. 535 (1974) 0000. 26

Ott v. Speedwriting Publishing Co., 518 F.2d 1142

ED GEG, TD cccnceccncencnestevniccscessvcnssennnicsitiiiecicamniadae 21, 37

Parrent v. Midwest Rug Mills, Inc., 455 F.2d 123

BR ee mee eS 60

Price v. Lucky Stores, Inc., 501 F.2d 1177 (9th Cir.

TTD xcnscisssscicachisnsnssnucniataesisitiitinaduicsiitis tenes mene 55

Roberts v. United States District Court, 339 US.

Fe ee 20, 24, 40

Robinson v. Lorillard Corporation, 319 F.Supp.

835 (M.D.N.C. 1970), aff'd in part, rev’d in part,

444 F.2d 791 (4th Cir.), cert. denied, 404 U.S.

BD CIO TED | Kccctinisstscinecveceticnntincsdasiadaieaenanie 49

Samuel v. University of Pittsburgh, 538 F.2d 991

RUD GARR, BD ccrsesessinvinnciiniiisiiaieaiao 55

Segurola v. United States, 275 U.S. 106 (1927)...... 19

Seiden v. Nicholson, 69 F.R.D. 681 (N.D.Tll. 1976) 69

Seiden v. Nicholson, 72 F.R.D. 201 (N.D.Ill. 1976) 51

Seifer v. Topsy’s International, Inc., 64 F.R.D. 714

(D.Kansas 1974), appeal dismissed, 520 F.2d 795

(10th Cir. 1975), cert. denied, 423 U.S. 1051

[RED cusiuisnissetitntensennntpiesiaaieeee 63

Share v. Air Properties G. Inc., 538 F.2d 279 (9th

Cir.), cert. denied, 429 U.S. 923 (1976) 0.0.0... 24, 44

Siegel v. Chicken Delight, Inc., 311 F.Supp. 847

(N.D.Cal. 1970), aff'd in part, rev’d in part, 448

F.2d 43 (9th Cir. 1971), cert. denied, 405 U.S.

i; sneer 49

PAGE

Sosna v. Iowa, 419 U.S. 393 (1975) ~....-22.--.--- 41

Spires v. Bottorff, 317 F.2d 273 (7th Cir. 1963),

cert. denied, 379 U.S. 938 (1964) 0.0000... 24

Stack v. Boyle, 342 U.S. 1 (1951) ........................... 19, 40

Stamps v. Detroit Edison Co., 365 F.Supp. 87

CRRA GIS . wrinsvitnenintnecnstdiinesaaiiieiiniieamrins 49

State of Illinois v. Harper € Row Publishers, Inc.,

301 F.Supp. 484 N.D.IIL 1969), aff’d, 423 F.2d

487 (7th Cir. 1970), aff'd, 400 U.S. 348 (1971) 63

Straub v. Vaisman & Co., 540 F.2d 591 (3rd Cir.

Se <dncines scasaecsinaaniiamaeatiitn aidimisisietasdaiameataiiisi Naat ialataieicial 38

Swift & Company Packers v. Compania Colom-

biana del Caribe, 339 U.S. 684 (1950) —.............. 20, 31

Thomsen v. Cayser, 243 U.S. 66 (1917) .................. 25

Trustees of Joint Welfare Fund v. Nolan, 549 F.2d

RR Cr a ee 24

TSC Industries, Inc. v. Northway, Inc., 96 S.Ct.

Se TUE cuniinccencesensniidnniieinnbiimuaneeiin 63

Umbriac v. American Snacks, Inc., 388 F.Supp.

eR ee eens 62

United Airlines, Inc. v. McDonald, —— U.S. —,

97 S.Ct. 2464 (1977) .................... 27, 29, 30, 31, 40, 41, 42

United States v. Procter & Gamble Co., 356 U.S.

ee CI aicieeli cctiiinnteniitibinteitiisinnettnininnnsien 25

United States v. Nixon, 418 U.S. 683 (1974) _........ 20

United Southern Companies, Inc. v. Duckworth,

410 F.2d 377 (5th Cir. 1969) .... 32

Vanderboom v. Sexton, 422 F.2d 1233 (8th Cir.),

cert. denied, 400 U.S. 852 (1970) —.....02.... 60

Weeks v. Bareco Oil Co., 125 F.2d 84 (7th Cir.

1941) - 56

Weight Watchers of Philadelphia, Inc. v. Weight

Watchers International, Inc., 455 F.2d 770 (2d

AES 40

PAGE

Will v. United States, 389 U.S. 90 (1967) 000000... 55

Wiliams v. Mumford, 511 F.2d 363 (D.C.Cir.),

cert, denied, 423 U.S. 828 (1975) 00... 21

Windham v. American Brands, Inc., 539 F.2d 1016

REE SENS AL meet coro eo 34, 55

Statutes anD Rugs:

Securities Act of 1933, Section 11, 15 U.S.C.

UIT ceediacsatisaemibedeabidaibeiibantinibiaiaiihideCcislkica caidas 3, 38, 40, 60, 63

Securities Act of 1933, Section 12(2), 15 U.S.C.

ERC AEDES ee area er eS 3, 38, 40, 60, 63

Securities Act of 1933, Section 13, 15 U.S.C. 477m 40

Securities Act of 1933, Section 17(a), 15 U.S.C.

III “ici steelhead ie 3, 60

Securities Exchange Act of 1934, Section 10(b),

NI I sic esieuictb aaeniidaaiahalcaeitaiclatidiiaditiaes 38, 60, 63

| UR ET ESSERE ee nee ae SRR LARS 20

OU ka 18, 26

Ee 17, 43, 44, 45

Federal Rules of Civil Procedure

4 ee 6, 15, 17, 26, 40, 45, 46, 47, 61

AER IVERE Mee Se SNe cls en ee PR 29

EEL EE Te RENE Oa ee er eT DS, Ne 25

Missouri Blue Sky Law, §409.411(e), Mo.Rev.

SP renniny Cenpmn O 60

New York Civil Practice Law and Rules §§901-09

SIIPTTTIDS -scssanbubbseeeiieaiedennictinh iain aa ant eaatiartais 53

TREATISES AND Law Reviews:

Crick, The Final Judgment as a Basis for Appeal,

Ae Se Tis TO GU vceitcreteteecccticerecccstercenotntines 19

Dole, The Settlement of Class Actions for Dam-

ages, 71 Colum.L.Rev. 971 (1971) 0.0.0...

Frankel, Amended Rule 23 from a Judge’s Point

of View, 32 A.B.A. Antitrust L.J. 295 (1966) .... 23

PAGE

Hazard, The Effect of the Class Action Device

Upon the Substantive Law, 58 F.R.D. 307 (1973) 54

Homburger, State Class Actions and the Federal

Rule, 77 Colum.L.Rev. 609 (1971) ........................ 54

Kalven & Rosenfield, The Contemporary Function

of the Class Suit, 8 U.Chi.L.Rev. 684 (1941) ........ 23, 33

Kaplan, Continuing Work of the Civil Committee:

1966 Amendments of the Federal Rules of Civil

Procedure (I), 81 Harv.L.Rev. 356 (1967) ........ 22, 47

Kaplan, A Prefatory Note, 10 B.C. Ind. & Comm.

ee fee re 22

3 Loss, Securities Regulation (2d ed. 1961) .. snieitineaial 47

9 Moore, Federal Practice (2d ed. 1975) ............ 19, 24, 32,

42, 43, 45

3 Newberg, Class Actions (1977) .......... 50

Note, Appealability of Class Action Dismissal:

The “Death Knell” Doctrine, 39 U.Chi.L.Rev. 403

SETETTIIE . -nssscpnsiielisdiamesaseevienteninndadibacssiantupediabmnshsnnanimibniniictiiins 22

Note, Interlocutory Appeals in the Federal Courts

Under 28 U.S.C. §1292(b), 88 Harv.L.Rev. 607

SEED semiseaninenmnnmnietiniasintninen

Weinstein, Revision of Procedure: Some Problems

in Class Actions, 9 Buffalo L. Rev. 433 (1960) ....

MISCELLANEOUS:

ABA, American Bar News, September 4, 1974 .... 53

American Bar Association Code of Professional

Responsibility :

DR 2-103(A) 35

DR 2-104(A) . 35

Advisory Committee’s Note to Proposed Rule 23

of Rules of Cwil Procedure, 39 F.R.D. 98 et seq.

eee 22, 28, 61

xii

1977 Annual Report of the Director, Administra-

tive Office of the United States Courts -..............

Association of The Bar of the City of New York,

Class Actions—Recommendations Regarding

Absent Class Members and Proposed Opt-In Re-

ES Ge erciteriiietichsirmnenatiditihinsiteanitasiinubineniins

Committee on Commerce, United States Senate,

Class Action Study, 93rd Cong. 2d Session

I i eee a ae 49, 50, 51,

Insurance, Negligence and Compensation Law Sec-

tion (ABA), Committee on Recommendations Re

Consumer Class Actions for Monetary Relief,

o£ 2 Ll: | eee

Miller, Problems in Administering Judicial Relief

In Class Actions Under Federal Rule 23(b)(3),

ES SE CIE ‘seritnnctinneeineniiiniianstniinattenivnnds

Moore, Federal Practice, Manual for Complex

II CERIIOED icceiscsesirninicsinirsscneesinsiccenhuintbibaiaeiligeibianl

52, 58

IN THE

Supreme Court of the United States

October Term, 1977

Tat

_——

No. 76-1836

Coopers & LyBranp,

Petitioner,

Cecu Livesay and Dororny Livesay,

Respondents.

No 76-1837

Punta Gorpa Isies, Inc., Wmuser H. Corz, Atrrep M.

Jouns, Ropert J. Barspez, Samuget A. Burcuers, Dr.

Russet, C. Faper, Jonn Mararese, Kopert C. Wane,

Eart Drayton Farr, Jr., Joun W. Doveuas, D.D.S.,

Petitioners,

Cecm Livesay and Dororny Livesay,

Respondents.

On Writs or CertTiorarRI TO THE UnitTep States Court

or APPEALS FOR THE EicHTH CrrcuIT

BRIEF FOR RESPONDENTS

Questions Presented

(a) With Respect to All Petitioners

Does an immediate appeal lie from an order decertifying

a class for alleged failure to prosecute where the Court of

Appeals concluded that it would not be economically feas-

ible for respondents to proceed on their individual claims,

and where important rights of respondents and other class

members would be irreparably lost absent an immediate

appeal?

(b) With Respect to Petitioner Coopers & Lybrand

Did the Court of Appeals act within its authority in (a)

ruling that the District Court had abused its discretion in

decertifying the class for an alleged failure to prosecute

when the delays in the litigation were actually caused by

petitioners and by the District Court, and (b) remanding

the case to the District Court for further proceedings con-

sistent with the Cireuit Court opinion?

Statement of the Case

(a) Proceedings to and Including Class Certification

In May 1972, petitioner Punta Gorda Isles, Ine. (“Punta

Gorda”) sold to the public approximately $18,088,000 worth

of common stock and debentures pursuant to a Registra-

tion Statement and Prospectus (“the Prospectus”). Re-

spondents Cecil Livesay (the Polics Chief of Glendale, Mis-

souri) and his wife, Dorothy Livesay, purchased securities

at the offering in reliance upon the Prospectus, and even-

tually sustained a $2,650.00 loss on their investment.* (A

116-17) In July 1973, respondents—then represented by

predecessor counsel—commenced this class action for dam-

ages resulting from purchases of such securities. The

action was brought solely on behalf of persons who pur-

chased on the offering itself, and the class was therefore

limited to persons who purchased on May 2 and 3, 1972.

(A 197)

The first amended complaint alleges that defendants vio-

lated various sections of the federal securities laws includ-

ing Sections 11, 12(2) and 17(a) of the Securities Act of

1933, 15 U.S.C. §§77k, 771(2), and 77q(a) and Section 10(b)

of the Securities Exchange Act of 1934, 15 U.S.C. §78j(b).

(A 23)** Defendants include Punta Gorda (a Florida land

development company), various individuals who were offi-

cers and directors of Punta Gorda, and Coopers & Lybrand

(“Coopers”), the accovnting firm which certified the finan-

cial statements in the Prospectus. (A 24-26)

Shortly after commencement of the action, respondents

filed an amended complaint, interrogatories, and document

production requests, and certain defendants served inter-

rogatories on respondents. Answers, objections and re-

*In its next Annual Report to Shareholders after the offering,

Punta Gorda restated earnings reported in the Prospectus, writing

down its 1970 net income by $1,039,700 (approximately two-thirds

of 1970 net income), and writing down its 1971 income by $1,392,159

(approximately 40% of 1971 net income). (A 30)

** The first amended complaint alleges that the Prospectus was

materially misleading, inter alia, in (a) failing to report results of

operations and financial condition fairly and in accordance with

generally accepted accounting principles and generally accepted

auditing standards; and (b) failing to reveal the extent to which

Punta Gorda’s profitability had been and would be adversely

affected by ecological regulation which impaired Punta Gorda’s

ability to develop canal front homesites. (A 28-35)

sponses were filed by all parties by mid-February 1974 and

respondents noticed a deposition in March 1974. (A 1-5)

On April 11, 1974, respondents moved for an order de-

termining that the action proceed as a class action. (A 85)

Shortly thereafter, petitioners took respondents’ deposi-

tions on all issues relating to class certification and to

respondents’ contentions on the merits. Extensive inquiry

was made into the amount of respondents’ loss, financial

resources, anticipated expenses of the litigation, and in-

tention to continue the litigation if class certification was

denied. (£.g., A 57-58, 60, 62-70, 72-75, 78-81)* Immedi-

ately upon conclusion of such depositions, Coopers moved

to stay all discovery other than discovery relating to the

class action determination. District Judge Wangelin grant-

ed Coopers’ motion on May 14, 1974. (A 6, 86)

On May 20, 1974 Coopers moved to dismiss the class

action allegations in the amended complaint (A 7), and

the class motion was argued to the District Court on June

24, 1974. (A 87) Petitioners maintained that an eviden-

tiary hearing should be held on the class issue but the Dis-

trict Court did not make such ruling.** Although on July 16,

1974, the District Court denied Coopers’ motion to dismiss

the class action allegations, respondents’ application for

class determination remained sub judice. (A 91-93) Faced

with delay in the decision on the class motion, respondents

filed a motion for dissolution of the stay on discovery on

* See detailed discussion below, pp. 35-36.

** Judge Wangelin made no direction concerning an evidentiary

hearing at the oral argument but indicated that he might provide

a future direction in this regard, stating “my present thinking

about the matter at this point’’ was that, ‘‘if I decide .. . [the ques-

tion whether reliance is an individual issue affecting manageability |

for you [i.e., in favor of respondents] then I think we’ll have a

hearing.’’ See Transcript, June 24, 1974, p. 37. However, Judge

Wangelin did not order a hearing in his subsequent decision which

rejected petitioners’ arguments concerning reliance. (A 91-93)

September 4, 1974 which was denied on September 23, 1974.

(A 96, 100)

Petitioners continued to seek an evidentiary hearing, and

on September 26, 1974, respondents’ counsel requested a

conference with Judge Wangelin to discuss the need for

such a hearing. (A 101) This request was respondents’

second attempt to obtain direction from the District Court

concerning the need for such a hearing. (See A 99)

A week later, Coopers moved for reconsideration of the

District Court’s July 16, 1974 order which had refused to

dismiss the class action allegations. (A 94) Such motion

was filed even though the class motion had been argued

and continued sub judice, and despite the lack of any new

developments in the case.

Thus, by early November 1974, the lawsuit was for all

practical purposes stayed in its entirety without resolution

of the class motion which had been argued five months

earlier and without resolution of the evidentiary hearing

question. Consequently, respondents filed a petition for a

writ of mandamus on November 1, 1974 requesting the

Eighth Cireuit Court of Appeals to order Judge Wangelin

to lift the stay on discovery. (A 103) On November 15,

1974, the Eighth Circuit denied the petition for a writ of

mandamus, but directed that:

“ _. petitioner [i.e., respondents herein] should request

a prompt ruling on its 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 should then promptly rule

on petitioner’s motion and remove its stay order and

thereafter permit discovery to proceed om the merits,

postponing the actual trial date in order to permit

necessary discovery.

“We are satisfied that the trial court will act in compli-

ance with the views of this Court, and, therefore, we

now deny the petition for writ of mandamus.” (em-

phasis added). (A 107-08)

As a result of the Eighth Circuit’s Order, an evidentiary

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

At that hearing testimony was presented concerning the

extent of respondents’ loss, financial position, anticipated

litigation expenses, and their intention to pursue the liti-

gation if class status was denied. (E£.g., A 117, 119-21, 125-

26, 128-145)* At the conclusion of the evidentiary hearing,

District Judge Wangelin stated that an immediate appeal

would be appropriate if he refused to certify the class:

“I’m sure you’ve all heard of the quote Death Knell

Doctrine, and assuming, without deciding, that I rule

against a class action, I think the record should be in

such shape that plaintiffs could 1291 it, and go up to the

Eighth Circuit and get an opinion. .. .” (A 166)

Notwithstanding the Eighth Circuit’s instruction that the

class motion be decided promptly, the District Court did

not decide the class motion until June 19, 1975 (A 168-172)

—approximately one year after it was argued and seven

months after the Eighth Circuit urged a prompt decision.

Judge Wangelin’s opinion certifying the class expressly

found that plaintiffs were adequate representatives of the

class, that “common questions clearly predominate in this

lawsuit”, and that “this action may be maintained as a class

[sic] pursuant to Rule 23... .” (A 169-70). Judge Wangelin

also held, however, that new counsel was required for the

class representatives because their existing counsel had a

* See detailed discussion below, pp. 35-36.

OQ ge

possible conflict of interest in his continuing relationship

with one of Punta Gorda’s underwriters.* (A 170-72).

(b) Proceedings Subsequent to Class Certification

Respondents’ original counsel voluntarily withdrew from

the action, and their present counsel appeared on June 30,

1975. (A 12) In subsequent proceedings there developed a

pattern of District Court acquiescence in repeated requests

by petitioners for reconsideration of prior decisions and for

delay in implementing the Eighth Circuit’s mandate to lift

the stay on discovery. In addition, the District Court im-

properly directed respondents to name additional defen-

dants and rendered further decisions which had as a prac-

tical effect the failure of this action to move beyond

questions of class certification and into discovery on the

merits.

Consistent with the prior direction of the Eighth Circuit,

respondents again moved to dissolve the stay on discovery

on July 25, 1975. (A 175) Coopers opposed such motion and

* The Prospectus listed the underwriter involved—I.M. Simon &

Co.—as one of the 51 firms in the underwriting syndicate; the

seller of $125,000 principal amount of debentures out of a total of

$15 million of debentures being offered; and the seller of 1,500

shares of stock out of a total of 171,570 shares being offered. The

record indicates that since 1969 respondents’ predecessor counsel

had performed certain legal services for IM. Simon & Co. on

matters unrelated to this litigation. (A 153-54) The record also

indicates that Coopers’ counsel, Bryan Cave McPheeters & Mce-

Roberts, also represented I.M. Simon & Co. during the same period

on various matters. (A 153-54) In addition, Panta Gorda’s present

counsel, Peper Martin Jensen Maichel and Hetlage, represented

the underwriters including I.M. Simon & Co. (not Punta Gorda) in

connection with the very offering at issue in this litigation. (See

A 182) Despite such special access to information concerning the

responsibility of the underwriters, counsel for petitioners failed to

assert any third party claims for contribution or indemnification

against the underwriters, but instead argued that respondents were

inadequate class representatives for failing to sue petitioners’ at-

torneys’ own clients.

sought still further reconsideration of class issues, request-

ing a statement from counsel concerning their intent to join

underwriters as additional defendants, and seeking recon-

sideration of questions already decided concerning the ade-

quacy of respondents as class representatives.* (See A 178-

180).

In reply, respondents stated their intention not to name

additional defendants. Respondents stressed that the class

would not be prejudiced thereby, since the instant defen-

dants had sufficient means to satisfy any judgment obtained

against them and were in counsel’s opinion those persons

and entities primarily liable for the damages sustained by

the class. Moreover, the underwriters could be required to

provide relevant discovery even if they were not joined as

defendants. Respondents also indicated concern that such

joinder might not be timely since this action had been

pending since 1973. (A 183)

On October 23, 1975, the District Court denied respon-

dents’ motion to lift the stay on substantive discovery on

the ground that respondents had failed to join the under-

writers. The District Court ordered respondents to join

such additional parties subject to reconsideration by the

* Coopers sought to reopen the question of the willingness of

Chief and Mrs. Livesay to vigorously prosecute the action and to

meet their financial responsibilities as class representatives despite

Judge Wangelin’s express ruling subsequent to an evidentiary

hearing and extensive briefing of such issues that respondents would

be adequate representatives. Coopers also questioned the back-

ground and experience of respondents’ new counsel (Milberg &

Weiss) despite the fact that the firm had been appointed lead or

general counsel in numerous securities class actions (See A 181-82)

and that Melvyn I. Weiss, the partner in charge of this litigation,

was then scheduled to serve, together with two representatives of

Coopers, as a faculty member of a Practicing Law Institute

Seminar on “Accountants’ Liability: Law and Litigation” to be

held in Los Angeles and New York City in October 1975. (See A

182) Raising such issues served no purpose except to delay the

litigation.

a Ne

Court if respondents sought an im camera conference. (A

186-190). Judge Wangelin did not in that opinion decertify

the action as a class action, but instructed that a form of

notice of pendency of class action be prepared which would

invite class members to petition for appointment as new

class representatives. (A 188) Judge Wangelin also held

that he would not decide which issues were suitable for class

action treatment until the expiration of the period of time

given in the notice for class members to opt out or enter an

appearance so as to provide ‘‘any class member who may

appear an opportunity to be involved in this determina-

tion.” (A 189)

On November 4, 1975 a conference was held for the pur-

pose of further considering respondents’ reasons for not

joining the underwirters.* At such conference, respondents

reiterated the reasons described above and advised the

Court of their opinion that any claims against underwriters

had been barred by the statutes of limitations prior to the

date upon which present counsel appeared. Despite such

representations, Judge Wangelin persisted in his decision

to distribute the form of class notice outlined in his Octo-

ber 23, 1975 decision. (A 194-199).

In such decision, Judge Wangelin had directed that pro-

posed forms of notice of pendency be submitted to him

within thirty days. (A 190) In an effort to expedite this

process, counsel for respondents agreed upon a joint form

of notice with counsel for Punta Gorda.** Proposed notices

of pendency were submitted to Judge Wangelin in Novem-

ber 1975 (A 14). Judge Wangelin did not mail his proposed

notice of pendency to counsel until March 1, 1976. (A 193)

On April 9, 1976, the District Court mailed to all counsel

the final form of notice of pendency (A 194-199), which

* No transcript was made of that conference.

** Counsel for Coopers refused to participate in a joint notice

and submitted their own proposal.

form contained certain provisions to which respondents had

previously objected. (A 212-214) Such provisions included

a statement that no particular questions would be certified

for class treatment until after the deadline expired for

opting out or intervening. (A 197)

On October 23, 1975, when requesting forms of notice of

pendency, Judge Wangelin had lifted the stay upon dis-

covery only to permit discovery of class members’ names

and addresses. (A 189) In accordance with prior practice

respondents had planned to notify the class by sending

first class mail to persons who were record owners of the

relevant securities. Long before the October 23, 1975 order

respondents had arranged to obtain such information in-

formally through the cooperation of Punta Gorda’s counsel.

(See A 176-177) The notification procedure anticipated had

been utilized widely in securities class actions, and review

of transfer records with the cooperation of defendants had

been and remains a standard practice for identifying re-

cipients of the notice. (See discussion below on p. 58, n.**)

Indeed on September 7, 1977 Judge Wangelin himself ap-

proved precisely such a procedure for identifying and pro-

viding notice to the class members.*

On April 20, 1976, promptly after receiving the final form

of notice of pendency, respondents asked counsel for Punta

Gorda to furnish the names and addresses of the initial

registered owners (after the underwriters) of the relevant

securities pursuant to respondents’ prior understanding

that such information would be provided. Punta Gorda re-

plied by letter dated April 21, 1976 (A 215-216) that it

could not produce the relevant addresses because such ad-

dresses were in the possession of Punta Gorda’s transfer

agent. Such a reply can only be considered a delaying

tactic, since Punta Gorda, as principal, had the authority

* Judge Wangelin’s September 7, 1977 Order is set forth as Ap-

pendix A hereto.

to direct its transfer agent to produce the requested docu-

ments.” Punta Gorda’s counsel also indicated an unwill-

ingness to furnish transfer records on the ground that

certain record owners might not be beneficial owners or

class members (A 215-216), thus ignoring the fact that

under any notice program review of the transfer records

is a necessary and standard practice.

Faced with Punta Gorda’s continuing refusal to produce

the necessary transfer records, respondents in early July

sought a conference with Judge Wangelin to resolve the

issue. The conference was held on July 26, 1976. To assure

that the record reflected respondents’ outstanding discovery

requests, respondents served on Punta Gorda their Second

Request for Production of Documents, which formally re-

quested the types of documents already requested and

refused. (A 200) At the July 26, 1976 conference, Judge

Wangelin directed respondents to serve papers in support

of such production request** and respondents’ memorandum

in support of such request was filed on August 8, 1976. (A

15) The propriety of respondents’ document production

request, respondents’ proposed method of notice, and Punta

Gorda’s objections*** had not yet been decided by Judge

Wangelin when on September 1, 1976 he decertified the

action as a class action. (A 15-16)

* A representative of the transfer agent for Punta Gorda stock

had testified at the evidentiary hearing on the class motion that

the transfer agent could only *roduce such information at the

direction of Punta Gorda. (A 112)

** See Transcript of Conference in Chambers, July 26, 1976,

pp. 22-24.

*** Punta Gorda’s Brief is incorrect in stating that Punta Gorda

never objected to producing the transfer records of the initial

registered owners but only to producing such records without pay-

ment. Punta Gorda Brief, pp. 10-13, n.3, In fact, Punta Gorda

filed formal objections to respondents’ document production request

which expressly refused to provide transfer records on the ground

that “such documents are not in defendants’ custody” and that

respondents should obtain such documents “from the appropriate

persons.” (A 205-206)

(ce) District Court Decertification of This Action as

a Class Action

Not until respondents sought Court assistance in com-

pelling production of the relevant transfer records did

Coopers serve its motion to decertify the class. (A 201)

In accord with past practice by petitioners, Coopers’ mo-

tion relied heavily on arguments against class status pre-

viously raised by petitioners and previously rejected by

Judge Wangelin.*

In contrast to the substantial periods of time required

for determination of the class motion and form of notice

of pendency, Judge Wangelin ruled promptly on Coopers’

motion and decertified the class on September 1, 1976. (A

207) In his Memorandum decertifying the class, Judge

Wangelin relied solely on alleged undue delay by respon-

dents as a basis for decertification, and characterized the

motion as follows:

“The basis of the various defendants’ motion is that

the plaintiffs, as class representatives, are failing to

prosecute this action, and are therefore denying the

defendants a right to a speedy adjudication of the

claims against them.’’ (Pet. Cert., p. A-7).**

* Such grounds included an alleged unreasonable delay by respon-

dents’ former counsel in filing the class motion and seeking an

evidentiary hearing, failure to sue the underwriters, and an

alleged lack of manageability of the case as a class action (A 201-

204. See A 167; Coopers Suggestions in Support of Defendant’s

Motions, filed August 20, 1975; Post Hearing Memorandum of

Coopers in Opposition to Plaintiffs’ Motion for a Determination

that this Action may Proceed as a Class Action, filed April 10,

1975). The one new ground raised by Coopers was an alleged

unreasonable delay by respondents in seeking to identify the names

and addresses of class members. (A 202-203)

es References to ‘‘Pet. Cert.’’ are to pages of the Appendix to the

Petition for Certiorari of Punta Gorda, et al.

Judge Wangelin further remarked:

“The defendants are merely seeking, as is their right,

to have a speedy adjudication of the claims against

them.” (Pet. Cert., p. A-8)

Not until Judge Wangelin decertified the class did he

lift the stay on substantive discovery. (A 207) Prior to

the decertification motion, respondents’ present counsel

had unsuccessfully attempted to persuade the District

Court to lift the stay in applications filed on July 25, 1975

and on November 26, 1975. (A 175, 191-192) Respondents’

last attempt to lift the stay was in a cross-motion to

Coopers’ motion to decertify on August 16, 1976. (A 15)

Subsequent to the Eighth Circuit’s reversal of the de-

certification order, respondents’ efforts to move the action

forward on the merits have again been blocked by the

District Court. On December 7, 1977, the District Court

on its own motion stayed all further proceedings and mo-

tion practice pending determination of the issues before

this Court.* Among the motions which will not be decided

until such stay is lifted is respondents’ motion (served

August 9, 1977) to compel production of documents and

interrogatory answers from petitioners. Until that motion

is decided, Coopers will have successfully avoided produc-

ing even one scrap of paper in this litigation despite per-

sistent efforts by respondents to obtain discovery during

a period of over four years.

(d) Disposition on Appeal

Respondents sought relief in the Court of Appeals both

by appeal (A 208) and by filing a Petition for a Writ of

* Judge Wangelin’s December 7, 1977 Order is annexed hereto

as Appendix B.

Mandamus. Respondents predicated their right to an im-

mediate appeal on the “death knell” and “collateral order”

doctrines and on the interpretation of 28 U.S.C. 41291 set

forth in Gillespie v. United States Steel Corp., 379 U.S.

148, 152-54 (1964).

The Eighth Circuit held unanimously that it had juris-

diction to review the decertification decision under 28

U.S.C. §1291 because the decertification sounded the “death

knell’’ of the action; reversed the decertification order as an

abuse of discretion; and dismissed the mandamus petition

as moot. (Pet. Cert., pp. A-10 through A-21; 550 F.2d at

1106-13) Application of the death knell doctrine was based

on the extensive material in the record concerning the size

of respondents’ loss, respondents’ financial condition, and

anticipated costs and expenses of the litigation. The Court

noted that extensive discovery in Florida would be required

and that utilization of expert testimony was indicated. (Pet.

Cert., p. A-13 through A-16; 550 F.2d at 1109-10)

On the merits, the Court of Appeals carefully analyzed

the three periods of alleged delay upon which the decertifi-

cation order was based, and unanimously concluded that

Judge Wangelin’s finding of undue delay by respondents

was “wholly unsupported by the record.” (Pet. Cert., p.

A-16 through A-20; 550 F.2d at 1110-1112) To the con-

trary, the Eighth Circuit concluded that the undue delay

in the case was in large part caused by defendants and was

also attributable to the District Court. (Pet. Cert., p. A-19

to A-20; 550 F.2d at 1112)

In consequence, the Court of Appeals reversed the order

decertifying the class, and remanded the case “for further

proceedings consistent herewith”. (Pet. Cert., p. A-21; 550

F.2d at 1113)

o—_ -—- —s >--

Summary of Argument

The death knell doctrine is fully consistent with this

Court’s “intensely practical” interpretation of the final de-

cision rule—an approach designed to assure that technical

notions of finality do not effectively deprive litigants of

their right to appeal important issues. Respondents can-

not proceed absent an immediate appeal because an action

based on their individual claim would be economically im-

practicable. Lack of economic viability is a proper reason

for treating denial of class status as a final decision, since

the drafters of Rule 23(b)(3) of the Federal Rules of Civil

Procedure recognized that economic realities would pre-

vent small claim-holders from bringing suit on their indi-

vidual claims unless the suit could be brought as a class

action. Absent the right of immediate appeal, respondents

would be required to proceed regardless of the economic

viability of their individual claim. If Respondents do not

proceed, they would be subject ¢o dismissal for lack of

prosecution and would apparently be precluded from rais-

ing the class issue on an appeal from such a dismissal.

The record in the District Court strongly supports the

Eighth Circuit’s finding that respondents could not proceed

on their individual claim, and that no other class members

have appeared for the purpose of continuing the litigation.

Rejection of the death knell doctrine would conflict with

the purposes of the final decision rule and Rule 23 by

fostering multiplicity of litigation and piecemeal appeals.

Such evils would result from encouraging intervention by

absent class members (who may after intervening settle

their individual claims and not seek class relief, thereby

creating a need for new intervenors to protect the class) or

from commencement of new actions in other jurisdictions.

Rejecting the death knell doctrine would also have the

undersirable effect of facilitating ‘‘one way intervention.’’

The version of the death knell doctrine enunciated in

Hooley v. Red Carpet Corp., 549 F.2d 643 (9th Cir. 1977)

would also produce multiplicity of litigation, since it en-

tails efforts to encourage intervention. The Hooley ap-

proach also suffers from the difficulty of identifying claims

which are large enough to be viable in light of the enormous

expenses required to litigate a substantial claim under the

federal securities laws against large and well financed

entities. Such approach would greatly complicate the liti-

gation by requiring extensive discovery and, perhaps, dis-

semination of special notices to absent class members.

The death knell doctrine does not discriminate against

class action defendants. Whereas respondents will have no

opportunity to appeal at a later date because they cannot

proceed on their individual claim, petitioners can appeal

from a grant of class status after a final judgment on

the merits. Petitioners’ argument in this regard is really

a part of their argument that class actions are unfair to

defendants because of an alleged in terrorem effect. Such

argument is unsupported by the actual experience with

class actions and by the record herein. It also ignores the

significant in terrorem effect exerted on small claim-holders

by the ability of large defendants in class actions to devote

extensive resources to the defense of claims brought against

them.

Respondents’ right to an immediate appeal is supported

by the collateral order doctrine, since the order below

was a final determination of respondents’ right to serve

as class representatives, review of the merits was un-

necessary on appeal, and class members will be denied

important rights irretrievably absent an immediate appeal.

Lack of an immediate appeal would force class members

who would prefer to exercise their right under Rule 23 to

remain passive, to intervene after decertification to protect

their individual claims against the running of the statute

of limitations. Furthermore, absent class members may

have no standing to raise the class issue on a later appeal

if respondents were to settle their individual claim prior

to any determination of the merits while the action was

decertified.

In light of the fundamental importance of the class issue

in this litigation and the District Court’s statement that an

immediate appeal would be appropriate if it denied class

certification, the Eighth Circuit also had jurisdiction to

hear the appeal under Gillespie v. United States Steel

Corp., 379 U.S. 148 (1964).

Limiting the opportunity for an immediate appeal to the

procedure set forth in 28 U.S.C. §1292(b) would be inappro-

priate. Such a rule would subject respondents’ appeal to

a double layer of judicial discretion when the appeal should

be as of right.

If the Court should rule that the Eighth Circuit had no

jurisdiction to hear the appeal, respondents request that

the Court remand the case to the Eighth Circuit for con-

sideration of respondents’ mandamus petition which the

Eighth Cireuit dismissed as moot on granting appellate

relief.

The Eighth Circuit correctly held that decertification for

failure to prosecute was “wholly unsupported by the rec-

ord.” The District Court based its order on plainly erron-

eous findings of fact concerning respondents’ activities

while totally ignoring petitioners’ persistent efforts to de-

lay, the District Court’s own acquiescence in such efforts,

and the District Court’s own delays in resolving important

issues.

The Eighth Circuit did not interfere with District Court

discretion by reversing the order below and remanding for

further proceedings consistent with its opinion. Since the

District Court had previously certified the class, the effect

of the Eighth Circuit’s decision was not to certify a class in

the first instance or to interfere with District Court dis-

cretion, but only to reestablish the class which had been

earlier certified by the District Court.

Finally, Coopers’ argument that the class should be de-

certified for reasons other than those cited by Judge Wan-

gelin is ill founded. The contention that the class was in-

jured by respondents’ failure to sue underwriters has no

support in the record and is inconsistent with petitioners’

own failure to implead the underwriters. The argument

that common issues do not predominate and that the case is

unmanageable as a class action is untenable in light of the

numerous cases certified as class actions where the class

period was far longer in duration than the two day class

period involved here and where many more misleading

documents were involved than the one Prospectus involved

in this action.

ARGUMENT

The Court of Appeals Had Jurisdiction to Consider

Respondents’ Appeal From the Order Decertifying the

Class.

1. This Court Has Stressed a Practical Interpretation of

28 U.S.C. §1291 Aimed at Avoiding Piecemeal Ap-

peals, Achieving Economy of Litigation, and Protecting

Substantial Rights of Litigants

28 U.S.C. §1291 provides in relevant part as follows:

“The courts of appeals shall have jurisdiction of appeals

from all final decisions of the district courts of the

United States, ....”

This Court has repeatedly recognized and implemented

Justice Jackson’s statement that:

“it is a final decision that Congress has made reviewable.

28 U.S.C. §1291. 28 U.S.C.A. §1291. While a final judg-

ment always is a final decision, there are instances in

which a final decision is not a final judgment.” Stack

v. Boyle, 342 U.S. 1, 12 (1951) (separate opinion) (em-

phasis in original), cited in Abney v. United States,

431 U.S. 651, 658 (1977).

While the “final decision” rule is aimed at achieving econ-

omy of litigation and avoidance of piecemeal appeals,* this

Court has often emphasized that the finality requirement

must be given a practical rather than a technical construc-

tion. E.g., Abney v. United States, supra, 431 U.S. at 658;

Eisen v. Carlisle & Jacquelin (‘‘ Eisen IV’’), 417 U.S. 156,

170-71 (1974); Cohen v. Beneficial Industrial Loan Corp.,

337 U.S. 541, 546 (1949).

Justice Frankfurter has stressed that the final decision

rule “is not a technical concept of temporal or physical

termination,” but is “the means for achieving a healthy

legal system” by preventing appeals which cause courts

“ ‘to halt in the orderly progress of a cause and consider

incidentally a question which has happened to cross the

path of such litigation. .. .’” Cobbledick v. United States,

supra, 309 U.S. at 326, citing Segurola v. United States, 275

U.S. 106, 112 (1927). In the same opinion, Justice Frank-

furter also emphasized the importance of not making the

doctrine of finality a means of denying any appellate re-

* E.g., Catlin v. United States, 324 U.S. 229, 233-34 (1945);

Cobbledick v. United States, 309 U.S. 323, 324-26 (1940) ; 9 Moore,

Federal Practice 4110.07, pp. 107-09 (2d ed. 1975). See Crick, The

Final Judgment as a Basis for Appeal, 41 Yale L.J. 539, 540, 550-51

(1932).

view on an issue of critical importance to the litigation. 309

U.S. at 328-29.

This Court’s “intensely ‘practical’ ”’* approach to finality

is reflected in various categories of cases where appeals

-are allowed despite the lack of a final judgment terminat-

ing the entire litigation. Thus, a decision may be final

when it effectively denies a litigant his day in Court by

making further litigation economically impracticable. Rob-

erts v. United States District Court, 339 U.S. 844 (1950)

(denial of application to proceed in forma pauperis) (see

discussion below, p. 24). The “collateral order doctrine’’

is applied to prevent effective loss of the right to appeal

from important decisions which do not terminate the entire

litigation and which do not involve consideration of the

merits. E.g., Swift € Company Packers v. Compania Co-

lombiana del Caribe, 339 U.S. 684 (1950); Cohen v. Bene-

ficial Industrial Loan Corp., supra.

The Court has also recognized that the goal of economy

of litigation may require in certain situations an imme-

diate appeal from a decision which neither terminates the

litigation nor is totally unsusceptible to review at a later

time. E.g., United States v. Nixon, 418 U.S. 683, 692 (1974)

(protracted litigation avoided by not requiring citation

for contempt as basis for appeal); Brown Shoe Co. v.

United States, 370 U.S. 294, 306-308 (1962) (issues still

to be litigated sufficiently independent of the critical issues

already resolved to make immediate review appropriate).**

* Mathews v. Eldridge, 424 U.S. 319, 331 n.11 (1976).

** This Court has also applied such considerations in taking

jurisdiction of appeals from state court litigation under 28 U.S.C.

§1257 at a time when substantial additional proceedings are pend-

ing in the state courts and the federal issue could in fact be ap-

pealed at a later date. See discussion in Cox Broadcasting Corp. v.

Cohn, 420 U.S. 469, 477-81 (1975); Mills v. Alabama, 384 U.S.

214, 217-18 (1966).

The above-cited interpretations of the final decision rule

strongly support the conclusion that an immediate appeal

from an order denying class status is proper if the plaintiff

is a small claim-holder who for economic reasons cannot

proceed on his individual claim unless the case is a class

action. As shown below, denial of a right to appeal herein

would conflict with the purposes of the final decision rule

by denying litigants like respondents any meaningful ap-

pellate review of their right to prosecute their individual

claims and by increasing rather than decreasing the likeli-

hood of multiplicity of litigation and piecemeal! appeals.

2. The Death Knell Doctrine Was a Proper Basis For

Appellate Jurisdiction Under 28 U.S.C. §1291

(a) The Death Knell Doctrine Is Fully Consistent With

the Purposes of the Final Decision Rule

The Eighth Circuit based its jurisdiction on the death

knell doctrine (Pet. Cert., pp. A-13 through A-16; 550 F.2d

at 1109-10), under which doctrine various courts of appeals

have recognized the right to an immediate appeal from a

denial of class status when the named plaintiff’s claim is

so small as to render continued prosecution of the claim

impracticable. E.g., Ott v. Speedwriting Publishing Co.,

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

ford, 511 F.2d 363, 366-67 (D.C. Cir.), cert. dented, 423

U.S. 828 (1975); Graci v. United States, 472 F.2d 124, 126

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

lisle & Jacquelin (‘‘Eisen I’’), 370 F.2d 119, 120-21 (2d

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

* The Seventh and Third Circuits have rejected the death knell

doctrine and limited the possibility of an immediate appeal from

denial of class status where no injunction is sought to situations

where the plaintiff obtains a District Court certification of an

appeal under 28 U.S.C. §1292(b). E.g. Anschul v. Sitmar Cruises,

Inc., 544 F.2d 1364, 1366-69 (7th Cir.) cert. denied, 429 U.S. 907

(1976) ; Katz v. Carte Blanche Corp., 496 F.2d 747, 752-56 (3rd

The death knell doctrine is not an exception to the final

decision rule. It is rather a proper and necessary applica-

tion of that rule in a situation where court proceedings are

in fact at an end absent an immediate appeal despite the

lack of a final judgment. Thus, in the opinion which first

formulated the death knell doctrine, the Second Circuit

recognized that plaintiff’s claims would ‘‘never be adjudi-

cated” unless an immediate appeal from denial of class

status was allowed. Eisen I, 370 F.2d at 120. See also,

Note, Appealability of Class Action Dismissal: The ‘‘ Death

Knell’’ Doctrine, 39 U.Chi.L.Rev. 403, 406 (1972).

Petitioners argue that the Third and Seventh Circuit

approaches are correct because in their view economic

inability to proceed cannot render the decertification a

final decision (Coopers’ Brief, pp. 21-22). Such an argnu-

ment ignores the fact that a major purpose of the framers

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

was to open the courts to small claimants who could not

afford to bring suit on an individual basis. F.9., Eisen v.

Carlisle & Jacquelin (‘‘ Eisen II’’), 391 F.2d 555, 560 (2d

Cir. 1968); Advisory Committee’s Note to Proposed Rule

23 of Rules of Civil Procedure, 39 F.R.D. 98, 104 (1966)

(‘‘the amounts at stake for individuals may be so small

that separate suits would be impracticable’’); Kaplan, A

Prefatory Note, 10 B.C. Ind. & Comm. L. Rev. 497 (1969) ;*

Kaplan, Continuing Work of the Civil Committee: 1966

Amendments of the Federal Rules of Civil Procedure (1),

Cir.) (en banc), cert. denied, 419 U.S. 885 (1974). The Ninth Cir-

cuit has adopted a special version of the death knell doctrine in

which the plaintiff must show that ‘‘it is highly unlikely that any

member of the purported class has a claim justifying separate litiga-

tion.” Hooley v. Red Carpet Corp., 549 F.2d 643, 645 (9th Cir.

1977) (emphasis added).

* Justice (then Professor) Kaplan was the Reporter to the

Advisory Committee during the 1966 revision of Rule 23.

81 Harv.L.Rev. 356, 397-98 (1967).* Stripping a small

claim-holder of the right to bring a class action is thus a

final decision on his individual claim since implicit in the

enactment of Rule 23(b) (3) is the recognition that, but for

the right to proceed in a class action, the small claim-holder

cannot proceed at all. As this Court noted in Eisen IV,

supra, 417 U.S. at 161:

“A critical fact in this litigation is that petitioner’s

individual stake in the damages award he seeks is

only $70. No competent attorney would undertake this

complex antitrust action to recover so inconsequential

an amount. Economic reality dictates that petitioner’s

suit proceed as a class action or not at all.” (emphasis

added) **

The Second Circuit has regarded the death knell doctrine

as one specific application of the collateral order doctrine.

E.g., Eisen I, 370 F.2d 120-21. The death knell doctrine

does in fact meet all the requirements of the collateral

order doctrine, since the order below finally determines an

important claim of right, review of which does not involve

the merits of the acticu, in a context where denial of an

* Earlier expressions uf concern over the plight of small claim

holders which influenced the development of Rule 23 are set forth

in Weinstein, Revision of Procedure: Some Problems in Class

Actions, 9 Buffalo L.Rev. 433, 434-5 (1960) ; and Kalven & Rosen-

field, The Contemporary Function of the Class Suit, 8 U.Chi.L.Rev.

684, 684-86 (1941). Judge Frankel has recognized that the views

of the Advisory Committee on Civil Rules with respect to Rule 23

were “strongly influenced” by the above article by Judge Weinstein.

Frankel, Amended Rule 23 from a Judge’s Point of View, 32 A.B.A.

Antitrust L.J. 295, 298 (1966).

** This Court affirmed appellate jurisdiction in Eisen IV on the

ground that an order concerning the allocation of the cost of a

class notice came within the collateral order doctrine. In conse-

quence it was unnecessary for this Court to consider whether the

death knell doctrine was also a proper basis for appeal. 417 U.S.

at 169-72.

immediate appeal is tantamount to denial of any appeal.

See Cohen v. Beneficial Industrial Loan Corp., supra.*

In Roberts v. United States District Court, supra, this

Court applied a similar analysis and cited Cohen v. Bene-

ficial Industrial Loan Corp., supra, in holding that ‘‘the

denial by a District Judge of a motion to proceed in forma

pauperis is an appealable order.’’ 339 U.S. at 845. Roberts

has generally been interpreted to be based on the litigant’s

right to appeal from an order which makes it economically

impracticable for him to proceed. E.g., Trustees of Joint

Welfare Fund v. Nolan, 549 F.2d 871, 873 (2d Cir. 1977);

Flowers v. Turbine Support Division, 507 F.2d 1242, 1244

(5th Cir. 1975); Spires v. Bottorff, 317 F.2d 273 (7th Cir.

1963), cert. denied, 379 U.S. 938 (1964).°*

Coopers also errs in arguing that the decertification

order cannot be a final decision because Rule 23(c)(1) pro-

vides that “an order under this subdivision may be condi-

tional, and may be altered or amended before the decision

on the merits.” The decision that respondents were inade-

quate class representatives because of an alleged failure to

prosecute is not conditional, since it is not predicated on

facts which can change during the further course of the

litigation.

* Respondents submit that the requirements of Section 1291 are

met herein without regard to whether the death knell doctrine

falls within the collateral order doctrine or is a ‘‘distinct but com-

patible’’ test for appealability. See discussion in Share v. Air Prop-

erties G. Inc., 538 F.2d 279, 281 (9th Cir.), cert. denied, 429 U. S.

923 (1976).

** See also discussion by Judge Rosenn, dissenting, in Hackett v.

General Host Corp., 455 F.2d 618, 627, 630-31 (3d Cir.), cert.

denied, 407 U.S. 925 (1972). Professor Moore regards the decision

in Roberts as

“justifiable quite apart from the Cohen rationale. Unlike the

order in Cohen, such orders effectively end, not simply a

collateral claim, but the whole claim or right asserted.” 9

Moore, Federal Practice, $110.10, p. 134 (2d ed. 1975). —

Unless respondents are entitled to an immediate appeal

from a denial of class status, they would apparently be re-

quired to proceed in the District Court on an individual

basis regardless of the economic viability of the law suit.

If they fail to proceed they risk being dismissed for lack of

prosecution and may lose any right to raise the propriety of

the denial of class status on appeal from such dismissal.

See, Eisen I, supra, 370 F.2d at 120.* See also, Marshall v.

Sielaff, 492 F.2d 917, 919 (3d Cir. 1974).**

Furthermore, rejection of the death knell doctrine would

enhance rather than reduce the likelihood of piecemeal

appeals. If respondents’ claims are dismissed for lack of

prosecution and some other class member intervenes for

the purpose of appealing the class denial, the likelihood is

* Coopers cites United States v. Procter & Gamble Co., 356 U.S.

677 (1958) and Thomsen v. Cayser, 243 U.S. 66 (1917) incorrectly

for “the proposition that the named class representative himself

may convert an adverse interlocutory class certification order into

an appealable final ju ~ yet if he voluntarily dismisses his indi-

vidual action under Rule 41(a).’’ Coopers’ Brief, p. 30 n.20. In

both actions the dismissal of the case was a discretionary act by a

District Court which converted an application for a voluntary dis-

missal into an involuntary one, thereby according the plaintiff an

immediate appeal. Dependence upon District Court discretion in

this regard is an insufficient substitute for a plaintiff's right to

appeal under 25 U.S.C. §1291 if the denial of class certification is

in fact a final decision effectively terminating the litigation. The

opinions in the two cases cited by Coopers reveal that such dis-

missals are not appealable if they are regarded as voluntary

dismissals under Rule 41(a), but only if the Court of Appeals is

willing to regard them as involuntary because of their connection

with an adverse result sustained by appellants in the District

Court. See 356 U.S. at 680-81; 243 U.S. at 83.

**In Marshall v. Sielaff, supra, plaintiff refused to proceed to

trial because the Court would not issue a writ of habeas corpus ad

testificandum. The Third Circuit affirmed the resulting dismissal

for failure to prosecute and refused to consider whether the

District Court’s failure to issue the writ was error. The Third

Cireuit stressed that considering such issue would allow plaintiff

to convert an interlocutory order into a final decision by improperly

refusing to prosecute his claim.

that there will be no District Court record of any sub-

stance as to the adequacy of the intervenor as a class repre-

sentative. In consequence, the Court of Appeals may have

to remand the case for specific findings on the adequacy of

the new class champion,* leaving open the possibility that

class status may again be denied and requiring ‘ll an-

other appeal for resolution. In addition, other ¢ » mem-

bers may institute law suits in various courts, giviig rise to

the prospect of numerous appeals in different jurisdictions.

On the other hand, multiple death knell appeals in the

same action are not a likely result of adopting the death

knell doctrine. Where intervention does not occur, ‘‘Ex-

perience teaches that it would be a rare case when the

specter of multiple appeals in the same case became a

reality” (Anschul v. Sitmar Cruises, Inc., supra, 544 F.2d

at 1373 (dissenting opinion of Judges Swygert and Bauer)),

and multiple appeals from class denials are especially un-

likely in view of the heavy burden an appellant must carry

in showing that the District Judge has abused his discre-

tion. The guidance provided by the Court of Appeals

when reversing a class denial will also reduce the likelihood

of an appeal from any further class denial.

(b) The Death Knell Doctrine Furthers Important Pur-

poses of Rule 23 of the Federal Rules of Civil Pro-

cedure

Different statutes should be construed if possible to

harmonize their purposes.** In consequence, it is significant

in construing Section 1291 that the death knell doctrine

*See Harris v. American Investment Co., 523 F.2d 220, 228

(8th Cir. 1975), cert. denied, 423 U.S. 1054 (1976).

** See, e.g., Morton v. Mancari, 417 U.S. 535, 551 (1974) ; Hyrup

v. Kleppe, 406 F.Supp. 214, 217 (D.Colo. 1976).

serves important goals of Rule 23. As shown above, the

death knell doctrine implements the principle embodied in

Rule 23(b)(3) that small claimants. often have no realistic

access to the courts if they are unable to bring their claims

as class actions. The death knell doctrine also avoids

encouraging other persons to enter the litigation or com-

mence separate actions at least until the appellate court

has determined whether the denial of class status was

correct. In consequence, the death knell doctrine assists

in preventing the “multiplicity of activity” which this Court

has termed “the principle function of a class suit.”

American Pipe and Construction Co. v. Utah, 414 U.S. 538,

551 (1974). See also, United Airlines v. McDonald, ——

U.S. ——, 97 S.Ct. 2464, 2470 n.15 (1977).

Encouraging intervention by persons who are concerned

to protect their own claims would increase the prospects

for complexity and delay, since such persons may settle

their cases without appealing the class issue, thus requiring

a new intervenor if the class issue is to be resolved.* More-

over, an intervenor might litigate the case on the merits

successfully brt be unable to serve ultimately as a class

representative in a situation where liability was predicated

on facts not applicable to the entire class.**

* Respondents submit that their tenacious effort to represent

the class despite vigorous opposition over a five year period

demonstrates that they are truly concerned to benefit the class.

On such a record, the purposes of Rule 23 are better served by

allowing respondents to continue their representation of the class

than by encouraging intervention by persons who may use the

threat of appealing the class issue only as a device to coerce a

settlement of their individual claims.

** For example, an intervenor in the present action might have

relied in part on oral misrepresentations. Liability to the class

predicated on common written misrepresentations might require

another intervenor and a new trial.

The “death knell doctrine” further facilitates the purposes

of Rule 23 by avoiding the prospect for “one-way interven-

tion.” This Court has noted that the 1966 amendments to

Rule 23 in part were designed to eliminate situations where

class members could wait until a resolution of plaintiffs’

claim on the merits before deciding whether to be bound

by the results of the action. American Pipe and Construc-

tion Co. v. Utah, supra, 414 U.S. at 547. See also Advisory

Committee’s Note to Proposed Rule 23 of Rules of Civil

Procedure, 39 F.R.D. 98, 105-06 (1966); Jimenez v. Wein-

berger, 523 F.2d 689, 698-700 (7th Cir. 1975), cert. denied,

427 U.S. 912 (19). If respondents cannot proceed on

their individual claim and other parties intervene to

prosecute claims which are in fact viable on individual

bases, leaving the question of class relief to be resolved on

an appeal subsequent to a decision on the merits, class

members will have been able to avoid making any decision

as to whether or not to opt out of the class action prior to

a decision on the merits.*

Furthermore, rejection of the “death knell” argument

might deprive class members of their right to remain

passive prior to the time for filing claims. As this Court

stated in American Pipe and Construction Co. v. Utah,

supra, 414 U.S. at 552:

“During the pendency of the District Court’s determina-

tion in this regard, . . . potential class members are

*In the event that an intervenor tries his individual claim

successfully and obtains reinstatement of the class on appeal,

certain class members may wish to take advantage of the inter-

venor’s victory while avoiding reimbursement to the intervenor

of the substantial legal fees and costs absorbed in litigating the

claim. Assuming the absence of a statute of limitations problem,

the class members having large claims might opt out of the class,

file suit elsewhere and seek to obtain a recovery from defendants

by utilizing the collateral estoppel or precedential effect of the

judgment in the original case.

mere passive beneficiaries of the action brought in their

behalf. Not until the existence and limits of the class

have been established and notice of membership has

been sent does a class member have any duty to take

note of the suit or to exercise any responsibility with

respect to it in order to profit from the eventual out-

come of the case.”

Since American Pipe and Construction Co. v. Utah holds

that statutes of limitations are tolled only until denial of

class status, class members must intervene immediately to

protect their rights. See discussion below, p. 40. If class

status has been rejected improperly, refusal of an im-

mediate appeal effectively denies class members their right

to remain passive even without regard to limitations

problems, because respondents’ inability to proceed except

on a class basis would mean that the rights of the other

class members will simply not be prosecuted unless they

intervene.

S.Ct. 2464 (1977) Does Not Render the Death Knell

Doctrine Unnecessary

Coopers errs in arguing that United Airlines, Inc. v.

McDonald, —— U.S. ——, 97 S.Ct. 2464 (1977), renders

the death knell doctrine obsolete. In United Airlines, the

District Court denied class action status for lack of nu-

merosity, and the action proceeded on individual claims.

The action was settled after a determination on the merits

and plaintiffs did not seek an appeal on the question of

class certification. In consequence, respondent in United

Airlines intervened for the purpose of appealing the

District Court’s denial of class status. This Court ruled

that respondent had filed a timely motion to intervene

under Rule 24(b), having filed within the thirty day time

period prescribed for appeal.

United Airlines does not support Coopers’ argument for

a number of reasons. First, respondents’ right to litigate

their individual claim—which right as a practical matter

depends on utilization of Rule 23—is not protected by the

right of other persons to intervene. As shown above, if

respondents do not proceed and are dismissed with prej-

udice for lack of prosecution, they would apparently be

denied an appexi on the class issue and thus be denied the

right to litigate their individual claim. Furthermore, dis-

missal of respondents’ individual claim with prejudice

would foreclose them from sharing in any class fund subse-

quently created by an intervenor.

Second, the United Airlines decision was expressly de-

signed to avoid “a rule [which] would induce putative

class members to file protective motions to intervene to

guard against the possibility that the named representa-

tives might not appeal from the adverse class determina-

tion.’’ 97 S.Ct. at 2470 n.15. Encouraging intervention

was deemed undesirable because it would engender the

‘‘very ‘multiplicity of activity which Rule 23 was designed

to avoid.’ ’’ Ibid. By assuming the need of intervenors to

protect the class, petitioners’ position encourages multi-

plicity of litigation and therefore conflicts with the pur-

poses of the United Airlines decision.

Third, intervention following final judgment is a possible

route to test class denials on appeal only when other class

members are aware that a class action has been brought and

that class status was denied, and only when intervention

occurs within the thirty-day period for appeals. As stated

by this Court in American Pipe and Construction Co. v.

Utah, supra, 414 U.S. at 551-52, class members are not pre-

sumed to be aware of the existence of the class action until

class notices have been distributed. The thirty-day dead-

line may well slip by before potential intervenors are

alerted to the problem.

oad

Petitioners apparently contend that a death knell appeal

is rendered unnecessary by United Airlines v. McDonald

because in their view dismissal of the action prior to a de-

termination of the merits could be followed by intervention

solely for the purpose of appealing the class issue. Peti-

tioners’ argument defeats itself, because such an intervenor

would be seeking exactly what respondents now seek—reso-

lution of the class issue prior to determination of the

merits. Thus, the result of encouraging intervention in

such a situation would be to add a new party and delay the

appeal without in any way reducing the prospect for piece-

meal appeals. Application of the death knell doctrine will

avoid such multiplicity of litigation.

(d) The Death Knell Doctrine Does Not Discriminate

Against Defendai.ts In Class Actions

The death knell doctrine does not discriminate against

defendants, but is simply the result of an evenhanded ap-

plication of the rule that appeals may only be taken from

final decisions. Respondents cannot prosecute the action

on their individual claim and therefore will have no op-

portunity to appeal unless the appeal can be taken at the

time class status is denied. On the other hand, petitioners

are not deprived of their opportunity to appeal from a

grant of class status if they do not have an immediate ap-

peal, because the litigation will continue and petitioners

can appeal that determination after a final judgment on the

merits.

The law is replete with examples of situations where the

party losing a motion is allowed an immediate appeal under

the final decision rule while the other party would not have

been entitled to an immediate appeal if he had lost the

motion. E.g., Swift &€ Company Packers v. Compania

Colombiana del Caribe, supra, 339 U.S. at 689 (immediate

appeal from order vacating attachment proper although no

immediate appeal would have been authorized from order

granting attachment); United Southern Companies, Inc.

v. Duckworth, 410 F.2d 377 (5th Cir. 1969) (immediate

appeal from denial of summary judgment motion im-

proper); Compagnie Nationale Air France v. Port of New

York Authority, 427 F.2d 951, 954 (2d Cir. 1970) (im-

mediate appeal from grant of new trial improper). See

generally, 9 Moore, Federal Parctice, 110.07, pp. 108-09;

7110.08[1} (2d ed. 1975).

In light of such precedent, petitioners’ argument that

the death knell doctrine discriminates against class action

defendants should be recognized for what it is: an alterna-

tive form of petitioners’ argument that class actions have

an unfair in terrorem effect because of the expense of liti-

gation or the amount of potential damages. The argument

is ill founded and is rebutted in detail at pp. 45-54 below.

It is appropriate to note, however, that such argument is

disingenuous on the record below. Petitioners neither set-

tled this action after class certification nor sought summary

judgment or an early trial. Rather, petitioners have in

fact raised one class issue after another in this action for

almost five years—mostly on repetitious grounds—as a

means of preventing a prompt determination of the mer-

its. As the Eighth Circuit noted (Pet. Cert. p. A-20; 550

F.2d at 1112), such activities have greatly increased the

expense of this litigation to all parties.

(e) The Ninth Circuit Version of the Death Knell Doc-

trine Would Increase the Complexity of the Litigation

Without Serving the Purposes of the Final Decision

Rule

The Ninth Circuit has ruled that a plaintiff who desires

to appeal under the death knell doctrine must show not

only that his own claim is not practicable on an individual

basis, but that “it is highly unlikely that any member of

the purported class has a claim justifying separate litiga-

tion.” Hooley v. Red Carpet Corporation, 549 F.2d 643,

645 (9th Cir. 1977). As shown above (see p. 25), denying

respondents an immediate appeal because other persons

may intervene would deny respondents their right to ob-

tain any appellate review on a question determinative of

their ability to prosecute their own individual claim. The

Hooley approach will increase multiplicity of activity by

encouraging intervention, and intervention will foster

rather than avoid piecemeal appeals for the reasons shown

above.

The Hooley doctrine is not subject to easy application

and would seriousiy complicate the litigation. Identifica-

tion of “economically viable” claims of possible intervenors

who have not in fact appeared is a highly uncertain en-

deavor. Such a determination is especially difficult in light

of the very extensive effort and enormous expense fre-

quently required for vigorous litigation of substantial

claims under statutes such as the federal securities and

antitrust laws.* Thus, in duPont Glore Forgan Inc. v.

American Telephone & Telegraph Co., 69 F.R.D. 481 (S.D.

N.Y. 1975), Judge Edward Weinfeld found that “economic

reality” would prevent Monsanto Company from proceed-

ing solely on its individual claim of $130,000:

“This observation is pertinent to the response by newly

retained counsel for plaintiffs to the court’s inquiry

why Monsanto, itself no corporate pigmy, would not,

*See discussion in Kalven & Rosenfield, The Contemporary

Function of a Class Suit, 8 U.Chi.L.Rev. 684, 684-5 (1941). The

authors analyze the plight of persons who purchased part of a

debenture issue of Insull Utilities Investments and show that the

holder of a $10,000 claim could not individually sustain the ex-

penses of what would have had to be a $60,000,000 lawsuit. Jd. at

685, including n.4.

without class action determination, prosecute its claim,

which amounts to $130,000. Counsel’s reply was that,

while Monsanto was willing to continue to pay dis-

bursements which, to date, have been substantial, the

time-cost factor of legal fees in view of the vigor of

defendants’ opposition, made it uneconomical to pro-

ceed with the suit on an individual basis even assum-

ing an ultimate recovery—in fact, Monsanto would, if

required to proceed on an individual basis, forego its

claim. Recent experience with legal charges and their

computation suggests that counsel’s statement was not

exaggerated. Thus, the assertion that this action will

not go forward at all if class action status is denied

is plausible. The hard fact is that economic reality

indicates the likelihood that unless this action is per-

mitted to proceed as a class suit, it is the end of this

litigation.” Id. at 487 (footnote omitted)

In Windham v. American Brands, Inc., 539 F.2d 1016,

1021 n.1 (4th Cir. 1976), the Court stated: ‘‘The hope of

recovering even three times $16,000 . . . would hardly lead

a prudent man to begin an anti-trust suit.’’ See also, the

discussion of the extensive work involved in litigating a

substantial securities laws claim in Blank v. Talley In-

dustries, Inc., 390 F.Supp. 1 (S.D.N.Y. 1975).

At minimum, the Hooley doctrine would require exten-

sive and time consuming discovery in federal securities

litigation concerning the identities of class members, the

size of individual claims, the cost of litigating, and the

financial ability and willingness of any class member to

intervene.* The District Court would apparently have to

* It should also be noted that the size of an individual claim

may not indicate the likelihood of intervention where, as here, the

District Judge has already evinced a lack of sympathy for plain-

tiffs’ position.

consider the need for, propriety of, language of, and proper

distribution of any notice to class members requesting such

information. See, Hooley v. Red Carpet Corp., supra, 549

F.2d at 646. Court approval of communications with class

members would be required to assure that such communica-

tions are not subject to attack under rules prohibiting soli-

citation of litigation by counsel. See, e.g., American Bar

Association Code of Professional Responsibility, DR 2-

103(A), DR 2-104(A); Moore, Federal Practice, Manual

for Complex Litigation, §1.41 (1977). See Carlisle v. LTV

Electrosystems, Inc., 54 F.R.D. 237, 240 (N.D.Tex. 1972),

appeal dismissed (No. 72-1065, 5th Cir., June 23, 1972) (un-

reported opinion).

(f) The Court of Appeals Had Ample Grounds for Deter-

mining That the Death Knell Doctrine Was Applicable

The Eighth Circuit’s ho!ding that the death knell doc-

trine applies is strongly supported by extensive material

in the record concerning respondents’ economic condition

and prospective costs of the litigation, and by counsel’s

representation that respondents could not proceed solely

on their individual claim. Respondents’ loss was approxi-

mately $2,650 (A 117), and respondents had been advised

by counsel that the out-of-pocket expenses alone of the

action might well exceed $15,000. (A 185-86) Cecil and

Dorothy Livesay had salaries of $16,000 per year and

$10,000 per year, respectively. (A 128) Out of a total

net worth of approximately $75,000, only $4,000 was in

cash and the remainder was equity in the Livesay’s home

and investments. (A 127-31; 138-39, 142) At the time

of their depositions, the Livesays had two children, aged

18 and 3, the older of whom was about to begin college.

(A 79-80)

Cecil Livesay originally stated at his deposition that

he would not seek to recover his individual loss if the

Court did not certify the class. (A 68-69) Subsequently,

he stated that “I couldn’t give a yes or no” answer to

such question, but would follow his attorneys’ advice

on whether he should proceed. (A 72-73) The Eighth

Circuit was apprised during the appeal that respondents’

counsel believed continuance of the action on the indi-

vidual claims made no economic sense and that counsel

could not advise respondents to continue in such a situa-

tion. (Reply Brief for Appellants-Petitioners, p. 5.)

Respondents’ former counsel stated at the evidentiary

hearing on the class motion that he had been retained by

three class members who had substantial claims and who

had indicated willingness to share the expenses of the

litigation. (A 133-35; A151-53) The record does not, how-

ever, support a finding that such individuals ever made

any binding or firm commitment to share such expenses.

(See A 135, A 151-53) Respondents’ present counsel ad-

vised the Eighth Circuit that they had not been retained

to represent any of the persons described by respondents’

former counsel and that they knew of no class member

who had stated a willingness to intervene in the action.

(Reply Brief for Appellants-Petitioners, pp. 5-6)

The Eighth Circuit recognized the preferability of a

procedure where the District Court makes the initial find-

ing that the death knell has rung, but noted that such a

finding is not an absolute requirement when, as in the

present case, the record is adequate for such a determina-

tion by the Court of Appeals. (Pet. Cert. p. A 15 n.5; 550

F.2d at 1110)* Moreover, the District Court did find after

the evidentiary hearing on the class motion that an im-

mediate appeal under the death knell doctrine would be

appropriate if it ruled against class status. (A 166) Such

finding is also implicit in Judge Wangelin’s stay of sub-

stantive discovery pending resolution of the class issues,

ince there would be no reason for such a stay if the

District Court believed the action would continue even if

class status were denied.

Petitioners’ argument that only the interests of respon-

dents’ counsel are truly at stake is false. While an at-

torney’s unwillingness to prosecute a small claim on a

contingent basis may reflect his own evaluation of whether

he can sustain such an effort economically, the ultimate

interest affected is that of the potential client because it

is the client who will receive no protection if the unavail-

ability of a class action renders it unfeasible for any at-

torney to represent him.**

Nor should the Court assume that respondents would

receive a District Court award of attorneys fees if they

* This Court and the Second and Sixth Circuits have taken

judicial notice of the fact that certain plaintiffs’ claims were so

small as to render prosecution absent class certification impracti-

eable. E.g., Eisen IV, 417 U.S. at 161; Ott v. Speedwriting Pub-

lishing Co., supra, 518 F.2d at 1149; Green v. Wolf Corp., 406

F.2d 291, 295 n.6 (2d Cir. 1968), cert. denied, 395 U.S. 977 (1969).

** Punta Gorda’s analysis of the considerations to be weighed in

determining the feasibility of proceeding on an individual claim

after denial of class status is an exercise in sheer and unsupported

speculation. See Brief for Punta Gorda, pp. 13-19. Such specula-

tion deserves little weight as against the concrete reality of the

substantial resources which would have to be expended in prose-

euting the individual claim to a conclusion before an appeal on

the class question could be taken, and the risk of a total loss of

such resources and denial of attorneys’ fees if class status is not

ultimately restored.

proceeded on their individual claim. An award of attor-

neys fees payable by defendants in connection with a re-

covery on respondents’ claims under the Securities Act of

1933 would not be available if respondents settled these

claims individually (see Section 11(e) of such Act, 15 U.S.C.

§77k(e)), and the Courts have held that the plaintiff must

establish that the defense bordered on frivolity in order to

obtain an attorneys fee on an individual claim under that

Act. E.g., Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281,

1309 n. 33 (2d Cir. 1973); Can-Am Petroleum Co. v. Beck,

331 F.2d 371, 374 (10th Cir. 1964). Given the lack of statu-

tory authorization for an attorneys’ fee award on a non-

class claim under Section 10(b) of the Securities Exchange

Act of 1934 (15 U.S.C. §78j(b)), an award of attorneys’

fees to a plaintiff suing on an individual claim under that

section would be unlikely unless the rarely applied “bad

faith” exception were applicable. See, e.g., Ernst & Ernst

v. Hochfelder, 425 U.S. 185, 210 n.30 (1976) ; Alyeska Pipe-

line Service Co. v. Wilderness Soctety, 421 U.S. 240 (1975) ;

Straub v. Vaisman & Co., 540 F.2d 591, 599-600 (3d Cir.

1976); Hail v. Heyman-Christiansen, Inc., 536 F.2d 908

(10th Cir. 1976).

3. The Collateral Order Doctrine Provides Alternative

Bases for Allowing Respondents an Immediate Appeal

From the Decertification Order

As mentioned above, the death knell doctrine falls com-

fortably within the collateral order doctrine. Respondents

took the position below that additional grounds exist for

predicating jurisdiction on the collateral order doctrine.

Respondents submit that the Court should affirm the

Eighth Circuit decision on such grounds if the Court should

decide that appellate jurisdiction is not sustainable under

the narrower death knell doctrine.

The collateral order doctrine allows immediate appeal

from orders which do not terminate the entire litigation

when they

“. .. finally determine claims of right separable from,

and collateral to, rights asserted in the action, too

important to be denied review and too independent

of the cause itself to require that appellate jurisaic-

tion be deferred until the whole case is adjudicated.”

Cohen v. Beneficial Industrial Loan Corp., 337 U.S.

541, 546 (1949).

Recent decisions of this Court attest to the continuing

vitality of the co’ ateral order doctrine. E.g., Abney v.

Umited States, supra, 431 U.S. at 658; Mathews v. Eldridge,

supra, 424 U.S. at 331 n.11 (1976); Eisen IV, supra, 417

U.S. at 170-71.

The order below meets all the requirements of the col-

lateral order doctrine. The order finally determines re-

spondents’ right to bring this action as a class action since

there can be no change in facts which will lead Judge

Wangelin to change his decision that respondents have

failed to prosecute the litigation. Furthermore, the issues

raised on the appeal are independent of the merits. No

investigation of the merits by the Eighth Circuit was nec-

essary in order to determine whether or not Judge Wange-

lin abused his discretion by decertifying the class for al-

leged unreasonable delay in prosecuting the litigation.

Moreover, absent class members will be denied important

rights* without any effective appellate review absent an

immediate appeal from the decertification.

* Certain Courts may have taken conflicting positions on whether

the collateral order doctrine requires a question the resolution of

which will impact upon other cases. Compare In re Cessna Dis-

First, class members who would prefer to exercise their

right under Rule 23 to remain passive (see discussion above,

pp. 28-9) will be forced to intervene immediately after de-

certification to protect their individual claims against the

running of the statute of limitations. Respondents’ claims

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

(the “1933 Act”), 15 U.S.C. §77k, 771(2), are subject to

a limitation period of one year from the date upon which

discovery of misleading omissions “should have been made

by the exercise of reasonable diligence’’ and to an absolute

three-year limitation. Section 13 of the 1933 Act, 15 U.S.C.

§77m. Respondents were actively investigating a lawsuit

against petitioners in May-June 1973, and the lawsuit was

commenced in July 1973. While the statute of limitations

was tolled by commencement of the class action, it began

running as to absent class members from the date of de-

certification. E.g., American Pipe and Construction Co. v.

Utah, supra; Eisen IV, 417 U.S. at 176 n.13. As of such

date, class members had approximately nine months within

which to bring suit under Sections 11 and 12(2). The

likelihood that respondents could litigate their individual

claim and reinstate the class on appeal within nine months

was virtually nil.

The statute of limitations would not bar continuation

of the class action if the class denial is reversed on an

appeal subsequent to litigation of individual claims. United

Airlines v. McDonald, supra, 97 S.Ct. at 2468-69. See also

tributorship Antitrust Litigation, 532 F.2d 64, 67 (8th Cir. 1976)

with Weight Watchers of Philadelphia, Inc. v. Weight Watchers

International, Inc., 455 F.2d 770, 773 (2d Cir. 1972). This Court

has in fact cited Cohen v. Beneficial Industrial Loan Corp., supra,

in support of the appealibility of issues which are of major im-

portance in the action but which would have no impact beyond

the immediate litigation. E.g., Stack v. Boyle, supra, (allowing

immediate appeal from order refusing to reduce bail) ; Roberts v.

United States District Court, supra.

Gelman v. Westinghouse Electric Corp., —— F.2d ——

(No. 77-1170, 3d Cir., June 6, 1977) (opinion not yet re-

ported) ; Jimenez v. Weinberger, supra, 523 F.2d at 696.

However, this Court’s opinion in United Airlines v.

McDonald leaves open the possibility that the limita-

tions period may run on individual claims prior to the

date of determination of the appeal if the appeals process

ultimately affirms the denial of class status. See discus-

sion, 97 S.Ct. at 2468-69. Such a prospect is suggested

in Knable v. Wilson, 23 F.R.Serv.2d 146, 149 (D.C. Cir.

1977) where the Court stated that the limitations problem

of absent class members could only be rectified “by a

reversal enabling unjoined claimants to come in as mem-

bers of the class.” Consequently, absent class members

who prefer to exercise their right to remain passive may

be forced to intervene to protect their position, only to

discover at a later date that intervention was unnecessary

because the appeals court does in fact reverse the denial

of class status.

Absent an immediate appeal, other class members may

also be irreparably injured by loss of their standing to

seek class relief in this action if respondents should set-

tle their claim prior to determination of the merits. A

number of this Court’s recent rulings have indicated that

class relief might not be available on appeal if the plain-

tiff’s claim became moot prior to class certification. E.g.,

Franks v. Bowman Transportation Co., 424 U.S. 747 (1976) ;

Sosna v. Iowa, 419 U.S. 393 (1975); Board of School Com-

missioners v. Jacobs, 420 U.S. 128 (1975). In United Air-

lines v. McDonald, supra, the Court recognized that a

plaintiff may appeal a class denial after a favorable Dis-

trict Court decision on the merits of his individual c!aim

(97 S.Ct. at 2469, including n.14). While that case in-

volved an appeal after a settlement, the Court stressed

that the “settlement” had occurred only after a victory

on the merits and after the guiding principles for damage

computation had been established. Jd. at 2469 n.14. Since

a settlement typically moots whatever issues are asso-

ciated with the individua! claim,* United Airlines v. Me-

Donald may not resolve all question as to whether class

issues could be appealed were determination of the merits

not to have preceded the settlement.

4. Appellate Jurisdiction May Also Be Sustained Under

Gillespie » United States Steel Corp., 379 U.S. 148

(1964)

In Gillespie v. United States Steel Corp., 379 U.S. 148

(1964), this Court declared that a Court of Appeals may

hear an appeal in a case of ‘‘marginal finality’’ where the

questions presented are ‘‘fundamental to the further con-

duct of the case’’:

“We think that the questions presented here are equally

‘fundamental to the further conduct of the case.’ It

is true that if the District Judge had certified the case

to the Court of Appeals under 28 U.S.C. §1292(b)

(1958 ed.), the appeal unquestionably would have been

proper; in light of the circumstances we believe that

the Court of Appeals properly implemented the same

policy Congress sought to promote in §1292(b) by

treating this obviously marginal case as final and ap-

pealable under 28 U.S.C. §1291 (1958 ed.). We there-

fore proceed to consider the correctness of the Court

of Appeals’ judgment.” 379 U.S. at 154.

According to Professor Moore:

“.. if an order is arguably reviewable by virtue of

some other provision, and the question presented is

* See, Justice Powell, dissenting in United Airlines v. McDonald,

97 S.Ct. at 2473.

of a kind that would be certifiable under §1292(b),

the court of appeals can, if it finds the order in fact

to be non-appealable, proceed to determine the ques-

tion on the assumption that the district court would

or should have certified it.” 9 Moore, Federal Prac-

tice, §110.22[3], p. 263 (2d ed. 1975).

The issues raised in this appeal are indeed “fundamental

to the further conduct of the case.” The record supports

respondents’ position that their claim is not economically

viable on an individual basis, and as shown above, im-

portant rights of respondents and class members may be

irretrievably lost absent an immediate appeal. Moreover,

at the conclusion of the evidentiary hearing on the class

motion, Judge Wangelin stated his opinion that an im-

mediate appeal would be appropriate if he refused to

certify the class, and that such an immediate appeal might

materially advance the ultimate termination of the liti-

gation. (A 166) In consequence, it would be appropriate

for the Court to affirm the Eighth Circuit’s assumption of

jurisdiction under the Gillespie decision in the event it

should regard the District Court order as one of “mar-

ginal” finality.

5. Conditioning an Immediate Appeal on District Court

Certification Under 28 U.S.C. §1292(b) Would Im-

properly Deny Respondents Their Rights Under 28

U.S.C. § 1291

28 U.S.C. Section 1292(b) states as follows in relevant

part:

“‘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 control-

ling question of law as to which there is substantial

ground for difference of opinion and that an imme-

diate appeal from that order may materially advance

the ultimate termination of the litigation, he shall

so state in writing in such order. The Court of Ap-

peals may thereupon, in its discretion, permit an ap-

peal to be taken from such order, if application is

made to it within ten days after the entry of the

order.’’

Respondents submit that the Third and Seventh Circuits

have erred in holding that discretionary District Court

certification under Section 1292(b) is the sole route for

obtaining an immediate appeal from denial of class status.

E.g., Katz v. Carte Blanche Corp., supra; Anschul v. Sit-

mar Cruises, Inc., supra. If the decision decertifying the

class is in fact a “final decision” within the meaning of

Section 1291, respondents are entitled to an immediate

appeal from such decision as of right. Allowing an im-

mediate appeal only if the District Court certifies the is-

sue and the Court of Appeals agrees to accept the appeal

improperly conditions the exercise of such right on two

separate discretionary decisions.*

While defendants cite certain cases where denials of

class status have been certified for an interlocutory appeal,

the availability of an appeal under Section 1292(b) in any

given situation is highly uncertain. Thus, Judge Gibbons,

the author of the opinion which established District Court

certification as the sole method of obtaining immediate

* In Share v. Air Properties, Inc., supra, 538 F.2d at 281 n.1, the

Court stated :

“Nor does certification under 28 U.S.C. §1292(b) or mandamus

solve the problem, as Hackett suggests. The very error with

which we are concerned is that of the district judge, and it is

precisely in those cases where he fails to certify under §1292

(b) where the harm will be manifest. For those cases in which

there has been error and no section 1292(b) certification,

mandamus, as traditionally formulated, imposes too high a

standard to give adequate protection to plaintiffs.”

appeal from a denial of class status in the Third Circuit

in damage actions (Hackett v. General Host Corp., supra),

now complains that ‘‘a plurality of this court en banc has

demonstrated a determination to make the §1292(b) route a

practical impossibility.’’ Gardner v. Westinghouse Broad-

casting Co., 559 F.2d 209, 221 (3rd Cir. 1972) (dissenting

opinion), cert. granted, December 5, 1977, 46 U.S.L.W. 3373.

See also, Anschul v. Sitmar Cruises, Inc., supra, 544 F.2d at

1372 n.4 (dissenting opinion) (‘‘. . . certification of appeals

under section 1292(b) is not a common practice encouraged

in this circuit or most others’’); Link v. Mercedes Benz of

North America, Inc., 550 F.2d 860, 873-74 (3rd Cir. 1977)

(dissenting opinion), cert. denied, US. (1977).

Moreover, section §1292(b) is limited to appeals from

“a controlling question of law.” Courts may diverge on

whether such requirement is met where the appeal involves

an issue as to which the District Court has discretion. Com-

pare J.C. Trahan Drilling Contractor, Inc. v. Sterling, 335

F.2d 65 (5th Cir. 1964), with Katz v. Carte Blanche Corp.,

supra, 496 F.2d at 752-56. See also, 9 Moore, Federal Prac-

tice, 7110.22[2], p. 261 (2d ed. 1975); Note, Interlocutory

Appeals in the Federal Courts under 28 U.S.C. §1292(b), 88

Harv.L.Rev. 607, 618 n.57 (1975). Consequently, it would

not be safe to assume that District Judges or Circuit Courts

will regard a denial of class certification as appealable

under section 1292(b) in all instances where the denial of

certification does, in fact, terminate the litigation.

6. Petitioners’ Argument That the Court Should Adopt a

Rule Aimed at Discouraging Class Actions Misdescribes

the History of Experience With Class Actions and

Ignores the Important Public Purposes Served by

Rule 23

Petitioners launch an attack on class actions in general,

reciting numerous criticisms which have little basis in fact

and which ignore the extent to which the class action

remedy has served its intended purposes.

Petitioners stress an alleged in terrorem effect of class

actions, but ignore the fact that absent Rule 23, the very

real in terrorem considerations favoring defendants would

effectively prevent most persons with modest claims from

ever resorting to the courts to obtain relief.

Actions like the case at bar involving small claims under

the federal securities laws are a prime example. Defend-

ants in such actions typically are corporations having ex-

tensive resources and the ability to retain high caliber law

firms to wage vigorous defenses. Unlike other types of

litigation where the plaintiff often has specific knowledge of

defendants’ wrongdoing, the defrauded shareholder is nor-

mally remote from activities within the defendant company

and not in possession of the evidentiary facts needed to

prove liability. Extensive discovery must be conducted on

plaintiff’s behalf, including detailed analyses of voluminous

documents relating to the financial condition of the subject

company and numerous depositions of the officers of such

company and its accountants. Since the fee which an attor-

ney could charge for representing a small claimholder in

such an action could never compensate the attorney for his

efforts in vigorously litigating the action, such holders are

effectively denied any redress unless the case can be

brought as a class action.*

Even where class relief is sought, there is often a power-

ful in terrorem effect working to defendants’ advantage. The

large companies which defend such actions can devote sub-

stantial resources to the task, while plaintiff’s attorneys

must forego compensation until a successful result in the

action. Well financed defendants will frequently cause

* See cases and article cited above, pp. 33-34.

plaintiffs to spend years litigating the class question or

other preliminary matters—as they have in this action—

thus retarding the progress of the law suit on the merits.

Recent disclosure of scandals such as those involving the

Equity Funding Corporation, National Student Marketing,

... and the Franklin National Bank failure highlight the need

of small shareholders for an effective means of obtaining

representation. The Securities and Exchange Commission

(‘*‘SEC’’) has stated publicly that in view of its own limited

resources the activities of the private bar are essential to

protection of investors*, and this Court has recognized that

private securities actions serve the prophylactic purpose of

enforcement of the securities laws for the protection of all

investors. Mills v. Electric Auto-Lite Co., 396 U.S. 375, 382

(1970) ; J.I. Case Co. v. Borak, 377 U.S. 426, 432 (1964).

Coopers’ insistence that small claim-holders are less de-

serving of protection by the Courts than are large claim-

holders betrays a callous attitude which is diametrically

opposed to the purposes and values underlying Rule 23.

See, e.g., Coopers’ Brief, pp. 27-28. The authors of Rule 23

were vitally concerned to avoid “freezing out the people—

especially small claims held by small people... .” Kaplan,

Continuing Work of the Civil Committee: 1966 Amend-

ments of the Federal Rules of Civil Procedure (I), 81

Harv.L.Rev. 356, 398 (1967). Indeed, when analyzed in

human terms, it is apparent that a two thousand dollar loss

may have a far more serious impact upon a person of

modest means than a $200,000 loss may have on a multi-

*See SEC amicus brief cited at length in Dolgow v. Anderson,

43 F.R.D. 472, 482-84 (E.D.N.Y. 1968). Professor Loss has

stated: “The ultimate effectiveness of the federal [securities]

remedies . . . may depend in large part on the applicability of the

class action device.’’ 3 Loss, Securities Regulation p. 1819 (2d ed.

1961).

million dollar corporation. Such a recovery could, for ex-

ample, enable a small claim-holder to meet pressing bills or

provide respondents with college tuition for their children.*

Underlying Coopers’ argument is a contempt for the needs

and interests of persons having limited resources. Respon-

dents respectfully submit that such contempt has no proper

place in our legal system.

Petitioners complain that an im terrorem effect of class

actions induces settlements.** Certainly the prospect of

liability and damages tends to induce settlements,*** be it

in individual actions or in class actions. However, there is

no reason to suppose that such pressures are unfair. If

petitioners have violated the securities laws, injuring thou-

sands of investors, it is appropriate that a suit to recoup

the loss should create proportionate pressure. As Professor

Dole has pointed out, class suits based on meritorious

claims are quite different from “strike suits” based on

frivolous claims. Rule 56 provides safeguards against the

latter. See Dole, The Settlement of Class Actions for

Damages, 71 Colum.L.Rev. 971, 974 (1971).

Petitioners’ claim that in consequence of an in terrorem

effect all class actions are settled simply is not true. Many

class actions have proceeded to trial. E.g., Gerstle v. Gam-

ble-Skogmo, Inc., 478 F.2d 1281 (2d Cir. 1973); Beecher v.

Able, CCH Fed. Sec. L. Rep. 994,450 (S.D.N.Y. 1974);

Gould v. American Hawaiian Steamship Co., 362 F.Supp.

*See A 79-80.

** Coopers Brief, p. 31.

*** The Courts have long recognized that settlements are to be

encouraged as a matter of public policy. E.g., Airlines Stewards

and Stewardesses Association vy. American Airlines, Inc., 455 F.2d

101, 109 (7th Cir. 1972) ; D.H. Overmeyer Co. v. Loflin, 440 F.2d

1213, 1215 (5th Cir. 1971).

771 (D.Del. 1973). iudgment vacated, 535 F.2d 761 (3rd Cir.

1976); Dolly Madison Industries, Inc. Litigation, No. 70-

2585 (E.D.Pa. 1973) (settled after four months of trial) ;

Stamps v. Detroit Edison Co., 365 F.Supp. 87 (E.D.Mich.

1973) ; Kohn v. American Metal Climaz, Inc., 322 F.Supp.

1331 E.D.Pa. 1971), aff’d im part, rev’d im part, 458 F.2d

255 (3d Cir. 1972), cert. denied, 409 U.S. 874 (1973) ; Feit v.

Leasco Data Processing Equipment Corp., 332 F.Supp. 544

(E.D.N.Y. 1971); Robinson v. Lorillard Corporation, 319

F.Supp. 835 (M.D.N.C. 1970), aff’d in part rev’d in part,

444 F.2d 791 (4th Cir.), cert. denied, 404 U.S. 1006 (1971) ;

Siegel v. Chicken Delight, Inc., 311 F.Supp. 847 (N.D.Cal.

1970), aff’d in part, rev’d in part, 448 F.2d 43 (9th Cir.

1971), cert denied, 405 U.S. 955 (1972); Brennan v. Mid-

western United Life Insurance Company, 286 F.Supp. 702

(N.D.Ind. 1968), aff’d, 417 F.2d 147 (7th Cir. 1969), cert.

denied, 397 U.S. 989 (1970); Escott v. BarChris Construc-

tion Corp., 283 F.Supp. 643 (S.D.N.Y. 1968).

Nor is there any indication that the proportion of settled

class actions exceeds the percentage of settlements of non-

class actions. Only 7.8% of all federal court civil cases

which were terminated during the year ending June 30,

1977 (other than land condemnation cases) reached the trial

stage*® and a Congressional study has found that the pro-

portion of class actions tried in the District of Columbia

Circuit “is consistent with the proportion for all civil

actions” in the same district.**

Petitioners’ arguments rest upon surmise. That surmise

lost whatever credibility it possessed with publication of

an empirical study of class actions by the Commerce Com-

mittee of the United States Senate in 1974. Committee on

* 1977 Annual Report of the Director, Administrative Office of

the United States Courts, p. A-24.

** Committee on Commerce, United States Senate, Class Action

Study, 93rd Cong.2d Session (1974), Committee Print, p. 10.

Commerce, United States Senate, Class Action Study, 93rd

Cong. 2d Sess. (1974) (‘‘Class Action Study’’).* That

study strongly refutes the argument that defendants faced

with class actions are forced to settle non-meritorious

claims, finding that:

‘If frivolous cases are brought, the high proportion of

dismissals and summary judgments indicates that the

class action is not a very effective tool for forcing set-

tlements. Moreover, defendant attorneys interviewed

indicated that if faced with a weak suit they certainly

would fight it on the merits initially before agreeing to

settle.’’ Jd., p. 10 (footnote omitted).

In addition:

‘*{i]nterviews with defendant attorneys disclosed that

no more than a handful would label their opponents’

eases as frivolous.’’ I[d., p. 9.

Nor is there a convincing basis for belief that the costs

of defending against class actions are so substantial that

defendants have no recourse but to settle. A recent review

of fee awards in securities class actions indicates that

fees have typically represented less than 25% of the total

settlement. 3 Newberg, Class Actions, pp. 1327-1343 (1977).

Such fees would at minimum reflect the standard hourly

rate of plaintiffs’ attorney for time devoted to the action,

and will often include an additional amount reflecting the

contingent nature of the litigation. E.g., Lindy Bros. Build-

ers Inc. of Philadelphia v. American R € S San Corp., 487

F.2d 161, 167-68 (3rd Cir. 1973). If we assume a rough

* The Ninth Cireuit has recognized that the Class Action Study

constitutes the best available empirical evidence concerning the

alleged in terrorem effect of class actions. Blackie v. Barrack, 524

F.2d 891, 899 n.15 (9th Cir. 1975), cert. denied, 429 U.S. 816

(1976).

equivalence between plaintiffs’ and defendants’ legal fees in

the same action, it would appear that defendants have been

settling class actions for amounts far in excess of their legal

fees.

Petitioner’s argument that class actions do not really

benefit class members is also incorrect. Numerous examples

can be given of extremely substantial class relief.* The

Class Action Study reports that in 38% of the cases where

monetary relief occurred, the recovery exceeded $1 million

and in 13% of such cases damages exceeded $5 million. Jd.,

p. 27. Recoveries in labor pension fund cases ranged from

$6 million to $300 million, including prospective relief. Id.,

p. 21. Furthermore, the Class Action Study found that class

recoveries have not been consumed by attorneys’ fees, notice

costs, and administrative expenses. /d., pp. 17, 29.

Nor are class actions the burden to federal courts de-

scribed by petitioners. Recent statistics show that class

actions represented only 2.4% of all civil cases filed in fiscal

1977 and only 4.1% of all of civil cases pending, and the

*E.g., In re Equity Funding Corp. of America Securities

Litigation, M.D.L. Docket No. 142, C.D.Cal., September 29, 1977,

(approximately $60 million) (unreported order) ; Arenson v. Board

of Trade of City of Chicago, 372 F.Supp. 1349, 1355-56 (N.D-II.

1974) (prospective benefits possibly in excess of $800,000,000).

Recent examples of class relief in actions in which counsel for re-

spondents participated include, but are not limited to: In re Con-

solidated Pre Trial Proceedings in Ampex Securities Cases, N.D.

Cal., Master File No. C-72-360 SW ($9,000,000 settlement approved

on October 6, 1976 in unreported decision) (respondents’ counsel

served as co-lead counsel); Seiden v. Nicholson, 72 F.R.D. 201

(N.D.IlL 1976) ($9.5 million settlement) (respondents’ counsel

were members of plaintiffs’ steering committee) ; City of New York

v. Darling-Delaware and consolidated cases, 1977-2 CCH Trade

Cases €61,802 (S.D.N.Y. 1977) ($5.1 million) ; Dennis v. Saks & Co.

and consolidated cases, S.D.N.Y., 77 Civ. 4419 ($5.2 million settle-

ment approved October 6, 1976 in an unreported decision); 502

Broadway Corp., et al. v. MacArthur, D.Del. Nos. 75-172 and 75-173,

($1.3 million settlement approved on March 18, 1977 in an unre-

ported decisiun) (respondents’ attorneys were lead counsel).

number of class action suits filed decreased by 10.9% from

the prior year.* The great bulk of such cases are civil rights

(including prisoner petition), consumer, and labor cases.

Id. at 126-127. Securities and anti-trust actions represented

only 5.5% and 7.3% respectively of the civil class actions

commenced in fiscal 1977. Ibid.

The Class Action Study found that class actions in the

District of Columbia “do not appear to place an overwhelm-

ing burden on the federal district court”,** and that “most

class actions do not take markedly Jonger from filing to

disposition in district court than do civil! actions in general.”

Class Action Study, pp. 4 and 12, When burdens do arise,

it is respectfully suggested that they often result from

defendants’ employing tactics such as those deplored by

the Eighth Circuit in the present case.

Similar allegations of unfairness and im terrorem effect

were raised several years ago by the Corporate Section of

the American Bar Association, but upon investigation were

rejected by other Sections (including the Insurance, Negli-

gence and Compensation Law Section in two lengthy re-

ports),*** and by an Ad Hoc Committee appointed to study

class actions. The Committee resolved that “no restrictive

changes should be made at this time in the provisions of

* Annual Report of the Director for 1977, Administrative Office

of the United States Courts, p. 121. Moreover, the number of class

action |itigations actually conducted are substantially less than the

number of class action complaints filed, since securities and anti-

trust class actions are often consolidated with numerous other class

«ctions having common issues. See, e.g., Class Action Study, p. 6.

** At the time of the Class Action Study the District of Columbia

had the fourth largest number of class actions in the country.

Class Action Study, p. 3.

*** Insurance, Negligence and Compensation Law Section (ABA),

Comments on Recommendations Re Consumer Class Actions for

Monetary Relief. Parts I and II (1974).

Rule 23 of the Federal Rules of Civil Procedure . . . and

any consumer class action legislation adopted by a state in

the immediate future should be patterned after Federal

Rule 23.” That resolution, rejecting accusations of unfair-

ness and endorsing Rule 23, was subsequently approved at

the 1974 convention of the American Bar Association and

remains the officia] position of the Association.*

The importance of securities class actions over the past

decade in extending shareholders’ rights and elevating the

standards to which persons connected with securities offer-

ings are held has been confirmed by the Association of the

Bar of the City of New York:

“The precise effect which class actions have had upon

the financial community cannot be measured. It is no

overstatement that cases such as Escott v. Barchris

Construction Corp., 283 F.Supp. 643 (S.D.N.Y. 1968)

and Feit v. Leasco Corp., 332 F.Supp. 544 (E.D.N.Y.

1971) have had a profound—and beneficial—influence

upon the diligence of directors, underwriters, accoun-

tants, lawyers and others connected with the public

offering of securities.” Class Actions—Recommenda-

tions Regarding Absent Class Members and Proposed

Opt-In Requirements, Association of the Bar of the

City of New York (1973), footnote, p. 16.

In light of such favorable experience, in 1975 New York

State adopted a class action law designed to broaden the

availability of the type of relief provided by Rule 23. New

York State Civil Practice Law and Rules §§ 901-09.

Other disinterested and learned commeniators have ap-

plauded both the promise and the operation of Rule 23 in

fairly and efficiently securing relief from scrious violations

* ABA, American Bar News, September 1974, p. 6.

of law affecting numerous persons. E.g., Hazard, The Ef-

fect of the Class Action Device Upon the Substantive Law,

58 F.R.D. 307 (1973) ; Homburger, State Class Actions and

the Federal Rule, 71 Colum.L.Rev. 609 (1971) ; Miller, Prob-

lems in Administering Judicial Relief In Class Actions

Under Federal Rule 23(b)(3), 54 F.R.D. 501 (1972).*

POINT II

If This Court Should Decide That the Eighth Circuit

Lacked Jurisdiction Over the Appeal, the Court Should

Remand This Case to the Eighth Circuit For Considera-

tion of Respondents’ Mandamus Petition.

The Eighth Circuit dismissed respondents’ mandamus

petition as moot since it granted the full relief requested on

appeal. Should this Court determine that the Eighth Cir-

cuit lacked jurisdiction of the appeal, respondents request

the Court to remand the proceedings to the Eighth Circuit

for reconsideration of respondents’ mandamus petition.**

The District Court predicated decertification on delay of

the litigation when, as found by the Court of Appeals, the

District Court’s own decisions—including its refusals to

comply with the prior mandate of the Eighth Circuit and

acquiescence in petitioners’ efforts to delay—prevented the

* Professors Hazard and Miller are respectively members of the

law faculties at Yale and Harvard, and Professor Homburger is

Professor of Law Emeritus at the State University of New York

at Buffalo. Professor Miller is co-author of Wright and Miller,

Federal Practice and Procedure.

** The fact that respondents have not cross-petitidned for

certiorari with respect to dismissal of the mandamus petition does

not deprive this Court of power to provide the alternative relief

requested. See, e.g., Dandridge v. Williams, 397 U.S. 471, 475 n.6

(1970) ; Langnes v. Green, 282 U.S. 531, 535-540 (1931).

action from moving forward. Respondents submit that the

District Court’s ruling constitutes an exceptional abuse

of judicial authority justifying issuance of a writ of man-

damus. See, e.g., Will v. United States, 389 U.S. 90, 95

(1967). In light of the Eighth Cireuit’s unanimity in hold-

ing that the District Court abused its power, respondents

submit that the Court of Appeals should have an oppor-

tunity to reconsic. ¢ issuance of the writ if relief on appeal

is unavailable.

POINT III

The Court of Appeals Acted Within the Proper Scope

of Its Authority in Reversing the District Court’s De-

certification Order.

1. The Court of Appeals Properly Held That the District

Court Abused Its Discretion In Decertifying the Class

For an Alleged Failure to Prosecute the Litigation

This Court has emphasized that a District Court’s discre-

tion must be guided by ‘‘ ‘sound legal principles’ ’’ and

that the concept of discretion does not shield a District

Court from ‘‘thorough appellate review.’’ Albemarle

Paper Co. v. Moody, 422 U.S. 405, 416 (1975). Thus,

numerous cases recognize that a Court of Appeals may

reverse a District Court order denying class status if the

District Court has abused its discretion. E.g., Guerine v.

J & W Investment, Inc., 544 F.2d 863, 865 (5th Cir. 1977);

Windham v. American Brands, Inc., 539 F.2d 1016, 1021-22

(4th Cir. 1976); Samuel v. University of Pittsburgh, 538

F.2d 991, 996-97 (3rd Cir. 1976). Abuse of discretion occurs

when a District Court finding is plainly unsupported by the

record. E.g., Windham v. American Brands, Inc., supra;

Price v. Lucky Stores, Inc., 501 F.2d 1177, 1179 (9th Cir.

1974). Reversal is also proper when the decertification

order was based on application of impermissible criteria

(e.g., Gay v. Watters and Dairy Lunchmen’s Union, 549

F.2d 1330, 1332 (9th Cir. 1977); Carey v. Greyhound Bus

Co., 500 F.2d 1372, 1379-81 (5th Cir. 1974).

As shown in detail in the Statement of the Case above,

Judge Wangelin predicated decertification on a clearly

erroneous description of the facts.* Thus, the District

Court stated that respondents did not institute discovery

to obtain names and addresses of class members until July

1976, when, pursuant to a prior understanding, respondents

had sought such information from Punta Gorda promptly

upon the Court’s approval of the form of notice of pendency

of class action in April 1976. (A 176-77, 215-16)** The Dis-

trict Court also stated that the delay between the class

action hearing and class certification resulted from substi-

tution of counsel for respondents (Pet. Cert., p. A-7), when

Judge Wangelin did not decide that new counsel was re-

quired until he certified the class (A 170-72).

The decertification opinion incorrectly attributed all de-

lays in the action to inactivity by respondents (Pet. Cert.,

A-7, A-8), while totally ignoring (i) Punta Gorda’s willful

effort to delay production of names and addresses of class

members on the pretext that the transfer records were not

* In this connection, it should be noted that the facts as to what

occurred are not in dispute and are clearly set forth in the District

Court records. In consequence, the Court of Appeals was in as

good a position as the District Court to determine whether the

respondents had unduly delayed the litigation. See discussion in

Weeks v. Bareco Oil Co., 125 F.2d 84, 93 (7th Cir. 1941).

** Coopers did not move to decertify until after respondents

sought District Court assistance for their effort to obtain the

transfer records. See discussion above, pp. 11-12. It is astonishing

that respondents’ very effort to obtain names and addresses of class

members should have given rise to almost immediate decertification.

Such result is especially surprising in light of the four month

period taken by the District Court to approve the form of class

notice.

within its custody (A 205-206; A 215-216) ;* (ii) petitioners’

continuing efforts to bring about reconsideration of class

issues which had already been litigated (e.g., A 94, 178-80) ;

(iii) respondents’ repeated efforts to lift the stay on sub-

stantive discovery, which efforts were continually rejected

at petitioners’ request by the District Court in violation of

the Eighth Circuit’s November 15, 1974 mandate (e.g., A

86, 96, 100, 103, 175, 186-90); (iv) the delay in the law-

suit which resulted from the District Court’s allowing

over one year to elapse between the filing of the class mo-

tion and its determination (A 5, 11); (v) the four months

which elapsed between the submission of the proposed

notice of pendency of class action to the Court and the

Court’s approval of such form (A 14, 194); and the four-

teen extentions of time (totalling approximately 190 days)

obtained by petitioners during the litigation. (Pet. Cert.,

p. A-20; 550 F.2d at 1112; See A 2-6, 8, 10, 13)

In addition, the District Court utilized improper legal

criteria in decertifying the class. First, any delays occur-

ing prior to the appearance of new counsel for respondents

should have no bearing on a motion to decertify filed four-

teen months after new counsel had appeared. See, duPont

Glore Forgan, Inc. v. Amcrican Telephone & Telegraph Co.,

69 F.R.D. 481, 483-84 (S.D.N.Y. 1975). See also the con-

demnation of the practice of repeatedly asserting identical

grounds for decertification in Kramer v. Scientific Control

Corp., supra, 67 F.R.D. at 99. Second, the District Court

acted improperly in ruling that respondents had unduly

*In Kramer v. Scientific Control Corp., 67 F.R.D. 98, 101 (E.D.

Pa. 1975), aff'd in part, rev’d in part on other grounds, 534 F.2d'

1085 (3rd Cir. 1976), cert. denied sub nom. Arthur Andersen &

Co. v. Kramer, 429 U.S. 830 (1976) the Court refused to deny

class status for undue delay in identifying class members when

the delays resulted in large part from defendants’ refusal to furnish

records voluntarily.

delayed in seeking to discover the identities of class mem-

bers at a time when the Court had not yet decided whether

the relevant information could be determined simply by

review of Punta Gorda’s transfer records.* Prior to decid-

ing such question, the Dis.rict Court had no basis for de-

termining how time consuming the effort to identify class

members would be. Since Judge Wangelin has now decided

that the class notice should be sent, at least in the first

instance, only to ‘‘initial register[ed] owners of [the

relevant] stocks and debentures,’’ respondents’ expecta-

tion that extensive discovery would not be necessary to

identify the recipients of the notice of pendency has proved

to be correct (see Appendix A hereto).**

2. The Court of Appeals Properl- Reversed the Order

Decertifying the Class

The Eighth Circuit properly determined that the District

Court decertified solely on the alleged ground that respon-

* Such question was submitted to the District Court well before

resolution of the decertification motion. See discussion above, p.

11. The Class Action Study, supra, noted that ‘‘a significant

factor” with respect to the feasibility of individual notice in class

actions was “the relative ease with which the class members were

identified from records within the defendant’s possession.’’ Class

Action Study, p. 16.

** Respondents’ reasonable basis for believing that the names and

addresses required for mailing the notice of pendency were those

of the first registered owners after the underwriters is shown by

the many cases in which courts have approved such method of

notice. E.g., In re National Student Marketing Litigation v. The

Barnes Plaintiffs, 530 #.2d 1012, 1014-15 (D.C.Cir. 1976); In re

Four Seasons Securities Laws Litigation, 63 F.R.D. 422, 427, 430

(W.D.Okla. 1974), aff'd, 525 F.2d 500 (10th Cir. 1975). Compare

In re Penn Central Securities Litigation, 560 F.2d 1138 (3rd Cir.

1977) and In re Franklin National Bank Securities Litigation, 73

F.R.D. 25 (E.D.N.Y. 1976), appeal pending, which cases were

decided at a date subsequent to the decertification.

dents unduly delayed in prosecuting the litigation. (Pet.

Cert., pp. A-7, A-8) Having found that decertification on

such ground was an abuse of discretion, the Court of Ap-

peals reversed the decertification order and remanded the

cease for further proceedings consistent with its opinion.

(Pet, Cert., p. A-21; 550 F.2d at 1113) Such procedure is

totally unlike that employed in East Texas Motor Freight

System, Inc. v. Rodriguez, 431 U.S. 395 (1977), where the

Court of Appeals certified the class in the first instance

after plaintiffs had failed to move for class certification

before trial and the District Court had dismissed the class

action allegations. Here, the effect of the Eighth Circuit’s

order is only to reestablish the certification which existed

prior to the District Court’s abuse of discretion in stripping

the case of class status.

Furthermore, respondents submit that on the present

record decertification for the alternative reasons proposed

by Coopers would itself have constituted an abuse of dis-

cretion.

Thus, Coopers’ argument that respondents were inade-

quate representatives because they failed to join under-

writers and soughi to hide an alleged injury to the class

because of “divided loyalties” does not withstand scrutiny.

(See Coopers’ brief, pp. 44-46) Soon after entering the

litigation respondents’ present counsel informed Judge

Wangelin that the interest of the class did not require

joinder of underwriters because existing defendants were

capable of paying any judgment and appeared to be pri-

mary wrongdoers, and because discovery against the

underwriters was available without joining them as defen-

dants. (A 183-84). Thus the joining of underwriters would

merely have added to the procedural complexity of the liti-

gation, with the prospect of creating additional opportuni-

ties for delay.* By the time of the November 4, 1975 m

camera conference, respondents’ counsel had further refined

their analysis and were prepared to state that the limita-

tion period relevant to the underwriters had expired prior

to present counsel’s appearing in the action.**

No hint of any finding that respondents’ present or for-

mer counsel*** sought to conceal information from the

District Court can be found in the decertification opinion

or in any of Judge Wangelin’s decisions. There is no truth

* None of the petitioners thought a sound basis for suing the

underwriters existed, since they failed to implead them as third

party defendants. Consequently, petitioners have no basis for con-

tending that the interest of the class has been adversely affected by

respondents’ failure to sue any underwriters,

** Since respondents’ former counsel had apprised the District

Court at the evidentiary hearing that the limitations period had

run on any claims under Sections 11 and 12(2) of the 1933 Act (A

166), the only limitations period at issue was that affecting claims

under Section 10(b) of the 1934 Act and 17(a) of the 1933 Act. Pe-

titioners conceded below that under Vanderboom vy. Sexton, 422 F.2d

1233, 1236-37 (8th Cir.), cert denied, 400 U.S, 852 (1970) the

limitations period for Section 10(b) claims would have been the

eriod of two years from the contract of sale set forth in the

issourt Blue Sky Law, §409.411(e), Mo.Rev. Statute 1969, as

amended. The limitations period for claims under § 17 (a) is identi-

cal to that under §10(b). 2.g., Parrent v. Midwest Rug Mills, Inc.,

455 F.2d 128, 125-27 (7th Cir, 1972). Since all class members had

purchased their Punta Gorda securities at the offering in May

1972, any Section 10(b) claims against the underwriters had ap-

parently expired. Adoption of the federal tolling provision in Van.

derboom did not poe claims against the underwriters, because

the restatement of Punta Gorda profits which revealed tue mislead-

ing nature of the Prospectus occurred more than two years prior to

present counsel’s appearance.

*** Coopers’ argument that respondents’ original counsel tried

to avoid an evidentiary hearing because of confl'ct of interest

problems has absolutely no support in the record. Respondents’

former counsel did not believe that Judge Wangelin had ordered an

evidentiary hearing to be held but promptly soug't direction on

this matter from Judge Wangelin when the question was raised by

petitioners, (A 98-99, 101-102)

to Coopers’ accusations and not a shred of evidence to

support them.

Indeed, petitioners’ effort to force respondents to sue

the underwriters without good cause was itself highly im-

proper. The courts have ruled that an attorney for a class

representative is entitled to use his professional judgment

in determining the proper defendants to the class action.

See Dorfman v. First Boston Corp., CCH Fed.Sec.L.Rep.

[1973 Transfer Binder] 94,155, at p. 94,637 (E.D.Pa.

1973) ; Kramer v. Scientific Control Corp., supra, 67 F.R.D.

at 100-01 (plaintiffs’ failure to sue brokerage firms held

not to render plaintiffs inadequate class representatives) ;

Federman v. Empire Fire & Marine Insurance Co., 19 F.R.

Serv. 2d 480, 484 (S.D.N.Y. 1974) (absent evidence of bad

faith, class action plaintiffs have discretion to withdraw

action against named defendant).

Coopers’ further argument that respondents sought to

delay distribution of the notice of pendency is not credible.

Respondents complied promptly with the District Court’s

directions concerning submission of a proposed class notice

and did not delay in submitting further comments to the

Court with respect to such notice. (A 14, 190, 191, 193, 212)

Respondents’ major concern with the proposed class notice

was its express refusal to define any of the issues which

had been certified for class treatment. (A 212-213) Since

the notice requirement in Rule 23 is designed to assure

that class members not be deprived of substantial rights

without due process of law, respondents believed that the

notice violated applicable constitutional provisions in fail-

ing to provide class members with a description of the class

action which would enable them to make intelligent deci-

sions as to whether to opt out, intervene, or remain passive,

See, e.g., Eisen IV, 417 U.S. at 173-74; Advisory Commit-

tee’s Note to Rule 23, supra, 39 F.R.D. at 107.

Respondents were also concerned that the net effect of

the proposed notice would be further protracted litigation

on class issues, Continuing litigation on class issues was

a problem because Judge Wangelin apparently intended

to continue the stay on substantive discovery until all such

issues Were resolved. In light of the Eighth Circuit’s ruling

on November 15, 1974, that the District Court should

‘*promptly rule on petitioner’s motion [for class determina-

tion] and remove its stay order and thereafter permit dis-

covery to proceed on the merits” (A 107-108), respondents

were justifiably concerned over prospects for further delay.

Coopers’ insistence that the Eighth Circuit should have

rejected class certification on grounds other than adequacy

of representation is surprising in light of the limitation of

the class to persons who purchased at the offering on May

2-3, 1972 and the limitation of documents alleged to be

misleading to the Prospectus itself. The relative simplicity

of showing predominance of common issues and manage-

ability herein with respect to the class action issues under

Section 11 of the Securities Act of 1933 is in sharp contrast

with many cases certified for class treatment under the

federal securities laws which have involved persons who

purchased securities over many months or years, during

which time numerous misleading documents were published.

E..g., Blackie v. Barrack, supra, 524 F.2d at 901-08; Seiden

v. Nicholson, 69 F.R.D, 681 (N.D.IlL. 1976). Thus, Coopers’

arguments are routinely denied on records such as that in

the present action. See, ¢.g., discussion in Umbriac vy.

American Snacks, Inc., 388 F.Supp. 265, 272-73 (E.D.Pa.

1975). Since class treatment can be limited to specific is-

sues, sub-classes can be created, and class designation is

itself conditional, the courts have recognized that they

should be especially cautious about refusing class certifica-

tion for management reasons. E.g., Green v. Wolf Corp.,

supra, 406 F.2d at 301; Cusick v. N.V. Nederlandsche Com-

binatie Voor Chemische Industrie, 317 F.Supp. 1022, 1026

(E.D.Pa. 1970); State of Illinois v..Harper & Row Pub-

lishers, Inc., 301 F.Supp. 484, 490-91 (N.D.Tll. 1969), aff'd,

423 F.2d 487 (7th Cir. 1970), aff’d, 400 U.S. 348 (1971). See

Moore, Federal Practice, Manual For Complex Litigation,

§1.48, p. 49 (1977).*

* The argument that common issues do not predominate because

class members must individually show reliance is irrelevant to

respondents’ claims under Section 11 and 12(2) of the 1933 Act,

which provisions do not require reliance by persons who purchased

at the offering. See ¢.g., Section 11(a) of the 1933 Act, 15 U.S.C.

§77k(a). Individual proof of reliance under Section 10(b) is un-

necessary where, as here, a cause of action is based on deceptive

omissions, Affiliated Ute Citizens of Utah v, United States, 406 U.S.

128, 153-54 (1972). Considerable precedent also holds that subjective

reliance is unnecessary to prove a cause of action based on affirm-

ative misrepresentation when such misrepresentation inflated the

market price of the securities purchased. 2.g., Blackie v. Barrack,

supra, 524 F.2d at 907; Competitive Associates, Inc. v. Laventhol,

Krekstein, Horwath & Horwath, 516 F.2d 811, 814 (2d Cir, 1975),

Since the question of materiality is “objective” rather than sub-

jective (TSC Industries, Inc. v. Northway, Inc., 96 8.Ct, 2126, 2131

(1976)) and causation is shown if a misstatement or omission is

material and the misleading document “was an essential link in

the accomplishment of the transaction” (Mills v. Electric Auto-

Lite Co., supra, 396 U.S. at 385), causation is also a common issue.

Statute of limitations defenses are also appropriate for class treat-

ment. F.9., Seifer v. Topsy’s International, Inc., 64 F.R.D. 714, 719

(D. Kansas 1974), appeal dismissed, 520 F.2d 795 (10th Cir. 1975),

cert. denied, 423 U.S. 1051 (1976) ; Bisgeier v. Fotomat Corporation,

62 F.R.D. 113 (N.D.Ill. 1972).

CONCLUSION

For the reasons given above, the Court should affirm the

judgment of the Court of Appeals. If the Court should de-

cide that the Court of Appeals lacked jurisdiction to hear

the appeal, the Court should remand the proceedings to the

Court of Appeals for consideration of respondents’ petition

for a writ of mandamus.

Respectfully submitted,

Metvyn I. Weiss

One Pennsylvania Plaza

New York, New York 10001

Attorney for Respondents

Of Counsel:

LAWRENCE MILBERG

Jarep Specrurie

Jerome M, Conoress

Reep ScuneIver

Ricuarp L, Ross

Miisero Weiss Bersuap & Specrurie

APPENDICES

A-1

APPENDIX A

IN THE

UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF MISSOURI

Eastern Drvision

No. 73 € 517 (2)

Crciz Livesay, ET Ux,

Plaintiffs,

vs.

Punta Gorpa Isizs, Inc., ET AL.,

Defendants.

Memorandum and Order

This matter is before the Court upon various motions

concerning discovery and the notice that plaintiffs are

required to send in this class action. After considering

the arguments of both parties, the Court believes that

notice should be sent to the initial register [sic] owners of

stocks and debentures who purchased pursuant to the

Registration Statement and Prospectus of May 2, 1972.

The notice sent to those persons who may be nominees

should include a request that the nominees inform the

Court of the identity of any beneficial owners.

If through these efforts additional purchasers are iden-

tified the Court will order that notice be sent to them

also. The Court does not see any need to notify all per-

sons who registered within ninety days of the initial of-

fering and defendants need only to produce the names of

the initial registered owners. However, the plaintiffs will

A-2

Appendiz A

not be required to conduct discovery, as least at this point,

to identify all the beneficial owners.

Defendants have moved for a protective order in re-

sponse to plaintiffs’ request to produce certain documents.

Defendants object to the fact that plaintiffs’ prior counsel

inspected many of the same documents and received copies

of some nine hundred of those documents. Defendants will

not be required to produce again any of those documents.

However, plaintiffs may proceed with the remainder of

the discovery at this time. The question of reimburse-

ment to defendants for the cost of “double discovery” will

be resolved later. Accordingly,

Ir Is Heresy Orperep that defendants’ motion for a

protective order be and is Denrep in part and GranTep

to the extent stated above; and

Ir Is FurrHer Orperep that plaintiffs’ motion to pro-

duce filed August 16, 1976 be and is Denrep in part and

GRANTED in part; and

Ir Is FurtHer Orpverep that defendants furnish plain-

tiffs with the names described above within fifteen (15)

days of this date; and

Ir Is FurtHer Orperep that plaintiffs send those per-

sons notice of this action as outlined by the Court on

April 9, 1976 and as modified above by first class mail,

postage pre-paid, within thirty (30) days of defendants

production of names.

Dated this 7th day of September, 1977.

/3/ H. Kenneto Wancein

United States District Judge

A-3

APPENDIX B

IN THE

UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF MISSOURI

Eastern Drvision

No. 73 C 517 (2)

Cecm Livesay, and Dorornuy Livesay, his wife,

Plaintiffs,

Punta Gorpa Isizs, Inc., ET AL.,

Defendants.

Stay Order

Upon motion of the Court, insofar as the Supreme

Court of the United States has granted certiorari in this

action, Coopers & Lybrand v. Livesay, —— US. 46

U.S.L.W. 3316 (Nos. 76-1836, 76-1837, November 14, 1977),

Ir Is Heresy Orperep that all pending motions and

further proceedings in this action be and are stayed until

further order.

/s/ H. Kenneto WaAnNGELIN

United States District Judge

Dated this 7th day of December, 1977.

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.