Petition — Oppenheimer Fund, Inc. v. Sanders

Sy, Supreme Goud, U. & #3

Te

eS

‘| SEP 1 igi

a | MICHAEL RODAK, JR., CLERK

Ix THE ae

Supreme Court of the United States

Octoser Term, 1976

ee v4 4G -33 5

OprENHEIMER Funp, Inc., OPPENHEIMER ManaGEMENT Corp.,

OppenHemmer & Co., Leon Levy, Jack Nasu, Epmunp T.

DeLaNEY aND Emanvet CELLER,

Petitioners,

v.

Irvine Sanpers, Econ Tavssic, Micnart SHarv

anp Rrra SHaev,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

August 31, 1977

(Counsel on Inside of Cover)

Of Counsel:

WEISMAN, CELLER, SPETT,

Mop.in, WERTHEIMER &

SCHLESINGER

425 Park Avenue

New York, New York 10022

(212) 371-5400

GUGGENHEIMER & UNTERMYER

80 Pine Street

New York, New York 10005

(212) 344-2040

TuHacHerR, Prorritr & Woop

40 Wall Street

New York, New York 10005

(212) 483-5800

Mirton C. WEISMAN

GERALD GoRDON

425 Park Avenue

New York, New York 10022

(212) 371-5400

Attorneys for Petitioner

Oppenheimer Fund, Inc.

ALFRED BERMAN

Leon H. TYKULSKER

Ricuarp P. ACKERMAN

80 Pine Street

New York, New York 10005

(212) 344-2040

Attorneys for Petitioners

Oppenheimer Management Corp.,

Oppenheimer & Co.,

Leon Levy,

Jack Nash

Joun F. Davipson

Danie, E. Kirscu

40 Wall Street

New York, New York 10005

(212) 483-5800

Attorneys for Petitioners

Edmund T. Delaney,

Emanuel Celler

TABLE OF CONTENTS

PAGE

I I iia cca crattinsent actin SOE a TO LORS ee 2

i tr ?

ED BEI, GicepincbeccncecAiteceeicseteecenndstonenttetetaciemionee 3

Statutes and Rules Imvolved ..0.........00000000c.c ee eeeceeeeee eee 3

Rn a Te i le 4

Decision and Order of the District Court ............... 7

The Circuit Court Three-Judge Panel Decision... 8

The Circuit Court En Bane Decision ........................ i)

Reasons for Granting the Writ 0.2. 12

I. The Decision Below Has Improperly Circum-

vented the Provisions of Rule 23 of the Federal

Rules of Civil Procedure and Directly Conflicts

With the Decision of This Court in Eisen IV ...... 14

A. The Court Below Incorrectly Decided That

the Cost of Identifying the Members of the

Class and Ascertaining Their Addresses Is

Not a Part of the Cost of the Notice Required

by Rule 23(c)(2), Which This Court in Eisen

IV Held Should Be Borne by Plaintiffs ......... 14

B. The Court Below Resorted to Procedures Ex-

traneous to Rule 23 to Satisfy Rule 23 Re-

quirements and Thereby Misinterpreted and

Misapplied This Court’s Holding in Eisen IV

and Improperly Circumvented the Provisions

ff —_g_ F eae e ee 19

PAGE

II. The Decision Below on Class Member Identi-

fication Costs Directly Conflicts With the Deci-

‘ sion of the Fifth Circuit inn re Nissan Motor

Corp. Antitrust Litigation and Will Cause Con-

fusion in Numerous Class Actions Unless

Resolved by This Court 22

A. The Conflict With the Fifth Cireuit ........... 22

B. The Impact on Other Cases 23

III. The Decision Below Is Predicated On An Inter-

pretation of the Scope of Discovery Contrary to

the Standards Set by Rule 26(b)(1), Misinter-

prets and Misapplies the Provisions of Rules 33

(c) and 34 and Sanctions an Imposition of Costs

on Defendants Without Factual or Legal Justifi-

cation 25

A. The Decision Below Contravenes Rule 26(b)

(1) by Authorizing Discovery of Information

That is Wholly Irrelevant to the Subject

Matter of This Action ~.............. 25

B. The Decision Below Misinterprets and Mis-

applies the Provisions of Rules 33(c) and 34

on a Dispositive Issue in This Case ................ 27

C. Even if the Discovery Rules Were Applicable,

the Factors Relied on by the Court Below Do

Not Justify the Imposition of the Substantial

Costs of Class Identification on the Finan-

cially Disinterested Fund _.2........0.0...2.2....c--0-0- 31

Conclusion .................-- FRI) RICA LY eT ee EE 33

Aprenpix A—

District Court Opinion oa la

iii

PAGE

Appenpix B—

District Court Memorandum Order .......................... 9a

AppEenpix C—

Court of Appeals Three-Judge Panel Opinion ...... lla

Aprenpix D—

Order Granting Rehearing En Banc ........................ 32a

Apprenpix E—

Court of Appeals En Bane Opinion .......................... 34a

Appenpix F—

Rules 23(a)-(d), 26(b)(1), 26(c), 33(c) and 34

of the Federal Rules of Civil Procedure ................ 57a

TABLE OF AUTHORITIES

Cases :

Adams v. Dan River Mills, Inc., 54 F.R.D. 220 (W.D.

ARIES ESS SO eS ae oe ree NA ; 28n

In re Antibiotic Antitrust Actions, 333 F. Supp. 278

fk SE, Seen we See 16n

BdB Investment Club v. Kleinert’s, Inc., (1973-1974

Transfer Binder] CCH Fed. Sec. Law Rep. 994,451

fo | RS a A Pes ae ee rE 16n

Berland v. Mack, 48 F.R.D. 121 (S.D.N.Y. 1969) ........ 16n, 17

Brennan v. Midwestern Life Insurance Co., 259 F.

Supp. 673 (N.D. Ind. 1966) 00.22 ccceccccceeneeeeeeeeeeee 16n

Chevalier v. Baird Savings Ass’n., 72 F.R.D. 140 (B.D.

BG I cxseciinnstniaisiihanticiliinnd 16n

iv

PAGE

City of New York v. Darling-Delaware, Inc., 1976-1

CCH Trade Cases 60,812 (S.D.N.Y. 1976) ............ 15n, 17

Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (2d Cir.

BGUS) (Tee TEE) ceniccreneniincionimnimpmmn 2n,7

Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974)

Cate Fe) cxccccecsccnssisenaiinnininigieeaalbaaaal 2&n passim

Foster v. Maryland State Savings & Loan Ass’n.,

1974-2 CCH Trade Cases 975,277 (D.D.C. 1974) ........ 16n

Frankenstein v. McCrory, 74 Civ. 727 (S.D.N.Y. No-

Weemee BA, BOTG) nnccccccecneprsesessteierenepiecsnpeegertnipahsnnnmonmtentions 24

In re Franklin National Bank Securities Litigation,

73 F.B.D. 25 (B.D.N.Y. 1976) ............2220-22.0--0-+0 15n, 21n, 24

Grad v. Memorex Corp., 61 F.R.D. 88 (N.D. Cal. 1973) .. 16n

Hawkins v. Holiday Inns, Inc., 1975-1 CCH Trade

Cases 760,153 (W.D. Tenn. 1975) —....0000000002....... 16n, 18n

Herbst v. Able, 47 F.R.D. 11 (S.D.N.Y. 1969) 000000... 16n

Herbst v. International Telephone & Telegraph Corp.,

GB PIRDD. BB CB. Germ, Te ecctretececeenintnnd 16n, 17

Jahre v. Rait, 76 Civ. 1305 (E.D.N.Y. July 16, 1976) .... 24

Konczakowski v. Paramount Pictures, Inc., 20 F.R.D.

| 8S ty A) ws 28n

Lamb v. United Security Life Co., 59 F.R.D. 25 (S.D.

BN TICES ceccisscerencnsininctannenies ... 16n

Landis v. North American Co., 299 U.S. 248 (1936) ... 17n

Laufman v. Oakley Building and Loan Company, 72

F.R.D. 116 (S.D. Ohio 1976) 220. 30

In re Nissan Motor Corp. Antitrust Litigation, 552

F.2d 1088 (5th Cir. 1977) ................ 13, 15n, 17, 20, 22, 23n

In re Penn Central Securities Litigation, 416 F. Supp.

907 (E.D. Pa. 1976) ......... cehamissiain aan 16n, 24

PAGE

Popkin v. Wheelabrator-Frye, Inc., CCH Fed. Sec.

Law Rep. 795,411 (S.D.N.Y. 1976) 200000. 15n

Richardson v. Hamilton International Corp., 62 F.R.D.

Ee 16n

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

301 F. Supp. 484 (N.D. Til. 1969) 2. 16n

In re Sugar Industry Antitrust Litigation, 73 F.R.D.

SS ee. ee 15n, 16n

Tytel v. Richardson-Merrell, Inc., 37 F.R.D. 351 (S.D.

EEE ES LE SES See ae Se aT 28n

United States v. Davey, 543 F.2d 996 (2d Cir. 1976) ... 28n

United States v. Fendley, 522 F.2d 181 (5th Cir. 1975) 30

United States v. Russo, 480 F.2d 1228 (6th Cir. 1973) . 20

In re U.S. Financiai Securities Litigation, 69 F.R.D.

ES 15n

Weiss v. Drew National Corp., 75 Civ. 4816 (S.D.N.Y.

co ee oe a 24

West Virginia v. Chas. Pfizer & Co., 314 F. Supp. 710

SE 16n

SratTuTes anD Rugs:

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

§771(2) ...... sali dietisiapesineiiiaiielitinsetiudincmetgeeimcccndinetimeiys 4

Section 17 of the Securities Act of 1933,15 U.S.C. §77q 4

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

15 U.S.C. §78j(b) -..... i 4

Section 22 of the Investment Company Act of 1940,

ee eer 4

PAGE

Section 30 of the Investment Company Act of 1940,

ae ee ee ee 4

Section 37 of the Investment Company Act of 1940,

SP ID acrscivrccssintniesscsnistentinintaielienibialiifeconicticipegn +

Ry | am oe eer 3

WO Te I cccincinsiracchssheiisnstascinsnsatbsitiae hcatitiehbaanatiindidiens 30

Rule 10b-5 of the Securities and Exchange Commis-

a, Te Geis I ciiisipencepeenciericrensinedisicbinzgtnctiogs 4

Rule 23(a) of the Federal Rules of Civil Procedure,

Ey TIL, ° sn-cctlsnsieriensdtatenapdecnsatnniiiabeitdehanidadieidihcaiatiaensiamantiael 3, 26

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

R.A en eed ae SORES Se 3, 12, 14, 24, 27

Rule 23(c)(1) of the Federal Rules of Civil Procedure,

gS”: CR ar ee ae Rea eres SF mt RES 3,5

Rule 23(c)(2) of the Federal Rules of Civil Procedure,

ht: EOC 2, 3, 5, 8, 9, 10, 11, 12, 13, 14, 15,

16n, 17, 18, 20, 21, 22, 26, 27, 28

Rule 23(d) of the Federal Rules of Civil Procedure,

ey TIE scccsnssinintadesindiipscinninemnsiesidnadibeastiaeianseiaeiaaaiaaae 3,17 &n

Rule 26(b) of the Federal Rules of Civil Procedure,

ee IIT: <ccociciiscciacisatincscitaseittbiatintatiiaaeetiaiiiinienaidiaaall 3, 10, 13, 25, 27

Rule 33(c) of the Federal Rules of Civil Procedure,

i)! | meee

vii

PAGE

Rule 34 of the Federal Rules of Civil Procedure,

«Bf * 2, 3, 10, 13, 20, 21, 25, 27, 28, 29 & n, 30

Rule 45 of the Federal Rules of Civil Procedure, 28

GTI. sicssidveid citececsinbnndicilebitnitchdinbaid ennilitn ic thet telat a” 29n

Rule 803(6) of the Federal Rules of Evidence, 28

SIIIINL: : siceedenncenbtiniciadhdistedcnniaantiadte th ietettditedtet deta at 30

OTHER AUTHORITIES:

Notes of Advisory Committee on Federal Rules of

Civil Procedure, 48 F.R.D. 487 2.002. 28n, 29

4 Moore’s Federal Practice (2d ed. 1976) 0000. 25

4A Moore’s Federal Practice (2 ed. 1975) 0000. 29 &n

IN THE

Supreme Court of the United States

Ocroser Term, 1976

OpprENHEIMER F'unp, Inc., OPPENHEIMER MANAGEMENT Corp.,

OprpENHEmMER & Co., Leon Levy, Jack Nasu, Epmunp T.

DeELANEY AND EMANUEL CELLER,

Petitioners,

v.

Irvine Sanpers, Econ Tavussic, MicnazeL, SHarv

anp Rita SHagv,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Petitioners’ respectfully pray that a Writ of Certiorari

issue to review the judgment of the United States Court

of Appeals for the Second Circuit, after rehearing en banc,

reversing the determination of a three-judge panel of the

Court of Appeals and affirming an order of the United

States District Court for the Southern District of New

York. The Court below circumvented and undercut this

1 Petitioners, all of whom are named defendants in this consoli-

dated action, are two corporations (Oppenheimer Fund, Inc. and

Oppenheimer Management Corp.), one partnership (Oppenheimer

& Co.) and four individuals (Leon Levy, Jack Nash, Edmund T.

Delaney and Emanuel Celler).

2

Court’s decision in Eisen IV* by applying the discovery

provisions of Fed. Rule Civ. Proc. 34 to impose on peti-

tioner Oppenheimer Fund, Inc., a nominal and financially

disinterested party in the class action portion of the com-

plaints, the substantial expense of creating special com-

puter programs to prepare a list of the names and ad-

dresses of prospective class members for the sole purpose

of enabling respondents to send the initial class action

notices required by Fed. Rule Civ. Proc. 23(c)(2), even

though petitioners had made the existing computerized

business records fully available to respondents.

Opinions Below

The opinion of the District Court for the Southern Dis-

trict of New York is reported at 20 F.R. Serv. 2d 1218 and

appears in Appendix A.

The memorandum order of the District Court entered

on reargument of its opinion is unreported and appears in

Appendix B.

The opinion of the three-judge panel of the Court of

Appeals is reported at 21 F.R. Serv. 2d 1213 and appears

in Appendix C.

The subsequent opinion of the Court of Appeals on re-

hearing en bane is not yet reported and appears in Ap-

pendix E.

Jurisdiction of the Court

The judgment of the en bane panel of the Court of

Appeals was entered on June 22, 1977. (App. E, p. 34a.)

2 Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974) (“Eisen

IV”), vacating, 479 F.2d 1005 (2d Cir. 1973) (“Eisen IIT’).

ee ee rei Oe ++ ee

3

The order of the Court of Appeals granting respondents’

petition for rehearing en banc was entered on September 14,

1976. (App. D, p. 32a.) The jurisdiction of this Court

is invoked under 28 U.S.C. §1254(1).

Question Presented

Whether, in a class action maintained under Fed. Rule

Civ. Proc. 23(b) (3), any of the defendants can be required

to bear the substantial expense of identifying and as-

sembling the names and addresses of class members for

the purpose of relieving plaintiffs of that obligation inci-

dent to sending the initial class action notice required by

Fed. Rule Civ. Proc. 23(c) (2).

Statutes and Rules Involved

The following rules are involved in the determination of

this case, and are set forth in full text in Appendix F:

Fed. Rule Civ. Proc. 23(a), 28 U.S.C.

Fed. Rule Civ. Proc. 23(b)(3), 28 U.S.C.

Fed. Rule Civ. Proc. 23(c)(1), 28 U.S.C.

Fed. Rule Civ. Proc. 23(c)(2), 28 U.S.C.

Fed. Rule Civ. Proc. 23(d), 28 U.S.C.

Fed. Rule Civ. Proc. 26(b), 28 U.S.C.

Fed. Rule Civ. Proc. 26(c), 28 U.S.C.

Fed. Rule Civ. Proc. 33(c), 28 U.S.C.

Fed. Rule Civ. Proc. 34, 28 U.S.C.

Statement of the Case

Respondents’ (“plaintiffs”) seek to maintain this con-

solidated action on behalf of a class of 121,000 current

and former shareholders‘ of Oppenheimer Fund, Inc. (the

“Fund”) who acquired its shares between March 28, 1968

and April 24, 1970. Petitioners (“defendants”) are the

Fund, an open-end investment company registered under

the Investment Company Act of 1940, 15 U.S.C. §80a-1

et seq.; Oppenheimer Management Corporation (the “Man-

ager”), the investment adviser to the Fund; Oppenheimer

& Co., a New York Stock Exchange member firm which

owned all of the voting stock of the Manager; and in-

dividual directors of the Fund, some of whom were also

principals in Oppenheimer & Co. or the Manager.

The complaints, which also contain derivative claims

not here relevant, allege violations of Sections 12(2) and

17 of the Securities Act of 1933, 15 U.S.C. §§771(2) and

77q; Section 10(b) of the Securities Exchange Act of 1934,

15 U.S.C. §78j(b); Rule 10b-0, promulgated by the Secu-

rities and Exchange Commission, 17 C.F.R. §240.10b-5;

Sections 22, 30 and 37 of the Investment Company Act

of 1940, 15 U.S.C. §§80a-22, 80a-29 and 80a-36; Rules

promulgated thereunder by the Securities and Exchange

Commission; and fiduciary obligations under state law.'

* Additional respondents, all of whom are named as defendants

in this consolidated action, are Murray Graham, Erie Hauser.

Joseph M. McDaniel, Jr. and Sidney M. Robbins. These individ-

uals have not answered the complaints nor have they otherwise

appeared in this action.

*Said 121,000 current and former shareholders consist of those

who have a direct beneficial interest in Fund shares and those who.

through a unit investment trust, have an indirect beneficial interest.

'The complaints posit federal jurisdiction upon the claims

asserted under the Securities Act of 1933, the Securities Exchange

Act of 1934, the Investment Company Act and the princiy ies of

pendent jurisdiction.

OE AO OO ET NE

5

The gravamen of plaintiffs’ claims is that the defendants

caused the Fund to overvalue “restricted” securities in its

portfolio during the relevant period, thereby inflating the

price of the Fund shares sold to the public, with a con-

sequent alleged failure to meet disclosure requirements.

Plaintiffs seek to recover damages equal to the alleged

overpayments from all the defendants except the Fund,

which appears to have been named as a defendant only

for the purposes of the derivative claims. In their amended

answers, defendants deny the material allegations of the

plaintiffs’ complaints and assert various affirmative de-

fenses.

On March 30, 1973, almost four years after the com-

plaints were filed, the four plaintiffs‘ moved for an order

pursuant to Fed. Rule Civ. Proc. 23(c)(1) (hereinafter

cited as “Rule... .”) for class determination on behalf of

all persons who purchased Fund shares between March 28,

1968 and April 24, 1970. During examination of the Fund’s

transfer agent concerning procedures and costs of deter-

mining the names and addresses of the members of the

prospective class as well as other matters relating to the

initial class notice required by Rule 23(c)(2), it was estab-

lished that the names and addresses of current and former

shareholders of the Fund, including members of the class,

are maintained on magnetic computer tapes in the pos-

session of the transfer agent.’ However, there are con-

* As of March 31, 1973, 67,726,541 shares of the Fund were out-

standing, owned by a total of 173,000 shareholders. As of the com-

plaintiff Taussig owned an aggregate of slightly over 2,600 shares,

consisting of 45.071, 209.823 and 2.369.363 shares, respectively.

ee ee ee eee

* The en bane panel of the Court of Appeals observed that, “in

the absence of computer technology, so vast and com-

plex as those of the [F]und might well be impossible to conduct.”

(App. E, p. 37a.) When the motion for class determination was

6

tinual purchases and redemptions of Fund shares, and

many purchasers who acquired shares during the relevant

period, April 1968 through April 1970, have redeemed their

shares and are not current shareholders. Conversely,

many current shareholders did not make any purchases

during the relevant period.

As a consequence, the class members cannot be identified

by a mere printout from the application of existing com-

puter programs. Instead, new programs must be designed

to scan computer records, and machine processes must be

employed in order to extract from the existing tapes the

names and addresses of purchasers who acquired shares

during the relevant period. It is the cost of such new

programming and additional procedures, with attendant

labor costs, that make up the expense of identifying and

assembling the names and addresses of members of the

class. As of October 10, 1973, the transfer agent estimated

the identification and assemblage costs would total ap-

proximately $16,580;* doubtless such costs have increased

substantially in the intervening years.

The plaintiffs have unequivocally stated on the record

that they will not bear the expense of the special program-

ming necessary to identify the members of their class and

that if they are required to pay such costs they will not

continue to prosecute this action as a class suit.’

made, there were over 173,000 shareholders. During the relevant

period, daily sales and redemptions ranged from 18,549 and 16,364

shares, respectively, to 58,170 and 14,000 shares, respectively.

* Mailinz, printing and other costs related to the sending of class

notice were estimated at an additional $5,000.

* As is pointed out in this Court's Eisen IV opinion, the plain-

tiffs there took a similar position with respect to the costs involved

- | een individualized notice to class members. 417 U.S. at

lad

‘

During the course of the proceedings in the District

Court concerning the class determination motion and after

the Second Circuit had rendered ‘ts decision in Eisen III

(approved in substance by this Court in Eisen IV), the

plaintiffs sought to eliminate the expense of identifying

and assembling the names and addresses of the class mem-

bers, and thereby to reduce class notice costs to plain-

tiffs,*° by a dual proposal: (i) amending the description

of the class to eliminate therefrom all persons who were

not shareholders at the time of mailing of the class notice

and (ii) inserting the class notice in a regular mailing to be

sent by the Fund to all of its current shareholders, whether

or not they were members of the class. Defendants op-

posed this proposal on the grounds that (i) the proposed

mailing of a class notice to all current shareholders would

have a serious adverse effect on the Fund and its share-

holders and might well precipitate substantial demands for

redemption by the current shareholders, many of whom are

not members of the class, and (ii) that the proposed class

modification was arbitrary and improper.

Decision and Order of the District Court

In its opinion of May 15, 1975, the District Court found

that this action could be maintained as a class action on

behalf of the current and former shareholders originally

described in plaintiffs’ motion for class determination. The

District Court rejected plaintiffs’ proposal to eliminate

members of the class who were former shareholders as

arbitrary and improper, and, referring to defendants’ ob-

jections based upon potential injury to the Fund and its

1° While the existing computer tapes and records have been

available to plaintiffs, they have consistently refused to undertake

the procedures necessary to identify class members at their own

expense. As indicated, they have also refused to reimburse the

defendants for performing such work. Swpra at p. 6.

8

shareholders, declined to direct the insertion of class notice

in a regular Fund mailing to all current shareholders.

Although the District Court apparently recognized that

the expense of culling out and assembling the class mem-

bers’ names and addresses was an element of the cost of

notice under Rule 23(c)(2) (App. A, pp. 2a, 7a.), it also de-

termined that the Fund was “to be responsible for what-

ever work and expense is involved in providing the list of

class members to plaintiff.” (App. A, p. 2a.) Citing no

authority for its self-arrogated discretion to impose iden-

tification costs on the Fund, the District Court asserted

two reasons for its decision to do so: (i) “the expense is

relatively modest” and (ii) “defendants . . . are seeking to

have the class defined in a manner which appears to re-

quire the additional expense.” (App. A, p. 6a.)

All parties moved for reargument, and, thereafter, on

October 1, 1975, the District Court entered a Memorandum

Order which directed that the cost of identifying and as-

sembling the names and addresses of the class members

should be borne by the Fund without prejudice to its right,

at the conclusion of the action, to make whatever claim it

would be legally entitled to make for reimbursement by

other parties, and authorized the mailing of the class no-

tice at plaintiffs’ expense in a regular Fund mailing, pro-

vided the notice i is sent only to class members. (App. B, p.

9a.)

The Circuit Court Three-Judge Panel Decision

In a 2-1 decision (Hays, J., dissenting), a majority of the

Court of Appeals panel (Mulligan and Palmieri," JJ.) re-

versed the District Court’s order to the extent that it had

imposed on the Fund the cost of ascertaining and assem-

Edmund L. Palmieri, United States District Judge, Southern

District of New York, sitting by designation.

bling the names and addresses of the class members and

held that, in accordance with this Court’s decision in Eisen

IV, the cost of identifying the members of the class must

be borne in the first instance by the plaintiffs as part of

the cost of providing notice to those members pursuant to

Rule 23(c) (2).

The majority stated that the District Court’s two justi-

fications for allocating identification costs to the Fund,

namely, consideration of the financial resources of the

parties and defendants’ position on class redefinition, were

erroneous (App. C, pp. 19a-20a.) ; that the Fund’s status, as

a nominal defendant from which no recovery is sought and

to which no financial benefit can result,” made “it totally

improper to impose costs on the Fund” (App. C, p. 17a.) ;

that there were no fiduciary relationships or other ex-

traordinary facts in this case which would warrant shift-

ing notice costs from plaintiffs to any of the defendants

under an exception to the general rule enunciated by this

Court in Eisen IV (App. C, pp. 18a-19a.); and finally that

the federal discovery rules were not applicable to obtain

class member identification for the purposes of the initial

class notice, but, even if applicable, the defendants would

not be required to bear the cost of identification under

those rules because of the protective provisions of Rule

33(c) (App. C, pp. 21a-23a.).

The Circuit Court En Banc Decision

On application of the plaintiffs, the matter was reconsid-

ered en banc by the Court of Appeals. A majority of the

12 The majo stated: “since the Fund has no direct- interest

in the outcome of the class action claim, it is too remotely involved

to have notification costs imposed upon it.” (App. C, p. 18a.) The

Fund’s status is completely different than that of a corporate de-

fendant in a stockholders’ derivative action, wherein any ne

award acerues to the benefit of the corporation. :

10

ten-member panel (Mulligan, Meskill and Van Graafeiland,

JJ., dissenting) affirmed the District Court’s order direct-

ing the Fund at its own expense to create the programs

necessary to identify the names and addresses of the mem-

bers of the class plaintiff.

Although the issue arose under plaintiffs’ Rule 23 motion

for class determination and not under any discovery rule,

the en banc majority stated that “it hardly require[d] .. .

extended discussion to establish that” the information

sought as to the identities of the class members was

“within the broad scope of permissible discovery,” and

held that Rule 34 provided the basis for the District Court’s

order that the cost of producing such information be allo-

cated to the Fund."* (App. E, p. 40a.)

The en bane majority’s reasoning, which the dissenting

judges found “bewildering”, was that Rule 26 (b)(1) makes

discoverable any unprivileged matter relevant to the “sub-

ject matter involved in the pending action”; that Eisen IV

“raises as a potential issue in all such litigation whether

the required notice has properly been sent”; and, accord-

ingly, a list of the names and addresses of the class mem-

bers “would of course be essential to the resolution of that

issue”. (App. E, p. 40a.).

The majority did not acknowledge the fact that the issue

of “whether [Rule 23(c)(2)] notice has properly been sent”

to all members of the class has never been raised in this

case.‘ Having interjected an illusory issue, the majority

** Rule 34(a) in pertinent part provides: :

“(a) SCOPE. Any party may serve on any other party a

request (1) to produce and permit the setty inihiitie the re-

quest .. . . to inspect and copy, any designated documents

(ineluding . . . data compilations from which information

can be obtained, translated, if necessary, by the respondent

through detection devices into reasonably usable form)... .”

4 The majority’s failure to reconcile the non-existence in fact of

this issue was criticized by the en bane dissenters. (App. E, pp.

11

concluded that class identification for the sole purpose of

providing class notice is governed by the federal discovery

rules and not by Rule 23(c)(2) which expressly requires

identification of the members of the class, if it can be ac-

complished through reasonable effort, as a predicate to

sending individualized notice to the class.

Further, the majority ruled that the Fund is not entitled

to the protection of Rule 33(c) which allows a party an-

swering interrogatories calling for abstracts and compila-

tions of business records to produce its existing records

from which the party seeking discovery may extract the

information sought at its own expense. The Court held

that, on its reading of Rule 33(c), it was “inapplicable

[and] not especially tailored to the discovery problems

posed by contemporary computer technology.” (App. E,

p. 42a.) However, on this issue, the en bane majority

qualified its decision as follows: “We intimate no view

as to what the result ir the instant case would be if Rule

33(c) were deemed applicable.” (App. E, p. 42a n.1.)

In a dissenting opinion which incisively analyzed the

errors in logic, law and fact of the en banc majority, three

members of tie en banc panel" vigorously criticized the

imposition of identification costs on the Fund, finding the

majority opinion “illogical”, “conceptually unsound” and

“unprecedented”, and, further, that it “flouted” the hold-

ing of this Court in Eisen IV. The dissenters would re-

verse that portion of the District Court order pertaining

to identification costs for the reasons advanced in the ma-

5la-52a.) The issue could not be, and in fact was not, raised by

the representative plaintiffs, or the District Court or the three-

judge panel of the Court of Appeals.

15 The dissenters were Circuit Judges Mulligan, Van Graafeiland

and Meskill. Cireuit Judge Edmund L. Palmieri sat by designa-

tion on the original panel and was the author of the majority

opinion ; he did not participate in the rehearing en banc.

12

jority opinion of the original panel, and because the en

bane majority “forces the defendant[s] to subsidize the

suit against them, a result which is aberrant to our juris-

prudence and to the extent that it depends upon the prem-

ise that the defendant has greater financial resources is

further in conflict with Eisen IV.” (App. E, p. 48a.)

Reasons for Granting the Writ

This case raises basic federal questions concerning de-

fendants’ constitutional rights, the proper incidence of the

costs of maintaining Rule 23(b)(3) class actions and the

purpose and lawful scope of the federal discovery proce-

dures. The resolution of these questions will have imme-

diate importance in a large number of class actions and

other civil suits now pending and likely to be commenced

in the future.**

By misapplication of the federal discovery rules, the

Court below required the defendant Fund to pay the sub-

stantial cost of special computer programming necessary

to identify and assemble the class members’ names and

addresses for the purpose of the initial class notice man-

dated by Rule 23(c}(2).

** Judge Mulligan, dissenting in the en bane opinion, stated:

“We expect that until the Supreme Court intervenes this

court will be asked to further rule on this issue. The burden

is not inconsiderable. There were 176 class actions filed in the

Southern District of New York alone in fiscal 1976 and at

the end of fiseal 1976, 408 class actions were pending in that

district. There were 724 pending at the time in all the dis-

triets of this Cireuit. Total filings of class actions in United

States courts increased from 2,717 in 1974 to 3,584 in 1976

with 5,987 pending at the end of fiscal 1976. Administrative

Office of the United States Court, 1976 Annual Report of the

Director 117-24.” (App. E, pp. 54a-55a n.5.)

In addition, the questions of defendants’ rights and the perim-

eters of discoverable information have a direct bearing on civil

suits, generally, not merely elass actiens.

13

Certiorari should be granted for the following reasons:

1. The decision below directly conflicts with the decision

of this Court in Eisen IV on the question of which party

should bear the costs of the notice to class members Te-

quired by Rule 23(c)(2). It will cause great confusion

and burden the lower federal courts with an increased

amount of vexatious litigation if it is permitted to stand

without review.

2. The decision below directly conflicts with the decision

of the Fifth Circuit, rendered virtually simultaneously on

the same question in In re Nissan Motor Corp. Antitrust

Litigation, 552 F.2d 1088 (5th Cir. 1977). This will cause

still further confusion and vexatious litigation if it is

permitted to stand without review.

3. The decision below improperly circumvents Rule 23

and Eisen IV by authorizing discovery beyond the scope

authorized by Rule 26(b) (2), misinterprets and misapplies

Rules 33(c) and 34, thereby creating an undesirable, broad

precedent governing a new and important phase in the

discovery of computerized information, and allocates these

purported discovery costs in a wholly arbitrary and un-

fair manner.

14

I.

The Decision Below Has Improperly Circumvented

the Provisions of Rule 23 of the Federal Rules of Civil

Procedure and Directly Conflicts With the Decision of

This Court in Eisen IV.

A. The Court Below Incorrectly Decided That the Cost of

Identifying the Members of the Class and Ascertaining

Their Addresses Is Not a Part of the Cost of the Notice

Required by Rule 23(c)(2), Which This Court in Eisen

IV Held Should Be Borne by Plaintiffs.

The en bane majority held that, in this Rule 23(b)(3)

class action, the defendant Fund is required to pay more

than 75 per cent of the cost that must necessarily be

incurred in providing individualized notice of the action’s

pendency to all members of the class. This is in direct

conflict with this Court’s Eisen IV holding that, in such

litigations, “the plaintiff must pay for the cost of notice

as part of the ordinary burden of financing his own suit.”

Eisen IV, 417 U.S. at 179.

Although the majority paid lip service to the Eisen IV

rule that the plaintiff must initially bear the cost of notice

to the class, the majority simply ignored the plain fact

that the effect of its ruling was to vitiate this Court’s

Eisen IV decision.

The majority attempted to distinguish between (i) the

costs that plaintiffs are required to bear in providing in-

dividualized notice to the class pursuant to Rule 23(¢)(2),

including the cost of printing the notice and of procuring,

stuffing, addressing and posting the envelopes sent to each

member of the class and (ii) the cost of obtaining the

names and addresses to be affixed to the envelopes so

sent, which cost, the majority concluded, must be borne by

15

the defendant Fund. The majority of the three-judge panel,

and the en banc dissenters, were unable to perceive any

logical basis for such a distinction, the latter stating:

“We cannot appreciate how it can be reasonably held

that the expense incurred in producing the list of ad-

dresses is distinguishable from the expense of prepar-

ing and mailing the notice.” (App. E, p. 49a.)

The en bane majority interpretation finds no support in

Rule 23(c)(2), under which the court is required to direct

to class members “the best notice practicable under the

circumstances, including individual notice to all class mem-

bers who can be identified through reasonable effort.”

(emphasis added) The language of Rule 23(c)(2) does

not distinguish between the process of identification and

the notification procedure. The plain import, not contra-

dicted by any other provision of Rule 23, is that ascertain-

ing the names and addresses of the class members is an

essential and integral part of the process of giving notice

to each of those persons.

A substantial majority of the relevant cases have not

made the arbitrary distinction created by the en banc

majority below and have treated the cost of class member

identification as part of the cost of providing notice pur-

suant to Rule 23(c)(2).'" In several of these cases, which

17 Although the rationale of the respective courts is sometimes

unclear, the following decisions treat the cost of class member

identification as a cost of notice: In re Nissan Motor Corp. Anti-

trust Litigation, 552 F.2d 1088 (5th Cir. 1977) (diseussed at

length infra); In re Sugar Industry Antitrust Litigation, 73

F.R.D. 322, 359-60 (E.D. Pa. 1976) ; In re Franklin National Bank

Securities Litigation, 73 F.R.D. 25 (E.D.N.Y. 1976) (relying upon

the holding of the original panel of the Court of Appeals in this

ease); Popkin v. Wheelabrator-Frye, Inc., CCH Fed. Sec. Law

Rep. ¥ 95,411 (S.D.N.Y. 1976); City of New York v. Darling-

Delaware, Inc., 1976-1 CCH Trade Cases { 60,812 at pp. 68,512,

68,514 (S.D.N.Y. 1976) ; In re U. 8. Financial Securities Litigation,

16

antedate this Court’s decision in Eisen IV, district courts

allocated identification and other notice costs to one or

more of the defendants on the basis that the cost of notice

was an appropriate area for exercise of the courts’ dis-

69 F.R.D. 24, 46-47 (S.D. Cal. 1975); Hawkins v. Holiday Inns,

Inc., 1975-1 CCH Trade Cases € 60,153 at p. 65,465 (W.D. Tenn.

1975); B&B Investment Club v. Kleinert’s, Inc., [1973-1974

Transfer Binder] CCH Fed. Sec. Law Rep. © 94,451 at pp. 95,572-

73 (E.D. Pa. 1974) ; Grad v. Memorez Corporation, 61 F.R.D. 88,

103 (N.D. Cal. 1973) ; Herbst v. International Telephone & Tele-

graph Corp., 65 F.R.D. 13, 19-21 (D. Conn. 1973), aff'd, 495 F.2d

1308 (2d Cir. 1974) ; Lamb v. United Security Life Co., 59 F.R.D.

25, 42-43 (S.D. Iowa 1972); In re Antibiotic Antitrust Actions,

333 F.Supp. 278, 290-91 (S.D.N.Y. 1971); West Virginia v. Chas.

Pfizer & Co., 314 F.Supp. 710, 724-25 (S.D.N.Y. 1970), afd, 440

F.2d 1079, 1083 (2d Cir.), cert. denied, sub nom., Cotter Drugs, Inc.

v. Chas. Pfizer & Co., 404 U.S. 871 (1971) ; State of Illinois v. Har-

per & Row Publishers, Inc., 301 F.Supp. 484, 494 (N_D. Ill. 1969) ;

Berland vy. Mack, 48 F.R.D. 121, 131-33 (S.D.N.Y. 1969) ; Herbst

v. Able, 47 F.R.D. 11, 17-19 (S.D.N_Y. 1969); Brennan v. Mid-

western Life Insurance Co., 259 F.Supp. 673, 684 (N.D. Ind. 1966).

Four United States District Courts appear to have distinguished

between the notification procedure under Rule 23(c)(2) and the

process of identifying the persons to whom such notice must be

given. Three such cases were decided in the Eastern District of

Pennsylvania. Chevalier v. Baird Savings Ass’n., 72 F.R.D. 140,

148 (E.D. Pa. 1976) (citing the decision of the District Court in

this ease); In re Penn Central Securities Litigation, 416 F.Supp.

907, 921 (ED. Pa. 1976), rev’d, No. 76-2139 (3d Cir. August 5,

1977); Richardson v. Hamilton International Corp., 62 F.R.D.

413, 423 (E.D. Pa. 1974). There is a clear conflict of authority in

the Eastern District of Pennsylvania on this issue. Jn re Sugar

Industry Antitrust Litigation, supra, at 359-60 (E.D. Pa. 1976),

and B&B Investment Club v. Kleinert’s Inc., supra, at 95,572-73

(E.D. Pa. 1974), hold that the cost of identification is part of the

cost of notice which must be borne by the class representatives.

The fourth case was decided by the United States Distriet Court

for the District of Columbia and is based solely on the erroneous

interpretation that Eisen IV implicitly distinguishes between

identification and notice. Foster v. Maryland State Savings ¢

Loan Ass’n., 1974-2 CCH Trade Cases © 75.277 (D.D.C. 1974).

None of the above cases is cited in the en bane majority opinion.

However, the conflict between these cases and those holding that

identification is a component of the notice procedure and the

resulting confusion of courts and litigants underscore the need

for review and resolution by this Court.

17

cretion. See, e.g., Berland v. Mack, 48 F.R.D. 121, 131-33

(S.D.N.Y. 1969). The Eisen IV decision terminated that

discretion, holding that notice costs must be borne by the

plaintiff in the usual case. But these early cases remain

significant in that they demonstrate a consistent judicial

recognition, both before and after this Court’s decision,

that the identification of class members is an element of

the Rule 23(c)(2) notice procedure.

In the course of dealing with class member identification

under the Rule 23(c)(2) notice procedure, some courts

have ordered the defendant to provide the plaintiff with

business records and other raw materials, or access there-

to, from which the plaintiff has been required to extract

the class members’ names and addresses. E.g., City of New

York v. Darling-Delaware, Inc., 1976-1 CCH Trade Cases

7 60,812 at pp. 68,512, 68,514 (S.D.N.Y. 1976); Herbst v.

International Telephone & Telegraph Corp., 65 F.R.D. 13,

19-21 (D. Conn. i973). This is entirely consistent with the

view that class member identification is part of the Rule

23(c)(2) notice procedure and resort to the discovery

rules for authority to enter such orders is unnecessary.

Under Rule 23(d), the district court can direct a defen-

dant to furnish relevant raw materials to the plaintiff."

In re Nissan Motor Corp. Antitrust Litigation, 552 F.2d

1088, 1102 (5th Cir. 1977) (discussed at length infra).

Here, the computer tapes and records from which the class

18 Rule 23(d) grants broad powers to a court in managing a class

action, including the power to make appropriate orders “requiring,

for the protection of the members of the class or otherwise for the

fair conduct of the action, that notice be given in such manner as

the court may direct to some or all of the members of any step in

the action... .”

Moreover, this Court has long recognized the salutary “power

inherent in every court to control the disposition of the causes on

its — ...” Landis v. North American Co., 299 U.S. 248, 254

(1936).

18

members can be identified are fully available to the plain-

tiffs, and the defendants have never sought to deny plain-

tiffs access thereto. However, consistent with this Court's

Eisen IV decision, the Fund should not be compelled at

its own expense, and without the possibility of any finan-

cial benefit to itself, to refine this material to effect class

member identification, thereby forcing it to assume the

greatest part of plaintiffs’ burden of providing notice to

the class.”

The cost of class member identification, like other notice

costs, should be borne initially by the four plaintiffs as

part of the ordinary burden of financing their own suit.

Here, as in most cases, the names and addresses of the

class members are in no way related to any substantive or

procedural matter at issue, nor to the proof of any sub-

stantive or procedural allegation or claim contained in the

complaints, nor to any denial, claim or defense contained

in the answers.** The information is useful only in accom-

modating the plaintiffs’ desire to comply with the Rule 23

(c)(2) notice provisions requisite to commencing this ac-

tion in the form of a class suit against the defendants.

The mere pleading of allegations sufficient to state a valid

class interest, which have nothing whatsoever to do with

the merits of plaintiffs’ claims of wrongdoing, should not

effectively transfer to the defendants, and impose upon

*In none of the cases decided after Eisen IV. cited in the first

paragraph of note 17, supra, does it appear that the defendant

was required to incur any significant umreimbursed expense in

assisting the plaintiff to identify the class. In Hawkins v. Holiday

Inns, Inc., supra, note 17, defendant was required to provide the

plaintiff with a list of the names and addresses of the 1,000 member

class. However, the class as there defined essentially consisted of

all the defendant's current franchisees, whose names and addresses

were apparently set forth in an existing list.

*¢ Therefore, as discussed infra at pp. 25-27, the names and ad-

dresses are not a proper subject of discovery.

19

them, the financial obligations attending the commencement

of plaintiffs’ suit.

In Eisen IV, chis Court recognized the serious due pro-

cess infirmity inherent in ordering the defendants to pay

the plaintiff's costs, the payment of which was a condition

precedent to institution and maintenance of the action. In

this regard, this Court found no justification for distin-

guishing between class actions and other forms of adver-

sary proceedings. In the instant case, there is no jusiifi-

eation for drastically altering the holding by means of a

fancied distinction between the cost of class member iden-

tification and other costs solely attributable to instituting

a class suit, such as class notice or service of process.

The opinion of the en bane majority is based upon and,

if allowed to stand, will perpetuate both of the arbitrary

and constitutionally impermissible distinctions referred to

above. In so doing, that decision ignores this Court’s man-

date and “contravenes [Rule 23] by allowing a repre-

sentative to secure the benefits of a class action without

first satisfying the requirements for it.” Eisen IV, 417

U.S. at 748.

In Eisen IV, 417 U.S. at 178-79, this Court held:

“In the absence of any support under Rule 23 peti-

tioner’s effort to impose the cost of notice on respon-

dents must fail. The usual rule is that a plaintiff

must initially bear the cost of notice to the class...

as part of the ordinary burden of financing his own

suit.” (emphasis added)

20

Notwithstanding this clear language, the en banc ma-

jority erroneously concluded that the cost of class identifi-

cation (or presumably any other cost of providing notice)

can and should be allocated to the defendant if such allo-

cation, although lacking support in Rule 23, has a basis

elsewhere in the Federal Rules of Civil Procedure. Claim-

ing to find such a basis in Rule 34, one of the discovery

rules, the en bane majority considered that it was free

under Eisen IV to czeise class member identification from

the notice procedure.”

It is submitted that the majority did not reasonably or

correctly interpret this Court’s holding. In Eisen IV this

Court expressly rejected an allocation of notice costs by

the district court based upon procedures extraneous to

Rule 23, such as a preliminary inquiry into the merits

derived from the procedures applicable to preliminary

injunctions. In contrast to the en bane majority, the

United States Court of Appeals for the Fifth Circuit cor-

rectly interpreted this Court’s Eisen IV holding as follows:

“As to the propriety of imposing a portion of the costs

of notice upon the Eisen defendants, [this] Court

found that under rule 23, no support whatsoever

existed for entering such an order.” In re Nissan

Motor Corp. Antitrust Litigation, 552 F.2d 1088, 1101

(5th Cir. 1977).”

In determining which party should bear the costs of

satisfying the Rule 23(c)(2) notice requirements, this

Court, in Eisen IV, plainly limited the scope of its search

21 The en banc majority opinion states (App. E, p. 40a.) :

“In Eisen, the plaintiff's effort to impose the cost of notice

upon the defendants failed ‘[i]n the absence of any support

under Rule 23.’ Here, Federal Rule of Civil Procedure 34

provides the basis for requiring the [F]und, at its own ex-

pense, to provide plaintiffs with discoverable information

contained in its computerized records.”

#2 See discussion infra at pp. 22-24.

21

to “the language [and] history of Rule 23” and rejected

a notice cost allocation based on procedures outside the

Rule. Eisen IV, 417 U.S. at 749. In this case, the District

Court, the en bane majority and the plaintiffs all agree

that the identification of class members is necessary only

to satisfy the Rule 23(c)(2) notice requirements. Never-

theless, the en banc majority held that one of the defen-

dants, the Fund, although devoid: of any financial interest

in the litigation, must pay the cost of class identification

on the basis of the discovery procedures under Rule 34.

The en bane majority’s circumvention of Rule 23 proce-

dures to satisfy Rule 23 requirements is precisely what

was condemned by this Court in Eisen IV.

If allowed to stand, the decision of the en bane majority

will substantially derogate from the clear rule in Eisen IV

on the incidence of notice costs. The en bane majority

opinion creates uncertainty and enormous further litiga-

tion potential for class representatives to posit bases out-

side Rule 23 for the apportionment of subdivision (c) (2)

notice costs—an effect which will be significant in a large

number of class actions now pending and likely to be com-

menced in the future.”

The decision below is in conflict with and substantially

undercuts this Court’s decision in Etsen IV; it should be

reviewed and reversed by this Court.

%Eg., In re Franklin National Rank Securities Litigation, 73

F.R.D. 25 (E.D.N.Y. 1976), appeal pending, No. 76-7616 (2d Cir.,

December 9, 1976). Plaintiffs attempted unsuccessfully in

district court to impose costs of class identification on non-

party broker-dealers on the basis of the discovery rules.

22

Il.

The Decision Below on Class Member Identification

Costs Directly Conflicts With the Decision of the Fifth

Circuit in In re Nissan Motor Corp. Antitrust Litigation

and Will Cause Confusion in Numerous Class Actions

Unless Resolved by This Court.

A. The Conflict With the Fifth Circuit

In holding that under federal discovery procedures the

Fund, a nominal defendant, may be compelled at its own

expense to identify absentee class members to assist plain-

tiffs in meeting their notification obligations under Rule

23(c)(2), the en bane majority opinion directly conflicts

with the recent decision of the Fifth Circuit in In re Nissan

Motor Corp. Antitrust Litigation, 552 F.2d 1088 (5th Cir.

1977) (“Nissan Motor’).

In Nissan Motor, which was decided shortly before the

en bane majority opinion was filed, the plaintiffs, as here,

sought an order directing one of the defendants at its ex-

pense to search its business records, which were also avail-

able to plaintiffs, to compile a list of the names and ad-

dresses of the class members to whom individual notice

of the action would be sent. Like plaintiffs here, the Nissan

Motor plaintiffs advised the court that they would not

search the defendants’ records nor would they bear the

cost of the defendants’ search.

The Fifth Circuit unequivocally rejected the argument

which the en bane majority here accepted, ho!ding:

“The time and expense of gathering [class members’]

names and addresses is a necessary predicate to pro-

viding each with notice of the action’s pendency with-

out which the action may not proceed. Hisen v. Car-

23

lisle € Jacquelin, 417 U.S. at 179, 94 S. Ct. at 2153.

Viewed in this context, it becomes strikingly clear

that rather than being controlled by the federal civil

discovery rules, identification of absentee class mem-

bers’ names and addresses is part and parcel of rule

23(c)(2)’s mandate that the class members receive

‘the best notice practicable under the circumstances,

including individual notice to all members who can

be identified through reasonable effort.’” (emphasis

added) 552 F.2d at 1102. 7

Consistent with this Court’s Eisen IV holding on the

incidence of notice costs, the Fifth Circuit further held

that the plaintiffs were required at their own expense to

compile a list of the class members’ names and addresses

from defendants’ records,* stating:

“Upon commencing a class action, the class representa-

tives must be prepared to accept the concomitant re-

sponsibility of identifying absentee c)>ss members as

well as paying the costs of their individual notice.”

Id. at 1102.

B. The Impact on Other Cases

If the expense of class identification, which is often

substantial, is deemed to be a discovery cost allocable to

**The Fifth Circuit declined to rule on whether Eisen IV

compels this result in all cases where a “truly adversary” relation

exists between the parties. It also refused to adopt the “rule of

reason” approach, turning on which party would have the easier

task in gathering the class information, which it discerned in the

decisions of other courts. It was unnecessary to decide these issues,

stated the Fifth Circuit, because under either approach the plain-

tiffs would be required to furnish at their own expense the neces-

sary names and addresses. The same result would obtain in this

case under the Nissan Motor holding, since the records from which

the instant class members can be identified are also available to

plaintiffs here and may be examined as readily and as effectively by

the plaintiffs as by the defendants.

24

the responding party, as the en bane majority decided be-

low, the rule that the plaintiff must bear the ordinary

burden of financing his own suit is emasculated. Not only

will defendants be required to pay for Rule 23(b)(3) class

suits against them, but persons who are not parties to the

action and have no financial interest in its outcome, a

status not unlike the Fund’s, will also be called upon to

subsidize the cost of lawsuits commenced by would-be class

representatives. Representative plaintiffs have not been

reluctant to proceed under the federal discovery rules in

an effort to require non-parties at their own expense to

search records in their possession containing class mem-

bers’ names and addresses. In the Second Circuit alone,

during a one-year period, at least four such discovery

orders were sought. In re Franklin National Bank Secu-

rities Litigation, 73 F.R.D. 25 (E.D.N.Y. 1976) (order

denied on basis of decision of the three-judge panel of

the Court of Appeals herein), appeal pending, No. 76-7616

(2d Cir., filed December 9, 1976); Jahre v. Ratt, 76 Civ.

1305 (E.D.N.Y. July 16, 1976) (prior ex parte order va-

cated); Weiss v. Drew National Corp., 75 Civ. 4816 (S.D.

N.Y. July 15, 1976) (order denied on basis of decision, of

original panel of Court of Appeals herein); Frankenstein

v. McCrory, 74 Civ. 727 (S.D.N.Y. November 14, 1975)

(order directing identification modified to provide for re-

imbursement). Undoubtedly, there were similar cases in

other circuits. See, e.g., In re Penn Central Securities

Litigation, 416 F.Supp. 907, 921 (E.D. Pa. 1976), rev'd,

No. 76-2139 (3d Cir. August 5, 1977).

The majority decision of the Court below is in conflict

with the decision of the Fifth Circuit, and involves an im-

portant question of federal law which should be settled

by this Court.

25

Il.

The Decision Below Is Predicated on an Interpreta-

tion of the Scope of Discovery Contrary to the Standards

Set by Rule 26(b) (1), Misinterprets and Misapplies the

Provisions of Rules 33(c) and 34 and Sanctions an Im-

position of Costs on Defendants Without Factual or

Legal Justification. ’

The decision below was reached as if the question of

identification of class members and the costs thereof arose

in discovery proceedings, when in fact it arose in connec-

tion with plaintiffs’ motion for class determination under

Rule 25. Even if the discovery rules could be considered

under a class determination motion, they afford no basis

for the en banc majority decision.

A. The Decision Below Contravenes Rule 26(b)(1) by Au-

thorizing Discovery of Information That is Wholly Irrel-

evant to the Subject Matter of This Action.

Rule 26(b)(1) limits the scope of all discovery, whether

sought pursuant to Rule 33, Rule 34 or any other federal

discovery provision. 4 Moore’s Federal Practice 26.56[1]

at p. 26-115 (2d ed. 1976). Subdivision (b)(1) states:

“[pjarties may obtain discovery regarding any matter,

not privileged, which is relevant to the subject m. ‘‘er in-

volved in the pending action. . . .” (emphasis added)

Professing to be guided by this standard, the en banc

majority held that “the names and addresses of the mem-

bers of the class [are] indeed within the broad scope

of permissible discovery established by our Federal

Rules.” * (App. E, p. 40a.) The majority reached this

erroneous conclusion in spite of the fact that plaintiffs

*® This rationale appears to have its origins solely in the en bane

majority opinion. The opinion and order of the District Court

below do not mention the federal discovery rules; that Court

seems to have perceived the issue as one governed by Rule 23.

(App. A, pp. 2a, 7a.)

26

seek the names and addresses solely for the purpose of

class notification under Rule 23(c)(2), which purpose bears

no relation whatsoever to the trial of any existing or anti-

cipated substantive issue in this case, the jurisdiction of

the court, or the requirements for maintenance of a class

suit under subdivisions (a) and (b) of Rule 23.**

The en bane majority tried to establish that the informa-

tion sought by plaintiffs is relevant to the “subject matter

involved” in this action, reasoning incorrectly as follows:

(i) by mandating individualized notice to class members,

“Eisen raises as a potential issue in all such litigation

whether the required notice has properly been sent... .”

and (ii) “[{a] list of the names and addresses of the class

members would of course be essential to the resolution of

that issue.” (App. E, p. 40a.)

This is specious reasoning. The majority has based its

rationale on a manufactured issue which has never been

and is not now in this case, namely, “whether the [notice

required by Rule 23(c)(2)] has properly been sent.” In

fact, plaintiffs here seek the names and addresses to satisfy

the mechanics of Rule 23(c)(2) and not to obtain informa-

tion relevant to any question of whether or not proper

notification has been given. Plainly, this has nothing what-

ever to do with the subject matter involved in this action.

Moreover, if this action proceeds as a class action, proper

notification will not be an issue in this case, since all of

the members of the class can be identified and notice can

be mailed to each member. Further, it is difficult to hy-

pothesize the circumstances under which the issue of proper

*¢ The District Court determined that all such requirements have

been satisfied in this ease, including “numerousness” (whieh per-

tains to the number and not the identities of the class members),

“elass definition” (which pertains to the specificity with which the

class is defined), “common questions”, “typicality”, “adequacy of

representation”, “manageability” and “predomination”. These

determinations of the District Court are not disputed here.

27

notification could be raised by the named plaintiffs. As

stated by the en banc dissent:

“Should any issue arise, as to ‘proper notification’, e.z.,

was the list complete, was the notice appropriate, was

the postage adequate, presumably it would be raised -

by a putative member of the class but not in limine by

the plaintiffs who are required to notify and pay the

costs of notification under Eisen IV.” (App. E, p. 52a.)

The decision of the en banc majority permits discovery

of information which is not relevant to the “subject matter

involved” in this action but to the mechanical requirements

of Rule 23(c)(2). In support of its decision, the en bane

majority interjects an issue which is in reality utterly

extrinsic to this case. The en banc majority here extends

the scope of discovery beyond the perimeters of subject

matter relevance established by Rule 26(b)(1) so that it

seemingly encompasses any information that is useful to

the plaintiff in instituting or prosecuting the suit. This

construction is not limited in its applicability to the Rule

23(c)(2) notification procedure or to Rule 23(b)(3) class

actions but is an untoward precedent in all civil actions to

which Rule 26 applies.

B. The Decision Below Misinterprets and Misapplies the Pro-

visions of Rules 33(c) and 34 on a Dispositive Issue in

This Case.

For the reasons heretofore stated, the process of identi-

fying the names and addresses of the class members must

be treated as an integral part of the Rule 23(c)(2) notice

procedure and not within the scope of discovery set by

Rule 26(b)(1). However, if the federal discovery rules

are deemed to apply, consistent therewith the Fund never-

theless cannot be compelled to bear the substantial expense

of creating special computer programs to extract from its

computerized business records, which are fully available

28

to the plaintiffs, the names and addresses of the prospec-

tive class members. Rule 33(c) is expressly designed to

protect parties, such as the Fund, who have records from

which the desired information can be compiled. It permits

a party to respond to burdensome interrogatories by afford-

ing the party seeking discovery “reasonable opportunity

to examine, audit or inspect such records and to make

copies, compilations, abstracts or summaries.” *’

The en bane majority held that the Fund is not entitled

to the protection of Rule 33(c) because (i) the class mem-

bers’ names and addresses are contained in computer tapes

and (ii) the production of computerized information is

governed exclusively by Rule 34, which provides for the

production, inspection and copying of “documents and

things,” including “data compilations™ from which infor-

mation can be obtained, translated, if necessary, by the

respondent through detection devices into reasonably

usable form... .”

In so holding, the en banc majority was cautious to note:

“We intimate no view as to what the result in the instant

case would be if Rule 33(c) were deemed applicable.” (App.

E, p. 42a n.1.) Contrary to the decision reached by the

majority, if the federal discovery rules were applicable,

Rule 33(c), not Rule 34, should govern the process of as-

** Rule 33(c) recognizes the long-standing rule applied by courts

in eases involving computerized information and other records.

E.g., Adams v. Dan River Mills, Inc., 54 F.R.D. 220 (W.D. Va.

1972) ; Tytel v. Richardson-Merrell, Inc., 37 F.R.D. 351 (S.D.N_Y.

1965) ; Konceakowski v. Paramount Pictures, Inc., 20 F.R.D. 588,

593 (SDNY. 1957).

** The Advisory Committee Note (48 F.R.D. 487, 527) to the

addition of the category “data compilation” to Rule 34 indicates

that the amendment was merely intended to clarify the seope of

the Rule, not to change it. United States v. Davey, 543 F.2d 996,

999 (2d Cir. 1976). This would indicate that Rule 34 is intended

to have no special or exclusive application to computer data. Rule

33(¢) also speaks of “compilations.”

29

certaining the names and addresses of the members of the

class.

The class members’ names and addresses are not subject

to Rule 34, which “applies only to documents and things

that are already in existence... .”** 4A Moore’s Federal

Practice § 34.05[1] at p. 34-32 & n.4 (2d ed. 1975). In the

case of existing “electronic data compilations,” the Ad-

visory Committee’s Note states that the “respondent may

be required to use his devices to translate the data into

usable form [often] a print-out of computer data.” Ad-

visory Comimittee Note, 48 F.R.D. 487, 527 (1970). A print-

out of existing computer data can generally be made at

nominal expense. However, the identities of the class mem-

bers here are not an existing data compilation; a com-

pilation of such information can be created only at sub-

stantial expense through the design and implementation

of new computer programs to scan and refine the existing

data. The clear distinction between the scope of Rule 34

and the production of information sought by plaintiffs

here, was recognized in the majority opinion of the orig-

inal Court of Appeals panel.”

The computerized business records, from which a list

of the names and addresses can be compiled, are fully

29 As to the scope of examination, Rule 34 is to be construed in

pari materia with Rule 45, which provides for the subpoena duces

tecum. 4A Moore’s Federal Practice § 34.02[1] at pp. 34-12—34-13

(2d ed. 1975).

%° “The task of culling relevant names and addresses from a long

list, as confronts the parties here, is a distinctly different one from

the production for inspection and copying with which Rule 34 is

become necessary, ‘the courts will have to become increasingly

sensitive to problems of expense and the utilization of an oppo-

nent’s computer assets.’ 8 C. Wright and A. Miller, Federal

Practice & Procedure §2218 at 659 (1970).” (emphasis added)

(App. C, p. 23a n.7.)

30

available to plaintiffs, who can examine the records as

easily and as effectively as can the defendants. Plaintiffs

simply seek to have this research and compilation of data

performed for them. These are precisely the circum-

stances under which Rule 33(c) is intended to afford pro-

tection to the responding party; the fact that here the

records are computerized does not preclude the applica-

tion of the Rule.

For example, in Laufman v. Oakley Building and Loan

Company, 72 F.R.D. 116, 121 (S.D. Ohio 1976), the defen-

dants were given the option provided by Rule 33(c) in

response to interrogatories addressed to material con-

tained in computer banks. This is consonant with the treat-

ment of computerized business records in other contexts.

Computerized information has been held to constitute

“business records” under the Business Records Act, 28

U.S.C. $1732. United States v. Fendley, 522 F.2d 181 (5th

Cir. 1975): United States v. Russo, 480 F.2d 1228 (6th

Cir. 1973), cert. denied, 414 U.S. 1157 (1974). Under Fed.

Rules Evid. Rule 803(6), 28 U.S.C., business records in-

clude “data compilations.” The Advisory Committee Note

to the business records rule states that the term “data

compilations” is borrowed from Rule 34(a) and includes

electronic computer storage.

There is no reason to differentiate between business

records stored in a computer and other basic types of

records. Discovery requests relating to computer records

should be treated in a manner consistent with similar re-

quests for other types of information. Indeed, the poten-

tial for abuse of the kind which Rule 33(c) was intended

to ameliorate is greater in the case of computer records

than in other settings. Where the information was not

recorded in computer tapes in the form later desired by

the party seeking discovery, that party should bear the

31

burden, under Rule 33(c), of developing the special pro-

grams for the analysis and reorganization of the existing

computer tapes. The procrustean decision of the en banc

majority, denying application of Rule 33(c) in all cases

of computerized business records, imposes an unfair

burden on the responding party in this case, and, becfuse

on this point the majority opinion is absolute, ensures a

perpetuation and proliferation of this inequity in numer-

ous cases involving computerized business operations that

will be decided in the district courts.”

C. Even if the Discovery Rules Were Applicable, the Factors

Relied on by the Court Below Do Not Justify the Imposi-

tion of the Substantial Costs of Class Identification on the

Financially Disinterested Fund.

Holding that the District Court committed no abuse of

discretion in imposing class identification costs on the

Fund, the en bane majority stressed two considerations:

(i) the expense thus imposed is not unreasonable in light

of “the nature of the information sought” and the “vast

and complex” business operations of the Fund, and (ii) the

expense “was occasioned by the [district] court’s agree-

ment with defendant that the [F]und would have been

harmed by the proposed class redefinition.” (App. E,

pp. 44a, 46a.) |

As pointed out by the en bane dissent, any cost alloca-

tion turning upon the first consideration in a class action

context would necessarily be inflexible, since such actions

are invariably brought against those whose financial re-

sources are vast in comparison with those of the plaintiffs.

51 Thus, the en banc dissent wrote:

“To require corporate defendants to so arrange their computer

programming as to anticipate the endless variety of prospective

classes which might someday bring class actions is, of course,

unrealistic and not required by any law we know of until this

decision which hopefully will be short lived.” (App. E, p. 54a.)

32

(App. E, p. 53a.) Moreover, this consideration was ex-

pressly rejected in Eisen IV, 417 U.S. at 1176, where this

Court stated: “There is nothing in Rule 23 to suggest that

the notice requirements can be tailored to fit the pocket-

books of particular plaintiffs.”

The second consideration relied on by the en bane major-

ity erroneously assumes a logical or equitable nexus be-

tween (i) the defendants’ opposition to a redefinition of

the class posed by plaintiffs and rejected by the District

Court as arbitrary and improper and (ii) the defendants’

obligation to identify the members of the class as origi-

nally defined for the purpose of notifying such persons.

If, as found by the District Court, the proposed redefinition

was arbitrary and improper, then defendants were justi-

fied in opposing it, and, by so doing, should not be sub-

jected to a liability that they would not otherwise be re-

quired to bear. The en bane dissent correctly states: “If

this is to be the law the opportunities for abuse become

obvious.” (App. E, p. 54a.) The issues of proper class

definition and class member notification are discrete; each

should be dealt with separately, on its own terms. More-

over, the District Court’s ruling that plaintiffs could not

exclude from their class those persons who had sold all of

their shares and ceased to be shareholders of the Fund

does not affect the cost of identifying the class, since, had

such persons been excluded, it still would have been neces-

sary to devise new computer programs to ascertain and

assemble from the Fund’s list of current shareholders the

names and addresses of those who purchased shares dur-

ing the class period.

In addition to vitiating this Court’s decision in Fisen IV,

the decision below incorrectly resolves important questions

of federal law concerning the scope and purposes of the

federal discovery procedures and the problems of accom-

33

modating these procedures to the development of com-

puter technolegy. It should be reviewed and reversed by

this Court.

Conclusion

For the reasons stated, this petition for a writ of

certiorari should be granted.

Datep: New York, New York

August 31, 1977

Respectfully submitted,

Mrtox C. Wersmay

Geratp Gorpox

425 Park Avenue

New York, New York 10022

(212) 371-5400

Attorneys for Petitioner

Oppenheimer Fund, Inc.

A.rrep Berman

Lzoxw H. Tyxkvisker

Ricuarp P. AcKERMAN

80 Pine Street

New York, New York 10005

(212) 344-2040

Attorneys for Petitioners

Oppenheimer Management Corp.,

Oppenheimer € Co.,

Leon Levy,

Jack Nash

Jou» F. Davmsor

Dasret E. Krescx

40 Wall Street

New York, New York 10005

(212) 483-5800

Attorneys for Petitioners

Edmund T. Delaney,

Emanuel Celler

Of Counsel:

Weisman, Ceiier, Spettr, Moptiy,

WertHemmer & ScHLESINGER

425 Park Avenue

New York, New York 10022

(212) 371-5400

GucGENHEIMER & UNTERMYER

80 Pine Street

New York, New York 10005

(212) 344-2040

Tuacuer, Prorritr & Woop

40 Wall Street

New York, New York 10005

(212) 483-5800

APPENDIX

APPENDIX A

District Court Opinion

UNITED STATES DISTRICT COURT

Sournern District or New York

69 Civ. 1242 (T.P.G.)

Irvine SANDERS,

Plaintiff,

v.

Leon Levy, et al.,

Defendants.

Econ Tavussie,

Plaintiff,

v.

Siwney M. Rossrns, et al.,

Defendants.

Micuaet SHaev and Rrra SHaev,

Plaintiffs,

v.

Eric Hauser, et al.,

Defendants.

Griesa, J.

Plaintiffs have moved for class action treatment of a

part of these consolidated cases, which consist of both

la

2a

Appendia A

class and derivative claims. Certain problems have been

raised, mainly as to the definition of the class and as to

who is to bear certain expenses connected with the giving

of notice.

I have concluded that the class claims are properly

brought under Fed. R. Civ. P. 23 (b)(3), and that the class

shall consist of all persons who purchased shares of de-

fendant Oppenheimer Fund, Inc. (“the Fund”) between

March 15, 1968 and April 24, 1970. The Fund is to be

responsible for whatever work and expense is involved in

providing the list of class members to plaintiffs. There-

after plaintiffs will be responsible for mailing the necessary

notices, and will bear the necessary costs.

L

The three captioned actions were commenced March 26,

1969, May 12, 1969 and June 18, 1969, respectively. They

were consolidated on December 17, 1969.

Plaintiffs own shares in defendant Fund, which is an

open-ended investment Fund registered under the Invest-

ment Company Act of 1940 (15 U.S.C. §§80a et seq.).

Shares are sold by the Fund or its agents to the public

at a price which represents the net asset value of the

shares plus a sales charge. The Fund has about 174,000

shareholders who hold over 67 million shares.’

1 Technically, the Fund shares are held in two forms. There are

about 86,000 shareholders who own their shares of the Fund di-

rectly. The other 88,000 are held by Oppenheimer Systematic Capi-

tal Accumulation Program (“OSCAP”), which holds shares of the

Fund as “custodian”. The 88,000 participants in the OSCAP plan

are termed “planholders” and own undivided interests in the total

number of shares held by OSCAP.

For the purposes of this opinion, I am considering the OSCAP

planholders as shareholders of the Fund. In connection with the

class action motion, the parties have proceeded on this basis.

3a

Appendix A

Defendant Oppenheimer Management Corporation (“the

Manager”) acts as manager of the Fund’s investment port-

folio. Pursuant to an Investment Advisory Agreement,

the Manager receives a fixed fee calculated as a percentage

of the Fund’s net asset value. In addition to the fixed fee

the Manager also receives a fee in each year that the Fund

betters its market rating over the preceding year.

Defendant Oppenheimer & Co., a brokerage firm, is a

partnership that owns about 82% of the Manager’s stock.

This 82% includes 100% of the voting stock. The indi-

vidual defendants are all directors or officers of the Fund

or of the Manager, or partners in Oppenheimer & Co.

Some of the individuals are principals in all three organi-

zations.

Plaintiffs alleg~ that defendants violated the federal

securities laws by 1u ts disclose material information

to investors. Plaintiffs pu... >articularly to the Fund

prospectuses of March 15, 1968, September 3, 1968 and

April 25, 1969. Specifically plaintiffs claim that defendants

failed to state that the Fund would purchase “restricted”

securities and failed to describe the risks involved in such

purchases. They further claim that the Fund overvalued

the restricted securities it owned, and failed to disclose

material information in regard to the valuation of restricted

securities—namely the method used to value them. As a

result, according to plaintiffs, the total net assets of the

Fund were overstated causing a concomitant overvalua-

tion of Fund shares being sold to the public. Plaintiffs

allege also that by virtue of the fee arrangement with the

Manager the overvaluation of Fund net assets caused the

Fund to pay excessive fees to the Manager.

Plaintiffs sue to recover damages on behalf of share-

holders who paid excessive prices for their Fund stock;

4a

Appendix A

and derivately on behalf of the Fund to recover the al-

legedly excessive fees paid to Manager. Defendants deny

the material allegations made in the complaints.

Ii.

The requirements of a class action under Rule 23 are

clearly met in the present case. The class will number

about 121,000 members, so that the numerosity require-

ment is met. There are questions of law and fact common

to the class within the meaning of Rule 23(a)(2), and

indeed it is clear that the questions of law and fact com-

mon to the members of the class predominate over any

question affecting only individual members, within the

meaning of Rule 23(b)(3). The core of the class claims

relates to the questions about whether or not material in-

formation about the valuation of restricted securities was

withheld from investors in the Fund. There are also the

questions relating to the responsibility of the various de-

fendants in the event that there was a withholding of

material information. All of these matters relate to issues

common to the class. It is by now established that in such

a situation a class action is appropriate, despite the fact

that there may be individual issues relating to causation

and damages.

Defendants make an argument that the class claims are

unmanageable because the average recovery per class

member is estimated to be between $2.00 and $24.00. Plain-

tiffs contend that these averages are misleading and that

numerous persons in the class would recover substantial

amounts. On the basis of the information presently avail-

able, I am of the opinion that it would be inappropriate to

declare these class claims unmanageable. At least as far

5a

Appendix A

as the present record shows, these class claims partake of

no more difficulty than is attendant upon the claims in

numerous class actions which the federal courts have

entertained. If, at a later point in the action, a clearer

demonstration of unmanageability is made, the court can

deal with this problem. Also, no question has been raised

about the adequacy of the named plaintiffs and their coun-

sel to represent the class.

I therefore conclude that this is a proper class action

under Rule 23(b) (3).

IV.

Originally plaintiffs sought to represent all persons who

purchased Fund shares during the relevant period—both

past and present owners. However, it then appeared that

the cost of compiling this list of persons from defendants’

records would, according to defendants’ estimate, be ap-

proximately $16,000. Plaintiffs then suggested a modifica-

tion intended to eliminate this expense. The proposal is to

break out of the class those Fund shareholders who have

sold their shares (about 18,000 persons), and to include

only those shareholders who still own their shares (about

103,000 persons). Defendants oppose the suggested cut,

presumably because it would limit the res judicata effect of

this action.

Without discussing the mechanical questions of how

plaintiffs’ proposal would eliminate the expense, I can

simply say that in my view, plaintiffs’ proposal would in-

volve an arbitrary reduction in the class. If the share-

holders who purchased during the relevant period were

misled into purchasing at inflated prices, then, as far as

the present record shows, this problem affects those share-

6a

Appendiz A

holders who have sold out just as much as those who hap-

pened to have retained their shares.

Moreover, with respect to the cost of culling out the list

of class members, I am ruling that this is the responsibility

of defendants. Whether this would be the correct alloca-

tion in other cases, I do not attempt to say. But here the

expense is relatively modest and it is defendants who are

seeking to have the class defined in a manner which ap-

pears to require the additional expense.

V.

Plaintiffs propose to include in the class all persons who

purchased Fund shares from March 15, 1968 (the date of

the first allegedly false prospectus referred to) to April

24 1970 (the date of the prospectus in which, according to

plaintiffs, defendant first fully described the method used

by the Fund in valuing restricted securities in the Fund’s

portfolio).

Defendants have no objection to the March 15, 1968

starting date, but contend that the class period should be

cut off at April 25, 1969, the date of a prospectus that de-

fendants claim disclosed to the public the pendency of these

law suits and the allegations of non-disclosure made by

plaintiffs here.

I conelude there is a triable claim that the disclosure in

the April 25, 1969 prospectus was not adequate. The 1969

prospectus does indeed inform the reader of the pendency

of this and other law suits. It does state that the suits call

the valuation of restricted securities into question. It

further states that in the opinion of management the suits

are “meritless.” On valuation of restricted securities in

particular the 1969 prospectus states that restricted securi-

ties are valued at “fair value as determined in good faith

7a

Appendix A

by the Board of Directors.” However, nowhere in the

April 25, 1969 prospectus is there an explicit statement of

how the Board of Directors arrives at a valuation for the

shares.

The April 24, 1970 prospectus is substantially different.

In addition to the almost identical references to the present

litigation and to the fact that the Board of Directors values

the restricted securities, there is an entire page which

specifically sets forth the method used in valuing these

securities,

I therefore conclude that the class may properly include

persons who bought fund shares through April 24, 1970.

This finding does not, of course, determine the merits of

plaintiffs’ allegations. The materiality of the information

plaintiffs claim should have been disclosed as well as the

market effect of its disclosure or non-disclosure are ques-

tions to be litigated.

VI.

Plaintiffs are seeking to minimize their expenses in con-

nection with giving notice to the members of the class. As

indicated earlier, their proposal is to limit the class to

Fund shareholders who bonght in the relevant period and

who still own their shares, excluding shareholders who

have sold their shares.

Plaintiffs further propose that the giving of notice

should be accomplished by having the Fund insert the

notice in a regular mailing to its present shareholders.

Defendants raise two objections to these proposals. One

objection has already been described and dealt with—that

the proposal would cut out of the class approximately

18,000 persons who logically belong in the class. Earlier

Sa

Appendix A

in this opinion, I stated my ruling in favor of defendants

on this point.

The second objection of defendants is that the insertion

of the notice in a regular mailing to the current Fund

shareholders would result in the notice being sent to num-

bers of shareholders who are not members of the class. My

solution to this problem starts with my earlier ruling that

it is the responsibility of defendants to cull out from their

records a list of all class members and provide this list to

plaintiffs. Plaintiffs will then have the responsibility to

prepare the necessary notice and mail it at their expense.

The parties should settle an order on this opinion, and

should submit a form of notice to be given to the members

of the class.

Dated: New York, New York

May 15, 1975

s/ Tuomas P. Griesa

Txomas P. Griesa

U.S.D.J.

a

9a

APPENDIX B

District Court Memorandum Order

UNITED STATES DISTRICT COURT

SovutrHern District or New York

69 Civ. 1242

Irvine SANDERS,

Plaintiff,

v.

Leon Levy, et al.,

Defendants.

Econ Tavussie,

Plaintiff,

v.

Sipney M. Rossrys, et al.,

Defendants.

Micuare, SxHaev and Rita SwHaev,

Plaintiffs,

v.

Eric Hauser, et al.,

Defendants.

Griesa, J.

Motions for reargument of my May 15, 1975 opinion have

been made by plaintiffs and by various defendants. All

such motions are denied, except as follows:

10a

Appendiz B

(1) The starting date for the period for the class claims

should be March 28, 1968 instead of March 15, 1968.

(2) The cost of culling out the list of class members

shall be borne by defendant Oppenheimer Fund, Inc.,

without prejudice to the right of this defendant, at

the conclusion of the action, to make whatever claim

it would be legally entitled to make regarding reim-

bursement by another party.

(3) As to the mailing of notices, plaintiffs are to have

the option of (a) sending them out in their own

mailing; or (b) including them in a regular mailing

of defendant Oppenheimer Fund, Inc., provided that

the notices are sent only to class members and that

plaintiffs pay in full the Fund's extra costs of mail-

ing, including the costs of segregating the envelopes

going to the class members from the envelopes going

to other Fund shareholders.

So ordered.

Dated: New York, New York

September 30, 1975

/s/ Tomas P. Grresa

Tomas P. Grresa

U.S.D.J.

lla

APPENDIX C

Court of Appeals Three-Judge Panel Opinion

UNITED STATES COURT OF APPEALS

For tHe Secoxwp Ciecvitr

Nos. 743, 744, 745—September Term, 1975.

(Argued May 5, 1976 Decided June 30, 1976.)

Docket Nos. 75-7608, 75-7610, 75-7611

Invisc Sanpers,

Plaintiff-A ppellee,

—against—

Leow Levy, et al.,

Defendants-Appellants.

Ecox Tavssic,

Plaintiff-Appellee,

—against—

Smxer M. Rossrys, et al.,

Defendants-Appellants.

Micnart Sav and Rrra Sxaev,

Plaintiff s-A ppellees,

—against—

Exrc Harvser, et al,

Defendants-Appellants.

12a

Appendix C

Before:

Hays and Muuuican, Circuit Judges, and

Patmiert, District Judge.*

Appeal from an order of the Hon. Thomas F. Griesa,

Judge, United States District Court for the Southern

District of New York, holding the suit to be properly main-

tainable as a class action under Rule 23(b)(3), Fed. R.

Civ. P., and directing that the defendant mutual invest-

ment fund bear substantial costs of extracting the names

and addresses of the class members from computer tapes.

Affirmed as to class action designation. Reversed as to

allocation of identification costs.

GeraLtp Gorpoy, New York, New York (Weis-

man, Celler, Spett, Modlin & Wertheimer,

New York, New York, Milton C. Weisman,

of Counsel), for Defendant-Appellant Op-

penheimer Fund, Inc.

Leon H. Tykutsker, New York, New York (Gug-

genheimer & Untermyer, New York, New

York, Richard P. Ackerman, of Counsel),

for Defendants-Appellants Oppenheimer

Management Corp., Oppenheimer € Co.,

Leon Levy and Jack Nash.

Jonx F. Davmson, New York, New York

(Thacher, Proffitt & Wood, New York, New

York, Daniel E. Kirsch, of Counsel), for

Defendants-Appellants Edmund T. Delaney

and Emanuel Celler.

* Edmund L. Palmieri, United States District Judge, Southern

District of New York, sitting by designation.

13a

Appendiz C

Dowatp N. Rusy New York, New York (Wolf

Popper Ross Wolf & Jones, New York,

New York, Robert Kornreich, of Counsel),

for Plaintiffs-Appellees.

Patient, D.J.:

Plaintiffs-appellees (plaintiffs) seek to maintain this

action on behalf of certain present and former stockholders

of Oppenheimer Fund, Inc. (the Fund), an investment

company registered under the Investment Company Act

of 1940, 15 U.S.C. § 80a-1 et seg. This is an appeal under

28 U.S.C. § 1291 from an interlocutory order holding the

suit to be properly maintainable as a class action under

Rule 23(b) (3), Fed. R. Civ. P., and directing the defendant-.

appellant (defendant) Fund to bear substantial costs in

identifying the names and addresses of the class members

so that plaintiffs can send them the initial notice of the

pending action as required by Rule 23(c)(2), Fed. R.

Civ. P.

When the motion for class determination was made,

there were over 67 million shares of the Fund outstand-

ing held by approximately 173,000 shareholders. Of the

approximately 121,000 present or former shareholders who

constitute the class designated by the plaintiffs, about

103,000 remain shareholders and 18,000 have sold their

shares. The information needed by plaintiffs for the

preparation of the notice to the members of the class,

particularly the names and addresses of the class members,

is contained in magnetic computer tapes kept by the trans-

fer agent of the Fund. The extraction of this information

from the tapes would require, in addition to the usual

processing, the design of new computer programs. The

14a

Appendix C

cost of accomplishing this task was estimated by the

transfer agent to be $16,580 as of October 10, 1973.

On each of the issues presented, identification costs and

designation as a manageable class action, we must first

decide if the issue is reviewable on appeal and, if so, then

determine if the district court’s decision should be upheld.

Since we find that our treatment of the identification costs

matter affects the designation question, we discuss the

identification costs matter first.

The Allocation of Identification Costs

The order requiring the Fund to bear the identification

costs is appealable because it fits squarely within the col-

lateral order doctrine of Cohen v. Beneficial Loan Corp.,

337 U.S. 541 (1949). The requirements of that doctrine

are essentially twofold: first, the decision appealed from

must not be “tentative, informal or incomplete,” 337 U.S.

at 546, but rather it must conclusively settle a party’s

claim; second, the decision must involve a collateral matter

that can be reviewed apart from the merits of the case but

which cannot be effectively reviewed on appeal from the

final judgment. In Eisen v. Carlisle & Jacqueline (Eisen

IV), 417 U.S. 156 (1974), the Supreme Court faced the

question whether this court had jurisdiction in Fisen v.

Carlisle € Jacquelin (Eisen III), 479 F.2d 1005 (2d Cir.

1973) when we reviewed the district court’s order impos-

ing notice costs on the defendants. The Supreme Court

decided that the order was appealable because it was “‘a

final disposition of a claimed right which is not an in-

gredient of the cause of action and does not require

consideration with it.’” 417 U.S. at 172, quoting Cohen,

supra, 337 U.S. at 546-47. See also, General Motors Corp.

15a

Appendiz C

v. City of New York, 501 F.2d 639, 647 (2d Cir. 1974). We

find this question of appealability controlled by Eisen IV.

We turn next to the merits of the order allocating iden-

tification costs. Rule 23(c) (2), Fed. R. Civ. P., provides in

relevant part:

In any class action maintained under subdivision (b)

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

the best notice practicable under the circumstances,

including individual notice to all members who can be

identified through reasonable effort.

Since this is a class action brought under subdivision

(b)(3) of the rule, namely, one in which the court below

found that the questions of law or fact common to the

members of the class predominate over any questions af-

fecting only the individual members, and that the class

action was superior to other available methods, individual

notice of the action must be sent to all class members who

can be identified by name and address through a reason-

able effort. Eisen IV, 417 U.S. at 173-77. The cost of such

notice must be borne in the first instance by plaintiff. Id.,

417 U.S. at 177-79; Eisen III, 479 F.2d 1005, 1009 (2d Cir.

1973); Eisen IT, 391 F.2d 555, 568 (2d Cir. 1968). The

authorities just cited enunciate the views of the Supreme

Court and this court that, absent special circumstances,

if the plaintiff does not accept this expense, the class ac-

tion cannot be maintained. In the usual case, defendants

may not be compelled to provide financial support for a

class action against themselves.

Where, as here, the relationship between the parties

is truly adversary, the plaintiff must pay for the cost

16a

Appendia C

of notice as a part of the ordinary burden of financing

his own suit.

Eisen IV, 417 U.S. at 178-79.

The possibility that plaintiff may not be required to

defray the cost of notice is still an open question in some

cases. The Supreme Court declined to foreclose the pos-

sibility in “situations where a fiduciary duty pre-existed

between the plaintiff and defendant, as in a shareholder

derivative suit.” Eisen IV, supra, 417 U.S. at 178. In

addition to. the derivative suit, we have suggested that

there may be other similar cases in which justification

might be found for holding that a representative plain-

tiff is not obligated to defray the cost of notice, citing “a

case where a public utility corporation which regularly

sends monthly bills to its current customers has been held

to have overcharged its customers and the class suit is

brought to compel a refund.” Eisen III, 479 F.2d 1005,

1009 n.5 (2d Cir. 1973). The district judge does not ap-

pear to have pursued this line of analysis and the plain-

tiffs have mentioned it only in passing.

Assuming that there may be cases where the imposition

of notification costs on the defendant may be justified, we

do not think this is such a case. The defendant Fund is

not a public service monopoly with the responsibilities in-

cumbent upon such an entity, and no finding of liability

has yet been entered against it. The Supreme Court in

Eisen IV did not attempt to elucidate the exceptional case

in which a representative plaintiff might be relieved of

this burden. Indeed, it did notrmnequivocally state that

there was such a case. It did speak of the shareholder

derivative suit but that apparently was by way of analogy

since the derivative suit is not a class action, though pos-

17a

Appendix C

sibly akin thereto. The Supreme Court also described

Eisen IV as a case where “the relationship between the

parties is truly adversary.” 417 U.S. at 178. Possibly this

was intended to contrast it with a derivative suit where

the corporation, though a nominal defendant, has interests

closely aligned with the plaintiff and indeed would be the

beneficiary of any recovery. The equities in favor of im-

posing some costs on the corporation in that situation are

obvious. But the Supreme Court more likely had in mind

an arms-length relationship unencumbered by fiduciary

duties. The relationship between the plaintiffs and the

Fund is probably not “truly adversary” in the Eisen IV

sense. Although the Fund is not in the position of the

corporation in a derivative suit,’ we may assume it had

fiduciary duties to the purchasers of its shares. See Dolgow

v. Anderson, 43 F.R.D. 472, 498-99 (E.D.N.Y. 1968). But

the relationship between the plaintiffs and the Fund is not

non-adversarial in a manner which requires an exception

to the Eisen IV rule on notification costs, but in a manner

that makes it totally improper to impose costs on the Fund:

the Fund is not a party to the class action claims.’ No

1See Developments in the Law, Multiparty Litigation in the Fed-

eral Courts, 71 Harv. L. Rev. 874, 943 (1958) ; Meyer, The Social

Utility of Class Actions, 42 Brookiyn L. Rev. 189, 190-91 (1975).

2 Each of the three consolidated suits contains two counts—one

a derivative and one a class action. The order on appeal deals only

with the latter, and we are not here concerned with the derivative

claims. Furthermore, the Fund would not directly benefit from a

recovery by the plaintiffs.

*The dissent apparently overlooks the fact that the costs were

imposed on the Fund which is not a party to the class action claims.

Eisen IV, supra at 178, makes an exception to the usual rule that

the representative plaintiff must bear the cost of notice “where a

fiduciary duty pre-existed between the plaintiff and defendant

...” (emphasis added). We may not assume that non-class mem-

ber shareholders would approve of the Fund underwriting these

expenses for the benefit of other shareholders.

18a

Appendix C

recovery is sought from the Fund in the class action. The

plaintiffs have been careful to exclude the Fund itself from

all allegations of wrong-doing and to seek recovery only

from its directors, its managing company and the broker-

dealer firm that controls the manager. Indeed, the Fund

appears to have been named as a defendant only for pur-

poses of the derivative claims which are not of concern

here. Since the Fund has no direct interest in the onut-

come of the class action claim, it is too remotely involved

to have notification costs imposed upon it.

Furthermore, we do not think these costs could properly

be imposed on the other defendants. Even if we assume

that these defendants—the directors of the Fund, its

manager, and the firm that controlled the manager—had

fiduciary duties to the plaintiff shareholders, that would

be insufficient in our opinion to warrant imposition of

notification costs on them on the facts of this case. Many

of the considerations pointed to in justification for shift-

ing the costs, see Dolgow v. Anderson, supra, 43 F.R.D.

at 498-500; Etsen v. Carlisle € Jacquelin, 52 F.R.D. 253,

264-70 (S.D.N.Y. 1971), have been shown to be inappro-

priate. The district court may not weigh the merits and

cite the strength of a plaintiff's case as justification.‘

* We find nothing in either the language or history of Rule 23

that gives a court any authority to conduct a preliminary in-

quiry into the merits of a suit in order to determine whether

it may be maintained as a class action.

Eisen IV, supra, 417 U.S. at 177. We have stated the matter more

broadly :

But neither in amended Rule 23 nor in any other rule do we

find provision for any tentative, provisional or other makeshift

determination of the issues of any case on the merits for the

avowed purpose of deciding a collateral matter such as which

party is to be required to pay for mailing, publishing or other-

wise giving any notice required by law.

Eisen III, supra, 479 F.2d at 1015.

19a

Appendix C

The result in Eisen IV leaves no doubt that the ability

of a defendant to bear the costs and the fact that, if it

does not, the suit will have to be discontinued, are to be

given little or no weight. The public interest in enabling

the adjudication of claims that could not be maintained

in any other form and in having remedial statutes en-

forced is sharply offset by the danger, all too frequently

realized, of large settlements paid irrespective of the

merits of the claim in order to avoid the disastrous ex-

penses of litigation. Eisen III, supra, 479 F.2d at 1019.

Even the contention that the defendant has an interest

in obtaining the effects of res judicata against all mem-

bers of the class often rings untrue. If the class action

proceeds, the defendant may pay large sums in defend-

ing claims that might not otherwise have been brought

due to the limited interest of the individual plaintiffs.*

In sum, we perceive no special circumstances in this case

that would warrant shifting the costs of notification from

the plaintiffs to any of the defendants. We have suggested

before that the vindication of valid class claims not main-

tainable under Rule 23(b)(3) or otherwise is a matter for

Congress. Eisen III, 479 F.2d at 1019.

The justification that the district court found for im-

posing some costs on the defendant Fund was twofold.

First, it found the expense was “relatively modest,” ap-

parently in relation to the assets of the Fund which ex-

ceeded $500,000,000. This is an inappropriate consideration

in the determination of the incidence of notice costs, even

if the costs force the plaintiffs to discontinue as in Eisen

5 See Note, Class Actions Under Federal Rule 23(b)(3)—The

Notice Requirement, 29 Mp. L. Rev. 139, 155 (1969). This is true

of the instant case where the interests ‘of the class members are

said to range from $2.00 to $24.00.

20a

Appendiz C

IV. The second reason given was that “it is defendants

who are seeking to have the class defined in a manner

which appears to require the additional expense.” This

bears some analysis. Plaintiffs defined the class as all

persons who purchased shares of the Fund during the

period March 28, 1968 to April 24, 1970. Discovery then

revealed that this class consisted of approximately 121,000

persons, 103,000 of whom were still Fund shareholders,

and that the cost of the required computer operations to

extract the names and addresses of the class members

from the lists of past and present Fund shareholders would

be approximately $16,580. Plaintiffs then sought to re-

define the class to exclude the 18,000 persons included in

the original class who no longer hold Fund shares, and

to send the required notice by inserting it in a regular

mailing to all present Fund shareholders. The defendants

objected to the exclusion of the 18,000 persons, presum-

ably because it would limit the res judicata effect of the

suit. The district court reached the same conclusion but

for a different reason, holding that these persons could

not be excluded because to do so “would involve an arbi-

trary reduction in the class.”* The class as originally de-

fined was found to constitute the proper class for reasons

unrelated to the interests of the defendants. It would thus

be inconsistent to say that it is a proper class only if the

defendants pay the costs. The two issues are distinct.

The defendants also opposed sending the notice to the

68,000 shareholders who are not class members, expressing

concern that such a mailing could lower investor confidence

* The court found: “If the shareholders who purchased during

the relevant period were misled into purchasing at inflated prices,

then, as far as the present record shows, this problem affects those

shareholders who have sold out just as much as those who happened

to have retained their shares.”

21a

Appendix C

and trigger a wave of redemptions. The district court did

not pass on the validity of this concern; it merely noted

that the concern was obviated by having the defendant cull

the non-members from the lists. However, there is evidence

in the record to substantiate the concern. Plaintiffs assert

that the Fund shareholders have been advised of the nature

and pendency of this suit 13 times since 1970 in proxies,

prospectuses and annual reports. But we think that notice

of that type—usually several paragraphs in a footnote

written by management and with a strong denial of merit—

would have a far milder impact than a separate communica-

tion (though mailed with other papers) composed by the

plaintiffs, giving a detailed explanation of the claims and

without a denial of merit, particularly when the latter por-

tends the imminent prosecution of a matter which the

steady flow of prior notices had indicated was dormant if

not defunct. In these circumstances, we think that the

defendants concern was legitimate and the district court

could not properly condition its abatement on defendants’

shouldering of the notice costs. The identification costs

cannot be viewed as additional expense necessitated by un-

reasonable or partisan demands on the part of the defen-

dants.

Plaintiffs attempt to distinguish Eisen IIT and Eisen IV

by asserting that the cost of identifying the members of a

class is not a part of notifying those members. They fur-

ther suggest that identification costs are akin to the expense

borne in discovery which a district judge may in his discre-

tion require a party to bear unless the party can show that

it is unreasonable and oppressive, citing, inter alia, 8

C. Wright & A. Miller, Federal Practice and Procedure,

§ 2218 at 659 (1970), and 4A J. Moore, Moore’s Federal

Practice § 33.20 (2d ed. 1975). However, we are of the

22a

Appendiz C

opinion that the cost of obtaining the name and address

to be affixed to the envelope does not differ in kind from

the cost of printing the notice and of procuring, stuffing

and posting the envelopes. Moreover, if the rules of dis-

covery were applicable, it appears unlikely that they would

require that defendants bear the identification costs here.

Rule 33(c), Fed. R. Civ. P., designed to protect parties

from burdensome interrogatories, provides:

(c) Option to Produce Business Records. Where the

answer to an interrogatory may be derived or ascer-

tained from the business records of the party upon

whom the interrogatory has been served or from an

examination, audit or inspection of such business

records, or from a compilation, abstract or summary

based thereon, and the burden of deriving or ascertain-

ing the answer is substantially the same for the party

serving the interrogatory as for the party served, it

is a sufficient answer to such interrogatory to specify

the records from which the answer may be derived or

ascertained and to afford to the party serving the in-

terrogatory reasonable opportunity to examine, andit

or inspect such records and to make copies, compila-

tions, abstracts or summaries.

Under this rule, a party will not he required to perform

burdensome extraction of information from sources that

are available to the party seeking discovery. See 4A

J. Moore, Moore’s Federal Practice © 33.20 at 33-103 (2d

ed. 1975): Tytel v. Richardson-Merrell, Inc., 37 F.R.D. 351

(S.D.N.Y. 1965): Konczakowski v. Paramount Pictures,

Inc., 20 F.R.D. 588 (S.D.N.Y. 1957). If the discoverer

should proceed under one of the other rules governing dis-

covery, the respondent could obtain a protective order

under Rule 26(c) from “undue burden or expense.” Never-

23a

Appendix C

theless, we do not rely on this point since we find the dis-

covery rules inapplicable.’

The Class Action Designation

We turn next to the designation of the suit as a class ac-

tion. The determination of the district court that the action

met the requirements of Rule 23(b)(3) was discretionary.

It is not appealable under the collateral order doctrine. In

seeking to arrive at some standards by which to determine

the appealability of such an order, we have developed a

three-pronged test as set forth in Herbst v. International

Telephone & Telegraph Corp., 495 F.2d 1308, 1312 (2d

Cir. 1974), and refined in Kohn v. Royall, Koegel & Wells,

496 F.2d 1094 (2d Cir. 1974), General Motors Corp. v. City

of New York, 501 F.2d 639 (2d Cir. 1974) and, most re-

7 Our dissenting Brother sees Rule 34 as “more specifically de-

signed to govern computerized information.” This rule addresses

itself to the production of data compilations for inspection or copy-

ing, not to the sorting or analysis of the data. Although the rule

provides that the data compilation may be “translated, if neces-

sary, by the respondent through detection devices into reasonably

usable form,” the concern appears to focus on putting the data into

a form intelligible to the discoverer so he can then study or em-,3”

ploy it. As the Advisory Committee Note to the 1970 amendment

states,

“TW hen the data can as a practical matter be made usable by

the discovering party only through respondent’s devices, re-

spondent may be required to use his devices to translate the

data into usable form. In many instances, this means that

respondent will have to supply a print-out of computer data.”

48 F.R.D. at 527 (emphasis added). The task of culling relevant

names and addresses from a long list, as confronts the parties here,

is a distinctly different one from the production for inspection and

copying with which Rule 34 is concerned. If “sophisticated elec-

tronic manipulation and analysis” become necessary, “the courts

will have to become increasingly sensitive to problems of exnens

and the utilization of an opponent’s computer assets.” 8 C. Wright

and A. Miller, Federal Practice & Procedure § 2218 at 659 (1970).

24a

Appendiz C

cently, in Parkinson v. April Industries Inc., 520 F.2d 650

(2d Cir. 1975). See also, Handwerger v. Ginsberg, 519 F.2d

1339 (2d Cir. 1975). In Parkinson, we recognized the “re-

newed emphasis on the policies of finality” and indicated

that only in “extraordinary circumstances” would excep-

tions to the final judgment rule be permitted. 520 F.2d at

657-58. Although it may be a close question whether that

three-prong test is satisfied here, we do not decide that

question. We think we may properly review the class action

designation because the order in which it was made is prop-

erly before us on another ground. Judge Friendly, in his

concurrence in Parkinson, supra, 520 F.2d at 660, suggested

that this exception should be made even if appeals from the

grant or denial of class action designation are allowed only

under the certification procedures of 28 U.S.C. § 1292(b).

There is sufficient overlap in the factors relevant to both

issues to warrant our exercising plenary authority over

this appeal. Eisen IV, supra, 417 U.S. at 172: Hurwitz v.

Directors Guild of America, Inc., 364 F.2d 67 (2d Cir.),

cert. denied, 385 U.S. 971 (1966). See San Filippo v. United

Bhd. of Carpenters € Joiners, 525 F.2d 508 (2d Cir. 1975);

General Motors Corp. v. City of New York, 501 F.2d 639,

648 (2d Cir. 1974); 9 J. Moore, Moore’s Federal Practice

7 110.25[1], at 272-73 (2d ed. 1975).

Turning to the merits of the class action designation

we find that the granting of class action status was proper.

As Judge Griesa found, the requisite nnmerousness is

present and common questions of law and fact predom-

inate over any questions affecting only the individual

members of the class. Moreover, we cannot, at this stage

of the litigation, support defendants’ claim of unmanage-

ability. They contend that proof of liability and damages

“may well involve millions of individual computations,”

and that the aggregate damages sustained by the class may

not be great as plaintiffs claim. Nevertheless, the district

25a

Appendiz C

judge is in the best position to make a determination of

maneveability and has considerable discretion in doing so.

Modern computer technology can bring formerly insur-

mountable tasks within the range of manageability. If, on

the other hand, unmanageability should develop or facts

should arise which indicate that class treatment is in-

appropriate, the district judge can reassess the procedures

to be employed and can even reconsider the class action

designation. Parkinson v. April Industries, Inc., supra,

520 F.2d at 653; General Motors Corp. v. City of New

York, supra, 501 F.2d at 647; Green v. Wolf Corp., 406

F.2d 291, 298 (2d Cir. 1968), cert. denied, 395 U.S. 977

(1969): Rule 23(c)(1), Fed. R. Civ. P. Judge Griesa

specifically noted that his determination was a provisional

one.

Accordingly, we affirm the provisional designation of

the suit as a class action but reverse the order imposing

on the defendant Fund the costs of extracting from com-

puter tapes the names and addresses of the class members.

Hays, Circuit Judge (dissenting in part):

I concur in the majority’s holding that the order below

is appealable and the granting of class action status

proper. I respectfully dissent, however, from the reversal

of the district court order directing defendant Oppen-

heimer Fund, Inc. (“the Fund”) to cull ont the names of

class members from the Fund’s computer tapes at the

Fund’s expense. The majority’s decision, ostensibly pre-

dicated on the Supreme Conurt’s decision in Eisen v. Car-

lisle @ Jacquelin (Eisen IV), 417 U.S. 156 (1974), un-

critically treats a discovery issue as notice and indis-

criminately applies a rule appropriate to arms-length

relationships to the fiduciary relationship between the

26a

Appendiz C

parties herein. An elaboration of the particular facts

attending this suit is fundamental to understanding the

nature of the action and my disagreement with the panel’s

holding.

Defendant Fund is an open-end diversified investment

fund registered under the Investment Company Act of

1940, 15 U.S.C. §§80a-1 et seg. Defendant Oppenheimer

Management Corporation (“the Manager”) manages the

Fund’s investment portfolio and, pursuant to an Invest-

ment Advisory Agreement, receives compensation cal-

culated as a percentage of the Fund’s net asset value.

Defendant Oppenheimer & Co. (“the Broker”) is a broker-

age firm owning approximately 82% of the outstanding

stock of the Manager and 100% of the voting stock. The

individual defendants are all directors of the Fund, some

of whom also hold offices or directorships or partnership

interests in the Manager and/or Broker. The Manager

has the right to act as exclusive distributor and sole prin-

ciple underwriter of Fund shares. Shares are sold to the

public at a price equal to net asset value plus a sales

charge. =

This consolidated suit involves stockholder derivative

and class action claims. The class, as certified by the

district court, is composed of all persons who purchased

Fund shares between March 28, 1968 and April 24, 1970.

The complaint alleges that the defendants violated the

federal securities lavs by failing to disclose material in-

formation to investors. The gravamen of the damage

claims is that restricted securities purchased by the Fund

were overvalued and, consequently, the net asset value

of the Fund was overstated. Overstatement of net asset

value, in turn, caused an overvaluation of Fund shares

being sold to the public during the relevant period and,

because the Fund-Manager fee arrangement was geared

27a

Appendiz C

to net asset value, caused the Fund to pay inflated fees

to the Manager.

As the majority apparently recognizes, the Supreme

Court’s Eisen IV decision is not dispositive of the issue

of the allocation of costs of identification in the context

herein. Eisen IV construed the notice requirements of

Rule 23(c)(2), which apply to class actions maintained

under Rule 23(b)(3), in the context of a case wherein

“the relationship between the parties is truly adversary,”

Eisen IV, supra at 178-79, and held that “[t]he usual rule

is that a plaintiff must initially bear the cost of notice

to the class.” Id. at 178. In the instant case, in contrast,

we deal not with notice costs—a burden plaintiffs herein

willingly assume—but with class member identification

costs, and we deal not with the usual rule applicable to

truly adversarial reltionships, but with a rule as to which

the Supreme Court took pains to express no opinion—the

rule which governs in “situations where a fiduciary duty

pre-existed between the plaintiff and defendant. . . .” Id.

Both of these distinctions merit pause before we rush to

close yet another door to the class action procedure.

In Eisen IV the Supreme Court held that in a Rule

23(b)(3) class action the cost of notice, t.e., the letter,

envelope, stuffing, and postage is, in the usual case, the

responsibility of the plaintiff “as part of the ordinary

burden of financing his own suit.” Eisen IV, supra at 179.

The opinion properly construed requires only that the

litigation expense of notice be borne by plaintiff. It does

not require, and surely the Supreme Court did not intend,

that all litigation expenses, contrary to established rules

and practice, are to be hereinafter the plaintiffs respon-

sibility. When identification is sought information allow-

ing a party to proceed with his suit is at the core of the

28a

Appendix C

request. Thus, in purpose and effect such a request is

not different in kind from other requests for information

routinely made during discovery. That a suit will be

unable to proceed absent identification does not vitiate

the validity of characterizing identification as a product

ascertainable by discovery and governed by the rules

applicable thereto. A contrary view clearly is belied by

the common practice of establishing jurisdiction by means

of discovery.

Rule 34 governs the production of computerized infor-

mation, making discoverable, inter alia, “data compila-

tions from which information can be obtained, translated,

if necessary, by the respondent through detection devices

into reasonably usable form. .. .”' As noted by 8 C.

Wright and A. Miller, Federal Practice and Procedure

§2218 at 659 (1970):

“The responding party who is required to prepare

a printout or otherwise make the data reasonably

usable for the discovering party must ordinarily bear

the expense of doing this. He can shift the cost to

the discovering party only on a showing under Rule

26(c) that justice so requires in order to protect him-

self from ‘undue burden or expense.’” (footnote

omitted)

While the authors suggest that courts should be sensitive

to the expense involved since the disclosing party may

?It is somewhat disingenuous to focus, as the majority does, on

Rule 33 which governs interrogatories rather than the Rule more

specifically designed to govern computerized information. Since

the disclosing party has opted to keep his records on computer

tapes, there is good reason to allow the district court the usual dis-

eretion as to costs of retrieving information from those tapes lest

discovery be obstructed by irretrievably burying information to

immunize business activity from later scrutiny.

29a

Appendix C

be obliged “to engage in fairly sophisticated electronic

manipulation and analysis,” id., expense remains an issue

properly resting within the sound discretion of the district

judge. Under the facts of this particular case the district

judge did not consider the costs of processing the defen-

dant’s tapes an “undue burden or expense.” It is not

our practice +o disturb the discretionary judgment of a

district court in the realm of diseovery absent a showing

of abuse, see, e.g., Baker v. F&F Investment, 470 F.2d

778 (2d Cir. 1972), cert. denied, 411 U.S. 966 (1973);

H.L. Moore Drug Exchange, Inc. v. Smith, Kline & French

Laboratories, 384 F.2d 97 (2d Cir. 1967), and discovery

of class members should provide no exception. Imposing

the cost of culling out the names of members of the class

upon the Fund involved no abuse of discretion. The dis-

trict court, finding this expense attributable to defendants’

objections to plaintiffs’ efforts to define a subclass min-

imizing expenses, cf. Eisen IV, supra at 179, n.16, did not

commit reversible error in refusing to shift this burden

to plaintiffs. Moreover, the order Lelow specifically notes

that it is “without prejudice to the zight of this defendant

[the Fund], at the conclusion of the action, to make

whatever claim it would be legally entitled to make re-

garding reimbursement by another party.”

Assuming, arguendo, that the majority is correct in

failing to distinguish identification from notice, reversal

of the district order is neither compelled by Eisen IV nor

an advisable extension of that case. As we noted in Eisen

v. Carlisle & Jacquelm, 479 F.2d 1005, 1009 n.5 (2d Cir.

1973)? (“Eisen IIT’) ‘and the Supreme Court noted in

2 The footnote, in pertinent part, states:

“Nor did we decide or intend to say [in Visen IT, 391 F.2d 555

(2d Cir. 1968)] that in all cases or under all circumstances

30a

Appendia C

Eisen IV, the usual rule that the representative plaintiff

must bear the cost of notice may not apply “where a fidu-

ciary duty pre-existed between the plaintiff and defen-

dant... .” Eisen IV, supra at 178. The instant appeal

squarely raises the issue, heretofore undecided, of whether

notice costs may properly be imposed upon a defendant

when the relationship of the parties is truly fiduciary. I

would hold that they may.

Unquestionably the relationship between Fund share-

holders and the defendants herein is of a fiduciary nature.

As one court has observed, the Investment Company Act

“impose[s] fiduciary obligations of the highest order upon

persons who control investment companies.” Securities

and Exchange Commission v. Advance Growth Capital

Corp., 470 F.2d 40, 55 n.21 (7th Cir. 1972). See, Invest-

ment Company Act of 1940, 15 U.S.C. §80a-35. So too,

“Tt]he Investment Advisors Act of 1940 ... reflects a

plaintiffs in class actions are or must be required to defray

the cost of giving the various notices specified in amended

Rule 23. This is an action to recover money damages for al-

leged violations of Section 4 of the Clayton Act and Section 6

of the Securities and Exchange Act of 1934. It is not a de-

rivative stockholder’s action asserting a cause of action in

favor of a defendant corporation, which regularly sends ecom-

munications to all the stockholders and may be said to owe its

stockholders certain fiduciary duties, nor a sase where a pub-

lic utility corporation which regularly sends monthly bills to

its current customers has been held to have overcharged its

customers and the class suit is brought to compel a refund.

There may be other similar examples of class actions in which,

depending on the circumstances of particular cases, courts

might find justification for holding that a representative plain-

tiff was not obligated to defray the cost of giving the notices

required by amended Rule 23. We do not attempt any env-

meration. It must be recalled that the provisions for notice

in amended Rule 23 were intended to comply with constitu-

a See Advisory Committee’s Note, 39 F.R.D.

3la

Appendix C

congressional recognition ‘of the delicate fiduciary nature

of an investment advisory relationship. .. .” Securities

and Exchange Commission v. Capital Gains Research Bu-

reau, Inc., 375 U.S. 180, 191 (1963), quoting 2 Loss, Secu-

rities Regulation (2d ed. 1961) at 1412. It is the breach

of these fiduciary duties which is at the core of this suit.

When the defendants assumed their positions with the

Fund they knew, or clearly should have known, that the

law imposes very strict standards upon their conduct.

Their relationship to the plaintiff class is one of trust;

the entire scheme of our investment company and advisor

regulation is predicated upon that trust being respected

inviolate. A breach of a fiduciary duty traditionally has

been considered a much graver transgression than, for

example, breach of a contractual duty. Thus, as the major-

ity notes, the Supreu.e Court in Eisen “refused to fore-

close the possibility” of allocating notice costs where there

exists a fiduciary duty between the parties and their rela-

tionship is not truly adversarial. Absent such a special

relationship and without support under Rule 23, the Su-

preme Court found no justification for deviating from

the usual rule that a plaintiff must bear notice costs.

In cases involving fiduciaries, however, the usual rules

traditionally have been modified to insure that the trust

relationship is not abused. The norms appropriate in the

context of arms-length bargaining are simply inapposite

in the fiduciary context. Thus, the usual rule should not

apply to preclude class action when to do so creates a

serious potential for insulating fiduciary breaches from

redress. I would affirm the district court.

32a

APPENDIX D

Order Granting Rehearing En Banc

UNITED STATES COURT OF APPEALS

For tHe Seconp Crracvurir

75-7608

Invinc Sanpers, et al.,

Plaintiff s-A ppellees,

v.

Leon Levy, et al.,

Defendants-Appeilants.

A petition for rehearing containing a suggestion that the

action be reheard en banc having been filed by counsel for

the appellees, a majority of the court has voted to grant

reconsideration en bane. The court does not deem oral ar-

gument necessary, but directs that additional briefs be

filed, as follows:

Appellants’ brief: October 5, 1976

Appellees’ brief: October 19, 1976

Appeliants’ reply brief. October 22, 1976

The case will be deemed submitted on October 22, 1976.

33a

Appendix D

The en banc court will consist of the members of this

court in active service together with Judge Hays, a Senior

Judge who was a member of the original panel.

/s/ Irvinc R. Kavurmayn

Invinc R. KavrMmay,

Chief Judge

Dated: September 14, 1976

34a

APPENDIX E

Court of Appeals En Banc Opinion

UNITED STATES COURT OF APPEALS

For tHe Seconp Crecurr

Nos. 1492, 1493, 1494—September Term, 1976.

(Submitted October 22, 1976 Decided June 22, 1977.)

Docket Nos. 75-7608, 75-7610, 75-7611

Igvisc SaNvERs,

Plaintiff-A ppellee,

—against—

Lzon Levy, et al.,

Defendants-Appellants.

Econ Tavssie,

Plaintiff-Appellee,

—against—

Srpxey M. Rossrys, et al.,

Defendants-Appellants.

Mrcnart Sxaev and Rrra Swaev,

Plaintiff s-A ppellees,

—against—

Exic Havser, et al.,

Defendants-A ppellants.

35a

Appendia E

Before:

Kaurman, Chief Judge, and

Hays, Fersperc, Mansrietp, Mvuuuican, Oakes, TrmBeErs,

Gurren, Van GraaFeILanD, and Mesxi1, Circuit Judges.

On rehearing en banc

Appeal from an order of the United States District

Court for the Southern District of New York, Griesa, J.,

holding the suit to be maintainable as a class action pur-

suant to Rule 23 (b) (3), Fed. R. Civ. P., and directing

the defendant mutual investment fund to cull names and

addresses of class members from its computerized records.

On rehearing en banc, the Court of Appeals held that the

district court acted within its discretion in ordering de-

fendant mutual fund to extract the names and addresses

of class members at its own expense.

Affirmed.

Judges Mulligan, Van Graafeiland and Meskill dissent.

Mitton C. Weisman and Geratp Gorpoy, New

York City (Weisman, Celler, Spett, Modlin,

Wertheimer & Schlesinger, New York City,

on the brief), for Defendant-Appellant Op-

penheimer Fund, Inc.

Leon H. Tykutsxer and Ricuarp P. ACKERMAN,

New York City (Guggenheimer & Unter-

myer, New York City, on the brief), for

Defendants-Appellants Oppenheimer Man-

agement Corp., Oppenheimer & Co., Leon

Levy and Jack Nash.

36a

Appendiz E

Jou» F. Davinson and Danret E. Kimscu, New

York City (Thacher, Proffitt & Wood, New

York City, on the brief), for Defendants-

Appellants Edmund T. Delaney and Eman-

uel Celler.

Downaup N. Rusy, Ropert Kornreicxe and Marian

R. Prosst, New York City (Wolf, Popper,

Ross, Wolf & Jones, New York City, on

the brief), for Plaintiffs-Appellees.

Samvet E. Gates, Joun C. Exam, Perer J.

Hote, Jze., Ricnarp J. MacLavry, Rater

L. McArez, Dox H. Revsex, Cart J.

Scuvuck, Marvi~s Scowartz, Wrmu14M Srwon

and Georce A. Sprecetserc, New York City,

for amicus curtae American College of Trial

Lawyers urging reversal.

Hays, Circuit Judge:

Upon this rehearing en bane we are confronted with the

novel question whether, under the Federal Rules of Civil

Procedure, the district court was empowered to order a

defendant at its own expense to cull from its computerized

records the names and addresses of the members of the

class represented by plaintiffs. We hold that the district

court was possessed of discretion to require the produc-

tion of the list which plaintiffs demand in order to meet

their obligations under Rule 23(c)(2), Eisen v. Carlisle

& Jacquelin, 417 U.S. 156 (1974) (Eisen IV), of providing

individualized notice to the members of the class. On the

record before us, the district court did not abuse its dis-

cretion.

37a

Appendia E

The defendant Oppenheimer Fund, Inc., which was re-

quired by the district court to produce the names and ad-

dresses of the members of the class, is an “open-end”

investment company registered under the Investment Com-

pany Act of 1940, 15 U.S.C. §§ 80a-1 et seq. Shares of the

fund are sold to the public at prices reflecting the current

value of the fund’s assets plus a service charge; share-

holders of the fund are free to liquidate their interests by

exchanging their shares for a sum determined to represent

their proportionate share of the fund’s net assets. The

roster of shareholders, who number well over 100,000, is

of course constantly changing. It scarcely need be said

that the computer plays an integral role in the operations

of the fund; indeed, in the absence of computer technology,

operations so vast and complex as those of the fund might

well be impossible to conduct.

The defendant Oppenheimer Management Corporation is

the investment adviser which manages the fund’s invest-

ment portfolio. All of the voting stock of the investment

adviser is owned by the defendant Oppenheimer & Co.

Individual defendants are directors of Oppenheimer Fund;

some of the individual defendants, in addition to oceupying

directorships in the fund, are officers, directors, or part-

ners of Oppenheimer & Co. or the Oppenheimer Manage-

ment Corporation.

The plaintiffs are shareholders of the fund. The essence

of their complaint is that defendants overvalued restricted

securities purchased by the fund; the overvaluation of the

fund’s assets is alleged in turn to have caused the inflation

of the prices at which plaintiffs purchased shares in the

fund and to have caused overpayments to the fund’s man-

ager, defendant Oppenheimer Management Corporation,

whose fees are computed as a percentage of the net asset

value of the fund’s portfolio.

38a

Appendiz E

In their initial motion for class determination pursuant

to Rule 23(c)(1), plaintiffs sought to represent all who

purchased shares of the fund between March 28, 1968, and

April 24, 1970. After this Court’s holding in Eisen v. Car-

lisle & Jacquelin, 479 F.2d 1005 (2d Cir. 1973) (Eisen ID),

aff'd, 417 U.S. 156 (1974) (Eisen IV), plaintiffs sought a

redefinition of the class to exclude those who had sold their

shares in the fund. Plaintiffs hoped thus to reduce the

cost of the individualized notice to class members which

Eisen III and Eisen IV required plaintiffs to bear, by in-

eluding the notice in a regular mailing by the fund to its

shareholders. At the time when plaintiffs requested the

modified class determination, there were approximately

171,000 shareholders of the fund, 103,000 of whom had

purchased their shares during the class period; those who

had purchased during the class period and subsequently

sold their shares—and thus would have been excluded from

the class if plaintiffs’ proposed modification had been

accepted—numbered some 18,000. The defendants opposed

the class modification, preferring the broader class defini-

tion. By its order, the district court rejected plaintiffs’

proposed redefinition of the class and directed that notice

be effected by a separate mailing. to all class members.

Thus to notify a class so defined will cost the plaintiffs

$20,000, in comparison to the $5,000 expense which their

proposed class definition and metbod of notice would have

entailed. The district court, howeyer, required the fund to

shoulder the expense, about $16,060, of extracting from its

computerized records the list of fhe names and addresses

of the class members. Defendants appeal from the district

court’s order insofar as it determined that the laws... vas

properly maintainable as a class action and that defen-

dants should, at their own expense, provide the plaintiffs

with the names and addresses of class members.

39a

Appendiz E

A panel of this Court determined that the district court’s

order was appealable and that the litigation was manage-

able as a class action. Nos. 75-7608, 75-7610, 75-7611 (2d

Cir., June 30, 1976). We do not reconsider these aspects

of the panel’s decision, and we limit our discussion to the

question, answered in the negative by the panel, whether

defendants were properly required to bear the cost of

furnishing plaintiffs with the list of class members.

Eisen IV held that Rule 23(c)(2), reflecting constitu-

tional principles of due process, see Mullane v. Central

Hanover Bank & Trust Co., 339 U.S. 306 (1950), commands

that “individual notice must be provided to those class

members who are identifiable through reasonable effort.”

417 U.S. at 175. The Supreme Court further held in Eisen

IV that the representative plaintiff was required to bear

the cost of notice:

“In the absence of any support under Rule 23, peti-

tioner’s effort to impose the cost of notice on respon-

dents must fail. The usual rule is that a plaintiff must

initially bear the cost of notice to the class.... [T]he

plaintiff must pay for the cost of notice as part of the

ordinary burden of financing his own suit.”

Id. at 178-79. The Court in Eisen IV had no occasion to

consider which party would bear the cost of determining

the names and addresses of those to whom the notice would

be sent, because the plaintiff in Eisen, unlike the plaintiffs

in the instant litigation, was unwi.ling to bear even the

expense of printing and mailing the required notice.

Defendants argue that, since it is prerequisite to send-

ing the notice mandated by Eisen IV that plaintiffs obtain

the names and addresses of those to whom the notice will

be sent, Eisen should govern the allocation of the cost of

40a

Appendix E

providing the information. We disagree. In Fisen, the

plaintiffs effort to impose the costs of notice upon the

defendants failed “[i]n the absence of any support under

Rule 23.” Here, Federal Rule of Civil Procedure 34 pro-

vides the basis for requiring the fund, at its own expense,

to provide plaintiffs with discoverable information con-

tained in its computerized records.

It hardly requires our extended discussion to establish

that the information sought by plaintiffs as to the names

and addresses of the members of the class is indeed within

the broad scope of permissible discovery established by

our Federal Rules. Under Rule 26, “[pJarties may obtain

discovery regarding any matter, not privileged, which is

relevant to the subject matter involved in the pending

action... .” Fed.R.Civ.P. 26(b)(1). The holding of Eisen

IV itself propels us ineluctably to the conclusion that the

names and addresses of class members are “relevant to

the subject matter” of a class action. By mandating that

a representative plaintiff in a class suit send individualized

notice to the members of his class, Eisen raises as a poten-

tial issue in all such litigation whether the required notice

has properly been sent. A list of the names and addresses

of the class members would of course be essential to the

resolution of that issue. See Appleton Electric Co. v. Ad-

vance United Expressways, 494 F.2d 126, 138 (7th Cir.

1974); Brennan v. Midwestern United Life Ins. Co., 450

F.2d 999 (7th Cir. 1971), cert. denied, 405 U.S. 921 (1972).

Under Rule 34(a), plaintiffs were entitled “to inspect

and copy, any designated documents (including . . . data

compilations from which information can be obtained,

translated, if necessary, by the respondent through detec-

tion devices into reasonably usable form)... .” Rule 34,

therefore, provided ample basis for the district court’s

4la

Appendiz E ’

order compelling the defendant fund to produce from its

computerized records the discoverable information concern-

ing the names and addresses of the class members. The

1970 amendments to the Federal Rules rendered Rule 34

specifically applicable to the discovery of computerized

information :

“The inclusive description of ‘documents’ is revised

to accord with changing technology. It makes clear

that Rule 34 applies to electronic data compilations

from which information can be obtained only with the

use of detection devices, and that when the data can

as a practical matter be made usable by the discovering

party only through respondent’s devices, respondent

may be required to use his devices to translate the

data into usable form. In many instances, this means

that respondent will have to supply a print-out of

computer data.”

Advisory Committee Note, 48 F.R.D. 459, at 527 (1970).

Defendants argue, however, that because plaintiffs’ re-

quests for computerized information require the fund to

devise, at a cost in excess of $16,000, a special computer

program to extract the names of the class members, plain-

tiffs should be required to bear the added expense. We

acknowledge that Rule 34, coupled with Rule 26(c), allows

the district court to shift the expense of special computer

programming to the discovering party where the demand

for information would impose upon the respondent “undue

burden or expense”, but we hold that in the instant case

the trial judge did not abuse his discretion in declining so

to do.

42a

Appendix E

Rule 33, which defendants contend would dictate a dif-

ferent result, is inapplicable. That Rule provides, in per-

tinent part:

“(c) Option to Produce Business Records. Where

the answer to an interrogatory may be derived or

ascertained from the business records of the party

upon whom the interrogatory has been served or from

an examination, audit or inspection of such business

records, or from a compilation, abstract or summary

based thereon, and the burden of deriving or ascer-

taining the answer is substantially the same for the

party serving the interrogatory as for the party

served, it is a sufficient answer to such interrogatory

to specify the records from which the answer may be

derived or ascertained and to afford to the party serv-

ing the interrogatory reasonable opportunity to ex-

amine, audit or inspect such records and to make

copies, compilations, abstracts or summaries.”

It may well be that where ordinary business records are

concerned Rule 33 would generally require that the dis-

covering party bear the expense of data compilation unless

for special reason the compilation can be undertaken only

by the respondent.’ However, Rule 33(c) cannot derogate

from the general command of Rule 34 that the respondent

to a demand for computerized information produce a

“reasonably usable” print-out of data contained ‘n a com-

puter’s memory. Unlike Rule 34, Rule 33 was not espe-

cially tailored to the discovery problems posed by contem-

porary computer technology.

1 We intimate no view as to what the result in the instant case

would be if Rule 33(c) were deemed applicable.

43a

Appendia E

Here, the demand for computerized information creates

a necessity for special programming, entailing the substan-

tial exner Jiture of $16,000 by the fund. Nonetheless, there

is no warrant for applying an inflexible rule that the dis-

covering party bear the expense. Computers, which in

general make information more readily available, may

occasionally make information more difficult to discover.

Even where a party adapts his computer software strictly

in accordance with legitimate business purposes, complex

electronic processes may be required to extract informa-

tion which might bave been obtainable through a minimum

of effort had different systems been used. If the informa-

tion demanded is such as the respondent might reasonably

have expected to be required to make available for public

examination or for use in the judicial process, it seems

not unfair to require production of the information albeit

necessitating special programming. In this and other re-

spects, computer technology presents discovery problems

with which the courts have developed relatively little

familiarity.

The Rules do not leave the courts without power to avoid

a litigant’s unreasonable appropriation to himself of his

opponent’s computer resources. “[T]he courts have ample

power under Rule 26(c) to protect respondent against

undue burden of expense, either by restricting discovery

or requiring that the discovering party pay costs.” Ad-

visory Committee Note, supra, 48 F.R.D. at 527. See also

Federal Judicial Center, Manual for Complex Litigation

§ 2.715, at 152 (Tent. Draft July 21, 1976); 8 C. Wright &

A. Miller, Federal Practice and Procedure § 2218, at 658-59

(1970). However, the draftsmen of Rule 34 chose—wisely,

in light of the relative judicial inexperience with the dis-

covery problems posed by computer technology—not to

doa

Appendiz E

burden discovery of computerized information with the

more rigid principle of Rule 33(c). The existence of dis-

cretion pursuant to Rule 26(c) to reallocate the costs of

discovery of computerized information in order to avoid

abuse merely underlines the general rule: “The respond-

ing party who is required to prepare a printout or other-

wise make the data reasonably usable for the discovering

party must ordinarily bear the expense of doing this.”

Id. at 659.?

The district court did not err in declining to exercise

its discretion pursuant to Rule 26(c) to impose the costs

of obtaining the computerized data upon the plaintiffs.

Although compliance with the district court’s order entails

an expenditure by the fund in excess of $16,000, we cannot

say the burden thus imposed is unreasonable in light of

the nature of the information sought and the extent and

character of the fund’s business operations. Although an

expense of $16,000 seems large in absolute terms, the cost

of identifying the name and address of each present or

former shareholder who is a member of the class is only

thirteen cents. Considering the extent of the fund’s busi-

ness, therefore, the burden of compliance with the Rule 34

discovery demand is not excessive. There is no injustice

in requiring one whose business is vast and complex to go

to proportionately greater lengths to meet the law’s legiti-

mate requirements for disclosure of business-related infor-

mation than might be expected of one whose business is

small and simple. Great corporations, for example. mnst

expend millions to provide to the government information

* Professors Wright and Miller note, “In many instances the

peculiarities of computerized information actually will oblige the

disclosing party to engage in fairly sophisticated electronic manip-

ulation and analysis of the data in his computer system.” Id.

45a

Appendia E

necessary to comply with internal revenue laws; an indi-

vidual taxpayer may provide the required information at

a cost to himself of a mere few dollars. It is scarcely

unreasonable, moreover, to demand of a respondent that

he employ his computer resources to provide discoverable

information of a relatively simple nature where, as here,

the respondent makes extensive use of computers in the

operation of its business.

The order of the district court allocating the costs of

discovery of the computerized names and addresses of the

class members was not unreasonable, moreover, in light of

the district court’s definition of the class. The plaintiffs

sought to redefine the class to exclude former shareholders

of the fund, so that the individualized notice mandated by

Eisen IV could be inserted, at small expense, in one of the

fund’s regular mailings. The defendants opposed the class

redefinition and the proposed method of notice on the

grounds, respectively, that the more restrictive class defini-

tion would exclude potential class members as to whom the

legal and factual issues would be similar to these raised

by plaintiffs,* and that the proposed notice to all the fund’s

shareholders would prejudice the fund by notifying even

* Accordingly, defendants might have been bound by collateral

estoppel if they lost on the merits, but, if the defendants won, they

would not have been entitled to assert res judicata against the

former shareholders who were not class membeis. Compere Neader-

land v. Commissioner, 424 F.2d 639, 642 (2d Cir.), eert. denied,

400 U.S. 827 (1970) (collateral estoppel), with Saylor v. Lindsley,

391 F.2d 965, 968 (2d Cir. 1968) (res judicata).

On the other hand, the issues presented might have been some-

what different for those who had sold their shares than for thse

who were still shareholders; the members of the former group

might not have been damaged }y the alleged overevaluation of *he

fund’s net assets. :

46a

Appendix E

those shareholders not involved in the litigation.‘ The

district court rejected plaintiffs’ proposed redefinition of

the class. Plaintiffs, accordingly, are required to bear an

expense of $20,000 to notify the class, in comparison to

the $5,000 cost which plaintiffs had contemplated. But

the district court declined to impose on plaintiffs the added

cost of discovering the names and addresses of the class

members, which cost was occasioned by the court’s agree-

ment with defendant that the fund would have been harmed

by the proposed class redefinition. The considerations ad-

venced by the defendant in opposition to plaintiffs’ pro-

posed class redefinition were undoubtedly entitled to some

weight; still, they did not require the class definition ulti-

mately accepted by the district court.’ See Eisen IV, 417

U.S. at 179 n. 16 and Eisen III, 479 F.2d at 1023 (Oakes, J.,

dissenting from denial of rehearing en banc) (raising pos-

sibility that class may be divided into subclasses pursuant

to Rule 23(c)(4) so as to minimize cost of notice borne

by representative plaintiff). Cf. Eisen III, 479 F.2d at

1009 n.5 (suggesting that notice may be included in reg-

ular mailing by defendant to class members). As such,

we are not disposed to hold that the district court’s re-

fusal to impose on plaintiffs the cost of discovery of the

computerized names and addresses was an abuse of its

discretion. Indeed, the order of the district court accom-

modated the competing interests in a manner which was

fair and imaginative.

* However, under Rule 23(c)(2) the district court could have

supervised the form of notice included in one of the fund’s regular

mailings, so as to avoid undue prejudice to the fund. In any event,

the fund has already notified its shareholders on many occasions

of the pendency of this litigation.

* See notes 3-4 supra.

47a

Appendiz E

We note, finally, that our affirmance of the district court’s

order is without prejudice to a claim by the defendant

fund for discretionary taxation of the cost of discovery

against plaintiffs, should the plaintiffs ultimately lose.

See 15 U.S.C. §4 77k(e), T7000(e) and 78i(e); Fed. R. Civ.

Pro. 54(d). If plaintiffs’ suit proves frivolous, their at-

torneys might be held liable for the cost of discovery which,

defendant fund is now required to bear. 28 U.S.C. § 1927.

Plaintiffs have represented that they are unwilling to bear

the cost of discovery of the names and addresses of the

class members. However, their present unwillingness to

pay this cost does not immunize them from a judgment

for costs, nor does it necessarily diminish the deterrent

effect of such a judgment against a strike suit.‘ The mere

possibility that plaintiffs may prove to be judgment-proof

does not affect our decision, since here, unlike in Eisen,

there is a basis in the Federal Rules for imposition of the

cost of discovery on the defendant fund. Cf. Eisen III,

479 F.2d at 1020 (Hays, J., concurring).

Affirmed.

Mutuican, Circuit Judge (dissenting) :

Ironically enough, the majority states that its holding

is compelled by Eisen v. Carlisle £ Jacquelin, 417 US.

156 (1974) (Eisen IV) and Rule 23(c)(2) although the

Court in that case construed the rule to require the rep-

resentative plaintiffs to pay the costs of notifying the

prospective class of the. pending action. The majority

*The requirement that plaintiffs bear the $20,000 expense of

notifying the class is itself a formidable deterrent to frivolous liti-

gation, for, if plaintiffs lose, they cannot recover their disburse-

ments.

48a

Appendiz E

reaches this result by finding that the plaintiffs, who ad-

mittedly are only seeking the list of names and addresses

of the potential plaintiff class in order to notify them of

the pending action, are seeking instead a discovery which

makes the cost allocable to the defendants in the discre-

tion of the district court thus circumventing Rule 23 and

Eisen IV. The majority then proceeds to find no abuse

of discretion by the district court in foisting the special

computer programming cost upon the defendant fund.

Since the only purpose of obtaining the required informa-

tion is to notify the class as mandated by Rule 23, Eisen

IV compels the conclusion that the cost of such notifica-

tion be borne initially, at least, by the plaintiffs. The

majority forees the defendant to subsidize the suit against

them, a result which is aberrant to our jurisprudence and

to the extent that it depends upon the premise that the

defendant has greater financial resources is further in

conflict with Eisen IV. In sum, we believe Judge Pal-

mieri’s opinion for the panel properly disposed of the

issue now before us en banc.*

I

In Eisen IV the Court stated, “The usual rule is that a

plaintiff must initially bear the cost of notice to the

class.” Id. at 178. The majority does not claim that this

*Hon. Edmund L. Palmieri, United States District Ju for

the Southern District of New York, sat by designation on eded

nal panel and was the author of the majority decision. Slip op.

4577 (2d Cir. June 30, 1976). Fed. R. App. P. 35, which provides

for ea bancs, makes no allowance for the participation of members

of the original panel who are not judges of the Court of Appeals.

—— Judge Palmieri has not participated in this en banc consid-

n.

49a

Appendix E

ease falls outside the usual rule.’ Instead, the majority

has decided that obtaining the names and addresses of

the prospective class is not part of the notification pro-

cess mandated by Rule 23(c)(2) but is rather within a

discovery process governed by an amalgam of Rules

26(b)(1) and 34. As a matter of logic this is bewildering.

The only purpose of the plaintiffs here in obtaining the

data is to notify the class; it is an essential and unavoid-

able step in the notice giving process. As Judge Pal-

mieri observed “the cost of obtaining the name and ad-

dress to be affixed to the envelope does not differ in kind

from the cost of printing the notice and of procuring,

stuffing and posting the envelopes.” Panel slip op. at

4587. The majority now creates in effect a bicephalous

rule which is anomalous. The cost of printing, stuffing

and postage of the notice must be borne by the plaintiffs

but the cost of obtaining the names and addresses to put

on the envelopes may be thrust upon the defendants in

the discretion of the trial bench. As Eisen IV held, “the

plaintiff must pay for the cost of notice as part of the

ordinary burden of financing his own suit.” 417 U.S. at

179. We cannot appreciate how it can be reasonably held

that the expense incurred in producing the list of addresses

is distinguishable from the expense of preparing and mail-

ing the notice.

2In Eisen IV the Court noted that the district court in allocat-

ing the cost of notification between the parties had relied on cases

where a fiduciary duty had pre-existed between the plaintiff and

the defendant. While finding none in Eisen IV the Court expressed

no opinion as to whether the usual rule would be followed in such

cases. 417 U.S. at 178 n.15. Plaintiffs had argued before the panel

that they were in a 4Siduciary position with the defendants and

that therefore the possible loophole in Eisen IV applied. Judge

Hays, dissenting in the panel opinion, espoused that position but

it has been understandably abandoned in the en bane majority

opinion.

50a

Appendiz E

The majority cites no authority at all for its novel posi-

tion except to claim that the result is mandated by Rule

23 and Eisen IV. But Rule 23(c) requires the district

court to direct “the best notice practicable under the cir-

cumstances, including individual notice to all members who

can be identified through reasonable effort.” (Emphasis

supplied). This language would clearly indicate that the

draftsmen of the rule made no distinction between the

identification of te class and the notification of individual

members. Notification posits identification which is an in-

separable part of the process.

How then does Eisen IV compel a result which seemingly

contradicts its holding? This is the crucial point in the

majority holding since it is the basis for the determination

that the discovery Rule 34 is applicable and not Rule 23.

The majority finds that it “hardly requires our extended

discussion” to establish that the list sought is within the

scope of permissible discovery established by the rules.

Its reasoning is as follows:

Under Rule 26(b), “[p]arties may obtain discovery

regarding any matter .. . relevant to the subject mat-

ter involved in the pending action ... .” Fed. R. Civ.

P. 26(b)(1). The holding of Eisen IV itself propels

us ineluctably to the conclusion that the names and

addresses of class members are “relevant to the sub-

ject matter” of a class action. By mandating that a

representative plaintiff in a class suit send individual-

ized notice to the members of his class, Fisen raises

as a potential issue in all such litigatio.. whether the

required notice has properly been sent. A list of the

names and addresses would of course be essential to

the resolution of that issue.

Sla

Appendix E

This is an exercise in sophistry and not syllogistic rea-

soning. No one questions that Rule 23 mandates that the

plaintiffs have the obligation to notify the class and the

majority in that part of the opinion we have excerpted

admits that a list of the names and addresses is an essen-

tial step in the required notification. How then can it avoid

the holding of Eisen IV that such costs must be assumed

by the plaintiffs? The deus ex machina employed is dis-

covery under Rule 34. We do not maintain that discovery

in class action cases is limited to the search for evidence

or leads relevant to the substantive merits of the under-

lying controversy. It properly may encompass inquiry to

determine whether class action requirements can be satis-

fied. However, that was not the purpose of the plaintiffs

here. The district court has certified the class and found

that the action was properly maintainable as a class action.

The panel unanimously agreed and no one in the en banc

panel] disagrees. There is no issue as to numerosity or a

predominance of common questions of law or fact. The

plaintiffs have never sought discovery relief under Rule 34.

In the memoranda submitted by the plaintiffs to Judge

Griesa prior to his opinion below there is no mention of

Rule 34. Judge Griesa expressly and correctly perceived

the issue as being “who is to bear certain expenses con-

nected with the giving of notice.” Sanders v. Levy, 69

Civ. 1242, Slip op. at 2 (S.D.N.Y. May 15, 1975).

No party here, certainly not the plaintiffs, is seeking

“discovery” as a method of determining whether notice

*See Annot., Discovery for Purposes of Determining Whether

Class Action Requirements Under Rule 23(a) & (b) of Federal

Rules of Civil Procedure Are Satisfied, 24 ALR Fed. 872 (1975).

Here, of course, it has already been determined that the require-

ments for the class action have been satisfied.

52a

Appendix E

has “properly” been sent. Plaintiffs are not anticipating

potential issues and seeking discovery to maintain a posi-

tion. They were avowedly and quite simply seeking the

list to notify the class under Rule 23. Should any issue

arise as to “proper notification”, e.g., was the list complete,

was the notice appropriate, was the postage adequate, pre-

sumably it would be raised by a putative member of the

class but not in limine by the plaintiffs who are required

to notify and pay the costs of notification under Fisen IV.

The raw tape data from which the proper list can be -

ascertained is fully available to the plaintiffs. The only

issue is who is to pay the expense of the special pro-

gramming necessary to make it usable. The names and

addresses which will be so produced will be equally ac-

curate no matter who pays the cost. Since the obligation

of proper notification is admittedly on the plaintiffs we

cannot understand by what alchemy the majority decides

that the cost becomes attributable to the defendant. We

can only conclude that the majority while purporting to

follow Eisen IV is in fact flouting its holding.‘

II

Having decided that the notification required by Rule 23

has been somehow transmogrified by Eisen IV into a dis-

covery procedure not governed by Rule 23, the majority

proceeds to find no abuse of discretion in requiring the

defendant fund to finance the suit against it, by relying

* We note that in Zisen IV the petitioner's brief argued, “Sub-

jecting Respondents to the cost of notice does not differ in effect

from requiring parties to make substantial expenditures to com-

ply with discovery orders. ...” Petitioner’s brief at 40-41. The

same argument was advanced on oral argument before the Supreme

Court, 42 U.S.L.W. 3493. The Court did not even dignify this

argument by any discussion in its opinion.

53a

Appendix E ~

on two factors which it finds persuasive. In rejecting the

“inflexible” rule espoused by the Supreme Court, the ma-

jority then proceeds to impose its own by holding that

there is no injustice in requiring one whose business is

vast and complex to pay the substantial costs involved,

while suggesting that the result might be different if the

defendant’s business was small and simple. But class ac-

tions for damages are invariably brought against those

who are relatively opulent and affluent in comparison with

the plaintiffs. This is inherent in the theory of the action.

The impecunious or those of modest means are seldom if

ever the target of such damage actions. The deeper pocket

is invariably in the trousers of the defendant. This con-

sideration moreover was expressly rejected in Eisen IV

where the Court stated, “There is nothing in Rule 23 to

suggest that the notice requirements can be tailored to fit

the pocketbooks of particular plaintiffs.” 417 U.S. at 176.

The majority's attempt to transmute notification into dis-

covery, as we have indicated, is totally unpersuasive.

The labored reasoning of the majority becomes evident

in the analogy it draws. The majority argues that great

corporations must expend millions to provide the govern-

ment with information necessary to comply with the in-

ternal revenue laws. The information thus sought, how-

ever, is to determine whether there has been any violation

of those laws and the retention of such records and data

is imposed by those laws. But what law demands that the

defendant maintain lists of past and present customers

who might in the future band together to sue the corpora-

tion in some class whose perimeters will be fixed by the

accidents and exigencies of possible litigation? There is no

question that the information sought here has nothing to

do with the merits of the underlying action. Nor is it

54a

Appendia E

relevant to determine whether the class action is properly

maintainable. It is sought simply for notification purposes

and not Giscovery in any sense in which that process has

ever been defined. Moreover, the data is available if the

plaintiffs are willing to assume the burdens, as well as the

benefits, of the class action they have initiated. To require

corporate defendants to so arrange their computer pro-

gramming as to anticipate the endless variety of prospec-

tive classes which might some day bring class actions is,

of course, unrealistic and not required by any law we know

of until this decision which hopefully will be short lived.

The second consideration stressed by the majority is

that when the plaintiffs sought to redefine by excluding

some 18,000 investors the class they had initially selected,

the defendants opposed the attempt. This resulted in a

higher cost than would have resulted if the plaintiffs had

been successful in reducing the class. Thus as the majority

seems to view the matter, the defendant fund has somehow

brought the burden of spending $16,580 at 1973 levels upon

its own head. But the district court found that the exclu-

sion of the 18,000 “would involve an arbitrary reduction

in the class,” since these people “logically belong in the

class.” Sanders v. Levy, 69 Civ. 1242, Slip op. at 7, 10

(S.D.N.Y. May 15, 1975). The determination of the scope

of the class was on the merits. We cannot agree that by

opposing an improper class a defendant thus becomes li-

able for any increased costs of notification. The class can-

not become proper only if the defendant bears the cost of

notifying the members. If this is to be the law the oppor-

tunities for abuse become obvious.*

*The majority does not make clear what weight the district

court is to attribute to either the wealth fact

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