Petition — Sloan v. Bonime

Supreme Court, U. $.

FILED

SEP 7 = 1977

————— JR., CLERK

Ix THE

Supreme Court of the Rnited States

October Term, 1977

“27-374 °

SAMUEL SLOAN,

Petitioner,

-against-

GERTRUDE J. BONIME, LILLIAN OLDEN, JOHN C.

DOYLE, WILLIAM M. WISMER and CANADIAN JAVELIN

LTD.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI!

TO THE

UNITED STATES COURT OF APPEALS FOR THE

SECOND CIRCUIT

————=— _<--s- oo

SAMUEL H. SLOAN

1761 Eastburn Avenue, Apt. A5

Bronx, N.Y. 10457

(212) 864-5770 or 299-2095

Dick Bailey Printers, 290 Richmond Ave., Staten Island, N.¥. 10302

Tel.: (212) 447-5358

TABLE OF CONTENTS

Page

TD BEL Gai sic cidade + vkanesvesddeecess l

IN FEE Moe FS iieinn oc oecde cevadaceisncecs 2

ED vacednneéscc depvedpiccecceecs 2

Statutory Provisions Involved ...............00005: 4

PGND oboe d decccwcccsccescetcecs 7

Reasons for Granting of the Writ...............5.- 13

I—Piaintiff Bonime suffered no injury as a result of

her stock purchases of Canadian Javelin Ltd. and

hence she must be dismissed as a plaintiff which in

turn requires dismissal of this action as it relates

to the first class period ...........cceeeeeeeees

Il—The judgment should be vacated and the action

remanded for reconsideration at such time as

plaintiff's and defendant's counsel serves a copy of

all filed papers upon the objectors and give them a

meaningful opportunity to respond.............

1l1l—The adoption of the “tentative settlement class’’

procedure in this case was a violation of due

process principles and Rule 23 of the Federal

BER GE Gree UIE oc ccc ccccccectccccess

I1V—This action is unmanageable and unmaintainable

under Rule 23 of the Federal Rules of Civil

IN Cink ied dh ek Ma els e ee Gann oat

14

18

20

V—The notice of the settlement was inadequate .....

Vi—The district court lacked the authority to per-

manently bar and enjoin all members of the class

who did not opt-out from instituting or

prosecuting any action asserting claims which

have been or might be asserted arising from or

related to the matters alleged in the amended

complaint ........seeeeees Pee

Vil—The Court of Appeals should have deferred

adjudication of the questions raised in Petitioner's

appeal until this litigation had been terminated in

the district court .........cce eee eee eee eeeeees

Ce ed tes pheeseewese

APPENDICES:

A—Decision of the United States Court of Appeals for

the Second Circuit Dated April 16, 1977 ........

B—Orders dated June 7, 1977 denying petition for

rehearing and suggestion that the rehearing be en

PEP PPRYTTIVTT IT TTL C ey LOL

C—Opinion of the District Court dated June 30, 1976.

D—Stipulation of Settlement dated July 12, 1975 ....

E—Notice of Class Certification and Proposed Set-

ss PPPENTIVITITITITITELT TTT TT OL

F—Form of Verified Proof of Claim and Release .....

G—Consent order and final Judgment entered August

Fe FUT ccccnbecsesocecvevsceccessoegvcowees

33

34

36

39a

iii

H—Letter from Samuel H. Sloan to Judge Lasker

«vos cuca ctevebecces cons 75a

I—Response of Robert M. Kornreich dated August

RTE bs eh ed vb babe Ode édich eveves courses 79a

CASES:

Bonime v. Doyle, 556 F.2d 554 (2d Cir. 1977) ....... 2

Bonime v. Doyle, 416 F. Supp. 1372 (S.D.N.Y. 1976). 2

Bonime v. Doyle, CCH Fed. Sec. Law Rep. $96,113

ee hs od Fe wae bécmuee Wn ee's 19

City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d

Ss is HUNT w sk 6d oo 0ons dws coeces cee 20

City of Detroit v. Grinnell Corp., 356 F. Supp. 1380

Oe rts Se en ae 22,31

Dorfman y. First Boston Corporation, 62 F.R.D. 466

Sah os sh UUs Gb es Se ORNs ec cveddane tase. 16

Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974).... 8

Green v. Occidental Petroleum Corp., 541 F.2d 1335

Ey Le ee ee 29

Hansberry v. Lee, 311 U.S. 32 (1940) .............. 33

Harris v. American Investment Co., 523 F. 2d 220 (8th

SE ere 30

Herbst v. 1.T.&T., 72 F.R.D. 85(D.Conn. 1976).... 34

iv

Leonard v, Merrill Lynch, 64 F.R.D. 432 (S.D.N.Y.

NOPD ccicdocccucescescebedQenmeanal 17

Madison Square Garden Boxing v. Earnie Shafers.

slip. op. 5355 (2d Cir. Aug. 19. 1977) ........+-- 33

McBroom v. Western Electric Co., 18 Fed. Rule Serv.

2d 1200 (M.D.N.C. 1974) .....eeeeeeeeeeeeees 20

S.E.C. v. Canadian Javelin Ltd., 64 F.R.D. 648

(S.D.N.Y. 1974) appeal dismissed, 538 F. 2d

313 (2d Cir. 1976), cert. denied, Dkt. No. 76-365

(Dec. 13, 1976) ee oF eee eeeeseSeSeSeSseSesseseee 7

Simon. v. Eastern Ky. Welfare Rights Organization.

468 WOUNE ... ..<acccececeseneaaeaeee ty

Sosna v. Jowa, 419 U.S. 393 (1975) ......cceseeees. 16

State of West Virginia v. Chas. Pfizer & Co., 440 F. 2d

1079 (2d Cir.) cert. denied sub nom. Cotler Drugs

v. Chas. Pfizer & Co., 404 U.S. 871 (1971) ..... 20,22

TMT Trailer Ferry Inc. v. Anderson, 390 U.S. 414

(IGGED . cccccccccccccccccccscccesocosscueses 22

Warth v. Seldin, 422 U.S. 490 (1975) .......-eeeeee 17

Williamson v. Bethlehem Steel Corp., 468 F.2d 1201

(2d Cir. 1972), cert. denied, 411 U.S. 931 (1973) . 33

OTHER AUTHORITIES:

ye err 2

Oe ee ,

Rule 23 of the Federal Rules of Civil Procedure . . . 2,3,4-7.8

18,20,23,27

“Developments in the Law—Class Actions”

Law Review, May 1976 ae

Cos ccecccccece 9,23,24,29

Wall Street Journal, October 25

heed » 1973 and October

IN THE SUPREME COURT OF THE UNITED STATES

October Term, 1977

No.

SAMUEL H. SLOAN,

Petitioner,

-against-

GERTRUDE J. BONIME, LILLIAN OLDEN,

JOHN C. DOYLE, WILLIAM M. WISMER and

CANADIAN JAVELIN LTD.,

Respondents...

/

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Petitioner respectfully prays that a writ of certiorari

issue to review the decision of the United States Court of

Appeals for the Second Circuit, dated April 4, 1977, which

summarily affirmed the decision of the United States

District Court for the Southern District of New York,

which approved the settlement of a class action, and to

review the decision of the United States Court of Appeals

dated June 7, 1977, which denied a petition for rehearing a

suggestion that the rehearing be en banc.

OPINIONS BELOW

The decision of the United States Court of Appeals for

the Second Circuit dated April 6, 1977 is reported as

Bonime v. Doyle, 556 F. 2d 554 (24 Cir. 1977) and is in-

cluded as Appendix A to this petition. The decision of the

United States Court of Appeals for the Second Circuit

dated June 7, 1977, which denied a petition for a rehearing

and a suggestion that the rehearing be en banc, is

unreported and is included as Appendix B to this petition.

The decision of the United States District Court for the

Southern District of New York, which approved the set-

tlement of the class action, is reported as Bunime v. Doyle.

416 F. Supp. 1372 (S.D.N.Y. 1976) and is included as

‘Appendix C to this petition.

JURISDICTION

The opinion of the United States Court of Appeals for

the Second Circuit was entered on April 6, 1977. A petition

for a rehearing and a suggestion that the rehearing be en

banc was denied on June 7, 1977. Jurisdiction of this Court

is invoked under 28 U.S.C. §1254(1). The time within

which f° apply for a writ of certiorari to bring this

proceeding before the Supreme Court for review is ninety

(90) days from June 7, 1977, pursuant to 28 U.S.C.

§2101(c).

QUESTIONS PRESENTED

1. May the “tentative settlement class procedure”’ be

adopted by the existing parties to a class action who are

proponents of a settlement where the class consists

predominantly of persons with relatively small individual

claims under which the members of the class have the

choice of (a) opting out (b) opting in and filing the proof of

claim and (c) filing objections to the settlement and a brief

in support thereof?

2. May the existing parties to a suit, consistent with

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

and due process considerations, refuse to serve an objector

to the settlement with any briefs, affidavits or other

documents filed in court in support of the settlement or

with any other court filings beyond the notice of the class

certification and the proposed settlement?

3. May aclass action be maintained in a United States

District Court by a plaintiff who is a representative of the

class of persons who purchased the stock of a certain

corporation but who suffered no financial loss as a result of

any such purchases?

4. Is an action brought on behalf of a class of all

persons who purchased the stock in a certain corporation

over a period of four and one half years unmanageable and

unmaintainable under Rule 23 of the Federal Rules of

Civil Procedure?

5S. Is a notice to the members of a class in a class acti

of a proposed settlement inadequate which fails to app

the class members of the formula by which their losses will

be computed or that many members of the class will be

entitled to no recovery whatever or that the entire judgment

entered upon approval of the settlement will be paid by the

corporate defendant rather than by the individual

defendants? ,

6. Is the notice to the class of a proposed settlement

inadequate which fails to provide the members of the class

with a reasonable basis for determining what recovery, if

any, they will receive if the proposed settlement is ap-

proved?

7. Does a district court have the authority to enter an

injunction enjoining all members of the plaintiff class who

did not opt-out, whether or not they have filed proofs of

claim and participated in the settlement, from instituting

against any of the defendants any suit based upon any

eause of action which arise out of any of the matters alleged

in the action, whether known or unknown?

8. Rather than entertain this appeal in an action not

yet terminated, should the Court of Appeals. have

remanded or dismissed the appeal and postponed its

determination of the questions presented until such time as

the District Court had conducted the hearings it had ex-

pressed an intention to conduct and had made a final

determination of the amount of the attorney’s fees to be

paid and the amount which each class member who filed a

proof of claim wll receive under the settlement and a final

judgment has been entered accordingly from which appeals

might be taken?

STATUTORY PROVISIONS INVOLVED

~ Rule 23 of the Federal Rules of Civil Procedure

provides:

CLASS ACTIONS

(a) Prerequisites to a Class Action. One or more

members of a class may sue or be sued as representative

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

that joinder of all members is impracticable, (2) there are

questions of law or fact common to the class, (3) the claims

or defenses of the representative parties are typical of the

claims or defenses of the class, and (4) the representative

parties will fairly and adequately protect the interests of the

class.

(b) Class Actions Maintainable. An action may be

maintained as a class action if the prerequisites of sub-

division (a) are satisfied, and in addition:

(1) The prosecution of separate actions by or against

individual members of the class would create a risk of

(A) inconsistent or varying adjudications with respect

to individual members of the class which would establish

incompatible standards of conduct for the party opposing

the class, or

(B) adjudications with respect to individual members

of the class which would as a practical matter be dispositive

of the interests of the other members not parties to the

adjudications or substantially impair or impede their

ability to protect their interests; or

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

act on grounds generally applicable to the class, thereby

making appropriate final injunctive relief or corresponding

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

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

common to the members of the class predominate over any

questions affecting only individual members, and that a

class action is superrior to other available methods for the

fair and efficient adjudication of the controversy. The

matters pertinent to the findings include: (A) the interest of

members of the class in individually. controlling the

prosecution or defense of separate actions; (B) the extent

and nature of any litigation concerning the controversy

already commenced by or against members of the class; (C)

the desirability or undesirability of concentrating the

litigation of the claims in the particular forum; (D) the

difficulties likely to be encountered in the management of a

class action. . ,

(c) Determination by Order Whether Class Action to be

Maintained; Notice; Judgment; actions conducted Partially

as Class Actions. |

(1) As soon as practicable after the commencement of

an action brought as a class action, the court shall

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

order under this subdivision may be conditional, and may

be altered or amended before the decision on the merits.

(2) In any class action maintained under subdivision

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

best notice practicable under the circumstances, including

individual notice to all members who can be identified

through reasonable effort. The notice shall advise each

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

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

whether favorable or not, will include all members who do

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

request exclusion may, if he desires, enter an appearance

through his counsel.

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

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

favorable to the class, shall include and describe those

whom the court finds to be members of the class. The

judgment in an action maintained as a class action under

subdivision (b) (3), whether or not favorable to the class,

shall include and specify or describe those to whom the

notice provided in subdivision (c) (2) was directed, and who

have not requested exclusion, and whom the court finds to

be members of the class.

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

maintained as a class action with respect to particular

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

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

rule shall then be construed and applied accordingly.

(d) Orders in Conduct of Actions. In the conduct of

actions to which this rule applies, the court may make

appropriate orders: (1) determining the course of

proceedings or prescribing measures to prevent undue

repetition or complication in the presentation of evidence

or argument; (2) requiring, for the protection of the

members of the class or otherwise for the fair conduct of

the action, that notice be given in such manner as the court

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

action, or of the proposed extent of the judgment, or of the

opportunity of members to signify whether they. consider

the representation fair and adequate, to intervene and

present claims or defenses, or otherwise to come into the

action; (3) imposing conditions on the representative

parties or on intervenors; (4) requiring that the pleadings

be amended to eliminate therefrom allegations as to

representation of absent persons, and that the action

proceed accordingly; (S) dealing with similar procedural

matters. The orders may be combined with an order under

Rule 16, and may be altered or amended as may be

desirable from time to time.

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

be dismissed or compromised without the approval! of the

court, and notice of the proposed dismissal or compromise

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

the court directs.

STATEMENT OF THE CASE

On November 29, 1973, the Securities & Exchange

Commission suspended trading in all securities of

Canadian Javelin Ltd. and simultaneously instituted suit

against Canadian Javelin Ltd, and its officers John C.

Doyle and William M. Wismer.! On December 3, 1973, a

suit was instituted by the law firm of Wolf, Popper, Ross,

Wolf & Jones, specialists in prosecuting class action

litigation. The plaintiff in this case was Gertrude J. Bonime

(“Bonime”), who instituted this suit on behalf of herself

and all other persons similarly situated. Named as

defendants were John C. Deyle, William M. Wismer and

Canadian Javelin Ltd., the same defendants who were

named in the suit instituted by the S.E.C. The allegations

of this complaint paralleled those made in the complaint

filed by the S.E.C. and at the request of plaintiff's counsel

both actions were assigned to the same judge. Later, that

judge transferred this case to Judge Lasker.

At about the same time two parallel class actions were

1. That case produced one reported opinion: S.£.C. v. Canadian Javelin

Ltd., 64 F.R.D. 648 (S.D.N.Y. 1974) appeal dismissed, 538 F. 2d 313 (2d

Cir. 1976), cert. denied, Dkt. No. 76-365 (Dec. 13, 1976).

instituted in Chicago by an attorney named Robert Plotkin.

One of these suits was filed in the federal district court in

Chicago and the other was filed in an Illinois State Court.

Thereafter, the Bonime suit remained relatively dormant

and a motion for a class action determination was not filed

until January 17, 1975. Meanwhile, Mr. Plotkin actively

litigated the cases he had brought in Chicago.

Plaintiff's motion for a class action determination was

granted on consent after defendant Canadian Javelin Ltd.

consented to a preliminary determination of the class

“without prejudice to its right to assert, in a subsequent

motion, after discovery relating to the class issue, any and

all objections that may be appropriate with respect to the

issues of class definition and class representation.” In

addition, plaintiff filed a motion to add Lillian Olden as a

party defendant and this motion as well was granted on

consent on January 23, 1975. Starting with March 5, 1975

plaintiff filed notices to take depositions to a total of four

persons and in addition filed interrogatories directed to all

defendants. At about this time, settlement negotiations

commenced. Mr. Plotkin offered to settle his cases for

approximately $2,000,000 payable to members of the

plaintiff class. Counsel for Bonime, however, agreed to

settle for the lower figure of $1.350,000. The defendants

chose to accept the latter offer.

During this time, notices to members of the class of

the certification of the class action as required by Rule 23

of the Federal Rules of Civil Procedure and this Court's

decision in Eisen v. Curlisle & Jacquelin. 417 U.S. 156

(1974) had been stayed at the request of all parties.

Consequently, when counsel for Bonime and counsel for

defendants agreed to a settlement they were in a position to

adopt the “tentative settlement class procedure’. Under

this procedure, the members of the class are provided with

notice of the proposed settlement at the same time that

notice is provided of the class certification and the class

ee

members given the opportunity to decide whether to opt-in

or opt-out. The use of this procedure, which is condemned

by the Manual for Complex Litigation, 41.45 p. 37, and

other commentators, see e.g. “‘Developments in the Law—

Class Actions”, Harvard Law Review, May 1976, p. 1555-

1558, forms a basis to objections listed under “Questions

Presented"’ in the instant petition.

The terms of the proposed settlement agreed upon by

the existing parties were incorporated in a Stipulation of

Settlement which was submitted to the district judge for

approval. A copy of the Stipulation of Settlement is in-

cluded as Appendix D to this petition. The Stipulation of

Settlement was not, however, sent to the members of the

class and to this day the class members have not been

notified of many significant provisions of the Stipulation of

Settlement. For example, the Stipulation of Settlement

defined two class periods and provided that persons who

purchased the stock of Canadian Javelin Ltd. within these

class periods will have their losses computed based upon

the price at which the stock was sold if the stock was sold

within that class period and if the stock was not sold within

that class period the loss will be the difference between the

purchase price and the price of 10 3/8 for the first class

period and 7 1/8 for the second class period, these prices

representing the closing price on the American Stock

Exchange on the first day of trading after the termination

of the respective class periods. Thus, plaintiff Bonime, who

is a member of the class solely as a result of the purchase of

400 shares of Canadian Javelin Ltd. at the price of 8 3/8

during the first class period, has a profit as defined by the

Stipulation of Settlement and, therefore, under the terms

of the Stipulation of Settlement, has no right to participate

in the settlement fund.

Under the procedure adopted in the Stipulation of

Settlement and approved by the district judge, members of

10

the class were mailed a notice of the class certification and

of the proposed settlement along with a proof of claim

form. A copy of the notice is included as Appendix E to this

petition. A copy of the proof of claim form is included as

Appendix F to this petition. It can be seen from examining

the proof of claira form that in order for a person to file a

proof of claim and participate in the settlement he was

required to (a) agree to be bound by the terms of any

judgment that shall be entered upon the Stipulation of

Settlement and (b) sign a general release discharging

“defendant Canadian Javelin Ltd. and its past and present

officers, directors, employees, agents, attorneys, sub-

sidiaries, and affiliates . . . . from all claims which might

have been asserted in connection with or which arise out of

any of the matters alleged in the action, whether known or

unknown”. Thus, any person who wished to file an ob-

jection to the settlement was precluded from filing a proof

of claim in view of the conditions placed upon such a

filing.2 }

Petitioner, Samuel H. Sloan, upon receipt of the

notice, filed a notice of appearance. a statement of ob-

jections and a brief in support thereof. The objections were

concerned primarily with procedura! matters and the fact

that the notice of the proposed settlement did not provide

sufficient information to make possible a reasonable

estimate of how much the members of the plaintiff class

would receive if the settlement was approved. Among other

ihings, petitioner pointed out that warrants might be paid

in lieu of cash and that since the stock of Canadian Javelin

Ltd. was then suspended from trading by the Securities &

2. Counsel for defendants disagree with this interpretation and contend

that a party may file a proof of clairn and yet object to the settlement.

Plaintiff's counsel, however, does not disagree and moved to dismiss an

appeal by Guardian Management, S.A. on the ground that it had filed a

proof of claim and, therefore, lacked standing to appeal. That appeal was

later withdrawn.

— ee -

ee

11

Exchange Commission, these warrants might well be

worthless. In addition, Petitioner objected to vexatious

litigation practices by Wolf, Popper, Ross, Wolf & Jones

and contended that the requested attorney's fee of

$260,000 was excessive and should not be allowed.

There were a number of other objectors, by far the

most vigorous of which was Robert Plotkin, who filed

voluminous papers in opposition to the settlement.

Plotkin’s objections were understandable in view of the fact

that approval of the settlement in the Bonime case would

virtually extinguish the two class actions he had brought in

Chicago and would deprive him of the substantial at-

torney’s fees he had hoped to gain upon successful

prosecution of those suits. Judge Lasker gave Plotkin

considerable latitude to present his objections, allowing

Plotkin to continue io file affidavits -and supporting

memoranda in opposition to the settlement long after the

cut-off date of September 29, 1975 set forth in the notice.

In addition, Plotkin was notified of and attended addition

hearings before Judge Lasker which none of the other

objectors including Petitioner were told about. The

decision subsequently rendered by Judge Lasker approving

the settlement noted the appearance by Plotkin but did not

note the appearance of Petitioner or of two other attorneys

who had filed briefs in opposition té the settlement.

It took Judge Lasker until June 30, 1976 to make his

decision approving the settlement. During the period

between the September 29, 1975 cut-off date on papers

filed by objectors and Judge Lasker’s June 30, 1976

decision, plaintiff's counsel had filed numerous affidavits

and memoranda in support of the settlement. Benedict

Wolf, the supervisory attorney representing the plaintiffs,

filed a 39-page affidavit dated October 8, 1975 setting forth

an evidentiary basis for the settlement. He also filed

supplemental affidavits dated October 9, 1975, October

15, 1975. November 17, 1975 and December 3, 1975.

a le » apes” ” . re > -

+

12

Additional affidavits were filed by Robert M. Kornreich,

an attorney working under Wolf's supervision, by Irving

Golomb, Counsel for Canadian Javelin Ltd., and by Roger

F. Murray, a purported expert on securities trading who

had been retained by the proponents of the settlement. All

these affidavits were filed after the September 29, 1975 cut-

off date and long after Petitioner had filed his notice of

appearance which included a demand for service of copies

of all filed papers. Nevertheless, not even a single-paper or

document of any kind was served by the existing parties

upon Petitioner or upon any of the other objectors, with the.

exception of Mr. Plotkin, and, in addition, the affidavits

and other documents which were filed in support of the

settlement were maintained in Judge Lasker’s chambers

throughout the time that the motion for the approval of the

settlement was pending and therefore could not be viewed

in the public reference section of the courthouse. In an

effort to keep track of the progress of this case, Petitioner

went to Judge Lasker’s chambers and asked to see all of the

filed documents but was never shown the affidavits

described: above which set forth the evidentiary basis under

which plaintiff's counsel was contending that the set-

tlement was fair and adequate. Thus, prior . to the

publication of Judge Lasker's opinion approving the

settlememi, Petitioner did not know and had no way of

knowing of the grounds proffered by piaintiff's counsel in

s of the settlement.

ae Judge Lasker’s decision approving the set-

tlement. a proposed judgment was submitted by the

proponents of the settlement but a copy of this ——

judgment was never served on either Petitioner or any 0

the other objectors. In addition, the judgment which Judge

Lasker signed, which is included as Appendix G to this

petition. was not served upon Petitioner. As a result,

Petitioner very nearly defaulted in this appeal. Fortunately.

however, Judge Lasker extended by thirty days the time of

13

Petitioner to file his notice of appeal without which the

instant appeal -would not have been possible.

Two other appeals were filed: one by Plotkin and the

other by Guardian Management, S.A. Plotkin’s appeal was

later withdrawn under a stipulation in which Canadian

Javelin Ltd. agreed to pay Plotkin legal fees in connection

with his Chicago suits. The appeal of Guardian

Management, S.A. was withdrawn as well when the at-

torneys to the existing parties agreed to a stipulation which

permitted Guardian Management, S.A. to litigate certain

issues before Judge Lasker and to defer its right to appeal

on all issues to a later date. Although Petitioner wanted to

have the same deal which was given to Guardian

Management, S.A., plaintiff's counsel was not agreeable

and as a result Petitioner was isolated as the only appellant.

Undoubtedly plaintiff's counsel decided it was strategically

advantageous to force Petitioner to go forward with his

appeal in view of Petitioner’s poor record of success in the

Second Circuit. |

On appeal, the United States Court of Appeals for the

Second Circuit summarily affirmed Judge Lasker's decision

and this petition for a writ of certiorari follows.

REASONS FOR GRANTING OF THE WRIT

Petitioner submits that this petition for a writ of

certiorari should be granted inasmuch as a decision of the

United States Court of Appeals for the Second Circuit has

decided a federal question in a way in conflict with ap-

plicable decisions of this Court and has so far departed

from the accepted and usual course of judicial proceedings

as to call for an exercise of this Court's power of super-

vision. Petitioner submits that any or all of the following

grounds provide ample basis for granting this petition for

writ of certiorari and that summary reversal of the decision

of the Court of Appeals may be appropriate.

5

14

ST ora Toe nena

AS A RES

LTD. AND HEN

OF CANADIAN JAVELIN

AS A PLAINTIFF

HE MUST BE DISMISSED

WHICH IN TURN REQUIRES oye 4

THIS ACTION AS IT RELATES TO

CLASS PERIOD.

i ; ished to

ed previously, individuals who wis

a N. AM pere-vane were required to ~¥" —

claim on a proof of claim form pene a,

Subsequently, approximately 3500 proo poles ms _

filed but to date nw effort has been made to goo

and there has been only preliminary —- sa

alphabetization. Nevertheless. reset — —

opportunity to examine these proof of c - wy er

bom moterty tis. Seats olen Gi ie'anbaeadion i

n imade' by Mr. :

a United States District Court wang « men seapa

pone fa aah ty oh level, plaintiff's

1 by Jud sker. '

psn wth ob vehemently when cy a ve . -

the proofs of claim as plaintiff's pe pn ve enc

District Court. However, the proof of . mn pace pm

the custody of defendant’s counsel and ot mage

agreed to permit them to be exdmined. ye ph

articularly interested in examining the proo fig

we filed by plaintiffs Bonime and Olden. He — neo

locate Bonime's proof of claim but after an : eM

search lasting approximately five hours he ag" — rs

to locate Olden’s claim, =e A —_ nm Mae

examination of Bonime’s claim shows y ite 2),

400 shares of Canadian Javelin Ltd. at 8 ee

1970. Since 8 3/8 is less than 10 3/8, which was

one te

i CR

16

price on the American Stock Exchange on the first day of

trading after the end of the first class period, Bonime' did

not suffer a loss as defined by the Stipulation of Settlement

and, therefore, may not participate in the settlement fund.

The status of plaintiff Olden remains unclear.

In its brief to the Court of Appeals, plaintiff's counsel

claimed that Petitioner had “conveniently” failed to locate

Olden’s claim which, according to this brief, shows a loss

as defined by the Stipulation of Settlement. Petitioner has

since communicated with both plaintiff's and defendant's

torney for Canadian Javelin Ltd., who has custody of the

S00 proof of claim forms, has advised Petitioner that he

has never seen the Olden claim and does not know where it

is or if it exists and that when he inquired of plaintiffs

counsel regarding this matter, he received an evasive

answer. Mr. Kornreich of plaintiff's counsel has told

Petitioner that he will not discuss anything regarding the

merits of this case and that he will not permit Petitioner to

see &@ copy of Olden’s claim and will not even state whether

such a claim has been filed. He did, however, say that the

statements made in his brief to the Court of Appeals were

true and that he will respond to this point in Writing in his

answer to the instant petition for a writ of certiorari.

Accordingly, Petitioner Fequests this Court to order

red injury as a result of the activities alleged in the

complaint. Petitioner submits that if plaintiff's counsel is

unable or unwilling to demonstrate that Olden has been

injured, then applicable decisions of this Court require the

dismissal of this action.

In any event, the brief by plaintiff's counsel to the

16

Nevertheless, plaintiff's counsel contended that this cir-

cumstance ions not require the dismissal of Bonime as a

plaintiff or the setting aside of the settlement approved by

Judge Lasker. In support of this contention, plaintiff's

counsel argued: (a) that Petitioner has no standing to

request the dismissal of the complaint or the dismissal of

Bonime as a plaintiff and (b) plaintiff's s\atus is to be

judged at the time of the class certification and does not

depend on her ability to ultimately prove her entitlement to

relief. In support of the latter proposition, plaintiff's

counsel cited this Court’s decision in Sosna v. Iowa, 419

U.S. 393 (1975) as well as Dorfman v. First Boston Cor-

ion, 62 F.R.D. 466 (1974).

ge bm to these points, Petitioner submits that the

fact that the action instituted by plaintiff Bonime has’

resulted in the entry of a judgment under which Petitioner,

among other things, is enjoined from instituting or

prosecuting any suit against the named defendants, is

sufficfent to give Petitioner standing to request the

dismissal of Bonime as a plaintiff. This is particularly true

since the named defendants never filed any effective op- |

position to this suit, never filed a motion to dismiss, never

objected to Bonime’s standing as a plaintiff, and consented

to’every application filed by plaintiff. The reason for this is,

ot course. that the defendants have eee an ae

1d deal in the settlement of this suit because in return

yeni of the relatively small sum of $1 ,350,000 they

have obtained virtual immunity from suit based upon

activities lasting over a period of four and one half years

which resulted in civil injunctive suits filed by the Securities

& Exchange Commission as well as criminal informations

returned against defendant John C. Doyle and other

persons connected with Canadian Javelin Ltd. in the

Canadian courts. Since there are strong reasons for which

it is contrary to the interests of Canadian Javelin Ltd. to

question the status of Bonime as a plaintiff, the courts

17

should hear objections from persons such as Petitioner. As

to the second point, Petitioner contends that the fact that

plaintiff's counsel was in the unique position to know that

its own client had suffered no injury as a result of the

activities of Canadian Javelin Ltd. at the time it instituted

suit and at the time it filed a motion for a class certification,

requires the dismissal of Bonime as a plaintiff and the

dismissal of this action with respect to the first class period,

notwithstanding the class certification.

It is noteworthy that this is not the first time that the

law firm of Wolf, Popper, Ross, Wolf & Jones filed a class

action on behalf of a representative plaintiff who was

subsequently found to have suffered no injury. In Leonard

v. Merrill Lynch, 64 F.R:D. 432, 434-435 (S.D.N.Y. 1974)

Mr. Kornreich contended that even though his client had

suffered no injury resulting from the actions of the

defendants, his client could nevertheless sue as the

representative of those persons who did suffer injury

because of the actions of the defendants. This contention

, was rejected by Judge Pierce. In the instant case, Mr.

Kornreich is oh the same side of the Same issue but he

argues that the fact that the class action has already been

certified compels a different result. Petitioner disagrees

and submits that ‘the appropriate remedy under the cir-

cumstances may be to require Mr. Kornreich and the law

firm of Wolf, Popper, Ross, Wolf & Jones to compensate

purchasers of Canadian Javelin Ltd. stock during the first

class period for injuries resulting from this fictitious class

action instituted in their behalf. The applicable authorities

of this Court clearty require the dismissal of Bonime as a

plaintiff. See Warth v. Seldin, 422 U.S. 490, S02 (1975)

and Simon v. Eastern Ky. Welfare Rights Organization.

426 U.S. 26, 40 n. 20 (1976). Since Bonime is the sole

representative of the class of persons who purchased shares

of Canadian Javelin Ltd. from April 30, 1969 through May

31, 1972, this action with respect to injuries sustained

18

during that class period must be dismissed along with the

dismissal of Bonime as a plaintiff. All that would remain

would be the action related to those who purchased’ shares

from June 1, 1972 through October 24, 1973, all dates -

inclusive. However, according to Wolf's affidavit in

support of the settlement, the first fraudulerit act during

this period occurred on June 22, 1973 and” therefore,

assuming that Olden is a proper plaintiff, which Nas not yet

been established, it would be appropriate to narrow this

action to cover the period from June 22,.1973 until October

24, 1973, which would enable this action to satisfy the

manageability requirements of Rule 23 of the Federal

Rules of Civil Procedure even though it would set back the

aspirations of plaintiff's counsel to gain a substantial legal

fee as a result of representing a much broader class of

purchasers.

i

THE JUDGMENT SHOULD BE VACATED

AND THE ACTION REMANDED FOR

RECONSIDERATION AT SUCH TIME AS

PLAINTIFFS’ AND DEFENDANTS’ COUNSEL

SERVES A COPY OF ALL FILED PAPERS

UPON THE OBJECTORS AND GIVE THEM A

MEANINGFUL OPPORTUNITY TO

RESPOND.

As noted previously, the proponents of the settlement

filed voluminous materials none of which was available for

view by Petitioner or by any of the other objectors, save Mr.

Plotkin, until Judge Lasker made his decision. Petitioner

has considerable evidence in his possession which proves

the falsity of numerous statements made by Wolf in

support of the settlement. For example, petitioner has in

his possession press releases based upon a news conference

19

given by Fernando Manfredo, the Minister of Commerce

and Industries of the Republic of Panama, on June 20,

1973, in which Manfredo stated that the government of

Panama was considering kicking out Canadian Javelin Ltd.

and was thinking of mining the copper properties for which

Canadian Javelin Ltd. had an exploration concession,

itself. This material directly controverts the statements

made in Wolf's affidavit upon which Judge Lasker relied

that Canadian Javelin Ltd. had no way of knowing until

several months later about the possibility of difficulties

with the Panamanian government. However, Petitioner did

not file this and other documentary material which con-

troverts numerous statements made in Mr. Wolf's af-

fidavits for the simple reason that Wolf failed and refused

to serve any of his court filings upon Petitioner and

therefore Petitioner had no way of knowing of the

evidentiary basis for Wolf's claim that the settlement was

fair. Recently, there has been an exchange of

correspondence concerning the fact that to this day

plaintiff's counsel refuses to serve any papers upon

Petitioner in spite of the fact that Petitioner has been

actively litigating this case. A copy of a complaining letter

by Petitioner to Judge Lasker is included as Appendix H to

this petition and a copy of Mr. Kornreich’s fetter in

response in which he states that~he has not served

Petitioner with papers in the past and that he will not do so

in the future is included as Appendix I to this petition.

Subsequent to this exchange of correspondence, Petitioner

has learned that Judge Lasker has awarded a legal fee of

$260,000 upon the request of plaintiff's counsel. This

decision has been reported as Bonime v. Doyle, CCH Fed.

Sec. Law Rep. 496,113 [Current Binder] (decided July 21,

1977). This decision mentions Petitioner by name even

though neither Petitioner nor any of the other objectors

were served with a copy of plaintiff's counsel’s fee ap-

plication and, therefore, noone other than the defendant

20

eaningful opportunity to oppose plaintiff's request.

cohanial Seabee Javelin Ltd. did not oppose the sper

of the fee, which is not surprising inasmuch as the 4.

be deducted from the settlement fund which Can ~

Javelin Ltd. has agreed to pay. Incidentally, Judge gee

stayed any payment of counsel's fees = e

disposition of this petition for writ of certior i

It is not disputed that Petitioner, who timely A

notice of appearance and a statement of pty ere nd ne

settlement, was not served with any of the papers in

support of the settlement. Therefore, oan =

deprived of a meaningful opportunity to oppose : - “

tlement and under Rule 23 (c)(2)(C) of the Federal Ru . -

Civil of Procedure and due process wep wearer :

judgment approving the settlement should be aoe =

this action should be remanded. See e.g. 89 wows Lo

Review p. 1485 (May, 1976); McBroom v. Western “0

Co.. 18 Fed. Rule Serv. 2d 1200, 1203 (M.D.N.C. :

N OF THE “TENTATIVE

SETTLEMENT CLASS” PROCEDURE IN THIS

CASE WAS A VIOLATION OF DUE PROCESS

PRINCIPLES AND RULE 23 OF THE

FEDERAL RULES OF CIVIL PROCEDURE.

e summary order of affirmance issued by the Court

of Pe cites nb cases: State of West Virginia v. —

Pfizer & Co., 440 F. 2d 1079, 1985 (2d Cir.) ved eo

sub nom. Cotler Drugs v. Chas. Pfizer & Co.. Mod pe

(1971) and City of Detroit v. Grinnell Corp.. 495 F.

468 (2d Cir. 1974). Both of these were cases where =

Second Circuit approved of the use of the wag :

tlement class procedure. However, as a matter , -

process, the principles which apply to those cases do no

21

apply here. The reason for this lies in the composition of

the plaintiff class. In the instant case, the plaintiff class

consists of all persons who purchased stock in Canadian

Javelin Ltd. over a period of four and one half years.

Canadian Javelin Ltd. was a low-priced highly speculative

security traded on the American Stock Exchange. It turns

out, not surprisingly, that the plaintiff class consists

predominantly of persons whose total purchases amounted

to not more than a few hundred shares and who suffered a

loss of less than $1,000. It so happens that Petitioner

purchased 46,810 shares during the second class period

qnd suffered a loss amounting to $123,643.51. This ex-

plains the fact that Petitioner had a sufficient financial

Stake in this controversy as to justify filing a notice of

appearance and devoting extensive time and effort in

litigating this case whereas few other members of the class _

chose to object. The simple fact is that a person who

suffered a loss amounting to less than $1,000 would find it

prohibitively expensive to hire a lawyer to file a brief and to

appear at the hearing before Judge Lasker, a course which

was required for any person who wished to object to the

settlement. In addition, the question of whether to opt-in

or opt-out of the class action required sophisticated legal

judgment for its resolution. Therefore, the usé of the

tentative settlement class procedure had the effect of

depriving persons with claims too small to permit the

retention of counsel of their due process rights. In the two

cases cited by the Court of Appeals this problem did not

exist. Those two cases were among the most massive and

complex actions ever filed in the history of the federal

judicial system. In both cases the plaintiff class consisted of

governmental entities and some of the largest corporations

in the United States. Hundreds of attorneys appeared in

each of those cases and most of the largest and most

prestigious law firms in the United States were involved.

Every point of view was adequately represented and every

. In

ment that could be made was no doubt presented

the latter of the two cases, the district judge estimated that

to try. See City of Detroit v. Grinnell, 356 F.

ceap 1989 (S.D.N.Y. 1972) aff'd. 495 F. 2d a

In the Chas. Pfizer case the agreed upon settlemen _

$100,000,000. In the — case the agreed upon

was $10,000,000. é

eee to the enormous complexity wt ves —

cases, which did not start out as class ——

consolidated by the Judicial Panel on District

argument on July 23, 1976 Judge Lasker stated:

of this case

‘And I may say that the settlement

has weal tow | more difficult for me than if I tried

the bloody thing. I could have tried it in =e

three weeks and finished.

MR. GOLOMB: Except the question _

damages, which you might have had a prob

w THE COURT: I would have left it to a jury.”

(Tr. p. 50).

In TMT Trailer Ferry Inc. v. —- 390 a vaya

424-425 (1968), a bankruptcy case ey relied = "4

State of West Virginia v. Chas. Pfizer & Co., supra.

2d at 1079, this Court discussed the law of settlement as

follows:

“the judge should form -

estimate of the complexity, expense,

duration of such litigation, the possible ae & nn

of collecting on any judgment which ~ 7S

obtained, and all other factors relevant

and fair assessment of the wisdom of the proposed

compromise. Basic to this process in every in-

stance, of course, is the need to compare the terms

of the compromise with the likely rewards of

litigation.”

Thus, it is clear that a case should not be settled where

the settlement will cause more problems for the judge and

more expenditure of judicial time than if the case were fully

litigated, This is particularly true of a class action involving

as it does the problem of absent plaintiffs and many other

problems inherent in a class action. The Manual for

Complex Litigation { 1.45 p. 37 expresses this point as

follows:

‘According to the weight of recent decision, this

right of the small claimant to benefit without alone

bearing the otherwise prohibitive cost of litigation

is the most important procedural right secured by

Rule 23. [citations omitted] The requirement of

“opting-in’”’ must, therefore, under Rule 23 as it is

presently written, be regarded as a clear abuse of

discretion. [citation omitted] (“Rule 23(e) places

on the court the responsibility of protecting the

absent parties.”) Requiring a proof of claim under

pain of exclusion or dismissal is the same thing as

requiring class members to opt-in.” —

A more recent critique of the problems inherent in the

tentative class procedure, which sets forth a number of

pitfalls which were in fact encountered in the instant case

and which demonstrates why it was erroneous for the

district judge to adopt the tentative settlement class

procedure here, is found in the May, 1976 Harvard Law

Review p. 1555-1558, which states:

"{a) The Problem of the Tentative Settlement

Class.—The most elaborate settlement mechanism

developed for class actions is the tentative set-

tlement class, in which the parties negotiate >

definition of the class as well as the content of :

relief. After agreement is reached the judge

asked to give preliminary approval and to

authorize notice to class members, informing them

of the terms of the settlement and, in effect, giving

them four options: to opt-out; to accept the =

tlement and file a claim; to file a claim and — .

in the class but to protest the settlement at a fin

approval hearing; or to do nothing, in ao

they are bound without the chance to share -

recovery. The judge then holds a final hearing an

rules on the appropriateness of the class vege

and the adequacy of the settlement. If the i ge

rejects the proposal, or if an unexpectedly aree

number of class members opt out, the defendan

may renounce his class stipulation and either

oppose class treatment altogether or argue for a

narrower definition. ; .

Characteristically, parties using the tentative

settlement class device have succeeded in

minimizing judicial involvement pending a

pletion of the settlement package. Apparently

assuming that this absence of early ot is

an inherent part of the tentative settlement class

process, the Manual for Complex pap 8

concludes that tentative settlement classes ‘shoul

never be formed.’ The Manual's basic arguments

appear to be that this procedure fails to provide

adequate representation of absentees interests

and, as a result, dilutes their bargaining power;

delays the opportunity for class members to a

individual litigation; and does not generate om

information necessary for class members and :

judge to evaluate intelligently the pens mem

proposal. Proponents of the tentative settlemen

class respond to criticisms by contending that the

mechanism is actually helpful to absentees, since it

allows them to opt out with knowledge of the

specific benefits of remaining in the class.

Proponents also contend that settlements of large

consumer class actions would not be possible

without tentative settlement classes,. and that

problems of representation in a tentative set-

tlement class are no worse than in any class set-

tlement.

When all class members have individually

recoverable claims, a tentative settlement class

may be acceptable. In that situation, class

members have a genine option to opt out of the

settlement and can benefit from specific knowledge

of the amount of recovery they can expect from

remaining in the class. Moreover, since a class

member with a recoverable claim is likely to have

his own attorney and an incentive to investigate his

claim, he may be able to make an effective

evaluation of the settlement despite the lack of

information supplied by the negotiating parties. To

the extent that absentees are able to exercise

supervision over the settlement, the weak posture

of the judge becomes less troubling. On the other

hand, large claimants might be able to gather even

more detailed information about the actual

negotiations if there is early certification with the

opportunity to intervene. In addition, an absentee

might have his own suit delayed if all similar cases

are consolidated for pre-trial proceedings and the

judge refuses to allow any discovery until the

tentative class settlement has been negotiated. On

balance, however, these costs would appear to be

offset by the advantage of being able to opt out

with knowledge of the benefits of remaining in the

class.

In contrast, when a significant number of class

members’ claims are non-recoverable or nonviable,

the Manual's concerns about inadequate

representation appear well-founded. Defendants

may exploit the possibility of attorney-class conflict

by shopping among attorneys who claim to

represent the class until they find one with

‘reasonable’ demands. Intra-class conflicts are also

likely since both the class attorney and the

defendant will often have incentive to stipulate to

an overly broad class. The class attorney may want

to increase the size of the class in order to

maximize his fee. If subsequent class or individual

suits are probable, the defendant may want to save

litigation costs by quieting all claims with a single

payment.

When individual claims are small, absentees

probably will be unable to protect themselves

against inadequate representation. Small

claimants will seldom be able to hire a lawyer to

help them evaluate the offer. Opting out will often

be an illusory choice, since the individual cannot

afford to bring his own suit and will probably not

wish to gamble that a sufficient number of other

absentees will opt out to form a new class. Thus,

effective judicial supervision becomes vital. The

judge’s lack of information, however, may prevent

him from fulfilling his guardian role.”’ [Citations

and footnotes omitted]

It can be seen that a number of problems anticipated

by this analysis did in fact arise in the instant case. The

defendants were, in fact, able to shop among attorneys who

claimed represent the class until they found the one with

the most reasonable demands. In addition, the class at-

torney and the defendants stipulated to an exceptionally

broad class consisting of purchasers of a stock over a four

- one half year Period. With man

pc ga meng an defendants by acceptin

en , ' .

> — ey have been able to quiet all dais

relatively smajl

counsel ~

is satisfied because the defendants have a

,000, ae is as much as

awarded in a full

the onl i :

oon Y parties left in th

= members including Primarily those w; a

> «ag ag with relatively

considerati i

should reverse the decision of the Court. of pag a

In most securities fraud actions,

single, clearly identifiable act or the plaintifis allege a

Statement which had the

Statement in a

of a linerboard mill and ae wo pyre

the refusal

Panama to recognize the right of — len Sorennnsat of

receive a

Copper exploitation concession. For example

during the second fficers

class period

Canadian Javelin Ltd. claimed that —, . “

Y Suits, potential or

s of constructing what would prove to be the world’s

largest copper mine whereas, in fact, no construction had

commenced and an exploitation concession which was

necessary to commence construction of the mine had never

been granted by the government. The complaint alleges

that because of the failure of the defendants to disclose the

problems with the respective governments, the stock of

Canadian Javelin Ltd. traded at an artificially inflated

price which caused injury to its stock purchasers. However,

a problem arises because of the lengthy time period over

which plaintiffs allege that these fraudulent non-

disclosures took place. For example, assuming that the

allegations of the complaint are correct, a person who

purchased the stock of Canadian Javelin Ltd. during this

four and one half year period and subsequently sold the

stock of Canadian Javelin Ltd. during the same time period

did aot suffer injury. The reason for this is that, although

he paid too much because of the artificially inflated price at

the time that he bought the stock, he also benefitted to the

same degree because of the artificially inflated price which

existed at the time he sold.

Of course, this analysis does not conform to the reality

of the situation. For example, during the period from June

22, 1973 through October 24, 1973 the defendants issued a

barrage of press releases containing optimistic

pronouncements concerning their prospective copper mine

in Panama. During this period, trading in Canadian

Javelin Ltd. was exceptionally active and the price of tis

shares rose from $7 to $18 on the American Stock Ex-

change. At other times, trading was relatively inactive and

no press releases were issued. Obviously, when the stock

was trading in September, 1973 at as much as $18 per

share on a volume exceeding 100,000 shares per day, the

price was artificially inflated to a greater degree than when

the stock traded as low as $5 per share at the end of 1972

during a time when Canadian Javelin Ltd. was adopting a

29

low profile. What the plaintiff's

counsel has d

amas os ne of broadening the class and salsing ~ =

we cab to include everyone who bought the stock over a

an y time period and to request that any person who lost

ee re : result of his stock purchases be compensated

heen roe have acquiesced to this because it is in their

aa 0 do so since by broadening the class they red

# pon liability from securities fraud mite 299

ann a sgl response of plaintiffs counsel to the

yrs ” ent is that Petitioner lacks Standing to

= ee “ class certification. An analogous objection

pre infra. ‘&should be clear that the prosecution

; . ant action constitutes an abuse of the class action

rr ; - A similar action was criticized by an appellate

: ny -+ — v. Occidental Petroleum C orp., 341 E. 2d

: ears mw Cir. 1976) (Sneed, J.. concurring in part)

perce ciswis apply here. Consequently, the instant

should be dismissed as a class action as not being

maintainable und

a er _ 23 of the Federal Rules of Civil

Vv

THE NOTICE OF THE SETTLEMENT \

INADEQUATE ; " na

The suggestions in the Manual for Complex for

oaioae which are generally followed by most district

; ges Sut were not followed by Judge Lasker, set forth

a a = of information which the Manual states that

r= —— et yw in order to be able to make

form on of the sett] posal

example, page 40 of the Manual — oy ‘a

“The notice itself must ad

equately describe th

Proposed settlement and should include the bent

available information concerning fees and ex-

penses which may be deducted from the —

amount together with an estimated range 0

unitary recovery (e.g., amount per share, per a

per dollar charged, and the like) that members 0

the class may expect to receive if the settlement is

approved.”

The notice to the class did not do this and to this day

even the existing parties to this suit do not have more _

a ball park figure of what proportion of their —— €

members of the class will actually receive. The “gross = .

to the class, when calculated by the parties according to

formula suggested by the ate hy wh cg ted

erican Investment Co., . :

mn $25.8 million during the first class period ae —

million during the second class period. The District ee

decision reflects the wide disparity in the = ve :

amount of losses suffered by the plaintiff class wit! =

estimate being as low as $2.5 million and Mr. en prah

the other hand, estimating the losses to be as muc — .

to $50 million. The existing parties to this suit cou —_

resolve this question by computing the claimed — a

the proofs of claim which they have in their = Pe

strategic reasons, they have refused to do so and no -

has been made even to begin to tabulate these ~— aims

although they have been on file since January peg .

most unfortunate since Petitioner might well aban ose

objections if it were to turn out that the conservative 92.

eae viewing a representative sample of the proofs of

claim which have been filed, Petitioner's best estimate is

that purchasers during the first class period will a

from 1% to 3% of their losses and that purchasers —s

the second class period will receive from 5% to |! 0

31

their losses.3 Under the terms of the Stipulation of Set-

tlement, the purchasers during the second class period

receive a greater recovery based, it seems, on the fact that a

stronger case can be made out on behalf of those pur-

chasers. Purchasers during the second class period are

entitled to two thirds of the settlement fund and, in ad-

dition, during the first class period the stock of Canadian

Javelin Ltd. traded at a higher price, was more active and

involved a broader degree of public participation and, in

addition, the first class period was considerably longer than

the second class period. No doubt, had purchasers during

the first class period known that they stood to get only 1%

to 3% of their provable losses upon approval of the set-

tlement, many more would have objected or would have

chosen to opt-out. Of course, many members of the class

would also, no doubt, have preferred to accept the 1% to

3% settlement anyway because of their lack of financial

capability of hiring an attorney to prosecute an individual

claim against the defendants. As to the second class period,

even the 5% to 15% recovery, which seems relatively

generous, would no doubt have been considered

inadequate because of the widespread publicity of the

fraud during that period, resulting as it did in articles in

the Wall Street Journal on October 25, 1973 and October

30, 1973 as well as articles in Barron’s Magazine and other

financial publications in addition to a suit filed by the

Securities & Exchange Commission, a trading suspension

by the Securities & Exchange Commission which lasted for

more than one year, and a criminal information released in

Canada. In short, the fraud committed by the defendants

3, The bulk of Judge Lasker’s decision approving the settlement consists

of his evaluation of the various estimates of the amount of loss suffered by

the class. However, in City of Detroit y, Grinnell, supra, upon which he

heavily relies, the judge’s decision was based upon an actual computation

of the proofs of claim filed. This is a much more logical procedure and

Judge Lasker's reliance on purely speculative attempts to guess the amount

of loss suffered by the class was erroneous.

was so notorious that had the notice stated that purchasers

during the second class period were only going to get 5% to

15% of their provable claims, there can be little doubt that

most of them would have strenuously objected to the

settlement. As a matter of fact, even as it was, on the

hearing date the courtroom was filled with objectors.

However, Judge Lasker refused to permit anyone to speak

who had not filed a brief in support of the objections by

September 29, 1975 and, as a result, the record in this case

leaves the misleading impression that there were relatively

few objectors.

In addition, the notice did not state the formula by

which losses would be computed as a result of which many

persons to this day think that they are going to receive

compensation for the losses they sustained whereas in fact

they suffered no losses as defined by the Stipulation of

Settlement. One person who may be laboring under a

misapprehension with regard to this matter is plaintiff

Bonime herself, who stands to receive nothing from ‘this

case, assuming she is not being paid to be a plaintiff.

An additional deficiency concerns the fact that the

notice tails to state a fact which was undoubtedly known by

the defendants at the time at which the notice to the class

was prepared, which is that the entire judgment is to be

paid by Canadian Javelin Ltd. Several of the objectors

anticipated that this would happen and one complained

that the settlement would do nothing more than take

money out of one pocket and put it into another after the

deduction of attorney’s fees. This objector continues to be a

stockholder in Canadian Javelin Ltd., which appears to be

the case with most of the members of the class, and thus he

contended that approval of settlement would not result in

any net benefit to him. Clearly, more members of the class

would have objected to this arrangement had it not been for

the fact that it was not disclosed in the notice which was

sent to the class members.

Lasker did exactly that because u

tered upon the Stipulation of Settlement members of th

plaintiff class who have not appeared in this action a

who may not even know about the existence of this action

are enjoined from instituting any suit not only against the

defendants but against any persons based upon any cause

of action arising from matters alleged in the amended

complaint. Judge Lasker clearly exceeded his authorit

when issuing this pervasive injunction. :

33

Further objections to the notice w

— than Petitioner. For Cae ———

Pry ge in S.A. cited a number of addition deficiencies

€ notice which do not affect Petitioner and which

therefore, will not be raised here. However, it should be

apparent from the foregoing that the notice was inadequate

and, hence, ;

be veainall the settlement based upon this notice should

VI

THE DISTRICT COURT LACK

AUTHORITY TO PERMANENTLY man AND

ENJOIN ALL MEMBERS OF THE CLASS WHO

DID NOT OPT-OUT FROM INSTITUTING OR

PROSECUTING ANY ACTION ASSERTING

CLAIMS WHICH HAVE BEEN OR MIGHT BE

ASSERTED ARISING FROM OR RELATED

TO THF MATTERS ALLEGED IN THE

AMENDED COMPLAINT.

It is the general rule that no one c

, ule t an be bound by an i

personam judgment in litigation in which he gh 7

party. Madison Square Garden Boxing v. Earnie Shafers

slip. op. 5355, 5359 (2d Cir. Aug. 19, 1977) citing Han-

sberry v. Lee, 311 U.S. 32, 41 (1940): Wai

’ . 3 : ); Will

Bethlehem Steel Corp., 468 F. 2d 1201. 1203-1204 (24 Cir.

1972), cert. denied, 411 U.S. 931 (1973). Yet here Judge

nder the judgment en-

34

Defendants have made it clear in their brief to the

Court of Appeals and elsewhere that they consider this

injunction to be in integral part of the settlement and if the

injunction is vacated they may decide to withdraw their

offer to settle. The reason for this is apparent in view of the

broad benefits they derive from the injunction. In a

decision in another district in the Second Circuit involving

a roughly comparable situation in a stockholder derivative

suit, a judge refused to approve a settlement because it

contained a provision for a general release against the

officers of the defendant corporation. See Herbst v. 1T&T,

72 F.R.D. 85, 95 (D. Conn. 1976). At the hearing on a

preliminary motion in the Court of Appeals in the instant

case, Judge Anderson commented that the judgment was

most unusual in that it contained a bar order and he

criticized the judgment for this reason. Unfortunately,

Judge Anderson did not sit on the panel which decided this

appeal or else the result might have been different.

Since Judge Lasker clearly had no authority to enter

the broad injunction contained in the judgment, the

decision of the Court of Appeals affirming the judgment

should be reversed.

vil

‘ THE COURT OF APPEALS SHOULD HAVE

DEFERRED ADJUDICATION OF THE

QUESTIONS RAISED IN PETITIONER’S

APPEAL UNTIL THIS LITIGATION HAD

BEEN TERMINATED IN THE DISTRICT

COURT.

Although the judgment entered by Judge Lasker upon.

approval of the settlement is denominated as a final

judgment, it reserves jurisdiction over matters involving the

administration of the settlement. In this case, however, the

matters involving the administration of the settlement form

the crux of a variety of problems which will not come out

until some future date. One type of problem concerns the

fact discussed previously that many persons including

plaintiff Bonime who have filed proofs of claim are not

entitled to participate in the settlement fund and have not

yet been informed of that fact. A related problem affects

Petitioner since plaintiff's counsel is objecting to

Petitioner's right to participate in the settlement fund. The

Stipulation of Settlement provides that any person who has

filed a proof of claim must be informed of any objections to

said proof of claim within twenty days of the filing and

must be notified of the right to a hearing. Pursuant to this

provision, Petitioner has been notified that plaintiff's

counsel objects to his participation in the settlement fund.

However, the district judge has refused to schedule a

hearing on the request by Petitioner and numerous other

members of the class that the objections by plaintiff's

counsel be overruled until such time as plaintiff's counsel

requests that it do so. Thus far, plaintiff's counsel has

refused to request that hearings be conducted. This leaves

Petitioner in a state of limbo because he has no way of

knowing whether plaintiff's counsel will succeed in having

him excluded from participating in the settlement fund.

Plaintiff's counsel has attempted to capitalize on this

Situation by offering to withdraw ‘his objections to

Petitioner's participation in the settlement fund if

Petitioner will withdraw his appeal and his objections to the

payment of attorney's fees to plaintiff's counsel. At other

times Petitioner has made a similar proposal. The reason

these negotiations never came to fruition concerns matters

of timing. For example, prior to the time that Petitioner's

brief was due in the Court of Appeals, Petitioner offered to

settle this appeal on essentially the above described basis.

Plaintiff's counsel rejected this offer. After Petitioner had

filed his brief and plaintiff's brief was due, the tables were

and plaintiff's counsel made this offer which

ae itiones refused until such time as Petitioner had the

opportunity to see plaintiff's brief. At that point, plaintiff's

counsel complained to a Court . a that Petitioner

a ed” on a ement offer.

pe The fact that negotiations such as this would occur

with potential adverse consequences to the plaintiff class,

illustrates that this case should have been litigated fully in

the District Court prior to appellate review. If the District

Court decided that Petitioner would be allowed to par-

ticipate in the settlement fund, it might be that Petitioner

would not prosecute this appeal and the case would not now

be before this Court. It should be pointed out here that

Petitioner had no choice in the matter. Had Petitioner not

taken this e~ peal and not made the objections he is making

here, hc ould probably have been precluded from ioeing

them at a later date. It was the deliberate intention 9

plaintiff's counsel and the District Court that appellate

review would be had of the order approving the es

prior to the time of further proceedings arid hearings. Th

was not proper and placed Petitioner in an unfair wr

Consequently, the decision of the Court of Appeals shou

be vacated.

CONCLUSION

For all of the reasons set forth above, this petition for a

writ of certiorari should be granted.

Respectfully submitted,

SAMUEL H. SLOAN

Dated: New York, New York

September 6, 1977

la

APPENDIX A

DECISION OF THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

DATED APRIL 6, 1977

At a stated Term of the United States Court of Appeals

for the Second Circuit, held at the United States Court-

house in the City of New York, on the 6th day of April, one

thousand nine hundred and seventy-seven.

Present:

Hon. James L. Oakes, Circuit Judge.

Hon. Charles E. Wyzanski,

Hon. James S. Holden, District Judges.

GERTRUDE J. BONIME and LILLIAN OLDEN,

Plaintiffs- Appellees,

Vv.

GUARDIAN MANAGEMENT, S.A.,

Claimant-Appellant,

SAMUEL H. SLOAN,

Member of the Class-Appellant.

Appeal from the United States District Court for the

Southern District of New York.

This cause came on to be heard on the transcript of

record from the United States District Court for the

2a

Southern District of New York and was submitted on the

briefs. eer

ON CONSIDERATION WHEREOF, it is now hereby

ordered, adjudged, and decreed that the judgment of Judge

Lasker below, approving the settlement, Bonime v. Doyle,

416 F. Supp. 1372 (S.D.N.Y. 1976), be and it hereby is

affirmed. In reviewing the appropriateness of a settlement

approval, the appellate court may, and should. intervene

only “‘upon a clear showing that the trial court was guilty of

an abuse of discretion.”’ State of West Virginia v. Chas.

Pfizer & Co., 440 F. 2d 1079, 1085 (2d Cir.), cert. denied

sub nom. Cotler Drugs v. Chas Pfizer & Co., 404 U.S. 871

(1971). On this standard Judge Lasker's evaluation of the

proposed settlement, which required an “amalgam of

delicate balancing, gross approximations and rough

justice,” City of Detroit v. Grinnell Corp., 495 F. 2d 448,

468 (2d Cir. 1974), was plainly sufficient and proper.

James L. Dakes, U.S. Circuit Judge

Charles E. Wyzanski, Jr., U.S. District Judge

James S. Holden, U.S. District Judge

3a

APPENDIX B

ORDER DATED JUNE 7, 1977 DENYING PETITION

FOR REHEARING AND SUGGESTION THAT

THAT THE REHEARING BE EN BANC

UNITED STATES COURT OF APPEALS

SECOND CIRCUIT

At a Stated Term of the United States Court of Appeals,

in and for the Second Circuit, held at the United States

Court House, in the City of New York, on the seventh day

of June, one thousand nine hundred and seventy-seven.

Present:

Hon. James L. Oakes, Circuit Judge

Hon. James S. Holden, District Judge

Hon. Charles E. Wyzanski, District Judge

GERTRUDE J. BONIME, etc.,

Plaintiffs

Vv.

JOHN C. DOYLE, etc.,

Defendants-Appellees

Vv.

GUARDIAN MANAGEMENT, S.A.

- Claimant-Appellants

FAYE LURIE, etc.,

Objectors-A ppellants

SAMUEL H. SLOAN,

Member of the Class Appellant

A petition for a rehearing having been filed herein by

appellant, Pro Se, SAMUEL H. SLOAN,

Upon consideration thereof, it is

Ordered that said petition be and hereby is denied.

A. Daniel Fusaro, Clerk

5a

At a stated term of the United States Court of Appeals,

in and for the Second Circuit, held at the United States

Court House, in the City of New York, on the seventh day

of June, one thousand nine hundred and seventy-seven.

GERTRUDE J. BONIME, etc.,

Plaintiffs

Vv.

JOHN C. DOYLE, etc.,

Defendants-Appellees

V.

GUARDIAN MANAGEMENT, S.A.,

Claimant-Appellant

FAYE LURIE, etc.,

Objectors-Appellants

SAMUEL H. SLOAN,

Member of the Class Appellant

A petition for rehearing containing a suggestion that the

action be reheard en banc having been filed herein by

counsel for the appellant, Pro Se, SAMUEL H. SLOAN,

and no active judge or judge who was a member of the

panel having requested that a vote be taken on said

suggestion,

Upon consideration thereof, it is

Ordered that said petition be and it hereby is DENIED.

IRVING R. KAUFMAN, Chief Judge

6a Ta

APPENDIX C DIAMOND & GOLOMB, P.C.

99 Park Avenue

OPINION OF THE DISTRICT COURT New York, New York 10016

DATED JUNE 30, 1976 Of Counsel:

; IRVING GOLOMB, ESQ.

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK STEPTOE & JOHNSON, ESQS.

12S0 Connecticut Avenue, N.W.

Washington, D.C. 20036

Of Counsel: -

GERTRUDE BONIME and LILLIAN OLDEN, GEORGE B. MICKUM, III, ESQ.

Plaintiffs,

| Attorneys for Defendant CANADIAN JAVELIN

—against— LIMITED

JOHN C. DOYLE, WILLIAM M. WISMER, MARTIN OZER, ESO.

CANADIAN JAVELIN LIMITED, 475 Fifth Avenue,

Defendants. New York, New York 10017

MOSES KRISLOV, ESQ.

Suite 800, Engineers Building

MEMORANDUM 1365 Ontario Avenue

73 Civ. 5117 Cleveland, Ohio 44114

APPEARANCES: Attorneys for Defendants JOHN C. DOYLE and

WILLIAM M. WISMER

WOLF, POPPER, ROSS, WOLF & JONES, ESQS.

845 Third Avenue SQUADRON, ELLENOFF & PLESENT, ESQS.

New York, New York 10022 551 Fifth Avenue

Attorneys for Plaintiffs New York, New York 10017

Of Counsel:

BENEDICT WOLF, ESQ. ROBERT PLOTKIN, ESQ.

ROBERT KORNREICH, ESQ. ABRAM A. HARTUNIAM, ESQ.

Suite 4005

SS East Monroe Street

Chicago, Illinois 60603

Attorneys for Objectors

LASKER, D. J.

This is an application pursuant to Rule 23(e) of the

Federal Rules of Civil Procedure for approval of a proposed

settlement of a class action. The merits of the plan are

vigorously pressed by counsel for the plaintiff class and

defendants and are challenged with equal strength by

various objectors some of whom have an interest in two

similar suits currently pending in the Illinois state and

federal courts. Upon detailed review of the arguments and

the testimony at hearing and the document submitted by

each side, it is our conclusion that the settlement is fair and

reasonable and should be approved.

I.

The Nature of the Action, the Parties and the Proceedings

to Date

This action was commenced in December, 1973 against

Canadian Javelin Limited (Javelin or the company), a

Canadian corporation primarily engaged in the business of

exploring and developing natural resources whose stock is

traded on the American Stock Exchange, and two in-

dividuals who figure prominently in its management. The

complaint, filed on behalf of all purchasers of Javelin stock

from a point in early 1969 to late 1973, alleges violations of

Sections 5 and 17 of the Securities Act, 15 U.S.C. §§77e

and 77g, Section 10(b) of the Securities Exchange Act, 15

U.S.C. §78j(b) and Rule 10b-5, 17 C.F.R. §240.10b-S by

means of a course of conduct designed artificially to inflate

the price of the company’s stock which was never registered

pursuant to Section 5 of the Securities Act.

The plaintiffs, Gertrude J. Bonime and Lillian Olden,

purchased shares in Javelin during the period of the alleged

wrongdoing. The individual defendants are John C. Doyle,

director, controlling shareholder and Chairman of the

9a

Executive Committee of Javelin, and William Wismer,

director and President of the company.

The amended complaint particularly charges the

defendants with a series of material misrepresentations and

omissions in annual reports, press releases and filings with

the Securities Exchange Commission and the American

Stock Exchange designed to deceive the investing public

with regard to Javelin’s financial condition and business

prospects. (§7) The allegations focus on two projects with

which the company was involved during the period in

question: a plan to develop a major facility in Newfoun-

diand for the production of linerboard (the linerboard

project) and a plan to exploit mineral deposits in the Cerro

Colorado project). In Connection with the linerboard

project, the amended complaint alleges that during the

planning and construction stage the company issued a

continuous series of materially misleading statements as to

the true size and anticipated profitability of the project, the

true cost and extent of necessary financing involved and

“serious obstacles’ encountered in bringing the project to

fruition, particularly disputes with the government of

Newfoundland. (§9) Secondly, it is alleged that at a later

time the company misrepresented the status of $4,300,000.

asserted to be due from the Newfoundland government in

payment for the subsequent sale of the entire linerboard

project to the government by showing the amourt as a

current asset, when in reality the obligation was disputed

and the company had failed properly to pursue the matter.

The defendants are also charged with engaging, during the

same period, in a scheme to deceive investors as to the

Cerro Colorado project, which centered on a large copper

discovery in Panama, by issuing false and misleading

Statements as to the company’s exploitation rights, the

related feasibility studies and the financial arrangements to

produce and market the initial output of the project. (§12)

The plaintiffs allege that the company’s right to develop the

10a

ore deposits was highly speculative, that no feasibility

studies or arrangements to finance the project existed and

that marketing plans were still in the negotiation stage.

(§14) It is asserted that the above misstatements or

omissions resulted in artificially inflated prices for Javelin

stock throughout the period and that the plaintiffs and all

other purchasers of the stock would not have been required

to pay as much as they did for their stock if the true facts

had been known. (§16)

The defendants dany all the material allegations.

In April, 1974 plaintiffs moved for and obtained an

order directing that a class action determination be made

by July 14. By stipulation and order the parties obtained

three extensions of this time limit, however, because they

required further discovery to reach a judgment as to the

appropriate boundaries of the class. When the motion for

class action determination was filed in January, 1975, the

defendants offered no objection on the condition that the

determination would be preliminary and they reserved their

right to petition the court to alter, amend or revoke the

determination pursuant to Rule 23(c) (1), Federal Rules of

Civil Procedure. On the basis of the discovery to that point

the plaintiffs proposed a class to include all purchasers of

Javelin stock between the dates of April 30, 1969, when the

1968 annual report containing the first allegedly

misleading statements was issued, and October 25, 1975,

the day on which the American Stock Exchange suspended

trading in the company’s stock for failure to make full

disclosure concerning the copper project in Panama. The

latter date was selected because while the suspension was in

effect the Securities Exchange Commission filed an in-

junctive action against the defendants which resulted in a

consent judgment providing, inter alia, for full disclosure

of the company’s affairs. Pursuant to this judgment and

prior to the resumption of trading on January 25, 1975, the

company issued a letter to its stockholders to comply with

lla

the SEC order. On the strength of the presentation of the

parties in the moving papers: the motion to determine the

class was granted on February 7, 1975. Notice to the class

was stayed pending further discovery which might affect

the parameters of the class or indicate the desirability of

creating sub-groups within the class. See, Wolfson v.

Solomon, 54 F.R.D. 584, 593 (S.D.N.Y. 1971); Fischer v.

Kletz, 41 F.R.D. 377, 386 (S.D.N.Y. 1966).

The parties submitted the proposed settlement for the

court’s consideration in July, 1975. By this time, more than

one and half years since the complaint was filed, con-

siderable discovery had taken place. Plaintiffs’ attorneys

had examined numerous documents relating to the events

which form the subject of the complaint, received answers

to one set of interrogatories and deposed four persons who

played key roles in the linerboard project, the Cerro

Colorado project, or both, including the defendant John

Doyle. (§§14, 18 and 21, Wold Affidavit, October 8, 1975)

On the basis of the facts revealed by this discovery, which

indicated that there would be some problems of proof with

regard to both liability and damages, plaintiffs’ attorneys

explored the possibility of settlement. Counsel for the

defendants, for their part, though steadfastly denying the

merits of the allegations, were also desirous of com-

promising the action to avoid the expense of continued

litigation.

Being satisfied that the proposed settlement was worthy

of consideration, the court ordered that notice be given of

the class determination and of a hearing to be held on the

fairness of the settlement. The order provided for notice by

mail and publication. Prior to the hearing the proponents

of the compromise filed affidavits and memoranda in

support thereof and a total of eleven class members who

opposed it submitted their objections in writing.

At the hearing on the merits of the settlement, the

proponents offered the expert testimony of Dr. Roger F.

12a

Murray, S. Sloan Colt Professor of Banking and Finance at

the Graduate School of Business and Finance at Columbia

University, on the question of provable damages should the

plaintiffs prevail on the issue of liability at trial. Several

objectors appeared and spoke against the settlement.

Those objectors who have an interest in the concurrent

Illinois litigation appeared by counsel and strenuously

argued that the proposal be disallowed. Their counsel

crossexamined Dr. Murray and presented a computer

study to demonstrate that the potential recoveryof the class

was far in excess of that estimated by Dr. Murray and the

proponents, and that the sum offered in settlement was

therefore grossly inadequate. Both the proponents and the

objectors have, with court permission, submitted further

affidavits, briefs and data in support of their respective

positions.

Il.

The Proponents’ View

The affidavit of Benedict Wolf, lead counsel for the

plaintiff class, sets forth in detail the facts upon which he

contends that the settlement is fair. It is his view that, as

discussed in detail below, it will be difficult to establish

liability with regard to the first portion of the class period

and that the possibility of success is more promising, but by

no means assured, as to the later part. Even assuming that

liability is shown, however, he appears generally to accept

the analysis of the defendants’ expert, Dr. Murray, who

calculates that the maximum recoverable damages to this

class is $2.5 million. In a separate affidavit, Dr. Murray

sets forth the basis for this statement. A summary of their

presentations follows:

Discovery revealed that the allegations of the complaint

relate to two distinct segments of time. During the first

13a

portion of the class period the defendants’ activities

cnetered on the development of the linerboard project;

during the later part, the focus of activities was the Cerro

Colorado project, and also the alleged misrepresentation as

to the payment for the linerboard sale took place. With

regard to the first period, the defendants are charged with

misleading the public as to the prospects and progress of

the linerboard project, undertaken with the consent and

close involvement of the government of Newfoundland. The

plaintiffs learned, however, that during this period the

project in fact proceeded substantially on schedule and

within the original budget estimates; that such obstacles as

existed were arguably insignificant; and, although not

disclosed by the company until issuance of a letter to its

shareholders of May 31, 1972, the difficulties were the

subject of a great deal of publicity in both Canadian and

American media. Finally, it is asserted that Javelin S

silence on the problems, which grew out of a dispute with

the government that had developed into a political con-

troversy in the Province between the two leading political

parties, could very plausibly be defended as an exercise in

sound business judgment as the project was dependent for

its ultimate success on the good will of the government.

Discovery also revealed that no liability could be

established as to the Section 5 claim since there had been

no public offerings of the unregistered securities within the

applicable limitations period. (§§51-63; 82-84, Wolf Af-

fidavit, October 8, 1975) ;

The case appears stronger with regard to the period

following the May 31 disclosure, during which the bulk of

the alleged wrongdoing occurred. In Wolf's view, however,

even here the allegations that the company misrepresented

the existence and content of encouraging feasibility studies

by outside experts regarding the prospects for the Cerro

Colorado project proved to be without foundation in fact.

(§§36-39; 79, Wolf Affidavit, supra) He professes greater

l4a

confidence in proving misrepresentations and omissions as

to the other aspects of this project, the status of the ex-

ploitation rights and of the preliminary marketing

arrangements and an episode regarding the premature

announcement of another concession in Panama, as well as

the treatment of the $4.3 million owing from the govern-

ment of Newfoundland for the purchase of the linerboard

project. His discussion of the facts, however, conveys the

distinct impression that any assessment of success must

take serious consideration of the defendants’ assertion of

the truth of all the statements made, or the existence of a

reasonable basis for them which seriously undercuts a

claim of willfullness or recklessness.

For example, the allegation of misrepresentation with

regard to the marketing arrangements for the Cerro

Colorado project was undercut by the fact that very serious

discussions were indeed underway with a major British

concern at the time of the allegedly misleading released

which, though arguably unduly optimistic—or rather, not

fully enough qualified—made no untrue statements, were

by no means manifestly misleading, and in fact did not, as

alleged, convey the false impression that marketing

arrangements had been solidified. (§§41-47; 81, Wolf

Affidavit, supra) At trial the plaintiffs will thus have to

convince a jury that the statements violated the law in a

somewhat subtle degree, obviously a far more risky

proposition than proving a patent lie. Similar problems

existed particularly with regard to a claim that the com-

pany had prematurely announced the acquisition of

another mineral concession in Panama. (§§48-S0; 80, Wolf

Affidavit, supra)

Even assuming that the plaintiffs do succeed in

establishing securities law violations, they must, of course,

prove damages. According to Wolf, the weakest aspect of

the case on damages is, again, the early part of the class

period, where proof of any damage at all is made difficult

15a

by the fact that most if not all of the allegedly withheld

information was publicly available through the media due

to the highly publicized political dispute in Newfoundland

centering on the relations between the company and the

government. Thus it could plausibly be argued that the

price of the stock throughout this period reflected the

adverse information. The problem of proof of damages ts

further complicated by the fact that on the first day of

trading following full disclosure by the company on May

31, 1972—trading was suspended from early March, 1972

to August 11, 1972 as a result of the sale of the project to

the government of Newfoundland—the price was actually

higher than the price when suspension began. (§87, Wolf

Affidavit, supra)

With regard to recoverable damages for the later period,

Wolf iargely defers to the opinion of Dr. Murray. (§§89,

92, Wolf Affidavit, supra)

As stated above, Dr. Murray submitted an affidavit

setting forth his views and also testified at the hearing. His

credentials as an authority on the workings of the stock

market are impeccable. His analysis is based on the

proposition that distinction must be made between losses

attributable to general market forces and trends and losses

attributable to “unique characteristics of a particular

company,” and he assumes that “(i)f announcements and

reports issued by the company had an effect on (Javelin s)

price, that effect can be measured by the differential price

behavior of the shares relative to . . . indexes of market

price.” (§§4 and 5, Murray Affidavit, October 7, 1975) In

short, he attempts to factor out the amount of money lost

by purchasers which is not attributable to general market

trends. -

To this end he plotted the rises and falls of Javelin’s

selling price during the class period and compared them to

the averages of the same data of two comparable groups of

stock, the S & P Low Priced Common Stock and the Value

16a

Line Industrial Stocks. He concluded that in gross ‘‘the

price experience of (the company) differed in no material

respects from the price behavior of representative stocks in

its risk class.” (§12, Murray Affidavit, October 7, 1975)

However, he allowed the possibility that a certain number

of investors may have been induced to buy at premium

prices by relatively high prices or spurts in market activity

with no opportunity to sell before a drop ensued. He

described three periods of such “activity premiums,”

periods in which activity in this security greatly exceeded

the norm, and calculated that a total of roughly 2,500,000

shares were traded for an aggregate premium, i.e., price in

excess of normal—of $6,;13,750. From this sum, he

deducted the amount which, by his estimate based on his

study of the records of the transfer agent, represented

money paid by short-term traders who were in and out of

the stock before the price dropped, a group he believes to

comprise more than 50% of the excess activity in these

periods. (§16, Murray Affidavit, supra) His adjusted total,

after all these calculations, is $2,430,000., a sum which he

believes ‘‘fully reflects the losses which might have been

sustained by investors who were buying ... with reference to

expected developments and not simply to make a quick

turn on the market.” (§17, Murray Affidavit, supra)

The position of counsel for the defense on this ap-

plication is a simple one. They maintain confidence that

they would prevail upon a full trial, but are desirous of

settling to avoid the expense entailed in the conduct and

preparation of a “long, difficult and complicated”’ trial.

(Memorandum of Canadian Javelin, October 10, 1975 at p.

21) They maintain that in view of the limitations of

plaintiffs’ chances of success and probably maximum

recovery, the settlement is more than fair.

17a

III.

The Terms of the Proposed Settlement

The proposed stipulation of settlement defines the

“entire class period’’ as the period from April 30, 1969

through October 24, 1973. This period is subdivided into a

“first period’’, from April 30, 1969 through May 31, 1972,

and a ‘‘second period”’ from June 1, 1972 through October

24, 1973. The first period encompasses the allegations

centering on the development of the linerboard project and

the second relates to the later activities. The defendants are

to pay $1,350,000 into a settlement fund in such

proportions as they agree among themselves. Any payment

by the company may be either in warrants for its stock or in

cash or a combination of the two; any payments by the

individual defendants will be in cash. All class members

who sustained a loss shall be entitled to a pro rata share of

the settlement fund, with one-third of the fund allocable to

the claims of class members who purchased during the first

period and two-thirds to the claims of those who purchased

in the second period. The weighted recovery reflects the

proponents’ assessment of the weight of the case with

respect to each time frame. A “‘loss,” for purposes of

eligibility to participate in the fund, is defined as the

difference between the purchase price of the shares and the

greater of (i) the selling price of the shares or (ii) the closing

price of the stock on the American Stock Exchange on

August 10, 1972, the first day of trading after May 31,

1972, in the case of the first period, or on January 27, 1975,

the first day trading was resumed on the American Stock

Exchange after October 24, 1973, in the case of the second

period. Profits earned from a sale of any stock which was

purchased during the entire class period up to the date of

mailing of the notice of the hearing are to be deducted from

losses in computing the claim of each class member. In the

18a

event of approval counsel for the plaintiffs will apply to the

court for a fee of $260,000. plus expenses to be paid out of

the fund.

Matters left open by the terms of the stipulation were

finalized prior to the hearing: as between the three

defendants, Canadian Javelin, by an action of the Board of

Directors, has undertaken to pay the entire amount of the

settlement fund in cash.

IV.

Objections

Of a class which numbers in the thousands only eleven

individuals have voiced objections to the compromise.

Three objectors, (the Lurie group or the Luries) have

launched a well organized and rather acrimonious assault

on the proposal. It is with their contentions that this

portion of the memorandum is primarily concerned. The

other eight, raise an assortment of issues challenging the

substantive fairness of the plan which are dealt with at the

end of this section.

The general principles which guide us in assessing the

fairness, reasonableness and adequacy of a class action

settlement are clear.

‘*(T)he role of a court in passing upon the propriety

of the settlement of a . . . class action is a delicate

one. . . since ‘(T)he very purpose of a compromise

is to avoid the trial of sharply disputed issues and

to dispense with wasteful litigation, the court must

not turn the settlement hearing “into a trial or a

rehearsal of the trial”’.’ Rather . . . it must reach

‘an intelligent and objective opinion of the

probabilities of ultimate success should the claim

be litigated’ and ‘form an educated estimate of the

19a

complexity, expense, and likely duration of such

litigation . . . and all other factors relevant to a full

and fair assessment of the wisdom of the proposed

compromise.’ ’"’ Newman v. Stein, 464 F. 2d 689,

691-92 (2d Cir.) cert. denied, 409 U.S. 1039

(1972); (citations omitted).

At the heart of the analysis is an evaluation of the strength

of the plaintiffs’ case. City of Detroit v. Grinnell Corp., 495

F. 2d 448, 455 (2d Cir. 1974). This requires consideration

both of the likelihood of establishing liability and the

consequent probably reward in damages, balanced against

the amount offered in settlement. State of West Virginia v.

Chas. Pfizer & Co., 314 F. Supp. 710, 740-41 (S.D.N.Y.

1970), aff'd, 440 F. 2d 1079 (2d Cir. 1971). Preliminarily,

however, we must first consider a variety of procedural

objections raised by the Lurie group, for considerations of

the conduct of the settlement proceedings are also relevant

to a determination of the fairness of the plan. Newman v.

Stein, supra, 464 F. 2d at 692 and n. 8.

A. The Objections of the Luries

Fay Lurie and H. Haskell Lurie are the named plaintiffs

in two similar actions, one in state and one in federal court,

against these defendants in Chicago, Illinois.2: Those

actions allege very much the same wrongs as set forth in the

complaint in this case and also purport to be class actions,

although the proposed class periods are somewhat shorter.

In neither has a class determination been made. Such a

motion is currently pending, however, in the state case

along with cross-motions for partial summary judgment.

Both of the Luries’ cases were filed at approximately the

same time as this one, in late 1973, so the Luries, too, have

had an opportunity for fairly extensive discovery. Unlike

the discovery by counsel for plaintiffs in this case, however,

the Luries have been limited in their investigation of the

merits of the case to examination of documents and an-

20a

swers to interrogatories. (§5, Plotkin Affidavit, September

25, 1975) Moreover, the Luries’ lead counsel, Robert

Plotkin, engaged in settlement discussions with defen-

dants’ counsel during the period of such discussions in this

case. -

1. Procedural Objections

The Luries contend that this settlement proposal is

defective on account of several alleged procedural flaws in

its development and presentation to the class. They claim

that contrary to the Recommendations of §1.46 of the

Manual for Complex Litigation, a tentative class for set-

tlement has, in effect, been created here; that the Notice of

Class Determination, the Proposed Settlement and the

Settlement Hearing (the Notice) was misleading in not

explaining this fact and in misrepresenting the status of the

Chicago litigation; and that the Notice imposed undue

burdens on class members who desire to object to the

settlement or to opt out. Finally, a persistent theme in the

arguments of the Luries’ attorney is that this settlement is

the product of excessive bargaining leverage by the

defendants, asserted by virtue of their ability to play the

two attorneys, Plotkin and the class attorneys in this case,

against one another and thereby obtain an unreasonably

low settlement figure.

We disagree that a tentative settlement class has been

formed in this case. The motion for class determination

was granted in February, 1975, fully five months before the

settlement was presented to the court, and if the settlement

were disapproved, the class determination would remain in

effect. See generally, 1 Pt. 2 Moore’s Federal Practice,

Manual for Complex Litigation, §1.46 at 54-57 (1975). It is

true, however, that the motion was granted on consent of

the defendants and subject to their right to raise objections

at a later date. The order was thus conditional and subject

to later revision, as it is expressly permitted to be by Rule

23 (c: (1), and consequently there is arguably some

2la

similarity to the tentative class procedure criticized by the

authors of the Manual. One of their concerns is the

possibility that parallel settlement negotiations may be

conducted with different purported class representatives.

Apart from this problem, which we treat separately, the

force of the Manual’s critique of tentative classes has been

“considerably muted in this Circuit. In City of Detroit v.

Grinnell Corporation, supra, 495 F. 2d at 465-66, the

Court indicated that the principal concern of this portion of

the Manual is satisfied where, as here, the class members

receive an opportunity to appear at a hearing and challenge

any aspect of the proposed settlement.

In light of the above, we disagree that the Notice was

inadequate for failure to inform the class of the use of an

allegedly tentative settlement class procedure. We also

disagree that the Notice misrepresented the Chicage

litigation. The Notice stated:

“OTHER LITIGATION

After this action was commenced, two stockholders

started an action in the Federal District Court in

Chicago (Faye Lurie, et ano. v. Canadian Javelin

Limited, et al., 73 C 3086) based generally on the

same issues as are involved in this action, which

case has remained dormant, and another action in

the Circuit Court of Cook County, Illinois (Faye

lurie, et ano v. Canadian Javelin Limited, et al., 73

CH 7442) also based generally on the same issues

as are involved in this case. In the latter action

plaintiffs moved for a class action determination

under Illinois Rules and for partial summary

judgment and defendants cross-moved for com-

plete summary judgment. The class action motion

has been pending since July 12, 1974 and plaintiffs’

partial summary judgment motion has been

22a

pending since December 24, 1974, both without

determination.”

Although the Luries object to the use of the word “‘dor-

mant”’ to describe the federal case in Illinois, their papers

make clear that the state case has been the focus of their

attention to date. It is in the latter action that the class

determination and summary judgment motions have been

made, and apart from their disputed claim that the

discovery which forms the basis for these motions applies as

well to the federal case, the Luries point to no independent

activity in that action. There is a sharp controversy in the

affidavits before us on the existence of an agreement

among counsel that discovery in either case may be used

interchangeably in both, a controversy which we cannot

and need not resolve on this record. Whatever the trutl. of

the matter, the important fact is that the Notice revealed

the existence of both cases and any concerned class

member could have inquired further had he desired to do

so. Even accepting the Luries’ contention that they are

proceeding with the intent fully to prosecute both actions,

the description in the Notice may not fairly be charac-

terized as a misrepresentation; at most it is an inaccuracy

far less serious than would be required to undermine a

settlement.

The Notice required that to object to the settlement, a

class member must “‘file a notice of intention to appear and

a statement of the basis for objection, together with a

memorandum of supportive authorities,’’ and that to opt

out, aclass member must, in addition to simply requesting

exclusion, provide data as to his purchases and sales of the

company’s stock. The Luries contend that these

requirements create unnecessary burdens which discourage

class members from exercising their rights. We recognize

that such requirements may discourage objections or

opting out of the class—although this would be disad-

23a

vantageous, not advantageous to remaining members. We

cannot agree, however, if indeed the Luries seriously mean

to suggest it, that the inclusion of such requirements

should bar approval of the settlement if it is otherwise fair

and reasonable.

During the period in which the parties to this action were

engaged in the discussions which ultimately led to the

proposal under consideration, Plotkin was also attempting

to work out a compromise of the Luries’ actions. He was

unsuccessful and now hints darkly that this settlement, if

not collusive, is the product of the opportunities for

coercion which inhere in a situation in which more than one

class action is brought against defendants on the same

cause of action.

The circumstances in which the instant settlement

proposal was developed, with both Wolf and Plotkin

contemporaneously attempting to resolve their respective

suits, resemble the situation cricized by the Third Circuit

Court of Appeals in Ace Heating & Plumbing Co. v. Crane

Co., 453 F. 2d 30 (1971), where in a single purported class

suit and prior to the designation of a class representative,

defense counsel engaged in discussions with two different

attorneys who both aspired to represent the class. The

court observed that:

_—y

‘“‘a person who unofficially represents the class

furing settlement negotiations may be under strong

pressure to conform to the defendants’ wishes.

This is so because such an individual, . . . knows

that a negotiating defendant may not like his

‘attitude’ and may try to reach a settlement with

another member of the class.”

“The attorneys’ fees and the prestige attendant

upon probably apointment as class representative

24a

are the rewards for the attorney who bargains

successfully with the defendants.’’ Ace Heating &

Plumbing Co. v. Crane Co., 453 F. 2d 30, 33 (3d

Cir. 1971). ,

The possibility that events transpired as Plotkin alleges is

a troubling one, and it is the more so because, in contrast

to the situation in Ace Heating, the possibility arises not

out of premature settlement negotiations in a single class

action, over which a court could exercise a considerable

measure of control, but out of the pendency or more than

one suit in two entirely different jurisdictions, a situation

which seems largely beyond the power of a court to prevent.

This is, however, simply one of a number of novel and

knotty problems arising from the unique attorney and

client relationship in class action litigation, where with

much more frequency than in traditional ligigation the

interests of a class attorney may diverge from that of his

clients. See, e.g., Saylor v. Lindsley, 456 F. 2d 896, 900-01

(2d Cir. 1971). Moreover, it by no means follows from the

fact of contemporaneous negotiations of the two cases that

undue leverage was exercised by the defendants against

either group. Perhaps as courts become increasingly

sensitive to the myriad complexities of class litigation these

problems will be earlier perceived and, to the extent

possible, headed off in the process. Confronted with these

contentions at this stage of the proceedings a court must

assume the burden to insure that the interests of individual

class members are protected and be “‘doubly careful’’ in

assessing the merits of the plan; see Ace Heating &

Plumbing Co. v. Crane Co., supra, 456 F. 2d at 900-01; but

it would not be in the interests of the class to disapprove a

settlement merely because the possibility of abuse existed if

the proposal itself is fair and reasonable. As explained

below, our examination of the merits of this agreement

leads us to conclude that it is fair and reasonable and,

25a

consequently, that it is not the product of untoward

negotiating leverage.

2. Substantive Objections

The Luries vigorously contend that this settlement is

grossly unfair to the class. The case is so strong on liability,

they claim, that “‘it is difficult to conceive how the

defendants could possibly win.’’ (Lurie Memorandum,

filed September 26, 1975 at 8) Damages are asserted to

range from 30 to SO million dollars.

That both contentions are substantially exaggerated is

evidenced not only by the persuasive submissions of the

proponents of the compromise, but by the disparity bet-

ween the actions and bargaining positions of the Luries’

attorney, Robert Plotkin, prior to the time this settlement

was agreed upon and his subsequent claims. Indeed all the

arguments so energetically advanced are considerably

dimmed by the shadow of the fact that. at the time he was

negotiating for a settlement, Plotkin was discussing a

figure of $2 million as the basis for settlement of the Illinois

class litigation. (Tr. 125; §2(d), and Ex. 3-J, Plotkin Af-

fidavit, supra) Assuming the accuracy of his statements

about the likelihood of success, the figure suggests a much

lower estimate of possible damages; on the otherhand if his

damage estimates are realistic, it suggests an evaluation of

his chances of success considerably less sanguine than he

now maintains. In fairness to Plotkin it does appear that

this figure was always a tentative one. (Exs. 3-E, 3-J,

Plotkin Affidavit, supra) Nevertheless the vastness of the

difference between it and the figures he now claims to be

the likely range of recovery is exceedingly striking. Indeed,

the inference is inescapable that his present contentions are

heavily colored by the threat that the prospect of approval

of this settlement proposal poses to the viability of the Lurie

litigation insofar as the Luries hope to represent a large

class of investors.

In support of the semewhat extraordinary assertion

26a

about the strength of their case the Luries have submitted

almost nothing of probative value.s Annexed to the

prehearing papers were copies of the complaints in their

two cases, a proposed amended complaint in the federal

action, the SEC’s complaint in a related case, and their

proposed order granting them partial summary judgment

as to liability in their state case. These conclusory and

argumentative documents shed no light whatsoever on the

question before the court.

It is true that the attorney who appeared for the Luries at

the hearing, Aram Hartunian, was prepared to make

“copious” reference to the record in the state case in

Illinois, particularly to the motion for partial summary

judgment, in speaking to the strength of the claims in that

proceeding. (Tr. 65-68) We declined to permit this. To

have done so would have required this court to consider the

merits and review the record in the current Illinois

litigation and invited dispute with the other parties as to

the differences and similarities between the two cases.

Moreover, the failure to include even a scrap of substantive

documentary material going to the strength of the case in

their hefty pre-hearing submission, which would have been

the appropriate manner to present the argument to this

court, created the distinct impression that their offer of

proof was more in the nature of a dilatory tactic than a

good faith effort to aid the court in its determination. If

Plotkin is correct that all material in his Illinois motion is

applicable here, the proper course would have been to

submit such material in an affidavit in opposition to this

settlement.

The Luries again urged us to consider the summary

judgment papers from the other case in the very substantial

post-hearing material which was primarily directed at the

question of damages. Although we recognize that there is

authority in precedent, as well as common sense, for the

proposition that it may be useful in assessing the strength

27a .

of a case for a court to examine the record in related

proceedings, State of West Virginia v. Chas. Pfizer & Co.,

supra, 314 F. Supp. 710, 741 (S.D.N.Y. 1970), aff'd 440 F.

2d 1079 (1971), we continue to believe that it is not

warranted in the present circumstances. First there is a

Signigicant, though perhaps not dispositive distinction

between the kind of record available to Judge Wyatt in the

Pfizer case and that being offered here. Judge Wyatt had

the entire record in two cases, both of which had proceeded

to the appellate stage. Such material is far more reliable as

an objective source of information than such adversary

documents as the briefs and exhibits in support of a motion

for summary judgment, which much more often than not

prove only that triable issues exist—a proposition which we

do not doubt here. Second, we have most carefully studied

the material which these objectors have submitted in

support of the other half of their claim—that damages in

this case are from 30 to SO million dollars—and have

concluded, as discussed below, that the figures are ex-

cessive in the extreme. The experience leads us to view with

considerable skepticism the Luries’ claim that another

voluminous round of papers, copies of a mction which has

now been pending in another court for 17 months with no

disposition, will demonstrate that the case against these

defendants is air tight. Finally, and perhaps most im-

portant, even if we grant the objectors the benefit of the

doubt and assume that the case against these defendants is

a good deal stronger than it appears from the submissions

of the proponents (although we must discount as puffery

their assertions of the inevitability of success), we find that

the recoverable damages to the class are much closer to the

$2.5 million figure asserted by the proponents to be the

maximum recovery than the $30 to SO million figure of the

objectors.

As indicated above, the material submitted by the Luries

in rebuttal of Dr. Murray’s damages analysis and in

28a

support of their own much larger figure is extensive. It

includes the results of a computer study which purports to

measure total losses to the class based on four alternative

models of sotck holding period patterns, an affidavit by Dr.

Andrew J. Senchack, Jr., Assistant Professor of Finance at

the University of Texas, which critizes the methods and

conclusion of Dr. Murray, and a very substantial post

hearing memorandum. The thrust of all this is that

damages to the class range from 30 to SO million dollars

and that a fair settlement would range from $71/2 to 10

million. The latter figure is derived by taking a ‘“‘con-

servative’’ damage estimate of $30 to 40 million. cutting it

in half on the ‘‘generous’’ assumption that this many class

members won't file claims, and then granting a 50%

recovery to the class based on Plotkin’s long standing

position that class members should ideally recover 5O cents

on the dollar for their loss. (Post Hearing Memorandum,

November 3, 1975, p. 35) The logic of these calculations is

nowhere explained.

The fundamental defect of this approach is simply

stated: The calculations are all designed to estimate gross

losses to the class, that is the aggregate amount of money

investors during the class period have lost, without regard

to the causes of the loss. (Post Hearing Memorandum,

supra, at 7-8). This, however, is an entirely distinct

question from that of recoverable damages. It is elemental

that a plaintiff can recover only that part of a given loss

which is attributable to the defendant’s wrongful conduct.«

See Cutner v. Fried, 373 F. Supp 4, 12 (S.D.N.Y. 1974)

Application of this principle in market manipulation cases

poses problems of extreme complexity, but this is no

justification for dispensing with it altogether. Because their

basic premise is in error, the Luries’ computations,

however accurate or interesting, are simply inapplicable to

the question before us.

Although it is easy to point out the flaw in the figures

29a

submitted by the Luries, it is exceedingly difficult to

determine the amount of damages the plaintiff class would

recover should they prevail at trial.

At the outset, the proper method of calculating damges

in cases such as this is far from established. It is generally

accepted that the theoretically preferred measure of

damages in 10b-S cases is the out-of-pocket rule applied in

the common law tort action of deceit. Harris v. American

Investment Co., 523 F. 2d 220, 224-25 (8th Cir. 1975) and

cases cited there. Cf. Tucker v. Arthur Anderson & Co., 67

F.R.D. 468, 482 (S.D.N.Y. 1975). See generally, Note,

Measure of Damages in Rule 10b-5 Cases Involving Ac-

tively Traded SEcurities, 26 Stan. L. Rev. 371, 383-85

(1974) (Hereinafter Note). By this rule a plaintiff's damage

is determined as of the date of the purchase by subtracting

the actual value of the security from the purchase price.

Any attempt to ascertain the actual value of a publicly-

traded security at a prior purchase date necessarily entails

such a large element of speculation, however, that some

courts have suggested fixing the actual value at the price of

the security at some post-transaction date when full

disclosure has been achieved. Harris v. American In-

vestment Co., supra, 523 F. 2d at 226-27; Tucker v. Arthur

Anderson & Co., supra, 67 F.R.D. at 482; and see Note,

supra, 26 Stan. L. Rev. at 374-77 and 383-85. While this

course has the obvious attraction of providing a concrete

figure for the true worth of a security absent the fraud, it

completely disregards the many other factors which in-

fluence price fluctuation over time of stocks in general or of

a particular stock. It therefore has the potential of creating

a windfall recovery to a plaintiff in the nature of in-

demnification against the risks of the viscisitudes of the

market, and at the same time saddling defendants with

payments far out of proportion to the damage caused by

their fraud.

Where the suit is maintained as a class action the

30a

complexities of calculating damages _ increase

geometrically. In contrast to the case of a single plaintiff

whose dates of purchase and period of holding the stock are

readily available, the entire class of purchasers over a

period of years encompasses literally thousands of purchase

and sale dates, many of which have significance in

ascertaining damage. Many class members may actually

have made money on the fraud, by buying at a relatively

low price and selling out near the peak; many may have

broken even. Moreover, where damages are computed on

the basis of the value of the stock at some post-transaction

date of full disclosure, there is no way to fairly account for

those who sold at a loss prior to that date, since the only

non-speculative causes of their loss are market and other

factors wholly independent of the fraud.

The myriad obstacles to a fair computation of damages

are well-illustrated by the facts of this case. There is

nothing in the record from any of the interested parties

purporting to provide a reasoned basis for determining the

actual value of Javelin stock at any time prior to the dates

of full disclosure mandated by the SEC.:

If the alternative method suggested in Harris vy.

American Investment Co., supra, is employed, the actual

value would be determined as of the two dates on which

trading resumed after full disclosure was achieved by SEC

mandate, August 10, 1972 and January 27, 1975. See 5, 8,

10-1 | and 14, supra. Any attempt to figuredamages on this

basis, however, would have to take account of the fact that

the period encompassed by this action, April, 1969 to

October, 1973, was perhaps the most disastrous period in

the post-1929 history of the stock market. See Cutner v.

Fried, supra, 373 F. Supp. at 12; Feit v. Leasco, 332 F.

Supp. 544, 586 (E.D.N.Y. 1971). Furthermore, it would be

necessary to consider seriously certain peculiarities of

Javelin’s situation which may well have accounted for a

large decline in the price of its stock but might prove

3la

demonstrably separable from the alleged fraud. For in-

stance, it is during the first class period April 30, 1969 to

May 31, 1972, that by far the largest amount of loss,

calculated by the Harris method, occurred.» It was during

this period, however, that the company was experiencing

its well-publicized difficulties with the Newfoundland

government over the linerboard project. See 7-8 and 10-11,

supra. These facts suggest a strong probability that to

whatever extent the drop in the price of Javelin stock from

21 1/2 in May 1969 to 7 1/8 in March 1972 exceeded the

drop in the stock market generally for comparable

securities, it was attributable to the uncertainty over the

future of the linerboard project created to a large extend by

the political dispute in which the company had become

entangled rather than to the fraud of the defendants.’ (See

Letter to the Court of Benedict Wolf, June 14, 1976 at 4-5)

Moreover, on August 10, 1972 the first day of trading after

the full disclosure on May 31, the stock traded three points

higher than when trading was suspended. This fact con-

founds the entire theory on which the Harris formulation is

based.

We are convinced of the practical impossibility of

ascertaining the “true value’’ of Javelin stock on any given

date during the class period so as to compute damages

according to the theoretically ideal damage formulation.

We also believe that the proponents of the settlement are

correct in asserting that the Harris alternative, whatever its

value in other situations, is of no use in reaching a fair

damage figure on the facts of this case, at least not without

substantial modifications to account for the many other

variables affecting the price movement of the stock.

Because we accept the proposition that other traditional

damage formulations, such as loss of the bargain, and

rescission, are entirely inapposite to cases such as this, see

Note, supra, 26 Stan. L. Rev. at 374-77; 381-83, we are

thus left to our own devices to fashion a fair damage ap-

proach.:

32a

We conclude that for purposes of determining the

fairness of this settlement, the analysis of Dr. Murray

provides a creditable basis for arriving at an estimated

range of potential recovery. Although not without its

theoretical difficulties, the approach avoids most of the

pitfalls of the methods discussed above and appears

successfully to derive a damage figure which distinguishes

that considerable part of Javelin’s price fluctuations at-

tributable to general market forces from that which could

arguably be caused by the alleged misrepresentations. Even

allowing for the possibility that his method over-

compensates for these external factors, if the recoverable

damages were, say, twice what he claims, we think the

settlement is well within the range of reasonableness.

Viewed another way, the only statement about recoverable

damages which can be made with anything approaching

confidence at this point is that the figure is somewhere

between Dr. Murray’s figure of $2.5 million and something

less than the $12.8 million figure submitted by counsel for

Javelin as partially adjusted Harris damages. See note 8,

supra. Because we agree with proponents’ counsel that

even this figure fails to take account of significant factors

which would further substantially reduce the recovery, see

note 8, supra, we are prepared to believe that any ultimate

figure derived from this formula would be significantly

lower, and given the complexities and uncertainties which

confront plaintiffs if this litigation is pursued, and the time

and expense to all concerned which this would necessarily

entail, we think that the settlement figure is a reasonable

one.: 0 Cf. City of Detroit v. Grinnell Corp., supra, 495 F.

2d at 455 and n. 2.

B. The Other Objectors

Apart from the Luries, eight class members—including

two married couples—challenge the substantive fairness of

the settlement on an assortment of grounds which can be

dealt with rather briefly. Several mistakenly understood the

33a

plan to exclude from participation any purchaser during

the class period who failed to sell his shares. However,

anyone who bought during the class period and suffered a

loss is entitled to share in the fund and the loss of non-

sellers is measured by the price of the stock on the first day

of trading after full disclosure. Two of these objectors

complained that the settlement did not provide for par-

ticipation by those who bought Javelin stock prior to the

class period and who continued to hold in reliance on the

alleged misrepresentations. For better or worse, however,

the federal securities laws preclude relief for holders in

re!’ ance and their exclusion from the class thus seems not

oniy appropriate but mandatory. One objector expressed

dissatisfaction with the possibility of being paid in

warrants, but this is now moot in view of the company’s

decision to pay cash.

Two objectors opposed the provision allowing the

defendants to choose among themselves who will put up

what portion of the fund. They argue that this allows the

two individual defendants, who control the company’s

decisions and who are assertedly personally responsible for

the alleged wrongdoing, to escape accountability while

saddling the company with payment. Indeed, it has been

decided that the company will do just that. Such a

provision, however, is a matter for the defendants to agree

upon or not. If they are prepared to do so, and thus assure

that an amount which is a fair settlement will be available

to the class, then the interests of the class will be protected.

Cf. Percodari v. Riker-Maxson Corp., 30 F.R.D. 473, 477

(S.D.N.Y. 1970). (We note that if the decision of the

company to pay the entire amount is the result of improper

machinations by the individual defendants, the wrong is

redressable by a shareholder’s action. The impropriety of

this decision is cast in serious doubt, however, by the fact

that both the individual defendants are indemnified

against liability for acts within the scope of their duties, an

34a

indemnification which may well cover the wrongdoings

alleged. (Tr. 29-30)

The remaining objections are more generally addressed

to the fairness and adequacy of the settlement fund.

V.

Conclusion: The Settlement Should be Approved |

The narrow question before us is whether this com-

promise is within the “‘zone of reasonableness’’ in view of

what we know about the merits of the case, the potential

recovery and the consequent risks and complexities of

proceeding on through trial. See Newman v. Stein, supra,

464 F. 2d at 698. The plan appears to us to be within that

zone. We credit the presentation of the proponents on the

issue of liability, and although we believe there is a good

possibility that a trier of fact might arrive at a higher figure

of damages than Dr. Murray, we are confident that that

figure would be significantly closer to his than to that of the

Luries. Bearing in mind that “(t)he evaluation of a.

proposed settlement requires an amalgam of delicate

balancing, gross approximations and rough justice,” City

of Detroit v. Grinnell Corp., supra, 495 F. 2d at 468, we

find that this settlement merits approval.

Submit order.

Dated: New York, New York

June 30, 1976.

MORRIS E. LASKER

U.S.D.J.

35a

FOOTNOTES

1. From the affidavit of Robert M. Kornreich, one of

plaintiffs’ attorney, it was apparent that the requirements

of Rule 23 (a) and (b) (3) were met: the class of purchasers

of Javelin stock numbered in the thousands, making

joinder impracticable; virtually all the questions of law and

fact, with the exception of calculation of damages, are

common to the class and, thus, clearly predominate over

individual issues; the claims of Bonime and Olden are

typical of the class, as Bonime bought her shares in May,

1970 at a time when the company was actively engaged in

the development of the linerboard project and Olden in-

vested near the other end of the class spectrum, when the

additional assertedly fraudulent activity regarding the

Cerro Colorado project toqk place; the plaintiffs’ attorneys

are eminently well qualified, and experienced counsel in

litigation of this nature; and the class action was superior

to other available methods for adjudication of this con-

troversy.

2. In fact, the Luries have opted out of this class, leaving

their status as objectors somewhat open to question.

Subsequent to the hearing counsel for Javelin filed a

motion to strike their objection on this ground, but the

issue is rendered academic by the fact that the third ob-

jector in this group, Sally Einstein, is a class member and

clearly has standing to complain of the proposed com-

promise. (See Einstein Affidavit, November 21, 1975).

3. At the end of their post-hearing memorandum, the

Luries provide a brief excerpt from Javelin’s contract with

the Panamanian government which tends to undermine the

company’s claim that its announcements regarding its right

to exploit the Cerro Colorado copper were based on a good

faith interpretation of the terms of the contract. (Post-

Hearing Memorandum, November 3, 1975 at 38-40) It is,

of course, impossible to assess the significance of this single

36a

item, but even accepting it at face value. it is by no means

inconsistent with the position of counsel for the plaintiff

class which is that this is the Strongest of the several

allegations in the complaint. See supra.

4. We reject the assumption implicit in the Luries’

approach, finally made explicit in the Post Hearing

MEmorandum at page 8, note 1, that all (or gross) losses

are recoverable damages in this case. The suggestion that

this conclusion is compelled by the opinion in Chasins vy.

Smith, Barney & Co., 438 F. 2d 1167 (2d Cir. 1970) is

contradicted by the express distinction drawn there bet-

ween the proper measure of damages where, as in that

case, the issue was whether Chasins would have bought

from the defendants at all if they had disclosed their in-

terest in the stock, and a case such as this where the issue is

whether the defendants manipulated the market and

thereby secured an artificially high price for the stock. 438

F. 2d at 1173.

S.Dr. Murray expressly disclaimed use of his testimony

or affidavit to ascertain the “true value” of Javelin stock. It

is his view that the concept has relevance only to companies

whose shares are not actively traded. (§§4.d and 7, Murray

Affidavit, November 26, 1975) Dr. Senchack, the Luries’

expert, also declined to calculate “true value,” Stating that

the task would only be possible upon an exhaustive analysis

of the company’s business, its books and its personnel.

(§§18-22, Senchack Affidavit, November 1, 1975) The

Luries’ attorney makes the statement that the “true value”’

rarely exceeded $3.00 per share during the class period, but

offers nothing whatsoever to support that claim and, in

fact, agrees that use of the usual out-of-pocket damage

formula would “generally be unworkable” in cases such as

this due to the difficulty of determining true value. (Note 1,

Post-Hearing Memorandum, November 3, 1975 at pp. 8-

9).

6. At the court’s request counsel for the plaintiffs, for

37a

Javelin and for the Luries submitted estimates of damages

in this case calculated according to the Harris alternative.

Their figures are quite similar. The Luries assert that

Harris damages are $18 to $22 million for the first class

period and $14 million for the second. Plaintiffs counsel

set the figures at $25,855,755 and $13,781,061 respectively,

while counsel for Javelin estimate damages according to

this formula at $27,578,507 and $13,785,776. (Laycock

Affidavit, June 8, 1976; letters to the court of Benedict

Wolf and George Mickum III, June 14 and June 11, 1976)

7. A major element of the alleged fraud in this period is

the non-disclosure of the problems with the government,

which in any event was, according to the uncontradicted

statements of the proponents, largely public knowledge.

This was only one reason why the plaintiffs’ attorneys

determined that the allegations focusing on the first class

period were by far the weaker part of the case. See 8. 10-11,

supra. Such considerations in addition to the general stock

market decline during the class period, give serious cause

to discount the significance of the very large damage

figures produced by application of the Harris formula.

8. In connection with the submission of Harris damage

figures referred to in note 6, counsel for the company

submitted a modified estimate reflecting an attempt to

factor out at least some of the variables, such as the effect

of general market trends and the large number of short

term buyers and sellers which must be discounted in

arriving at a fair damage figure. Their adjusted estimates

are $9,946,000 for the first class period and $2,937,000 for

the second, or a total damage estimate of $12,883,000.

(Letter of George Mickum, supra, June 11, 1976) We think

that the modifications applied by the company’s counsel to

the raw Harris figures were appropriately made, and agree

further that even the adjusted figure of $12,880,000 must

be considered too large, as it takes no account of such

factors as the very high turnover rate of Javelin stock, the

38a

thousands of different holding period patterns of the class

members and the resultant variety of overall profits and

losses sustained, and, most importantly, of factors peculiar

to the company but independent of the alleged fraud, such

as the dispute with the government of Newfoundland. (See

Mickum letter, supra, at 6-9)

In addition, in view of the assertion of plaintiffs’ counsel

that the chances of establishing liability as to the first class

period are remote, see 8, supra, almost $10,000,000 of the

figure must be considered highly speculative.

9. The extreme difficulty in reaching a fair damage

figure were this case tried (and liability shown) is itself a

factor which heavily commends settlement, Newman v.

Stein, supra, 464 F. 2d at 693, as is the prospect of having

to determine damages on an individual basis if it were

ultimately concluded that class calculation is simply im-

possible. City of Detroit v. Grinnell Corp., supra, 495 F. 2d

at 467.

10. We see no inherent incompatibility between ac-

cepting Dr. Murray’s conclusion as a reasonable estimate

of damages and proceeding to distribut the settlement fund

according to a formula which measures loss in a manner

akin to that employed by the court in Harris v. American

Investment Co., supra, 523 F. 2d 220. See 14, supra. The

former represents a sophisticated attempt to calculate

damages with precision; the latter, a necessary rough

accommodation to the practical realities of distributing the

funds.

39a

—- D—Stipulation Of Settlement Dated July 12,

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

GERTRUDE J. BONIME and LILLIAN OLDEN,

Plaintiffs,

-against-

JOHN C. DOYLE, WILLIAM M. WISMER, CANADIAN

JAVELIN LIMITED,

Defendants.

73 Civ. 5117 (MEL)

WHEREAS, plaintiffs commenced an action in this

Court on their own behalf and on behalf of all other per-

sons similarly situated who purchased common stock of

Canadian Javelin Limited during the period commencing

April 30, 1969, and ending October 24, 1973, in which

action plaintiffs alleged that defendants violated Section 5

of the Securities Act of 1933, Section 10(b) of the Securities

Exchange Act of 1934 (‘Exchange Act’) Rule 10b-5

promulgated thereunder, and the common law, in that,

inter alia, defendants are alleged to have disseminated false

and misleading statements concerning the Linerboard

Project undertaken by Canadian Javelin Limited in

Newfoundland, Canada and related matters, which

Statements are alleged to have artificially inflated the

market price of Canadian Javelin Limited common stock

during the period from April 30, 1969 through May 31,

1972; that defendants are alleged to have disseminated

40a

false and misleading statements concerning an amount

claimed from the Government of the Province of

Newfoundland and Labrador in connection with the

purchase by that Government of the aforesaid Linerboard

Project, and allegedly false and misleading statements

concerning the Cerro Colorado Project in Panama and

related matters during the period from June 1, 1972

through October 24, 1973, which statements are alleged to

have artificially inflated the market price of Canadian

Javelin Limited Common stock during the aforesaid

period; and

WHEREAS, defendants have served and filed answers to

the amended complaint, which answers deny the material

allegations thereof, deny liability and demand dismissal of

the amended complaint; and

WHEREAS, defendants continue to deny any

wrongdoing whatsoever and consider that this action is

without merit, but that it is nevertheless desirable and in

the best interest of all concerned, including plaintiffs and

the persons on whose behalf the action was instituted, that

this litigation be terminated without further legal

proceedings, thus avoiding the expense of such proceedings

and the expenditure of time thereon by the defendants,

including the officers and directors of Canadian Javelin

Limited, and

WHEREAS, the attorneys for the plaintiffs have con-

ducted a detailed investigation of the facts and the law

relating to the matters set forth in the pleadings herein;

have conducted extensive pretrial discovery proceedings,

including oral depositions, and the analyses of thousands

of pages of documents and records produced by the

defendants and public records bearing on the issues herein

and have conducted extensive negotiations with the at-

torneys for the defendants; and

WHEREAS, upon the basis of said investigation, pre-

4la

trial discovery and negotiations, the attorneys for the

plaintiffs have concluded that settlement of this litigation

upon the terms and conditions specified in this Stipulation

of Settlement is desirable, reasonable, fair and adequate

and in the best interests of plaintiffs and the other

members of the class whom they represent.

NOW, THEREFORE, IT IS STIPULATED AND

AGREED, pursuant to Rule 23(e) of the Federal Rules of

Civil Procedure, by and among the undersigned that this

action and all individual and class claims which have been

or might be asserted arising from or related to the matters

alleged in the amended complaint shall be dismissed on the

merits and with prejudice as to all parties, including all

persons determined to be members of each plaintiff class

herein who shall not have elected to be excluded from the

class pursuant to Rule 23(c)(2), and shall be settled and

compromised, subject to and conditioned upon the ap-

proval of the Court, in the manner and upon the terms and

conditions set forth hereinafter:

1. As used herein, the following terms shall have the

following meanings:

A. “Effective Date’’ means the date following the

entry of a judgment approving this Stipulation as provided

in paragraph 18 below when, by lapse of time or otherwise,

such judgment shall no longer be subject to review or

appeal.

B. “Class” means all persons who purchased

Canadian Javelin Limited common stock during either the

“First Class Period’”’ or the ‘Second Class Period’’ and

suffered loss thereby, and shall include the heirs, suc-

cessors by operation of law and legal representatives of any

such person; provided, however, that no person who was or

is a director, officer or employee of Canadian Javelin

Limited or any successor, assign, or member of the family

of such person, or any trust of which such person or any

42a

successor, assign or member of the family of such person

was or is a trustor, trustee, or beneficiary, during any part

of either of such periods shall be deemed to be a member of

the class; and provided further that no person who had

access to information not publicly available concerning the

Linerboard Project referred to above, or the amount

referred to above which was claimed by Canadian Javelin

Limited from the Newfoundland Government, or the Cerro

Colorado Project referred to above, shall be deemed to be a

member of the class.

C. “First Period” means the period from April 30,

1969 through May 31, 1972, both dates inclusive.

D. “‘Second Period” means the period from June 1,

1972 through October 24, 1973, both dates inclusive.

E. *‘Entire Class Period’’ means the period from April

30, 1969 through October 24, 1973.

F. “Fund Distribution Date’”’ shall be the 10th day (or

if such day is not a business day, then the next succeeding

business day) following the date when the validity of all

proofs of claim shall have been determined (as provided in

paragraphs 15-17 below), and no such determination shall

any longer be subject to review or appeal.

G. “‘Person”’ includes, without limitation, any in-

dividual, corporation, partnership or other entity.

H. The date of purchase or sale of shares of Canadian

Javelin common stock shall be the “Contract” or ‘“Trade”’

date as distinguished from the “‘Settlement’’ date.

1. ‘‘Warrant’’ means one of the warrants which may

be issued by Javelin pursuant to this Stipulation of Set-

tlement, substantially in the form of Exhibit A hereto,

which shall be in transferable form and entitle the holder

thereof to purchase from Javelin at any time after the ef-

fective date hereof and prior to ten years from the effective

date hereof, one half share of Javelin’s authorized but

43a

unissued common stock (which in the opinion of counsel

for Javelin is fully paid and non-assessable, freely tran-

sferrable and free and clear of all claims, liens and en-

cumbrances) at the market price of Javelin stock as

hereinafter defined (see par. 1J).

J. “Market price of Javelin Stock”’ shall be the average

of the closing prices of Javelin stock on the American Stock

Exchange for 10 consecutive trading days commencing

with 20 trading days before the date of the hearing referred

to in paragraph 14C below.

2. Every purchaser of Canadian Javelin Limited common

stock during either of the class periods, who suffered a loss

as hereinafter determined, except any such purchaser who

is a person specified in paragraph 1B above as excluded

from the class, shall be entitled to share in the settlement

fund established herein in the manner and to the extent

provided below.

3. In full and final settlement and discharge of all claims

arising out of or relating to the matters set forth in the

amended complaint against any and all defendants, their

predecessors, successors, assigns, officers and directors,

and each of them, defendants shall pay the sum of

$1,350,000 into a settlement fund (‘‘Fund’’) as more fully

set forth in paragraphs 4 and 5S, below, in such proportions

as they shall agree among themselves, to be distributed in

accordance with this Stipulation and by Order of this

Court.

4. The payment by defendant Canadian Javelin to the

Fund shall be either in the form of Warrants or common

stock, or in the form of cash or in some combination of

Warrants common stock and cash, at the option of said

defendant, such option to be exercised not later than the

date which notice is given. pursuant to paragraph 14B

below provided however that if the value of the warrants or

stock cannot be determined as provided herein Canadian

Javelin shall be required to make it payment then. In the

event that any portion of the payment to the Fund shall be

in the form of Warrants, Canadian Javelin will cause to be

created Warrants to purchase shares of Canadian Javelin

Limited common stock. Javelin will take the necessary

steps to list the Warrants on the American Stock Exchange

and if such listing is refused, to list the Warrants on the

Montreal Stock Exchange. Defendant Canadian Javelin

will use its best efforts to effect registration under the

Securities Act of 1933 and listing on the American Stock

Exchange of a sufficient number of common shares to be

reserved for issuance upon exercise of the aforesaid

Warrants. In the event that the aforesaid shares are not

registered on or before August 31, 1977, each Warrant-

holder shall have the right to convert each Warrant into

one-quarter share of common stock. Said Warrants shall

be in the form set forth in Exhibit A hereto. The value of

each Warrant shall be determined as of a date 10 days prior

to the date of the hearing referred to in paragraph 14C

below, by an expert to be designated by plaintiffs’ counsel.

5S. The payments to the Fund by the individual defen-

dants shall be in the form of cash.

6. Any Canadian Javelin shares to be issued by Canadian

Javelin in accordance with this Settlement Stipulation are

to be issued by it from shares which are at present

authorized but unissued and shall in the opinion of counsel

for Canadian Javelin be validly issued fully paid and non-

assessable, freely transferable and free and clear of all

claims, liens and encumbrances.

7. The claim of each class member who has sustained a

loss shall be determined in the following manner. With

respect to all shares purchased during the First Period, the

claim shall be the different between the purchase price of

the shares and the greater of (i) the selling price of the

shares or (ii) the closing price of the stock on the American

45a

Stock Exchange on the first day of trading after May 31,

1972. With respect to all shares purchased during the

Second Period, the claim shall be the difference between

the purchase price of the shares and the greater of (i) the

selling price of the shares or (ii) the closing price of the

stock on the first day trading was resumed on the American

Stock Exchange after October 24, 1973. Any profit from a

sale in the period from April 30, 1969, to and including the

date of mailing of the notice of hearing hereinafter

provided for, of Canadian Javelin common stock purchased

during either the First or Second Class Periods, shall be

deducted from losses in computing the claim of each class

member.

8. If the total payable to all class members in the First

Class Period whose proofs of claim are allowed exceeds

one-third of the amount in the Fund, then the amount

payable to each such class member in the First Class Period

shall be reduced on a pro rata basis. If the total payable to

all class members in the Second Class Period whose proofs

of claim are allowed exceeds two-thirds of the amount in

the Fund, then the amount payable to each such class

member of the Second Class shall be reduced on a pro rata

basis. If under the provisions of this Settlement

Stipulation, a class member is entitled to receive a fraction

of a Warrant to purchase Canadian Javelin common stock,

cash shall be paid in lieu of any such fractional Warrant.

9. The Fund will be distributed under the Court's

direction and supervision to members of the class whose

proofs of claim are allowed. All expenses of administration

in consummating the settlement and in notifying the class

will be borne by Canadian Javelin. Plaintiffs’ attorneys

shall receive from the Fund such fee allowances and ex-

penses as shall be awarded by the Court.

10. If, after distribution of the Fund in accordance with

this Stipulation and the Order of this Court, there is any

balance remaining in the Fund, such balance shall be

returned to Canadian Javelin.

11. If the proposed settlement is approved by the Court,

Wolf Popper Ross Wolf & Jones, attorneys for plaintiffs,

will apply for an allowance of legal fees in the sum of

$260,000.00 plus an amount for reimbursement of ex-

penses. Such fees and expenses as may be awarded by the

Court shall be paid from the Fund within ten days after the

Effective Date.

12. The following rules shall be applied in determination

of the members of the Class and dollar amount of claims in

distribution of the Fund:

A. Any person who acquired shares of Canadian

Javelin common stock by gift, bequest, devise or by way of

intestate succession may participate in the Fund if his

predecessor in interest would have been qualified to do so

and shall assume the purchase price and the date of

purchase of his predecessor in interest for purposes of

determining his entitlement to recover hereunder.

B. The cost of purchase of each Class member shall be

the net price paid for the stock, exclusive of brokerage costs

and any other expenses of purchase. The sales price of any

of the stock sold shall be the net sales price, exclusive of

brokerage expenses and any other expenses of sale.

C. On the Fund Distribution Date, there shall be paid

to each Class member whose claim has been allowed, an

amount computed in accordance with paragraphs 7 and 8.

13. If this Settlement Stipulation is not approved, then

the Settlement Stipulation and any negotiations,

Statements and proceedings in connection therewith shall

not in any event be construed as or deemed to be evidence

or any admission or concession on the part of the defen-

dants, or any of them, named in this action of any liability

or wrongdoing whatsoever, which is hereby expressly

47a

denied and disclaimed by each of the said defendants, and

shall not be offered or received in evidence in any action or

proceeding in any court or tribunal or used in any way as

an admission, concession or evidence of any liabiiity or

wrongdoing of any nature on the part of any of the said

defendants.

14. As soon as practicable after this Settlement

Stipulation has been executed, the attorneys for the

piaintiffs shall move for approval of this Settlement

Stipulation and for the entry of the judgment referred to in

Paragraph 18 hereof. As part of said motion, application

shall be made for an order, consented to by all of the

parties hereto:

A. Directing that this action may be maintained as a

class action and that notice be given to members of the

Class pursuant to Rule 23(c)(2) of the Federal Rules of Civil

Procedure, in such manner and form as shal] be directed by

the Court;

B. Directing that notice of the hearing referred to in

(C) below be given not later than 60 days after issuance of

the order to members of the Class and to all present

stockholders of Canadian Javelin pursuant to Rule 23(e) of

the Federal Rules of Civil Procedure, in such manner and

form as shall be approved by the Court;

C. Directing that a hearing be held by the Court on

such day and time as may be designated by the Court for

the purposes of determining whether this Settlement

Stipulation is fair, reasonable and adequate and should be

approved and a judgment entered as provided in

Paragraph 19 hereof;

D. Providing that any stockholder or member of the

Class who objects to approval of this Stipulation or the

judgment to be entered hereon may if said Class member

does not exclude himself pursuant to sub-paragraph “F’’

48a

below, appear at the hearing and show cause why the

settlement proposed herein shall not be approved as fair,

reasonable and adequate and why a judgment should not

be entered hereon. Unless the Court otherwise directs, any

stockholder or class member who wishes to appear at the

hearing for the purpose of objecting to the settlement

proposal herein shall submit a written objection to ap-

proval of the settlement, such written objection and any

memorandum in support thereof shall be filed with the

Court at least days prior to the hearing set by the order

and copies thereof shall be mailed on or before filing with

the Court to Wolf Popper Ross Wolf & Jones, 845 Third

Avenue, New York, New York 10022, attorneys for the

plaintiffs; Diamond & Golomb, 99 Park Avenue, New

York, New York 10016, attorneys for Canadian Javelin;

and Moses Krislov, 800 Engineers Building, Cleveland,

Ohio 33114, attorneys for defendants John C. Doyle and

William M. Wismer. Proof of service upon the aforesaid

attorneys shall also be filed with this Court;

E. Providing that, unless the Court otherwise directs,

no stockholder or member of the Class shall be entitled in

any way to contest the approval of the terms and conditions

of this Stipulation or the judgment to be entered herein

except by serving and filing written objection in accordance

with subparagraph ‘“‘D”’ above and that any stockholder or

member of the Class who fails to object in the manner

prescribed shall be deemed to have waived and shall be

foreclosed forever from raising such objections;

F. Requiring, pursuant to Rule 23(c)(2) of the Federal

Rules of Civil Procedure, that any member of the Class who

desires to be excluded from the Class request exclusion in

writing by filing a request for exclusion with the Court by a

date designated in the order, which will not be later than 10

days before the hearing and any member of the Class who

has so excluded himself shall not be entitled to participate

in the Fund;

49a

G. Requiring that any member of the Class desiring to

participate in the Fund file with the Clerk of the Court or

such person as the Court may designate a verified Proof of

Claim in the form annexed hereto as Exhibit ‘“‘B”’ no later

than 90 days after the hearing referred to in paragraph 14C

above;

H. Providing that the notice required under sub-

paragraphs A and B hereof be given: (i) by mailing a copy

of such notice within 60 days after the entry of the order

requiring such notice to all stockholders of Canadian

Javelin as shown by the stock records of Canadian Javelin

at the address set forth on such records as of 30 days prior

to the entry of the order (in the case of shares registered in

street name, Canadian Javelin shall supply brokerage firms

with sufficient copies to mail to all beneficial owners and

Canadian Javelie shall reimburse brokerage firms for

postage expenses for mailings to beneficial owners), to all

members of the class who are no longer stockholders of

Canadian Javelin and whose names and addresses can be

ascertained by reasonable diligence either through the

records of Canadian Javelin or the records of the Canada

Permanent Trust Company, the transfer agent for

Canadian Javelin stock, at the address on such records,

and (ii) by publication once in the New York Times, all

national editions of the Wall Street Journal and the

Toronto Globe & Mail.

J. Providing that the notice specified in subparagraph

H hereof shall constitute due and sufficient notice of the

hearing to all persons entitled to receive such notice, and

requiring that proof of mailing and publication be filed at

or prior to the hearing.

15. The following conditions shall apply to the

filing of each Proof of Claim:

A. The Proof of Claim shall be executed under oath,

in the form annexed hereto as Exhibit “‘B’’ and shall be

50a

accompanied by brokers’ confirmations or monthly ac-

count statements relating to all purchases of Canadian

Javelin common stock prior to and during the class period

and sales of Canadian Javelin common stock during and

subsequent to the class periods if such confirmations or

account statements are in the possession or under the

control of the claimant;

B. By filing a proof of claim, each Class member will

thereby submit himself to the jurisdiction of the Court.

Each proof of claim shall be subject to investigation and

discovery pursuant to the Federal Rules of Civil Procedure

and upon acceptance of said proof of claim and upon

receipt by each Class member of his distributive share of

the Fund each Class member thereby releases the defen-

dants, their predecessors, successors, heirs, assigns, of-

ficers, directors, partners, and former partners, employees

and attorneys and each of them of all claims and demands

arising from or relating to the matters alleged in the

amended complaint, or arising from or relating to the

consummation of the terms of this Stipulation;

C. All proofs of claim will be subject to review by Wolf

Popper Ross Wolf & Jones; Diamond & Golomb, P.C.;

Steptoe & Johnson; and Moses Krislov. A proof of claim

will be deemed accepted unless rejected by any of said

attorneys no later than 20 days after the last day for the

filing of proofs of claim;

D. If any proof of claim is rejected, in whole or in

part, Notice of Rejection thereof shall be given to the

person filing said proof of claim no later than 20 days after

the last day for filing of proofs of claim, advising said

claimant of the reason for such rejection and of the right to

a hearing thereon. Within 30 days after the date of mailing

of such Notice of Rejection, the Class member may file with

the Court a written request for a hearing, and a copy of

such request shall be mailed to Wolf Popper Ross Wolf &

5la

Jones; Diamond & Golomb, P.C., and Moses Kri

or before the date it is filed with the Court. In the em ‘hes

no such request for hearing is received within said 30 day

period, the Class member shall be deemed to have con-

sented to rejection of his proof of claim. Notice of all

hearings upon any claim relating to participation in the

Fund shall be given by the Court to counsel for all parties;

E. In the event that (i) a member of the Class

at the hearing with respect to his rejected proof of dg

whole or in part, and the Court’s decision is no longer

subject to review or appeal, or (ii) such Class member

prevails on appeal, the amount awarded t

member shall be paid to him. ——

16. The administration of the settlement and the

decision of all controversies relating thereto, including

disputed questions of law and fact relating to the validity of

claims and the manner of proving claims, shall be under

the authority of the Court and may, subject to the Court's

discretion, be submitted in whole or in part to a Master.

17. Any Class member who fails to make a timely filing

of an adequate Proof of Claim shall be forever barred from

p= a. in the distribution of the Fund, but shall in

: other respects be subject to the provisions of this

nse Each proof of claim shall be deemed to have

pe filed when posted, if mailed by registered or certified

mail, postage prepaid, addressed in accordance with the

instructions given therein. A proof of claim filed otherwise

shall be deemed to be filed at the time it is actually received

by the Clerk of the Court or such other person as may be

designated by the Court to receive same.

; 18. Upon the approval by the Court of this Settlement

tipulation, including any amendments hereto, a judgment

aa be entered in the appropriate form: (a) approving the

* — Stipulation, and adjudging the terms thereof to

air, reasonable and adequate, and directing con-

52a

summation of its terms and provisions and retaining

jurisdiction to effectuate the same and to deal with the

failure of any of the party signatories to comply with the

terms, provisions and obligations flowing therefrom; (b)

awarding fees and reimbursement of expenses to attorneys

for plaintiffs (including fees of accountants or experts) or

retaining jurisdiction for such purposes; (c) dismissing this

action on the merits and with prejudice as against the

plaintiffs, the Class, and all defendants, and without costs;

(d) permanently barring and enjoining the institution or

prosecution by any Class member either directly or

representatively of any other action asserting claims which

have been or might be asserted arising from or relating to

the matters alleged in the amended complaint; (e) reserving

jurisdiction over all matters relating to the administration

and effectuation of the settlement and compromise

provided for herein, including the distribution of the Fund

and (f) containing such other and further provisions

consistent with the terms and conditions of this Settlement

Stipulation as the Court may deem advisable.

19. In the event that the Court does not approve this

Settlement Stipulation and its failure to approve becomes

final by reason of its affirmance on appeal or by lapse of

time or otherwise, or in the event the Court approves the

Settlement Stipulation but such judgment of approval is

finally reversed on appeal, this Stipulation and the Order

to be entered pursuant to paragraph 19 hereof shall be of

no further force or effect without further act by any party to

this Settlement Stipulation, and no hearings or proceedings

taken thereunder, including the decision thereon, and no

fact referred to in such hearings or proceedings shall be

considered or used as evidence or for any other purpose in

this or any other proceeding.

20. This Stipulation may be executed in two or more

counterparts.

53a

Dated:

This text is long and has been trimmed here. Open the source document for the complete record.