Opposition — Sloan v. Bonime

Court, U. 8

ILEN

P 281977

In run Minn

Supreme Court of the United States

Ocronsn Team, 1977

No, 77-374

Samus, SLoan,

Petitioner,

—against—

Grearnupe J, Bort, LIM Mor, Jounw C., Dos,

Wuüunau M. Wisemen and Canadian Jaun Leo,,

Respondents.

ON PRTITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPRALA

FOR THE BROOND CIRCUIT

BRIEF FOR THE RESPONDENTS

BONIME AND OLDEN IN OPPOSITION

Benepicr Wor

Counsel for Respondents

Gertrude Bonime and Lillian Olden

845 Third Avenue

New York, New York 10022

Rosert M. Korwneron

War Porrern Ross Wo & Jos

845 Third Avenue

New York, New York 10022

Of Counsel.

TABLE OF CONTENTS

PAOR

Ie AID ¶ i

88 —— 1

II.. 2

Anoument

Por 1

No “Tentative Settlement Class” Was Batablished

1—— ᷑ ᷑ —— 6

Powr II

Plaintiff Bonime Was a Proper Class Representa-

NN . — 7

Powr III

The Notice to Members of the Classe Met the Ro-

quirements of Rule 23 of the Federal Rules of Civil

Procedure and of Due Process „ 9

Potwr IV

The Court Had the Authority to Bar Further Law

suits by Class Members Based Upon Causes of

Action Arising From the Matters Alleged in the

Complaint in This Action 11

Port V—

The Class Created in This Case Was “Manage-

able and Maintainable” Under Rule 23 of the Fed-

eral Rules of Civil Procedure 12

paar

Powr VI

Petitioner Was Served With All Papers Necessary

to Meet the Requirements of Due Process 12

Pot VII

Since the Judgment of the Lower Court Was a

Final Judgment, the Action of the Court of Ap-

peals in Deciding the Appeal, Rather Than Dis-

missing It or Remanding It to the Distriet Court,

WED — ͤ— 14

8988. ——————— 12

Casne

Baughman v. Cooper-Jarrett, Inc, 580 F.2d 529 (Ard

GE, SEGUE ——— 15

Berry Petroleum Co, v. Adama & Peck, 518 F.2d 402

0 —tU— 11

Dorfman v. Firat Boston Corporation, 62 F. R. D. 466

r. ð 4

Durkin v. Mason d iron Lines, 202 F. 2d 425 (6th (Ar.

—— —— 15

Frost v. Weinberger, 515 F.2d 57 (2d Cir, 1975) 8

Green v. Occidental Petroleum Corp,, 541 F.2d 1835

0 — —„— 12

Hrunin v. International House of Pancakes, 513 F.2d

114 (8th Cir.), cert, denied, 423 U.S, 864 (1975) ....10, 11

Huff v. V. D. Cass Company of Alabama, 485 F.2d 710

390 ͤ——— — *

ili

PAOR

In re National Student Marketing Litigation, 68 F. R. D.

ee 14

Kasishke v. Baker, 144 F. 2d 384 (10th Cir, 1944) 15

Magnum Import Co, v. Coty, 262 U.S, 159 (1923) 16

Soana v. Lowa, 419 U.S, 393 (19750) eee 4

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

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

v. Chas, Pheer d Co.,, 404 U.S, 871 (1971) .. 5,7, 14

Text

Manual for Complex Litigation § 100 6, 7,9

IN THE

Supreme Court of the United States

Octoser Term, 1977

No. 77-374

Samvue. SLoax,

Petitioner,

—against—

Geatrupve J. Bonime, Linuian Ovpen, Joun C. Dort,

Wituiam M. Wismer and Canapian Jave.in Lo.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF FOR RESPONDENTS

BONIME AND OLDEN IN OPPOSITION

Questions Presented

1. Was a “tentative settlement class” created in th

case?

2. May a plaintiff who was a member of a designated

class when an action was commenced and when the class

was determined, but by the terms of a settlement reached

thereafter will not participate in the settlement fund, con-

tinue to act as one of the class representatives?

3. Did the Notice sent to members of the class meet the

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

cedure and of due process?

4. Did the District Court have the authority to bar

further lawsuits by class members based upon any cause

of action arising from the matters alleged in the complaint

in this action? ;

5. Is the class created in this case manageable and main-

tainable under Rule 23 of the Federal Rules of Civil Pro-

cedure?

6. Was the Petitioner entitled to service of any papers

beyond those relating to his objections to the proposed

settlement?

7. Was the action of the Court of Appeals in deciding

the appeal brought by respondent, rather than dismissing

the appeal or remanding it to the District Court, an abuse

of discretion?

Statement of the Case

By a complaint filed December 3, 1973, plaintiff Bonime,

a purchaser of stock of Canadian Javelin Ltd. (“Javelin”),

commenced a class action against Javelin and its principal

officers, John C. Doyle and William M. Wismer, on behalf

of all purchasers of Javelin stock similarly situated during

the period of wrongful action alleged in the complaint.

Plaintiff Olden was added as a plaintiff on December 11,

1974.

The amended complaint alleged that defendants had

disseminated false and misleading statements in violation

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

amended, and Rule 10b-5 promulgated thereunder, of Sec-

tions 17 and 5 of the Securities Act of 1933 and of the com-

mon law, and that these false and misleading statements

had resulted in the artificial inflation of the market price

3

of Javelin stock. Plaintiffs sought for themselves and the

other members of the class damages resulting from their

having purchased Javelin stock at a price substantially

higher than what the stock was worth. The class s“ ght

consisted of all purchasers of Javelin stock dur g the

period from April 30, 1969 to October 25, 1973.

A motion for class determination was made on January

22, 1975, and the Court certified the class on February 10,

1975, the class certified being the same as that which had

been described in the complaint a year earlier.

After pretrial discovery, which consisted of examination

of documents, answers to interrogatories and deposition of

witnesses, settlement negotiations resulted in the entry into

a stipulation of settlement on July 9, 1975, about five

months after the class had been certified, and about six

months after the motion for class determination had been

made.

Pursuant to court order, a notice was sent to all members

of the class by mail, and was published in three newspapers

of wide circulation in the United States and Canada. It

described the class which had been fixed by the Court on

February 10, 1975, set forth the nature of the action and

the proceedings had to that time, gave a brief summary of

the terms of settlement and notified the class members of a

hearing to be held on October 17, 1975 to determine whether

the proposed settlement should be approved by the Court

as fair, reasonable and adequate. The class members were

informed that they had the right to “opt out” of the class

and the settlement on or before October 7, 1975, the right

to object to the settlement on or before September 29, 1975

and, if they did not wish to opt out, the right to enter an

appearance in the case through their own counsel. The

notice informed the class members that the defendants

would pay the settlement fund in cash (although the Stipu-

4

lation gave them the right to pay either in cash, or partly

in cash and partly in stock or warrants), and that one-third

of the fund would be distributed to the claimants who pur-

chased between April 30, 1969 and May 31, 1972 (First

Class Period) and two-thirds to those who purchased in

the period from June 1, 1972 through October 25, 1973

(Second Class Period). The notice also informed the mem-

bers of the class of the amount of fees which would be

sought by plaintiffs’ counsel if the settlement were ap-

proved.

The notice concluded by stating that the references to

the pleadings, settlement agreement and other documents

were only summaries, and that for a complete description

of the various papers reference was made to the underly-

ing documents, the complete texts of which were on file with

the Clerk of the United States District Court for the South-

ern District of New York, where they were available for

inspection and copying.

Petitioner filed a Notice of Appearance dated August 20,

1975, stating his intention to appear at the hearing and seek

disapproval of the settlement, a determination that a class

action could not be maintained and a dismissal of the com-

plaint with prejudice. In a brief supporting affidavit, Peti-

tioner seemed to base his objections primarily on his

concern that he would receive a warrant of little value (al-

though the Notice stated specifically that the settlement

fund would be all cash). He also asked that the Court disal-

low any claim by plaintiffs’ attorneys for counsel fees.

Petitioner failed to appear at the hearing to press his

objections, and took no further action in this matter, nor

did he evince any further interest therein until after entry

of the Order and Final Judgment on July 29, 1976, approv-

ing the settlement. Meanwhile, the attorneys for the pro-

ponents of the settlement had filed affidavits dated October

5

8, October 9 and October 15, 1975, and two objectors,

through their attorneys, had filed papers in opposition.

All of these were the subject of lengthy oral presentation

to the Court at the hearing on October 17. At the hearing,

in addition to oral argument, witnesses were examined and

cross-examined, and a few objectors who were present were

given full opportunity to make statements of their position.

Thereafter, the attorneys for the two active objectors

and the attorneys for the proponents of the settlement ex-

changed additional affidavits and participated in further

arguments before the Court. The objections presented by

these objectors dealt with fundamental questions of

whether the proposed settlement was fair and whether the

procedural steps that had been followed complied with due

process.

On June 30, 1976, the District Court rendered an opinion

overruling the objections to the settlement and approving

the settlement (Petition, pp. 6a-38a), and on July 29, 1976

the Court issued its “Consent Order and Final Judgment”

(Petition, pp. 68a-74a).

On October 4, 1976, Petitioner filed a Notice of Appeal

from the District Court’s order within an extended period

granted by the Court, having failed to file within the 30-

day period allowed for appeals. His appeal was fully

briefed by Petitioner and by the Respondents. Hearing

was set for April 6, 1977, at which time the attorneys for

the Respondents appeared for argument but the Petitioner

failed to appear.

The Court of Appeals affirmed the judgment of the Court

below approving the settlement, finding that, on the stand-

ards set forth in State of West Virginia v. Chas. Pfizer &

Co., 440 F.2d 1079, 1085 (2d Cir.), cert. denied sub nom.,

Cotler Drugs v. Chas. Pfizer d Co., 404 U.S. 871 (1971), the

6

evaluation by the District Court of the proposed settlement

was plainly sufficient and proper. Thereafter, Petitioner

filed a petition for rehearing, with a suggestion that the

rehearing be en banc. This petition was denied.

Petitioner now asks this Court to review, by Writ of

Certiorari, the unanimous decision of the Court of Appeals.

ARGUMENT

POINT I

No “Tentative Settlement Class“ Was Established in

This Case.

Petitioner devotes approximately a third of the argu-

ment portion of his brief to an attack on the alleged adop-

tion in this case of the “Tentative Settlement Class” pro-

cedure, charging that it was a violation of due process

principles and Rule 23 of the Federal Rules of Civil Pro-

cedure (Petition, pp. 20-27). The short answer to his

argument is that no such procedure was adopted in this

case.

While the Manual for Complex Litigation (§ 1.40) states

that “[rJecent experiences demonstrate that in no event

should there be a tentative determination of a class action

request for the purposes of settlement” (emphasis sup-

plied), it proceeds to state, in footnote 23, that:

“This statement is not intended to apply to separate

prior determination of class members and separate

later notices to classes of proposed settlement with

provision for subsequent hearing on the fairness of

the proposed settlement and with reservation of full

power of the court to reject the settlement in whole

or in part,”

7

citing the procedure followed in State of West Virginia v.

Chas. Pfizer d Co. Inc., 314 F. Supp. 710 (S.D.N.Y. 1970),

af d, 440 F. 2d 1079 (2d Cir.), cert. denied sub nom., Cotler

Drugs, Inc. v. Chas. Pfizer d Co. Inc., 404 U.S. 871 (1971).

In the instant case, a motion for class action determina-

tion was made on January 22, 1975. The motion was

granted on February 10, 1975, and the class was thus de-

termined, as even Petitioner admits, before any settlement

negotiations commenced. He gives the commencement date

as March 5, 1975 (Petition, p. 8). Actually, settlement was

reached on July 9, 1975, about six months after the class

was fixed. Obviously, no “tentative settlement class” was

ever created, and the determination of the class was never

dependent on whether a settlement would be reached.

This was clearly a case where, in the language of the

Manual for Complex Litigation quoted above, there was

a “separate prior determination of class members” and

the notice of proposed settlement provided for “subsequent

hearing on the fairness of the proposed settlement” with

the Court having full power to reject the settlement, thus

at the very least meeting the test of State of West Virginia

v. Chas. Pfizer & Co. Inc., supra.

POINT II

Plaintiff Bonime Was a Proper Class Representative.

While we are reluctant to deal with the many misstate-

ments and the statements not in the record with which the

Petition is replete, we deem it necessary to point out that

for Petitioner to assert that plaintiff’s counsel could have

known, when the action was started on December 3, 1973,

or when the motion for class certification was filed on

January 22, 1975, that Bonime would, in July 1975, under

a formula later to be adopted, be unable to claim “dam-

8

ages,” borders on the ridiculous. The complaint was filed

on behalf of all purchasers of stock in Javelin from April

30, 1969 through October 25, 1973. Bonime admittedly

bought on May 27, 1970 (Petition, p. 14). The class was

fixed as all purchasers of the stock in the period from

April 30, 1969 through October 25, 1973. Thus, Bonime

was a member of the class both when the complaint was

filed and when the class was fixed. It was not until a for-

mula for measuring damages was agreed upon and put

into the stipulation of settlement, on July 9, 1975, that a

determination of whether any particular class member,

Bonime or anyone else, would be entitled to share in the

settlement fund, could have been made.

In any event, whether under the formula, which fixed

particular cutoff dates for the measurement of losses,

Bonime can share in the fund, does not affect her right to

act as a plaintiff-representative of the class. The ability

of a plaintiff to prove the merits of his individual claim

or his entitlement to relief is not determinative of his

status as representative of the class. Sosna v. Iowa, 419

U.S. 393 (1975); Frost v. Weinberger, 515 F.2d 57 (2d Cir.

1975); Huff v. N. D. Cass Company of Alabama, 485 F.2d

710 (5th Cir. 1973). As was pointed out in Dorfman v.

First Boston Corporation, 62 F.R.D. 466 (E.D. Pa. 1974),

for a class representative to have to show damages at the

time the class was formed:

. . . would mean that before deciding a Rule 23 mo-

tion in an action for damages, a court would invariably

have to determine whether the putative class repre-

sentative had himself suffered damages. In other

words, an allegation of damages in the complaint

would in effect transform a class action motion into

a motion for summary judgment as to the representa-

tive plaintiff's damages.” (62 F.R.D. at 472.)

9

The cases cited by Petitioner in support of his challenge

to Bonime as a class representative (Petition, p. 17) are

clearly inapposite.

There is no serious challenge to plaintiff Olden's status,

and the fact that Bonime accepted a settlement in which

she might not be able to participate shows clearly that she

was indeed able to represent the class properly.

Finally, Petitioner supplies no authority for his novel

theory that an objector to a settlement has standing to

request, not rejection of the settlement, but dismissal of

an action or any part of it.

POINT III

The Notice to Members of the Class Met the Require-

ments of Rule 23 of the Federal Rules of Civil Proce-

dure and of Due Process.

Disregarding, as we must, Petitioner’s completely un-

supported speculation set forth in his Petition (pp. 30-32)

as to the percentage of recovery of losses, and his misstate-

ment about whom Judge Lasker permitted to speak at the

hearing at which Petitioner was not present (Petition, p.

32), we come to the one basic question he raises: Was the

Notice deficient because it did not contain “an estimated

range of monetary recovery (e.g., amount per share, per

unit, per dollar charged, and the like) that members of

the class may expect to receive if the settlement is ap-

proved,” as the Manual for Complex Litigation suggests?

There was no conceivable way in which the Notice for

class members, sent out on August 14, 1975, in which they

were told how to submit their claims, could have included

that information. Class members were given until Jan-

uary 16, 1976 to file claims. The total fund was fixed—

10

$1,350,000, less $260,000 or whatever lesser amount the

Court would allow as counsel fees—and was set forth in

the Notice. But, certainly, on August 14, 1975, and in fact at

any time before January 16, 1976, there was no way of

knowing or even estimating how many claims would be

filed, for what amounts or what portion of the individual

claims would be allowed. Without this knowledge, it would

have been foolhardy to make any estimated range of mone-

tary recovery that class members could expect to receive

if the settlement would be approved.

The objection that the Notice did not set forth what per-

centage each defendant would contribute to the settlement

fund or that Javelin would pay it all, is frivolous. This

is a class action, not a derivative action. The concern of

the members of the class is that the money be paid into

the fund, not its source. If some of the members of the

class are also still stockholders of the company and have

grounds to object to the company’s paying the full amount

of the judgment, they have a remedy in a derivative ac-

tion, but not in this case.

An examinatior of the Notice (Petition, pp. 54a-63a)

shows that it un full compliance with the required stan-

dards, which have been well described in Grunin v. Inter-

national House of Pancakes, 513 F.2d 114 (8th Cir.), cert.

denied, 423 U.S. 864 (1975).

Petitioner’s position that a court, in a class action, can-

not enjoin members of the class who have not appeared

“and who may not even know about the existence of this

action” (Petition, p. 33) from starting suit against the

defendants based upon any cause of action alleged in a

complaint, if adopted by the Court would seriously lessen

the value of class actions, since matters could never be

finally put to rest, and would make settlement of such

actions all but impossible. The power of courts to enjoin

further lawsuits by members of the class where they have

received notice of the class action (as they have in this

case) is well established. Berry Petroleum Co. v. Adams d

Peck, 518 F.2d 402, 412 (2d Cir. 1975); Grunin v. Inter-

national House of Pancakes, 513 F.2d 114, 120 (8th Cir.),

cert. denied, 423 U.S. 864 (1975).

12

POINT V

The Class Created in This Case Was “Manageable

and Maintainable” Under Rule 23 of the Federal Rules

of Civil Procedure.

Petitioner supplies only one basis for his assertion that

the class is “unmanageable and unmaintainable,” the

“Jengthy time period over which plaintiffs allege that [the]

fraudulent non-disclosures took place” (Petition, p. 28).

This period he describes in the fourth of his “Questions

Presented” as a period of four and one-half years (Peti-

tion, p. 3).

Clearly, a period of this duration not only is manage-

able, but, as is apparent from Petitioner’s failure to sup-

ply any factual support for his position, was managed

without particular difficulty in this case.

Judge Sneed’s concurring opinion in Green v. Occidental

Petrolewm Corp., 541 F.2d 1335, 1342 (9th Cir. 1976),

cited by Petitioner, does not deal with the issue he raises.

POINT VI

Petitioner Was Served With All Papers Necessary to

Meet the Requirements of Due Process.

It is important to be clear about Petitioner’s status. He

was not a party to the case, nor did he seek, by interven-

tion, to become a party to the case. He filed objections

to the settlement on what he describes as “procedural mat-

ters” and inadequate notice (Petition, p. 10) and did not

object to the fairness of the settlement. Although he as-

serted in his Notice of Appearance that he would appear

at the hearing on October 17, 1975, by which time the

—

13

papers in support of the settlement were on file and avail-

able for inspection, and at which time objectors had the

opportunity to present their objections and present wit-

nesses to bolster their position, listen to the presentation

by proponents of the settlement and attack this presenta-

tion to their heart’s content, an opportunity which several

of the objectors utilized fully, Petitioner chose neither to

appear nor to participate. All the papers in the case were

on file either in the Office of the Clerk of the Court or in

the chambers of the Judge considering the matter, and

were available for inspection.

Nothing further was heard from Petitioner, nor was

there any indication that Petitioner had any interest in the

proceedings, until after the District Court approved the

settlement. Even then, during the regular time to appeal,

Petitioner was silent. Only after the time to appeal had

expired, on July 30, 1976, for the first time since August

1975, did Petitioner evince an interest in the matter, by

requesting and receiving an extension of time to file a

Notice of Appeal.

He was given full opportunity to present his position

to the Appellate Court, and in his brief raised many ques-

tions that he had not urged upon the court below. He had

the opportunity to make oral presentation to the Appel-

late Court, but chose not to show up on the date of argu-

ment, not bothering to inform the appellees that he would

not appear.

Meanwhile, as Petitioner concedes, the objections he

urged before the Appellate Court, and now presents, were

vigorously and ably urged upon the District Court by an

attorney for two other objectors (Petition, p. 11), and,

as is apparent from the District Court’s decision, were

fully considered.

14

We submit that, in view of these circumstances, the fact

that papers were not served upon Petitioner did not con-

stitute a violation of due process.

POINT VII

Since the Judgment of the Lower Court Was a Final

Judgment, the Action of the Court of Appeals in De-

ciding the Appeal, Rather Than Dismissing It or Re-

manding It to the District Court, Was Proper.

Petitioner now asserts that the Court of Appeals erred

because it did not dismiss his appeal (presumably not on

the merits) or remand it to the District Court, on the

ground that the judgment was not a final judgment on the

merits. Despite the reservation of jurisdiction over periph-

eral matters, the Court of Appeals had before it a final

judgment, and proceeded in its determination on that basis.

The procedure followed by the District Court in entering

the Order and Final Judgment approving the settlement

and dismissing the action while reserving jurisdiction over

the effectuation of the settlement and application for coun-

sel fees is the procedure regularly followed by district

judges and approved by appellate courts. State of West

Virginia v. Chas. Pfizer d Co., 440 F.2d 1079 (2d Cir.), cert.

denied sub nom., Cotler Drugs v. Chas. Pfizer d Co., 404

U.S. 871 (1971); In re National Student Marketing Litiga-

tion, 68 F. R. D. 151 (10th Cir. 1974). It is the only practi-

cal way in which settlements can be consummated, since,

until final judgment, parties would be unwilling to take

the actions required by the terms of the settlement. To

require that the parties undertake the tasks of processing

claims, or of holding hearings on disputed claims, before

knowing whether a settlement is finally approved, is to

place upon them unnecessary burdens, unnecessary because

15

what are involved are matters peripheral to the basic ques-

tions—was the settlement fair, and were the requirements

of due process met?

The fact that a lower court reserved jurisdiction to

make further orders after judgment makes the judgment

no less final. Baughman v. Cooper-Jarrett, Inc., 530 F.2d

529, 531 n. 2 (3rd Cir. 1976); Durkin v. Mason d Dixon

Lines, 202 F.2d 425 (6th Cir. 1953); Kasishke v. Baker, 144

F.2d 384 (10th Cir. 1944).

Since the judgment was final and Petitioner did not with-

draw his appeal, the refusal of the Court of Appeals to

“dismiss” his appeal or remand the case to the District

Court, but instead to proceed to a determination on the

merits, was proper.

CONCLUSION

Petitioner has presented no valid reasons why his Writ

should be granted. His claim that the Court of Appeals

decision is in conflict with the applicable decisions of this

Court is without any support in his papers. He fails to

state which “applicable decisions” he refers to. His grave

charge against the Court of Appeals that it has acted in

such a manner as to call for the exercise of this Court’s

power of supervision (Petition, p. 13), again without a

single supporting fact or even argument, is unworthy of

attention.

Absent sound reason for review, we must be guided by

the words of Chief Justice Taft, commenting on this Court’s

certiorari jurisdiction, when he said, the jurisdiction

was not conferred upon this court merely to give the

defeated party in the Circuit Court of Appeals another

16

hearing.” Magnum Import Co, v. Coty, 262 U.S. 159, 163

(1923).

For the reasons stated, the petition for a writ of

certiorari should be denied.

September 21, 1977

Respectfully submitted,

Benepiot Wo.F

Counsel for Respondents

Gertrude Bonime and Lillian Olden

845 Third Avenue

New York, New York 10022

Rosert M. Kornreicu

Wor Poprer Ross Wolr & Jones

845 Third Avenue

New York, New York 10022

Of Counsel.