Petition — Winokur v. Bell Federal Savings & Loan Ass'n

erence

Supreme Court, U.S ~

FILED

N 17 1978

ey <n nem — He

In THE

WHICHAEL RODAK, JR., CLERIE™

Supreme Court of the United States a

Ocroner Term, 1977

No?'7- 1020

MARSHALL WINOKUR and RAE WINOKUR, ABE BRODSKY

and CELIA BRODSKY, and ETHELLE KATZ and BERTHA

KATZ, et al.,

Petitioners,

vs.

BELL FEDERAL SAVINGS AND LOAN ASSOCIATION,

HOME FEDERAL SAVINGS AND LOAN ASSOCIATION,

and UPTOWN FEDERAL SAVINGS AND LOAN ASSOCI- |

ATION OF CHICAGO,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

ArNotp M. Ftamm

Artuur T. Susman

Rosert D. ALLIson

Ricuarp H. Prins

33 N. Dearborn Street

. Chicago, Illinois 60602

Telephone: (312) 346-3461

Attorneys for Petitioners

—— — —

Midwest Law Printing Co., Chicago 60601, Financial 6-3988 |

TABLE OF CONTENTS

OPINIONS BELOW 200......ccscsscscccseeeccenseee- ee

JURISDICTION ................ SRN

QUESTIONS PRESENTED FOR REVIEV .............

CONSTITUTIONAL PROVISION INVOLVED ........

STATEMENT OF THE CASE

REASONS FOR ALLOWING THE WRIT .................. 3

I

There Is a Conflict Among the Circuits as to

Whether Mooting of the Claim of the Individual

Class Representative After Denial of Class Cer-

tification Deprives the Court of Appeals of Juris-

diction to Review the Denial of Class Action Status

Il.

This Court Should Exercise Its Power of Super-

vision Because a Rule by Which Defendant Can

Voluntarily and Unilaterally Moot the Claims of

the Putative Plaintiff Class by Offering Relief

Only to the Named Class Representative Prior to

Class Action Certification, and Which Also Pre-

cludes Appellate Review of the District Court’s

Denial of Class Certification, Is Violative of Fun-

damental Fairness and the Policy Underlying Rule

23 of the Federal Rules of Civil Procedure ............

ITI.

The Decision Below Is in Conflict With Decisions

of This Court

CONCLUSION

APPENDIX

Opinion of the United States Court of Appeals for the

PUI: TPIT vidiiinsesninsintaincntinteaiuiiccaninaindaiatinimiiantanibaosionain A-l

Order of the Court of Appeals Denying Petition for

Rehearing En Bane, and Dissenting Statement ........ A-13

Judgment of the District Court Dismissing the Ac-

SUIT sisntnnevsiendiijetuinieaiansecpinetpaginastsiansscniiiidaguaiaiistieattiaiiinidiies A-15

Interlocutory Order of the District Court Denying

Plaintiff Class Action Certification, Entered October

17, 1972 .. ssteniahdenaaaiintaaibdgtiain A-18

Order of the Court of Appeals, Entered May 18, 1973,

Dismissing Appeal From Order Denying Class Cer-

tification A-26

Order Entered December 30, 1977, by the Hon. Joel

Flaum, Judge of the United States District Court

for the Northern District of Illinois, in the Cause En-

titled ‘‘ Flamm v. Eberstadt et al., No. 76 C 427’? ...... A-28

TABLE OF CASES

Alyeska Pipeline Service Co. v. Wilderness Society, 421

es I ED ceissiidissdeasinsiibeecsntibaciaeciAainniniesnictiianainidyptictanpatetienn 25

Basel v. Knebel, 551 F.2d 395 (D.C. Cir. 1977) ....00...... 17

Bradley v. Housing Authority of Kansas City, Mo.,

512 F.2d 626 (8th Cir. 1975) 10

Cameron v. E. M. Adams & Co., 547 F.2d 473 (9th Cir.

1976) .. 21

Custom v. Trainor, 74 F.R.D. 409 (N.D. Ill. 1977) —... 17

Cypress v. Newport News General and Nonsectarian

Hospital Ass’n, 375 F.2d 648 (4th Cir. 1967) .......... 16

ili

East Texas Motor Freight System, Ine. v. Rodriguez,

ssi | ee fo 8, ee

Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974) ........ 13

Esplin v. Hirschi, 402 F.2d 94 (10th Cir. 1968), cert.

Se ee ND cette neticititantnictiaeeteescrncctnt 21

Franks v. Bowman Transportation Co., 424 U.S. 747

+ Bee . 18, 21

Frost v. Weinberger, 515 F.2d 57 (2d Cir. 1975) ............ 17

Galvan v. Levine, 490 F.2d 1255 (2d Cir. 1973) .. ........... 21

Gardner v. Westinghouse Broadcasting Co., 559 F.2d

209 (3d Cir. 1977), cert. granted ...... aa 46

SR eee 20, 21, 23

Gelman v. Westinghouse Electric Corp., 556 F.2d 699

(3d Cir. 1977) a

Gerstein v. Pugh, 420 U.S. 103 (1975) -...........-.......... 15, 18

Indianapolis School Comm’rs v. Jacobs, 420 U.S. 128

(1975) 19, 22

Jenkins v. United Gas Corp., 400 F.2d 28 (5th Cir.

1968) 16

Kelly v. Wyman, 294 F.Supp. 887 (S.D. N.Y. 1968),

aff’d sub nom. Goldberg v. Kelly, 397 U.S. 254 (1970) 16

King v. Kansas City Southern Industries, Inc., 479 F.

2d 1259 (7th Cir. 1973) 12

Langson v. Simon, 74 F.R.D. 456 (N.D. Ti. 1977) ........ 17

La Sala v. American S & L Ass’n, 5 Cal.3d 864, 489

P.2d 1113 (1971) 15

- Mills v. Electric Auto-Lite Co., 396 U.S. 375 (1970) ..... 24

Napier v. Gertrude, 542 F.2d 825 (10th Cir. 1976),

cert. den. 97 S.Ct. 759 (1977) 10, 20

Robinson v. Leahy, 73 F.R.D. 109 (N.D. Ill. 1977) ...... 17

iv

Satterwhite v. City of Greenville, Texas, 557 F.2d 414

{ t Oe . ; 4 EER re ESTER 9, 19

Senter v. General Motors Corp., 532 F.2d 511 (6th Cir.

| NE ee ee 17

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

SUD <csiusnissiimaieniaedaal mshiatiaasiiimeaialiaat 21

Smith v. YMCA of Montgomery, 462 F.2d 634 (5th Cir.

| Tr nee 16

Sosna v. Towa, 419 U.S. 393 (1975) o.....-..eecececeeeeeseseeee- . 15, 17

Sprague v. Ticonic Nat’l. Bank, 307 U.S. 161 (1939) ... 24

Tcherepnin v. Knight, 389 U.S. 332 (1967) -.................. 5, 6

Tedeschi v. Blackwood, 410 F.Supp. 34 (D. Conn. 1976) 17

United Airlines, Ine. v. McDonald, ...... USS. ......, 97 8.

RF | . 20, 21

Vaughan v. Bower, 313 F.Supp. 37 (D. Ariz. 1970),

“2 Lf |) (ee 16

Weathers v. Peters Realty Corp., 499 F.2d 1197 (6th

Cir. 1974) ........ 9

Weinstein v. Bradford, 423 U.S. 147 (1975) .............. 19, 22

White v. Mathews, 559 F.2d 852 (2d Cir. 1977) .............. 17

Workman v. Mitchell, 502 F.2d 1201 (9th Cir. 1974) ... 9

Ix THE

Supreme Court of the United States

Octoser Tirm, 1977

No.

MARSHALL WINOKUR and RAE WINOKUR, ABE BRODSKY

and CELIA BRODSKY, and ETHELLE KATZ and BERTHA

KATZ, et al.,

Petitioners,

vs.

BELL FEDERAL SAVINGS AND LOAN ASSOCIATION,

HOME FEDERAL SAVINGS AND LOAN ASSOCIATION,

and UPTOWN FEDERAL SAVINGS AND LOAN ASSOCI-

ATION OF CHICAGO,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Marshal! Winokur and Rae Winokur, Abe Brodsky

and Celia Brodsky, and Ethelle Katz and Bertha Katz,

pray that a Writ of Certiorari issue to review a

judgment of the United States Court of Appeals for the

Seventh Circuit, entered on August 2, 1977, affirming

the district court’s dismissal of their individual actions

as moot by reason of the defendants’ voluntary cessation

of the conduct complained of and the defendants’ tender

to plaintiffs of the individual monetary damages sought,

cnllinn

and further holding that the Court of Appeals, therefore,

had no jurisdiction under Article III of the Constitution

to review the earlier order of the district court denying

certification to the putative plaintiff class.

Plaintiffs’ Petition for Rehearing en bane was denied

on October 21, 1977, with one judge favoring en banc

rehearing and submitting a statement in dissent.

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Seventh Circuit, filed August 2, 1977, is reported at

560 F.2d 271 (7th Cir. 1977), and appears herein at A-1.

The order denying the Petition for Rehearing en banc,

entered October 21, 1977, together with dissenting

statement, is reported at 562 F.2d 1034 (7th Cir. 1977),

and is appended hereto at A-13.

The United States District Court for the Northern

District of Illinois rendered its final order dismissing

the action as moot on March 21, 1975. This opinion is

unreported and appears at A-15.

Previously, the District Court had rendered an

interlocutory order denying plaintiff class certification

on October 17, 1972. That opinion, reported at 58 F.R.D.

178 (N.D. Ill. 1972), appears at A-18. Appeal of the

order denying plaintiff class status was dismissed by the

United States Court of Appeals for the Seventh Circuit

in an order dated May 18, 1973, which is unreported

and appears at A-26. A petition for writ of certiorari

filed with the Supreme Court of the United States

seeking review of dismissal of the interlocutory appeal

was denied on June 3, 1974. 417 U.S. 930 (1974).

acliine

JURISDICTION

iS oeeninaenieeel

;

The order of the Court of Appeals of which review is

sought was entered August 2, 1977 and a timely petition

for rehearing with suggestion for en banc rehearing was

denied on October 21, 1977.

Certiorari jurisdiction is invoked pursuant to the

provisions of 28 U.S.C. § 1254(1).

QUESTIONS PRESENTED FOR REVIEW

1. Did the court below err in holding that a

defendant can deprive the Court of Appeals of jurisdic-

tion to review the correctness of the district court’s

denial of class action status simply by offering to the

named plaintiff class representatives the small amounts

of their individual monetary claims?

2. Did the court below err in adopting a rule of law

which permits a defendant to moot the claims of the

putative class by voluntarily offering to the named

plaintiff class representatives, at any time prior to certi-

fication of the class, the relief requested by such class

representatives in their individual capacities?

3. Did the court below err in holding that plaintiffs

would not be entitled to an award of counsel fees on the

ground that no monetary fund had been created by

plaintiffs’ litigation for the benefit of others?

oe

CONSTITUTIONAL PROVISION INVOLVED

Constitution of the United States, Article III, Section 2,

Clause 1:

“The judicial Power shall extend to all Cases, in

Law and Equity, arising under this Constitution,

the Laws of the United States, and Treaties made,

or which shall be made, under their Authority;—to

all Cases affecting Ambassadors, other public

Ministers and Consuls;—to all Cases of admiralty

and maritime Jurisdiction;—to Controversies to

which the United States shall be a Party;—to

Controversies between two or more States;—be-

tween a State and Citizens of another State;—

between citizens of different States;—between Citi-

zens of the same State claiming Lands under

Grants of different States, and between a State, or

the Citizens thereof, and foreign States, Citizens or

Subjects.”

—§—

STATEMENT OF THE CASE

’

This case was filed as a class action and plaintiffs

motions to certify both plaintiff and defendant classes

were presented at an early stage of the proceedings. In

their complaint the plaintiffs alleged that the defendants

(federally chartered savings and loan associations in the

Chicago Metropolitan area) solicited savings deposits by

falsely representing to the public that dividends equiva-

lent to “daily compound interest” would be paid on

deposits. Plaintiffs asserted that the defendants’ adver-

tising was false and misleading because it did not

disclose that defendarts actually calculated interest in a

manner such that earnings were not accrued, or were

forfeited, with respect to withdrawals of money prior to

the last day of any calendar quarter. Plaintiffs further

alleged that the advertising was also false and mislead-

ing because the defendants omitted any disclosure that

deposits made after the 10th day of any month did not

earn any interest until the first day of the following

month (although they did widely advertise that deposits

made by the 10th earned from the first day of the

month). In what was apparently an attempt to meet the

competition of certain other local savings and loan

associations which actually compounded interest on a

daily basis, defendants employed misleading advertising

asserting that they too paid “daily compound interest,”

whereas in fact they did not do so.

Plaintiffs alleged that the foregoing omissions were

material to rational investment decisions and, since

savings and loan association accounts are “securities”

within the meaning of Section 3(aX10) of the Securities

Exchange Act of 1934, 15 U.S.C. § 78a, et seg. (Tcherep-

—t—

nin v. Knight,- 389 U.S. 332 (1967) ), defendants had

violated Section 10(b) of that Act and Rule 10(b)-5

promulgated thereunder by the Securities and Ex-

change Commission (17 C.F.R. § 240.10b-5). Jurisdiction

was grounded upon Section 27 of the Securities and

Exchange Act of 1934 (15 U.S.C. § 78aa) and is not

dependent upon the amount in controversy. |

The plaintiffs’ complaint sought (i) injunctive relief,

(ii) monetary damages, (iii) plaintiff class status, (iv)

defendant class status, and (v) an award of costs and

expenses, including counsel fees. The individual mone-

tary claims of the named class representatives have been

conceded by plaintiffs to be no greater than $12 each, as

calculated from passbook entries and interest tables.

Nevertheless, the combined claims of the putative

plaintiff class members unquestionably amount to many

hundreds of thousands of dollars.

On October 17, 1972, the district court denied

certification to the plaintiff class. The court ruled that

whether each class member had read defendants’

advertisements and thus been misled posed individual

questions. The district court disclaimed any need to

decide the extensively briefed question as to whether

such reliance would serve to defeat plaintiff class status.

Instead, the court posited a new concept,—“individual

materiality,”--and’ concluded that the common question

requirement of Rule 23(aX2) of the Federal Rules of

Civil Procedure was lacking. A-22-23.

The district court subsequently denied plaintiffs’

motion for 28 U.S.C. § 1292(b) certification of the order

refusing certification of the plaintiff class and plaintiffs

then attempted an appeal based upon the “collateral

order” and “death knell” doctrines. On May 18, 1973, the

Court of Appeals rejected the “death knell” doctrine and

cnilen

dismissed the appeal. A-26. This Court denied plaintiffs’

petition for writ of certiorari. 417 U.S. 930 (1974).*

Thereafter, plaintiffs attempted to resume pretrial

discovery proceedings with respect to the still pending

individual claims, but prosecution of the case was

interrupted when defendants tendered $12 to each of the

named plaintiffs (all of whom refused the offer) and

moved to dismiss the action as moot. On March 21, 1975,

the district court granted that motion (A-15), noting

that if the case presented a proper class action “a

different conclusion would have to be reached as to

mootness.” In so dismissing the case the trial court first

determined that plaintiffs were not entitled to the

injunction sought by them because the defendants had

ceased their errant practices, and further held, without

a hearing, that plaintiffs were not entitled to an award

of counsel fees.

Plaintiffs filed timely notice of appeal on April 18,

1975, challenging the court’s denial of class certification

for both plaintiff and defendant classes, and also the

district court’s determination that plaintiffs were not

entitled to injunctive relief or counsel fees. Plaintiffs

urged (a) that the individual.claims were not mooted,

and (b) that if the action was held on appeal to have

been properly brought as a plaintiff class action then

mooting of the named class representatives would not in

any event render the entire cause moot.

The Court of Appeals for the Seventh Circuit affirmed

that the individual claims of the named plaintiffs had

* The district court had earlier denied plaintiffs’ motion for

certification of the defendant class in an order entered March

27, 1972. That order was not the subject of an interlocutory

appeal.

ee.

axles

been mooted, and concluded, therefore, that it had no

jurisdiction to review the district court’s denial of

plaintiff or defendant class certification. A-8-12. The

actual judgment of the Court of Appeals was: “The

judgment appealed from, dismissing the action because

it is moot, is AFFIRMED.”

The refusal of the Court of Appeals to consider the

correctness of the class status denial because of defen-

dants’ offer to pay the nominal damages incurred by the

named plaintiffs, and the defendants’ voluntary cessa-

tion of the conduct complained of, means that the

plaintiffs have been twice frustrated in their efforts to

obtain judicial review of the district court’s denial of

class certification.

—o—

REASONS FOR GRANTING THE WRIT

I.

THERE IS A CONFLICT AMONG THE CIRCUITS AS

TO WHETHER MOOTING OF THE CLAIM OF THE

INDIVIDUAL CLASS REPRESENTATIVE AFTER

DENIAL OF CLASS CERTIFICATION DEPRIVES

THE COURT OF APPEALS OF JURISDICTION TO

REVIEW THE DENIAL OF CLASS ACTION STATUS.

In its opinion below (A-1), the Court of Appeals for the

Seventh Circuit readily acknowledged that its holding in

the instant case is in conflict with the Sixth Circuit’s

opinion in Weathers v. Feters Realty Corp., 499 F.2d

1197, 1201 (6th Cir. 1974), wherein the Court expressly

held that a mooting of the named plaintiff's claim by

voluntary act of the defendant did not deprive the

appellate tribunal of jurisdiction to review and reverse

the district court’s denial of class status.

The result reached by the Court of Appeals in the

instant case also conflicts with that reached by the

Ninth Circuit in Workman v. Mitchell, 502 F.2d 1201,

1207-8 (9th Cir. 1974). In Workman the court reversed

the district court’s denial of class certification in the

face of defendant’s contention that a case or controversy

had ceased to exist by reason of the mooting of the

claims of the individual named plaintiffs,—in part as a

consequence of voluntary actions taken by defendants.

The decision below also appears in conflict with that

of the Fifth Circuit in Satterwhite v. City of Greenville,

Texas, 557 F.2d 414 (5th Cir. 1977), wherein that court

rejected an Article III challenge to its jurisdiction to

review the district court’s denial of class status notwith-

standing that the named plaintiff's individual claim had

——

subsequently become moot by virtue of an adverse

judgment on the merits, affirmed on appeal. (The

conflict between the instant case and Satterwhite is

brought into sharp focus by Judge Gee’s dissent in

Satterwhite. The rationale of that dissenting opinion

closely parallels the opinion of the Seventh Circuit in

this case.)

In summary then, the opinion below is in conflict with

positions taken by the Fifth, Sixth and Ninth Circuits.*

On the other hand, the Seventh Circuit position appears

consistent with that adopted by the Eighth Circuit in

Bradley v. Housing Authority of Kansas City, Missouri,

512 F.2d 626 (8th Cir. 1975). Thus, on the important

issue posed by the decision below (See Point II infra),

the Circuit Courts of Appeal are split 3-2.

* Arguably, also, the opinion below is in conflict with the

rationale expounded by the Tenth Circuit in the course of its

opinion in Napier v. Gertrude, 542 F.2d 825, 826 (10th Cir.

1976), cert. denied, ..... US. .... 97 S.Ct, 759 (1977). While that

court did hold the action before it to be moot, it apparently

did so only because the substantive issue was not one “capable

of repetition, yet evading review.” The court expressly states

that mootness will not occur where the failure to certify the

class is attributable to trial court error, and the error is

correctable at the appellate level. (542 F.2d, at pp. 826-27).

aliius

Il.

THIS COURT SHOULD EXERCISE ITS POWER OF

SUPERVISION BECAUSE A RULE BY WHICH DE-

FENDANT CAN VOLUNTARILY AND UNILATERAL-

LY MOOT THE CLAIMS OF THE PUTATIVE PLAIN-

TIFF CLASS BY OFFERING RELIEF ONLY TO THE

NAMED CLASS REPRESENTATIVE PRIOR TO

CLASS ACTION CERTIFICATION, AND WHICH ALSO

PRECLUDES APPELLATE REVIEW OF THE DIS-

TRICT COURT’S DENIAL OF CLASS CERTIFICA-

TION, IS VIOLATIVE OF FUNDAMENTAL FAIRNESS

AND THE POLICY UNDERLYING RULE 23 OF THE

FEDERAL RULES OF CIVIL PROCEDURE.

A. The Decision Below, If It Is Allowed To Stand, Will

a Destroy The Class Action In The Seventh

reuit:

“Proposition 2”, as propounded by the Seventh Circuit,

is as follows (A-11; 560 F.2d 271, 277):

“2. When there is no determination that an

action be maintained as a class action and the

controversy between the named party in his own

interest and his opponent dies, court adjudication is

not appropriate because there is no controversy

between parties who are present or represented

before the court in the action.”

If “Proposition 2” is a correct statement of the law,

then Rule 22 of the Federal Rules of Civil Procedure

will be reduced to a virtually meaningless relic. Any

well advised defendant, immediately upon receipt of

summons in a putative class action, will offer to the

named plaintiff the full amount of his individual claim

(typically amounting to only a few dollars) or, where

non-monetary relief is prayed for on behalf of the class,

will grant that relief to the named plaintiff alone, and

then move immediately to dismiss the action on grounds

of mootness.

afi

In the Seventh Circuit, at least, the trial judge will

perforce be required to grant that motion, for there will

have been no determination that the action can be

maintained as a class action, the controversy between

the named plaintiff in his own interest and his opponent

will have died, and hence court adjudication will not be

appropriate for want of a case or controversy.

Even if, as in the instant case, the defendant is

inexplicably slow in taking advantage of his prerogative

so that the district court does rule on class certification

before the named plaintiff is mooted, all is not lost. If

the decision is against class status, then that decision,

whether correct or not, is forever immune from

appellate review—provided only that the defendant

comes to his senses and makes a tender to the named

plaintiff before the entry of judgment on the merits and

before the reviewing court has had an opportunity to

rule upon the class action order.* Further, any effort to

keep the case alive through the intervention of addi-

tional named plaintiffs is also bound to fail. Defendants

* In a circuit which has adopted the so-called “death knell”

doctrine, a defendant who desires to moot the case will be

required to make his tender prior to the time that the Court

of Appeals = rules upon the appeal! from the order

ee | class certification. In a circuit, such as the Seventh,

which has rejected the death knell doctrine (King v. Kansas

City Southern Industries, Inc., 479 F.2d 1259), defendant will

be able to moot the entire action by tender to the named

yp! at any time prior to the district court’s rendition of

inal judgment on the merits. This Court has recently nted

certiorar! in Coopers & Lybrand v. Livesay, No. FG, 1836,

Punta Gorda Isles, Inc. v. Livesay, No. 76-1 and Gardner

v. Westinghouse Broadcasting Co., No. 77-560. If the ultimate

disposition of those cases should result in the establishment of

a uniform death knell requirement in all circuits that would

by no means eliminate the problem raised by the decision

below. Its only consequence would be to somewhat shorten the

time within which defendant can make his tender.

=i

will simply pick off each new class representative as he

or she appears on the scene.

The harshness of this result was readily apparent to

Judge Swygert in his dissent from the denial of the

Petition for Rehearing en banc in this cause (A-14; 562

F.2d 1034):

“I am unable to subscribe to a rule which insulates

from appellate review a decision denying class

certification solely because a defendant tenders a

few dollars to a putative class representative ..

The unfortunate consequence of the rule formulated

in this decision on future consumer class actions are

plain: defendants in such actions are now given

the arbitrary power to bar appellate review by

simply tendering the damages claimed by the

putative class representative. Rather than go to

trial and face the potential payment of damages

which might be assessed in a class suit, defendants

will pay off the named plaintiff or plaintiffs thereby

mooting the entire case. I think justice dictates that

the right to judicial review should not be denied

under the circumstances.”

If a holding of mootness serves to deprive the court of

appeals of jurisdiction to review a denial of class

certification —even though the mootness holding is itself

premised on an erroneous class action ruling—we have a

Catch-22 situation which forever denies to the putative

plaintiff class the right to judicial review. This result is

all the more anomalous when viewed in light of the fact

that a district court order granting class certification

will always be reviewable at the behest of the defendant,

either immediately (in a circuit which has adopted the

death knell doctrine) or after judgment on the merits.

The startling import of the decision below comes into

sharp focus when one reflects upon a case such as Hisen

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

=

and tortured history of that famous lawsuit is set forth

at some length in the course of this Court’s opinion (417

U.S., at pp. 160-169). Over a period of nearly eight

years, the case wended its way up and back through the

federal court system, including three trips to the Court

of Appeals, until its more-or-less final dénouement in

this Court. During the pendency of that suit many

thousands of hours, perhaps tens of thousands of hours,

of high priced legal talent were expended in its

prosecution and defense, to say nothing of vast amounts

of judicial time and expertise devoted to unraveling its

multi-faceted complexities. Yet, if the Seventh Circuit is

correct, all of that time, energy and money were spent

needlessly. What the defendants in Eisen should have

done, preferably as soon as the case was filed but in any

event promptly after the initial denial of class certifica-

tion (41 F.R.D. 147), was to offer Mr. Eisen his $70 and

then move to dismiss the action on grounds of rnootness.

Although the Eisen defendants were represented by a

battery of experienced and prestigious counsel, it

apparently occurred to none of them that their clients’

problems were susceptible of so simple a solution.

The court of appeals decision in the instant case has

inevitably opened the floodgates to a rash of tenders to

named plaintiffs followed by motions to dismiss for

mootness in class action cases pending in the Seventh

Circuit wherein a class has not yet been certified or in

which certification has been denied and appeal thereof

is awaiting final disposition of the individual claim on

the merits. Presumably al! of those motions to dismiss

will be granted in due course on the authority of the

opinion below. To the knowledge of Petitioners’ counsel,

at least one such order of dismissal has already been

entered, and a copy thereof is appended to this Petition

at A-28.

—6—

If the decision below is allowed to stand, the plaintiff

class action will be all but extinguished in the Seventh

Circuit—those which seek injunctive relief or declara-

tory relief as well as those seeking monetary damages—

for the only class action which can make its way over

the barrier imposed by “Proposition 2” is the rare one in

which the size of the individual claim is large enough to

warrant litigation in its own right by both plaintiff and

defendant. Ironically, it is that very category of case

which has the least need for the class action device. The

underlying rationale of Federal Rule 23 is to provide a

forum for the “small guy” who would otherwise be

effectively deprived of all remedy.*

B. By Permitting Defendant To Moot The Class Through

A Voluntary And Unilateral Tender To The Named

Class Representative, The Court Below Reached A

Result Contrary To The Overwhelming Weight Of

Authority:

Long before this Court rendered its opinions in Sosna

v. lowa, 419 U.S. 393 (1975), andgGerstein v. Pugh, 420

U.S. 103 (1975), lower courts, both state and federal, and

commentaters as well, had expressed serious concern

about the possibility of defendants employing the Article

III case or controversy requirement (or comparable

provisions in state constitutions) as a device for picking

off class action plaintiffs one-by-one—the “revolving

door” technique.

The problem was well articulated by the California

Supreme Court in La Sala v. American Savings and

Loan Ass'n, 5 Cal.3d 864, 873, 489 P.2d 1113, 1118

(1971):

* Frankel, Amended Rule 23 From a Judge’s Point of View,

32 Antitrust LJ. 295, 299 (1966), quoting Professor Ben

Kaplan, Reporter for the Advisory Committee which drafted

new Rule 23.

~16—

“If other borrowers bring a class action, [defendant]

rnay again waive as to those representative borrow-

ers, and again move to dismiss the action. Such a

procedure could be followed ad infinitum for each

successive group of representative plaintiffs. If

defendant is permitted to succeed with such revolv-

ing door tactics, only members of the class who can

afford to initiate or join litigation will obtain

redress; relief for even a portion of the class would

compel innumerable appearances by individual

plaintiffs. Yet the function of the class action is to

avoid the imposition of such burdens upon the class

and upon the court.”

In the pre-Sosna era, federal courts had consistently

rejected mootness arguments advanced by class action

defendants who had voluntarily given the named

plaintiff all the relief he asked for. See, e.g., Jenkins v.

United Gas Corp., 400 F.2d 28, 33 (5th Cir. 1968);

Cypress v. Newporn News General and Nonsectarian

Hospital Ass’n, 375 F.2d 648, 657 (4th Cir. 1967); Smith

v. YMCA of Montgomery, 462 F.2d 634, 645 (5th Cir.

1972) (“Subsequent remedial actions allegedly taken to

obviate a cause of action strongly mitigate (sic) against a

finding of mootness ...”); Vaughan v. Bower, 313 F.

Supp. 37, 40 (D. Ariz. 1970) (3-Judge Court), affd

summarily, 400 U.S. 884 (1970) (“defendant cannot, by

his own voluntary conduct, moot the case and thereby

deprive the Court of jurisdiction ... What is involved

here is a problem ‘capable of repetition, yet evading

review.’ ”); Kelly v. Wyman, 294 F. Supp. 887, 890 (S.D.

N.Y. 1968); aff'd sub nom. Goldberg v. Kelly, 397 U.S.

254 (1970).

Contemporary commentators approved the results of

these cases. Bledsoe, Mootness and Standing In Class

Actions, 1 Fla. St. U. L. Rev., 430, 444 (1973): Comment,

Continuation and Representation of Class Actions Fol-

= =

lowing Dismissal of the Class Representative, 1974 Duke

Law J. 573, 600 (1974).

Subsequent to this Court’s opinions in Sosna and

Gerstein, lower courts have continued to recognize that

the ability of a defendant to voluntarily moot out the

named plaintiff is a crucial factor in determining

whether or not the claim is one “evading review” or

whether it is unlikely that the Court can rule on the

class certification motion before the claim becomes

moot. See, e.g., Frost v. Weinberger, 515 F.2d 57, 64 (2d

Cir. 1975); White v. Mathews, 559 F.2d 852, 857 (2d Cir.

1977); Basel v. Knebel, 551 F.2d 395, 397 (D.C. Cir.

1977); Senter v. General Motors Corp., 532 F.2d 511, 519-

20 (6th Cir. 1976); Langson v. Simon, 74 F.R.D. 456, 460

(N.D. Ill. 1977); Tedeschi v. Blackwood, 410 F. Supp. 34,

38 (D. Conn. 1976); Robinson v. Leahy, 73 F.R.D. 109,

114, n. 4 (N.D. Ill. 1977); Custom v. Trainor, 74 F.R.D.

409, 412 (N.D. Ill. 1977).

C. The Court Below Erred In Its Interpretation Of

Recent Decisions Of This Court:

Petitioners respectfully suggest that the Court of

Appeals for the Seventh Circuit has misread the import

of those recent decisions of this Court which have begun

to interpret Article III justiciability requirements in the

context of class actions. This Court has established

criteria for determining the existence of a “live contro-

versy” after the individual claims of the named plain-

tiffs have been mooted, and those criteria extend well

beyond the narrow exception designated as “Proposition

3” by the court below, 7.e., where the trial court decides

the substantive claim on its merits.

In Sosna v. Iowa, 419 U.S. 393, 402, n. 11 (1975), this

Court recognized that there would be at least some

-_™=

circumstances under which class certification could be

said to “relate back” so that mooting of the named

plaintiff's claim prior to such certification would not

necessarily moot the case as to the class itself. This

exception to the usual rule of mootness was applied in

Gerstein v. Pugh, 420 U.S 103, 110, n. 11 (1975). It is

quite true that both Sosna and Gerstein seem to place

considerable emphasis on the question of whether the

district court could reasonably be expected to reach the

certification motion before the individual claim becomes

moot, whereas in the instant case the district court did

in fact rule on that motion before the purported mooting

occurred. Yet, even if Sosna and Gerstein are viewed as

being this narrow in scope, they still go well beyond

Proposition 2 as propounded by the court below, for

Proposition 2 admits of no escape from mootness, with

the single exception of a situetion where the district

court has decided the substantive claim on its merits.

In any event, Petitioners do not believe that such a

restrictive interpretation of this Court’s views is war-

ranted. Gerstein itself refers to additional factors—the

“constant existence of a class of persons suffering the

deprivation,” and the probability that the members of

the class will be adequately represented by plaintiff's

counsel. In Franks v. Bowman Transportation Co., 424

U.S. 747, 754-55 (1976), this Court determined that the

test of Article III justiciability was whether a “live

controversy” remains at the time the case is reviewed.

Such a live controversy is present when the unnamed

members of the class are entitled to the relief already

afforded the named class representative and thus have a

personal stake in the outcome of the controversy. In

Franks, of course, the class had been certified by the

district court. But the class members’ personal stake in

the outcome would have been no less present if the

—19—

district court had erroneously denied certification. The

unnamed members of the class can hardly be deprived

of their status as class members by virtue of an

erroneous lower court ruling, and so long as they remain

class members they have a personal stake in a live

controversy. This is precisely the approach taken by the

Fifth Circuit in Satterwhite v. City of Greenville, Texas,

557 F.2d 414, 418 (5th Cir. 1977):

“Here, the district court denied certification of the

class action. The plaintiff representatives in Sosna

and Franks did not face this additional problem.

... Thus, it would appear that our first inquiry in

facing the case or controversy issue should be

whether the district court's refusal to certify was

proper. ...” (Emphasis added)

Petitioners respectfully suggest that the Fifth Circuit

has correctly interpreted the pronouncements of this

Court, whereas the Seventh Circuit was evidently led

astray by a misreading of Jndianapolis School Commr’s

v. Jacobs, 420 U.S. 128 (1975), and Weinstein v.

Bradford, 423 U.S. 147 (1975), the two holdings which it

thought “require affirmance of the case before us.”

Weinstein v. Bradford is clearly not in point. Al-

though originally brought as a class action, the denial of

class certification had not been appealed by the plaintiff.

Consequently, by the time the case reached this Court it

was not treated as a class action: “The instant case, not

a class action, clearly does not satisfy the latter

element.” (423 U.S., at p. 149. Emphasis added) The

mooting of the individual claim necessarily required

dismissal of the case inasmuch as there was no

reasonable expectation that the plaintiff would again be

subjected to the same unlawful actions by the defendant.

Jacobs can be read to impose a highly restrictive rule

as to the continued existence of a case or controversy

—29—

under Article III, notwithstanding the logical inconsis-

tency between such a reading and the later statement by

this Court in United Airlines, Inc. v. McDonald, ..... USS.

ae , 97 S.Ct. 2464, 2469 (1977), that denial of class status

is subject to review at the behest of the named plaintiff

after final judgment on the merits. (See Point III infra).

Plaintiffs suggest, however, that a more plausible

interpretation of Jacobs is the one embraced by the

Tenth Circuit in Napier v. Gertrude, 542 F.2d 825, 827

(10th Cir. 1976), cert. denied, ..... USS. ....., 97 S.Ct. 759

(1977).

“In Board of School Commissioners v. Jacobs, 420

U.S. 128, 95 S.Ct. 848, 43 L.Ed.2d 74 (1975), the

Supreme Court confronted a case which had

become moot as to the named plaintiffs. The district

court had treated the suit as a class action but had

failed to comply with the certification requirements

of Rule 23(c). The Supreme Court held the action

moot without considering a remand to allow proper

certification. The Court did not rule, however, that

mooiness removed its power to remand, and it does

not appear that the failure to certify the class action

was assigned as error as it is here.” (Emphasis

added)

This interpretation of Jacobs, incidentally, is joined in

by Chief Judge Seitz in his concurring opinion in

Gardner v. Westinghouse Broadcasting Co., 559 F.2d

209, 218, n.5 (3d Cir. 1977), cert. granted, ..... a

U.S.L.W. 3365 (1977).

Subsequent decisions make it clear, petitioners sug-

gest, that this Court does not view Jacobs as presenting

an impenetrable barrier to appellate review of the trial

court’s denial of class action certification after mooting

of the individual plaintiff. In East Texas Motor Freight

System, Inc. v. Rodriguez, ..... USS. ...... 97 S.Ct. 189

(1977), sufficient justiciability was present to allow this

~~ =

Court to review (and affirm) denial of class status even

though the individual claim had been mooted by an

adverse judgment on the merits which had not been

appealed. And Franks v. Bowman Transportation Co.,

424 U.S. 747, 753-54 (1976), indicates rather clearly that

the outcome of /ndianapolis School Comm'rs v. Jacobs

turned upon a lack of standing, rather than want of

Article III justiciability.

Ill.

THE DECISION BELOW IS IN CONFLICT WITH

DECISIONS OF THIS COURT.

A. The Import Of United Airlines, Inc. v. McDonald:

In United Airlines, Inc. v. McDonald, ..... US. ....., 97

S.Ct. 2464, 2469 (1977), this Court stated that a district

court’s refusal to certify a plaintiff class “was subject to

appellate review after final judgment at the behest of

the named plaintiffs, as United concedes.” Clearly this

means that the named plaintiff, after recovering a judg-

ment for the full amount of his individual claim, can

appeal the district court’s earlier denial of class action

certification.* Logically, it must also mean that a named

* The individual plaintiffs in McDonald had recovered a

favorable judgment in the court below. Furthermore, a

narrower interpretation of the quoted sentence cou!d hardly

explain the strong dissent of three justices of this Court

appearing at 97 S.Ct. 2473. Three of the cases cited by the

urt’s majority in support of the Senet S.Ct., at p.

2469, n.14) did involve appeals of class certification denia s

after plaintiff had been awarded judgment on the merits of

his individual claim. Share v. Air Properties G. Inc., 538 F.2d

279 Ye Cir. 1976); Esplin v. Hirschi, 402 F.2d 94 (10th Cir.

1968), cert. den. 394 U.S. 928 (1969); Galvan v. Levine, 490

F.2d 1255 (2d Cir. 1973). See also Cameron v. E.M. Adams &

Co., 547 F.2d 473 (9th Cir. 1976); Gelman v. Westinghouse

Electric Corp., 556 F.2d 699, 701 (3d Cir. 1977); Gardner v.

Westinghouse Broadcasting Co., 559 F.2d 209 (3d Cir. 1977),

cert. granted, ..... USS. ....., 46 U.S.L.W. 3365 (1977).

—- =

plaintiff, having received the relief requested in his own

behalf without judgment as a consequence of defendant’s

unilatera! actions, is equally entitled to the same

appellate review.

The court below read McDonald in the narrowest

possible manner as creating only a very limited excep-

tion to what it understood to be the general rule laid

down by this Court in Jndianapolis School Com-

missioners v. Jacobs, 420 U.S. 128 (1975), and Weinstein

v. Bradford, 423 U.S. 147 (1975). That general rule, as

understood by the Seventh Circuit, appears as “Proposi-

tion 2”, at 560 F.2d 271, 277 (A-11):

“2. When there is no determination that an ac-

tion be maintained as a class action and the con-

troversy between the named party in his own in-

terest and his opponent dies, court adjudication is

not appropriate because there is no controversy

between parties who are present or represented

before the court in the action.”

In its opinion below, the Seventh Circuit necessarily

paid homage to the McDonald holding 1n its “Proposition

3”, 560 F.2d, at p. 277 (A-11). Nevertheless, it drew a

distinction between that situation—i.e., where the trial

court “decides the claim on its merits”, and the situation

actually before it—i.e., where the controversy between

the named party in his own interest and his opponent

“dies”.

This distinction is clearly untenable. Whether the case

or controversy as between the named plaintiff and the

defendant “dies” by virtue of a voluntary tender, or

whether it “dies” by virtue of the recovery of a judgment

after trial on the merits, cannot logically have any bear-

ing upon the appealability of the order denying class ac-

tion status. Indeed, the recovery of a judgment for the

full amount sought would appear to be the very essence

afin

of mootness, —the extinguishment of the case or con-

troversy.* If the recovery of that judgment does not

preclude an appeal of the class action denial (as it does

not under McDonald), then tender of the full amount

sought certainly should not preclude such an appeal.

B. The Seventh Circuit's Opinion Is Contrary To The

Teaching Of This Court In Sprague v. Ticonic National

Bank And Mills v. Electric Auto-Lite Co. And Has Severe-

ly Curtailed The Substantial Benefit Doctrine.

Plaintiffs claimed an award of fees to their counsel for

the substantial benefit conferred by institution of the

litigation and the defendant’s correction of the practices

of which complaint was made. The district court denied

such compensation without a hearing suggested by the

plaintiffs presumably on the ground that no statute

authorized such an award. A-16

The court of appeals affirmed the denial of a fee

award, or the possibility of such an award, on the

ground that a party must have recovered a fund for the

benefit of others in order to be eligible to petition for a

fee award. Based upon this erroneous premise, the Court

of Appeals reasoned that the defendants might con-

ceivably have satisfied the plaintiffs’ claim for relief by

correcting their advertising to reflect their actual

interest-paying practices rather than by commencing

payment of daily compound interest so as to bring their

payment practices into line with their advertising. Thus,

the Court of Appeals reasoned that since a fund might

not have been created by plaintiff's efforts (although in

* As to this point, the Court’s attention is particularly

directed to the thoughtful analysis by Chief Justice Seitz

contained in his concurring opinion in Gardner v. Westing-

house Broadcasting Co., 559 F.2d 209, 214 (3d Cir. 1977), cert.

granted, ..... USS. ....., 48 U.S.L.W. 3365 (1977).

a

—24—

fact a substantial benefit was conferred) plaintiffs are

not entitled to counsel fees.

The requirement of the creation of a common fund as

a prerequisite to an award of fees imposed by the court

of appeals is incorrect, contrary to prior opinions of this

Court, a backward step in the development of the law

and, if allowed to stand, a serious impediment to the

assertions of claims by many parties—whether or not in

the form of the class action. Even if the defendants had

remedied the situation by correcting their advertising

rather than paying daily compound interest, plaintiffs

are entitled to a fee award.

The error of the court of appeals is clearly demon-

strated by the following quotation from Mills v. Electric

Auto-Lite Co.,396 U.S. 375 (1970), at p. 392-93.

“The fact that this suit has not yet produced, and

may never produce, a monetary recovery from

which the fees could be paid does not preclude an

award based on this rationale. Although the earliest

cases recognizing a right to reimbursement in-

volved litigation that had produced or preserved a

“common fund” for the benefit of a group, nothing

in these cases indicates that the suit must actually

bring money into the court as a prerequisite to the

court’s power to order reimbursement of expenses.

‘(T]he foundation for the historic practice of reim-

bursement for the costs of litigation other than the

conventional taxable costs is part of the original

authority of the chancellor to do equity in a par-

ticular situation.’ Sprague v. Ticonic Natl Bank,

307 U.S. 161, 166 (1939). This Court in Sprague

upheld the District Court’s power to grant reim-

bursement for a plaintiff's litigation expenses even

though she had sued only on her own behalf and not

for a class.”

—25—

Footnote 17, appended to the above quotation (396

U.S., at p. 392), reads as follows:

5 Trustees v. Greenough, 105 U.S. 527, 531-537 (1882);

fn R. R. & Banking Co. v. Pettus, 113 U. S. 116

(1885); Hornstein, ‘I'he Counsel Fee in Stockholder’s De-

rivative Suits, 39 Col. L. Rev. 784 (1939).

eee 4 the ty an nd = = this Sant, it wm rec-

i that wer of equi award fees was re-

stricted to the court ability to provide reimbursement

from the fund itself: ‘It would be very hard on [the suc-

cessful plaintiff] to turn him away without any allowance

. . . . It would not only be unjust to him, but it would give

to the other parties entitled to participate in the benefits of

the fund an unfair advantage. He has worked for them as

well as for himself; and if he cannot be reimbursed out of

the fund itself, they ought to contribute their due pro-

portion of the expenses, which he has fairly incurred. To

make them a charge upon the fund is the most equitable

wa ¢ ore such contribution.’ Trustees v. Greenough,

105 U.S., at P

The more recent opinion of this Court in Alyeska

Pipeline Service Co. v. Wilderness Socrety, 421 U.S.

240 (1975), is in no way inconsistent with Mills. Indeed,

Alyeska Pipeline specifically reaffirms the vitality of the

substantial benefit doctrine with the observation that

“(t]hat rule has been consistently followed.” (421 U.S., at

p. 257-58.)

This Court’s supervisory powers should be exercised to

correct the misconception of the court below.

—s—

CONCLUSION

For all of the foregoing reasons, this Court should

allow its writ of certiorari to review the judgment of the

United States Court of Appeals for the Seventh

Circuit.

Respectfully submitted,

ArRNoLy M. FLtam™

ArtTaur T. Susman

Rosert D. AuLisox

Ricwarp H. Prins

33 N. Dearborn Street

Chicago, Illinois 60602

Telephone: (312) 346-3461

Attorneys for Petitioners

A-1

APPENDIX A

3n the

Gnited States Court of Appeals

F or the Seventh Circuit

No. 75-1469

MARSHALL WINOKUR and RAE WINOKUR, ABE BRODSKY

and CELIA BRODSKY, and ETHELLE KATZ and BERTHA

KATZ,

Plaintiffs-A ppellants,

v.

BELL FEDERAL SAVINGS AND LOAN ASSOCIATION, HOME

FEDERAL SAVINGS, and UPTOWN FEDERAL SAVINGS

AND LOAN ASSOCIATION OF CHICAGO,

Defendants-A ppellees.

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 70 C 1177—William J. Bauer and Joel M. Flaum, Ji«dyes.

ARGUED JANUARY 6, 1976—DECIDED AUGUST 2, 1977

Before FAIRCHILD, Chief Judge, PELL, Circuit Judge,

and East, Senior District Judge.*

FAIRCHILD, Chief Judge. The plaintiffs appeal from the

judgment of thé district court, dismissing this case on

the ground of mootness. In addition, they seek review of

two orders of the district court denying their motion for

* The Honorable William G. East, Senior District Judge for

the District of Oregon, is sitting by designation.

A-2

maintenance of this action as a class action, with both

plaintiffs and defendants representing classes. The

plaintiffs’ cause of action was based on the § 10b-5

liability of sellers for untrue statements and omissions of

material facts necessary to make statements made not

misleading in connection with the sales of securities,

1b) of the Securities Exchange Act of 1934, 15

S.C. § 78) and Rule 10(bX5) of the Rules of the

Securities and Exchange Commission, 17 C.F.R.

toes Tk Jurisdiction was predicated on 15 U.S.C.

78aa. The securities involved are savings accounts in

savings and loan associations. See Tcherepnin v. Knight,

389 U.S. 332 (1967). It seems simpler in the context of

this case to use the terms accounts, deposits, with-

drawals, and interest, rather than purchase and sale of

shares, and dividends.

I

The gravamen of the appellants’ amended complaint

consists of an allegation that the plaintiffs, Marshall and

Rae Winokur, Abe and Celia Brodsky, and Ethelle and

Bertha Katz, as depositors with defendants, Bell Federal

Savings and Loan Association (Bell), Home Federal

Savings (Home), and Uptown Federal Savings and Loan

(Uptown), relied to their detriment on certain untrue

statements in and omissions from advertisements put

out by the defendants in describing the interest defen-

dants would pay to depositors. The plaintiffs sought

damages, a permanent injunctioi. against the deceptive

advertising, and attorneys’ fees.

Defendants’ relevant practices in the period covered

by the complaint were apparently as follows: As of the

close of any calendar quarter, defendants credited in-

terest on funds then on deposit, to the extent of the full

months during the quarter these funds had been on

deposit, except that funds deposited within the first ten

days of a month were treated as if they had been on

deposit for that full month. When interest earnings were

credited, they were computed as if compounded daily.

A-3

Defendants advertised their accounts and included

representations (1) that interest was compounded daily

ae (2) that deposits made by the tenth earn from the

irst.

The theories on which the representations were claimed

to be violations of Rule 10b-5(b), and therefore dece

tive devices under § 10(b) of the 1934 Act were in sub-

stance:

(1) The representation that interest was compounded

daily implied that interest would be credited with

respect to any one or more days funds remained on

deposit, and was untrue, or at least, in order not to be

misleading, made it yoy! to state that interest in

any quarter would not be credited on funds which were

withdrawn before the close of the quarter.

(2) The representation that deposits made by the

tenth earn from the first implies that the general rule,

from which this is an exception, is that interest begins

to accrue on the date of deposit, rather than that interest

begins to accrue on the first of the month on or after the

date of deposit; and that this representation, in order not

to be misleading, made it necessary to state that funds

deposited after the tenth of a month would not begin to

earn interest until the first of the next month.

Although the amended complaint states that plaintiffs

represent all other holders, similarly situated, of savings

accounts in named defendants - well as in the

members of like associations similarly situated in the

Chicago area), plaintiffs ultimately proposed a class con-

sisting of persons who withdrew funds before the close

of a quarter, and thereby did not receive interest, and

persons who deposited funds after the tenth of a month

and therefore did not receive ii \erest for the balance of

the month. Thus the proposed class was defined in terms

of those who could demonstrate injury in those par-

ticular ways.

Plaintiffs sued individually and as representatives of

the class. Defendants were sued individually and as

representatives of all other federally chartered savings

and loan institutions located in the Chicago metropolitan

area and similarly situated.

A-4

The district court first addressed the question whether

the action was to be maintained as a class action against

the named defendants as ~epresentatives of a defendant

class. The court decided that the class was not so

numerous as to make joinder of all members imprac-

ticable. Moreover, noting the differences in adver-

tisements and practices among defendants, the court

decided that there were not questions of law or fact com-

mon to the proposed defendant class. Accordingly, in

1972, the court denied plaintiffs the right to maintain

the action against the class.

Several months later, in 1972, the court denied plain-

tiffs the right to maintain the action on behalf of a class.

The court noted the differences in the advertisements, the

question whether a depositor had read them, the ques-

tion whether deposits had been made in person and

what representations were made at that time, the

availability of further information in the passbook, and

the question whether each depositor gained and relied

on misconceptions as a result of the representations and

omissions in the advertising. The court concluded that

the questions of fact varied almost on an individual

basis, with material variation in the representations

made and in the kinds or degrees of reliance by the

depositors. Similarly, the court was of the opinion that

the claims of the named plaintiffs were not typical of the

claims of the class. The court noted that the two plain-

tiffs who were depositors in defendant Home made no

deposits after the tenth of any month, and admitted they

knew the policy actually followed by defendant Home.

Thus these plaintiffs did not rely on misconceptions

generated by either of the challenged omissions.

The complaint was filed May 18, 1970, and alleged

advertising commencing July 1, 1969. Each named

—— had been a depositor for a number of years and

ad made earlier deposits and withdrawals not claimed

to have been induced by deception. It was apparently

plaintiffs’ theory that each time a deposit was made

after the tenth of a month after July 1, 1969, he relied

upon the advertising for a belief that interest would be

credited immediately, and each time a depositor made a

withdrawal after July 1, 1969, other than at the close of

A-5

a quarter, he relied upon the advertising for a belief

pa gee would be credited to the date of with-

rawal.

Plaintiffs would isolate the questions whether the

omissions left the advertisements misleading and

whether there was scienter and treat them as questions

common to the class (predominating over questions

affecting only individual members). We assume the dis-

trict court had in mind the normal course of dealing

over a period of time between a depositor and a savings

and loan association (different from the transactions of

purchases and sales of more conventional securities) and

the probability that regular depositors became familiar

with interest practices through experience in deciding

that it would be difficult and pei ae nye en oat to

isolate questions concerning the effect of the challenged

advertising, as questions common to the class.

After unsuccessful attempts at png a pronounce-

ment under 28 U.S.C. § 1292(b) on which leave to appeal

could be sought, plaintiffs filed a notice of appeal from

the determination that the action not be maintained as a

class action. This court dismissed the appeal by un-

reported order, holding the order not , coe, citing

Thill Securities Corp. v. New York S Exchange, 469

F.2d 14 (7th Cir. 1972); Hackett v. General Host Corp.,

455 F.2d 618 (3rd Cir. ys certiorari denied 407 U.S.

925; Gerstle v. Continental Airlines, Inc., 466 F.2d 1374

(10th Cir. 1972); Jumps v. Leverone, 150 F.2d 876 (7th

Cir. 1945). Certiorari was denied. 417 U.S. 930 (1974).

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

1364 (7th Cir. 1976), certiorari denied 429 U.S. 907;

Jenkins v. Blue Cross Mut. Hospital Ins., Inc., 538 F.2d

164, 166, footnote 2 (7th Cir. 1976).

Thereafter the district court dismissed the action for

mootness. As recited in the opinion of the court, “Plain-

tiffs seek damages, costs, attorneys’ fees, and injunctive

relief. Defendants assert, and plaintiffs concede, that

defendants have tendered to plaintiffs the claimed

damages ($12 per plaintiff) and costs, and that at-

torneys’ fees are not authorized by statute.” It is con-

ceded that defendants have changed their interest credit-

A-6

ing practices so that the representations complained of

are now accurate beyond question. Thus plaintiffs were

found no longer to have any stake in a controversy over

the allegedly misleading nature of defendants’ adver-

tisements.

II

Mootness of the Claims of the Named Plaintiffs

Plaintiffs do not challenge the adequacy of the amount

tendered by defendants to cover their individual losses,

and court costs. A favorable decision on the merits will

bring them no greater amount of money.

Plaintiffs do contend that they have a stake in resolu-

tion of the merits because an injunction will protect

them from future injury.

Plaintiffs are correct in asserting that the mere cessa-

tion of illegal conduct does not necessarily render a case

moot. But, on the other hand, the “necessary determina-

tion is that there exists some cognizable danger of

recurrent violation, something more than the mere

possibility which serves to keep the case alive.” United

States v. W. T. Grant Co., 345 U.S. 629, 632-33 (1953). A

case becomes moot where “there is no reasonable expec-

tation that the wrong will be repeated.” United States v.

Aluminum Co. of America, 148 F.2d 416, 448 (2d Cir.

1945). Defendants were successful in convincing the dis-

trict court of their continuing intention to maintain

clear consistency between their interest licies as

represented in advertising and in actual practice.

Ironically, plaintiffs assisted them in so persuading the

court.

In the early stages of this litigation (1971) the district

court stayed the proceedings pending the outcome of an

application to The Federal Home Loan Bank Board. The

court reasoned that because of the Board’s authority

over savings and loan advertising, a finding by the

Board would be useful to the court. Plaintiffs moved for

reconsideration, and filed an affidavit showing that

defendants had changed their practice of crediting in-

terest so that it conformed to plaintiffs’ interpretation of

A-7

the advertising. The plaintiffs appeared to accept the

fact that the past practices were changed so as to con-

form and were unlikely to reoccur. The affidavit (March

3, 1971) stated:

“Affiant is informed and believes that these named

Defendants now truly compound interest daily,

with no forfeitures for mid-quarterly withdrawals

and no forfeitures with respect to deposits made

after the tenth of the month. ‘Ww ith these changes, it

is believed that all of the activities complained of

involving these Defendants have now n cor-

rected. the Court pointed out. . . the Board can-

not award damages; the Board’s principa! remedy

. . . is the issuance of cease and desist orders. .. .

Nothing remains for the Board to consider over

which it has authority to fashion any remedy. As

for current practices, the evils complained of have

been cured. As for the past, only this Court can

provide an appropriate remedy by way of

damages.”

Plaintiffs have produced no evidence of any change in

this situation since 1971. As stated by the district court,

a suggestion that defendants might resume the earlier

practices is much too speculative and unlikely to support

a live controversy. See United States v. Oregon Medical

Society, 343 U.S. 326, 333 (1952); Berg v. LaCrosse

Cooler Co., 548 F.2d 211, 213 (7th Cir. 1977). Therefore

the district court correctly concluded there was no

cognizable danger of recurrent violation. There being no

occasion for an injunction, even if plaintiffs achieved a

favorable decision on the merits, the fact that plaintiffs

originally sought an injunction will not provide plain-

tiffs with a stake in the controversy over the merits.

Finally, plaintiffs contend that if the merits were

decided in their favor, they would be entitled to at-

torneys’ fees. The district court noted that plaintiffs con-

cede that attorneys’ fees are not authorized by statute.

On appeal they contend that if the merits were decided

in their favor, they would fall within one of the excep-

tions, again recognized by the Supreme Court in

Alyeska Pipeline Co. v. Wilderness Socie ty, 421 US.

— 259 (1975), to the general rule against attorneys’

ees.

A-8

They rely, in part, on an exception when the losing

party has “acted in bad faith, vexatiously, wantonly, or

for oppressive reasons... .” F.D. Rich Co. v. U.S. for

use of Indus. Lumber Co., 417 U.S. 116, 129 (1974). The

pleadings as well as the record during the course of the

proceedings _ no possible basis for an allowance

on that theory. They also rely on an exception when a

party has recovered a fund for the benefit of others in

addition to himself, Sprague v. Ticonic National Bank,

307 U.S. 161 (1969). Although the change in defendants’

practices in 1971 resulted in greater allowances of

interest than some depositors may have had if the old

po had continued, plaintiffs’ lawsuit could equally

ave resulted in cefendants’ continuing the practices but

inserting additional statements in the advertisements to

obviate plaintiffs’ objections to them. Again, we are

satisfied that there would so clearly be no occasion for

an allowance of attorneys’ fees, even if plaintiffs

achieved a favorable decision on the merits, that plain-

tiffs seeking attorneys’ fees will not provide plaintiffs

with a stake in the controversy over the merits.

III

The Effect of Mootness on Review of the

Denial of Maintenance as a Class Action

The district court observed that if the action were

maintained as a class action, the case would not be moot

because of the interests of members of the class, not-

withstanding mootness as to the claims of named plain-

tiffs. Plaintiffs seek our review of the orders denying

maintenance as a class action. They contend that these

orders were erroneous, and since they could not be

reviewed earlier under the views in this circuit, they

must be reviewable now, and reversal of at least the

denial of maintenance of the action on behalf of a plain-

tiff class would restore a live controversy, since

members of the plaintiff class would have a damage

award at stake.

Our reading of recent decisions of the Supreme Court,

however, leads to the conclusion that since plaintiffs’ in-

dividual claims are now moot, and plaintiffs have not

A-9

been authorized to represent other class members, the

action lacks a live controversy. There being no live con-

troversy, the appellate court cannot exercise jurisdiction,

even to reverse the class action determination and thus

instill a live controversy into the action.

In Sosna v. Iowa, 419 U.S. 393, 403 (1975), the

Supreme Court decided that a class action did not

become moot when, after judgment and pending appeal,

the individual interest in the controversy of the named

plaintiff expired. There remained a live controversy in

which members of the plaintiff class still had an in-

terest. The Court deemed it significant that the named

plaintiff litigated the question in a _ representative

capacity, and that the unnamed members of the class

had, at the time of certification of the class, acquired a

legal status separate from the interest asserted by the

named plaintiff.

Similarly, in Franks v. Bowman Transportation Co.,

424 U.S. 747, 752 (1976) the Supreme Court held that

the phase of a properly certified class action which was

brought up on certiorari was not moot because the

named plaintiff had ceased to have any interest in that

phase of the controversy. A sufficient adversary relation-

ship obtained, however, as to unnamed class members in

the phase of the controversy considered by the Court.

Although the situation in Sosna had been found to

present claims capable of repetition yet evading review,

the Franks Court made it plain that this situation need

not be present to avoid mootness where the named plain-

tiff in a properly certified class action no longer has a

personal stake in the outcome, but class members do.

424 U.S. at 754.

In Indianapolis School Comm’rs v. Jacobs, 420 U.S.

128 (1975), the Supreme Court was informed at oral

argument that the named plaintiffs no . - had any

interest in the matter in controversy. “The case is

therefore moot unless it was duly certified as a class ac-

tion pursuant to Fed. Rules Civ. P. 23, a controversy still

exists between [defendants] and the present members of

the class, and the issue in controversy is such that it is

capable of repetition yet evading review.” 420 U.S. at

A-10

129. (Citing Susna.) Because no class action determina-

tion had been adequately made, the judgments of the

lower courts were vacated, with instructions to dismiss

the complaint.

In Weinstein v. Bradford, 423 U.S. 147 (1975),

maintenance as a class action had been denied. By the

time the case reached the Supreme Court, plaintiff had

ceased to have a personal interest in the matter in con-

troversy, and his claim was not deemed capable of

repetition yet evading review. There being no class ac-

tion, the judgment below was vacated and instructions

given to dismiss the complaint. 423 U.S. at 149.

The holdings in Jacobs and Weinstein require affir-

mance in the case before us. In both those cases, named

plaintiffs had brought suit individually and on behalf of

a class. In Jacobs the class determination was inade-

quate and in Weinstein it was denied. When the in-

terests of the named plaintiffs disappeared, those plain-

tiffs were not before the court in a representative

capacity, and it was decided that it was immaterial

whether unnamed members of the class which named

plaintiff had initially sourht to represent might have in-

terests at stake in a controversy with defendant. In

Sosna and Franks, on the other hand, the actions had

been ordered maintained as class actions, and thus the

named , pes represented unnamed class members

who had personal interests in the controversy.

Several other cases have been decided in this area. In

Kremens v. Bartley, [..... US. ....., 97 S.Ct. 1709, 52

L.Ed.2d 184 (1977)] a statutory change had rendered the

claims of named plaintiffs and of a great portion of the

certified class of unnamed persons moot, but left the

controversy alive with respect to many other class mem-

bers. The Supreme Court vacated the judgment of the

district court, but did not order dismissal. Rather, it

directed reconsideration of the class definition, exclusion

of those whose claims are moot, and substitution of class

representatives with live claims.

Two other recent decisions did not involve assertion of

mootness: East Texas Motor Freight System, Inc. v.

Rodriguez, [ ..... USS. ....., 97 S.Ct. 1891, 52 L.Ed.2d 453

(1977) ] and United Air Lines, Inc. v. McDonald, [

A-11

U.S. ....., 97 S.Ct. 2464, 538 L.Ed.2d 423 (1977).) Me-

Donald bears indirectly on our case. There the district

court denied maintenance as a class action. When con-

trary to expectations, named plaintiffs did not seek

review of the denial by appeal from the final judgment,

a member of the proposed class who had relied on

named plaintiffs to appeal promptly sought to intervene

and to appeal. It was held that the intervention was

timely. Named plaintiffs could have obtained appellate

review by appeal from the final judgment, and the

intervening member of the proposed class could ap-

peal.

It seems to us that the following four generalizations

are consistent with the decisions refer to:

1. When, after an action is ordered maintained as a

class action, the controversy between the named party in

his own interest and his opponent dies, court adjudica-

tion of the merits remains appropriate because the in-

terests of class members are sufficiently represented by

the named party so that controversy between the class

members and the opponent is still alive and being

litigated in the action.

2. When there is no determination that an action be

maintained as a class action and the controversy

between the named party in his own interest and his op-

nent dies, court adjudication is not appropriate

come there is no controversy between parties who are

present or represented before the court in the action.

3. When the right to maintain a class action is denied

and the trial court decides the claim on its merits the

named party who is still interested in a live controversy,

and who sought to represent the class, is deemed to

have standing to seek review of the denial.

4. In situation 3 a member of the proposed class may

promptly intervene and have standing to seek review of

the denial even if the named party elects not to seek

review.

Our case fits provosition 2 and not 3. We note a 1974

decision of the Sixth Circuit to the opposite effect,

preserving the issue of maintainability of a class action,

A-12

which had been denied, past the time the named plain-

a personal ~_ maaan = _~ rmitting cor-

rection on appeal. Weathers v. Peters Realty Corporation,

499 F.2d 1197, 1201 (6th Cir. 1974). Such a rationale

ya Paget Fe mee ag Moog * we think it does not survive

acobs an einstein. See Valentino v. Howlett, 528 F.

975, 979 (7th Cir. 1976). —

The judgment appealed from, dismissing the action

because it is moot, is AFFIRMED.

AFFIRMED.

A-13

APPENDIX B

Marshall WINOKUR and Rae Winokur, Abe Brod-

sky and Celia Brodsky, and Ethelle Katz and

Bertha Katz, Plaintiffs-Appellants,

Vv

BELL FEDERAL SAVINGS AND LOAN ASSO-

CIATION, Home Federal Savings and Uptown

Federal Savings and Loan Association of Chicago,

Defendants-Appellees.

No. 75-1469.

United States Court of Appeals,

Seventh Circuit.

Oct. 21, 1977.

ON PETITION FOR REHEARING.

(Opinion Aug. 2, 1977, 7 Cir. 1977,

560 F.2d 271).

Before FAIRCHILD, Chief Circuit Judge, SWY-

GERT, CUMMINGS, PELL, TONE and WOOD, Circuit

Judges, and EAST, District Judge.*

ORDER

On consideration of the petition for rehearing, all the

judges on the original panel have voted to deny

rehearing.

The majority of the judges in regular active service

have voted to deny rehearing en banc.

Accordingly, IT IS ORDERED that the aforesaid

petition for rehearing be, and the same is hereby,

DENIED.

* The Honorable William G. East, United States District

Court for the District of Oregon, is sitting by designation.

(Footnote continued on following page)

A-14

* continued

Circuit Jud Sprecher and Bauer did not participate in

the ounsiéanation of this matter. Judge Swygert voted to grant

the rehearing ev banc and accompanied his vote with the at-

tached statement.

1 am unable to subscribe to a rule which insulates from

appellate review a decision denying class certification solely

because a defendant tenders a few dollars to a putative class

representative. In this case, the district court denied certifica-

tion of a plaintiff class. Plaintiffs’ attempt to obtain in-

terlocutory judicial review of the decision was unsuccessful.

The defendants then tendered $12.00 to each of the named

plaintiffs and the district court dismissed the suit on grounds

that the case was moot. On appeal, this court refused for a

second time to review the propriety of the order denying class

certification.

The unfortunate consequences of the rule formulated in this

decision on future consumer class actions are plain: defen-

dants in such actions are now given the arbitrary power to

bar appellate review by simply neers Se damages claim-

ed by the putative class representative. Rather than go to trial

and face the potential payment of damages which might be

assessed in a class suit, defendants will pay off the named

plaintiff or plaintiffs, thereby mooting the entire case. I think

justice dictates that the right to judicial review should not be

denied under the circumstances.

A-15

APPENDIX C

No. 70 C 1177

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

MARSHALL WINOKUR and RAE WINOKUR, ABE

BRODSKY and CELIA BRODSKY and ETHELLE

KATZ and BERTHA KATZ,

Plaintiffs,

v

ELL FEDERAL SAVINGS AND LOAN ASSOCIA-

e TION, HOME FEDERAL SAVINGS AND UP-

TOWN FEDERAL SAVINGS AND LOAN AS-

SOCIATION OF CHICAGO.

Defendants,

MEMORANDUM OPINION

JOEL M. FLAUM, District Judge:

Before the Court are defendants’ motions for (1)

dismissal for mootness, and (2) summary judgment on

the merits.

This case was originally filed as a bilateral class

action under the Securities Exchange Act of 1934.

Plaintiffs sought to represent a class of all owners of

savings accounts in Chicago area federally-chartered

savings and loan institutions. The defendant class was

alleged to consist of all such savings and loan institu-

tions. The complaint all the existence of false and

misleading statements the omission of material facts

in communications made by defendants to plaintiffs in

A-16

promotional materials. By orders of March 27, 1972, and

October 17, 1972, respectively, this Court held that the

action could not be maintained against a defendant

class, nor by a plaintiff class. An appeal was taken by

the named plaintiffs from the latter order. This appeal

was dismissed by the Seventh Circuit which held that an

order denying class action status is not a final

pou order. Certiorari was denied by the Supreme

ourt.

Thus the amended complaint is brought by the six

named plaintiffs against the three named savings and

loan institutions. Plaintiffs seek damages, costs, attor-

ney’s fees, and injunctive relief. Defendants assert, and

plaintiffs concede, that defendants have tendered to

plaintiffs the claimed damages ($12 per plaintiff) and

costs, and that attorney’s fees are not authorized by

statute.

Satisfaction of the plaintiffs’ claims render these

issues moot. Hill v. Beak, 39 U.S. 45 (1969); Watkins v.

Chicago Housing Authority, 406 F.2d 1234 (7th Cir.

1969).

The central mootness issue before the Court is

plaintiffs’ prayer for injunctive relief. The amended

complaint seeks a permanent injunction to prevent the

defendants “. . . from misrepresenting the manner of

calculation of dividends upon savings accounts issued by

them and from omitting to state facts necessary to fully

inform said purchasers and sellers of the manner of

such computation.” It is not disputed that the defendants

have changed their disclosure practices and that the

“evils complained of have been cured” (pp. 2-3, affidavit

of plaintiffs’ counsel). This was done early in 1971. The

question to be answered is whether this fact renders the

injunction claim moot.

It is true, as an abstract proposition, that “.. .

voluntary cessation of allegedly illegal conduct does not

deprive the tribunal of power to hear and determine the

case, i.e., does not make the case moot .. .”, United

A-17

States v. W. T. Grant Co., 345 U.S. 629, 632-33 (1953).

The question in this case is whether there is arguably

any possibility that the allegedly unlawful acts will

reoccur. United States v. Oregon State Medical Society,

343 U.S. 326, 333-334 (1952). For this to happen,

defendants would have to return to the old disclosures,

and plaintiffs would again have to rely thereon. It

strains credulity to believe these plaintiffs would rely on

disclosures which they obviously believed to be fraudu-

lent. This possibility is much too speculative and

unlikely to support a live controversy. See DeF unis v.

Odegaard, 414 U.S. 1038 (1974). Plaintiffs cannot

arguably show that defendant is likely to harm them

unless an injunction issues. O'Shea v. Littleton, 414 U.S.

488 (1973). Thus it appears to this Court that the injunc-

tion issue is also moot.

If a case is moot there is no Article III controversy

and this Court is without authority to hear the matter

further. It is worth noting that if this case presented a

proper class action, a different conclusion would have to

be reached as to mootness. Board of School Commis-

sioners v. Jacobs, ..... USS. ..... (43 U.S. L.W. 4238, Feb.

18, 1975).

In view of the above conclusion as to mootness, the

Court cannot reach the questions raised by the motion

for summary judgment.

Defendants’ motion to dismiss for mootness is

GRANTED and the action is DISMISSED.

/s/ Joel M. Flaum

United States District Judge

DATED: March 21, 1975

A-18

APPENDIX D

Marshall WINOKUR et al., Plaintiffs,

Vv

BELL FEDERAL SAVINGS AND LOAN

ASSOCIATION et al., Defendants.

No. 70 C 1177.

United States District Court,

N.D. Illinois, E.D.

Oct. 17, 1972.

58 F.R.D. 178

MEMORANDUM OPINION AND ORDER

BAUER, District Judge.

This cause comes on defendants’ motion pursuant to

Rule 23(c) of the Federal Rules of Civil Procedure for an

order denying the right to maintain this cause as a class

action as to plaintiffs. This Court previously ruled on

March 27, 1972 that a class action as to the defendants

could not be maintained in this suit.

The named plaintiffs Marshall and Rae Winokur are

holders of a savings account issued by defendant Bell

Federal Savings and Loan Association (hereinafter

referred to as “Bell”); Abe and Celia Brodsky, at all

times relevant to this suit, were holders of a savings

account issued by defendant Home Federal Savings

(hereinafter referred to as “Home”); and _ plaintiffs

Ethelle and Bertha Katz, at all times relevant to this

suit, were holders of a savings account issued by

Uptown Federal Savings and Loan Association of

Chicago (hereinafter referred to as “Uptown”). Bell,

Home and Uptown, all federally chartered savings and

loan associations, are authorized by statute! to raise

capital by the sale of savings accounts to the public.

' 12 U.S.C. § 1464.

A-19

The complaint alleges that plaintiffs are purchasers

and/or sellers of securities and that the defendants have

made and are continuing to make misstatements and

omissions of material fact in connection with such

purchases and sales in violation of § 10(b) of the

Securities Exchange Act of 1934, 15 U.S.C. § 78j, and

Rule 10(bX5) of the Rules of the Securities and

Exchange Commission, 17 C.F.R. § 240.10b-5. More

specifically, plaintiffs allege the following misleading

statements:

1. “The defendants falsely advertise that the divi-

dends paid by them are the equivalent of

interest compounded daily... .” [This is al-

leged to be a misstatement because if a

depositor withdraws prior to the last day in any

calendar quarter, he is paid no dividends at all

on the withdrawn funds for that quarter.]

2. “The defendants omit to state that no dividend

at all is paid for the balance of a calendar

month in which a deposit is made subsequent to

the 10th day of that month.” [This is alleged to

be misleading because defendants advertise that

“all savings in by the 10th earn from the Ist

and omit to mention that deposits made after

the 10th of the month do not earn interest until

the first of the following month.]

Jurisdiction is alleged under 15 US.C. § 78aa. At this

time, the Court need not consider the propriety of

jurisdiction under this section.

Plaintiffs seek to bring this suit as a class action under

Rule 23 on behalf of all persons who have withdrawn or

deposited money in Bell, Home, and Uptown and who

have thereby suffered loss in that they “(i) withdrew

funds prior to the end of a calendar quarter and did not

receive dividends equivalent to interest compounded

daily, or (ii) deposited funds after the 10th day and prior

to the end of the month and received no dividends at all

for this period.”

A-20

Plaintiffs contend that they meet the requirements of

Rule 23, directing the main thrust of their arguments to

the propositions that: (1) they are representative of the

plaintiff class they seek to represent; (2) there are

questions of law and fact common to the class and that

these questions “predominate over questions affecting

only individual members”; and (3) such a class action is

manageable because where a Rule 10(bX5) violation is

alleged reliance by each member of the class on the

misrepresentation need not be shown, but rather merely

the materiality of the misrepresentation must be

shown.

Defendants contend that the requirements of Rule 23

have not been satisfied because, inter alia, the indivi-

dual plaintiffs are not representative of the class on

whose behalf they are suing. Defendants further contend

that numerous individual questions are raised by this

action, that consequently common issues do not pre-

dominate, and that the class action would be an

unmanageable rather than a superior means of adjudi-

cating this controversy. Defendants also take the posi-

tion that an individual does not have a claim for a

misleading statement under Rule 10(bX5) unless the

individual relied on the statement to his detriment.

The arguments presented by the plaintiffs are unper-

suasive; thus, this Court finds that the requirements for

a Rule 23 class action have not been satisfied.

REQUIREMENTS FOR THE MAINTENANCE

OF A CLASS ACTION

In order for a class action to be the proper mechanism

for adjudicating a controversy, the following require-

ments for Rule 23(a) must all be satisfied:

1. the class must be so numerous that joinder of

all members would be impracticable;

2. there must be questions of law or fact common

to the class;

A-21

3. the claims or defenses of the representative

parties are typical of the claims or defenses of

the class; and

4. the representative parties must fairly and

adequately protect the interests of the class. -

In addition, one of the provisions of Rule 23(b) must also

be satisfied. This Court is of the opinion that the

purported class of plaintiffs does not meet at least two of

the four prerequisites of Rule 23(a).

THE CLAIMS OF THE REPRESENTATIVE

PARTIES ARE NOT TYPICAL OF THE CLAIMS

OF THE CLASS

In Jacobs v. Paul Hardeman, Inc., 42 F.R.D. 595

(S.D.N.Y. 1967), plaintiffs sought on behalf of a class of

“all present and former debenture holders similarly

situated” the rescission of individual purchases of

debentures and damages for alleged misrepresentations

in and omissions of material facts from a registration

statement and prospectus. The court dismissed the class

action aspect of the complaint on grounds that:

“_. while there are probably some questions of

law and fact common to some of the purchase

transactions, this . . . is certainly not true as to all.”

42 F.R.D. at 598.

The court held that the requirements of 23(aX3) and (4)

had not been complied with because the named plain-

tiffs had purchased stock from underwriters on the basis

of a prospectus and registration statement while other

members of the class had later purchased in the open

market after various information about the company’s

financial reverses had been publicized. The court in dis-

missing the class action concluded that the claims of

the named plaintiffs would not be typical of those of the

later purchasers, that their factual and legal positions

were significantly different, and thus that the later pur-

chasers would not be fairly and adequately repre-

sented.

A-22

{1, 2] It is the opinion of this Court that the questions

of fact subject to determination in this cause will be

almost as numerous as the members of the plaintiffs’

class and that there are potentially as many classes as

depositors. This situation is caused by the fact that

different representations have been made to every

member of the class. Where there is an attempt to bring

a class action based on an alleged 10(bX5) violation,

there must be a material misrepresentation which is

common to the class. Jacobs v. Paul Hardeman, supra.

It is clear from the pleadings that each individual

defendant utilized a different advertisement which

would be relevant only to claims made by its own

customers. Thus, contrary to the contentions of the

plaintiff, there are at least three major grouping within

the class to whom varied representations have been

made. Further, it is also clear from the pleadings that

many, if not most, customers of these savings and loan

associations open their accounts in person at the office of

the association and are fully advised at that time of the

various types of accounts offered, as well as the rules,

regulations and terms pertaining to each type of

account—including the rate and basis of computing

interest. Many other individual depositors received the

same information by phone or letter. Additionally, the

passbook or certificate given to the depositor generally

contains this information. Thus, information that was

not contained in the plaintiffs’ advertisements was in

fact available and known to many depositors before

funds were committed. In each of these situations, there

* The Court in Kohler v. Kohler Co., 319 F.2d 634 (7th Cir.

1963) ruled that defendants are obliged to disclose to plaintiffs

only those material facts which are reasonably believed to be

unknown to the plaintiff. In City National Bank of Fort

Smith, Arkansas v. Vanderboom, 422 F.2d 221, 231 (8th Cir.

PANS “ Court noted that the Seventh Circuit had held in

ohtler that:

“. . . the failure of an to disclose material facts to

the plaintiff will not lead to liability under 10b-5 where

the plaintiff himself has the ability and opportunity to

discover those facts easily.”

(Footnote continued on following page)

A-23

were different representations made by different in-

dividuals which would affect the materiality of the

“misrepresentations”.

[3] It is the opinion of this Court that there are

factual questions essential to the claim of each member

of the class (as defined by plaintiff) which cannot be

answered within the framework of a class action. This

Court further believes that it would be impossible

without a hearing on the claim of each individual

member of the class to determine which depositors of

defendant savings and loan associations are in fact

members of the class. It would be necessary to

determine (1) what type of account an individual had

and whether it was subject to the claims raised by

plaintiffs; (2) whether each alleged member of the class

had, in fact, read the advertisements complained of and

had been misled by any of the alleged misrepresenta-

tions contained therein; and (3) whether representations

of the interest policy had been made to him orally or

whether he had read a statement of the interest policy

contained in his passbook or in the association’s charter

which would counter the advertisements complained of.

Answers to all of the above questions are essential to

determine whether there have been “material misre-

presentations”.

Because of the above factors, the question of whether

or not there has been a material misrepresentation is not

a question common to the class but rather is a question

to be answered by each individual member of the class.

Thus, as in the Jacobs case, the claims of the named

2 continued

Recent cases similar to the one at Bar have held that

defendants are not required to say that which has been

publicly proclaimed in several different oe on several

different occasions. Johnson v. Wiggs, 443 F.2d 803 (5th Cir.

1971); Mitchell v. Texas Gulf Sulphur Co., 446 F.2d 90 (10th

Cir. 1971), cert. denied, 404 U.S. 1004, 92 S.Ct. 564, 30

L.ED.2d 558 (1971); Hafner v. Forest Laboratories, Inc., 345

F.2d 167 (2d Cir. 1965); Phillips v. Reynolds and Co., 294

F.Supp. 1249 (E.D. Pa. 1969).

A-24

plaintiffs are not typical of those of all depositors in

Bell, Home or Uptown who are alleged to be members

of the class, since individual factual situations of each

class member may vary significantly. In addition to the

variance of claims as between named and unnamed

plaintiffs, already two of the six named plaintiffs have

presented a claim which is not typical of the original

claim presented on behalf of the class.*

[4] The Advisory Committee Notes to Rule 23 state:

"... [On] the other hand, although having some

common core, a fraud case may be unsuited for

treatment as a class action if there was material

variation in the representations made or in the

kinds or degrees of reliance by the persons to whom

they were addressed.”

In line with this position, courts have denied class

actions in suits involving 10(b\5) violations because of

varying misrepresentations and the consequent absence

of significant questions of fact common to all members

of the putative class.‘

’ The ne seg process elicited the fact that neither Abe nor

Celia Brodsky had made any deposits after the 10th of the

month. Further, despite advertisements which were allegedly

——ane both Abe and Celia admitted during a deposition

that they knew the interest policy of Home Federal Savings

and had never relied on the allegedly misleading advertise-

ment. The Brodskys, qua named plaintiffs, seek to represent

all persons misled by the Home advertisement. However, the

facts as disclosed by depositions reveal that the Brodskys

themselves are not members of the class which they seek to

represent. These facts indicate not only that the Brodskys may

encounter difficulty in successfully bringing this claim but

also that the claims of individual named plaintiffs are not

typical even among themselves.

* Morris v. Burchard, 5 F.R.D. 530 eo. N.Y. 1971);

Moscarelli v. Stamm, 288 F.Supp. 453 (E.D.N.Y. 1968).

A-25

It is this Court’s opinion that the plaintiffs cannot

maintain a class action because they have not met the

requirements of Rule 23a). Thus, this Court need not

decide whether the plaintiffs in their quest for a class

action have met the requirements of Rule 23(b) or

whether reliance is still an essential element of 10(b)X5)

action.

Accordingly, it is hereby ordered that defendants’

motion to disallow the maintenance of the instant action

as a class action is granted.

A-26

APPENDIX E

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Llinois 60604

May 18, 1973.

Before

Hon. Water J. Cummines, Circuit Judge

Hon. Joun Paur. Srevens, Circuit Judge

Hon. Rosert A. Sprecnenr, Circuit Judge

EDWARD Q. LUPIA, Etc., )

Plaintiff(s)-Appellant,

No. 73-1026 vs.

STELLA D’ORO BISCUIT CO., INC., Appeals from the United

Defendant-Appellee. States District Court for

the Northern District of

Illinois, Eastern Division.

FRANK A, GARZA, Etc.,

Plaintiff-Appellant,

CHICAGO HEALTH CLUBS, INC. et al, Philip W. Tone,

Judge

Defendant-Appellees.

No. 71 C 643

Richard W. McLaren.

Judge

MARSHALL WINOKUR, et al., No. 70 C 1177

Plaintiffs-Appellants, William J. Bauer,

No. 72-2029 vs. Judge

BELL SAVINGS & LOAN ASSOCIATION,

et al.,

Defendants-Appellees.

ORDER

These three cases involve the much disputed question

whether the dismissal of a class action portion of a

complaint is appealable In Thill Securities Corp. v. New

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York Stock Exchange, ’ F.2d 14, ghia ny _— we

held that the denial of a motion to strike a class action

was not an appealable order under 28 U.S.C. § 1291. We

now hold that the present orders are not appealable,

necessitating the dismissal of the three appeals for lack

of jurisdi_tion.

In so holding, we follow Hackett v. General Host Corp.,

455 F.2d 618 (3d Cir. 1972), certiorari denied, 407 U.S.

925; Gerstle v. Continental Airlines, Inc., 466 F.2d 1374

(10th Cir. 1972); and our analogous prior decision in

Jumps v. Leverone, 150 F.2d 876 (7th Cir. 1945). If the

interlocutory appeals route of 28 U.S.C. § 1292(b) had

been successfully followed. review would be available. 9

Moore’s Federal Practice 1110.13[9] p. 184 (2d ed.

1972).

Appeals dismissed.

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APPENDIX F

No. 76 C 427

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

ANN FLAMM and ARNOLD M. FLAMM,

Plaintiffs,

Vv

RUDOLPH EBERSTADT, JR. and MICRODOT,

INC.,

Defendants.

MEMORANDUM OPINION

JOEL M. FLAUM, District Judge:

This case was filed as a class action asserting claims

under the Securities Exchange Act of 1934, §§ 10(b),

14e), 15 U.S.C. §§ 78)(b), n(e). In an opinion dated

October 19, 1976, this court issued a ruling denying

plaintiffs’ motion for class certification because of

plaintiffs’ failure to meet the requirements of Fed. R.

Civ. P. 23(aX4). Flamm v. Eberstadt, 72 F.R.D. 187

(N.D. Ill. 1976). Thereupon, this court, pursuant to 28

U.S.C. § 1292(b), certified the issue of whether plaintiffs’

were adequate representatives of the class they sought to

represent to the court of appeals, and on January 25,

1977 that court granted plaintiffs’ permission to appeal.

In an opinion dated August 31, 1977, the Seventh

Circuit affirmed this court’s ruling denying plaintiffs’

motion for class certification. Susman v. Lincoln Ameri-

can Corp., No. 77-1145 (7th Cir. August 31, 1977).

'_ This court had certified the Flamm case and the Susman

case for purposes of an interlocatory a 1 since the in-

volved the same class action issue. oan ——

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Plaintiffs have again moved for class certification

stating that the reason this court found them to be

_inadequate class representatives no longer exists and

class certification is appropriate at this time. However,

before the briefing on this question was completed and

this court could rule on plaintiffs’ motion, defendants, in

a letter dated November 1, 1977, tendered? to plaintiffs

the amount of money they claimed they had been

individually deprived of by defendants’ actions as

alleged in the instant complaint. Defendants have now

moved to dismiss plaintiffs’ complaint on the ground of

nootness arguing that there does not exist at this time a

justicable, Article III of the Constitution “case or con-

troversy” between plaintiffs and defendants. Thus,

defendants argue that since plaintiffs have obtained all

the relief they seek to obtain from this lawsuit it would

be a waste of judicial energy, as well as a violation of

the constitutional prohibition against courts rendering

advisory opinions, to allow this case to continue. For this

proposition defendants primarily rely on the recent deci-

sion in Winokur v. Bell Federal Sav. & Loan Ass’n, 560

F.2d 271 (7th Cir. 1977). After reviewing the briefs sub-

mitted by the parties, this court is compelled to grant

defendants’ motion because of the Seventh Circuit’s rul-

ing in Winokur, and accordingly this cause is dismissed.

In opposition to defendants’ motion, plaintiffs present

two arguments. First, plaintiffs rely on a line of cases

starting with United States v. W. T. Grant Co., 345 U.S.

629 (1953), which hold that the “mere voluntary cessa-

tion of allegedly illegal conduct does not moot a case.”

Burbank v. Twomey, 520 F.2d 744, 747 (7th Cir. 1975).

Plaintiffs argue from this proposition that defendants,

2 Although the plaintiffs challenge the rye & defen-

dants’ tender for several reasons, this court finds the letter to

laintiffs to constitute a valid tender to end the controversy

tween the named xe and defendants. See, e.9.,

Guthrie v. Curnutt, 417 F.2d 764 (10th Cir. 1969); Martindel

v. Lake Shore Nat'l Bank; 15 IIl. $7 2d 217, 145 N.E. 2d

fi (1987) rev'd on other grounds, 15 Ill. 2d 272, 154 N.E. 2d

A-30

by tendering to plaintiffs the amount of their individual

claims, cannot moot this action by their own voluntary

acts. This analysis, however, is incorrect. As was

recognized in Winokur, the doctrine as enunciated in W.

T. Grant only applies if there is the possibility that the

defendant will continue in the future to infringe upon

plaintiff's rights. Winokur v. Beli Federal Sav. & Loan

Ass'n, 560 F.2d 271, 274 (7th Cir. 1977). Since plaintiffs

do not seek injunctive relief in this cause, and since

plaintiffs have not indicated that they fear that defen-

dants will again injure them by way of further violations

of the federal securities laws, plaintiffs’ first argument

based upon W. T. Grant and its progeny is without

merit.

Plaintiffs’ second argument, although more substan-

tial in this court’s view, is likewise without merit in

light of Winokur: Plaintiffs argue that because they

presently have pending a motion for class certification

the mere fact that their individual claims may be moot

does not render this action, as a class action, moot. Thus,

plaintiffs rely on the limited exception to the mootness

doctrine as applied to class actions delineated in

Gerstein v. Pugh, 420 U.S. 103, 110-11 n.11 (1975), and

as applied by this and other courts. See, e.g., Langson v.

Simon, 74 F.R.D. 456 (N.D. Ill. 1977) (Flaum, J.);

Custom v. Trainor, 74 F.R.D. 413 (N.D. Ill. 1977)

(Marshall, J.); Robinson v. Leahy, 73 F.R.D. 109 (N.D.

Ill. 1977) (Flaum, J.).

In Gerstein, the Supreme Court was faced with an ac-

tion by individuals who were in police custody for

pretrial detention. The plaintiffs, seeking to represent a

class of all persons subject to such pretrial detention

who were not afforded preliminary hearings as to the

charges levied against them, challenged their confine-

ment as violative of due process of law. The Supreme

Court, in reviewing the record before it, noted that the

named plaintiffs had been convicted of the charges

against them and were no longer in pretrial custody.

Moreover, the court noted that the record was not clear

as to whether at the time the trial court granted plain-

tiffs’ motion for class certification the named plaintiffs

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were still in pretrial detention and had a viable case or

controversy with the defendants. Gerstein v. Pugh, 420

U.S. 110-11 n.11.

In considering whether the action was moot because

the named plaintiffs’ claims had been resolved, the

Supreme Court stated that even if there had not been a

live controversy between the named plaintiffs and defen-

dants at the time the class certification motion was

granted, the plaintiffs’ action could continue to vindicate

the rights of those the named plaintiffs sought to repre-

sent. Thus, the court stated that although as a general

rule a named plaintiff must be a member of the class he

seeks to represent at the time the class is certified, and

must at that time have a live controversy with the defen-

dant, in order for a class action to continue in light of

the subsequent mootness of the named plaintiff's claim,

see Sosna v. Iowa, 419 U.S. 393 (1975), an exception to

this rule existed when: (1) the nature of the plaintiff's

and the class’ claims were such that the plaintiff would

have suffered his injury before the court could rule on

his motion for class certification; (2) it was certain that a

constant class of persons suffering the deprivation ex-

isted; and (3) the attorney representing the named

representative has other clients with a continuing live

interest in the case, 7.e., a public defender. Gerstein v.

Pugh, 420 U.S. at 111 n.11.

In the case at bar, plaintiffs argue that this action

falls within the ambit of the Gerstein exception to the

mootness doctrine and this court should rule that

although the named plaintiffs’ claims are moot this case

should continue so as to vindicate the rights of the class

the named plaintiffs seek to represent. Thus, plaintiffs

argue that the unilateral action of defendants in tender-

ing to the named plaintiffs the amount of their in-

dividual claims cannot be held to moot the class

allegations because defendants will thereupon be able to

prevent a class from ever having its claims vindicated.

While this court recognizes the rule as delineated in

Gerstein, and as noted previously has applied that rule

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under different circumstances, this court is bound by

the holding of the Seventh Circuit in Winokur. In

Winokur, plaintiffs’ filed a federal securities class action

in which they sought injunctive and monetary relief.

Plaintiffs sought to have a class certified but the district

court found that plaintiffs had not established the

propriety of maintaining their action on a class-wide

basis. Plaintiffs’ request to have the issue certified to the

court of appeals pursuant to 28 U.S.C. § 1292(b) was

denied and plaintiffs were barred from appealing the

denial of class status since such orders are not

appealable in this circuit. See Thill Securities Corp. v.

New York Stock Exchange, 469 F.2d 14 (7th Cir. 1972).

Thereafter, defendant tendered to the named plaintiffs

the amount of their individual claim and changed its

policies to avoid creating the same difficulties from aris-

ing again. This court? thereupon dismissed the action as

moot stating that no case or controversy existed between

the named plaintiffs and defendant in light of the fact

that class certification had been denied.

The court of appeals affirmed the order of dismissal.

Winokur v. Bell Federal Savings & Loan Ass’n, 560 F.2d

271 (7th Cir. 1977). However, more importantly for the

issues before the court in the case at bar, the court of

appeals also held that it lacked jurisdiction to consider

whether the district court had erred in denying class

certification. Thus, plaintiffs’ in Winokur argued that

had the district court certified the class they sought to

represent their action would not be moot even in light of

defendant’s tender. The court of appeals, plaintiffs

argued, was therefore required to consider plaintiffs’ re-

quest for class certification since plaintiffs’ were not

allowed to appeal the denial of their class motion

previously. The Seventh Circuit rejected this argument

stating the rule of law applicable to the case at bar as:

When there is no determination that an action be

maintained as a class action and the controversy

’ This court was transferred the Winokur case after the

denial of class certification.

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between the named party in his own interest and

his opponent dies, court adjudication is not ap-

propriate because there is no controversy between

parties who are present or represented before the

court in the action.

It is clear to this court that the facts of this case,

although different in minor respects, falls squarely

within the ambit of the Winokur holding. Thus, as in

Winokur, plaintiffs herein have had their motion for

class certification denied and in fact this denial was af-

firmed. Defendants have tendered the named plaintiffs

the amount of their individual claims and there is

presently no case or controversy between them. The fact

that there is presently pending a motion for class certi-

fication does not make this case different from Winokur

since this is exactly the same as having an appeal before

the court of appeals seeking a review of a class action

motion denial.

Plaintiffs argue, however, that this court should not

apply the Winokur case to their class action claims for

several reasons. First, plaintiffs argue Winokur involved

appellate review and the case at bar is still in the dis-

trict court. While this is a difference, as stated above, it

is not material. When an action becomes moot it ousts

the court in which it is pending of jurisdiction to con-

sider any other matters in that case. If the court of

appeals felt itself barred by Article III to consider the

propriety of class certification in Winokur, this court is

no less barred from considering plaintiffs’ renewed mo-

tion for class certification.

Second, plaintiffs argue that this court should treat its

renewed motion for class certification as a motion to

“reconsider” the prior denial of class certificaton. This,

plaintiffs argue, would allow this court to make the

granting of the class motion now “relate back” to the

previous denial and would prevent any mooting of plain-

tiffs’ class claims. However, this argument is simply a

restatement of the plaintiffs’ first argument and for the

same reasons as previously mentioned must be rejected.

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Finally, plaintiffs argue that Winokur is wrongly

decided. Thus, plaintiffs argue that the rule stated in

Winokur and previously quoted in this opinion is directly

in conflict with the holding in Gerstein that class actions

can be certified in certain cases where the named plain-

tiffs’ claims are mooted prior to certification. However,

whatever the merits of this argument, plaintiffs position

must fail in this district court which is bound by the

pronouncements of its court of appeals. This court

recognizes that other courts, unlike the Seventh Circuit,

have reviewed denials of class certification after plain-

tiffs claims have been mooted, see, e.g., Cameron v. E.

M. Adams & Co., 547 F.2d 473 (9th Cir. 1976); but see

Napier v. Gertrude, 542 F.2d 825 (10th Cir. 1976), cert.

denied, 97 S.Ct. 759 (1977). Moreover, this court notes

that the Seventh Circuit did not cite Gerstein in its opi-

nion in Winokur although it did cite cases decided after

that decision.‘ Nevertheless, this court cannot say that

the court of appeals did not consider Gerstein and find

its principles inapplicable to the case at bar. It is possi-

ble that the court of appeals was of the opinion that the

Gerstein exception did not apply in class actions to be

certified under Fed. R. Civ. P. 23(b\3) since it is not

likely that defendants would repeat their illegal activity.

Or perhaps the court decided that private class action

attorneys did not meet the Gerstein requirement of class

action counsel who had clients like the named plaintiffs

interested in the vindication of the class’ rights. Hence,

whatever the court of appeals’ reasons, Winokur is

decided and its mandate must be obeyed.

‘ In fact, the court in Winokur cited Board of School Com-

m'rs v. Jacobs, 420 U.S. 128 (1975), the decision in volume 420

of the United States Supreme Court Reports which im-

mediately follows Gerstein.

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Accordingly, this court must declare plaintiffs’ action

moot. The issues raised by plaintiffs concerning the

problems of maintaining a class action when the defen-

dants have the ability to moot the case must be resolved

by the court of appeals in light of Winokur. On its facts

this — is identical to Winokur and it must be dis-

missed.

It is so ordered.

/s/ JOEL M. FLAUM

United States District Judge

Dated: December 30, 1977