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In THE

Supreme Court of the Anited States

Octoser TERM, 1979

No. 79-

ARTHUR ANDERSEN & CO.

Petitioner

V.

DAVID S. STEWART and

CHANNING SECURITIES, INC.

Respondents

ARTHUR ANDERSEN & CO.

Petitioner

V.

JULES SANDERS and MADALYNN SANDERS

Respondents

AND THREE OTHER ACTIONS

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

Gerorce H. LEwap

Tuomas G. DiGNnaN, JR.

Ropes & Gray

225 Franklin Street

Of Counsel:

Wruam F. McCartiy Boston, Massachusetts 02110

Steven T. Hoort (617) 423-6100

Jess T. FARDELLA CHarLes W. Boanp

Ropes & Gray Wilson & McIlvaine

225 Franklin Street 135 South LaSalle Street

Boston, Chicago, Illinois 60603

(312) 263-1212 \ 3

Massachusetts 02110

(617) 423-6100 Attorneys for Petitioner

PRESS OF GEORGE H. DEAN CO., BOSTON

i

TABLE OF CONTENTS

CONSTITUTIONAL PROVISIONS, STATUTES AND

RE ET UAE 9.5 Oo enti d end dha ks ae,

I. Tuts Case Presents IMPORTANT QUESTIONS oF FeED-

ERAL LAW WHICH SHOULD BE SETTLED BY THIS CoURT

II. THE Decision BELow Conruicts witH DECISIONS oF

THIS CouRT AND OF OTHER Circurts REGARDING THE

CONSTRUCTION oF RULE 23(c) (2), Fep. R. Civ. P.,

THE Dur Process CLAUSE OF AMENDMENT V T0 THE

CONSTITUTION OF THE UNITED STATES, AND THE LACK

OF FINALITY OF INTERLOCUTORY ORDERS OF THE DIs-

TE CE sa inch Ske Lee

CONGO © re eee Cd oe

y+ Se NMR ERM THe ONT dec)

TABLE OF CITATIONS

CasEs

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

Acha v. Beame, 570 F.2d 57 (2d Cir. 1978) .............

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

(1974) reh denied 415 U.S. 952 (1974) ................

Bankers Trust Co. v. Mallis, 485 U.S. 381 (1978), reh de-

ies 456 U0. 0G (2ltee oe a ee

Bersch v. Drexel Firestone, Inc., 519 F.2d 974 (2d Cir.

1975) cert denied sub nom, Bersch v. Arthur Andersen

& Co, GB UR, 2006 (1098)... ca

Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723

(1975), reh dented 423 U.S. 864 (1975) ..............

Bogard v. Cook, 586 F.2d 399 (5th Cir. 1978), reh denied

591 F.2d 102 (5th Cir. 1979), cert denied __ U.S. _, 100

ee a Be IY PE at oss 8 ci:

10

15

16

il

PAGE

Bon Air Hotel, Inc. v. Time, Inc., 426 F.2d 858 (5th Cir.

RES Te RES A One OU eee arg 12

Braden v. University of Pittsburgh, 522 F.2d 948 (3d Cir.

i a a ne eee see 12

Chicago Housing Tenants Organization, Inc. v. Chicago

Housing Authority, 512 F.2d 19 (7th Cir. 1975) ....... 12

Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541

I tt: eG ett ee «Gs he ekin Dee es a 2,12

Cohn v. United States, 259 F.2d 371 (6th Cir. 1958) ..... 12

Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978) ...... 9, 12, 13

Deposit Guaranty National Bank, Jackson, Mississippi v.

Roper, 48 U.S.L.W. 4279 (3/19/80) ................. i)

Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974) ....... 5, 7, 8,

10, 11, 13, 14

Hazel-Atlas Co. v. Hartford Co., 322 U.S. 238 (1944) .... 13

Hodgson v. United Mine Workers of America, 473 F.2d 118

(D.C. Cir. 1972) . ee i Geb ROTA aia owes 12, 13

In Re Franklin National Bank Securities Litigation, 574

F.2d 662 (2d Cir. 1978), modified 599 F.2d.1109 (2d Cir.

is eo xe a tiene oo sp oe hon oe Cap eC aS ese oe 4,8

John Simmons Co. v. Grier Bros. Co., 258 U.S. 82 (1922) 12

Jones v. Diamond, 594 F.2d 997 (5th Cir. 1979), reh granted

Dt) 8

Marconi Wireless Telegraph Co. of America v. United States,

320 U.S. 1 (1948), reh denied 320 U.S. 809 (1943) .... 12

Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306

I Sih hs oy 5 a van’ > po ns eA ied woes 11

Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340 (1978) 14

Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979) ...... 9

Pruseau v. Prudential Ins. Co. of America, 591 F.2d 74

(9th Cir. 1979) . tera a es A 12

Schroeder v. City of New York, 371 U.S. 208 (1962) ..... 11

Transportation-Communication Division-Brotherhood v. St.

Louis-San Francisco RR Co., 419 F.2d 933 (8th Cir.

1969), cert denied 400 U.S. 818 (1970) ............... 12

United States v. Desert Gold Mining Co., 483 F.2d 713 (9th

i en vata 12

United States v. Indrelunas, 411 U.S. 216 (1973) ........ 12

United States v. Jerry, 487 F.2d 600 (3d Cir. 1973) ...... 12

United States v. MacDonald, 435 U.S. 850 (1978)

, Mea 13

ill

STATUTES

PAGE

Section 10(b) of the Securities Exchange Act of 1934, 15

U.S.C. § 78j(b) and S.E.C. Rule 10b-5 ............... 3, 4

Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k .. 3

ee es EE ye ee wk ee ee 2

ride rac. << nce ES ee ee a 2,12

ES 6S eee cae Oe ee ee 3

CONSTITUTIONAL PROVISIONS

The Due Process Clause of Amendment V to the Constitu-

Chin WE Gh CIS OD ow os ce Sa es 3, 11

The Due Process Clause of Amendment XIV to the Consti-

oe eg ee eee eee ae 11

MISCELLANEOUS

Collateral Attack on the Binding Effect of Class Action

Judgments, 87 Harv. L. Rev. 589 (1974) .............. 8

Pe We cc, core eis rr eee era koe passim

Notes of the Advisory Committee on Proposed Amendments

te Rule 26, 30/F.B.D. 60 (1006) .....:;.......2...... 7,13

7 Moore’s Federal Practice, {[] 60.16[4], 60.20 (1979) ..... 12

9 Moore’s Federal Practice, [110.18 (1980) ............. 12

Final Report of the Securities and Exchange Commission

of the Practice of Recording the Ownership of Securities

in the Records of the Issuer in Other than the Name of

the Beneficial Owner of Such Securities Pursuant to Sec-

tion 12(m) of the Securities Exchange Act of 1934, CCH

See. L. Reps. No. 672 (Dec. 15, 1976) ................ 4

In THE

Supreme Court of the Gnited States

OctoBerR TERM, 1979

No. 79-

ARTHUR ANDERSEN & CO.

Petitioner

v.

DAVID 8S. STEWART and

CHANNING SECURITIES, INC.

Respondents

ARTHUR ANDERSEN & CO.

Petitioner

V.

JULES SANDERS and MADALYNN SANDERS

Respondents

AND THREE OTHER ACTIONS

PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE FIRST CIRCUIT

The petitioner, Arthur Andersen & Co., respectfully prays

that a writ of certiorari issue to review the judgment and

opinion of the United States Court of Appeals for the First

Cireuit entered in these consolidated cases on January

22, 1980, petition for rehearing denied on February 19, 1980.

The respondents are the plaintiffs and named class repre-

sentatives in the two actions below in which the District

Court has made a class action determination.

2

OPINION BELOW

In the Appendix attached hereto is set forth the opinion

and judgment of the United States Court of Appeals for the

First Cireuit in which it dismissed petitioner’s consolidated

appeals from an order and an Order and Final Judgment

of the District Court for the District of Massachusetts in

In Re Viatron Computer Systems Corporation Litigation,

No. 79-1351, No. 79-1452 (Jan. 22, 1980) (App. 1-8). The

decision is officially reported at 614 F.2d 11 (1st Cir. 1980).

A petition for rehearing was denied by the Court of Ap-

peals without opinion (App. 9). There is no opinion of the

District Court.

JURISDICTION

These appeals came before the Court of Appeals under

98 U.S.C. § 1291 and the collateral order doctrine articu-

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

541 (1949). The judgment of the Court of Appeals for the

First Cireuit was entered on January 22, 1980, and a timely

petition for rehearing was denied by the Court of Appeals

on February 19, 1980. Jurisdiction of this Court is invoked

under 28 U.S.C. § 1254(1).

QUESTIONS PRESENTED FOR REVIEW

1. When individual class members in a class action for

damages are for the first time specifically identified after

an initial class notice is mailed, but prior to trial, does not

Fed. R. Civ. P. 23(c)(2) and due process require the Dis-

trict Court to direct individual notice to these newly identi-

fied class members of the right of each to intervene in the

action or to exclude himself from the class?

2. May the failure to object to an initial notice to the

class be used to estop a defendant from thereafter assert-

ing that class members identified after the initial notice

but prior to any disposition on the merits must be provided

3

with individual notice of their rights to intervene in the

action or to exclude themselves from the class as mandated

by Fed. R. Civ. P. 23(e)(2)(A)(B)(C)?

CONSTITUTIONAL PROVISIONS, STATUTES

AND RULES INVOLVED

The constitutional provision involved is the due process

clause of the Fifth Amendment to the Constitution of the

United States (App. 9). The rule setting forth the manda-

tory notice to be provided to class members in class actions

for damages is Rule 23(c)(2)(A)(B)(C), Fed. R. Civ. P.

(App. 11), and Rule 23 in general (App. 10-12). These pro-

visions are reproduced in the attached appendix submitted

herewith.

STATEMENT OF THE CASE

The petitioner Arthur Andersen & Co. (“Andersen”) is

an auditing and accounting firm named as a defendant in

actions brought by the named plaintiffs pursuant to Section

11 of the Securities Act of 1933, 15 U.S.C. § 77k, and § 10(b)

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

and S.E.C. Rule 10b-5 promulgated pursuant thereto, in

which plaintiffs seek damages on behalf of themselves and

all purchasers of the common stock and convertible sub-

ordinated debentures issued by Viatron Computer Systems

Corporation (“Viatron”). These actions were commenced

in 1971 following the filing of a petition in bankruptcy by

Viatron and have been consolidated in the District of Mas-

sachusetts by the Judicial Panel on Multidistrict Litigation

for coordinated pretrial discovery pursuant to 28 U.S.C.

§ 1407(a).

In 1974, the District Court determined that two of the

actions could be maintained as class actions for damages

under Rule 23(b)(3), Fed. R. Civ. P., on behalf of the Via-

tron common stock and debenture purchasers, respectively,

+

and directed that a joint notice of pendency of the class

actions be mailed to the Viatron common stock and deben-

ture purchasers as appearing on the records of Viatron’s

transfer agent (App. 13-16). These orders, issued under

Rule 23(¢)(1) and (ec) (2), Fed. R. Civ. P. (App. 10-11), did

not direct any individual notice to those class members

who had purchased Viatron securities for which record title

was held in “street names” by brokerage houses, banks, and

other entities as nominees of the purchasers (App. 13, 16).

(These latter class members are hereafter referred to as

the “beneficial purchasers” of Viatron securities.) No proof

of any service of the 1974 notice on any beneficial purchas-

ers has been presented to or filed with the District Court.

In November of 1978, and prior to any trial or judgment,

the plaintiff class representatives entered into a stipulation

of settlement with the defendants who were the under-

writers of Viatron’s securities offerings. The underwriters

agreed to provide to plaintiffs the names and addresses of

beneficial purchasers for whom the underwriters had acted

1 The holding of securities in “street names” refers to the practice

whereby a brokerage house, bank or other entity registers in its

name securities purchased and owned by others. Under the prac-

tice, the brokerage house, bank or other entity is known as the rec-

ord holder of the security, and the actual purchaser and owner of

the security is known as the beneficial purchaser or beneficial owner.

See generally Final Report of the Securities and Exchange Com-

mission of the Practice of Recording the Ownership of Securities

in the Records of the Issuer in Other than the Name of the Bene-

ficial Owner of Such Securities Pursuant to Section 12(m) of the

Securities Exchange Act of 1934, CCH See. L. Reps. No. 672 (Dee.

15, 1976). See also In Re Franklin National Bank Securities Liti-

gation, 574 F.2d 662, 673 (2d Cir. 1978), modified on other grounds

599 F.2d 1109 (2d Cir. 1979). Under this Court’s holding in Blue

Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975), reh. de-

nied 423 U.S. 864 (1975), the actual class members in an action

under Section 10(b) of the Securities Exchange Act of 1934, 15

U.S.C. § 78j(b), are the persons who suffered a loss in connection

with a purchase or sale of securities, which would be the beneficial

purchasers of those securities rather than those holding record title

in “street names” as nominees of the purchasers.

5

as nominees, so that plaintiffs could give individual notice

of this partial settlement and a proof of claim form to the

underwriters’ customers who fell within the classes as de-

fined in 1974. Plaintiffs also proposed to obtain the co-

operation of brokerage houses, banks and other entities

serving as nominees of beneficial purchasers, so as to pro-

vide other beneficial purchasers with individual notice of

the partial settlement and a proof of claim form, by com-

pensating these non-party nominees for their expenses in

identifying their beneficial purchaser customers. In re-

sponse, petitioner Andersen asserted that individual notice

had not previously been directed to any beneficial purchaser

class members and that all of the beneficial purchasers

whose identity could be ascertained through reasonable

efforts must, under this Court’s intervening decision in

Eisen v. Carlisle € Jacquelin, 417 U.S. 156 (1974), be pro-

vided with individual notice of their rights as class mem-

bers to intervene in the action or opt out of the class, in

conformance with Rule 23(c)(2)(A)(B)(C).

Andersen’s argument that identifiable beneficial purchas-

ers must be provided with individual notice of their rights

to intervene or opt out was rejected by the District Court.

In an order under date of May 7, 1979 (App. 17), the

District Court directed individual notice to the beneficial

purchasers of the partial settlement, but the notice (App.

20) was devoid of any reference to beneficial purchaser

class members having a right or an opportunity to intervene

in the action or to exclude themselves from the classes. The

District Court refused to provide the beneficial purchasers

with notice of their rights as class members as required by

Rule 23(¢)(2)(A)(B)(C) despite its finding that the eri-

terion under Rule 23(¢c)(2) mandating the giving of such

notice were established. Specifically, in directing individ-

ual notice of the partial settlement, the standard employed

by the District Court for the giving of such notice was the

reasonable efforts standard of Rule 23(c)(2), Fed. R. Civ.

6

P., viz., that the partial settlement notice was to be mailed

to the “reasonably available names and addresses of bene-

ficial purchasers for whom [the underwriters] acted as

nominees,” and to such additional beneficial purchasers

as plaintiffs’ counsel could identify through “such reason-

able steps as the Court determines are necessary...” (App.

19).

Counsel for plaintiffs filed various reports and affidavits

with the District Court with respect to identifying and

providing individual notice of the partial settlement to in

excess of 4,600 beneficial purchasers (App. 22), including

1,592 beneficial purchaser class members identified from the

records of the underwriter defendants, in addition to the

11,560 persons holding record title to Viatron swcurities.

Andersen’s continuing objections to the notice and mo-

tions for a stay and rehearing were denied by the District

Court. Andersen appealed, asserting that the District

Court had committed error on a collateral matter which

would not be effectively reviewable on appeal, namely, in

directing individual notice to the beneficial purchasers for

the first time in 1979, the District Court failed and refused

to provide notice of their right to intervene or exclude them-

selves under Fed. R. Civ. P. 23(¢)(2)(A)(B)(C). Ander-

sen asserted it was entitled to such notice prior to judgment

to assure that any judgment in Andersen’s favor against

the classes would be binding on the newly identified class

members and to avoid being exposed to the risks of one-

way intervention by these class members following judg-

ment.

The Court of Appeals declined to consider the merits of

the issues raised by Andersen and dismissed Andersen’s

appeals for lack of standing. It held that Andersen’s

standing to object and to appeal was limited strictly to the

orders making the initial class action determinations and

directing the initial notice to the classes in 1974, and be-

cause no objection was made or appeal taken at that time

7

that Andersen was now estopped to raise issues regarding

the notice to be provided to class members under Rule

23(¢)(2), Fed. R. Civ. P. See App. 5-7. Andersen’s pe-

tition for rehearing was denied on February 19, 1980

(App. 9).

REASONS FOR GRANTING THE WRIT

I. Tuis Case Presents IMporRTANT QUESTIONS OF FEDERAL

Law Wuicu SHOULD BE SETTLED BY THIS COURT

Resolution of the issues raised in this petition will have

general application in all class actions for damages and

involves consideration of the policies underlying amended

Fed. R. Civ. P. 23. Without adequate notice, absent class

members in a class action for damages are not bound by any

judgment, Eisen v. Carlisle & Jacqueline (Eisen IV), 417

U.S. 156, 176-177 (1974). Unless the District Court remains

under a continuing duty to assure that notice is adequate

and defendants are not estopped to call to the court’s at-

tention that subsequent proceedings in the District Court

demonstrate that the former notice is not adequate, the

underlying purpose of amended Rule 23 will be defeated.

Class members who have not received adequate notice can

continue to engage in “sideline sitting,” and to await the

results of the action before deciding whether to be bound

by the proceedings, which amended Rule 23 was intended

to eliminate. See “Notes of the Advisory Committee on

Proposed Amendments to Rule 23,” 39 F.R.D. 69, 98-99,

105-106 (1966) ; American Pipe & Construction Co. v. Utah,

414 U.S. 538, 547 (1974), reh denied 415 U.S. 952 (1974).

The issue of the adequacy of the initial notice in a class

action for damaggs will arise whenever, as in this case, the

District Court subsequently directs individual notice under

either Rule 23(d}-vr (e), Fed. R. Civ. P., which is more in-

clusive than the original notice. It may also arise where

through oversight or neglect the Court and the parties did

not provide class members with adequate or the best prac-

8

ticable individual notice, with the result being that identifi-

able class members are not bound by the proceedings. Jones

v. Diamond, 594 F.2d 997, 1023 (5th Cir. 1979), reh. granted

602 F.2d 1243 (5th Cir. 1979); Bogard v. Cook, 586 F.2d

399, 408-409 (5th Cir. 1978), reh denied 591 F.2d 102 (5th

Cir. 1979), cert denied, — U.S. —, 100 S.Ct. 173 (1979).

Note: Collateral Attack on the Binding Effect of Class

Action Judgments, 87 Harv. L. Rev. 598 (1974).

Andersen is presented with such a situation in this case.

The beneficial purchaser class members first identified and

provided with individual notice in 1979 were not informed

in that notice or otherwise of their rights as class members

to intervene in the action or to opt out of the class which

this Court held to be mandatory under Fed. R. Civ. P.

23(c)(2) in Hisen IV. The only notice in any sense “di-

rected” to these beneficial purchasers which purported to

inform them of their right to intervene or to opt out was the

1974 notice mailed to the nominees holding record title to

the securities in “street names.” Since that 1974 notice,

the only Cireuit directly addressing the issue has held that

the form of constructive notice provided in 1974 is clearly

inadequate as to beneficial purchasers who can be identi-

fied through reasonable efforts. In Re Franklin National

Bank Securities Litigation, 574 F.2d 662, 669-671 (2d Cir.

1978), modified 599 F. 2d 1109 (2d Cir. 1979). See Id., 599

F.2d at 1110. Thus, on the record below, Andersen faces

the prospect that all the beneficial purchaser class members

first identified in 1979, approximately one-third of the iden-

tifiable class, will not be bound by any judgment in Ander-

sen’s favor against the class as defined by the District

Court.

In this Court’s decision in Hisen IV, the problem of ade-

quate notice not being provided was resolved at that time

by holding that inadequacies in notice are susceptible to

being cured by redefining the class. 417 U.S. at 179, n. 16

(holding that dismissal of class action by reason of plain-

9

tiff’s refusal to pay the cost of notice to all identifiable

class members was without prejudice to efforts to redefine

the class). Cf. Coopers & Lybrand v. Livesay, 437 U.S. 463,

468-469 (1978) (holding a class action determination is inher-

ently tentative and subject to revision prior to final judg-

ment); Accord: Deposit Guaranty National Bank, Jackson,

Mississippi v. Roper, 48 U.S.L.W. 4279, 4282 (3/19/80).

However, following this Court’s decision in Parklane

Hosiery Co. v. Shore, 439 U.S. 322 (1979), the option of

redefining the class so as to eliminate those members who

have not been provided with adequate notice is no longer

a practicable alternative. Under Parklane Hosiery Co.,

even non-parties and persons not within the class would

appear to be in a position to obtain the benefit of any find-

ings adverse to the class action defendant by collaterally

estopping the defendant in a subsequent suit. The result

is in essence the same right of one-way intervention that

amended Rule 23(¢)(2) was intended to eliminate. With-

out adequate notice that is binding on class members, de-

fendants cannot be assured of obtaining the full res judi-

cata benefit of any judgment in their favor. Class members

who have not received adequate notice, and similarly situ-

ated non-class members under Parklane Hosiery Co., will

receive the benefit of any decision adverse to the defendant

whereas hey will remain free to relitigate issues on which

the defendant prevailed in the class action.

The proper resolution of this problem, and the only man-

ner in which the purpose of eliminating one-way interven-

tion can be achieved, is to require that the District Court

provide adequate notice where its previous notice is demon-

strably insufficient. Andersen requests that this Court hold

that where the District Court finds prior to any trial or

judgment or other disposition on the merits that there are

additional class members who can be provided with ind:vid-

ual notice through reasonable efforts, then such notice must

be provided in the form set out in Fed. R. Civ. P.

10

23(¢c)(2)(A)(B)(C) in order to assure that the judgment

will have the maximum preclusive effect consistent with

due process. As is discussed below, this result is fully sup-

ported by prior decisions of this Court.

II. Tue Decision BELOW CONFLICTS WITH DECISIONS OF THIS

Court AND OF OTHER Circuits REGARDING THE CON-

STRUCTION OF RULE 23(c) (2), Feb. R. Civ. P., tHe Due

Process CLAUSE OF AMENDMENT V TO THE CONSTITUTION

OF THE UNITED STATES, AND THE LACK OF FINALITY OF

INTERLOCUTORY ORDERS OF THE District Court

Although the Court of Appeals stated in its opinion that

it found it unnecessary to consider this Court’s decision in

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

ing of the Court of Appeals sanctioned exactly what this

Court found to be impermissible under Fed. R. Civ. P.

23(¢)(2) in Eisen IV. Following remand from the Second

Cireuit in Eisen II, Eisen v. Carlisle & Jacquelin (Eisen

IT), 391 F. 2d 555 (2d Cir. 1968), reversing 41 F.R.D. 147

(S.D.N.Y. 1966), on remand 52 F.R.D. 253 (1971), 54 F.R.D.

565 (1972), reversed 479 F.2d 1005 (2d Cir. 1973) (Eisen

III), vacated and remanded 417 U.S. 156 (1974) (Eisen

IV, the District Court had found that 2,250,000 of

6,000,000 buyers and sellers who had traded in odd lots

could be identified through the parties’ access and compari-

son of computer listings, 52 F.R.D. at 257-258. but declined

to require individual notice to these individuai odd-lot buy-

ers and sellers. 52 F.R.D. at 267-268. Upon review, this

Court held that individual notice to these 2,250,000 identi-

fiable class members was mandatory, including notice of

their right to intervene or to opt out under Fed. R. Civ. P.

23(¢e)(2)(A)(B)(C), even though plaintiffs contended that

the effort and expense of providing individual notice would

be so burdensome as to defeat the class action. 417 U.S. at

175. Prior to the decision in Eisen IV, this Court had held,

11

even apart from the express requirements of Fed. R. Civ. P.

23(¢c)(2), that forms of notice other than individual notice

are not sufficient under the Due Process Clause of the Fifth

and Fourteenth Amendments to the Constitution of the

United States with respect to those persons whose names

and addresses are known or are ascertainable through rea-

sonable efforts. Mullane v. Central Hanover Bank & Trust

Co., 339 U.S. 306, 318-320 (1950) ; Schroeder v. City of New

York, 371 U.S. 208, 212-213 (1962).

In this case, the District Court determined in 1979 that

in excess of 4,600 beneficial purchasers could be and were

identified through reasonable efforts and that the individ-

ual notice of the partial settlement provided to these bene-

ficial puxvchasers in 1979 was “the best notice practicable.”

(App. 19) However, it also declined in 1979 to provide

these beneficial purchasers with notice of their right to

intervene or to opt out, as required by Fed. R. Civ. P.

23(¢) (2)(A)(B)(C), even though in 1974 the District Court

had not directed that any individual notice be provided to

these class members. Thus, on the record below, the same

as in Eisen IV, the District Court has determined that class

members are identifiable and has declined to direct indi-

vidual notice to these class members of their rights under

Fed. R. Civ. P. 23(¢) (2).

The Court of Appeals in its opinion found it unnecessary

to consider the application of this Court’s holding in Eisen

IV because in its view a defendant may raise issues regard-

ing the adequacy of notice pursuant to Rule 23(c) (2), Fed.

R. Civ. P., only when the initial class determination is made.

Thus, the Court of Appeals concluded that Andersen’s

standing to object did not extend beyond the 1974 order

approving the initial notice, and because no objection was

made or appeal taken at that time, Andersen is now

estopped to assert or to appeal that the initial class notice

had not been directed to all identifiable class members in

conformance with Rule 23(¢)(2). See App. 5-7. No author-

12

ity was cited by the Court of Appeals in support of this

“estoppel” conclusion, and we know of none.

This reasoning and holding of the Court of Appeals is in

direct conflict with the principles articulated in applicable

decisions of this Court and of decisions of other Circuits.

Prior to entry of judgment, the District Court has complete

power to revise its orders and to correct any error.

Marconi Wireless Telegraph Co. of America v. United

States, 320 U.S. 1, 47-48 (1943), reh. denied 320 U.S. 809

(1943) ; John Simmons Co. v. Grier Bros. Co., 258 U.S. 82,

88-91 (1922)? Cf. Coopers & Lybrand v. Livesay, 437 U.S.

at 468, 469 (class action determinations are subject to re-

vision prior to judgment); 7 Moore’s Federal Practice,

{1 60.16[4], 60.20 (1979). A District Court’s interlocutory

orders are not viewed as final, and no appeal is required,

until judgment has been properly entered. United States v.

Indrelunas, 411 U.S. 216, 219-221 (1973); Bankers Trust

Co. v. Mallis, 435 U.S. 381, 384-385 (1978), reh denied 436

U.S. 915 (1978); 9 Moore’s Federal Practice, {| 110.18

[1980].2 When an issue is raised for reconsideration either

2 Accord: Hodgson v. United Mine Workers of America, 473 F.2d

118, 125, n. 38 (D.C. Cir. 1972); Acha v. Beame, 570 F.2d 57, 63

(2d Cir. 1978); Braden v. University of Pittsburgh, 552 F.2d 948,

954-955 (3d Cir. 1977); United States v. Jerry, 487 F.2d 600, 604-

605 (3d Cir. 1973); Bon Air Hotel, Inc. v. Time, Inc., 426 F.2d 858,

862 (5th Cir. 1970) ; Cohn v. United States, 259 F.2d 371, 376 (6th

Cir. 1958); Chicago Housing Tenants Organization, Inc. v. Chicago

Housing Authority, 512 F.2d 19, 22 (7th Cir. 1975); Transporta-

tion-Communication-Division Brotherhood v. St. Louis-San Fran-

cisco RR Co., 419 F.2d 933, 935 (8th Cir. 1969), cert. denied 400

U.S. 818 (1970); Pruseau v. Prudential Ins. Co. of America, 591

F.2d 74, 79 (9th Cir. 1979); United States v. Desert Gold Mining

Co., 433 F.2d 713, 715 (9th Cir. 1970).

8 An order of the District Court does not even have the practical

finality for interlocutory review pursuant to 28 U.S.C. 1291 and

the collateral order doctrine articulated in Cohen v. Beneficial In-

dustrial Loan Corp., 337 U.S. 541 (1949), unless no further consid-

eration of the order is likely by the District Court, e.g., Coopers &

13

before or after final judgment, the court is bound to view

the issue in light of the facts that are available at that time.

Hazel-Atlas Co. v. Hartford Co., 322 U.S. 238, 247-250

(1944). As ruled by the District of Columbia Circuit Court

of Appeals:

“Where, as here, a court’s ruling has discretionary ele-

ments based on circumstances which are subject to altera-

tion, the law recognizes the power and responsibility of

the court to reconsider its ruling if a material change in

circumstances has in fact occurred.” Hodgson v. United

Mine Workers of America, 473 F.2d 118, 125 (D.C. Cir.

1972).

The traditional lack of preclusive effect afforded to pre-

judgment orders of the District Court applies with even

greater force to orders directing notice to class members

pursuant to Rule 23(c)(2), Fed. R. Civ. P. The issue of the

adequacy of notice can never be foreclosed, since the issue

can always be raised by absent class members in a collateral

attack upon the judgment. Eisen IV, 417 U.S. at 176-177;

“Notes of the Advisory Committee on Proposed Amend-

ments to Rule 23,” 39 FRD 69, 106 (1966). The require-

ments of the rule are mandatory and are not capable of

Lybrand v. Livesay, 437 U.S. at 477, n. 30 (1978) (the order must

have “disposed of” an unsettled issue of national significance) ;

United States v. MacDonald, 435 U.S. 850, 853-858 (1978); Abney

v. United States, 431 U.S. 651, 659 (1977); Eisen IV, 417 USS. at

171. The 1974 orders lacked even this practical finality. They

were by their terms conditional (App. 14, 16), entered without

objection, and no motion for rehearing or to revise the orders was

made or denied until 1979, when the District Court overruled

Andersen’s objections and declined to direct individual notice to

the newly identified beneficial purchasers in conformance with Rule

23(¢e) (2) (A) (B)(C), Fed. R. Civ. P. In 1979, the District Court

further entered judgment dismissing as against the underwriter

defendants all claims of the members of the classes as defined in

1974 (App. 24-25), and thereby determined the composition of the

classes for all purposes of this litigation, including the continuing

litigation against Andersen, in disregard of the deficiency in the

notice provided to the beneficial purchasers,

14

being “waived.’* Because Andersen has standing to raise

issues regarding the adequacy of notice to assure that it

receives the full res judicata benefit of any judgment in its

favor, Oppenheimer Fund, Inc. v. Sanders, 4387 U.S. 340,

361, n. 30 (1978) ; Bersch v. Drexel Firestone, Inc., 519 F.2d

974, 996 (2d Cir. 1975), cert. denied sub nom Bersch v.

Arthur Andersen & Co., 423 U.S. 1018 (1975), its standing

must necessarily extend to the very situation where the

notice to the class has become demonstrably inadequate.

Every aspect of the analysis and decision of the Court of

Appeals conflicts with prior rulings by this Court and other

Circuits. These conflicts justify the grant of certiorari to

review the judgment below.

*Mr. Justice Powell, speaking for the Court in Hisen IV, 417

U.S. at 176, stated that neither the District Court nor the parties

may waive the requirements of Fed. R. Civ. P. 23(¢) (2):

“(T|ndividual notice to identifiable class members is not a dis-

cretionary consideration to be waived in a particular case. It is,

rather, an unambiguous requirement of Rule 23.”

More recently, this Court advanced a general policy of encouraging

defendants in class actions to advance arguments appropriate to the

rights of absent class members, and to the rights of those defendants,

while reiterating that the duty to direct adequate notice in compli-

ance with Fed. R. Civ. P. 23(¢) (2) rests primarily upon the District

Court. Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 354,

n. 21, 360 (1978).

15

CONCLUSION

A writ of certiorari should issue to review the judgment

and opinion of the First Circuit, that judgment and opinion

should be reversed, and this cause should be remanded with

instructions to provide individual notice to the identifiable

beneficial purchaser class members in conformance with

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

Procedure.

Respectfully submitted,

ArtTHuR ANDERSEN & Co.

Of Counsel: Grorce H. Lewatp

WituraM F. McCarruy Tuomas G. Diana, JR.

Steven T. Hoort mr & sg

Jess T. FARDELLA - ranklin Stree

Ropes & Gray Boston, Massachusetts 02110

225 Franklin Street (617) 423-6100

Boston, CHARLES W. Boanp

Massachusetts 02110 Wilson & McIlvaine

(617) 423-6100 135 South LaSalle Street

Chicago, Illinois 60603

(312) 263-1212

May 5, 1980

16

APPENDIX

Opinion of the Court of Appeals ....................4.

Judgment of the Court of Appeals ....................

Order of the Court of Appeals Denying Petition for Re-

PR © cc oven cccteacveger sesie eens awnneered reas

Amendment V to the Constitution of the United States ..

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

Memorandum and Order of the District Court in Sanders

v. Bennett dated February 26, 1974 ..................

Memorandum and Order of the District Court in Stewart

v. Bennett dated February 26, 1974 ..................

Order of the District Court dated May 7,1979 ..........

Notice to the Classes Approved By the District Court’s

Cott OF Tae Fy BO 6k ove vcscxcecdcusignuapoeaee

Plaintiffs’ Fourth Report to the District Court Concerning

Efforts to Identify Beneficial Purchasers .............

Order and Final Judgment of the District Court Entered

BE GT ee ec A bx ca cg ere eee

22

24

Qnited States Court of Appeals

For THE First Circuit

Nos. 79-1351

79-1452

IN RE

VIATRON COMPUTER SYSTEMS

CORPORATION LITIGATION

ARTHUR ANDERSEN & CO.,

DEFENDANT, APPELLANT.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Josepu L. Tauro, U.S. District Judge]

Brrore Corrin, Chief Judge,

Bowness, Circuit Judge,

CLARKE, JR., District Judge.*

George H. Lewald, with whom Thomas G. Dignan, Jr.,

William F. McCarthy, Steven T. Hoort, Ropes & Gray,

Charles W. Boand, and Wilson & McIlvaine were on brief

for appellant.

Jared Specthrie, with whom Stephen Moulton, Jerome M.

Congress, Craig L. Tessler, Milberg, Weiss, Bershad &:

Specthrie, and Moulton € Looney were on brief, for ap-

pellees.

January 22, 1980

Corrin, Chief Judge. This appeal arises from five con-

solidated class actions brought on behalf of the purchasers

of certain securities of Viatron Computer Systems Corp.

* Of the Eastern District of Virginia, sitting by designation.

2

(Viatron), a Massachusetts corporation, after the filing of

a bankruptey petition by Viatron in 1971. Read together,

the complaints allege violations of Section 11 of the Securi-

ties Act of 1933, 15 U.S.C. § 77k, and Section 10(b) of the

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

issuance of documents which were allegedly materially mis-

leading with respect to Viatron’s prospects for survival.

Among those named as defendants are Viatron’s officers

and directors, the underwriters of its convertible subordi-

nated debenture and stock offerings, a consulting and engi-

neering firm retained by the underwriters in connection

with their due diligence inquiries, and the appellant, Arthur

Andersen & Co. (Andersen), an auditing and accounting

firm which certified the financial statements in the pro-

spectus.

Following certification of two classes pursuant to Rule

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

notice of pendency of the class actions was approved by

the court and mailed to all transferees of record of the rele-

vant Viatron securities in April of 1974. The notice was

also published in the Wall Street Journal. Since the mailed

notice approved by the district court was delivered only to

transferees of record, it was not sent directly to class mem-

bers who were beneficial purchasers of Viatron securities,

that is, who purchased securities for which the record title

was held in the “street names” of nominee brokerage houses,

banks and other entities.’ Instead, the court order pro-

vided that additional copies of the notice could be obtained

by the street name nominees for forwarding to beneficial

purchasers. At the time that the court approved this no-

tice, appellant Andersen explicitly approved both its form

and method of distribution.

1 For a more detailed description of the “street name” phenome-

non, see In Re Franklin National Bank Securities Litigation, 574

F.2d 662, 664 n.2, 673 (2d Cir. 1978) modified, 599 F.2d 1109 (2d

Cir. 1979).

3

Five years later, after extensive discovery consisting of

substantial document production as well as over one hun-

dred days of depositions, counsel for the plaintiffs and the

underwriter defendants agreed to a proposed settlement,

subject to court approval, whereby the underwriters would

pay $1,850,000 to be divided by the two main classes in full

satisfaction of any liability which the underwriters might

have. Counsel for the plaintiffs then applied to the district

court for approval of both the settlement and the proposed

method of distributing notice of it to the class members.

The method proposed for sending notice of the partial

settlement to the class members was similar to that em-

ployed in distributing the 1974 notice in that it provided

for mailing of individual notice to all transferees of record.

It differed, however, in that the individual notices to be

mailed to street names who might be nominees for unknown

beneficial purchasers included a request that the nominee

either forward copies of the notice to the beneficial pur-

chasers or provide plaintiffs’ counsel with their names and

addresses. Plaintiffs’ counsel further proposed that the

settling underwriter defendants who held record title as

nominees be directed by the court to submit “reasonably

available” names and addresses of their beneficial pur-

chaser customers, who could then be provided with indi-

vidual notice.

On May 4, 1979, the district court held a hearing for the

purpose of determining whether it should approve the par-

tial settlement and notice pursuant to Ruie 23(e). At this

hearing, appellant Andersen objected to the proposed no-

tice and method of distribution. In particular, Andersen

claimed that the beneficial purchasers were entitled to indi-

vidual notice and that the proposed method of notifying

them was not the “reasonable effort” required by Rule 23,

as interpreted in Eisen v. Carlisle & Jacquelin, 417 U.S. 156

(1974) (Eisen IV). Andersen also claimed that the con-

tents of the notice were inadequate.

4

The district court rejected Andersen’s arguments and ap-

proved the proposed notice of partial settlement. The court

did, however, order that the plaintiffs’ counsel “shall take

such reasonable steps as the court determines are necessary

to identify and provide notice to beneficial purchasers and

shall periodically report to the court thereon.”* Andersen

still regarded the order as unsatisfactory and brought this

appeal.

Determining what efforts are required in order to attempt

to provide notice to beneficial purchasers of securities held

by street name nominees is far from a simple exercise. The

only appellate court to attempt to make such a determina-

tion found that “reasonable efforts” must be made to send

individual notice to such purchasers, see In Re Franklin

National Bank Securities Litigation, 574 F.2d 662, (2d Cir.

1978) (Franklin 1), modified, 599 F.2d 1109 (2d Cir. 1979)

(Franklin IT).

In this particular case, however, we need not reach the

notice issue. Plaintiffs-appellees argue that Andersen does

not have standing to appeal the court order approving the

settlement notice and agreement. We find this argument

persuasive and dispositive of this appeal.’

A nonsettling defendant does not ordinarily have stand-

ing to object to a court order approving a partial settlement

since the nonsettling defendant is generally not affected

by the settlement. Jn Re Beef Industry Antitrust Litiga-

tion, Nos. 78-3345-46 and 79-1010, slip op. at 1372 (5th Cir.

2 Pursuant to this order, plaintiffs’ counsel twice mailed to the

nominees letters requesting the names and addresses of beneficial

purchasers and offering to pay the reasonable costs which the nomi-

nees might incur in complying with the request.

3 Appellees also contend that the 1979 order is not appealable

under the collateral order doctrine. In light of our holding that

Andersen does not have standing to appeal the order, we do not

address this issue.

4)

Nov. 26, 1979); Seiffer v. Topsy’s Int'l, Inc., 70 F.R.D. 622,

631 n.11 (D. Kan. 1976); 3 Newberg on Class Actions

§ 5660b at 564-65 (1977). In this case, Andersen seeks to

avoid this general rule by limiting its objections to the

method of distribution and form of the notice, rather than

the actual merits of the settlement. With regard to the

notice and its method of distribution, Andersen asserts two

reasons in support of its claim that it has standing.

First, Andersen notes that upon completion of this suit,

it will be able to raise a res judicata bar to any future pro-

ceedings brought against it on the same issues by class

members. See Bersch v. Drexel Firestone, Inc., 519 F.2d

974, 996 (2d Cir.), cert. denied sub nom Bersch v. Arthur

Andersen & Co., 423 U.S. 1018 (1975). If the notice to

class members is deficient, however, then those members of

the class who should have been given notice of the prior

suit but were not might avoid the preclusive effect of this

suit. See Bogard v. Cook, 586 F.2d 399, 408-09 (5th Cir.

1978). See generally, Note, Collateral Attack on the Bind-

ing Effect of Class Action Judgments, 87 Harv. L. Rev. 589

(1974). Thus, Andersen argues, if it is correct in its claim

that the notice of partial settlement is deficient, it might

lose the ability to protect itself against similar subsequent

suits.

The defect in Andersen’s argument is that a Rule 23(e)

notice of partial settlement is not intended to serve as a

Rule 23(c)(2) notice of the pendency of the suit. The Rule

23(¢)(2) notice of pendency, issued in 1974, with its op-

tions for opting out, is the basis on which Andersen can

subsequently raise its claims of preclusion. This notice was

required, whether or not any settlement was contemplated.

If the 1974 notice was adequate, and Andersen subsequently

prevails in the litigation, it will receive the full preclusive

effect of its victory whether or not the notice of partial set-

tlement was even sent, much less sent properly.

6

Thus, Andersen’s interest in maximizing the preclusive

effect of any victory which it might achieve only establishes

that it has standing to challenge the 1974 notice. While it

is perhaps possible that the 1979 notice of partial settlement

might have had the incidental effect of curing any defects

in the 1974 notice, and thus Andersen can arguably claim to

be “harmed” by the alleged failure of the 1979 notice to

have had such an effect, we think this insufficient reason to

allow Andersen to bootstrap its complaints with the 1974

notice into an attack on the 1979 notice of partial settle-

ment. This is certainly not a case in which the two notices

are in fact a single notice, compare In Re Beef Industry

Antitrust Litigation, supra at 1373, with In Re Nissan

Motor Corp. Antitrust Litigation, 552 F.2d 1088, 1093 (5th

Cir. 1977). Since Andersen did not object to the 1974 no-

tice, it clearly had no right to assume that there would be

a settlement five years later which might cure any defects

in the 1974 notice. Once such a settlement in fact occurred,

the process of finalizing it is best left to the court and the

parties who are a part of it.

The second argument which Andersen raises in support

of its claim of standing is that by granting it standing, we

would insure that the absent members of the plaintiff class

would have a surrogate to protect their rights to receive

proper notice. With regard to the notice of partial settle-

ment, however, the settling defendants have a much greater

interest than does Andersen in assuring that the notice is

proper, for they stand to lose the preclusive effect of the

settlement if it is not. Moreover, the district court itself

has an independent obligation to insure that the notice of

settlement is proper. Fed.R. Civ. P. 23(e); see N ote, supra

at 602-03 n.72. Since the absent class members are thus not

without protection, any additional benefits which might

stem from allowing Andersen also to speak on their behalf

are minimal and, we hold, are outweighed by the unneces-

sary frustrations of the settlement process — which itself

is “highly favored in the law”, D. H. Overmeyer Co. v. Lof-

7

lin, 440 F.2d 1213, 1215 (5th Cir. 1971) — that might result

from the participation of a nonsettling defendant.

Finally, we note that Andersen cannot now appeal the

court order approving the 1974 notice. If Andersen had

objected to the 1974 notice in the district court when it was

proposed, then perhaps Andersen could have immediately

appealed the 1974 order approving the notice since it might

have been final under the collateral order doctrine of Cohen

v. Beneficial Industrial Corp., 337 U.S. 541 (1949), cf. Eisen

IV, supra (order imposing costs of notice on defendants

final). Moreover, if Andersen had objected in 1974, it might

have even been possible to entertain an appeal concerning

the order after final judgment is rendered in the ease as a

whole if the finality of the 1974 order under Cohen were in

fact unclear, cf. Drayer v. Krasner, 572 F.2d 348, 353 n.6

(2d Cir. 1978) (Query whether a party against whom a

Cohen-type final order was rendered but excusably failed to

recognize it to be such should be precluded from question-

ing it on appeal from the truly final judgment .. ..’’)

Andersen, however, did not even object to the 1974 order

until 5 years later after extensive discovery had passed,

and it is not in the position of being able to proffer any

excuse for its long delay in recognizing what it now claims

to be a major defect in the 1974 notice, since the primary

authority for its attack on the notice is the Eisen IV deei-

sion of 1974.4 We therefore hold that Andersen has no

standing to appeal the district court’s 1979 order and is es-

topped from appealing the 1974 order.

* Andersen also relies on the Franklin I decision; however, that

was decided a full year before Andersen voiced any complaints.

8

Gnited States Court of Appeals

For tHe First Circuit

Nos. 79-1351

79-1452

IN RE

VIATRON COMPUTER SYSTEMS

CORPORATION LITIGATION

ARTHUR ANDERSEN & CO.,

DEFENDANT, APPELLANT.

JUDGMENT

Entered: January 22, 1980

These causes came on to be heard on appeals from the

United States District Court for the District of Massachu-

setts, and were argued by counsel.

Upon consideration whereof, It is now here ordered, ad-

judged and decreed as follows: The appeals are dismissed

in accordance with the opinion filed this day.

By the Court:

Dana H. GaLLup

Clerk.

9

Gnited States Court of Appeals

For tHt First Circuit

Nos. 79-1351

79-1452

IN RE

VIATRON COMPUTER SYSTEMS

CORPORAFION LITIGATION

ARTHUR ANDERSEN & CO.,

DEFENDANT, APPELLANT.

ORDER OF COURT

Entered: February 19, 1980

It is ordered that the petition for rehearing filed on

February 5, 1980 be, and the same hereby is, denied.

By the Court:

Dana H. GaLLup

Clerk.

AMENDMENT V TO THE

CONSTITUTION OF THE UNITED STATES

No person shall be held to answer for a capital, or other-

wise infamous crime, unless on a presentment or indictment

of a Grand Jury, except in cases arising in the land or naval

forces, or in the Militia, when in actual service in time of

War or public danger; nor shall any person be subject for

the same offence to be twice put in jeopardy of life or limb;

nor shall be compelled in any criminal case to be a witness

against himself, nor be deprived of life, liberty, or property,

without due process of law; nor shall private property be

taken for public use, without just compensation.

10

FEDERAL RULES OF CIVIL PROCEDURE

Rule 23.

CLASS ACTIONS

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

of a class may sue or be sued as representative parties on

behalf of all only if (1) the class is so numerous that joinder

of all members is impracticable, (2) there are questions of

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

of the representative parties are typical of the claims or

defenses of the class, and (4) the representative parties will

fairly and adequately protect the interests of the class.

(b) Class Actions Maintainable. An action may be main-

tained as a class action if the prerequisites of subdivision

(a) are satisfied, and in addition:

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

mon to the members of the class predominate over any ques-

tions affecting only individual members, and that a class

action is superior to other available methods for the fair

and efficient adjudication of the controversy. The matters

pertinent to the findings include: (A) the interest of mem-

bers of the class in individually controlling the prosecution

or defense of separate actions; (B) the extent and nature

of any litigation concerning the controversy already com-

menced by or against members of the class; (C) the desir-

ability or undesirability of concentrating the litigation of

- the claims in the particular forum; (D) the difficulties likely

to be encountered in the management of a class action.

(c) Determination by Order Whether Class Action to be

Maintained; Notice; Judgment; Actions Conducted Partially as

Class Actions.

(1) As soon as practicable after the commencement of an

action brought as a class action, the court shall determine

11

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

this subdivision may be conditional, and may be altered or

amended before the decision on the merits.

(2) In any class action maintained under subdivision

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

the best notice practicable under the circumstances, includ-

ing individual notice to all members who can be identified

through reasonable effort. The notice shall advise each

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

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

whether favorable or not, will include all members who do

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

request exclusion may, if he desires, enter an appearance

through his counsel.

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

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

favorable to the class, shall include and describe those whom

the court finds to be members of the class. The judgment in

an action maintained as a class action under subdivision

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

and specify or describe those to whom the notice provided

in subdivision (c)(2) was directed, and who have not re-

quested exclusion, and whom the court finds to be members

of the class.

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

maintained as a class action with respect to particular

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

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

rule shall then be construed and applied accordingly.

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

tions to which this rule applies, the court may make appro-

priate orders: (1) determining the course of proceedings

or prescribing measures to prevent undue repetition or

complication in the presentation of evidence or argument:

(2) requiring, for the protection of the members of the class

or otherwise for the fair conduct of the action, that notice

be given in such manner as the court may direct to some or

all of the members of any step in the action, or of the pro-

posed extent of the judgment, or of the opportunity of mem-

bers to signify whether they consider the representation

fair and adequate, to intervene and present claims or de-

fenses, or otherwise to come into the action; (3) imposing

conditions on the representative parties or on intervenors;

(4) requiring that the pleadings be amended to eliminate

therefrom allegations as to representation of absent per-

sons, and that the action proceed accordingly; (5) dealing

with similar procedural matters. The orders may be com-

bined with an order under Rule 16, and may be altered or

amended as may be desirable from time to time.

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

dismissed or compromised without the approval of the

court, and notice of the proposed dismissal or compromise

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

as the court directs.

As amended Feb. 28, 1966, eff. July 1, 1966.

13

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

JULES SANDERS, ET AL Crviz ACTION

‘ No. 73-2594-T

: MDL-138

EDWARD M. BENNETT, ET AL DocKETED

MEMORANDUM AND ORDER

Tauro, D. J.

* al *

Accordingly, a class action is hereby maintained under

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

said class to consist of all persons (which means individ-

uals, corporations, partnerships, associations, joint stock

companies, trust[sic] and unincorporated associations)

who acquired or purchased shares of Viatron Computer

Systems Corporation Common Stock during the period

commencing December 23, 1969 and ending April 29, 1971.

The names and addresses of members of the class to the

extent presently ascertainable appear on the list of recoid

holders furnished by First National City Bank, New York,

the transfer agent for the Common Stock of Viatron Com-

puter Systems Corporation.

Notice to the class, in the form annexed and marked

Appendix B, shall be given by the clerk of this Court to

the class pursuant to Rule 23(¢c)(2). Said notice shall be

given to each member of the class as follows:

1. By depositing in the United States Mail, postage

prepaid, on or before April 15, 1974, notice in said form

as annexed, addressed to all transferees of record from

December 23, 1969 to and including April 29, 1971, as

shown on the list of record holders described above.

14

2. By publication of said notice on or before April 15,

1974, once in all editions of the Wall Street Journal of

that day.

This Court finds that the within form of notice annexed

and the giving of same are the best practicable under the

circumstances.

The cost of notice by mailing as ordered in subpara-

graph 1 hereof, and the expense of notice by publication as

ordered in subparagraph 2 hereof, shall be advanced by

the plaintiffs subject to reimbursement pursuant to the

provisions of Rule 54(d) of the Federal Rules of Civil Pro-

cedure for the United States District Courts. Proof of said

mailing and publication shall be filed in this Court on or

before

This Order may from time to time be altered or amended

under Rule 23(c)(1) inter alia, so as to divide the class

into sub-classes where necessary and appropriate, and is

without prejudice to any motion to modify or withdraw the

class action determination.

J. L. Tauro

Dated: 2/26/74

15

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

In Re: VIATRON COMPUTER SYSTEMS

CORPORATION DockETED

MDL-138

(David S. Stewart, et al., v. (71-3022-T)

Edward M. Bennett, et al.)

MEMORANDUM AND ORDER

Tauro, D. J.

Accordingly, a class action is hereby maintained under

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

said class to consist of all persons (which means individ-

uals, corporations, partnerships, associations, joint stock

companies, trusts and unincorporated associations) who

acquired or purchased Viatron Computer Systems Corpora-

tion 614% Convertible Subordinated Debentures due De-

cember 1, 1989, during the period commencing December 23,

1969, through December 17, 1971, the date upon which the

Complaint in this action was filed. The names and ad-

dresses of members of the class to the extent presently

ascertainable appear on the list of record holders certified

by the Indenture Trustee of the aforesaid Viatron Com-

puter Systems Corporation Debentures which shall be fur-

nished the Clerk of Court and marked as Appendix A on

or before March 22, 1974.

Notice to the class, in the form annexed to this order and

marked Appendix B, shall be given by the Clerk of this

Court to the class pursuant to Rule 23(¢)(2). The said

notice shall be given to each member of the class as follows:

16

1. By depositing in the United States mail, postage

prepaid, on or before April 15, 1974, notice in the form

annexed, addressed to all holders of record from Decem-

ber 23, 1969, through December 17, 1971, as certified by

the Indenture Trustee, The First National Bank of

Boston.

2. By publication of said notice on or before April 15,

1974, once in all editions of the Wall Street Journal of

that day.

This Court finds that the within form of notice annexed

and the giving of same are the best practicable under the

circumstances.

The cost of notice by mailing as ordered in subpara-

graph 1 hereof, and the expense of notice by publication

as ordered in subparagraph 2 hereof, shall be advanced by

the plaintiffs subject to reimbursement pursuant to the

provisions of Rule 54(d) of the Federal Rules of Civil Pro-

cedure for the United States District Courts. Proof of said

mailing and publication shall be filed in this Court on or

before

This Order may from time to time be altered or amended

under Rule 23(c)(1) inter alia, so as to divide the class into

sub-classes where necessary and appropriate, and is with-

out prejudice to any motion to modify or withdraw the class

action determination.

J. L. Tauro

Dated: 2/26/74

17

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

DocKETED

IN RE

VIATRON COMPUTER SYSTEMS M.D.L. #138

CORPORATION LITIGATION

DAVID STEWART, ET AL.,

Plaintiffs,

— against — Crviz AcTIon

No. 71-3022-T

EDWARD M. BENNETT, ET AL.,

Defendants.

ORDER

JULES SANDERS, ET AL.,

Plaintiffs,

— against — Crvit Action

No. 73-2594-T

EDWARD M. BENNETT, ET AL.,

Defendants.

WHEREAS, on February 26, 1974, David Stewart v.

Edward M. Bennett, No. 71-3022-T (“Stewart”), was or-

dered to proceed as a class action on behalf of all persons

who acquired or purchased convertible subordinated deben-

tures of Viatron Computer Systems Corporation (“Via-

tron”) during the period from December 23, 1969 through

December 17, 1971, and Jules Sanders v. Edward M. Ben-

nett, No. 73-2594-T (“Sanders”), (Stewart and Sanders are

collectively referred to as the “Actions’’), was ordered to

proceed as a class action on behalf of all persons who

acquired or purchased common stock of Viatron during the

period from December 23, 1969 through April 29, 1971;

18

WHEREAS, members of the Stewart and Sanders

classes were given notice of the pendency of said Actions;

WHEREAS, the plaintiffs herein have entered into and

filed a Stipulation of Settlement dated November 29, 1978

settling the claims asserted in these actions by the named

plaintiffs herein on behalf of themselves and the classes

certified herein as against the underwriter defendants and

reserving the right of the plaintiffs and the classes to con-

tinue the actions against the non-settling defendants;

* * *

WHEREAS, the Stipulation of Settlement has been pre-

sented to the Court, after due deliberation, It Is Hereby

ORDERED:

1. A hearing (the “Hearing”’’) shall be held before this

Court on Aug. 15, 1979 at 11:00 o’clock A.M., in Room

, in the United States Courthouse, 1525 John W. MeCor-

mack Building, Boston, Massachusetts, for the purpose

of determining, pursuant to Rule 23(e) of the Federal

Rules of Civil Procedure, whether the partial settlement

of these actions, as set forth in the Stipulation, should

be approved as being fair, reasonable and adequate and

in the best interest of the members of the classes in these

Actions; and for the purpose of hearing petitions for

interim allowance for expenses.

2. (a) On or before July 5, 1979, notice of the hearing

on the proposed partial settlement, substantially in the

form annexed hereto as Exhibit 1, with the Proof of

Claim form annexed thereto, shall be caused to be mailed

by Messrs. Milberg Weiss Bershad & Specthrie, and

Messrs. Moulton and Looney, by first class mail, to all

class members to whom the Notice of Class Determina-

tion was mailed by them pursuant to this Court’s order

dated February 26, 1974, at the last known addresses of

19

said class members appearing on the books of Viatron or

its transfer agent;

(b) On or before June 27, 1979, the underwriters listed

in Schedule A to the Stipulation of Settlement (who

appear as record purchasers on the books of Viatron or

its transfer agent) will provide plaintiffs with a list of

the reasonably available names and addresses of benefi-

cial purchasers for whom said firms acted as nominees

during the class period and Messrs. Milberg Weiss Ber-

shad & Specthrie and Messrs. Moulton and Looney shall

cause notice to be mailed by first class mail to such bene-

ficial purchasers ;

(c) Plaintiffs shall take such reasonable steps as the

Court determines are necessary to identify and provide

notice to beneficial purchasers and shall periodically

report to the Court thereon.

3. On or before July 5, 1979, notice of the hearing on

the proposed partial settlement, substantially in the form

annexed hereto as Exhibit 2, shall be caused to be pub-

lished once in the National Edition of the Wall Street

Journal.

4. Notice given in accordance with this Order meets

the requirements of Rule 23 of the Federal Rules of Civil

Procedure and is the best notice practicable under the

circumstances and shall constitute due and sufficient

notice to all persons entitled thereto.

Dated: Boston, Massachusetts

May 7, 1979

J. L. Tauro

U.S.D.J.

20

OFFICE OF THE CLERK

UNITED STATES DISTRICT COURT FOR

DISTRICT OF MASSACHUSETTS

1525 John W. McCormack Building

Boston, Massachusetts 02109

NOTICE OF PARTIAL SETTLEMENT TO ALL PERSONS

WHO (A) ACQUIRED OR PURCHASED DEBENTURES OF

VIATRON COMPUTER SYSTEMS CORPORATION DURING

THE PERIOD COMMENCING DECEMBER 23, 1969,

THROUGH DECEMBER 17, 1971, or (B) ACQUIRED OR

PURCHASED COMMON STOCK OF VIATRON COMPUTER

SYSTEMS CORPORATION DURING THE PERIOD COM.-

MENCING DECEMBER 23, 1969, THROUGH APRIL 29, 1971.

You are hereby notified pursuant to an Order of the

United States District Court for the District of Massachu-

setts entered May 7, 1979.

INSTRUCTIONS TO NOMINEES -

Counsel for the plaintiffs is attempting to obtain the

name(s) and address(es) of all beneficial purchasers whose

Viatron securities were held in the name of banks, broker-

age firms or other nominees during the class period. If you

are a nominee which is holding or has held Viatron securi-

ties for such beneficial purchasers and have not previously

suppiied the name(s) and address(es) of these beneficial

purchasers to counsel for plaintiffs or defendants or have

not agreed to forward the Notice and Proof of Claim de-

scribed below to such beneficial purchasers, please read and

comply with the enclosed Notice to Nominees by July 19,

1979 so that notice of the partial settlement in these Actions

can be given to the beneficial purchasers of Viatron’s

securities.

21

Any nominee may, on its own, undertake to notify directly

those beneficial purchasers for whom it is acting as nom-

inee, provided that such nominee shall agree to forward the

Notice and Proof of Claim in these actions to all the bene-

ficial purchasers for whom it is acting as a nominee.

REQUIREMENT TO FILE PROOF OF CLAIM FORM

If you are a class member, and have not previously re-

quested exclusion, you have to complete, sign and file the

annexed Proof of Claim form in order to participate in the

settlement and receive your proportionate share of the net

settlement funds. The Proof of Claim form must be mailed

by first-class mail, postmarked on or before October 3, 1979

in order to be timely filed. YOUR CLAIM MAY BE RE-

JECTED IF NOT POSTMARKED BY OCTOBER 3, 1979.

If you do not file a claim form you will not receive any

portion of the settlement fund, but you will be bound by the

final judgments dismissing the Actions, and the Stipulation

of Settlement, and you will be barred from any further

assertion of released and settled claims. 70 receive a por-

tion of the settlement fund you must file a Claim Form in

proper manner and mail it, by first class mail, postmarked

on or before October 3, 1979.

Dated: July 5, 1979.

Entered by Order of

HoNnorABLE JosEPH L. Tauro

United States District Judge

For the District of Massachusetts

HonorasB_e Greorce F. McGratu

Clerk

The United District Court for

The District of Massachusetts

22

MILBERG WEISS BERSHAD & SPECTHRIE

One Pennsylvania Plaza

New York, N.Y. 10001

(212) 594-5300

September 12, 1979

BY HAND

HonoraB_e JosepH L. Tauro

USS. District Judge

John W. McCormack Post Office

and Courthouse

Boston, Mass. 02109

Re: Viatron Computer Systems Corporation

Securities Litigation

No. MDL-138-T

Plaintiffs’ Fourth Report to Court

Concerning Efforts to Identify

Beneficial Purchasers of Securities

Dear Judge Tauro:

Your order of May 7, 1979 scheduling a hearing on the

proposed partial settlement with the underwriters provided

that plaintiffs’ counsel was to periodically report to the

Court on their efforts to identify and provide notice to bene-

ficial purchasers of Viatron securities. This letter will con-

stitute plaintiffs’ fourth report to the Court with respect to

the efforts plaintiffs’ counsel have taken pursuant to the

order.

Since our last report we have received an additional 12

responses from nominees who either supplied us with the

names of certain beneficial purchasers or stated that they

would forward copies of the notice to their beneficial pur-

chasers. An aggregate of 600 persons have been identified

23

as possible class members as a result of these 12 responses.

Notice of the settlement and proof of claim form have been

forwarded to these persons.

* * *

So far, we have thus identified approximately 4,600 per-

sons who were not record purchasers but for whom others

acted as nominees in the purchase of Viatron securities.

Notice and proof of claim forms have been mailed to such

persons. Our efforts are continuing.

Respectfully submitted,

MiLBerG Weiss BersHap & SPECTHRIE

By Jarep SPECTHRIE

Mouton & LooNEY

By SrerHen Movutton

ec: All Counsel on

Viatron Service List

24

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

IN RE

VIATRON COMPUTER SYSTEMS M.D.L. #138

CORPORATION LITIGATION

DAVID STEWART, ET AL.,

Plaintiff's,

Civit ACTION

Saiiee 91 st a

= No. 71-3022-T

EDWARD M. BENNETT, ET AL.,

Defendants.

JULES SANDERS, ET AL.,

wee

Plaintiffs, Civit ACTION

— against — No. 73-2594-T

EDWARD M. BENNETT, ET AL.,

Defendants.

WHEREAS, the plaintiffs in each of the five above

actions (“the Actions”) have entered into and filed a Stipu-

lation of Settlement dated November 29, 1978 (‘the Stipula-

tion”) conditionally settling and compromising these actions

as between the plaintiffs in the Actions, the class defined in

paragraph (p) of the Stipulation, and the Managing Under-

writer (defined in paragraph (i) of the Stipulation) on

behalf of the Underwriters listed in Schedule A attached to

the Stipulation; and

* * *

NOW, THEREFORE, after considering the Stipulation,

the papers filed by the parties, the arguments of counsel

and the entire record herein, and upon due deliberation,

it is

25

ORDERED, ADJUDGED AND DECREED as follows:

1. The Stipulation is hereby approved and adjudged

by the Court to be fair, reasonable and adequate, and the

parties to the Stipulation are directed to consummate all

of the terms and provisions of the Stipulation.

2. The Actions, including the claims asserted by R.

Robert Popeo against the Underwriters (as defined in

paragraph (1) of the Stipulation) in the Stewart Action

be, and the same hereby are, dismissed as against the

Underwriters with prejudice on the merits and without

costs.

3. The Underwriters (as defined in paragraph (1) of

the Stipulation) be, and the same hereby are, released

and discharged from any claims, demands, causes of ac-

tion and liabilities which the plaintiffs in the Actions,

Channing Management Corporation, or any class mem-

ber has, or may have, arising out of or relating to any

transactions or occurrences set forth or referred to in the

complaints in the Actions.

13. The Court hereby determines, pursuant to Rule

54(b) of the Federal Rules of Civil Procedure, that there

is no just reason for delay and directs that this Order

and Final Judgment be entered by the Clerk of the Court.

Dated: Boston, Massachusetts

August 15, 1979

JosePH L. Tauro, U.S.D.J.

ENTERED:

ELuLen M. Hays,

Deputy Clerk of the Court