# Petition — Arthur Andersen & Co. v. Stewart

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1980
- **Citation:** 449 U.S. 826

## Text

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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_2350%3A1. Public record. Not legal advice.