# Appendix — Eisen v. Carlisle & Jacquelin > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0297%3A01 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1974 - **Citation:** 417 U.S. 156 ## Text APPENDIX Supreme Court of the United States October Term, 1973. No. 73-203. MORTON EISEN, Petitioner, v. CARLISLE & JACQUELIN, et al. ¢ ’ On Writ of Certiorari to the United States Court of Appeals For the Second Circuit. Petition for Certiorari Filed July 30, 1973. Certiorari Granted October 15, 1973. INDEX. Page District Court Docket Entries No. 66 Civ. 1265 ............ Al United States Court of Appeals Docket Entries: Pe I es rece sine eae ns Se eua ewes Al3 | AAS oS 1 4 Rr oe ee a ee ee ee Al7 ON POPE PPL tL eT EE EE eT ee eT EEE A21 Answer of Defendant Carlisle & Jacquelin ................. A27 Answer of Defendant DeCoppet & Doremus ............... A30 Answer of Defendant New. York Stock Exchange .......... A33 Affidavit of Dean Witter, Jr., Sworn to June 21, 1966 ....... A36 Affidavit of Bayard Dominick Sworn to June 23, 1966 ...... A4l Affidavit of Joseph F. Neil, Jr., Sworn to July 1, 1966 ....... A44 Affidavit of Edward I. O’Brien Sworn to July 1, 1966 ...... A47 Affidavit of William D. Fleming Sworn to June 30, 1966 .... ASO Affidavit of Matthew J. Smith Sworn to June 30, 1966 ...... A53 Affidavit of Edwin B. Peterson Sworn to July 1, 1966 ...... AS7 Affidavit of Daniel T. Bergin Sworn to July 6, 1966 ........ A60 Plaintiff's Answers to Defendants’ Interrogatories, Verified on ee ee ee See eee A63 Opinion by Tyler, J., Dated September 27, 1966, Granting De- fendants’ Motion to Extent That Action, as Class Action, ee ES. Seer oe Eee Petr eee A93 Order Denying Certificate Under 28 U. S. C. § 1292(b) .... A103 Opinion of United States Court of Appeals for the Second Circuit Dated December 19, 1966 (Waterman, Moore and Kaufman, Circuit Judges) Denying Defendant’s Motion i I eee ee nee ane ee sess A104 Order of United States Court of Appeals for the Second Circuit Dated January 13, 1967, Denying Petition for Rehearing a ee saci es Sheehan css's ss A108 Order of United States Court of Appeals for the Second Circuit Dated January 13, 1967, Denying Petition for Rehearing A109 Opinion of United States Court of Appeals for the Second Circuit Dated March 8, 1968 (Medina and Hays, Circuit Judges) Reversing and Remanding and Dissenting Opin- eae Oo oer eee ere A110 Judgment of United States Court of Appeals for the Second Circuit Dated March 8, 1968, Reversing and Remanding A138 INDEX (Continued). Transcript of Record of Proceedings Dated April 30, 1970 ... COBGGRY occ nccvsccenescnsccccsscesseesvessesvacesis Paul Robin Martin— Direct Examination ..........cccccccccccccccces Croes-Escamimation : ..... cc cccccccscccccccccccccs Direct Examination ..........cccccccccccccccece COMogy oo. ccccccccccccccccccccccccccccccccsecvecs Opinion of Tyler, J., Dated October 8, 1970, Whereby Court Is Unable at This Time to Decide Class Action Motion .. Affidavit of Russell E. Brooks in Response to Opinion ...... Affidavit of Richard Allan in Response to Opinion .......... Affidavit of Mordecai Rosenfeld in Response to Opinion .... Affidavit of Arthur J. Galligan in Response to Opinion ...... Affidavit of Mordecai Rosenfeld in Response to Opinion .... Stipulation Number 1 .............ee cece eee e eee eee eeeee Stipulation Number 2 .............ceeeeeeececcceceecees Portions of Plaintiff's Proposed Findings of Fact and Brief in Opposition to Defendants’ Motion to Dismiss Pursuant to Rule 23 F. R. C. P. Dated June 10, 1970 ........... Opinion of Tyler, J., Dated April 7, 1971 Providing That Action May Be Maintained as a Class Action .......... Appendix C 2... ec cccccccccccccccessccscccsececcess te Extract of Transcript of Record of Proceedings Dated May 17, 071 Chagee 3 00 8) onc ciascecccceccevscsesessnee Transcript of Record of Proceedings Dated February 9, 1972 Opinion of Tyler, J., Dated April 4, 1972 Providing That De- fendant Shall Bear 90% of Costs of Notice to Class ..... Notice of Motion to the United States Court of Appeals for the Second Circuit Dated April 11, 1972, to Fix a Briefing Schedule and Date for Oral Argument ................ Affidavit of William E. Jackson in Support of Motion ...... Notice of Motion to the United States Court of Appeals for the Second Circuit Dated April 11, 1972, to Order Trans- mniesion of the Record ....cccccccecsecesscsessecese Affidavit of William E. Jackson in Support of Motion ...... INDEX (Continued). Order of the United States Court of Appeals for the Second Circuit Dated May 1, 1972, Denying Motion to Fix Brief- ing and Date for Oral Argument Without Prejudice to Renewal After Defendants Have Filed Their Brief and Appendix ...... 22. cece cece ccc c erence cs ecsccccececs Order of the United States Court of Appeals for the Second Circuit Dated May 1, 1972, Granting Motion to Order Transmission of the Record ..........-...+---e++ees: Defendants’ Notice of Appeal From Orders Entered on April 7, 1971 amd April 4, 1972 2.2... ccccccccccccccccens Motion of Plaintiff in the United States Court of Appeals for the Second Circuit for Order Dismissing Appeal ....... Affidavit of Mordecai Rosenfeld, Dated May 16, 1972 in Sup- port of Motion for Order Dismissing Appeal .........-. Order of United States Court of Appeals for the Second Circuit, Dated June 29, 1972, Denying Motion to Dismiss the Append ..... 2... cccccccccccccsccccncncdoccccces Motion of Defendants in the United States Court of Appeals for the Second Circuit Dated July 26, 1972, to Set a Brief- ing Schedule and Date for Oral Argument ...@......- Affidavit of William E. Jackson in Support of Motion ....... Order of United States Court of Appeals for the Second Cir- cuit Dated August 24, 1972, Setting a Briefing Schedule Appendix to Supplemental Statement of Defendants-Appellees in the United States Court of Appeals for the Second Circuit, Dated December 22, 1972 ............-.-.+--- Opinion of United States Court of Appeals for the Second Circuit Dated May 1, 1973, Reversing Class Action Orders of the District Court, and Concurring Opinion. of De ee ee ree er eT Opinion of United States Court of Appeals for the Second Circuit, Dated May 24, 1973 Denying Motion for Rehear- ing in Banc, Concurring Opinion of Judge Mansfield, Dissent of Judge Hays, and Dissenting Opinion of Judge INDEX (Continued). Itemized Bill of Costs Filed by Defendants-Appellees in the United States Court of Appeals for the Second Circuit on May 15, F908 iovcicsnsocccsenscosecennnes t50tes ot ales Me Ae Nats Vy Tatts oat hen 0 Race BON wah een eee ne eee Affidavit of E. I. O’Brien A47 AFFIDAVIT OF EDWARD I. O’BRIEN SWORN TO JULY 1, 1966 UNITED STATES DISTRIQT COURT Soutuern District or New York {Same Trriz] State of New York ) County of New York ) ss.: Epwanp I. O’Brien, being duly sworn, deposes and says: 1, I am a Vice President of Bache & Co. Incorporated (hereinafter together with any predecessor firms some- times called ‘‘my Firm’’), have been associated with my Firm or its predecessors for upwards of ten (10) years and am familiar with the facts and circumstances hereinafter set forth. 2.\My Firm for many years past has been and still is a member organization of New York Stock Exchange and has been, and still is, engaged in the business of buying and selling for its customers shares of stock of corpora- tions whose stocks are listed on the New York Stock Exchange. 3. My Firm has in excess of 100,000 customers located throughout the United States, and in many foreign coun- tries. These customers include individuals and such di- verse entities as savings banks, educational institutions, foundations, religious groups, non-profit organizations, life and other insurance companies, investment clubs, mutual funds and closed-end investment companies, non-financial corporations, business corporations, partnerships, personal A48 Affidavit of E. I. O’Brien holding companies, and non-bank-administered estates, guardianships, pension funds, personal trusts, and profit- sharing plans, as well as governmental bodies. While many of my Firm’s customers are investors, a number are traders who buy and sell securities with a great deal of frequency. 4. The activities of my Firm as broker in buying or selling stock for the account of its customers involve either the purchase or sale of stock in the standard unit of trad- ing on the New York Stock Exchange which, except with respect to certain inactive stocks, is one hundred shares of multiples thereof (a ‘‘round-lot’’ transaction) or in units of less than the standard unit of trading—one to ninety-nine shares (an ‘‘odd-lot’’ transaction). Many of our customers have my Firm execute for them both round- lot and odd-lot transactions. A very substantial part of my Firm’s business for these customers involves odd-lot transactions. I have been informed and believe that in the four year period from May 1, 1962 through April 30, 1966, my Firm arranged for its customers 1,429,845 sepa- rate odd-lot purchases or sales. The financial resources of odd-lot customers range from those individuals of mod- est means to multi-million dollar corporations. 5. My Firm’s customers engage in many types of odd- lot transactions. Thus, my Firm, has handled Market Orders (order to buy or sell at the market), Limited Or- ders and Stop Loss Orders (order to buy or sell at a pre- scribed price), Day Orders (order which remains in force only through the day in which it was entered), Open Orders (order kept in force beyond the day of entry), Good Until Cancelled (G.T.C.) Orders (orders kept in force until can- celled), Stop Limited Orders (orders to buy or sell at a certain price with a specified limit) Order to Buy on Offer Sb tine tn figs eI he am) bn cil tl Affidavit of E. 1. O’Brien A49 —Sell on Bid (orders that do not require a triggering round-lot transaction), Orders to Buy or Sell on Close (order to buy or sell at the closing round-lot bid or offer price), Basis Price Orders (order to buy or sell on prices established by the odd-lot dealers where there is no round- lot transaction), Alternative Orders (a group of orders entered at the same time, where the execution of one order automatically cancels the other or others), Contingent Orders (a combination of orders the execution of one being contingent upon the execution of the other) and Scale Orders (orders to buy or sell two or more lots of the same stock at designated price variations). Some of our cus- tomers sold ‘‘short’’ (sold stock that they did not then own) or maintained ‘‘long’’ positions in particular stocks. Many of our customers purchase stocks through the Monthly Investment Plan. Some of our customers trade for cash and some on margin. The dealings of our odd-lot customers are extremely varied and take many forms and are made for many different objectives and purposes. 6. The stocks in which my Firm’s odd-lot customers deal embrace nearly all of the approximately 1430 active issues as well as the approximately 210 inactive issues listed on the New York Stock Exchange. These stocks vary widely in price. As can be seen from an examination of the financial pages of most daily newspapers, the New York Stock Exchange listed stocks selling for as little as two dollars a share and as high as several hundred dollars a shate. } Epwarp I. O’Brien ra (Sworn to July 1, 1966.) A50 Affidavit of W. D. Fleming AFFIDAVIT OF WILLIAM D. FLEMING SWORN TO JUNE 30, 1966 5 UNITED STATES DISTRICT COURT SoutHesrn District or New York [Same Trriz] State of New York ) County of New York ) ss.: Wuuum D. Fremine, being duly sworn, deposes and says: 1. I am the President of Walston & Co., Inc. a Delaware Corporation (hereinafter together with any predecessor firms sometimes called ‘‘my Firm’’), havee beene associated with my Firm or its predecessors for upwards of twenty (20) years and am familiar with the facts and circumstances hereinafter set forth. 2. My Firm for many years past has been, and still is, a member organization of New York Stock Exchange and has been, and still is, engaged in the business of buying and selling for its cusotmers shares of stock of corporations whose stock is listed on the New York Stock Exchange. While my Firm’s main office is in New York City, we have ninety other offices. These are scattered throughout the continental United States, with thirty-two on the West Coast, twenty-five on the East Coast, seventeen in the Midwest and thirteen in Florida. In addition we have two offices in Hawaii and one in Switzerland. 3. My Firm has in excess of Three Hundred Thousand (300,000) customers located throughout the United States, and in many foreign countries. Of these about One Hun- - Affidavit of W. D. Fleming A51 dred Thousand (100,000) are active customers while the rest have only occasional transactions. These customers include individuals and such diverse entities as savings banks, educational institutions, foundations, religious groups, non- profit organizations, life and other insurance companies, investment clubs, mutual funds and closed-end investment companies, non-financial corporations, business corpora- tions, partnerships, personal holding companies, and non- bank-administered estates, guardianships, pension funds, personal trusts, and profit-sharing plans, as well as govern- mental bodies. While many of my Firm’s customers are investors, a number are traders who buy and sell securities with a great deal of frequency. 4. The activities of my Firm as broker in buying or selling stock for the account of its customers involve either the purchase or sale of stock in the standard unit of trading on the New York Stock Exchange, which, except with respect to certain inactive stocks, is one hundred shares or multiples thereof (‘‘round-lot’’ transaction) or in units of less than -the standard unit of trading—one to ninety-nine shares (an ‘*odd-lot’’ transaction). Many of our customers have my Firm execute for them both round-lot and odd-lot trans- actions. A very substantial part of my Firm’s business for these customers involves odd-lot transactions. I have been informed and believe that in the four year period from May 1, 1962 through April 30, 1966, my Firm arrangd for its customers Eight Hundred One Thousand Eight Hun- dred Eighty-Five (801,885) separate odd-lot purchases or sales. The financial resources of odd-lot customers range from those of individuals of modest means to multi-million dollar corporations. 5. My Firm handled for our customers many different types of odd-lot transactions. Among these were Market Orders (order to buy or sell at the market), Limited Orders A52 Affidavit of W. D. Fleming and Stop Loss Orders (order to buy or sell at a prescribed price), Day Orders (orders which remain in force only through the day in which they were entered), Open Orders (orders kept in force beyond day of entry), Good Until Canclled (GTC) Orders (orders kept in force until can- celled), Stop Limited Orders (orders to buy or sell at a certain price with a specified limit), Orders to Buy on Offer —Sell on Bid (orders that do not require a triggering round-lot transaction), orders to Buy or Sell on Close (orders to buy or sell at the closing round-lot price), Basis Price Orders (orders to buy or sell on prices established by the odd-lot dealers where there is no round-lot trans- action), and Scale Orders (orders to buy or sell two or more lots of the same stock at designated price variations). Some of our customers sold ‘‘short’’ (sold stock that they did not then own) or maintained ‘‘long’’ positions in par- ticular stocks. Some of our customers trade for cash and some on margin. Many of our customers purchase stocks through the Monthly Investment Plan. The dealings of our odd-lot customers are extremely varied and take many forms and are made for many different objectives and purposes. 6. The stock in which my Firm’s odd-lot customers deal embrace nearly all of the approximately One Thousand Four Hundred Thirty (1,430) active issues as well as many of the approximately Two Hundred Ten (210) inactive stocks listed on the New York Stock Exchange. These stocks vary widely in price. As can be seen from an exam- ination of the financial pages of most daily newspapers, the New York Stock Exchange listed stock selling for as little as two dollars a share and as high as several hundred dollars a share. William D. Fleming (Sworn to June 30, 1966.) 3 2 . ; a 4 = - 4 4 Affidavit of M. J. Smith A53 AFFIDAVIT OF MATTHEW J. SMITH SWORN TO JUNE 30, 1966 UNITED STATES DISTRICT COURT SourHern Disrricr or New York [Same Trriz] State of New York ) County of New York ) ss.: Martruew J. Surru, being duly sworn, deposes and says: 1. I am a vice-president of Merrill Lynch, Pierce, Fen- ner & Smith Incorporated (hereinafter together with any predecessor firms sometimes called ‘‘my Firm’’), and Di- rector of its Administrative Division, and I have been asso- ciated with my Firm or its predecessors for upwards of 17 years and am familiar with the facts and circumstances hereinafter set forth. 2. My Firm for many years past has been, and still is, a member of New York Stock Exchange and has been, and still is, engaged in the business of buying and selling for its customers shares of stock of corporations whose stocks ar listed on the‘New York Stock Exchange. 3. My Firm has in excess of 700,000 customers located throughout the United States, and in many foreign coun- tries, serviced by 145 offices in the United States and Can- ada, and 13 offices throughout the rest of the world. These customers include such diverse entities as individuals, insti- tutions, including savings banks, educational institutions, foundations, religious groups, fraternal and other non-profit organizations, life and other insurance companies, labor unions, investment clubs, credit unions, mutual funds and A54 Affidavit of M. J. Smith closed-end investment companies, non-financial corpora- tions, business corporations, partnerships, trustees in bank- ruptcy, personal holding companies, estates, guardianships, pension funds, employee stock purchase plans, personal trusts, conservatorships, custodians and profit-sharing plans, as well as governmental bodies. While many of my Firm’s customers are investors, a number are traders who buy and sell securities with a great deal of frequency. 4. The activities of my Firm as broker in buying or selling stock for the account of its customers involve either the purchase or sale of stock in the standard unit of trading on the New York Stock Exchange, i.e., one hundred shares or multiples thereof (a ‘‘round-lot’’ transaction) or in units of less than the standard unit of trading—one to ninety-nine shares (an ‘‘odd-lot’’ transaction). For the past several years my Firm has handled approximately 20% of the odd- lot business on the New York Stock Exchange. Many of our customers have my Firm execute for them both round-lot and odd-lot transactions. A very substantial part of my Firm’s activities for these customers involves odd-lot trans- actions. I have been informed and believe that in the four year period from January 1, 1962 through December 31, 1965, my Firm arranged for its customers approximately 5,500,000 separate odd-lot purchases or sales (not includ- ing transactions in Monthly Investment Plan (hereafter ‘*MIP”’) accounts). The financial resources of odd-lot cus- tomers range from those of individuals of modest means to multi-million dollar corporations. 5. The dealings of our odd-lot customers are extremely varied and take many forms and are made for many differ- ent objectives and purposes. My Firm handled Market Orders (orders to buy or sell at them arket), Limited Or- ders and Stop Loss Orders (orders to buy or sell at a pre- Le a ee eM ‘Lee te ag Pee eo ge te Pee eye Affidavit of M. J. Smith A55 scribed price), Day Orders (orders which remain in force only through the day in which it was entered), Open Orders (orders kept in force beyond day of entry), Good Until Cancelled (G.T.C.) Orders (orders kept in force until can- celled), Stop Limited Orders (orders to buy or sell at a cer- tain price with a specified limit), Orders to Buy on Offer— Sell on Bid (orders that do not require a triggering round- lot transaction), Orders to Buy or Sell on Close (orders to buy or sell at the closing round-lot offer or bid), Basis Price Orders (orders to buy or sell on prices established by the odd-lot dealers where there is no round-lot transac- tion), Alternative Orders (a group of orders entered at the same time, where the execution of one order automati- eally cancels the other or others), Contingent Orders (a combination of orders the execution of one being contingent upon the execution of the other) and Scale Orders (orders to buy or sell two or more lots of the same stock at desig- nated price variations). Some of our customers sold ‘*short”’ (sold stock that they did not then own) or main- tained ‘‘long’’ positions in particular stocks. Some of our customers trade for cash and some on margin. 6. Some of our odd-lot customers are individual in- vestors with limited funds who purchase only odd lots of their favorite stocks. Some customers purchase odd lots as they enter the market for the first time, and then purchase round lots as they gain experience and confidence. Other customers who may generally buy and sell round lots may find it necessary on occasion to buy and sell odd lots. Thus, for example, the holder of Standard Oil of Indiana who receives a stock dividend in the form of shares of Standard Oil of New Jersey may sell the Standard Oil of New Jersey stock because he doesn’t want to bother holding odd lots. Or the executor of an estate who must raise funds to pay debts, taxes or legacies may sell odd lots to raise only 80 A56 Affidavit of M. J. Smith much cash as he actually needs, and thereby preserve the balance of the stock holdings for distribution to the legatees. Along the same lines, an executor may buy or sell odd lots in order to have holdings available for equal distribution among the legatees (e.g., an executor with 100 shares of XYZ stock to distribute to 3 legatees might either buy 2 shares or sell 1 share so that each legatee receives the same number of shares). My Firm has more than half of the approximately 180,- 000 New York Stock Exchange MIP accounts. By their _ Nature these accounts involve odd lot transactions. Many of our MIP customers also have regular accounts with us, in which some of them often buy and sell in round lots. A booklet, recently published by the New York Stock Exchange, entitled ‘‘New Investors’’, indicates that the number of minor shareholders has increased from 450,000 in 1962 to 1,280,000 in 1965 (page 6). Many of these minors have acquired their holdings through the various Gifts to Minors statutes, whose use is becoming increasingly popu- lar. Many gifts under the Gifts to Minors acts are small gifts of a few shares to commemorate a birth, baptismal, graduation, confirmation or similar event. It is not likely that the persons making these gifts are concerned with the odd lot differential. Matraew J. Smrru (Sworn to June 30, 1966.) Affidavit of E. B. Peterson A57 AFFIDAVIT OF EDWIN B. PETERSON SWORN TO JULY 1, 1966 UNITED STATES DISTRICT COURT Soutuern District or New York [Same Trriz] State of New York ) County of New York ) ss.: Epwrin B. Pererson, being sworn, says: I am a general partner in Francis I. duPont & Co., members of the New York Stock Exchange and other securities exchanges. The firm consists of thirty-eight gen- eral partners and approximately fifteen limited partners. Although there are partners in charge of various offices throughout the country, the firm is centrally controlled from the main office at No. One Wall Street, New York City. Our firm maintains 104 offices, included in which are offices in London, Amsterdam, Frankfurt, Lausanne, Beirut, and two in Canada. I caused a check of our records to be made for the period from January 1, 1966 through May 31, 1966 and found that we mailed statements to an average of 141,307 customers each month. This number does not represent anything like our entire clientele but merely those cus- tomers for whom the firm is carrying a position at the time of the mailing—in other words, ‘‘open accounts’’. ‘The total number of the firm’s clients would be vastly in excess of this mailing list; I would estimate somewhere between 500,000 and 1,000,000. For various reasons, including the prevalence of stock splits, stock dividends, etc., a great majority of our cus- A58 Affidavit of E. B. Peterson tomers are involved in odd-lot transactions, but there is no way of obtaining exact information in this connection with- out analyzing the history of each account for the period of time involved. In view of the enormous numbers, this task would be virtually impossible. During the five months covered by my investigation, the firm averaged 1,932 odd-lot transactions per day on the New York Stock Exchange alone. Almost every conceivable type of customer was involved, as for instance, individuals, banks, fiduciaries (including executors and trustees), cus- todians under the Gifts to Minors Act, mutual funds, trust funds, investment counsellors (acting under powers of at- torney), business partnerships, business corporations, in- surance companies, pension funds, trusts, investment clubs, and many others too numerous to list. There are many different types of orders involved in odd-lot transactions, as for instance, market order, limit order, day order, good for a week, good until cancelled, open door, stop loss order, basis order, money order, etc., etc. My firm handles all of them at one time or another, and each different type of order requires a different type of handling. A money order, for example, involves a cus- tomer who calls up and states that he has a definite amount of money and would like to buy as many shares as possible of a certain stock. My firm must ascertain the price of the stock, the brokerage commission, compute the probable differential, and arrange for the disposition of the excess of the money available over the cost of the order. It is absolutely essential that the odd-lot houses provide for the prompt delivery of stock. A small investor wants to receive his securities as soon as he has put up his money and our firm is equally desirous that he should receive them at once. We feel that it is a good policy for a small investor to receive all the literature, such as proxy statements and in Affidavit of E. B. Peterson A59 annual statements, which goes out periodically to stockhold- ers and, in addition, it saves the firm the trouble and expense of holding and servicing an inordinate number of small accounts. The odd-lot differential is accepted by the investor without comment. I do not remember any specific com- plaints on this subject. Epwin B. Pererson (Sworn to July 1, 1966.) A60 Affidavit of D. T. Bergin AFFIDAVIT OF DANIEL T. BERGIN SWORN TO JULY 6, 1966 UNITED STATES DISTRICT COURT Soutruern Disrrict or New York (Same Trriuz] State of New York ) County of New York ) ss.: Dantet T. Bercry, being duly sworn, deposes and says: 1. I am a General Partner of Hornblower & Weeks- Hemphill, Noyes (hereinafter together with any predeces- sor firms sometimes called ‘‘my Firm’’), having been asso- ciated wtih my Firm for upwards of 40 years and am familiar with the facts and circumstances hereinafter set forth. 2. My Firm for many years past has been and still is, a member organization of New York Stock Exchange and has been, and still is, engaged in the business of buying and selling for its eustomers shares of stock of corpora- tions whose stocks are listed on the New York Stock Ex- change. 3. My Firm has in excess of 100,000 customers, located throughout the United States and in some foreign countries. These customers include individuals and such diverse enti- ties as savings banks, educational institutions, foundations, religious groups, non-profit organizations, life and other insurance companies, investment clubs, mutual funds and closed-end investment companies, non-financial corpora- tions, businesss corporations, partnerships, personal holding companies, and non-bank-administered estates, guardian- Affidavit of D. T. Bergin A61 ships, pension funds, personal trusts, and profit-sharing plans, as well as governmental bodies. While many of my Firm’s customers are investors, a number are traders who buy and sell securities with a great deal of frequency. 4. The activities of my Firm as broker in buying or selling stock for the account of its customers involve either the purchase or sale of stock in the standard unit of trading on the New York Stock Exchange which, except with respect to certain inactive stocks, is one hundred shares (a ‘‘round- lot’’ transaction) or multiples thereof or in units of less than the standard unit of trading, namely, one to ninety- nine shares (an ‘‘odd-lot’’ transaction). Many of our cus- tomers give my Firm orders to buy or sell both round-lots and odd-lots of stock. A very substantial part of my Firm’s business for these customers involves odd-lot transactions. I have been informed and believe that in the four-year period from May 1, 1962 through April 30, 1966, my Firm arranged for its customers in excess of 600,000 separate odd-lot purchases or sales. The financial resources of odd- lot customers range from those of individuals of modest means to multi-million dollar corporations. 5. My Firm has handled for customers many different types of odd-lot transactions. Among these were Market Orders (orders to buy or sell at the market), Limited Orders and Stop Loss Orders (orders to buy or sell at a prescribed price), Day Orders (orders which remain in force only through the day on which it was entered), Open Orders (orders kept in force beyond day of entry), Good Until Cancelled (G.T.C.) Orders (orders kept in force until cancelled), Stop Limit Orders (orders to buy or sell at a certain price with a specified limit), Orders to Buy on Offer —Sell on Bid (orders that do not require a triggering round-lot transaction), Orders to Buy or Sell on Close A62 Affidavit of D. T. Bergin (orders to buy or sell at the closing round-lot bid or offer price), Basis Price Orders (orders to buy or sell on prices established by the odd-lot dealers where there is no round- lot transaction), Alternative Orders (a group of orders entered at the same time, where the execution of one order automatically cancels the other or others), Contingent Orders (a combination of orders the execution of one being contingent upon the execution of the other) and Scale Orders (orders to buy or sell two or more lots of the same stock at designated price variations). Some of our custom- ers sold ‘‘short’’ (sold stock that they did not then own) or maintained ‘‘long’’ positions in particular stocks. Some of our customers purchase stock through the Monthly Invest- ment Plan. Some of our customers trade for cash and some on margin. The dealings of our odd-lot customers are ex- tremely varied and take many forms and are made for many different objectives and purposes. 6. The stocks in which my Firm’s odd-lot customers deal embrace nearly all of the approximately 1430 active issues, and the approximately 210 inactive issues, listed on the New York Stock Exchange. These stocks vary widely in price. “As can be seen from an examination of the finan- cial pages of most daily newspapers, the New York Stock Exchange listed stocks sell for as little as two dollars a share and as high as several hundred dollars a share. DanteEt T. Bercrn (Sworn to July 6, 1966.). le MAD Na bo wins WAAR EDN i nisl ria A ARR AI oie. oe ac Plaintiff’s Answers to Interrogatories A63 PLAINTIFF’S ANSWERS TO DEFENDANTS’ INTERROGATORIES, VERIFIED ON JUNE 28, 1966 (Record pp. 53-63) Unrrep Srates District Court SoutHern District or New York (Same Trriz] Answers of plaintiff Morton Eisen to interrogatories served upon him by defendants on June 17, 1966. 1: My residence address is 15-86 Bell Boulevard, Bay- side, Queens, New. York. 2: I ama wholesale shoe sales representative. My busi- ness address is 130 West Broadway, New York, New York. 3: The following are the transactions, numbered (i) through (xlvii), in which I engaged during the six years next preceding the filing of the complaint in this action, involving the purchase or sale of an odd-lot of stock on the New York Stock Exchange and the information requested in ‘‘(a)’’ through ‘‘(k)’’ of Interrogatory ‘‘3’’ for each such transaction: (i) (a) Raytheon Mfg. (b) purchase (c) 47% (d) 50 shares A64 Plaintiff’s Answers to Interrogatories (e) May 19, 1960 (h) To the best of my recollection, with respect to this and all of my other odd-lot transactions, listed below, each such transaction was long and the order under which each was effected (54) was either market or limit, which, in turn, was either a day order, open order or good until cancelled order. However, with respect to each such transaction, I cannot recall whether it was market or limit or any further particulars as to the type of order under which it was effected. Therefore, the foregoing is my answer to interrogatory ‘‘3(h)’’ for all of my transactions listed herein. (i) Ira Haupt & Co. (3) defendant DeCoppet & Doremus (k) own account. (ii) (a) Universal Cyclops Steel (b) purchase (c) 31% Cy errr rr or ren rer we ue ° Plaintiff’s Answers to Interrogatories A65 (d) 5 shares (e) October 3, 1960 (f) $6.00 (g) .625 cents (i) Ira Haupt & Co. (3) Defendant DeCoppet & Doremus (k) Account of Morton Eisen, Custodian for Michael L. Rubinstein, whose address is 2785 Broadway, New York. Michael L. Rubinstein is my stepson. (ili) (a) Diners Club (b) purchase (c) 1854 (d) 10 shares (e) October 3, 1960 (f) $6.00 A66 Plawntiff’s Answers to Interrogatories (g) $1.25 (i) Ira Haupt & Co. (j) defendant DeCoppet & Doremus (k) account of Morton Eisen, Custodian for Michael L. Rubinstein. (iv) (a) Pure Oil Co. (b) purchase (c) 3256 (d) 5 shares (e) October 3, 1960 (f) $6.00 (g) .625 cents (i) Ira Haupt & Co. (j) defendant DeCoppet & Doremus (k) account of Morton Eisen, Custodian for Michael L. Rubinstein. Plaintiff’s Answers to Interrogatories A67 (v) (a) American Motors Corp. (d) 65 shares (e) April 5, 1961 (f) $18.33 (g) $8.125 (i) Cohen, Simonson & Co. (55) (j) To my best knowledge, with respect to all odd-lot business, Cohen, Simonson & Co., at the time of this transaction and to this date, dealt and now deals with defendant DeCoppet & Doremus exclusively for six months of each year and with defendant Carlisle & Jacquelin exclusively for the other six monthss of each 4 year (not necessarily consecutive calendar months). 4 However, I do not know which of said two defendants E effected this particular transaction. (k) own account. (vi) (a) | International Telephone & Telegraph A68 Plaintiff’s Answers to Interrogatories (d) 50 shares (e) April 19, 1961 Cohen, Simonson & Co. (3) My answer is the same as in (v) (j), above (x) = own account (vii) (a) Olin Mathieson Chemical Plaintiff’s Answers to Interrogatories A69 Edwards & Hanly was my broker for this and all of my transactions listed in (viii) through (xlvii), below. (3) The only information which I have with respect to this interrogatory, is that I have been advised by the account executive in charge of my accounts at Edwards & Hanly that at the time of this transaction and to this date, with respect to all odd-lot business, Edwards & Hanly dealt and now deals with defendant Carlisle & Jacquelin, exclusively. Therefore, the foregoing is my answer to Interrogatory ‘‘3(j)’’ for this and all of my transactions listed in (viii) through (xlvii), below. (k) own account. (viii) (a) Raytheon Company Plaintiff’s Answers to Interrogatories (f) $23.93 (g) $6.375 (k) own account (ix) (a) Standard Kollsman (g) 75 cents (k) own account (56) (x) (a) Standard Oil Co. (Ohio) Plaintiff(’s Answers to Interrogatories A71 (d) 2 shares (e) October 24, 1961 (f) $6.00 (g) 50 cents (k) ' Account of Morton Eisen, Custodian for Mark J. Eisen, whose address is 15-16 Bell Boulevard, Bayside, Queens, New York. Mark J. Eisen is my son. (xi) (a) Standard Oil Co. (Ohio) (d) 2 shares (e) October 24, 1961 (k) Account of Morton Eisen, Custodian for Michael L. Rubinstein. A72 Plaintiff’s Answers to Interrogatories (xii) (a) Standard Oil Co. (Ohio) (d) 2 shares (e) October 24, 1961 oe $6.00 (g) 50 cents (k) : Account of Morton Eisen, Custodian for Eric A. Eisen, whose address is 15-86 Bell Boulevard, Bayside, Queens, New York. Eric A. Hisen is my son. (xiii) (a) American Viscose (d) 50 shares (e) November 17, 1961 (f) $31.16 Plaintiff’s Answers to Interrogatories (g) $12.50 (k) own account (xiv) (a) American Viscose (d) 15 shares (e) December 6, 1961 (f) $13.18 (g) $3.75 (k) own account (xv) (a) ' Aveo Corporation (b) purchase (c) ‘| (d) 5 shares A73 A74 Plaintiff’s Answers to Interrogatories (e) June 28, 1962 (k) Account of Morton Eisen, Custodian for Eric A. Eisen. (57) (xvi) (a) American Viscose Plaintiff’s Answers to Interrogatories A75 (k) Account of Morton Eisen, Custodian for Eric A. — Eisen. (xviii) (a) Aveo Corporation sale (g) .625 cents (k) Account of Morton Eisen, Custodian for Eric A. Eisen. . A76 Plaintiff’s Answers to Interrogatories (xix) (a) Magnavox Co. (e) (k) oun account. (xx) (a) Control Data Plaintiff’s Answers to Interrogatories ATT © (g) $2.00 (k) Account of Morton Eisen, Custodian for Michael L. Rubinstein. (xxi) (a) Pure Oil Co. (b) sale (c) 40% (d) 5 shares (e) April 30, 1963 (f) $6.00 (g) $1.25 (k) Account of Morton Eisen, Custodian for Michael L. Rubinstein. (58) (xxii) (a) Universal Cyclops Steel A78 Plaintiff’s Answers to Interrogatories (d) 5 shares (e) April 30, 1963 ( f) a $6.00 (g) .625 cents (k) Account of Morton Eisen, Custodian for Michael L. Rubinstein. (xxiii) (a) Magnavox Co. (b) sale (c) 41% (d) 55 shares (e) May 6, 1963 (f) $27.76 (g) $13.75 (k) own account. (xxiv) (a) Metro-Goldwyn Mayer / Plaintiff’s Answers to Interrogatories (d) 15 shares (e) June 21, 1963 (f) $10.03 (g) $1.875 A79 A80 Plaintiff’s Answers to Interrogatories (xxvi) (a) International Rectifier (d) 50 shares (e) July 25, 1963 (f) $9.38 (g) $6.25 (k) own account. (xxvii) (a) International Rectifier Plaintiff’s Answers to Interrogatories A81 (k) own account. (59) (xxviii) (a) Diners Club (b) sale (c) 22% (d) 10 shares (e) October 24, 1963 (f) $6.00 (g) $1.25 (k) Account of Morton Eisen, Custodian for Michael L. Rubinstein. (xxix) (a) Avco Corporation A82 Plaintiff’s Answers to Interrogatories (f) $6.00 (g) $1.25 (k) Account of Morton Eisen, Custodian for Michael L. Rubinstein. (xxx) (a) Greyhound Corp. ae purchase (c) 41, (d) 20 shares (e) November 22, 1963 (f) $14.45 (g) $5.00 (k) own account. (xxxi) (a) Greyhound Corp. Plaintif’’s Answers to Interrogatories A83 (d) 20 shares (e) November 22, 1963 (f) $14.20 (g) $5.00 . (k) own account. (xxxii) (a) Control Data (e) (k) Account of Morton Eisen, Custodian for Mark J. Eisen. (xxxiii) (a) Control Data A84 Plaintiff’s Answers to Interrogatories (d) 15 shares (e) November 26, 1963 (f) $19.66 (g) $3.75 (k) Account of Morton Eisen, Custodian for Eric A. Eisen. (60) (xxxiv) (a) Control Data (d) 10 shares (e) November 26, 1963 (f) $14.78 (g) $2.50 Plaintiff’s Answers to Interrogatories A85 (k) Account of Morton Eisen, Custodian for Michael L. ‘Rubinstein. (xxxv) (a) Greyhound Corp. (b) purchase _(c) 46% for 20 shares, 465% for 100 shares (d) 120 shares (e) December 5, 1963 (f) $14.38 for 20 shares, $42.31 for 100 shares (g) $5.00 (k) own account. (xxxvi) (a) — Control Data A86 Plaintiff’s Answers to Interrogatories (g) $17.50 (k) own account. (xxxvii) (a) Control Data Plaintiff’s Answers to Interrogatories (e) February 27, 1964 Greyhound Corp. with due bill sale (c) : 554% for 50 shares, 55% for 100 shares (d) 150 shares (e) ’ June 18, 1964 (f) $30.78 for 50 shares, $44.54 for 100 shares (k) own account. (61) (xl) (a) Chrysler Corp. (b) purchase A88 Plaintiff’s Answers to Interrogatories (c) 50% for 50 shares, 50 for 100 shares (d) 150 shares (e) June 18, 1964 (f) $29.56 for 50 shares, $44.00 for 100 shares (g) $12.50 (k) own account. (xli) (a) Chrysler Corp. (b) purchase (d) 10 shares (e) June 18, 1964 (f) $10.00 (g) $2.50 _ (x) own account. (xlii) (a) Chrysler Corp. Plaintiff’s Answers to Interrogatories (b) sale (c) 6614 for 60 shares, 66% for 100 shares (d) 160 shares (e) September 15, 1964 (f) $36.88 for 60 shares, $45.65 for 100 shares (g) $15.00 (k) own account. (xliii) (a) Spiegel Inc. (d) 45 shares (e) August 2, 1965 (f) $22.38 (g) $5.625 A89 A90 Plaintiff’s Answers to Interrogatories (k) ‘\, own account. (xliv) (a) / Spiegel Inc. i a «fe i sale i (c.) | (d) j 55 shares (e) : August 25, 1965 i (f) j $26.66 4 (g) j $6.875 2 (k) i own account. ; (xlv) (a) Wolverine Shoe 4 (b) ; purchase i (c) : 30% ; @ 5 shares 3 (e) : Netober 21, 1965 5 a (f) : $6.00 ; * a OR 3 Plaintiff’s Answers to Interrogatories A91 (g) .625 cents (k) Account of Morton Eisen, Custodian for Mark J. Eisen. (xlvi) (a) Douglas Aircraft (b) sale (c) 647% (d) 8 shares (e) November 10, 1965 (f) $10.19 (g) $2.00 (k) own account. (62) (xlvii) (a) Morse Shoe, Inc. (b) sale A92 Plaintiff’s Answers to Interrogatories (e) February 3, 1966 (f) $17.06 (g) $6.25 (k) own account. 4: Except for communications with my attorneys, the only communications relating to the subject-matter of this action which I have at any time during the six years next preceding the filing of the complaint in this action had with others was oral and, to the best of my knowledge and recol- lection, consisted of my general complaint concerning the injustice of the existing odd-lot differential. I have no recollection as to the identity of the.persons to whom I directed such comments nor do I know whether any such persons were purchasers or sellers of odd-lots on the New York Stock Exchange. 5: Except for communications with my attorneys, the only communicationss relating to the subject-matter of this action which I have at any time since the commencement of this action had with others consisted of oral comments of congratulations and good wishes for the successful prose- cution of this action from friends and acquaintances and certain persons who called me on the telephone. I have no knowledge as to whether such friends and acquaintances of mine are or ever were purchasers or sellers of odd-lots on the New York Stock Exchange nor do I know the names or have any other information concerning the said persons who called me on the telephone. (Verified by plaintiff, June 28, 1966.) ao bt SPT WO IS IERN B if “Saat “ ae PET TT Oe eT ORY District Court Opinion (9/27/66) A93 OPINION BY TYLER, J.. DATED SEPTEMBER 27, 1966, GRANTING DEFENDANTS’ MOTION TO EXTENT THAT ACTION, AS CLASS ACTION, IS DISMISSED UNITED STATES DISTRICT COURT SouTHERN District or New York [Same Trr.e] Tyrer, District Judge: This is an action brought by a New York resident, Morton Eisen, charging the two major ‘‘odd-lot’’ dealers on the New York Stock Exchange—defendantss Carlisle & Jac- quelin and DeCoppet & Doremus—with conspiring and combining to*monopolize odd-lot trading and with charging excessive fees in violation of the Sherman Act. 15 U.S.C. 1 and 2. The complaint also pleads a third claim or cause of action against the New York Stock Exchange (‘‘Ex- change’’) upon the theory that the Exchange breached its duties prescribed by the Securities Exchange Act of 1934 for suspension of odd-lot trading. 15 U.S.C. 78f(b), 78f(d) and 78s(a). Eisen, who describes himself as an investor, asserts that he sues for himself and on behalf of all odd-lot purchasers and sellers on the Exchange. The taproot of Eisen’s three claims is the so called ‘“‘odd-lot differential’? charged by the broker defendants and other odd-lot dealers for transactions in other than 100 share lots of securities. As is well known, the normal trading units on the stock exchanges are in multiples of 100 shares, sometimes called ‘‘round-lots.’’ Odd-lots, thus, are units of stock less than 100, the established unit of trading. For odd-lot transactions, in addition to the normal broker- age commission, an additional fee known as the ‘‘odd-lot a ve A94 District Court Opinion (9/27/66) differential’’ is charged. At the time this suit was com- menced, the differential was % point (12% cents) per share when the price per share was 39% or below and %4 point (25 cents) when the price was 40 or above. Effective July 1, 1966, however, this ‘‘break point’’ of $40 was increased to $55 under specific approval of the Securities and Exchange Commission. The execution price of an odd-lot includes the differential. On a customer’s order to buy an odd-lot, the differential is added to the price of the effective offer or sale; on a customer’s order to sell, the differential is sub- tracted from the price of the effective sale or bid. It is Eisen’s theory in this case that the two broker-dealer de- fendants, with the benign indulgence of the Exchange, have ‘‘established, increased and maintained’’ the differential. The defendants have moved pursuant to amended Rule 23(c)(1), F.R.Civ.P., effective July 1, 1966, seeking to ob- tain an adjudication that the present action is not main- tainable as a class action. Plaintiff, of course, relies on new Rule 23 to support his suit as a class action. Stipulation Number1 . A187 member firms except Merrill Lynch Pierce Fenner & Smith, Incorporated (hereinafter ‘‘Merrill Lynch’’). The two odd-lot firms and Merrill Lynch employ computer tapes for this purpose. These tapes contain all the names and addresses of the persons who invest through the Monthly Investment Plan. Each Monthly Investment Plan investor is sent a statement on the part of the respective member of the NYSE each time he adds to his account. 8. In addition to the shareholders who had odd-lot transactions from May, 1962 through May, 1968 in stocks listed on the NYSE and the Monthly Investment Plan cus- tomers who had odd-lot transactions from May, 1962 through May, 1968 in stocks listed on the NYSE, approxi- mately 150,000 public individuals had odd-lot transactions from May, 1962 through May, 1968 in stocks listed on the NYSE through payroll deduction plans, all of which are operated by Merrill Lynch. A payroll deduction plan al- lows public individuals who are employees of corporations to accumulate stock of the corporation by which they are employed on a pay-as-you-go basis by regular deduction by the corporate employer from the salary or wages of the employee. All such sums deducted by the corporate em- ployer are then forwarded to Merrill Lynch which pur- chases for the employees as many shares as the commingled funds will allow. These shares are then allocated to each corporate employee in proportion to his deduction. Em- ployees who are enrolled in payroll deduction plans share, pro-rata, all the brokerage commission and other expenses incurred in the purchase of shares. Since each corporation invests all the commingled money deducted for the pur- chase of shares, it is usual that the amount so invested does not buy an even number of round-lots only, but includes one odd-lot, the differential of which is shared pro-rata by the participants in the payroll deduction plan. In addition, a A188 Stipulation Number 1 virtually all participants in payroll deduction plans elect to have their dividends reinvested in the stock of their cor- poration. All payroll deduction plan dividends are ac- cumulated and reinvested and since again, there is likely to be one odd-lot, that odd-lot differential is allocated among those who elected dividend reinvestment. The names and addresses of all of the companies and the approximately 150,000 corporate employees who participated during the relevant period in payroll deduction plans can be identified through records of Merrill Lynch. 9. (a) During the relevant period, the NYSE employed an advertising program in the United States under which it advertised in approximately 755 newspapers. The approxi- mate cost of the space for a single one-eight [sic] page in- sertion in these 755 newspapers was $65,000.00. The NYSE paid $193,194 for this space during the first six months of 1968 and $382,866 during the year 1967. The approximate cost of the space for a single one-eights [sic] page insertion in every daily newspaper in the United States and Puerto Rico is $110,000.00. The NYSE also advertised in four or more magazines during each year from 1962 through 1968. The cost of space for magazine advertising during the first six months of 1968 was $400,000.00. The NYSE advertised in no other media. (b) There are at least 556 daily newspapers in the United States that carry full or partial quotations of stocks listed on the NYSE. 10. Member firms of the NYSE have offices located in approximately 842 cities or towns in the United States, and in 61 cities or towns in foreign countries. Additionally, there are thousands of intermediaries as defined in para- graph 1, above, who are located in virtually every eoautry in the non-communist world. Stipulation Number 1 A189 11. (a) All odd-lots trades on the NYSE are initiated by and executed through the facilities of member firms. In addition, confirmations on all odd-lot trades on the NYSE are sent to the public individual, institution, or inter- mediary, as the case may be, by the member firm. . (b) All member firms of the NYSE send periodic state- ments of account to their customers as required by Rule 409(a) of the NYSE which provides: (a) Except with the permission of the Exchange, mem- ber organizations shall send to their customers statements of account showing security and money positions and entries at least quarterly to all ac- counts having an entry, money or security position during the preceding quarter. (c) NYSE member firms may send other communica- tions to their customers as they desire. 12. (a) From April 22, 1968 to October 2, 1969, 157,919 different account numbers of customers of Walston & Co., Inc. had odd-lot transactions. Of this number 60,855 had more than one such transaction. (b) Of these account numbers of customers, 10,375 had five or more transactions during this period. (c) A representative sample from the available tapes of the fourteen wire firms (consisting of the tapes from four of the wire firms) indicates that for the period from mid- 1962 through mid-1966, 1,967 account numbers had ten or more odd-lot transactions. (d) The names and addresses represented by the ac- count numbers referred to in sub-paragraphs 12(b) and 12(c), as well as the names and addresses represented by the account numbers referred to in sub-paragraph 5(b), can be made available to Plaintiff with court process under — rene 7 rs A190 Stipulation Number 1 an appropriate order or orders. Defendants cannot guar- antee that the court will issue such process. Dated: New York, New York March 3, 1970 Mordecai Rosenfeld Mordecai Rosenfeld Attorney for Plaintiff Kelley Drye Warren Clark Carr & Ellis By: Francis S. Bensel A Member of the Firm Attorneys for Defendant DeCoppet & Doremus Carter, Ledyard & Milburn By: Devereux Milburn A Member of the Firm Attorneys for Defendant Carlisle & Jacquelin Milbank, Tweed, Hadley & McCloy By: William E. Jackson A Member of the Firm Attorneys for Defendant New York Stock Exchange So ordered U.S. D. J. (Exhibit omitted.) ELE ELITE EEL LOPS OLLE PLG E IS IE LE I AES EOE I | EY ES Soe tS OO : ' : : ; J Stipulation Number 2 A191 STIPULATION NUMBER 2. UNITED STATES DISTRICT COURT SouTHERN District or New YorkK [Same TrTLe} The undersigned, acting pursuant to their agreements made before this Court, hereby stipulate that, for the pur- poses of this action only and subject to all pertinent objec- tions as to admissibility and relevance the following state- ments are true: (1) Cherner v. Transitron Electronic Corporation, 201 F. Supp. 934 (D. Mass. 1962) involved a class action brought under the Securities Act of 1933 on behalf of Transitron stockholders who purchased stock on or before February 20, 1962. The parties agreed, with the approval of the Court, that defendants would create a $5,300,000 fund to settle all claims. The Court appointed a Special Master, two Assistant Special Masters, (including a computer cor- poration engaged to process claims), a distribution agent and an agent to arrange for publication of notices. The Special Master mailed approximately 150,000 ap- plications (forms of proof of claim) to brokers and to stockholders of record of Transitron for completion and return. Approximately 48,000 applications (claims) cover- ing 50,000 transactions were received by the Special Master during the 60-day filing period; of this number, approxi- mately 13,000 were invalid, 1,177 were disapproved (143 of these after hearings), and 33,039 were approved. During the three years required to administer the settlement the Special Master reported to the Court that the original plan of processing each claim regardless of amount, checking each item, comparing each confirmation, A192 ete., would require ‘‘considerable modification’’ by the Court in order to keep down the expenses of administration of the settlement. Speaking of the difficulties of handling Stipulation Number 2 the claims, the Special Master said: ‘‘In order to examine 50,000 transactions and establish a list of valid claims which can be recom- mended for allowance, each application must be ex- amined with respect to cost data and disposition data, and such data recorded on magnetic tape. Supporting data should be examined, particularly in the case of claims involving large losses. The burden of checking each transaction in the same manner in which a similar claim might be examined in a bankruptcy case involv- ing 500 claims becomes insupportable where there are 50,000 transactions.’’ By order dated October 25, 1963, the Court modified the original procedure for payment of claims, and gave the Special Master wide discretion in order to minimize the eost of administration. The expenses involved in administering the settlement fund were as follows: (a) (b) (c) (d) (e) counsel fees and expenses of plaintiffs services and expenses of Spe- cial Master services and expenses of As- sistant Special Master (attor- ney) services and expenses of As- sistant Special Master (Key- data Corporation) services and expenses of Dis- tribution Agent agency could provide the relief here sought, the Commis- sion is clearly powerless to do so. Although the Commission can consider antitrust matters, as can any other regulatory agency, see The Rules of the New York Stock Exchange, 10 S. E. C. 270 (1941), it does not have primary jurisdiction thereof. Thill Securities Corp. v. New York Stock Ex- change, 433 F. 2d 264, 272 (7th Cir., 1970). Furthermore, the Exchange, which could not be an ‘‘aggrieved person”’, has no standing to commence antitrust suits, see Hawat v. Standard Oil of California, No. 70-49 (U. S. Supreme Court, March 1, 1972), and, of course, could not entertain a class suit or award damages. Indeed, the Commission has done all that it could do by requiring the Exchange to establish the Rule which lowered the differential in 1966. To now bar plaintiff from seeking recovery of damages incurred prior to 1966 would be unjust and would needlessly sacrifice ‘«* * * the benefits of competition acknowledged by Con- gress.’’ United States v. Third National Bank in Nashville, 390 U. S. 171, 189 (1968). 9. Concerning plaintiff’s claim against the Exchange for failure to regulate, the Exchange may well be liable to plaintiff and the class for a violation of its statutory duty to regulate its members, provided that (1) damage can be shown, Baird v. Franklin, 141 F. 2d 238 (2d Cir.) cert. den. 323 U. S. 737 (1944), and (2) there is proof that the Ex- change either knew or had reason to know that its rules were being violated. Pettit v. American Stock Exchange, 217 F. Supp. 21, 29-30 (S. D. N. Y., 1963). 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SSILUSIP 03 YOHOW 0} UoIIsoddo ur ynureld jo wnputiowsw pue yAEpyyy YoROW Suruinofpe (996] ‘81 ‘AON) Japso pue uonendys jeodde ssiuisip 03 Sjuepuajep Aq uonjow jo yoddns uy wnpueiouu pue sieaddy jO HNO} Ul UOHOW JO a2910N Teaddy jo anon synureyg uonow Zurfuap HNOD WIIG jO wnpuBoWeyW 6utpsa204q fo anyon OF “AON 9T “AON bT “AON 82 “PO SZ ‘PO 9961 910q Appendiz to Supplemental Statement A332 Dpursomses py supats oaeetO 4 ¢ fo sebvg 14s425uv4 7 fo sebog Saruvavad ~dp 14005 SIMIMENIOT #4no0 “m0 pun syavpy “fF ‘opuvsome w ‘sfosag fo sebog suoiisodap Suruinolpe ( 796] ‘%Z ‘ady) sapio pue uoneindys PH FY 0} YHureyd 30} au Zulpuayxe Japsio puke uoyendys 1JBIONIID 10} UOIIIEd 0} uontsoddo ur yarzq s.ynurelg 1381013199 JO JIM B JO} UOIEd syuLpUayeag JPIq IY 0} HHureyd 10} aury Surpuajxe ( 796] ‘€ youep.) sepso pue uoneindys peruep oueq ur Bur ~JBIYI1 JO Zuwsyas 10} suoNneg suonsodap Zurusnofpe ( 706] ‘6 ‘ue{) sepio pue uoneindis po “991 d]Y 0} su} Suipuajxe ( 706] ‘g ‘ue{) sapso pue uoneindys oueq ut Jur ~AB9YI1 JO Zulswvoyas 10} suo jeg buspsar04g fo aanyon Iz ‘ady 61 ‘ady 910q TD ORO ee A333 Appendiz to Supplemental Statement Dpuns0mes py [0}1pnf pun S49P40) ‘Suorusd CO fo sebog iGtarsuns J fo sabog Sarduvavad ~dP 14005 "3 SMaMenrod j4no7 49410 pun spravpy {PF ‘vpuvsoma pw ‘sfosag fo sobvg 2961 ‘6 ‘AON) saps0 pue uoneindien jeedde jo Sursvazy Jeng Ajdar s.yyureyg adueyoxg ay) pue snuisi0g B yw ddodeq sjuepuayep jo jag urpenboef PUB Ise} ULpuajep jo jag jeadde jo juawnSue JO yuauruinofpe 40} uoNeoddy Pug Zuuamsue arias 0} sque ~Puajap JO} sun} Burpuayxe ( 796] ‘ez Ain{) sapso pure wonepdis PH SYyurejg saded 79 uey) a JOU Jatiq B AIS 0} DARI] YUTE] Buyues3 sapio pue uoyeoiyddy P2UIP [BION JO} UORHAg MBIONIID 10} UOKEd Jo Od “dns uy yarsq Ajdax (syuepuajaq 6uspss2044 fo a4njion 8 ‘AON 9 “Aon £2 ~O Zz ‘Oo Zz ‘PO 2 ‘idag ZI Aint br Aine bI Ani g Ae 82 ‘ady £961 910q (i 6 uo1jOU 0} uorsoddo ur syaepyye s.yiyurelg ¢z “das se syuepuayap Aq [as “unos s,yijureld Ajyenbsip 0} von -ouw yo yoddns ui wnpuesowous pue syAepyye “uoHOW JO NON 9g “das Z SUOISSItUpe 40} ysanbos a jo aduryo -x2 40} a3ep Burusnolpe (go61 ‘9 wnny) Japso pue uoneindus 6] Ainf eb x NOD PUISIC| 24) asojoq Burseazy =f aun z suoiysodap Zuusnofpe (8961 ‘Z I4dy) sapso pue uoyeindus 67 ‘sey : MIIAIT JO¥ UOHIE JO IU I] “sey S psequin-] a3pnf yaryD Jo uowido Bunuassiq © g “sey 9 , (Zp Y) uonsip -stinf Suyureyes pue ysn0> 3913 “SI, 24} 0} BZuipuewas ‘Buissaa “21 sjeaddy jo yin0> jo uowwidg = g“se&y Appendiz to Supplemental Statement 8961 Dpuvsomay = 4g.49SuD4T Saruvsvad s4uausnroq 44n07 6uspsar04g fo aanjon 9j0q Imnpnf pun = fossbog = -d y 1400.) 49410 pun spavpy 54940) ‘suosusd CE -f¥ ‘ppuvsomay fo sa6o0q ‘sfasag fo sabog A334 891403830119}UI 0} Pelqo 0} aus} Sjuepuryep Zuypuajxe uoyeindys ¢ ‘aon A335 S) z S91s0;eS0119jUI 0} 33efqGo 0} aunt} S\uepusyep Zurpusjxe uoyeindys 77 “9H Zz sjuepuay z “*P JO saoyesoLIU SYHUIEY yy] “WO E ge x M2JA94 JO} UONDE JO [12 —-g 399 3 x M9JA3I JO} UOHDE jo [Te cz oun{ D x MOIAIS JO} UOIJDE jo [Te gy Lew 3 x MIIADS JO} UONIE JO Te) pT “dy € WUIUISpa|MoWPY YIM s9UEIEed “dy jo HON pue yrnuresd 40; 2 pesuno> se “ ‘pjajussoy red Sy “OPsOW 0 souvszaddy jo anon Zz] ‘qay 5 . 6961 7 . 92 x UOIjOW §,;UBPUajap UO 3 UNO PUI = _ ny Ht 92 “Was Zz suorsodap Surusnofpe I a ‘ye ‘Mdag) sapso pue woneindys ¢7 “dag y 896 vpunsomay § = 14 1425uD4 I Sarupsvag s3uaunr0q 14n07 buspss204g fo sanyo 910q mapa pun = fosabog = -4 7 14N0) 49410) pun spanpy 548P40) ‘suosusd CQ “fl ‘opunsomes y fo sabog ‘s{asag fo sabog Appendiz to Supplemental Statement A336 ppunsoms Ww [DpH pun S4ap4C) ‘Su0tutd CE fo sabog 6! 1Gs4ISUD4 J fo sabog Sarupavadg -¢p 44n07 —_ IT SIMIMNIOT {4no ie | 49410 pun spavpy -{P ‘opuvsome w ‘sfasag fo sabog suonesyiyenb suruiy -jNO JasuNOD s YuUrTeId Jo pAepYyYy (¥Z V) WNOD 313siq] 2y} a10jJaq Surseszy (oZ1 V) Z sequin uoHEndys M2Ual 0} sorpnfaid ynoyyM poiuap uoNoOW uonou 0} asuodsas ur yAepyyy "af ‘s2J4 "A Posey “uoPyY 0} ure udisse 0} yureld Aq uorjour jo yoddns UL WAEpYye PUB UOHOW JO 2d130N WNOD P1jsiq] 2y} 210Joq Zursvoszy (SII V) 1 49quiny uonendys $9110}830119}UI 0} 3Dafqo 0} aur) Sjuepuajap Zurpusjxe uoyejndys $9110}830119}UI1 0} 3Defqo 0} dum} SjUepuajep Zurpuazxa uoryelndys $9110}830119} “Ul 0} adueysxy oy} jo JaMsUY 6u1psar0sq fo aanjon 92 “PW SZ “Je OT “JeW ¢ “seW 0261 ZI “40N © vI “AON 696T aj0q A337 Appendix to Supplemental Statement Z xX Ie 02 ve vl Xx ST es Dpunsomay = 14t49SuD4 7 Sarupsvag = Syuawenzoq 44no 2 ment pun — fosabog —-d F sano 42410 pun spavpy S43P40) ‘suorutdC -{V ‘opuvsoma W fo sa6og ‘sfatag fo sabog (86 V) voreuojur Jayyny Sunsanb “94 HNO 3915981] BY} Jo uOIUIdG MAIAII JO} UOI}DE jo []e> umpueiowau Ajdas s.ynurey J9lq Bursesy-jsod S.uyenboel 2 aysise> juepuajaq pq Sutseay-jsod s adueyoxy 94} pue snuiziog » yaddoraq sjuepuajoq MND 3914981] 943 as0jaq Suseazy SUOISN[DU0D pue s3uipuy pasodoid SIULpUdag (bbz ‘V) ssiwsip 0} uonow Sjuepuaj ~9P 0} Uorjsoddo ut ja1q pue RJ jO s3uipuy pasodoid S.yuureyg ao 6uspsa204q fo a4njoN 8 ‘PO Z°~O O¢ Ajnf ZI Ain ZI Ajne 61 eunf ZI eunf OI eunf 0461 \ : 3j0q Appendiz to Supplemental Statement A338 6S ros t ppuvsomay = 14.4 uD AT, foipns puo 549P40) ‘suowusd C fo sabog fo sabvg xX Sasuvsvad -dp 14n04 a JUIUINIe [eso 10} dJep & pue aMpeyss Zuyaiq & Juijjas 19ps0 ue JO} § YY jO wN0 24} 0} sjuepuajop Aq uonjou jo yoddns Ur WAEpYge pue UOHOW, JO 2HON UNO) PUISIC 243 asoyeq| 1m MABAADS 0} WONT 0 [ED (621 V) worse ssejo 8 se pourejurew oq Aew u0rj2e yey WNOD WUsIq JO uowudO *g Jago , uorurdo jo anak 4 we | “2s wumpuBouRU s}UuEpUszeq A | umpues -owew feyuoweiddns sjuepusjeq Zz wimnpues -ourw jejuswaddns s,youreg 8 uoruido 0} asuodsas ur SHAEpYye SJUEpPUazaC] S . worndo 07 asuodsas ul syABpYye S.yUrelg MAD JO} UOT} JO [Te $juIMNIOG 14Nn0D Buspsar04q fo aanjon 49410 pun spavpy -{y ‘ppuvsoms w ‘sfasag fo sabog A339 Appendix to Supplemental Statement Dpuvsoma Ww [D121pnf puv S49P40) ‘suowurd CE fo sabvg IG14ISud4 J fo sa6pg £2 vz 92 Saruvavadg SIMIMNIOT 44no he “4h 14N0) 49410 pun snavpy JapsO 9A1}99}01d 8 10} sjuepuajap Aq uo1joW-sso19 ® jo yroddns ur pue uonjow sy ~urejd 03 uorisoddo ur sjuepuajap jo winpuesousws pue syAepyyy WIUIIIIZE JUDUII]}}95 [IO pasarje Ue asojua 0} Yue Aq uoy “our jo yoddns ut wnpuesoweu pue ywAepye “UOHOW JO 291}0N SjUEpUayep 0} YUreld Aq sonpoig 0} S8HON pue saisojzeZosI93u7 ™ speaddy jo yun0> ay) Aq suonyour sjuepuajap jo jetuacy uonisoddo ur yaepyye s.yiurelg psose1 ay} Surjjiwsues pue Surdy17199 Japi0 ue JO} § V jO yn0D ay} 0} sjuepuajap Aq uonour jo j0ddns Ul WABpYye puke UOKOW JO 21j0N buspasr04q fo anyon -{V ‘vpuvsomay ‘sfatag fo sabvg vz ‘das Z ‘Was ZI eunf OI eunf Sz Ae; Sz Ae, IL6I aj0q Appendiz to Supplemental Statement A340 ppunsoms W [DpH puD S4apsc ‘suorutdCO fo sabog 1Z v2 14t4SuUd4 J fo sabog x Saruvsvad § syuamenrz0q 14n04y -4P 14n0 49410 pun spravpy -{p ‘vpunsoma w ‘sfatag fo sabog uy uyo ay} jO uoljedjdde ay} jo yw -dns ut yyurejd jo wnpueiowey yuured 103 Jasunod-09 se ajed -pyied 03 “y'g ‘uyoy “y ploreHy jO s04Jo ~*~ jo uonjeoydde ay} 0} uoljsoddo ut yun0>y yWISIG 24} 0} S}UBPUrJap wooly 19}}97] MIAII JO} UOI}IE JO |[eD ULe3STIN ‘A HaqieH jo uonisodaq WNOD) PUSICG 9y} Bojoq Zursespy WNOD WLSIC] 9y} B0Joq Burseopy JapsO 9A1}99}01d & 10} UOTJOW “88012 S}UBpUajap 0} uOIIsoddo Ul WINpUBJOWBU puUe jUsUIIDI3e WUIWII}I}JaS pasajye s0jua 0} uonou jo yoddns ut yAepyye pue winpueiowsu = Ajdar = s.yuureyg 6uspaar04sg fo aanjony 2 Sd | A341 0z (zoz v) 991}0U JO 3809 3y} JO UOI}EDOTIe YO WNOD W11381q] ay} jo uoTUIdG y ‘idy 3 Ly wnpue “owe Sursesy-jsod sjuepuajaq gt ‘Q2q § Ts ump 3 ~uvsowau Surseoy-ysod synurejg gt ‘qeq % o x ( 1p V) wNoD »1ISIq 3 24) sojoq Sulsesy Areuunjoig 6 “924 3 2261 & Q ¢ J9SUNOD-09 se ajzedioijzied 0} S uy uyoy ay} Sunjuwad y3n0> R PISIG 943 Aq wNpueioWeW ¢T ‘20q s 9¢ X NOD PLISIG, a4) Wojaq Buswspy = ET “9AQ | 6 ‘wy uyoy 24) S JO uorjeordde om 0} uorisoddo ur 3 unpuvioweu Ajda1 sjuepuajaq gy 20q a [Zot XN opuvsomay = 14 1.49SuD4 J Saruvavad SIUIMNIOG J4noy 6urpaa204g fo aanjony 9j0q {mnpns pun fo sabog “4 14N02 40410 pun Spiavpy S49P40) ‘suorutd oO -{V ‘ppuvsomea py fo sabog ‘sfatag fo sabog Appendiz to Supplemental Statement A342 Ol 12 ppunsomayy = 38.4 SUD AT Sarupsvag = syuaunroq 44n04 winpn pun = fosebog = -d ¥ 14ND 40410 pun Spavpy s4apsQ ‘suosusd OQ -fY ‘opunsoms W fo sabog ‘sfarag fo sabog (2¢2 V) Teaddy jo aon0N ,sjuepuajaq (IZ-Ob2 V) x1puedde pur SPU Jy) Peay savy spuepud} -9p 19338 MauUal 0} ad1Ipnfaid yno “YM paluep anpayos Zuyatiq v JO} uoIjOW sjUuepUajep ‘ pojUelZ Pp10de1 9y} JO [eI1WISUBI} pue UO! “BOYIZI9D JO} UOT}JOW sJURpUrzEC] SUOIJOU SJUBPUaep 0} UOI}ISOd -do ut umpueiowew s.ynuielg (‘bas 3a ‘81Z VW) steeddy jo nop 23 0} P1090 94} JO yeIWISUeI} pue UOH}BYIVIID JO} pue juouNse = JO} Bep B pue aInpoyos Uyrztiq 8 Bulyes sJepso 0} syuepuajop Aq sjeeddy jo j3n0> 24} 0} suoNoW jo joddns ur S}ACPYe PUL SUOIJOJW JO S2d1}0N 6burpasr04g fo aanjony z Ae | Aew 61 ‘dy Il ‘ady 2261 910d A343 Appendiz to Supplemental Statement Dpunsomes W IMApHnS puv S49P4C) ‘suosusd oO fo sa6vg 14349SuD4 J fo sabog ¢z jeodde ssiwisip 0} uonow pue piode1 juawajddns 0} uojow Zur -soddo epueiowew SjULpurjaq Zz x1puad -de ul papnyour aq 0} ps0zel ou} JO Sjied jo UOHeUsISap Ss yHUTELY 2 MATAII JO} SOnss} JO UIUIDIEIS s}UEPUrEq] ¢ xipuadde jo sjua} “U0d JO UOKeUISep sjuepUrjeq Z P10991 94} JUusUIa]ddns 0} dAv2] 40} yujureyd Aq uonouw jo y0ddns Uy WABpPYe pus UOROW jo 310N 6 jeedde syuepuayap Surssiwisip apso ue 10} yp nage jo yunoy be 0} yHured Aq uoy ~ow jo yroddns ut umpueowew pue wWAepyye “uoKOW JO 2nON JUIUIIIZe USUI “3]H98 posayye ue 0} SZurureysed SyUaUINSOp jo asn Zurpsees yno0> PHISIG 24) JO umMpuUBOURW Sarupsveg $349MKNI0G 44n07 buspssr04g fo aanjon “4 14N0D 49410 pun spanpy “{P ‘opuvsome w ‘sfasag fo sobog g ounf Z eunf a Of Ae €z Avy ZI Aew g sew 2261 910q Appendiz to Supplemental Statement A344 ppun.some W fmnpns pun S49psc ‘suorutdO fo sebog 14149SuD4 J fo sabog Saouvavad -dp 14n09 S}UIMNIOGT 14Nn0) 49410 pun syavpy “JP ‘opuvsome W ‘sfassg fo sabog peasas aq ysnuw ‘spuq yorym Aq oun} Surpuajxe Japio pue pAepyye ‘uoneindiys perwep jeedde s,juepuajap ssiwisip 0} pure jeedde uo psode1 ay} Juawajddns 0} 9ABI] JO} sUONOW s.yHuUIeIg yeedde jo a0130u s.jue -puajap jo jesstwsip Zurjsoddns unpuviowem Adar = synuieyg xipuedde ur pepnyjour oq 0} psode1 34} JO syed jo uoeU -Sisop jejuawejddns syuepuajeq Jeodde jO uUOVUIUIa}Ip 30} Azessa00U SUqIYXe JO UOHeUsisap sYHUElg jeedde snoraaid 943 psvey yorym jaued ay} 0} possajos jeedde sjuepuajap ssiwisip 0} pue Teadde uo p10de1 oy} Juawajddns 0} SABI JO} sUOIIOW s.YQUIEIG Bbuspaar04g fo aanjony ¢ Ajnf 6z eunf 6] eunf Q| eunf pI eunf ¢] oun 2261 910q A345 Appendiz to Supplemental Statement ppunsomes WW [piipns puo S49P4Q) ‘Suorutd CO fo sabog Sel iGtsrsuvs J fo sabvg R 9S Sarupsvag syuamnroq 4anoy -dp 14n0} 49410 pun Syrappy -{P ‘ppuvsoma pw ‘sfatag fo sabog jeadde jo juawnduy (3)gz 21nyY 0} JueNsand uoNeoId -de pue jatiq Ajdoi syuepuajaq (3)gz 2]ny 0} Juensand uoneoydde pue jauq syuyuieg pejuesd ajnpayos Suyriiq & 10} UOKOW syURpUajaq Pay Jrlaq sjuepusjoq quow -n3se 10} ajep ev pur — Suyriiq & 10} 2/61 ‘I] [Edy jO UOK}OW s}UBpUdjap MouUal 0} Syuepuajap Aq uo1oWw jo joddns Ul WACPYe puw UOHHOW JO 9d1}0N buspaar04gq fo aanyony ZI ‘°q £1 ‘PO 6z ‘3das ¢z “any 9z Ainf 9z Ainf 2261 ajvq A346 Court of Appeals Opinion (5/1/73) OPINION OF UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT DATED MAY 1, 1973, REVERSING CLASS ACTION ORDERS OF THE DISTRICT COURT, AND CONCURRING OPINION OF JUDGE HAYS. UNITED STATES COURT OF APPEALS For tHe Seconp Circuir Nos. 341, 381—September Term, 1972. (Argued December 12, 1972 Decided May 1, 1973.) Docket Nos. 72-1521, 30934 Morton Eisen, on Behalf of Himself and All Other Pur- chasers and Sellers of ‘‘Odd-Lots’’ on the New York Stock Exchange Similarly Situated, Plaiwntiff-Appellee, v. Canuiste & JacgueLin and DeCoprer & Doremus, Each Limited Partnerships Under New York Partnership Law, Article 8 and New Yorx Srocx Excnanez, an Unincorporated Association, Defendants-A ppellees. Before: Meprya, Lumparp and Hays, Circuit Judges. Appeal from an order of the United States District Court for the Southern District of New York, Harold R. Tyler, Jr., Judge, holding that suit by investor on behalf of Court of Appeals Opinion (. 5/1/73) A347 himself and other odd-lot stock investors against major odd-lot dealers on New York Stock Exchange and against New York Stock Exchange, was maintainable as a class action, and, following a preliminary hearing, ordering the defendants to bear 90% of the costs of notice. The action was originally dismissed as a class action, 41 F. BR. D. 147, and this Court reversed and remanded to the District Court for further findings necessary for the class action determination, 391 F. 2d 555. J urisdiction was retained by this Court. Reversed. Aazon M. Fivyz, Philadelphia, Pennsylvania (Harold E. Kohn and Allen D. Black, Philadelphia, Pennsylvania, and Mordecai Rosenfeld, New York, N. Y., on the brief ), for Plaintiff-A ppellee. Deverevx Mrsurn, New York, N. Y. (Louis L. Stanton, Jr., James E. Massey, and Carter, Ledyard & Milburn, New York, N. Y., on the brief), for Defendant-A ppellee Carlisle € Jacquelin. Francis S. Benset, New York, N. Y. (Bud G. Holman and Kelley Drye Warren Clark Carr & Ellis, New York, N. Y., on the brief), for Defendant-A ppellee DeCoppet & Doremus. Wurm E. Jacxsox, New York, N. Y. (Russell E. Brooks and Milbank, Tweed, Hadley & McCloy, New York, N. Y., on the brief), for Defendant-Appellee New York Stock Exchange, Inc. —_— A348 Court of Appeals Opinion (5/1/73 ) Meprna, Circuit Judge: Sufficient factual background for an understanding of the rulings we are about to make in this extraordinary “‘class action’’ is to be found in our first opinion Eisen v. Carlisle € Jacquelin, 391 F. 2d 555 (1968), often referred to as Eisen II. On that appeal we remanded the case to the District Court for reconsideration and for findings on specific issues and we retained jurisdiction. While enter- this complex and costly case to recover $70 for Mr Eisen,” see Korn (1969), but perhaps denying appealability to a similar order holdi the case to be a proper class action under amended Rule 23. Whit the “death knell” doctrine has been critieized by the Third Circuit in Hackett v. General Host Corp., 455 F. 2d 618 (3d Cir.), cert. denied, 407 U. S. 925 (1972), we think the consequences of class action tulings ihe, Seville cee dace Seaees haan be arabe a le, provi we the view by Chief J Ptcndipnia Korn v. pel 2 Corp., seprn, 443 F. 2d at 1307, So the effect that this Court should formulate the rule of appealability in such fashion that it “will afford equality of treatment as between plaintiffs and defendants.” The same considerations which led this Circuit to apply the rule of Cohen v. Beneficial Industrial Loan C orp., 337 U. S. ah (1949) in Eisen I, also would seem to require a rule allowing a defendant to a from an interlocutory order permitting the representative plaintiff to continue the suit as a class action. The “collateral order” doctrine of Cohen is based on the prag- matic view that a decision which finally determines an issue in the case which is crucial to the further conduct of the case, and is col- lateral to the merits of the action, is to receive immediate appellate review if delay-in such review will cause “Grreparable harm” to the complaining party. The seeds of Cohen were sowed by the Supreme Court as early as Forgay v. Conrad, 6 Howard 201, 205 when it was said that appealability should be allowed if the effect of an interlocutory order is such that if the order is immediately carried into execution the defendant “may be ruined before he is permitted to avail himself of the right” to appeal. An order sustaining a class action allegation clearly involves issues “fundamental A350 Court of Appeals Opinion (5/1/73 ) ions in Dolgow v. Anderson, 43 F. R. D. 21 (1967); 43 F. R. D. 472 (1968) ; 45 F. R. D. 470 (1968) ; 53 F. R. D. 661 (1971) ; 53 F. R. D. 664 (1971), were authorized by amended Rule 23. These innovations were the preliminary mini- hearing on the merits and the ‘‘fluid recovery,’’ both of which will be fully described in due course. It is clear to us that, with or without these innovations, the notice pro- vided by amended Rule 23 to be given ‘‘to all members (of the class) who can be identified through reasonable effort’’ cannot be given, as Eisen refuses to pay or put up any bond to cover this expense, and, if defendants prevail on the merits, they will be unable to recover any amounts expended by them for this purpose. We are also of the opinion that, on the basis of the new evidence now before us, the lawsuit is unmanageable as a class action, and that no preliminary mini-hearing on the merits and no ‘*fluid recovery’’ procedures are authorized by the text or by any reasonable interpretation of amended Rule 23. Ac- cordingly, we reverse and dismiss the case as a class action. We also vacate the findings of fact and conclusions of law that were made after the preliminary mini-hearing on the merits. » I The Decision Below—52 F. R. D. 253 (1971) In 1968, when the case was previously before us, it was estimated by someone that there were 3,750,000 members of the class, consisting of those who had bought or sold odd lots on the New York Stock Exchange in the period from May 1, 1962 through June 20, 1966. It was then doubt- ful whether any of the members of the class could be ‘identified through reasonable effort.’? Eisen’s position then was and now is that, except possibly in the eventuality of the ultimate adoption of Judge Tyler’s suggested plan Court of Appeals Opinion (5/1/73 ) A351 which envisages payment by defendants of 90% of the cost of giving notice, he will not defray any of the expense of giving notice to any of the members of the class, nor will he post any bond to reimburse defendants for any of their disbursements, pursuant to any order of the District Court, made for the purpose of giving any notice. It now appears that there are 6,000,000 members of the class and of these 2,250,000 can be easily identified? Mem- bers of the class reside in every state of the United States and most foreign countries. They speak and understand & great variety of modern languages. The damages sought to be recovered were estimated at the time we last con- sidered the case at something between a maximum of $60,000,000 and a minimum of $22,000,000. Now the esti- mate has been raised by Eisen’s counsel to 120 millions of dollars. In our prior opinion we stated unequivocally that actual notice must be given to those whose identity could be as- certained with reasonable effort and that ‘‘in this type of case’’ plaintiff must pay the expense of giving notice to these members of the class.5 We further stated that if this Ef According to the opinion below, the names and addresses of approximately 2,000,000 class members can be identified. In addi- tion, another 100,000 or more had odd-lot transactions in stocks listed on the Exchange through what is called the “Monthly Investment Plan.” These individuals can be identified through computer tapes in a manner similar to that used for locating the 2,000.000. Further- more, another 150,000 or so public individuals had odd-lot transac- tions in stocks listed on the a “payroll deduction plans” operated by Merrill Lynch, Pierce, Fenner & Smith, Inc. iheir names and addresses can be identified through the records ui A352 Court of Appeals Opinion (5/1/73) could not be done there might be no other alternative than the dismissal of the case as a class action. For some reason not clear to us Judge Tyler disregarded these holdings and concluded that he had discretion, even with reference to those members of the class who could be easily identified, to provide for such notice as he thought to be reasonable in the light of the facts of this particular case. Thus he directed actual notice only to ‘‘the approxi- mately 2000 or more class members who had ten or more transactions during the relevant period”’ and to ‘‘5000 other class members selected at random’’ from the 2,500,000 class members who could easily be identified.* With respect to 5. (Cont’d.) respect to the actual individual notice required by subdivision 23(c)(2) to be given to those members of the class who could be identified. This was part of our instructions to conduct a hearing on the remand and decide whether the requirements of amended Rule 23 had been or could be met. Nor did we decide or intend to say that in all cases or under all circumstances plaintiffs in class actions are or must be required to de- fray the cost of giving the various notices specified in amended Rule 23. This is an action to recover money damages for alleged violations of Section 4 of the Clayton Act and Section 6 of the Securities and Exchange Act of 1934. It is not a derivative stockholder’s action asserting a cause of action in favor of a defendant corporation, which regularly sends communications to all the stockholders and may be said to owe its stockholders certain fiduciary duties, nor a case where a public utility corporation which regularly sends monthly bills to its giving the notices required by amended Rule 23. We do not attempt any enumeration. It must be recalled that the provisions for notice in amended Rule 23 were intended to comply with constitutional re- quirements. See Advisory Committee’s Note, 39 F. R. D. 69, 107. 6. Judge Tyler in discussing the notice problems observed that the plaintiff had also offered to send individual notice to all member firms of the New York Stock Exchange and to all commercial banks with large trust departments. This together with the individual notice to the 2000 class members with ten or more transactions and the 5000 Court of Appeals Opinion (5/1/73 ) A353 the rest of the 6,000,000 members of the class, Judge Tyler ordered what, without reciting all the details concerning the schedule of proposed publications, we consider to be a totally inadequate compliance with the notice require- ments of amended Rule 23. One of the reasons for this was perhaps because J udge Tyler thought of these first notices, by mail and by publication, as merely the first of a series of notices. Judge Tyler then deferred the ques- tion of who should pay for this first round of notices until after a ‘‘brief”’ preliminary hearing on the merits. This is what is called the “‘mini-hearing.’’ We shall have more to say later about this preliminary mini-hearing on the merits of Eisen’s triple damage antitrust claim. Accord- ingly, the hearing was held “fon the issue of the allocation of the costs of notice’’ and J udge Tyler. concluded that the defendants must bear 90% of these expenses. To describe Judge Tyler’s general scheme as it slowly developed ‘in the series of his many opinions? following the remand would be too tedious. The sum and substance of it was that he at last realized that it was highly im- probable that any great number of claims would, for a variety of reasons, ultimately be filed by the 6,000,000 members of the class. No claimant in the 6 years of the progress of the action had shown any interest in Kisen’s claim. The average odd-lot differential on each transaction had been $5.18. The average individual class member engaging in five transactions would have paid a total odd- lot differential of $25.90. Assuming a 5% illegal over- charge the recovery is approximately $1.30, and when 6. (Cont’d.) selected at random, and the notice by publication, would in Judge Tyler’s view “increase the likelihood of reaching a significant portion of the class,” and would be in conformity with the requirements of due process. 7. Judge Tyler’s opinions following the remand are ted at 50 F. R. wet 52 F. R. D. 253, and 54 F. R. D. 565. =... A356 Court of Appeals Opinion (5/1/73) visory powers over Rules or practices on the subject of the amount and uniformity of the rate of commissions on odd-lot purchases and sales, the SEC finally did exercise such powers °° and we hold that at all times the SEC pos- sessed such powers under Sections 11(b) "' and 19(b) * of the Securities Exchange Act of 1934. No District Court has authority to decide upon the rate of such commissions to take effect until the exhaustion of any residual fund left over by application of a ‘‘fluid recovery”’ in a private triple damage antitrust case, after the payment of claims in a class action or otherwise. The courts may review rulings of the SEC, but they have no more power than the District Court to fix any such rates in the first place or to give directions to the SEC concerning the fixing of such rates or the time within which such rates are to be effective, as part of a judgment in a private triple damage antitrust case. 9. (Cont’d.) mission asserted jurisdiction, the former denying its jurisdiction and 10. At the preliminary hearing defendants’ Exhibit C contained a letter from the SEC to the New York Stock Exchange dated June 16, 1966. In part the letter stated that the “Commission hereby makes written request pursuant to section 19(b) of the Securities Exchange Act that the Exchange effect on its own behalf in its rules and practices in respect of odd-lot purchases and sales, and the fixing of reasonable rates of commission and other in connection therewith, to fix odd-lot differentials * * *.” 11. 15 U. S. C., Section 78k(b). 12. 15 U. S. C., Section 78s(b). Court of Appeals Opinion (5/1/73) A357 I Disposition of Certain Contentions of the Parties Solely for the purpose of making our holdings clear in this difficult and complicated case we think it proper first to dispose of certain contentions of the parties. A We must reject Eisen’s claim that the fluid class re- covery theory is not ripe for review. Indeed, there is no way to side-step this issue. We specifically remanded the ease for consideration of the problem of manageability. The further proceedings on the remand were necessarily concerned with ascertaining whether there was a judicially sound way effectively to administer this action. Admin- istration, of course, includes proof of damages and the distribution of the same. As we point out later in this opinion, Eisen concedes that the action is not manageable if fluid class recovery is not permissible. We must face this issue if we are to pass on the question of manage- ability, which is the most important point in the case. We are no longer at the early stages of this case where it might be possible to put off to a later time the troublesome question of what to do with the damage fund if only a small number of claims are filed against the fund. See In Re Antibiotic Antitrust Actions, 333 F. Supp. 278, 281-2 (S. D. N. Y. 1971). B Moreover, we think the three cases cited by Judge Tyler as ‘‘respectable precedent’’ for fluid class recovery are all distinguishable. These three cases are: Bebchick v. Public Utilities Commission, 318 F. 2d 187 (D. C. Cir.), cert. denied, 373 U. S. 913 (1963); the Drug Cases, 314 F. Supp. 710 (S. D. N. Y.), aff’d 440 F. 2d 1079 (2d Cir. A358 Court of Appeals Opinion (5/1/73) 1971); and Daar v. Yellow Cab Company, 67 Cal. 2d 695, 64 Cal. Rptr. 724, 433 P. 2d 732 (1967). Judge Wyatt’s extraordinary feat of judicial admin- istration in carrying out the terms of the one hundred million dollar settlement in the Drug Cases deserves all the praise it has received. But it was a consensual affair made possible by the agreement of the parties and without objection to the assumption by the District Court of juris- diction to accept and administer the fund. Here we have no fund. There is no settlement. Every issue is contested and litigated. And authority to permit this action to proceed as a class action must be found within the four corners of amended Rule 23, as interpreted in the Reviser’s Note. Applying this test we hold Eisen’s class action must be dismissed. Bebchick was not a class action in any sense of the word. Amended Rule 23 was not involved. In the exercise of its powers of review, the Court of Appeals for the District of Columbia Circuit reversed a judgment of the District Court approving the action of the Public Utilities Commission of the District of Columbia support- ing a fare increase by the transit company. In the mean- time, the additional cash fares, now found to be illegal, had been collected. There was no way to direct refunds as those who paid these cash fares could not be identified. So, also in the exercise of its powers of review the Court of Appeals directed the amount of these additional cash fares to be set up in the books of the transit company to be used, in the discretion of the regulatory commission ‘*to benefit bus riders as a class in pending or future rate proceedings.’’ We cannot find that this case has any bearing on any of the issues in this amended Rule 23 case. Finally, Daar was a case arising under a state class action statute very different in its phraseology from amended Rule 23. The ruling was made on a demurrer to the com- Court of Appeals Opinion (5/1/73 ) A359 plaint so the approach to the legal issues was entirely different from the making of a judicial determination, on the basis of proof, of whether or not the requirements of amended Rule 23 had been met. Moreover, the court was evidently of the view that the individuals who had been damaged by the alleged overcharge in taxi fares would ultimately have to prove their separate and individual damages. 433 P. 2d at 740. For the reasons stated in this opinion we disagree with the holding in the Dolgow cases. C The Merits of Eisen’s Triple Damage Antitrust Claim The defendants by extensive and even cogent argu- ments have urged us not only to vacate Judge Tyler’s find- ings and conclusions on the merits of the case but to decide that there is no merit in Eisen’s antitrust claim. Thus the defendants argue that in the context of an antitrust suit brought against defendants acting within a self-regulatory industry the per se rule of antitrust liability is inapplicable, and that even under a rule of reason the practices of the odd-lot defendants and the Exchange were not violative of the antitrust laws. In essence the defendants contend that Judge Tyler incorrectly applied the Silver v. New York Stock Exchange, 373 U. 8. 341 ( 1963) doctrine, and should have concluded that the fixing of the odd-lot differential is necessary to the proper implementation of the Securities Act. Also the defendants assert that the Securities and Exchange Commission has primary jurisdiction over the substantive issues presented in this litigation. As already appears in this opinion, we hold and decide that the SEC does possess supervisory powers over the amount and uniformity of the commissions to be paid on odd-lot pur- chases and sales. But this is only part of the picture. There A360 Court of Appeals Opinion (5/1/73 ) are many facets to this complicated case. We feel it is proper for us to say only that the record before us con- stitutes no proper basis for any decision of the merits, tentative or otherwise. Ii Controlling Principles When discoursing on the arts or belles-lettres colorful language stimulates the imagination, beguiles one into use- ful symbolism and opens up the avenues to creative thought. But in the process of rationalizing legal conclusions and arriving at a sound and proper determination of questions of the interpretation of statutes, procedural rules and con- stitutional limitations, clichés and rhetorical devices gen- erally miss the mark. Something more substantial is necessary to establish a base for the proper decision of diffi- cult and complex questions of law. One reason for this is that the solution is found more often than not by the ap- plication of fundamentally simple principles. Thus statements about ‘‘disgorging’’ sums of money for which a defendant may be liable, or the ‘‘prophylactic’’ effect of making the wrongdoer suffer the pains of retribu- tion and generally about providing a remedy for the ills of mankind, do little to solve specific legal problems. The result of this approach is almost always confusion of thought and irrational, emotional and unsound decisions. In cases involving claims of money damages all litigation presumes a desire on the part of the judicial establishment to make the wrongdoer pay for the wrongs he has com- mitted, but to do this -by applying settled or clearly stated principles of law, rather than by some process of divina- tion. Punishment of wrongdoers is provided’ by law for criminal acts in statutes making it a crime punishable by fine or imprisonment to violate the antitrust laws. In cer- Court of Appeals Opinion (5/1/73) A361 tain civil suits punitive damages may be awarded; and in private antitrust cases the possible recovery of triple the loss actually suffered by a plaintiff is very properly praised as a supplementary deterrent. But none of these consid- erations justifies disregarding, nullifying or watering down any of the procedural safeguards established by the Con- stitution, or by congressional mandate, or by the Federal Rules of Civil Procedure, including amended Rule 23. It is a historical fact that procedural safeguards for the benefit of all litigants constitute some of the most important and salutary protections against oppressions,” including op- pressions’ by those whose intentions may be above reproach. We adhere to what we have written in support of the remand of this case in Eisen IJ. On the basis of the new evidence adduced on the remand, what we are now doing is interpreting and applying various provisions of an amended and improved procedural device intended to facil- itate the judicial disposition .of the individual claims of the separate members of a class of persons so numerous that joinder of all members is impracticable. Amended Rule 23 was not intended to affect the substantive rights of the parties to any litigation. Nor could it do so as the Enabling Act that authorizes the Supreme Court to pro- mulgate the Federal Rules of Civil Procedure provides that ‘‘such rules shall not abridge, enlarge or modify any sub- stantive right.” as 13. The procedural ag, we speak of were wisely embodied in the Fifth Amendment’s Due Process Clause. The importance of due process of law and procedural fairness has been emphasized by some of our leading jurists. Justice Brandeis observed that “in the development of our liberty insistence upon procedural regularity has been a large factor.” (Burdeau v. McDowell, 256 U. S. 465, 477 (1921) (¢ ing opinion)). Justice Frankfurter also remarked that “(f)airness of procedure is ‘due process in the.primary sense 77s 2 eo — in our national traditions.” (Joint Anti- Fascist Refugee Committee v. McGrath, 341 U. S. 123, 161 (1951) (concurring opinion) ). 14. 28 U. S. C., Section 2072. A362 Court of Appeals Opinion (5/1/73) The applicable substantive law is Section 4 of the Clay- ton Act ™ that authorized the private triple-damage anti- trust suit to recover damages by a person who has been ‘‘injured in his business or property’’ by reason of a: viola- tion of the antitrust laws. That the claims of many may not be treated collectively or as ‘‘the class as a whole”’ is what the Supreme Court decided in Snyder v. Harris, 394 U. S. 332 (1969), where plaintiff, in a diversity case sued as representative of a class of some 4000 shareholders of an ‘insurance company. Her individual claim was for less than $10,000.. She was not permitted to aggregate her claim with the separate claims of the other members of the class which amounted to $1,200,000. Despite the fact that amended Rule 23 was already in effect, the case was dis- missed. Moreover, in the recent case of Hawaii v. Standard Oil Co. of California, et al., 405 U. S. 251 (1972),** it was again held that only persons actually injured in their business or property could claim damages under the Clay- ton Act. Eisen also alleges that the Exchange is liable for its failure to regulate the odd-lot differential as required by Section 6 of the Securities Exchange Act. He argues that Section 6, 15 U. S. C., Section 78f, requires the securities exchanges to prescribe rules and regulations for the regu- lation of the industry. Failure so to regulate allegedly subjects the defendant-Exchange to liability to those who have suffered injury due to the abdication of this regula- 15. 15 U. S. C., Section 15. 16. The District Court in Hawaii v. Standard Oil Co., 301 F. Supp. 982 (D. Hawaii, 1969) dismissed the class action allegation on the that “under the circumstances * * *, the class action mee os - aor tie able.” Hawaii, however, decided not to appeal this ruling to the Ninth Circuit, and, of course, the ruli was not before the Supreme Court for review in Hawaii v. Standar Oil Co., 405 U. S. 251, 256, n. 6 (1972). Court of Appeals Opinion (5/1/73) A363 tory responsibility. The duty to regulate emanates from the Exchange Act, but the right of an injured party to recover damages is, according to Eisen, based upon federal com- mon law, J. I. Case Co. v. Borak, 377 U. S. 426 (1964); Baird v. Franklin, 141 F. 2d 238 (2d Cir.), cert. denied, 323 U. S. 737 (1944). Thus, if Eisen is correct and Section 6 of the Act creates a statutory duty on the Exchange to pro- tect members of plaintiff’s class, then these members ‘‘may sue for injuries resulting from its breach and (the) com- mon law will supply a remedy if the statute gives none,’’ Baird v. Franklin, 141 F. 2d at 245. The fundamental doctrine that permeates our opinion in Eisen II, and which we are now about to apply again in this same case, is whether the requirements of amended Rule 23 have been met. We find no helpful analogy in the procedures that have been used for generations in connec- tion with preliminary injunctions or other provisional remedies intended to preserve the status quo. So, we shall proceed to examine in some detail the pro- visions of amended Rule 23 in the light of the long and explicit Advisory Committee’s Note, 39 F. R. D. 98, and de- cide whether or not Judge Tyler has followed our direc- tions to appraise and to apply each of the factors enu- merated on the face of the Rule. Im the light of our conclusions with respect to notice and manageability, we do not reach the subject of adequate representation. IV Lack of Individual Notice to ‘‘ All Members Who Can be Identified Through Reasonable Effort’’ Our prior ruling in Eisen II is clear and specific. If identification of any number of members of the class can readily be made, individual notice to these members must Re A364 Court of Appeals Opinion (5/1/73) be given and Eisen must pay the cost. If this cannot be done, the case must be dismissed as a class action. Amended Rule 23(c)(2) unambiguously states that notice to the class generally shall be the ‘‘best notice practicable,’’ and then ‘‘including individual notice to all members who can be identified through reasonable effort.’’ Moreover, the Ad- visory Committee’s Note states (39 F. R. D. 106-7): ‘‘In- deed, under subdivision (c) (2), notice must be ordered, it is not merely discretionary * * *.’’** While Judge Tyler seems to have realized that this phase of amended Rule 23 has decided constitutional overtones, he apparently thought the flexibility of the Rule and our statment that the Rule was to be given a liberal interpretation authorized him to exercise his discretion even if this involved the complete disregard of our specific and unambiguous ruling on the subject of actual individual notice to identifiable members of the class. This ruling alone compels a reversal of the order appealed from and the dismissal of the case as a class action. 17. The Drug Cases, supra, 314 F. Supp. 710 (5. D. N.Y. 1970), aff'd 440 F. 2d 1079 (2d Cir. 1971), contain nothing that gives support to Judge Tyler’s ruling that individual notice to a lmited number of members of a group of 2,250,000 whose names and addresses were identified was sufficient compliance with the notice requirements of amended Rule 23. An examination of the briefs in the Drug Cases makes it clear that reasonable effort would not have uncovered the names and addresses of the members of the consumer class of persons who bought the drugs on prescription at drug stores. Therefore, publication as to the consumer class was deemed sufficient. Moreover, as appellant in the Drug Cases attacked the sufficiency of the notice to the members of the wholesaler-retailer class, this Court rejected this argument, observing that individual notice was sent by mail to each and every member of this class whose name was available. 440 F. 2d at 1091. Court of Appeals Opinion (5/1/73) A365 V The Preliminary Mini-Hearing on the Merits Was Not Authorized by Amended Rule 23 and the District Court Had No Jurisdiction or Competence to Hold Such a Hearing The Federal Rules of Civil Procedure set forth a con- siderably variety of procedural devices designed for the disposition of cases on the merits. There may be tradi- timal trials to a judge or to a judge and jury; there may be summary judgments, dismissals with or without prej- udee for failure to state a claim and so on. But neither in amended Rule 23 nor in any other rule do we find pro- Vision for any tentative, provisional or other makeshift determination of the issues of any case on the merits for th avowed purpose of deciding a collateral matter such as which party is to be required to pay for mailing, pub- lithing or otherwise giving any notice required by law. Ir most cases the so-called tentative findings and conclu- Sins arrived at without the salutary safeguards appli- céble to all full scale trials on the merits will be extremely Plejudicial to one or the other of the parties who bear tke brunt of such findings and conclusions, and such prej- udice may well be irreparable. We agree with the ruling by the Fifth Circuit in Miller v.Mackey International, Inc., 452 F. 2d 424 (5th Cir. 1971), that the preliminary hearing on the merits was improper. As stated by Judge Wisdom, 452 F. 2d at page 427: In determining the propriety of a class action, the question is not whether the plaintiff or plaintiffs have stated a cause of action or will prevail on the merits, but rather whether the requirements of Rule 23 are met. ~ A366 Court of Appeals Opinion (5/1/73) This was the first time, as far as we are aware, that any Court of Appeals has passed on the point. As noted by Judge Wisdom in footnote 5 on page 429 of 452 F. 2d, this Court did not have occasion to rule on the question when it decided the appeal from Judge Weinstein’s sum- mary judgment for defendants in Dolgow, 438 F. 2d 825 (2d Cir., 1971). While Judge Weinstein’s oral order not only granted summary judgment for defendants but also held the case not to be a proper class action, the posture of the case on the appeal to our Court was such that the Court had no occasion to consider the propriety of the preliminary mini-hearing on the merits that had been con- ducted by Judge Weinstein. Nor was that question be- fore this Court in Green v. Wolf Corporation, 406 F. 2d 291 (1968). See footnote 15 on pages 301-2. Of the few District Court decisions on the point most of these disagree, as, of course, does the Fifth Circuit, with the innovations described in Dolgow,* and there is little to commend the reasoning or lack of reasoning in the others."* No provision is made in amended Rule 23 for 18. Decisions which have rejected the use of a preliminary hear- ing on the merits to decide the propriety of ao proceeding as a class action include: Kahan v. Rosenstiel, 424 F. 2d 161 (3d Cir.), cert. denied 398 U. S. 950 (1970); Katz v. Carte Blanche Corp., 52 F. R. D. 510 (W. D. Pa. 1971) ; Fogel v. Wolfgang, 47 F. R. D. 213 (S. D. N. Y. 1969); Cannon v. Texas Gulf Sulphur Co., 47 F. R. D. 60 (S. D. N. Y. 1969) ; Mersay v. First Republic Corp. of America, 43 F. R. D. 465 (S. D. N. Y. 1968). Judge Mansfield took’ the opportunity in Berland v. Mack, 48 F. R. D. 121, 132 (S. D. N. Y. 1969) to comment on the preliminary hearing on the merits: “The suggestion that such abuse of the corporate treasury can be avoided by a preliminary hearing to determine the merits of the claim is illusory. Quite aside from the additional burden that it heaps upon the Court, it would be a rare case where the Court could assure the class of ultimate success even after a preliminary hearing.” 19. Cases supporting a prelimi hearing on the merits are Milberg v. Western Pacific Railroad Co., 51 F. R. D. 280 (S. D. N. Y. 1970), appeal dismissed, 443 F. 2d 1301 (2d Cir. 1971), and, of course, Dolgow v. Anderson, 43 F. R. D. 472 (E. D.N. Y. 1968). Court of Appeals Opinion (5/1/73) A367 any such mini, preliminary or other hearings on the merits. It does violence to the whole concept of summary judg- ment, and cannot be reconciled with the requirement in Rule 23 that ‘‘as soon as practicable after the commence- ment of the action’’ the question of class suit vel non be decided. Moreover, in this case we did not in our disposition of the prior appeal intend to relinquish to the District Court any jurisdiction to pass on the merits of the case but only to decide if the requirements of amended Rule 23 had been met. Accordingly, we are constrained to hold that the whole preliminary mini-hearing on the merits proceeding, including the findings of fact and conclusions of law, was conducted and made without jurisdiction. VI As a Class Action the Case Is Unmanageable From the beginning it has been Judge (then Chief Judge) Lumbard’s view that as a class action the case is unmanageable and that it should be dismissed as a class action. It turns out that he was right. As soon as the evi- dence on the remand disclosed the true extent of the mem- bership of the class and the fact that Eisen would not pay for individual notice to the members of the class who could be identified, and the evidence further disclosed that the class membership was of such diversity and was so dis- persed that no notice by publication could be devised by the ingenuity of man that could reasonably be expected to notify more than a relatively small proportion of the class, a ruling should have been made forthwith dismissing the case as a.class action. This dismissal could have saved several years of hard work by the judge and the lawyers and wholly unnecessary expense running into large figures. The fact that the cost of obtaining proofs of claim by indi- A368 Court of Appeals Opinion (5/1/73) vidual members of the class and processing such claims was such as to make it clear that the amounts payable to individual claimants would be so low as to be negligible also should have been enough of itself to warrant dis- missal as a class action. Other cases involving millions of diverse and unidentifiable members of an alleged class had been dismissed as unmanageable or altered in compo- sition.” And so even Eisen and his counsel conceded that the class was not manageable unless the ‘‘fluid recovery”’ procedures were adopted. Thus, in the language of Eisen’s counsel: There are some six million persons in the class. If each had to present his own personal claim for dam- ages, the class, indeed, would not be manageable. The facts in Stipulation No. 2 only underscore the obvious. In both Cherner v. Transitron Electronic Corporation, 201 F. Supp. 934 (D. Mass. 1962) and Illinois Bell Tele- phone Co. v. Slattery, 102 F. 2d 58 (7th Cir. 1939) (the cases included in Stipulation No. 2), the refund proc- ess overwhelmed the refunds. And both cases involved, quite obviously, classes much smaller than the class at bar. Where there are millions of dispersed and unidentifi- able members of the class notices by publication giving the essential information required by amended Rule 23 are a 20. See, City of Philadelphia v. American Oil Co., 53 F. R. D. 45 (D. N. J. 1971); United Egg Products v. Bauer International Corp., 312 F. Supp. 319 (S. D.N. Y. 1970) ; Hackett v. General Host Corp., Civil No. 70-364 (E. D. Pa. 1970), appeal dismissed, 455 F. 2d 618 (3d Cir.), cert. denied, 407 U. S. 925 (1972) ; Phila- delphia Electric Co. v. Anaconda American Brass Co., 43 F. R. D. 452, 461 (E. D. Pa. 1968) ; School District of Philadelphia v. Harper & Row Publishers, Inc., 267 F. Supp. 1001 (E. D. Pa. 1967). Court of Appeals Opinion (5/1/73) A369 farce." And, when it comes to the filing and processing of claims, lawyers specializing in class actions have stated that the only effective way to induce any reasonable num- ber of members of the class to file claims is to conduct ful-scale campaigns on TV and radio, solicit appearances by advocates of consumers’ rights such as Ralph Nader, letters from Congressmen to their constituents, public statements by various state attorneys general ‘‘and cover- age in various news media, union newsletters and the like,”’ also to persuade the Federal Communications Commission to classify announcements of this character as ‘‘ public serv- ice announcements. ’’* All the difficulties of management are supposed to dis- appear once the ‘‘fluid recovery’’ procedure is adopted. The claims of the individual members of the class become of little consequence. If the damages to be paid were only the aggregate of the sums found due to individual mem- bers of the class, after their claims had been processed, it is fairly obvious that in cases like Eisen the expenses of giving the notices required by amended Rule 23 and the general costs of administration of the action would exceed the amount due to the few members of the class who filed claims and the individual members of the class would get 21. Notice by publication has been sanctioned as consistent with due process of law under certain circumstances, Mullane v. Central Hanover Bank & Trust Co., 339 U. S. 306 (1950). But in Schroeder v. City of New York, 371 U. S. 208, 212-213 (1962) the Court refined the Mullane rule: “The general rule that emerges from the Mullane case is that notice by publication is not enough with respect to a person whose name and address are known or very easily ascertainable and whose legally protected interests are directly affected by the proceedings in question.” 22. These suggestions were made and discussed in Shapiro, “Consumer Participation in Antitrust Class Action Part II”, New York Law Journal, May 31, 1972, p. 1. Be tate ia eee ee eee eee) A a ae ea ae eT nie, Se “tee a aN i oe A370 Court of Appeals Opinion (5/1/73) nothing.* We referred to this possibility in our opinion in Eisen II at pages 567 and 570. But if the ‘‘class as a whole”’ is or can be substituted for the individual members of the class as claimants, then the number of claims filed is of no consequence and the amount found to be due will be enormous, affording, we are told, plenty of money to pay all expenses, including counsel fees, and a residue so large as to justify reduction of the odd-lot differential for years in the future, for the benefit of all traders, past, present and future, who are to be con- sidered to be members of ‘‘the class as a whole.’’ Even if amended Rule 23 could be read so as to permit any such fantastic procedure, the courts would have to re- ject it as an unconstitutional violation of the requirement of due process of law. But as it now reads amended Rule 23 contemplates and provides for no such procedure. Nor can amended Rule 23 be construed or interpreted in such fashion as to permit such procedure. We hold the ‘‘fluid recovery’’ concept and practice to be illegal, inadmissible as a solution of the manageability problems of class actions and wholly improper. Vil A Few General Observations Perhaps in part due to the liberal views on the subject of amended Rule 23, as expressed in our opinion in Eisen securing class members may be entitled.” (p. 36). Due to our rejection of the fluid class recovery concept, we are compelled to conclude that this : | i L : compensation for the alleged injuries. = Court of Appeals Opinion (5/1/73) A371 II, and doubtless stimulated by the counsel fees allowed in the Transitron and the Drug Cases, where large volun- tary settlements had been approved and administered by District Judges, there has followed such a quantity of comment pro and con on the questions of law we are to decide in this case, by law professors, by judges, and espe- cially by lawyers specializing in class actions, expressed in numerous articles, opinions and published speeches, that the task of even attempting to enumerate all of these for purposes of documentation is too much for us. Class actions have sprouted and multiplied like the leaves of the green bay tree. No matter how numerous or diverse the so-called class may be or how impossible it may be ever to compensate the individual members of the class, a champion steps forth. Thus class actions have been brought ‘‘on behalf of all subscribers of business telephones in New York County, all Master Charge credit card holders similarly situated, all consumers of gasoline in a given state or states, all homeowners in the United States, and even all people in the United States.’’* So far as we are aware not a single one of these class actions including millions of indiscriminate and unidentifiable members has ever been brought to trial and decided on the merits. But the preliminary procedures, including the preliminary mini- hearing on the merits, such as those conducted by Judge Tyler in order to decide whether or not this case was a proper class action, and the huge and unavoidable expense of producing witnesses and documents pursuant to dis- covery orders, have brought such pressure on defendants as to induce settlements in large amounts as the alter- —— - A372 Court of Appeals Opinion (5/1/73) native to complete ruin and disaster, irrespective of the merits of the claim.” The ‘‘in terrorem’’ effects of the innovations described in Dolgow have been highly praised by those who invented or applied them.%* But Professor Milton Handler, whose Annual Antitrust Review has for many years brought his expertise in Trade Regulation and, we are happy to say, some entertainment to the members of the Association of the Bar of the City of New York, and to the members of the Bench and Bar in general, minces no words. He calls these procedures ‘‘legalized blackmail.’’*7_ There is reason to believe that the practical effect of these procedures, and the fact that possible recoveries run into astronomical amounts, generate more leverage and pressure on defend- ants to settle, even for millions of dollars, and in cases where the merits of the class representatives claim is to say the least doubtful, than did the odd-fashioned strike suits made famous a generation or two ago by Clarence H. Venner. And yet, even if amended Rule 23 furnishes no satis- factory solution in situations where immense numbers of consumers have been mulcted in various ways by illegal 25. Id., at 16. See also, Morris v. Burchard, 51 F. R. D. 530, 536 (S. D. N. Y. 1971). 26. See, Dolgow v. Anderson, 43 F. R. D. 472, 487 (E. D. N. Y. 1968) ; Miller, Problem In Administering Relief In Class Actions Under Federal Rule 23(b)(3), 54 F. R. D. 501, 508; Pomerantz, New Developments in Class Actions—Has Their Death Knell Been Sounded?, 25 Bus. Lawyer 1259 (1970). 27. Handler, The Shift From Substantive to Procedural Innova- tions in Antitrust Suits—The 23rd Annual Antitrust Review, 71 Colum. L. Rev. 1, 9 (1971). See also, Professor Handler’s 24th Annual Antitrust Review, 72 Colum. L. Rev. .1, 34-42, in which he criticizes the fluid recovery procedure as sought to be applied in “class” actions. There are some additional trenchant comments in his 25th Annual Antitrust Review, published in the December, 1972 issue of The Record of the Association of the Bar of the City of New York, pp. 660 ff. ae Court of Appeals Opinion (5/1/73) A373 charges, it would seem that some means should be provided by law for the redress of these wrongs to the community and to society as a whole. The numerous decisions by courts in these class action cases have at least exposed the lack of adequate remedy under existing laws. From our extensive study of the whole situation in working on this Eisen case it would seem that amended Rule 23 provides an excellent and workable procedure in cases where the number of members of the class is not too large. It seems doubtful that further amendments to Rule 23 can be ex- pected to be effective where there are millions of members of the class, without some infringement of constitutional requirements. The problem is really one for solution by the Congress. Numerous administrative agencies protect consumers in various ways. It should, we think, be possible for the Congress to create some public body to do justice in the matter of consumers’ claims in such fashion as to afford compensation to the injured consumer. If penalties are to be imposed upon wrongdoers, at least let the Congress decide how the money is to be spent. Another possibility, suggested by the Report and Rec- ommendations of the Special Committee of the American College of Trial Lawyers, is a further amendment to amended Rule 23 eonsisting of a new subdivision providing : In an action commenced pursuant to subdivision (b)(3), the court shall consider whether justice in the action would be more effectively served by maintenance of the action as a class action pursuant to subdivision (b) (2) in lieu of (b)(3). : The procedure involved in applying for prospective injunc- tive relief is relatively simple and inexpensive, social and economic reforms may be implemented and an end put to illegal practices with far more benefit to the community than that derived from minimal or token payments to in- dividual members of a class. Attorney’s fees in such cases A374 Court of Appeals Opinion (5/1/73) 1 should also provide adequate incentive to counsel for the representative or representatives of the class.” Conclusion For the reasons stated in this opinion the findings and conclusions following the mini-hearing are vacated and set aside, the various rulings of the District Court sustaining the prosecution of the case as a class action are reversed and, as a class action, the case is dismissed, without preju- dice to the continuance of so much of the claim asserted in the complaint as refers to Eisen’s alleged individual rights against the defendants. Hays, Circuit Judge, concurring in the result: I concur in the result because I am unable to accept the ruling of the district court requiring the defendants to pay 90 per cent of the cost of notice, since, if the defendants should finally prevail, they would not be reimbursed for this expenditure. 28. In his recent book FEeperaL JURISDICTION : A GENERAL View, containing his 1972 Columbia University James S. Carpentier Lectures, Chief Friendly makes this comment on class actions pursuant to Rule 23, at page 120, omitting footnotes : Something seems to have gone radically wrong with a well- intentioned effort. Of course, an injured plaintiff should be com- pensated, but the federal judicial system is not adapted to afford- ing compensation to classes of hundreds of people with $10 or even $50 claims. The important thing is to stop the evil conduct. we aE oe BL pos nen won ae ney one properly compensated the defendant, although not in the astronomical terms el there is a multi-million dollar settlement. If it be said that this still leaves the defendant with the fruits of past wrong-doing, consideration might be given to civil fines, payable to the govern- to discourage engaging in such con- produce recoveries that would ruin i likely, produce blackmail needs urgent attention. : Court of Appeals Opinion (5/24/73 ) A375 OPINION OF UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT, DATED MAY 24, 1973 DENYING MOTION FOR REHEARING IN BANC, CONCURRING OPINION OF JUDGE MANSFIELD, DISSENT OF JUDGE HAYS, AND DISSENTING OPINION OF JUDGE OAKES. UNITED STATES COURT OF APPEALS For tHe Seconp Ciacurr Cal. 341—September Term, 1972. (Filed May 14, 1973 Decided May 24, 1973.) Docket No. 72-1521 Mortow Eisen, on behalf of himself and all other pur- chasers and sellers of ‘‘odd-lots’’ on the New York Stock Exchange similarly situated, Plaintiff-Appellee, v. Canuistz & Jacguetms and DeCoprer & Doremvus, each limited partnerships under New York Partnership Law, Article 8, and New Yorx Stock Excuanez, an unin- corporated association, Defendants-A ppellants. A petition for a rehearing having been filed herein by counsel for the appellee, Upon consideration thereof, it is Ordered that said petition be and it hereby is denied. /8/ A. Dawrer Fvsaro Clerk A petition for a rehearing containing a suggestion that the action be reheard en banc having been filed herein by counsel for plaintiff-appellee, a poll of [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0297%3A01. Public record. Not legal advice.