Opinion — Eisen v. Carlisle & Jacquelin

ERE

156 OCTOBER TERM, 1973

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

Petitioner brought a class action under Fed. Rule Civ. Proc. 23 on

Syllabus 417 U.S.

*

EISEN v. CARLISLE & JACQUELIN et au.

THE SECOND CIRCUIT

No. 73-203. Argued February 25, 1974—Decided May 28, 1974

behalf of himself and all odd-lot traders on the New York Stock

Exehange for a certain four-year period, charging respondent

brokerage firms, which handled 99% of the Exchange’s odd-lot

business, and respondent Exchange with violating the antitrust

and securities laws. There followed a series of decisions by the

District Court and the Court of Appeals. The District Court

ultimately decided that the suit could be maintained as a class

action, and, after finding that some two and a quarter million

members of the prospective class could be identified by name and

address with reasonable effort and that it would cost $225,000

to send individual notice to all of them, proposed a notification

scheme providing for individual notice to only a limited number

of prospective class members and notice by publication to the

remainder. The District Court then held a preliminary hearing

on the merits, and after finding that petitioner was “more than

likely” to prevail at trial. ruled that respondents should bear

90% of the costs of the notification scheme. The Court of Appeals

reversed and ordered the suit dismissed as a class action, dis-

approving the District Court’s partial reliance on publication

notice. The Court of Appeals held that Rule 23 (c)(2) required

individual notice to all identifiable class members; that the District

Court had no authority to hold a preliminary hearing on the

merits for the purpose of allocating notice costs; that the entire

notice expense should fall on petitioner; and that the proposed

class action was unmanageable under Rule 23 (b)(3)(D). Peti-

tioner contends that the Court of Appeals had no jurisdiction to

review the District Court’s orders, and further, that the Court

of Appeals decided the above issues incorrectly. Held:

1. The District Court's resolution of the notice problems con-

stituted a “final” decision within the meaning of 28 U, S. C. § 1291

and was therefore appealable as of right under that section.

Pp. 169-172.

(a) Section 1291 does not limit appellate review to “those

156

EISEN v. CARLISLE & JACQUELIN 157

Syllabus

final judgments which terminate an action . .. ,” but rather

the requirement of finality is to be given a “practical rather than

a technical construction.” Cohen v. Beneficial Loan Corp., 337

U.S. 541, 545-546. Pp. 170-172.

(b) The District Court’s decision that respondents could law-

fully be required to bear the costs of notice involved a collateral

matter unrelated to the merits of petitioner’s claims and was “a

final disposition of a claimed right which is not an ingredient

of the cause of action and does not require consideration with it,”

Cohen, supra, at 546-547. P. 172.

2. The District Court’s resolution of the notice problems failed

to comply with the notice requirement of Rule 23 (c)(2). Pp.

173-177.

(a) The express language and intent of Rule 23 (c)(2) leave

no doubt that individual notice must be sent to all class members

who can be identified through reasonable effort. Here there was

nothing to show that individual notice could not be mailed to

each of the two and a quarter million class members whose names

and addresses were easily ascertainable, and for these class mem-

bers individual notice was clearly the “best notice practicable”

within the meaning of Rule 23 (c)(2). Pp. 173-175.

(b) The facts that the cost of sending individual notices

would be prohibitively high to petitioner, who has only a $70

stake in the matter, or that individual notice might be unnecessary

because no prospective class member has a large enough stake to

justify separate litigation of his individual claim, do not dispense

with the individual-notice requirement, since individual notice

to identifiable class members is not a discretionary consideration

to be waived in a particular case but an unambiguous requirement

of Rule 23. Pp. 175-176.

(c) Adequate representation in itself does not satisfy Rule

23 (c)(2), since the Rule speaks to notice as well as to adequacy

of representation and requires that both be provided. Otherwise

no notice at all, published or otherwise, would be required in this

ease. Pp. 176-177.

3. Petitioner must bear the cost of notice to the members of

his class, and it was improper for the District Court to impose

part of the cost on respondents. Pp. 177-179. ;

(a) There is nothing in either the language or history of Rule

23 that gives a court any authority to conduct a preliminary

inquiry into the merits of a suit in order to determine whether

ke hea ae f

158 OCTOBER TERM, 1973

Syllabus 417 U.S.

it may be maintained as a class action, and, indeed, such a

procedure contravenes the Rule by allowing a representative

plaintiff to secure the benefits of a class action without first

satisfying the requirements of the Rule. Pp. 177-178.

(b) A preliminary determination of the merits may substan-

tially prejudice a defendant, since it is unaccompanied by the

traditional rules and procedures applicable to civil trials. P. 17s.

(c) Where, as here, the relationship between the parties is

truly adversary, the plaintiff must pay for the cost of notice

as part of the ordinary burden of financing his own suit. Pp.

178-179.

479 F. 2d 1005, vacated and remanded.

PowELL, J., delivered the opinion of the Court, in which Burcer,

C. J., and Stewart, Wuirte, BLackmun, and REHNauIsT, JJ., joined.

Dovctas, J., filed an opinion dissenting in part, in which BRENNAN

and MarsHa tt, JJ., joined, post..p. 179.

Aaron M. Fine argued the cause for petitioner. With

him on the briefs were Mordecai Rosenfeld and Harold E.

Kohn.

Devereux Milburn and William Eldred Jackson argued

the cause for respondents. With them on the briefs

were Louis L. Stanton, Jr., and Russell E. Brooks.*

*Briefs of amici curiae urging reversal were filed by Louis J.

Lefkowitz, Attorney General, pro se, Samuel A. Hirshowitz, First

Assistant Attorney General, and George D. Zuckerman and Arnold

D. Fleischer, Assistant Attorneys General, for the Attorney General

of New York; by /srael Packel, Attorney General, Lawrence Silver

and Gerry J. Elman, Deputy Attorneys General, and David Berger

for the Commonwealth of Pennsylvania; by Evelle J. Younger, At-

torney General, Anthony C. Joseph, Assistant Attorney General, and

Michael I. Spiegel, Deputy Attorney General, for the State of Cali-

fornia; by William J. Baziey, Attorney General of Alabama, Norman

C. Gorsuch, Attorney General of Alaska, Gary K. Nelson, Attorney

General of Arizona, Arthur K. Bolton, Attorney General of Georgia,

Ed W. Hancock, Attorney General of Kentucky, Robert H. Quinn,

Attorney General, and Leo Schwartz, Special Assistant Attorney

General of Massachusetts, John C. Danforth, Attorney General of

Missouri, Allen J. Olson, Attorney General of North Dakota, Richard

EISEN v. CARLISLE & JACQUELIN 159

156 Opinion of the Court

Mr. Justice Powe. delivered the opinion of the

Court.

On May 2, 1966, petitioner filed a class action on

behalf of himself and all other odd-lot’ traders on the

New York Stock Exchange (the Exchange)? The com-

plaint charged respondents with violations of the anti-

trust and securities laws and demanded damages for

petitioner and his class. Eight years have elapsed, but

there has been no trial on the merits of these claims.

Both the parties and the courts are still wrestling with

the complex questions surrounding petitioner’s attempt

to maintain his suit as a class action under Fed. Rule Civ.

Proc. 23. We granted certiorari to resolve some of these

difficulties. 414 U.S. 908 (1973).

J. Israel, Attorney General of Rhode Island, Kimberly B. Cheney.

Attorney General of Vermont, Robert J. Shevin, Attorney General

of Florida, Richard C. Turner, Attorney General of Iowa, Wukam

J. Guste, Attorney General of Louisiana, A. F. Summer, Attorney

General of Mississippi, Louis J. Lefkowitz, Attorney General of New

York, Larry Derryberry, Attorney General of Oklahoma, Kermit A.

Sande, Attorney General of South Dakota, Andrew P. Miller, Attor-

ney General of Virginia, and David J. Shapiro and James vanR.

Springer for the State of Alabama et al.; by Sheldon V. Burman for

the New York State Trial Lawyers Assn.: by Edward I. Pollock,

Leonard Sacks, and Stephen I. Zetterberg for the California Trial

Lawyers Assn.; by Melvin L. Wulf and Burt Neuborne for the Amer-

ican Civil Liberties Union; by Jack Greenberg, James M. Nabrit II,

Charles Stephen Ralston, and Eric Schnapper for the NAACP Legal

Defense and Educational Fund, Ine.; and by Alan B. Morrison for

the Public’ Citizen and Consumers Union of United States, Inc.

Briefs of amici curiae urging affirmance were filed by William C.

Falkenhainer and Rollin E. Woodbury for Southern California Edi-

son Co., and by Samuel E. Gates, Dwight B. Buss, Ralph L. McAfee.

Carl J. Schuck, Marvin Schwartz, William Simon, George A. Spiegel-

berg, and Philip H. Strubing for the American College of Trial

Lawyers.

1 Odd lots are shares traded in lots of less than a hundred. Shares

traded in units of a hundred or multiples thereof are round-lots.

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160 OCTOBER TERM, 1973

Opinion of the Court 417 U.S,

I

Petitioner brought this class action in the United

States District Court for the Southern District of New

York. Originally, he sued on behalf of all buyers and

sellers of odd lots on the Exchange, but subsequently

the class was limited to those who traded in odd lots

during the period from May 1, 1962, through June 30,

1966. 52 F..R. D. 253, 261 (1971). Throughout this

period odd-lot trading was not part of the Exchange’s

regular auction market but was handled exclusively by

special odd-lot dealers, who bought and sold for their

own accounts as principals. Respondent brokerage

firms Carlisle & Jacquelin and DeCoppet & Doremus

together handled 99% of the Exchange’s odd-lot busi-

ness. S. E. C., Report of Special Study of Securities

Markets, H. R. Doc. No. 95, pt. 2, 88th Cong., Ist Sess.,

172 (1963). They were compensated by the odd-lot

differential, a surcharge imposed on the odd-lot investor

in addition to the standard brokerage commission appli-

cable to round-lot transactions. For the period in ques-

tion the differential was 4% of a point (12%4¢) per

share on stocks trading below $40 per share and 1, of a

point (25¢) per share on stocks trading at or above

$40 per share.’

Petitioner charged that respondent brokerage firms

had monopolized odd-lot trading and set the differential

at an excessive level in violation of §§1 and 2 of the

Sherman Act, 15 U. S. C. §§ 1 and 2, and he demanded

treble damages for the amount of the overcharge. Peti-

tioner also demanded unspecified money damages from

the Exchange for its alleged failure to regulate the dif-

ferential for the protection of investors in violation of

§§ 6 and 19 of the Securities Exchange Act of 1934, 15

U. S. C. §§ 78f and 78s. Finally, he requested attor-

?7On July 1, 1966, the $40 “breakpoint”. was raised to $55.

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EISEN v. CARLISLE & JACQUELIN 161

156 Opinion of the Court

neys’ fees and injunctive prohibition of future excessive

charges.

A critical fact in this litigation is that petitioner’s

individual stake in the damage award he seeks is only

$70. No competent attorney would undertake this com-

plex antitrust action to recover so inconsequential an

amount. Economic reality dictates that petitioner’s suit

proceed as a class action or not at all. Opposing counsel

have therefore engaged in prolonged combat over the

various requirements of Rule 23. The result has been

an exceedingly complicated series of decisions by both

the District Court and the Court of Appeals for the

Second Circuit. To understand the labyrinthian history

of this litigation, a preliminary overview of the decisions

may prove useful.

In the beginning, the District Court determined that

petitioner’s suit was not maintainable as a class action.

On appeal, the Court of Appeals issued two decisions

known popularly as Eisen I and Eisen II. The first held

that the District Court’s decision was a final order and

thus appealable. In the second the Court of Appeals

intimated that petitioner’s suit could satisfy the require-

ments of Rule 23, but it remanded the case to permit the

District Court to consider the matter further. After

conducting several evidentiary hearings on remand, the

District Court decided that the suit could be maintained

as a class action and entered orders intended to fulfill the

notice requirements of Rule 23. Once again. the case

was appealed. The Court of Appeals then issued its

decision in Eisen III and ended the trilogy by denying

class action status to petitioner’s suit. We now review

these developments in more detail.

Eisen I

As we have seen, petitioner began this action in May

1966. In September of that year the District Court

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162 OCTOBER TERM, 1973

Opinion of the Court 417 US,

dismissed the suit as a class action. 41 F. R. D. 147.

Following denial of his motion for interlocutory review

under 28 U. S. C. § 1292 (b), petitioner took an appeal

as of right under § 1291. Respondents then moved to

dismiss on the ground that the order appealed from

was not final. In Eisen J, the Court of Appeals held

that the denial of class action status in this case

was appealable as a final order under § 1291. 370 F.

2d 119 (1966), cert. denied, 386 U.S. 1035 (1967). This

was so because, as a practical matter, the dismissal of

the class action aspect of petitioner’s suit was a “death

knell” for the entire action. The court thought this con-

sequence rendered the order dismissing the class action

appealable under Cohen v. Beneficial Loan Corp., 337

U.S. 541, 546 (1949).

Eisen II

Nearly 18 months later the Court of Appeals reversed

the dismissal of the class action in a decision known as

Eisen I]. 391 F. 2d 555 (1968). In reaching this result

the court undertook an exhaustive but ultimately incon-

clusive analysis of Rule 23. Subdivision (a) of the Rule

sets forth four prerequisites to the maintenance of any

suit as a class action: ‘“‘(1) the class is so numerous that

joinder of all members is impracticable, (2) there are —

questions of law or fact common to the class, (3) the

claims or defenses of the representative parties are typical

of the claims or defenses of the class, and (4) the repre-

sentative parties will fairly and adequately protect the

interests of the class.” The District Court had experi-

enced little difficulty in finding that petitioner satisfied

the first three prerequisites but had concluded that peti-

tioner might not “fairly and adequately protect the inter-

ests of the class’ as required by Rule 23 (a)(4). The

Court of Appeals indicated its disagreement with the

EISEN v. CARLISLE & JACQUELIN 163

156 Opinion of the Court

reasoning behind the latter conclusion and directed the

District Court to reconsider the point.

In addition to meeting the four conjunctive require-

ments of 23 (a), a class action must also qualify under

one of the three subdivisions of 23(b).° Petitioner

argued that the suit was maintainable as a class action

under all three subdivisions. The Court of Appeals held

the first two subdivisions inapplicable to this suit‘ and

3“(b) Class Actions Maintainable.

“An action may be maintained as a class action if the prerequisites

of subdivision (a) are satisfied, and in addition:

“(1) the prosecution of separate actions by or against individual

members of the class would create a risk of

“(A) inconsistent or varying adjudications with respect to m-

dividual members of the class which would establish incompatible

standards of conduct for the party opposing the class, or

“(B) adjudications with respect to individual members of the

class which would as a practical matter be dispositive of the in-

terests of the other members not parties to the adjudications or sub-

stantially impair or impede their ability to protect their interests; or

“(2) the party opposing the class has acted or refused ®% act on

grounds generally applicable to the class, thereby making appropriate

final injunctive relief or corresponding declaratory relief with respect

to the class as a whole; or

the members of the class predominate over any questions affecting

only individual members, and that a class action is superior to

other available methods for the fair and efficient adjudication of

the controversy. The matters pertinent to the findings include:

(A) the interest of members of the class in individually controlling

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

nature of any litigation concerning the controversy already com-

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

undesirability of concentrating the litigation of the claims in the

particular forum; (D) the difficulties likely to be encountered in the

management of a class action.”

‘Before the Court of Appeals, petitioner dropped the contention

that the suit qualified under subdivision (b)(1)(B). The court

held subdivision (b)(1)(A) inapplicable on the ground that the pro-

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164 OCTOBER TERM, 1973

Opinion of the Court 417 U.S,

therefore turned its attention to the third subdivision,

(b)(3). That subdivision requires a court to determine

whether “questions of law or fact common to the members

of the class predominate over any questions affecting

only individual members” and whether ‘‘a class action is

superior to other available methods for the fair and

efficient adjudication of the controversy.” More specifi-

cally, it identifies four factors relevant to these inquiries.

After a detailed review of these provisions, the Court of

Appeals concluded that the only potential barrier to

maintenance of this suit as a class action was the Rule 23

(b)(3)(D) directive that a court evaluate “the difficulties

likely to be encountered in the management of a class

action.” Commonly referred to as “manageability,” this

consideration encompasses the whole range of practical

problems that may render the class action format

inappropriate for a particular suit. With reference to

this litigation, the Court of Appeals noted that the diffi-

culties of distributing any ultimate recovery to the class

members would be formidable, though not necessarily

insuperable, and commented that it was “reluctant to

permit actions to proceed where they are not likely to

benefit anyone but the lawyers who bring them.” 39]

F. 2d, at 567. The Court therefore directed the District

Court to conduct “a further inquiry . . . in order to

consider the mechanics involved in the administration of

spective class consisted entirely of small claimants, none of whom could

afford to litigate this action in order to recover his individual claim and

that consequently there was little chance of “inconsistent or varying

adjudications with respect to individual members of the class which

would establish incompatible standards of conduct for the party

opposing the class ... .” Subdivision (b)(2) was held to apply

only to actions exclusively or predominantly for injunctive or

declaratory relief. Advisory Committee’s Note, Proposed Rules of

Civil Procedure, 39 F. R. D. 69, 98, 102 (1966).

EISEN v. CARLISLE & JACQUELIN 165

156 Opinion of the Court

Finally, the Court of Appeals turned to the most

imposing obstacle to this class action—the notice require-

ment of Rule 23(c)(2). The District Court had held

that both the Rule and the Due Process Clause of the

Fifth Amendment required individual notice to all class

members who could be identified. 41 F. R. D., at 151.

Petitioner objected that mailed notice to the entire class

would be prohibitively expensive and argued that some

form of ‘publication notice would suffice. The Court

of Appeals declined to settle this issue, noting that “[o]n

the record before us we cannot arrive at any rational and

satisfactory conclusion on the propriety of resorting to

some form of publication as a means of giving the neces-

sary notice to all members of the class on behalf of whom

the action is stated to be commenced and maintained.”

391 F. 2d, at 569.

The outcome of Eisen I] was a remand for an eviden-

tiary hearing on the questions of notice, manageability,

adequacy of representation, and “any other matters

which the District Court may consider pertinent and

proper.” Jd., at 570. And in a ruling that aroused

later controversy, the Court of Appeals expressly pur-

ported to retain appellate jurisdiction while the case was

heard on remand.

Exsen III

After it held the evidentiary hearing on remand, which

together with affidavits and stipulations provided the

basis for extensive findings of fact. the District Court is-

sued an opinion and order holding the suit maintainable

asaclassaction. 52F.R.D.253 (1971). The court first

noted that petitioner satisfied the criteria identified by

the Court of Appeals for determining adequacy of repre-

sentation under Rule 23 (a)(4). Then it turned to the .

more difficult question of manageability. Under this

general rubric the court dealt with problems of the com-

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166 OCTOBER TERM, 1973

Opinion of the Court 417 U.S.

putation of damages, the mechanics of administering this

suit as a class action, and the distribution of any eventual

recovery. The last-named problem had most. troubled

the Court of Appeals, prompting its remark that if “class

members are not likely ever to share in an eventual judg-

ment, we would probably not permit the class action to

continue.” 391 F. 2d, at 567. The District Court at-

tempted to resolve this difficulty by embracing the idea

of a “fluid class” recovery whereby damages would be

distributed to future odd-lot traders rather than to the

specific class members who were actually - injured.

The court suggested that “a fund equivalent to the

amount of unclaimed damages might be established

and the odd-lot differential reduced in an amount de-

termined reasonable by the court until such time as

the fund is depleted.” 52 F. R. D., at 265. The need

to resort to this expedient of recovery by the “next

best class” arose from the prohibitively high cost of com-

puting and awarding multitudinous small damages claims

on an individual basis.

Finally, the District Court took up the problem of

notice. The court found that the prospective class

included some six million individuals, institutions, and

intermediaries of various sorts; that with reasonable

effort some two million of these odd-lot investors could

be identified by name and address; * and that the names

and addresses of an additional 250,000 persons who had

participated in special investment programs involving

* These two million traders dealt. with brokerage firms who trans-

mitted their odd-lot transactions to respondents Carlisle & Jacquelin

and DeCoppet & Doremus via teletype. By comparing the odd-lot

firms’ computerized records of these teletype transactions and the

general-services brokerage firms’ computerized records of all customer

names and addresses, the namex and addresses of these two million

» odd-lot traders can be obtained.

One ga mee Ree EATS

EISEN v. CARLISLE & JACQUELIN 167

156 Opinion of the Court (

odd-lot trading * could also be identified with reasonable

effort. Using the then current first-class postage rate

of six cents, the court determined that stuffing and mail-

ing each individual notice form would cost 10 cents.

Thus individual notice to all identifiable class members

would cost $225,000,’ and additional expense: would be

incurred for suitable publication notice designed to reach

the other four million class members.

The District Court concluded, however, that neither

Rule 23 (c)(2) nor the Due Process Clause required so

substantial an expenditure at the outset of this litigation.

Instead, it proposed a notification scheme consisting of

four elements: (1) individual notice to all member firms

of the Exchange and to commercial banks with large

trust departments; (2) individual notice to the approxi-

mately 2,000 identifiable class members with 10 or more

odd-lot transactions during the relevant period; (3) indi-

vidual notice to an additional 5,000 class members

selected at random; and (4) prominent publication

notice in the Wall Street Journal and in other news-

papers in New York and California. The court calcu-

lated that this package would cost ‘approximately

$21,720. ;

The only issue not resolved by the District Court in

its first opinion on remand from Eisen IT was who should

bear the cost of notice. Because petitioner understand-

ably declined to pay $21,720 in order to litigate an action

*In the period from May 1962 through June 1968, 100,000 indi-

viduals had odd-lot transactions through participation in the Monthly

Investment Plan operated by the Exchange and 150,000 persons

traded in odd lots through participation in a number of payroll

deduction plans operated by Merrill Lynch, Pierce, Fenner & Smith,

* Adjusting this figure to reflect the subsequent 4¢ increase in first-

dass postage would yield a figure of $315,000.

POR Ot ger

168 OCTOBER TERM, 197

Opinion of the Court 417 U.S.

involving an individual stake of only $70, this question

presented something of a dilemma:

“If the expense of notice is placed upon [peti-

tioner], it would be the end of a possibly meritorious

suit, frustrating both the policy behind private anti-

trust actions and the admonition that the new Rule

23 is to be given a liberal rather than a restrictive

interpretation, Eisen II at 563. On the other hand,

if costs were arbitrarily placed upon [respondents]

at this point, the result might be the imposition of

an unfair burden founded upon a groundless claim.

In addition to the probability of encouraging frivo-

lous class actions, such a step might also result in

[respondents’] passing on to their customers, includ-

ing many of the class members in this case, the

expenses of defending these actions.” 52 F. R. D.,

at 269.

Analogizing to the laws of preliminary injunctions, the

court decided to impose the notice cost on respondents

if petitioner could show a strong likelihood of success on

the merits, and it scheduled a preliminary hearing on the

merits to facilitate this determination. After this hear-

ing the District Court issued an opinion and order ruling

that petitioner was “more than likely” to prevail at trial

and that respondents should bear 90% of the cost of

notice, or $19.548. 54 F. R. D. 565, 567 (1972).

Relying on the purported retention of jurisdiction by

the Court of Appeals after Eisen II, respondents on

May 1, 1972, obtained an order directing the clerk of

the District Court to certify and transmit the record for

appellate review. Subsequently, respondents also filed

a notice of appeal under 28 U. S. C. § 1291. Petitioner’s

motion to dismiss on the ground that the appeal had

not been taken from a final order was denied by the

Court of Appeals on June 29, 1972.

JONI ME ES me SISO. eet: os So eS ey we

EISEN v. CARLISLE & JACQUELIN 169

156 Opinion of the Court

On May 1, 1973, the Court of Appeals issued Eisen /11.

479 F. 2d 1005. The majority disapproved the District

Court’s partial reliance on publication notice, holding

that Rule 23 (c)(2) required individual notice to all

identifiable class members. The majority further ruled

that the District Court had no authority to conduct a

preliminary hearing on the merits for the purpose of

allocating costs and that the entire expense of notice

necessarily fell on petitioner as representative plaintiff.

Finally, the Court of Appeals rejected the expedient of

a fluid-class recovery and concluded that the proposed

class action was unmanageable under Rule 23 (b)(3)(D).

For all of these reasons the Court of Appeals ordered

the suit dismissed as a class action. One judge concurred

in the result solely on the ground that the District Court

had erred in imposing 90% of the notice costs on

respondents. Petitioner’s requests for rehearing and

rehearing en bane were denied. 479 F. 2d, at 1020.

Thus, after six and one-half years and three published

decisions, the Court of Appeals endorsed the conclusion

reached by the District Court in its original order in

1966—that petitioner’s suit could not proceed as a class

action. In its procedural history, at least, this litigation

has lived up to Judge Lumbard’s characterization of it

as a “Frankenstein monster posing as a class action.”

Eisen II, 391 F. 2d, at 572.

II

At the outset we must decide whether the Court of

Appeals in Eisen III had jurisdiction to review the Dis-

trict Court’s orders permitting the suit to proceed as a

class action and allocating the cost of notice. Petitioner

contends that it did not. Respondents counter by assert-

ing two independent bases for appellate jurisdiction:

first, that the orders in question constituted a “final”

170 OCTOBER TERM. 1973

cosate @f the Court 417 US.

decision within the meaning of 28 U. S. C. § 1291° and

were therefore appealable as of right under that section;

and, second, that the Court of Appeals in Eisen // ex-

pressly retained jurisdiction pending further development

of a factual record on remand and that consequently no

new jurisdictional basis was required for the decision in

Eisen III. Because we agree with the first ground as-

serted by respondents, we have no occasion to consider

the second.

Restricting appellate review to “final decisions” pre-

vents the debilitating effect on judicial administration

caused by piecemeal appellate disposition of what

is, in practical consequence, but a single controversy.

While the application of § 1291 in most cases is plain

enough, determining the finality of a particular judicial

order may pose a close question. No verbal formula

yet devised can explain prior finality decisions with un-

erring accuracy or provide an utterly reliable guide for

the future.° We know, of course. that § 1291 does not

* Section 1291 provides:

“The courts of appeals shall have jurisdiction of appeals from all

final decisions of the district courts of the United States, the United

States District Court for the District of the Canal Zone, the District

Court of Guam, and the District Court of the Virgin Islands, except

where a direct review may be had in the Supreme Court.”

*As long ago as 1892 the Court complained: “Probably no

question of equity practice has been the subject of more frequent

discussion in this court than the finality of decrees... . The cases,

it must be conceded. are not altogether harmonious.” McGourkey v.

Toledo & Ohio R. Co., 146 U. S. 536, 544-545. In the inter-

vening vears the difficulty of resolving such questions has not abated.

As Mr. Justice Black commented in Gillespie v. U. S. Steel Corp..

379 U. S. 148, 152 (1964), “whether a ruling is ‘final’ within the

meaning of § 1291 is frequently so close a question that decision of

that issue either way can be supported with equally forceful argu-

ments, and that it is impossible to devise a formula to resolve all

marginal cases coming within what might well be called the ‘twilight

zone’ of finality.”

EISEN v. CARLISLE & JACQUELIN 171

156 Opinion of the Court

limit appellate review to “those final judgments which

terminate an action... .” Cohen v. Beneficial Loan Corp.,

337 U. S. 541, 545 (1949), but rather that the require-

ment of finality is to be given a “practical rather than a

technical construction.” Jd., at 546. The inquiry re-

quires some evaluation of the competing considerations

underlying all questions of finality—‘“the inconvenience

and costs of piecemeal review on the one hand and the

danger of denying justice by delay on the other.” Dick-

inson v. Petroleum Conversion Corp., 338 U.S. 507, 511

(1950) (footnote omitted).

We find the instant case controlled, by our decision

in Cohen v. Beneficial Loan Corp., supra. There the

Court considered the applicability in a federal diversity

action of a forum state statute making the plaintiff in a

stockholder’s derivative action liable for litigation ex-

penses, if ultimately unsuccessful, and entitling the cor-

poration to demand security in advance for their pay-

ment. The trial court ruled the statute inapplicable.

and the corporation sought immediate appellate review

over the stockholder’s objection that the order appealed

from was not final. This Court held the order appeal-

able on two grounds. First, the District Court’s finding

was not “tentative, informal or incomplete,” 337 U. S.,

at 546, but settled conclusively the corporation’s claim

that it was entitled by state law to require the share-

holder to post security for costs. Second, the decision

did not constitute merely a “step toward final disposition

of the merits of the case... .” Jbid. Rather, it con-

cerned a collateral matter that could not be reviewed

effectively on appeal from the final judgment. The

Court summarized its conclusion in this way:

“This decision appears to fall in that small class

which finally determine claims of right separable

from, and collateral to. rights asserted in the action,

172 OCTOBER TERM, 1973

Opinion of the Court 417 US.

too important to be denied review and too independ-

ent of the cause itself to require that appellate con-

sideration be deferred until the whole case is adjudi-

cated.” Ibid.

Analysis of the instant case reveals that the District

Court’s order imposing 90% of the notice costs on re-

spondents likewise falls within “that small class.” It

conclusively rejected respondents’ contention that they

could not lawfully be required to bear the expense of

notice to the members of petitioner’s proposed class.

Moreover, it involved a collateral matter unrelated to

the merits of petitioner’s claims. Like the order in

Cohen, the District Court’s judgment on the allocation of

notice costs was “a final disposition of a claimed right

which is not an ingredient of the cause of action and

does not require consideration with it,” 337 U.S., at 546

547, and it was similarly appealable as a “final decision”

under § 1291. In our view the Court of Appeals therefore

had jurisdiction to review fully the District Court’s reso-

lution of the class action notice problems in this case, for

that court’s allocation of 90% of the notice costs to re-

spondents was but one aspect of its effort to construe the

requirements of Rule 23 (c)(2) in a way that would per-

mit petitioner's suit to proceed as a class action.”

III

Turning to the merits of the case, we find that the

District Court’s resolution of the notice problems was

1° As explained in Part III of this opinion, we find the notice

requirements of Rule 23 to be dispositive of petitioner’s attempt to

maintain the elass wetion as presently defined. We therefore have

ho occasion to consider whether the Court of Appeals correctly

resolved the issues of manageability and fluid-class recovery, or

indeed, whether those issues were properly before the Court of

Appeals under the theory of retained jurisdiction.

SEP GIO LEILA OEE St ~ TOE RIMES Bet St a Sa Re ERNIE SS Se

EISEN v. CARLISLE & JACQUELIN 173

156 Opinion of the Court

erroneous in two respects. First, it failed to comply

with the notice requirements of Rule 23 (c) (2), and sec-

ond, it imposed part of the cost of notice on respondents.

A

Rule 23(c)(2) provides that, in any class action

maintained under subdivision (b)(3). each class member

shall be advised that he has the right to exclude himself

from the action on request or to enter an appearance

through counsel, and further that the judgment, whether

favorable or not, will bind all class members not re-

questing exclusion. To this end, the court is required to

direct to class members “‘the best notice practicable under

the circumstances, including individual notice to all mem-

bers who can be identified through reasonable effort.” *

We think the import of this language is unmistakable.

Individual notice must be sent to all class members whose

names and addresses may be ascertained through reason-

able effort.

The Advisory Committee’s Note to Rule 23 reinforces

this conclusion. Sée 39 F. R. D. 69, 98 (1966). The

Advisory Committee described subdivision (c) (2) as “not

merely discretionary” and added that the “mandatory no-

tice pursuant to subdivision (c)(2) . . . is designed to ful-

fill requirements of due process to which the class action

procedure is of course subject.” 7d.. at 106-107. The

11 Emphasis added. Subdivision (c)(2) provides in full:

“(2) In any class action maintained under subdivision (b) (3), the

court shall direct to the members of the class the best notice prac-

ticable under the circumstances, including individual notice to all

members who can be identified through reasonable effort. The notice

shall advise each member that (A) the court will exclude him from

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

whether favorable or not, will include all members who do not

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

exclusion may, if he desires, enter an appearance through his counsel.”

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174 OCTOBER TERM, 1973

Opinion of the Court 417 U.S.

Committee explicated its incorporation of due process

standards by citation to Mullane v. Central Hanover

Bank & Trust Co., 339 U. S. 306 (1950), and like cases.

In Mullane the Court addressed the constitutional suf-

ficiency of publication notice rather than mailed indi-

vidual notice to known beneficiaries of a common trust

fund as part of a judicial settlement of accounts. The

Court observed that notice and an opportunity to be

heard were fundamental requisites of the constitutional

guarantee of procedural due process. It further stated

that notice must be “reasonably calculated, under all

the circumstances, to apprise interested parties of the

pendency of the action and afford them an opportunity to

present their objections.” Jd., at 314. The Court

continued:

“But when notice is a person’s due, process which

is a mere gesture is not due process. The means

employed must be such as one desirous of actually in-

forming the absentee might reasonably adopt to ac-

complish it. The reasonableness and hence the

constitutional validity of any chosen method may

be defended on the ground that it is in itself reason-

bly certain to inform those affected.” J/d., at 315.

The Court then held that publication notice could not

satisfy due process where the names and addresses of the

beneficiaries were known.’* In such cases, “the reasons

12 The Court’s discussion of the inadequacies of published notice

bears attention:

“It would be idle to pretend that publication alone, as prescribed

here, is a reliable means of acquainting interested parties of the

fact that their rights are before the courts.... Chance alone brings

to the attention of even a local resident an advertisement in small

type inserted in the back pages of a newspaper, and if he makes

his home outside the area of the newspaper’s normal circulation the

odds that the information will never reach him are large indeed.

The chance of actual notice is further reduced when, as here, the

aN i a A a a a A

EISEN v. CARLISLE & JACQUELIN 175

156 Opinion of the Court

disappear for resort to means less likely than the mails

to apprise them of [an action’s] pendency.” /d., at 318.

In Schroeder v. City of New York, 371 U. S. 208

(1962), decided prior to the promulgation of amended

Rule 23, the Court explained that Mullane required re-

jection of notice by publication where the name and ad-

dress of the affected person were available. The Court

stated that the “general rule” is that “notice by publi-

cation is not enough with respect to a person whose name

and address are known or very easily ascertainable . .. .”

Id., at 212-213. The Court also noted that notice by

publication had long been recognized as a poor substi-

tute for actual notice and that its justification was “ ‘diffi-

cult at best.’ 7d., at 213.

Viewed in this context, the express language and

intent of Rule 23 (c)(2) leave no doubt that indi-

vidual notice must be provided to those class members

who are identifiable through reasonable effort. In the

present case, the names and addresses of 2,250,000 class

members are easily ascertainable, and there is nothing

to show that individual notice cannot be mailed to each.

For these class members, individual notice is clearly the

“best notice practicable” within the meaning of Rule 23

(c)(2) and our prior decisions.

Petitioner contends, however, that we should dispense

with the requirement of individual notice in this case,

and he advances two reasons for our doing so. First, the

prohibitively high cost of providing individual notice to

2,250,000 class members would end this suit as a class

action and effectively frustrate petitioner’s attempt to

vindicate the policies underlying the antitrust and se-

notice required does not even name those whose attention it is

supposed to attract, and does not inform acquaintances who might

call it to attention.” 339 U.S., at 315.

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176 OCTOBER TERM, 1973

Opinion of the Court 417 US.

curities laws. Second, petitioner contends that individual

notice is unnecessary in this case, because no prospective

class member has a large enough stake in the matter to

justify separate litigation of his individual claim. Hence,

class members lack any incentive to opt out of the class

action even if notified.

The short answer to these arguments is that individual

notice to identifiable class members is not a discretionary

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

rather, an unambiguous requirement of Rule 23. As the

Advisory Committee’s Note explained, the Rule was in-

tended to insure that the judgment, whether favorable

or not, would bind all class members who did not re-

quest exclusion from the suit. 39F.R.D., at 99, 105-106.

Accordingly, each class member who can be identified

through reasonable effort must be notified that he may

request exclusion from the action and thereby preserve

his opportunity to press his claim separately or that he

may remain in the class and perhaps participate in the

management of the action. There is nothing in Rule 23

to suggest that the notice requirements can be tailored to

fit the pocketbooks of particular plaintiffs.’*

Petitioner further contends that adequate representa-

tion, rather than notice, is the touchstone of due process

in a class action and therefore satisfies Rule 23. We

think this view has little to commend it. To begin with.

Rule 23 speaks to notice as well as to adequacy of repre-

sentation and requires that both be provided. More-

over, petitioner's argument proves too much, for it

13 Petitioner also argues that class members will not opt out

because the statute of limitations has long since run out on the

claims of all class members other than petitioner. This contention

is disposed of by our recent decision in American Pipe & Construction

Co. v. Utah, 414 U. S. 538 (1974), which established that com-

mencement of a class action tolls the applicable statute of limitations

as to all members of the class.

EAE NNR PENS LF ee

EISEN v. CARLISLE & JACQUELIN 177

156 Opinion of the Court

quickly leads to the conclusion that no notice at all,

published or otherwise, would be required in the present

case. This cannot be so, for quite apart from what due

process may require, the command of Rule 23 is clearly to

the contrary. We therefore conclude that Rule 23 (c) (2)

requires that individual notice be sent to all class mem-

bers who can be identified with reasonable effort.’*

B

We also agree with the Court of Appeals that peti-

tioner must bear the cost of notice to the members of his

class. The District Court reached the contrary con-

clusion and imposed 90% of the notice cost on respond-

ents. This decision was predicated on the court’s find-

ing, made after a preliminary hearing on the merits of

the case, that petitioner was “more than likely” to prevail

on his claims. Apparently, that court interpreted Rule

23 to authorize such a hearing as part of the determina-

tion whether a suit may be maintained as a class action.

We disagree.

We find nothing in either the language or history of

Rule 23 that gives a court any authority to conduct a

preliminary inquiry into the merits of a suit in order

to determine whether it may be maintained as a class

actions Indeed, such a procedure contravenes the Rule

by allowing a representative plaintiff to secure the bene-

fits of a class action without first satisfying the require-

ments for it. He is thereby allowed to obtain a

determination on the merits of the claims advanced on

4 We are concerned here only with the notice requirements of

subdivision (c)(2), which are applicable to class actions main-

tained under subdivision (b)(3). By its terms subdivision (c) (2) is

inapplicable to class actions for injunctive or declaratory relief

maintained under subdivision (b)(2). Petitioner's effort to qualify

his suit as a class action under subdivisions (b)(1) and (b)(2) was

rejected by the Court of Appeals. See n. 4, supra.

EELS SEO LENE

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178 OCTOBER TERM, 1973

Opinion of the Court 417 U.S.

behalf of the class without any assurance that a class

action may be maintained. This procedure is directly

contrary to the command of subdivision (c)(1) that the

court determine whether a suit denominated a class action

may be maintained as such “[a]s soon as practicable after

the commencement of [the] action ....” In short, we

agree with Judge Wisdom’s conclusion in Miller v.

Mackey International, 452 F. 2d 424 (CA5 1971), where

the court rejected a preliminary inquiry into the merits

of a proposed class action:

“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.” Id., at 427.

Additionally, we might note that a preliminary deter-

mination of the merits may result in substantial prejudice

to a defendant, since of necessity it is not accompanied

by the traditional rules and procedures applicable to

civil trials. The court’s tentative findings, made in the

absence of established safeguards, may color the subse-

quent proceedings and place an unfair burden on the

defendant.

In the absence of any support under Rule 23, petition-

er’s effort to impose the cost of notice on respondents

must fail. The usual rule is that a plaintiff must initially

bear the cost of notice to the class. The exceptions cited

by the District Court related to situations where a fidu-

ciary duty pre-existed between the plaintiff and defend-

ant, as in @ shareholder derivative suit.’* Where, as

here, the relationship between the parties is truly ad-

® See, e. g., Dolgow vy. Anderson, 43 F. R. D. 472, 498-500

(EDNY 1968). We, of course, express no opinion on the proper

allocation of the cost of notice in such cases.

Any pee REEL SOME 5 OLS

EISEN v. CARLISLE & JACQUELIN 179

156 Dovc.as, J., dissenting in part

versary, the plaintiff must pay for the cost of notice as

part of the ordinary burden of financing his own suit.

Petitioner has consistently maintained, however, that

he will not bear the cost of notice under subdivision (c)

(2) to members of the class as defined in his original

complaint. See 479 F. 2d, at 1008; 52 F. R. D., at 269.

We therefore remand the cause with instructions to

dismiss the class action as so defined.”

The judgment of the Court of Appeals is vacated and

the cause remanded for proceedings consistent with this

opinion.

It is so ordered.

Mr. Justice DoucG.ias, with whom Mr. Justice BREN-

NAN and Mr. Justice MARSHALL concur, dissenting in

part.

While I am in general agreement with the nhases of

this case touched on by the Court, I add a few words

because its opinion does not fully explore the issues which

will be dispositive of this case on remand to the District

Court.

Fed. Rule Civ. Proc. 23 (c)(4) provides, “When appro-

priate (A) an action may be brought or maintained as a

class action with respect to particular issues, or (B) a class

may be divided into subclasses and each subclass treated

as a class, and the provisions of this rule shall then be con-

strued and applied accordingly.”

16 The record does not reveal whether a smaller class of odd-lot

traders could be defined, and if so, whether petitioner would be

willing to pay the cost of notice to members of such a class. We

intimate no view on whether any such subclass would satisfy the

requirements of Rule 23. We do note, however, that our dismissal of

the class action as originally defined is without prejudice to any

efforts petitioner may make to redefine his class either under Rule

23 (c)(4) or Fed. Rule Civ. Proc. 15.

Me ol a

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180 OCTOBER TERM, 1973

Dovucuas, J., dissenting in part 417 U.S.

As Judge Oakes, speaking for himself and Judge Tim-

bers, said below:

“The plaintiff class might, for example, be divided

into much smaller subclasses . . . of odd lot buyers for

particular periods, and one subclass treated as a

test case, with the other subclasses held in abeyance.

Individual notice at what would probably be a

reasonable cost could then be given to all members of

the particular small subclass who can be easily

identified.” 479 F. 2d 1005, 1023 (dissenting from

denial of rehearing en banc).

Or a subclass might include those on monthly invest-

ment plans, or payroll deduction plans run by brokerage

houses.’ The possibilities, though not infinite, are

numerous.

1The parties and courts below concentrated on whether a class

action could be sustained on behalf of all 6 million odd-lot investors,

so that the record is limited in information bearing on what manage-

able subclasses could be created.

There is, nonetheless, indication that certain subclasses might be

economically manageable. Counsel for respondent Carlisle & Jac-

quelin stated in oral argument before the Court of Appeals that

100,000 shareholders participate in his client’s Monthly Investment

Plan, and that Carlisle & Jacquelin corresponds with those investors.

Merrill Lynch corresponds with 150,000 people participating in a

payroll deduction investment plan. Whether Eisen or any other

plaintiff who may come forward to intervene fits in such a subclass,

we do not know. But if brokerage houses correspond regularly in

the course of business with such odd-lot investors, the marginal cost

of providing the individual notice required by Rule 23 (c)(2) might

be nothing more than printing and stuffing an additional sheet of

paper in correspondence already being sent to the investor, or

perhaps only programing a computer to type an additional para-

graph at the bottom of monthly or quarterly statements regularly

mailed by the brokers.

A subclass of those who had engaged in numerous transactions

might also be defined, so that the recovery per class member might be

large enough to justifiy the cost of notice and management of the

EISEN v. CARLISLE & JACQUELIN 181

156 Dove.as, J., dissenting in part

The power to create a subclass is clear and unambigu-

ous. Who should be ineluded and how large it should be

are questions that only the District Court should resolve.

Notice to each member of the subclass would be essential

under Rule 23 (c)(2); and under Rule 23 (c)(2)(A) any

_ notified member may opt out. There would remain the

question whether the subclass suit is manageable. But

since the subclass could be chosen in light of the non-

manageability of the size of the class whose claims are

presently before us, there is no apparent difficulty in that

sense.

The statute of limitations, it is argued, has run or

is about to run on many of these classes. We held in

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

that the start of a class action prior to the running of the

statute protects all members of the class. Whether that

rule should obtain for the benefit of other members who

could have been included in the subclass bringing suit,

but for the manageability issue, is a question we have

not decided.* Moreover, if the subclass sues and wins or

action. A survey of only bot 14 wire firms revealed 2,000 customers

with 10 or more transactions between 1962 and 1966. 52 F. R. D.

253, 259, 267 & n. 10.

By defining more definite subclasses such as those discussed, more-

over, the problems inherent in distributing an eventual judgment

would be reduced. Class members would be more readily identifi-

able, with more readily accessible transaction records and individually

provable damages.

2In this case, the entire class was defined in the original complaint,

and the defendants were put on notice within the period of limita-

tion of their potential liability, serving the purpose of the statute of

limitations even if the substantive merits were eventually to be

prosecuted in the form of a subclass action with the class action

held in abeyance. “Within the period set by the statute of limita-

tions, the defendants have the essential information necessary to

determine both the subject matter and size of the prospective liti-

gation, whether the actual trial is conducted in the form of a class

action, as a joint suit, or as a principal suit with additional inter-

IT PET rr ee RS

182 OCTOBER TERM, 1973

Dovctas, J., dissenting m part 417 US.

sues and loses, questions covering the rights of members

of the larger class who are not parties would be raised.

These are questions we have not answered.* But the fact

that unresolved questions of law would remain is not an

insurmountable obstacle, and Rule 23 (c)(4)(B) ex-

pressly authorizes subclasses to sue in lieu of a full class.

; Rule 23 (c)(4)(B) may have had, as a forerunner, the

7 proposal stated by Judge Weinstein in 1960:

3 “When there is a question of law or fact com-

mon to persons of a numerous class whose joinder

is impracticable, one or more of them whose

claims or defenses are representative of the claims

or defenses of all and who will fairly and adequately

protect the interests of all may sue or be sued on

behalf of all.” *

In explanation he added:

“Such a rule would provide six requirements for

a class action: (1) a class, (2) numerous members,

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

555. And see Wheaton, Representative Suits Involving Numerous

Litigants, 19 Cornell L. Q. 399, 423 (1934).

3If the subclass lost, it is argued that other investors not mem-

bers of that subclass could not be precluded from prosecuting success-

ful suits of their own, since they had never had their day in court or

necessarily even been apprised of the subclass’ action. See Hansberry

v. Lee, 311 U.S. 32; F. James, Civil Procedure § 11.26 (1965); 1B J.

Moore, Federal Practice £ 0.411 [1] (1974). If the subclass won, strict

application of the doctrine of mutuality of estoppel would

limit the usefulness of that subclass victory in suits brought

by investors not members of that subclass. See generally F. James,

supra, § 11.31; 1B J. Moore, supra. € 0.412 [1] (and Supp. 1973),

and cases cited therein. And see Vestal, Preclusion/Res Judicata

Variables: Parties, 50 Iowa L. Rev. 27, 55-59 (1964); Note, 35 Geo.

Wash. L. Rev. 1010 (1967) ; Currie, Mutuality of Collateral Estoppel:

Limits of the Bernhard Doctrine, 9 Stan. L. Rev. 281 (1957).

* Weinstein, Revision of Procedure: Some Problems in Class Actions,

9 Buffalo L. Rev. 433, 458.

SER ATE ERTS 2 2 ee a

EISEN v. CARLISLE & JACQUELIN 183

Dove as, J., dissenting in part

(3) common question of law or fact, (4) impractica-

bility of joinder, (5) representative claim or defense,

(6) fair and adequate protection of absentees.

“Almost any ‘bond of association’ in an event or

status out of which a legal dispute arose is sufficient

to constitute a class. The class must be numerous

but need not be so large that, in itself, this factor

makes it impracticable to bring them all before the

court. A number of members sufficient to satisfy

present Section 195 [of the New York Civil Practice

Act] would satisfy the proposed rule. Size, mod-

esty of monetary interest, inability to locate

members and difficulty of obtaining jurisdiction

should all be considered in determining impractica-

bility of joinder.” *

The Court permits Eisen to redefine his class either by

amending his complaint pursuant to Fed. Rule Civ. Proc.

15, or by proceeding under Rule 23 (c)(4). While Eisen

may of course proceed by amending his complaint to

define a subclass, it is clear that he need not do so.‘

Definition of the subclass would properly be accom-

plished by order of the District Court, as permitted by

Rules 23 (c)(4) and 23 (c)(1), without amendment of

the complaint as filed. While the complaint alleges that

57d., at 458-459 (footnotes omitted).

* Were Eisen to be remitted to an individual action, as he would

be if he refused to pay the cost of notice even to a subclass, amend-

ment of the complaint might be called for by the District Court.

Under Rule 23 (d)(4), the District Court may in some instances

require that pleadings be amended to eliminate class allegations.

The Advisory Committee Notes indicate that this provision is to be

applied only when a suit must proceed as a nonclass, individual

action, not when, as here, an appropriate class exists and the action

must be prosecuted in the first instance by a subclass only because

of problems of manageability. See Proposed Rules of Civil Pro-

cedure, 39 F. R. D. 69, 104.

184 OCTOBER TERM, 1973

Dovc tas, J., dissenting in part 417 US.

Eisen sues on his behalf and on behalf of all purchasers

and sellers of odd lots, it adds, “Plaintiff will fairly insure

the adequate representation of all such persons.’”” Prob-

lems of manageability covered by Rule 23 (b)(3)(D)

arise only after issues are joined and the District Court

is engaged in shaping up the litigation for a trial on the

merits. If it finds that a subclass would be more appro-

priate, no new action need be started nor any amended

complaint filed.

Rule 23 (c)(1) provides: “As soon as practicable after

the commencement of an action brought as a class action,

the court shall determine by order whether it is to be so

maintained. An order under this subdivision may be

conditional, and may be altered or amended before the

decision on the merits.”

It is as plain as words can make it that the court which

decides that a full class action can be maintained can

alter or amend its order “before the decision on the

merits.” One permissible way in which the court’s order

may be changed is to have it “altered” as provided in

Rule 23 (c)(1) by reducing the larger class to a sub-

class as provided in the same subsection—Rule 23 (c)

(4)(B). The prerequisites of a class cause of action are

described in Rule 23 (a). In the instant case that hurdle

has been passed and we are at the stage of notice require-

ments and manageability. Not an iota of change is

made in the cause of action by restricting it to a subclass.

The purpose of Rule 23 is to provide flexibility in the

management of class actions, with the trial court taking

an active role in the conduct of the litigation. See

Dolgow v. Anderson, 43 F. R. D. 472, 481-482 (EDNY);

Green v. Wolf Corp., 406 F. 2d 291, 298 (CA2), cert. de-

nied, 395 U.S.977. Lower federal courts have recognized

their discretion to define those subclasses proper to prose-

cute an action without being bound by the plaintiff’s

RN BE PE eT SRR et.

oa MN PPS Te egg

EISEN v. CARLISLE & JACQUELIN 185

156 Dovc.as, J., dissenting in part

complaint. See, e. g., Dolgow v. Anderson, supra, at 491—

493; Philadelphia Elec. Co. v. Anaconda American Brass

Co., 43 F. R. D. 452, 462-463 (ED Pa.). See generally

7A C. Wright & A. Miller, Federal Practice and Procedure

$1790, p. 187; 3B J. Moore, Federal Practice {| 23.65.

And, as Rule 23 (c)(1) clearly indicates, the courts re-

tain both the power and the duty to realign classes

during the conduct of an action when appropriate.

See, e. g., Carr v. Conoco Plastics, Inc., 423 F. 2d 57, 58

(CA5), cert. denied, 400 U. S. 951; Johnson v. ITT-

Thompson Industries, Inc., 323 F. Supp. 1258, 1262 (ND

Miss.) ; Ostapowicz v. Johnson Bronze Co., 54 F. R. D.

465, 466 (WD Pa.); Barter v. Savannah Sugar Refining

Corp., 46 F. R. D. 56, 60 (SD Ga.). That discretion

can be fully retained only if the full class complaint is

preserved when a subclass is defined to prosecute the

action. The bounds of the subclass can then be nar-

rowed or widened by order of the District Court as pro-

vided in Rule 23 (c)(1), without need to amend the com-

plaint and without the constraints which might exist if

the complaint had earlier been amended pursuant to

Rule 15 to include only the subclass.

I agree with Professor Chafee that a class action serves

not only the convenience of the parties but also prompt,

efficient judicial administration.’ I think in our society

that is growing in complexity there are bound to be in-

numerable people in common disasters, calamities, or ven-

tures who would go begging for justice without the class

action but who could with all regard to due process be

protected by it. Some of these are consumers whose

claims may seem de minimis but who alone have no prac-

tical recourse for either remuneration or injunctive relief.

Some may be environmentalists who have no photo-

graphic development plant about to be ruined because of

*Z. Chafee, Some Problems of Equity 149 (1950).

186 OCTOBER TERM, 1973

Dovuc.as, J., dissenting in part 417 U.S.

air pollution by radiation but who suffer perceptibly by

smoke, noxious gases, or radiation. Or the unnamed in-

dividual may be only a ratepayer being excessively

charged by a utility or a homeowner whose assessment is

slowly rising beyond his ability to pay.

The class action is one of the few legal remedies the

small claimant has against those who command the status

quo. I would strengthen his hand with the view of

creating a system of law that dispenses justice to the

lowly as well as to those liberally endowed with power

and wealth.

8 Judge Weinstein writing in the N. Y. Law Journal, May 2, 1972,

p. 4, col. 3, said:

“Where, however, public authorities are remiss in performance

of this responsibility for reason of inadequate legal authority, ex-

cessive workloads or simple indifference, class action’ may provide

& necessary temporary measure until desirable corrections have oc-

curred. The existence of class action litigation may also play a

substantial role in bringing about more efficient administrative en-

forcement and in inducing legislative action.

“The matter touches on the issue of the credibility of our judicial

system. Either we are committed to make reasonable efforts to

provide a forum for adjudication of disputes involving all our citi-

sens—including those deprived of human rights, consumers who

overpay for produets because of antitrust violations and investors

who are victimized by insider trading or misleading information—

or we are not. There are those who will not ignore the irony of

courts ready to imprison a man who steals some goods in interstate

commerce while unwilling to grant a civil remedy against the corpora-

tion which has benefited, to the extent of many millions of dollars,

from collusive, illegal pricing of its goods to the public.

“When the organization of a modern society, such as ours, affords

the possibility of-illegal behavior accompanied by widespread, diffuse

consequences, some procedural means must exist te remedy—or at

least to deter—that conduct.”

LATA LG PEPER GO IRIN IE ER OST RTE eS SOREN ORT

HOLDER v. BANKS 187

Per Curiam

HOLDER, U. S. DISTRICT JUDGE v. BANKS

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE SEVENTH CIRCUIT

No. 73-841. Argued April 24, 1974—Decided May 28, 1974

Certiorari dismissed as improvidently granted.

Karl J. Stipher argued the cause for petitioner. With

him on the brief were Frederick P. Bamberger, Harold H.

Bredell, John E. Early, Erle A. Kightlinger, R. M. Kroger,

C. Wendell Martin, James L. Miller, Wayne C. Ponader,

Floyd W. Burns, C. B. Dutton, Thomas M. Scanlon, Ben

J. Weaver, Howard S. Young, Jr., and Norman P. Rowe.

Morton Stavis argued the cause for respondent. With

him on the brief were William M. Kunstler and Doris

Peterson.*

PER CURIAM.

The writ of certiorari is dismissed as improvidently

granted.

Mr. Justice Powe. took no part in the consideration

or decision of the case.

a

*Melvin L. Wulf, Leon Friedman, and Joel M. Gora filed a brief

for the American Civil Liberties Union et al. as amici curiae urging

affirmance.