Eisen v. Carlisle & Jacquelin

479 F.2d 1005 (2d Cir. 1973)

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Nature of the Case

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Facts

In Eisen v. Carlisle & Jacquelin, 391 F.2d 555 (1968), often referred to as Eisen II. The case was remanded to the District Court for reconsideration and findings on specific issues, and we retained jurisdiction. In the ensuing 5 years, much of this time was devoted to an effort by P's counsel to meet the apparently insurmountable difficulties of notice and manageability by adopting the erroneous and frustrating view that some way must be found to make the case viable as a class action. The trial court adopted the innovations of the preliminary mini-hearing on the merits and the 'fluid recovery.' P has refused to pay or put up any bond to cover this expense of notice required under Rule 23, and, if Ds prevail on the merits, they will be unable to recover any amounts expended by them for this purpose. There are 6,000,000 members of the class and of these 2,250,000 can be easily identified. Members of the class reside in every state of the United States and most foreign countries. They speak and understand a great variety of modern languages. The damages sought to be recovered were estimated at 120 million dollars. In Eisen II this court stated unequivocally that actual notice must be given to those whose identity could be ascertained with reasonable effort and that 'in this type of case' plaintiff must pay the expense of giving notice to these members of the class. We further stated that if this could not be done, there might be no other alternative than the dismissal of the case as a class action. 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. The judge directed actual notice only to 'the approximately 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. Judge Tyler then deferred the question 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.' Accordingly, the hearing was held 'on the issue of the allocation of the costs of notice' and Judge Tyler concluded that Ds must bear 90% of these expenses. Judge Tyler tried to pull the case out of its unmanageability morass by resorting to the 'fluid recovery,' which had been used as a vehicle for carrying out a voluntary settlement in the Drug Cases, State of West Virginia v. Chas. Pfizer & Co., Inc., et al., 314 F. Supp. 710 (S.D.N.Y. 1970). Having decided that there is no conceivable way in which any substantial number of individual claimants can ever be paid, 'the class as a whole' is substituted for the 6,000,000 claimants. Thus, the first round of notices becomes relatively unimportant. The scheme adopted envisages the first round of notices as sufficient to get the ball rolling. Step Two involves a trial of the case to a judge and jury on the merits. In some way, the damages to 'the class as a whole' will be assessed and the defendants, it seems to be assumed, will promptly pay this huge sum into court. This sum is supposed to constitute the 'gross damages' to 'the class as a whole.' With the money in hand, the case begins to resemble the Transitron and Drug Cases and from then on, we are to have the real notices soliciting the filing of claims, the processing of these claims, the fixing of counsel fees and the payment of the general expenses of administration. As 'the class as a whole' will include all those who had purchased or sold in the period from mid-1962 to mid-1966 and all those who, at the time of assessing the full damages, were presently purchasing or selling, and those who might in the future purchase and sell, securities in lots of less than 100 shares. According to Judge Tyler, at least those members of the original class of 6,000,000 who 'have maintained their odd-lot activity, will reap the benefits of any recovery.'