Indiana Law Review


THE MANAGEABILITY CRISIS OF CONSUMER CLASS
ACTIONS:

THE SEVERE EXAMPLE OF EISEN III*

A three-judge panel of the Court of Appeals for the Second
Circuit has recently decided a case which may prove to be the
most significant setback in the history of the development of mas-
sive consumer class actions under rule 23 of the Federal Rules of
Civil Procedure.' The case of Eisen v, Carlisle <& Jacquelin^ has

*The case of Eisen v. Carlisle & Jacquelin has been before the Court
of Appeals for the Second Circuit three times. These decisions have come to
be designated as follows: Eisen I, 370 F.2d 119 (2d Cir. 1966) ; Eisen II, 391

F.2d 555 (2d Cir. 1968) ; and Eisen III, 479 F.2d 1005 (2d Cir. 1973).

'Rule 23 of the Federal Rules of Civil Procedure controls class action

litigation. It provides as follows:

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

class may sue or be sued as representative parties on behalf of all
only if (1) the class is so numerous that joinder of all members is
impracticable, (2) there are questions of law or fact common to the
class, (3) the claims or defenses of the representative parties are typ-

ical of the claims or defenses of the class, and (4) the representative

parties will fairly and adequately protect the interests of the class.

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

vidual members of the class which would establish incompatible stan-
dards 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 interests of

the other members not parties to the adjudications or substantially
impair or impede their ability to protect their interests; or

(2) the party opposing the class has acted or refused to act on

grounds generally applicable to the class, thereby making appropri-
ate final injunctive relief or corresponding declaratory relief with

respect to the class as a whole; or

(3) the court finds that the questions of law or fact common to
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 con-

361



362 INDIANA LAW REVIEW [Vol. 7:361

finally been dismissed as a class action^ after seven years of highly

troversy. The matters pertinent to the findings include: (A) the in-
terest of members of the class in individually controlling the prosecu-
tion or defense of separate actions; (B) the extent and nature of

any litigation concerning the controversy already commenced 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.

(c) Determination by Order Whether Class Action to be Main-
tained; Notice; Judgment; Actions Conducted Partially as Class

Actions.

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

(2) In any class action maintained under subdivision (b)(3),
the court shall direct to the members of the class the best notice
practicable under the circumstances, 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 judg-
ment, whether favorable or not, will include all members who do not
request exclusion; and (C) any member who does not request exclu-
sion may, if he desires, enter an appearance through his counsel.

(3) The judgment in an action maintained as a class action
under subdivision (b) (1) or (b) (2), whether or not favorable to the

class, shall include and describe those whom the court finds to be
members of the class. The judgment in an action maintained as a
class action under subdivision (b)(3), whether or not favorable to
the class, shall include and specify or describe those to whom the
notice provided in subdivision (c) (2) was directed, and who have not
requested exclusion, and whom the court finds to be members of
the class.

(4) When appropriate (A) an action may be brought, or main-
tained as a class action with respect to particular issues, or (B) a

class may be divided into subclasses and each subclass treated as a
class, and the provisions of this rule shall then be construed and
applied accordingly.

(d) Orders in Conduct of Actions. In the conduct of actions to
which this rule applies, the court may make appropriate orders:
(1) determining the course of proceedings or prescribing measures
to prevent undue repetition or complication in the presentation of
evidence or argument; (2) requiring, for the protection of the mem-
bers of the class or otherwise for the fair conduct of the action, that
notice be given in such manner as the court may direct to some or all
of the members of any step in the action, or of the proposed extent of
the judgment, or of the opportunity of members to signify whether
they consider the representation fair and adequate, to intervene and
present claims or defenses, or otherwise to come into the action; (3)
imposing conditions on the representative parties or on intervenors;

(4) requiring that the pleadings be amended to eliminate therefrom



1973] CONSUMER CLASS ACTIONS 363

controversial litigation/ In dismissing Eisen*s class action, the

court of appeals held, inter alia, that individual notice must be
given to all "identifiable" class members, and the representative
plaintiff must bear all of the cost of such strictly required notice.
The opinion flatly rejects such innovations as a preliminary hear-
ing on the merits,^ used to determine how^ the costs of notice should

be allocated, and the "fluid class recovery"* method of damage
distribution. The court concluded that without such improper and
illegal innovations, massive class actions of this type are impossible

and must be dismissed as unmanageable.

An examination of the problems facing consumer class actions
is best conducted in the context of an analysis of a case such as

Eisen, Indeed, this case presents a rare opportunity for such a

allegations as to representation of absent persons, and that the action

proceed accordingly; (5) dealing with similar procedural matters.

The orders may be combined with an order under Rule 16, and may
be altered or amended as may be desirable from time to time.

(e) Dismissal or Compromise. A class action shall not be dis-
missed or compromised without the approval of the court, and notice
of the proposed dismissal or compromise shall be given to all mem-
bers of the class in such manner as the court directs.

^479 F.2d 1005 (2d Cir.), cert, granted, 94 S. Ct. 235 (1973).

^This case was dismissed as a class action, but "without prejudice" to
any individual claim which the plantiff might still care to assert against the
defendants. Note, however, that Eisen's individual claim amounted to only
about $70. Eisen v. Carlisle & Jacquelin, 370 F.2d 119, 120 (2d Cir. 1966).

"^To this date, there are seven reported Eisen decisions. 41 F.R.D. 147
(S.D.N.Y. 1966); 370 F.2d 119 (2d Cir. 1966), cert, denied, 386 U.S. 1035

(1967); 391 F.2d 555 (2d Cir. 1968); 50 F.R.D. 471 (S.D.N.Y. 1970); 62
F.R.D. 253 (S.D.N.Y. 1971); 54 F.R.D. 565 (S.D.N.Y. 1972); 479 F.2d 1005

(2d Cir.) cert, granted, 94 S. Ct. 235 (1973). The extraordinary interests in
this case is evidenced by the many articles which it has inspired. See, e.g.,
Note, Federal Rule 23(c)(2)—Notice in Class Actions—Mullane Reconsidered,
43 TUL. L. Rev. 369 (1969) ; Comment, Eisen v. Carlisle & Jacquelin, "Frank-
enstein Monster Posing as a Class Action"? 33 U. Pitt. L. Rev. 868 (1972)

;

18 Am. U.L. Rev. 225 (1968); 44 N.Y.U.L. Rev. 198 (1969). See also N.Y.
Times, May 2, 1973, at 1, col. 3.

^The "preliminary hearing" referred to here has, perhaps inappropriately,
come to be termed a "mini-hearing." 54 F.R.D. at 567. Such hearings, on
the merits of a claim or otherwise, have been held to help determine whether
the class action procedure is appropriate in a particular case. See, e.g.,

Herbst v. Able, 45 F.R.D. 451 (S.D.N.Y. 1968) (preliminary hearing held
to determine whether common questions predominated over individual issues
as required by rule 23(b) (3)).

*The concept of "fluid class recovery" involves the establishment of
a damage fund out of which expenses of litigation and individual claims are



364 INDIANA LAW REVIEW [Vol. 7:361

study because, not only does its litigation span all of the seven
years since the amendment of rule 23/ but, during its course, all
of the major problems which face today*s massive class action
suits have been raised. Eisen is a classic example of the modern
large consumer class action, and the story of its litigation is a
reflection of the evolution of attitudes in the federal courts toward
the application of rule 23 since its 1966 amendment.

I. Background

In 1966, the plaintiff, Eisen, brought this class action on

behalf of himself and all other persons who had, during the
previous six years, invested in "odd lots"® on the New York Stock
Exchange. Named as defendants were the two major odd-lot dealers
on the New York Stock Exchange' and the New York Stock
Exchange itself. The plaintiff charged that the odd-lot dealers
had conspired to monopolize odd-lot trading and to charge excessive

paid. Some courts have used or suggested the use of such a fluid recovery
system as an alternative to having individual claims alone form the basis of
damage calculation and administration. See, e.g., cases cited notes 55, 61
infra; cf. Union Carbide & Carbon Corp. v. Nisley, 300 F.2d 561, 587-90 (10th
Cir. 1961).

^The old rule 23 suffered from inflexible complexities and was difficult
for the courts to apply primarily because of the obscure classification of class

actions as "true," "hybrid," or "spurious." See Comm. on Rules of Practice
and Procedure of the Judicial Conference of the United States, Advisory Note,
39 F.R.D. 69, 98-99 (1966) [hereinafter cited as Advisory Comm. Note].
Most cases fell into the category of spurious class actions, and the judgment
in such cases would extend only to the parties to the lawsuit. This was one
factor which led to the necessity of an amendment to the old rule, which,
in its original form, was not achieving its objective of determining all ques-
tions in one suit. Id. See also 3B J. MooRE, Federal Practice 1123.11 (2d
ed. 1969) ; Weinstein, Revision of Procedure: Some Problems in Class Actions,
9 Buffalo L. Rev. 433 (1960). Amended rule 23 was adopted by the Supreme
Court Order of Feb. 28, 1966, 383 U.S. 1031 (1966), and became effective

on July 1, 1966. Under the new rule, a class action judgment is generally
binding on all members of the class, with the exception that in some cases,
members who seasonably request exclusion will not be bound. See Fed. R.
Civ. p. 23(c)(2), (3).

®While normal trading units on stock exchanges are called "round lots"

and are traded in multiples of 100 shares, "odd lots" are any units traded that

are smaller than the established unit of trading. Certain dealers specialize

in the trading of these smaller share parcels. A consumer who purchases
odd lots must pay, in addition to the normal brokerage commission, a fee

known as an odd-lot differential which is based upon a fraction of a point for
each share traded. See 391 F.2d at 559.

^The defendants Carlisle & Jacquelin and DeCoppet & Doremus are odd-lot
traders who collectively control ninety-nine percent of the volume in odd-lot
transactions. 391 F.2d at 559-60, citing SEC Report of Special Studies of



1973] CONSUMER CLASS ACTIONS 365

fees in violation of the Sherman Act.'° He charged the Exchange
with failure to protect the odd-lot investors as required by the
Securities and Exchange Act/' The class which the plaintiff
claimed to represent was first thought to include a maximum of
around 3.7 million'^ members, but later was estimated to include
as many as six million investors.'^

Initially, some courts were reluctant to embrace a rule which
would bind absent but described class members.' "^ The first Eisen
decision in 1966 reflected this early conservative approach, and,

in rejecting the case as a class action, that opinion dwelt heavily

upon the observation that the tremendous size and diversity of the
class all but precluded its being litigated under rule 23.'^ In

granting the defendants' motion to dismiss the suit as a class

action, Judge Tyler found that the plaintiff had not established
that he could fairly and adequately protect the interests of the
class,'* that proper notice to the class members was practically
and financially impossible,'^ and that questions common to the
class probably did not predominate over questions affecting in-

dividual members.'® On appeal to the Court of Appeals for the
Second Circuit, this initial rejection of the suit as a class action

was reversed and remanded to the district court for a further
evidentiary hearing." The majority on the court of appeals de-
ferred to the policy reasons set out in a prior appeal, which called
for a liberal attitude toward class actions under rule 23, especially

in cases such as this, in which, due to the small size of the in-

Securities Markets, H.R. Doc. No. 95, 88th Cong., 1st Sess., pt. 2, 172-202,
393 (1963).

^°15 U.S.C. §§1-2 (1970). See 41 F.R.D. at 148.

^^15 U.S.C. 78f(b), (d), 78s(a) (1970). See 41 F.R.D. at 148.

'HI F.R.D. at 151 n.2.

'=^52 F.R.D. at 257.

^'^See, e.g., School Dist. v. Harper & Row Publishers, Inc., 267 F. Supp.
1001 (E.D. Pa. 1967).

i^Eisen v. Carlisle & Jacquelin, 41 F.R.D. 147 (S.D.N.Y. 1966).

'^See Fed. R. Civ. P. 23(a) (4).

''See id. 23(c) (2). The court noted that in addition to the notice require-
ments of the rule, due process standards of notice should be strictly enforced
since the new rule would make the judgment binding on any class member
who did not affirmatively "opt out." 41 F.R.D. at 151. See note 7 supra.

'^See Fed. R. Civ. P. 23(b)(3).

^'Eisen v. Carlisle & Jacquelin, 391 F.2d 555 (2d Cir. 1968).



366 INDIANA LAW REVIEW [Vol. 7:361

dividual claims, the class action device represented the only prac-

tical way to adjudicate the class members' potentially meritorious
rights.^°

II. The 1968 Court of Appeals Opinion

I'his important 1968 opinion was the first court of appeals
case interpreting that portion of the amended rule which had not
been contained in old rule 23.^^ There the court rejected the
district court's reliance upon quantitative factors, such as size
of the class and smallness of the representative plaintiff's claim,
as deciding factors for a determination of whether a class action
could be maintained.^^

In order for a case to be maintained as a class action, it
must first meet four basic requirements.^^ These prerequisities are

:

that joinder of all members will be impracticable, that questions
of law or fact are common to the class, that the plaintiff's claim
is typical of the class, and that the plaintiff will serve as an
adequate representative of the class. In addition to these, the

case must fit within at least one of the provisions of rule 23(b).
The court found that at this early stage of the proceedings
the plaintiff had adequately demonstrated that the provisions of
subdivision (b) (3) had been met.^"^ A class action may be main-
tained under this subdivision when common questions of law or
fact predominate over questions affecting only individual members,

2°Eisen v. Carlisle & Jacquelin, 370 F.2d 119 (2d Cir. 1966), cert, denied,
386 U.S. 1035 (1967). On this prior appeal, the only question before the court
was whether an appeal could be taken from an order of the district court
dismissing a class action, but permitting litigation to continue on the plaintiff's

individual claims. See Fed. R. Civ. P. 23(c)(1). Recognizing that such a

dismissal had the practical effect of ending the lawsuit, the court held that

an order of such fundamental significance was indeed appealable. Such a
dismissal was called the "death knell" of the action. 370 F.2d at 121. See
generally Note, Interlocutory Appeal from Orders Striking Class Action
Allegations, 70 CoLUM. L. Rev. 1292 (1970). In its most recent Eisen opinion,

the court has indicated that it would use a similar rationale to hold that

an order permitting the plaintiff to continue a suit as a class action is also

appealable. 479 F.2d at 1007 n.l. The Second Circuit emphasized that if such

a ruling were not subject to immediate appellate review, irreparable harm
would be caused to the complaining party. Id.

^^Eisen v. Carlisle & Jacquelin, 391 F.2d 555 (2d Cir. 1968).

2^The district court had emphasized that Eisen was the "sole plaintiff"
among millions and that his interest was "miniscule" compared to the interests
of the class as a whole. 41 F.R.D. at 151.

"See Fed. R. Civ. P. 23(a).

2^391 F.2d at 566.



1973] CONSUMER CLASS ACTIONS 367

and the class action method of litigation is superior to other forms
of adjudication.^^

The court of appeals found that the district court's deter-
mination that the above requirements had not been met was, at
this point, unwarranted and concluded that a closer examination
would be required. In essence, the court, in 1968, found that when
there is inadequate information upon which to base a determination

of whether the requirements of rule 23 and due process are pres-
ent, the district court must conduct evidentiary hearings. Only
then could the district court properly decide whether a class action

can or cannot be maintained.^'^ Accordingly, the court of appeals

remanded the case to the district court for such a hearing "on the
questions of notice, adequate representation, effective administra-

tion of the action and any other matters which the District Court
may consider pertinent and proper."^^ In the course of this earlier
opinion, the Second Circuit declared that vindication of small

claims, which otherwise may be too small to justify individual
legal action, is one of the

*

'primary functions" of the rule 23 class

action.^® The court further observed that to facilitate such broad
salutary purposes, the new rule should be given a liberal, not re-
strictive, interpretation.^'

Although this earlier court of appeals opinion in the Eisen

case displayed an appropriately positive attitude toward rule

23 by rejecting a simple quantitative approach in favor of the

view that it is the function of the class action that is paramount,

there remain several questionable aspects of that opinion. These

particular features of the earlier opinion are important to an

analysis of the final outcome of this important case, for they

led, at least in part, to the Second Circuit's ultimate rejection of

this case as a class action.

First, when considering the potential problems of providing
adequate notice to members of the representative plaintiff's class,

"Fed. R. Civ. P. 23(b)(3).

2^See, e.g., Herbst v. Able, 45 F.R.D. 451 (S.D.N.Y. 1968) (preliminary
hearing held to determine whether common questions predominated over in-
dividual issues).

^^391 F.2d at 570. Chief Judge Lumbard dissented arguing that suitable
notice was impossible and that cases such as this are unmanagable as class
actions. He characterized this suit as a "Frankenstein monster posing as a
class action." Id. at 572 (Lumbard, C.J., dissenting).

"^Hd. at 563, citing Escott v. Barchris Constr. Corp., 340 F.2d 731, 733

(2d Cir.), cert, denied, 382 U.S. 816 (1965).

29/c;. at 563.



368 INDIANA LAW REVIEW [Vol. 7:361

the court implied that if the district court should find that a con-

siderable number of the class members could be ascertained, then
those members would be entitled to individiml notice.^° The court
added that if financial limitations should prevent the plaintiff
from furnishing such individual notice, "there may prove to be
no alternative other than the dismissal of the class suit."^^ For
reasons which will be considered later/ ^ this aspect of the court's
holding has been condemned as unnecessarily restrictive.^^

Another questionable holding of this earlier Eisen opinion
is the court's conclusion that this case can qualify as a class action

ordy under subdivision 23(b) (3).^^ Arguably, the court which
recognized that the new rule must be given a "liberal" interpreta-
tion, should not have been so quick to declare that this class action

could not be maintained under either subdivision (b) (1) (A) or

(b) (2). A class action is maintainable under subdivision (b) (1)
(A) when there is the risk that separate lawsuits would create
varying adjudications as to individual members of the class and

^°Id. at 568-70. For this conclusion, the court looked to the requirements
of due process and rule 23. Rule 23(c) (2) states that:

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.

The court cited Mullane v. Central Hanover Bank & Trust Co., 339 U.S.
306 (1950), for its rule 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." 391 F.2d at

568, citing Mullane v. Central Hanover Bank & Trust Co., supra at 314.

3^391 F.2d at 570.

^"^See discussion of Second Circuit's most recent Eisen opinion infra.

^^See, e.g., 7A C. Wright & A. Miller, Federal Practice and Procedure
§1786 (1972). The authors of this treatise refer specifically to Eisen v.

Carlisle & Jacqueiin, 391 F.2d 555 (2d Cir. 1968), and, in their analysis of
the court's attitude toward individual notice, go so far as to state that

"[t]his decision is unnecessarily restrictive and demands more than is tradi-

tionally required to satisfy due process and more than seems necessary in

Rule 23(b)(3) actions." Id. In its subsequent Eisen decision, the Second

Circuit reaffirmed and amplified its earlier strict approach to the require-

, ment of individual notice. 479 F.2d at 1009.

3^391 F.2d at 565.



1973] CONSUMER CLASS ACTIONS 369

thus establish inconsistent judicial demands upon the defendant.^^
The court felt that this subdivision was inapplicable because the
expense of litigation and the smallness of any individual claims
made the likelihood of separate actions by individuals and the
resulting risk of incompatible adjudications extremely remote."

This rationale may be consistent with the court's earlier determ-
ination that an order ending this suit as a class action would, for
all practical purposes, be the "death knell"^^ of the action. How-
ever, as a rationale for limiting the basis upon which a class action
may be maintained, it is not entirely in keeping with the court's
admonition that the new rule should be given a broad definition.
Though individual lawsuits may be much less practical than class
actions in cases such as this, obviously such suits can be brought,

and, if they are, the risk of inconsistent adjudications seems unde-

niable.^^ Also, it must not be overlooked that a successful antitrust
plaintiff can collect triple damages^' and, of course, reasonable

attorney's fees.^° Therefore, individual lawsuits are not entirely out

of the question, and, given the need for a liberal application of

the rule, subdivision (b) (1) (A) should not be summarily ruled out.

Similarly, the court rejected the possibility that this suit could

be maintained under subdivision (b) (2) of rule 23.*' This pro-

vision of the rule is meant to apply to cases in which the relief
sought is exclusively or predominantly injunctive or declaratory.'*^

Obviously, in Eisen the plaintiff sought primarily monetary dam-
ages, but it was argued early in the litigation that the size of the
class and the smallness of individual claims would render a distri-
bution of monetary damages unfeasible. Ultimately, this was one
of the reasons for the court's rejection of this class action.*^ Thus,

it was foreseeable at the outset that money damages might not
be appropriate final relief in this case. With reference to subdi-

3^Fed. R. Civ. P. 23(b) (1) (A).

^*391 F.2d at 564.

3^370 F.2d at 121. See note 19 supra.

385ee 44 N.Y.U.L. Rev. 198, 201-02 (1969).

^'15 U.S.C. §15 (1970).

"^^See generally 7A C. Wright & A. Miller, Federal Practice and Pro-
cedure § 1803 (1972).

4^391 F.2d at 564.

'^^Fed. R. Civ. P. 23(b)(2). See also Advisory Comm. Note, 39 F.R.D.
at 102.

^M79 F.2d at 1017. The court ultimately concluded that:

the amounts payable to individual claimants would be so low as to be



370 INDIANA LAW REVIEW [Vol. 7:361

vision (b) (2), the Advisory Committee's Note to the Proposed
Rules of Civil Procedure provides that this "subdivision does not
extend to cases in v^hich the appropriate final relief relates

exclusively or predominantly to money damages/'^^ Eisen requested
equitable relief in his complaint. It wsis clear from the beginning
that he could ultimately be prevented from pursuing his class
action because money damages would prove unmanageable/^ Un-
der these circumstances, nothing in the rule prohibits recourse to

subdivision (b)(2).

The reason that subdivisions (b) (1) and (b) (2) are such at-
tractive alternatives is their lesser notice requirements. The notice
requirement of 23(c) (2), v^hich calls for "individual notice to all

members who can be identified through reasonable effort,""^* ap-
plies only to actions brought under subdivision (b) (3) . Due process
may require some form of notice in class actions under subdivisions
(b) (1) and (b) (2).^^ However, there is no provision in the rule

whereby class members may elect to be excluded from actions
maintained under these two subdivisions; thus, notice is less vital
in class actions which are not brought under subdivision (b) (3).
It was the Second Circuit's emphasis upon a notice requirement
which led to its eventual rejection of this class action/® Dismissal

may not have become necessary had the court not rejected all the
potentially viable alternatives at such an early stage."**

Id.

negligible [and this] should have been enough of itself to warrant
dismissal as a class action.

^^Advisory Comm. Note, 30 F.R.D. at 102 (emphasis added).

"^^One of the matters which rule 23 provides must be considered to deter-
mine whether a class action can be maintained under 23(b) (3) is "the diffi-
culties likely to be encountered in the management of a class action." Fed. R.
Civ. p. 23(b)(3)(D).

^*M. 23(c)(2).

^^But see Hammond v. Powell, 462 F.2d 1053, 1055 (4th Cir. 1972) (notice
not required in 23(b) (2) actions).

^M79 F.2d at 1015.

"^'It must be noted that resort to subdivisions (b) (1) (A) or (b) (2) may
only be necessitated if the notice requirements of (b) (3) are interpreted as

being so demanding that they effectively preclude large consumer class actions
under the latter subdivision. Obviously, it would be better to avoid any neces-
sity of attempting to juggle the classification of actions under rule 23(b). This,

after all, was one of the defects which made the old rule so cumbersome. See
Advisory Comm. Note, 39 F.R.D. at 98. See also Comment, Adequate Represen-
tation, Notice and the New Class Action Rule: Effectuating Remedies Provided
by Securities Laws, 116 U. Pa. L. Rev. 889, 916-17 (1968). However, it is sub-

mitted that such juggling may be preferable to an alternative which would



1973] CONSUMER CLASS ACTIONS 371

III. The District Court's Approach

The case was remanded to the district court. Judge Tyler then
made an extraordinary about-face from his previous decision. Five
years after his firm dismissal of this case as a class action, Judge
Tyler allowed the plaintiff to proceed under rule 23, and in so
doing, rendered a decision which went as far as any federal court
has gone in accommodating massive consumer class litigation.^° In
three reported opinions. Judge Tyler called for a more extensive
hearing to gather necessary information,^' found that the case was
manageable as a class action," and, after an additional evidentiary

hearing on the merits, determined that the defendants should bear

ninety percent of the cost of notice to the class."

On remand, the district court first made findings of fact based
upon information which had been submitted by the parties. These
findings dealt primarily with the make-up of the plaintiff class
and the transactions and charges which were the basis of the harm
alleged to have been done to the class members.^"^ The court also
made certain findings as to how other courts had handled the com-
plexities of similar litigation involving many parties and large re-
coveries.^^ The district court then turned to the crucial questions to
be considered on remand. First, under the guidelines set out by

make the class action remedy unavailable for antitrust, consumer, and environ-
mental litigation.

5°Eisen v. Carlisle & Jacquelin, 52 F.R.D. 253 ( S.D.N.Y. 1971).

^^Eisen v. Carlisle & Jacquelin, 50 F.R.D. 471 (S.D.N.Y. 1970). Judge
Tyler called upon the parties to provide additional information concerning
the crucial issues of manageability and notice.

"Eisen v. Carlisle & Jacquelin, 52 F.R.D. 253 (S.D.N.Y. 1971).

^^Eisen v. Carlisle & Jacquelin, 54 F.R.D. 565 (S.D.N.Y. 1972). This allo-
cation of the cost of notice was based upon the finding at the preliminary
hearing that "plaintiff and the class he represents are more than likely to
prevail at trial or upon a motion for summary judgment." Id. at 573.

^'*52 F.R.D. at 256-59. The court's findings included, inter alia that: there
were approximately six million class members for the period in question, the
typical class member had approximately five odd-lot transactions during that
period, approximately 1,967 members had ten or more such transactions during
the period, the average odd-lot differential per transaction was about $5.18,
two million of the class members were identifiable from computer tapes and
other records of brokerage and odd-lot firms, and the remaining four million

class members could not be identified with reasonable effort.

^^52 F.R.D. at 259-60. The court referred to the similarly complex cases

of Cherner v. Transitron Electronic Corp., 201 F. Supp. 934 (D. Mass. 1962),

and West Virginia v. Chas. Pfizer & Co., 314 F. Supp. 710 (S.D.N.Y.
1970), affd, 440 F.2d 1079 (2d Cir.), cert, denied, 404 U.S. 871 (1971) [herein-

after cited as Drug Casesl.



372 INDIANA LA]V REVIEW [Vol. 7:361

the court of appeals, it was not difficult to find that the plaintiff,
as representative party, would be an adequate representative of
his class.^^ The remainder of Judge Tyler's considered and lengthy
opinion dealt with the complex question of manageability of the

class action,^ ^ including the mechanics of administration, the com-

putation and distribution of damages, the form of notice appro-
priate in this case, and allocation of the cost of notice.

A. Damages

In a massive consumer class action of this type, with its huge
class and small individual recoveries, naturally, the problem of han-

dling the damages aspects of a case are considerable/® Central to
the court's conclusions in this regard was its finding that a fair
estimate of the damages in this case was possible without the filing
of individual claims by each class member/' In regard to the prob-
lems of administering any eventual damage recovery, the court
looked for guidance to prior experiences in the administration of

the Drtig Cases^° and found precedent in those and other recent

5*52 F.R.D. at 261. See Fed. R. Civ. P. 23(a) (4). The court of appeals
had indicated the factors to be considered in this determination were: plain-
tiff's general qualifications and ability to conduct such litigation, the possi-
bility of collusion or of plaintiff's having interests antagonistic to those of

the class, plaintiff's general interest to insure his forceful advocacy, and the
likelihood that the class would accept the plaintiff as their representative. 391

F.2d at 562-63.

5^Fed. R. Civ. P. 23(b) (3) (D) provides that one of the matters pertinent

to the finding that a class action of this type may be maintained is, "the diffi-
culties likely to be encountered in the management of the class action.'*

^^See generally Dole, The Settlement of Class Actions for Damages, 71

COLUM. L. Rev. 971 (1971) ; Kalven & Rosenfield, The Contemporary Function
of the Class Suit, 8 U. Chi. L. Rev. 684 (1941) ; Note, Damages in Class
Actions: Determination and Allocation, in The Class Action—A Symposium,
10 B.C. Ind. & Com. L. Rev. 615 (1969) ; Comment, Manageability of Notice
and Damage Calculation in Consumer Class Actions, 70 Mich. L. Rev. 338
(1971) ; Comment, Recovery of Damages in Class Actions, 32 U. Chi. L. Rev.
768 (1965).

^?52 F.R.D. at 262. The court said that as sources for its computations,

it could look to various records and reports. Id. But the significant factor in

its determination that the filing of individual claims would not be essential was

the fact that the same allegedly excessive charge was made to all class mem-
bers in all odd-lot transactions. Id. See 391 F.2d at 562; cf. City of Phila-

delphia V. American Oil Co., 53 F.R.D. 45 (D.N.J. 1971), in which the court

found that the damages problem in such vast class actions could be handled,

but not in a case which lacked such factors as price uniformity.

^°Drug Cases, supra note 55. These cases were a series of civil suits filed

by various government entities and drug sellers alleging violation of antitrust



1973] CONSUMER CLASS ACTIONS 373

cases for a type of "fluid class recovery-''^' Though the court made
no final ruling on the nature of the recovery that might eventually

be allowed, it found the fluid class concepts to be of sufficient

merit to establish a presumption that some adequate method of
distribution could be found."

The court found that because each alleged wrong, taken sep-
arately, was too small to have any true ''litigable significance," any
eventual distribution of recovery need not be limited strictly to

^'personal'* recoupment of damages." The court added, however,
that individual recovery was not ruled out, in that any such claims
could be honored if properly filed.*"^ Fluid class recovery contem-

plates distribution to the class as a whole usually by the creation
of a fund made up of unclaimed damages.*^ In this case, it was
suggested that the best way of benefiting the original class would
be to reduce the odd-lot differential over a period of time until the

laws. The suits were consolidated into one class action. Settlement of 100
million dollars was eventually offered by the defendant drug manufacturers.
The defendants in Eisen argued that the Drug Cases were not applicable be-
cause there the parties reached an agreed-upon settlement from which a fund
was established for damage compensation. In short, the Drug Cases were not
litigated to the "bitter end." 52 F.R.D. at 262. Judge Tyler, however, in
rejecting this distinction, found that if liability was eventually established in
this case, the court's task of distribution would be essentially the same as it
was in the Drug Cases. Id.

*'In addition to the Drug Cases, the court relied upon Bebchick v. Public
Util. Common, 318 F.2d 187 (D.C. Cir.), cert, denied, 373 U.S. 913 (1963)
(court established fund used to decrease fare after transit users had been
overcharged through wrongful rate increase), and Daar v. Yellow Cab Co.,
67 Cal. 2d 695, 433 P.2d 732, 63 Cal. Rptr. 724 (1967) (class action involving

excessive rates on taxicab meters with settlement out of court and approxi-
mately one million dollars returned to the class by reduction of taxicab fares).

Of the cases relied upon by the district court as precedent for fluid class
recovery, the Drug Cases are thought to be the most applicable because of the
court's recognition that the establishment of a total damage figure as recovery
for the class as a whole does not infringe upon the defendants' due process
rights. See In re Coordinated Pretrial Proceedings in Antibiotic Antitrust

Actions, 333 F. Supp. 278, 281-82 (S.D.N.Y. 1971) (one of several opinions

arising from discovery proceedings which followed the earlier Drug Cases).
See generally Comment, Manageability of Notice and Damage Calculation in
Consumer Class Actions, 70 Mich. L. Rev. 338 (1971).

^^52 F.R.D. at 265.

"7(^. at 264.

^^Id. See generally Malina, Fluid Class Recovery as a Consumer Remedy
in Antitrust Cases, 47 N.Y.U.L. Rev. 477 (1972).



374 INDIANA LAW REVIEW [Vol. 7:361

fund was depleted.'^* It was recognized that without a significant
recovery the expense of administering such a damage procedure
might make any eventual distribution insignificant and perhaps
unjustified. However, the court's estimation of potential damages
at around twenty-two million dollars indicated that a sufficient
recovery would be available for distribution.'^^

B, Notice

Undoubtedly, the notice requirements of rule 23 and due
process present the major manageability problem of large consumer
class actions.^® Indeed, the problems associated with notice require-

ments raise the specter that such actions may be deemed impossible.
Judge Tyler examined the notice requirements of rule 23 and due
process and found that in this particular case they could be met
"without imposing what in effect amounts to an insufferable tariff
on the prosecution of the case."*' The cases of Mullane v. Central
Hanover Bank & Trust CoJ° and Hansberry v. Lee^^ indicated to
the court that the goal of constitutionally required notice is to

provide for fair and adequate protection of all parties' interests
in the action. ^^ The court also noted that rule 23(c) (2) specifically

*^*52 F.R.D. at 265. It was suggested that the Securities and Exchange
Commission [hereinafter referred to as SEC] could either approve or super-
vise such rate regulation. Id.

''Ud,

^^See generally 7A C. Wright & A. Miller, Federal Practice and Pro-
cedure § 1786 (1972) ; Kaplan, Continuing Work of the Civil Committee : 1966
Amendments to the Federal Rides of Civil Procedure (I), 81 Harv. L. Rev.
356, 396 (1967) ; Note, Class Actions under Federal Rule 23(h)(3)—The No-
tice Requirement, 29 Md. L. Rev. 139 (1969) ; Comment, Manageability of
Notice and Damage Calculation in Consumer Class Actions, 70 Mich. L. Rev.
338 (1971); Note, Federal Rule 23(c) (2)—Notice in Class Actions—Mull&nQ
Reconsidered, 43 TUL. L. Rev. 369 (1969).

'952 F.R.D. at 266-67.

7^339 U.S. 306 (1950).

7'311 U.S. 32 (1940).

^^MullaMe provided that due process requires "notice 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." 339

U.S. at 314. The district court in Eisen properly saw the Mullane standard

as one of flexible practicality which must be applied on a case-by-case basis.

"[I]f with due regard for the practicalities and peculiarities of the case these

conditions are reasonably met, the constitutional requirements are satisfied."

Id. at 314-15 (emphasis added). "This Court has not hesitated to approve of

resort to publication as a customary substitute in another class of cases where



1973] CONSUMER CLASS ACTIONS 375

calls for the "best notice practicable under the circumstances, in-

cluding individual notice to all members who can be identified with
reasonable effort."^^ Since the rule was intended to reflect the

requirements of due process/^ the court felt that the notice re-

quirements of the rule should be interpreted in light of the actual

need for a notice procedure designed to enable class members to

protect their rights in the litigation.

The question of adequate notice must be approached on a case-

by-case basis/^ and in this case the following factors combined to

enable the court to conclude that overemphasis upon strictly re-

quired notice to individual class members was particularly unjusti-
fied. First, because individual claims were so small, the like-

lihood that any class members would wish to exclude themselves
from the action was extremely remote.^* Second, the statute of
limitations had run so that any res judicata consequences, should
the plaintiff lose his case, were thought to be of little significance

to other class members. And finally, the court recognized the need to
balance between the demand for expensive and stringent notice re-
quirements and the reality that overemphasis of such notice could

nullify the class action device/''

In light of all these considerations, the district court then out-

lined a notice procedure which it deemed a realistic and fair ac-
commodation of the interests of all the parties. The notice which

it is not reasonably possible or practicable to give more adequate warning."
Id. at 317 (emphasis added).

The Hansberry case emphasized the importance of protecting the interests
of absent class members by insuring that the representative plaintiff had sub-
stantially similar and unconvicting interests. See 311 U.S. at 45.

7^Fed. R. Civ. P. 23(c) (2) (emphasis added).

^^See Advisory Comm. Note, 39 F.R.D. at 107.

^^See note 69 supra. The Advisory Committee states that "[njotice to
members of the class, whenever employed under amended rule 23, should be
accommodated to the particular purpose but need not comply with the for-
malities for service of process." Advisory Comm. Note, 39 F.R.D. at 107
(emphasis added).

^^See Fed. R. Civ. P. 23(c) (2), (3), which provides that class members
who do not wish to be bound by the judgment may request exclusion. See also
Berland v. Mack, 48 F.R.D. 121, 129 n.3 (S.D.N.Y. 1969).

7752 F.R.D. at 266. See also Herbst v. Able, 47 F.R.D. 11, 21 (S.D.N.Y.

1969) ; Dolgow v. Anderson, 43 F.R.D. 472, 497 (E.D.N.Y. 1968).

At this point, the district court emphasized public policy considerations
and the importance of the class action device—especially in such areas as
private antitrust, consumer, and en\'ironmental litigation. 52 F.R.D. at 266.



376 INDIANA LAW REVIEW [Vol. 7:361

the court proposed included the following: individual notice to all

member firms of the New York Stock Exchange and all commercial
banks with large trust departments/® individual notice by mail to
approximately 7,000 class members, 2,000 of whom consisted of the
group who were found to have had ten or more odd-lot transactions
during the relevant period, and 5,000 others selected at random
from those remaining "identifiable** class members,^' and lastly,
notice by publication to the remander of the class.*60

C. Cost of Notice

Having treated the issues of damages and appropriate notice,
the only remaining problem for the district court was the question
of who must pay for the notice that would be required. The court
of appeals had indicated that the plaintiff must bear this burden,®'
but the district court viewed the more recent Second Circuit case
of Green v. Wolf Corp.^^ as an indication that the question remained

7^52 F.R.D. at 267.

®^he court-proposed notice by publication consisted of one-quarter page no-
tice once each month for two consecutive months in the following publications:

1) the national edition of the Wall Street Journal, 2) the financial section of

the New York Times, 3) the financial sections of the San Francisco Chronicle
and San Francisco Examiner, and 4) the financial section of the Los Angeles
Times. Id, at 268.

To these provisions for notice, the district court made the following
qualification

:

Assuming that a significant number of class members should exclude
themselves, this might be viewed as an indication that the interests of

the class are not being adequately represented. In such event, to

properly consider the question of whether defendants should be

shielded from the expense and effort of defending a suit which a large

number of class members may not favor, further individual notice
might then be required. On the other hand, a lack of response to the
notice would not shed any light on adequacy of representation and

would probably mean that the notice was sufficient for this case.

Id. This indication of a willingness to require further individual notice if

needed is further evidence of the district court*s view of its own flexible

adaptability in what it considers an area in which due process and rule 23

allow practical-minded discretion.

e'391 F.2d at 568.

»2406 F.2d 291 (2d Cir. 1968). In Green the court of appeals observed

that district courts had gone both ways on the question of whether the cost of

notice could be allocated between the parties. No preference was expressed for

either view. Id. at 301-02 n.l5. Compare Dolgow v. Anderson, 43 F.R.D. 472,

497-98 (E.D.N.Y. 1968), with Mersay v. First Republic Corp. of America, 43

F.R.D. 465, 469 (S.D.N.Y. 1968).



1973] CONSUMER CLASS ACTIONS 377

open. Eisen had acknowledged from the outset that he could not
afford to pay for the notice, even in the less stringent form which
the district court ultimately required. Thus, an imposition of the
inflexible requirement that the plaintiff must always pay the ex-
pense of the notice would result in an abrupt termination of this
case." It is clear that this same result would occur in many similar
large class actions. Thus, if the plaintiff must always bear the
expense of notice, most consumer class actions would end without
reaching the merits.

Judge Tyler felt that the power to allocate the cost of notice
was within the broad discretion of the trial court,®^ especially when
strict adherence to the usual rule°^ would mean the dismissal of a
possibly meritorious suit supported by strong public policy con-
siderations. However, recognizing that arbitrarily placing the

burden of costs upon the defendant might result in an unfair im-
position based upon a frivolous claim and could encourage use of
the class action device as a harassment technique, the court set out

a series of factors which are important considerations for justi-
fying shifting some of this burden to the defendant. Foremost of
these considerations was the fact that private class actions provide
one of the few viable methods of enforcing antitrust laws, and they

"52 F.R.D. at 269.

84

Rule 23 grants to the court broad discretionary powers to enable
the court successfully to solve the novel administrative problems posed
in a class action by the unusually large number of members of the
class, each of whom may have small monetary claims.

Manual for Complex Litigation 29 (West Pub. 1973).

^^The court conceded that ordinarily the plaintiff would be required to
pay the costs of notice. 52 F.R.D. at 269, citing Weiss v. Tenney Corp., 47
F.R.D. 283, 294 (S.D.N.Y. 1969) ; Richland v. Cheatham, 272 F. Supp. 148, 156

(S.D.N.Y. 1967) ; Frankel, Amended Rule 23 from a Judge's Point of View in
Sym,posium, "Amended Federal Rule 23: Antitrust Class Actions? 32 A.B.A.
Antitrust L.J. 295, 300 (1966) ; Kaplan, Continuing Work of the Civil Com-
mittee: 1966 Amendment of the Federal Rules of Civil Procedure (I) 81 Harv.
L. Rev. 356, 398 n.l57 (1967) ; Ward & Elliott, The Contents and Mechanics of
Rule 23 Notice, in The Class Action—A Symposium, 10 B.C. Ind. & Com. L.
Rev. 557, 566-67 (1969). However, certain other cases and commentators were
cited for recognizing the "propriety of apportioning the burdens in certain

cases." 52 F.R.D. at 269, citing Bragalini v. Biblowitz, CCH Fed. Sec. Law
RPTR. H 92,537 (S.D.N.Y. 1969) ; Herbst v. Able, 47 F.R.D. 11 (S.D.N.Y. 1969)

;

Minnesota v. United States Steel Corp., 44 F.R.D. 559, 577 (D. Minn. 1968);

Dolgow V. Anderson, 43 F.R.D. 472, 498-500 (E.D.N.Y. 1968) ; Developments
in the Law—Multiparty Litigation in the Federal Courts, 71 Harv. L. Rev. 874,
938 (1958); Note, Class Actions under Federal Rule 23(b)(3)—The Notice
Requirement, 29 Md. L. Rev. 139, 156 (1969).



378 INDIANA LAW REVIEW [Vol. 7:361

are the orily method of insuring that violators do not keep their
illegal profits and that the damaged class is compensated as much
as possible,^* Here, since the statute of limitations had run, it could

be argued that Eisen's class action was the only way to litigate
these particular antitrust claims. It is frequently observed that rule

23 requires a liberal interpretation, and the court felt that such a

construction is particularly applicable when, as here, there was
strong reason to believe that the plaintiff's suit was not frivolous.®^
From these considerations, the court concluded that it would be
unfair to put the full burden of notice costs upon the plaintiff before
ascertaining more about the merits of his claim.

Requiring the defendants to bear this expense was recognized
as a significant imposition, but the court drew support from an
analogy to the preliminary injunction remedy.^® The preliminary
injunction was seen as a similarly burdensome imposition which is
sometimes placed upon defendants when necessitated by "the need
to create or preserve a state of affairs which will enable the court

to render a meaningful decision."*' As with the preliminary in-
junction, however, the court emphasized that this pretrial burden

of notice costs should not be placed upon the defendant unless the

plaintiff can make a strong showing that he is likely to succeed at
trial. In other words, for the court to be swayed in this discre-

tionary posture, much depends upon the merits of the plaintiff's
claim. And so, for the purpose of determining how to allocate the
costs of notice. Judge Tyler ordered a preliminary hearing on the

merits of Eisen's case.'°

The subsequent preliminary hearing revealed enough of the

merits of the plaintiff's claims for the court to determine that the

plaintiff and his class were "more than likely" to prevail." The

court stressed, however, that this finding would not be binding in

«^52 F.R.D. at 270. See also Dolgow v. Anderson, 43 F.R.D. 472, 482-83

( E.D.N.Y. 1968).

^^52 F.R.D. at 270. The court cited studies by the SEC and the New York
Stock Exchange and the subsequent reduction of the odd-lot differential by

approximately five million dollars per year.

^^Id. at 270-71. See also Dolgow v. Anderson, 43 F.R.D. 472, 502

( E.D.N.Y. 1968).

S952 F.R.D. at 270.

'°It was noted that several courts had rejected such a hearing, but the

court claimed that "the facts and circumstances of those cases were markedly

different from those at hand. . . ." Id. at 271.

9^54 F.R.D. at 573.



1973] CONSUMER CLASS ACTIONS 379

the ultimate trial on the merits and that the purpose of the hearing

was strictly limited to a determination of whether, and if so, how,
the costs of notice to the class were to be allocated among the
parties. Judge Tyler's ultimate conclusion was that the defendants
should bear ninety percent of these notice costs. Though its ap-
proach to class actions was short-lived as legal precedent, the
district court's holdings in the Eise^i case met with a generally

positive reaction.'^

IV. Reversal by the Court of Appeals

In a three-judge panel opinion written by Judge Medina, the

Court of Appeals for the Second Circuit resolutely reversed the

district court's rulings.'^ On each of the dominant issues in this
case—damages, appropriate notice, allocation of costs, and the pre-
liminary hearing on the merits—the court of appeals opinion ex-
pressed complete disagreement with Judge Tyler's conclusions.'*

The findings and conclusions based upon the district court's prelim-
inary hearing on the merits were vacated and set aside. The various
rulings of the district court which had sustained the Eisen case

as a class action were reversed, and, as a class action, the case

was dismissed.'^

'^^See 7A C. Wright & A. Miller, Federal Practice and Procedure
§ 1786 (1972) ; Comment, Eisen v. Carlisle & Jacquelin, *'Frankenstein Monster
Posing as a Class Action"?, 33 U. Pitt. L. Rev. 868 (1972).

93Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (2d Cir.), cert, granted,
94 S. Ct. 235 (1973).

'^As will be seen in the discussion that follows, this opinion by Judge

Medina was indeed "resolute" in its total rejection of the lower court's various
rulings. It is doubtful, however, that such an adamant position is prevailing.
In this decision. Judge Lumbard concurred, but Judge Hays concurred only in
the result. Judge Hays stated that he could not accept the district court's
allocation of the costs of notice, thus indicating that he would probably not

totally reject the district court's other holdings. 479 F.2d at 1020 (Hays, J.,

concurring). In the opinion denying an en banc rehearing of the case, in which

four judges concurred, Judge Kaufman wrote that the primary reason for
denying further consideration of the case was to avoid delay in its reaching
the Supreme Court. Id. at 1020-21. Judge Mansfield concurred in Judge

Kaufman's opinion, and expressed the same presumption that the Supreme

Court would grant certiorari. Id. at 1021 (Mansfield, J., concurring) . Judge

Hays dissented from the court's denial of en banc rehearing. Id. (Hays, J.,
dissenting) . Finally, Judge Oakes, with whom Judge Timbers concurred, wrote
a forceful dissent expressing grave concern about the panel's "very doubtful"

result and arguing in favor of the court's hearing this matter en banc. Id. at

1021-26 (Oakes, J., dissenting).

'^The court of appeals did not reach the merits of Eisen's claims against

the defendants. See 479 F.2d at 1013.



380 INDIANA LAW REVIEW [Vol. 7:361

A. Fluid Class Recovery

The court of appeals opinion saw the fluid class recovery
method of handling damages as an illegal innovation resorted to
in desperation to pull the case out of its "morass" of "hopeless" un-

manageability.''^ This rejection of fluid class recovery was based
upon three critical observations. First, the court could not see how
the damages could be distributed to the class.'^ Second, the fluid
class recovery is not supported by the "respectable precedent" upon
which the district court had relied.^® Lastly, this recovery method
would award damages to persons who had not been injured, since
all members of the "fluid class" would not have been investors in
the odd-lot market during the pertinent time period.'' The court of
appeals concluded that the fluid class recovery techniques are not

authorized by rule 23.'°°

The district court had found that the damage fund might be
depleted by reducing the odd-lot differential by a reasonable amount
over a period of time.^°^ The court of appeals saw this method of
distribution as precluded by the fact that only the SEC has the

^*M at 1010.

^Ud. at 1011. See City of Philadelphia v. American Oil Co., 53 F.R.D. 45
(D.N.J. 1971). This court, while recognizing that Judge Tyler's method of
establishing damages may have been acceptable in the context of the Eisen
case, found that to attempt an eventual distribution would be unrealistic for
the group there under consideration. Id. at 71-73. But see 44 N.Y.U.L. Rev.
198, 204 (1969).

'M79 F.2d at 1012.

^^/d. at 1010, 1014, 1018.

'°°The court also concluded that even if rule 23 does permit fluid class

recovery, such a procedure would have to be rejected "as an unconstitutional
violation of the requirement of due process of law." Id, at 1018. However,

the court offered no further explanation of how the recovery procedures pro-
posed by the district court actually violated due process. See In re Coordinated

Pretrial Proceedings in Antibiotic Antitrust Actions, 333 F. Supp. 278, 281-82

(S.D.N.Y. 1971) (no violation of due process found in fluid recovery pro-

cedure).

i°^52 F.R.D. at 265; cf. Bebchick v. Public Util. Comm'n, 318 F.2d 187

(D.C. Cir), cert, denied, 373 U.S. 913 (1963) ; Daar v. Yellow Cab Co., 67 Cal.

2d 695, 433 P.2d 732, 63 Cal. Rptr. 724 (1967). Such a damage distribution
has been compared with the doctrine of cy pres, which aims at substantial

justice when perfect justice cannot be done. See Pomerantz, New Develop-
ments in Class Action—Has Their Death Knell Been Sounded?, 25 Bus. Law.
1259, 1260-65 (1970). See also Miller, Problems in Administering Judicial

Relief in Class Actions under Federal Rule 23(b)(3), 54 F.R.D. 501, 510

(1972).



1973] CONSUMER CLASS ACTIONS 381

power to fix rates or establish a rate's effective time period.^ °^

However, the district court had noted the SEC's probable exclu-
sive jurisdiction but felt that any reduction in differential could
be carried out with SEC approval or supervision. ^°^ The district
court's proposed method of distribution of unclaimed damages was
not final or inflexible and could have been made contingent upon
the voluntary cooperation of the SECJ°^

In extremely large class actions, the requirement of individual

claims t© establish the defendant's liability creates a tremendous

task which often would be impossible or impractical.' °^ As men-
tioned earlier, fluid class recovery seeks to avoid this problem by
treating the "class as a whole" as the recipient of a precalculated

damage award. Obviously, such a system of providing recovery is
not precise; any award which is aimed at such a large group is
bound to lack the rigid accuracy which is demanded in normal
adversary proceedings involving a single plaintiff and single de-
fendant. Here, for example, a distribution of the damage fund
through the reduction of the odd-lot differential is bound to benefit
some individuals who were not odd-lot investors during the period
of the alleged antitrust violations. Such persons, presumably, were
not injured as the plaintiff and his class claim to have been. For
fluid recovery to be appropriate in these situations, there should

be a sufficiently high level of repetitive activity to enable the court

to predict that the persons benefited by the damage award are,
by and large, the same group that was injured. '°* It should be

102479 F.2d at 1011, citing 15 U.S.C. §§ 78k(b), 78s(b) (1970).

'°352 F.R.D. at 265; see note 66 supra.

'°^See Thill Sec. Corp. v. New York Stock Exch., 433 F.2d 264 (7th Ch\
1970), cert, denied, 401 U.S. 994 (1971) (SEC participation as party or amicus
curiae suggested). The district court conceded that the argument against
"judicial rate-fixing" had certain merit. 52 F.R.D. at 265. It is submitted,

however, that the SEC's power to regulate rates should not necessarily prevent

the courts from exercising their power to redress antitrust violations in the

regulated industries. See Silver v. New York Stock Exch., 373 U.S. 341 (1963).
In fact, it has been suggested that the presence of supervisory agencies such

as the Public Utilities Commissions or the SEC actually facilitates the use of
fluid class recovery. See Comment, Manageability of Notice and Damage
Calculation in Consumer Class Actions, 70 Mich. L. Rev. 338, 370 (1971).

'""^See City of Philadelphia v. American Oil Co., 58 F.R.D. 45 (D.N.J.

1971).

^°*See Comment, Manageability of Notice and Damage Calculation in Con-
sumer Class Actions, 70 Mich. L. Rev. 338, 370-72 (1971). The district court

made findings concerning the stability of the class in this case, 52 F.R.D. at

257, and ultimately determined that a method of recovery of unclaimed dam-



382 INDIANA LAW REVIEW [Vol. 7:361

remembered that the aim of fluid class recovery is substantial
justice, and its probable alternative is no justice at all.'°^

The court of appeals was particularly offended by this lack of
precision. It pointed out that section 4 of the Clayton Act authorizes
triple action damage suits only to persons who have been "injured
in [their] person or property by reason of anything forbidden in
the antitrust laws. . . .'*'°® The right of recovery under the antitrust
laws is a substantive right which cannot be enlarged by any of
the Federal Rules of Civil Procedure.^ °' Thus, it was argued that
the plaintiff cannot sue for the benefit of parties who have not
been injured as he or his class are alleged to have been. The court
of appeals viewed the fluid class recovery, with its inevitable bene-
fit to some uninjured parties, as a clear infraction of the statutory
limitation.' ^° However, the court did not mention the various prop-
ositions which would avoid that conclusion. One could argue that
damages are not, in fact, being awarded to uninjured parties. Any
uninjured parties who are ultimately benefited by the fluid re-
covery method may be said to have been benefited in an "indirect"
manner under an assignment theory. This assignment could be im-
plemented through a notice program which informs the class that
any unclaimed damages which have been sustained by the class as
a whole will be deemed to have been assigned for the benefit of
future odd-lot customers.''' While the statute may limit who may

ages could be employed to substantially benefit the whole class. Id. at 264-65.

The court of appeals apparently felt that the district court's estimate of class
stability was neither "reliable" nor "rational," but offered no statistics to
counter the district court's conclusions. 479 F.2d at 1010. It must be noted,
however, that time works in favor of Judge Medina's argument, and as more
individuals engage in odd-lot transactions, a higher percentage of those bene-

fited by the eventual award will not be individuals who were originally
damaged.

^^''The expense of requiring and administering individual claims is pro-

hibitive in actions with millions of small claimants, and, of course, if actions

by massive consumer groups are frustrated in this way, antitrust and other

offenders will continue to reap the benefits of their illegal activities.

'°nb U.S.C. § 15 (1970). The court also cited Hawaii v. Standard Oil Co.,
405 U.S. 251 (1972), for the proposition that only persons actually injured in

their business or property can claim damages under the Clayton Act. 479 F.2d

at 1014.

^°9470 F.2d at 1014, citing 28 U.S.C. § 2072 (1970) (the Enabling Act

which authorizes the Supreme Court to promulgate its procedural rules).

i'°479 F.2d at 1014.

^'^This "assignment technique" was accomplished in the Drug Cases by
use of a notice program under which those members of the injured class who



1973] . CONSUMER CLASS ACTIONS 383

bring an action, it does not limit what such persons can do with
their recovery once liability to them has been established.

The court of appeals distinguished the three cases which
the district court referred to as ''respectable precedent" for its fluid

class recovery.^ '^ These cases were "distinguished" as follows: the
Drug Cases involved a settlement, Bebchick v. Public Utilities Com-
mission^ ^^ was not a class action under rule 23 and those who had
been damaged could not be identified, and finally, Daar v. Yellow
Cab Co.^^^ did not involve rule 23 (though it was a class action),
and there the court had indicated that proof of individual claims
may have ultimately been required.^ '^ Certainly, there are many
factors which distinguish these cases from Eisen; however, the
methods of handling damages which were either suggested or ac-
tually used are clearly analogous. This is particularly true of the

Drug Cases.^^^ Although in the Drug Cases the fluid class recovery
arose in the context of a settlement, that settlement was expressly
approved by the court.^'^ The settlement, otherwise like a distribu-
tion of damages, was implemented by a classic example of the fluid
class recovery method. A necessary predicate to approval of the
settlement was the court^s finding that the case, with its dependence
upon fluid class recovery, was maintainable as a class action.

did not assert individual claims were deemed to assign their rights to the attor-
neys general of the states involved in the action. West Virginia v. Chas. Pfizer
& Co., 440 F.2d 1079, 1091 (2d Cir.), cert, denied, 404 U.S. 871 (1971), See
also 7A C. Wright & Miller, Federal Practice and Procedure § 1784 (1972)

.

^'^5ee 52 F.R.D. at 264. The district court relied upon the Drug Cases—
West Virginia v. Chas. Pfizer & Co., 314 F.Supp 710 (S.D.N.Y. 1970), o//U
440 F.2d 1079 (2d Cir.), cert, denied, 404 U.S. 871 (1971), Bebchick v. Public

Util. Comm'n 318 F.2d 187 (D.C. Cir.), cert denied, 373 U.S. 913 (1963), and
Daar v. Yellow Cab Co., 57 Cal.2d 695, 433 P.2d 732, 63 Calfl Rptr. 724 (1967).
See notes 60, 61, supra.

^'^318 F.2d 187 (D.C. Cir.) cert, denied, 373 U.S. 913 (1963).

'^^67 Cal. 2d 695, 433 P.2d 732, 63 Cal. Rptr. 724 (1967). The Daar case
was brought under a state class action statute.

^'^479 F.2d at 1014, citing Daar v. Yellow Cab Co., 67 Cal. 2d 695, 433
P.2d 732, 63 Cal. Rptr. 724 (1967).

''*Judge Tyler had recognized that the Drug Cases mvolved a settlement,
but rejected the distinction. 52 F.R.D. at 262; see note 60 supra,

'^^West Virginia v. Chas. Pfizer & Co., 314 F. Supp. 710 (S.D.N.Y. 1970),
affd, 440 F.2d 1079 (2d Cir.), cert, denied, 404 U.S. 871 (1971). See also In re

Coordinated Pretrial Proceedings in Antibiotic Antitrust Actions, 333 P. Supp.

278, 281 (S.D.N.Y. 1971).



384 INDIANA LAW REVIEW [Vol. 7:361

As precedent weighing against treating claims collectively, the
court of appeals relied upon Snyder v, Harrisy''^ in which the Su-
preme Court refused to allow aggregation of the claims of class
members to meet the federal court's jurisdictional amount. The
court of appeals concluded that this proscribes any consideration of
a single damage figure for *'the class as a whole/"'' The court's
penchant for distinguishing cases would have been better applied
to Snyder. The Snyder case involved an attempt to expand federal
diversity jurisdiction. Policies which limit that jurisdiction would

seem to have little or no applicability in cases brought under feder-
al statutes pursuant to which federal jurisdiction exists without re-
gard to the amount in controversy. In Snyder, the Court empha-
sized the purposes of the congressionally enacted grant of limited

jurisdiction, and these purposes concern restricting access to the
federal courts. ^^° The reasons for rejecting an attempt to gain
access to the federal courts by aggregating claims are entirely in-
applicable to the reasons for making a single award to the class
after a federal court has acknowledged jurisdiction, tried the case,

and determined the defendant's liability to the plaintiff class.

B, Notice

With the exception of the 7,000 class members designated by
the district court to receive individual notice, the court of appeals

completely rejected the notice provisions which Judge Tyler felt

would be adequate in this case. After calling the proposed notice

"a totally inadequate compliance with the notice requirements of

amended Rule 23,'"^' the court added that, in cases with classes this
large, "notices by publication . . . are a farce."^^^ As a basis for its
rejection of the district court's detailed notice plan, the court of

appeals adopted a strict, literal interpretation of the rule 23 notice

requirement for 23(b) (3) actions.'" The court of appeals felt that
the rule required individual notice to each "identifiable" member
of the class. However, there are compelling considerations which

mitigate against such an interpretation, and, unless the words of

the rule absolutely require this strict construction, it should be

avoided.

'1^394 U.S. 332 (1969).

^19479 F.2d at 1014.

'.^""See 394 U.S. at 339-40.

^21479 F.2d at 1009.

^22Matl017.

123FED. R. Civ. P. 23(c)(2).



1973] CONSUMER CLASS ACTIONS 385

Little was said in this opinion about the due process require-
ments upon which the notice provisions of rule 23 are based. '^* The
district court pointed out, and many commentators agree, that it is
quite unlikely that due process would require individual notice to
every known party who may have an interest in the litigation. '^^

The Mullane case, which dealt with a much smaller group of inter-
ested parties, was couched in terms of practicability, with emphasis
upon such considerations as a large banking facility's ability to
give individual notice, the relatively small expense involved in giving

notice, and the reasonableness of the required good faith effort to
reach most interested parties. '^^ Several courts have recognized
that this emphasis upon practicability is especially appropriate in

'^'^The Advisory Committee states that the (c) (2) notice is designed to
fufill the requirements of due process. See Advisory Comm. Note, 39 F.R.D.
at 106-07.

^^^52 F.R.D. at 265-68. See also Homburger, State Class Actions and the
Federal Rule, 71 CoLUM. L. Rev. 609, 646 (1971) ; Comment, Constitutional
and Statutory Requirements of Notice Under Rule 23(c)(2), in The Class
Action—A Symposium, 10 B.C. Ind. & Com. L. Rev. 571 (1969) ; Note, Class
Actions under Federal Rule 2S(b)(3)—The Notice Requirement, 29 Md. L.
Rev. 139, 153-54 (1969); Note, Federal Rule 23(c)(2)—Notice in Class Ac-
tions—Mullane Reconsidered, 43 TUL. L. Rev. 369 (1969).

i^^Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950);
see note 72 supra. In Mullane the notice being tested was that provided by
statute to inform trust fund beneficiaries of a trustee^s management of fund
assets. In rejecting the statutory notice as inadequate, the Supreme Court
explained

:

The statutory notice to known beneficiaries is inadequate, not
because in fact it fails to reach everyone, but because under the cir-

cumstances it is not reasonably calculated to reach those who could
easily be informed by other means at hand. However it may have been
in former times, the mails today are recognized as an efficient and
inexpensive means of communication. Moreover, the fact that the
trust company has been able to give mailed notice to known benefi-
ciaries at the time the common trust fund was established is per-
suasive that postal notification at the time of accounting would not

seriously burden the plan.

339 U.S. at 319 (emphasis added). The Mullane Court was careful to point

out that "a construction of the Due Process Clause which would place im-
possible or impractical obstacles in the way would not be justified." Id. at
313-14. It is true that under the circumstances of that case, the Court re-

quired individual written notice to beneficiaries because the existence of their

names and addresses on trust company records made such notice practicable.
Id. at 318-20. It is submitted, however, that the mere existence of lists con-

taining the names and addresses of two million class members does not render

individual notice to them "practicable." See also Harris v. Jones, 41 F.R.D.

70, 74 (D. Utah 1966) (requiring individual notice under 23(c) (2) only so far

as practical).



386 INDIANA LAW REVIEW [Vol. 7:361

large class actions. These courts have looked to the circumstances

of various cases facing them and have concluded that overemphasis
of an individual notice requirement would, in certain situations,

defeat the purpose of class actions.^ ^^ Demands for individual no-
tice in large class actions should not be allowed to present a barrier

of prohibitive expense when there is some constitutionally adequate
alternative method of giving notice which would enable class mem-
bers to protect their rights in the litigation.'^*

The narrow construction given the rule by the court of
appeals decision is neither supported by the reasoning which
makes some notice mandatory nor is it necessarily required by the
actual words of the rule. The purpose of a notice requirement in
(b) (3) class actions is to inform absent class members of the pro-
ceedings so that they can either participate or *'opt out" to avoid

any res judicata effects of an adverse judgment.^" However, in
large class actions such as this, in which there are so many small
claims, financial considerations usually will prevent either prosecu-

tion of separate actions or active participation in the present action.

Obviously, there would seldom, if ever, be any reason to seek
exclusion from the class. ^^'^ This practical consideration, which
minimizes the need for notice in these cases, simply cannot be

ignored.

'^'See, e.g., Berland v. Mack, 48 F.R.D. 121 (S.D.N.Y. 1969); Dolgow v.
Anderson, 43 F.R.D. 472 (E.D.N.Y. 1968).

'^^As the district court stated in Berland v. Mack, 48 F.R.D. 121 (S.D.N.Y.
1969) :

Rule 23(c) (2) requires the best notice "practicable," not perfect

notice. The word '"practicable" implies flexibility, with the type of
notice depending" upon the particular circumstances of each case.
Where members of the class are readily identifiable and personal
notice would not be so prohibitively expensive as to prevent the class

action from being- prosecuted, individual notices by first class mail

would in most cases be the ''best notice practicable." But where mem-
bers are difficult to locate or identify, the benefits of a class action

should not be denied altogether, in the absence of evidence that there

is no method of giving a notice that is reasonably calculated to apprise

the class members of their opportunity to object. Rule 23 contemplates
cooperative ingenuity on the part of counsel and the court in deter-

mining the most suitable notice in each case.

Id. at 129.

'-'See Advisory Comm. Note, 39 F.R.D. at 104-05, 107.

''""See Berland v. Mack, 48 F.R.D. 121, 129 (S.D.N.Y. 1969); Homburger,

State Class Actions and the Federal Rule, 71 CoLUM. L. Rev. 609, 637 (1971).

See also note 76 supra & accompanying text.



1973] CONSUMER CLASS ACTIONS 387

Again, the words of the rule require the court to direct "the
best notice practicable under the circumstances, including indi-
vidual notice to all members who can be identified through reason-
able effort.'*^^^ Certainly, notice in 23(c)(2) is mandatory, but

these words do vest the courts with some discretion. The special
qualities of class actions of this type demand special consideration.
Rule 23 requires a liberal interpretation,'^^ and the amended rule
was intended to broaden the usefulness of the class action.'" Notice
is designed to serve the needs of the class members ; it would be a
bitter irony if the notice requirement serves instead to deprive them
of the only real opportunity to litigate their claims.

These considerations call for an enlightened interpretation

—

how then should the words of this rule be applied to a case such as
Eiseni The mere existence of a list of names and addresses of two
million individuals (produced, of course, through the efforts of the

defendants) does make those class members "identifiable" in the
strict sense of the word, but does not necessarily render those indi-

viduals ascertainable for notification purposes "through reasonable

effort" as the phrase is used in the rule. If it did, any defendant
wishing to escape liability could simply do whatever is necessary

to "identify" more class members than his opponent could reason-
ably afford to notify individually. This cannot have been the intent

of the drafters of the rule. Surely the rule cannot be interpreted

to provide such an expeditious route to impunity for those who can
afford the necessary identification process.

Even more difficult to accept is the pronouncement by the
court of appeals that "[w]here there are millions of dispersed and
unidentifiable members of the class notices by publication . . . are a

farce."' ^"^ The class in Eisen is a relatively sophisticated group, and

it is not unreasonable to assume that publication in appropriate

financial journals and newspaper sections would reach a significant

^^^Fed. R. Civ. P. 23(c)(2) (emphasis added).

'^^Sec, e.g., Korn v. Franchard Corp., 456 F.2d 1206, 1209 (2d Cir. 1972)

;

Kahan v. Rosenstiel, 424 F.2d 161, 169 (3d Cir.), cert, denied, 398 U.S. 950

(1970); Green v. Wolf Corp., 406 F.2d 291 (2d Cir. 1968), cert, denied, 395

U.S. 977 (1969) ; Esplin v. Hirschi, 402 F.2d 94 (10th Cir. 1968), cert, denied,

394 U.S. 928 (1969).

^^^See, e.g., Cohn, The New Federal Rules of Civil Procedure, 54 Geo. L.J.
1204, 1214 (1966).

13M79 F.2d at 1017.



I

388 INDIANA LAW REVIEW [Vol. 7:361

portion of the class/ ^^ Moreover, the fact that many class members,
whose financial interest in the case is minimal, may not respond to
such notice does not render publication either unacceptable or

farcical. The Supreme Court has recognized that notice by pub-
lication is acceptable even though it may arguably be ineffective.'^*
The court of appeals itself had, in an earlier appeal, indicated that
notice by publication may be appropriate here,'^^ and in another
extremely large class action, the Second Circuit expressly approved

notice by publication.^ ^^ There would appear to be little doubt that
the Courtis intractable rejection of notice by publication is un-
warranted.

C. Cost of Notice

As to the allocation of costs of notice, the court of appeals de-
clared that the district court does not have the discretionary power
which it had claimed. Rejecting the district court's conclusion that
it would not be fair to effectively terminate the plaintiff's poten-

tially meritorious case by requiring him to bear all of the burden
of costs of notice, the court of appeals specified that, in this type

of case, the plaintiff must always be the one to pay.'^' The court of

^^^The SEC brief, which was quoted in Dolgow v. Anderson, 43 F.R.D. 472
(E.D.N.Y. 1968), stated:

In view of the existence both of a cohesive financial community,

which includes broker-dealers who have obligations to their investor
clients, and of publications exclusively concerned with matters of

interest to that community, publication by itself might reasonably

be expected to reach a significant portion of any class of public

investors.

Id. at 501.

'2*Mullane v. Central Hanover Bank & Trust Co., '339 U.S. 306 (1950).
This Court has not hesitated to approve of resort to publication as

a customary substitute in another class of cases where it is not reason-

ably possible or practicable to give more adequate warning. Thus it

has been recognized that, in the case of persons missing or unknown,

employment of an indirect and even a probably futile means of noti-

fication is all that the situation permits and creates no constitutional

bar to a final decree foreclosing their rights.

Id, at 317.

137391 F.2d at 569-70.

i3°West Virginia v. Chas. Pfizer & Co., 440 F.2d 1079, 1090-91 (2d Cir.)
cert, denied, 404 U.S. 871 (1971).

129479 F.2d at 1009. The court stated that its indication in the earlier

appeal that the plaintiff must pay was not dictum. However, the court stated

that other situations do exist, such as derivative stockholder's suits or actions



1973] CONSUMER CLASS ACTIONS 389

appeals did not elaborate much further on this aspect of its decision
except to observe that if the defendants were required to pay for
notice, they would be unable to recover whatever funds they had ex-
pended should they subsequently prevail upon the merits.''140

To require the plaintiff to bear the expenses of providing no-
tice may, in the end, prove a harsh but unavoidable conclusion.
Thus, the problem with this aspect of the decision may not lie so
much in the result reached as in the court's failure to fully explain
the factors on both sides of this issue which the court saw as ulti-
mately weighing in favor of burdening the plaintiff. The district
court indicated that there are strong arguments on both sides of

the issue of whether the court should exercise discretion in
allocating costs to relieve one party and burden another.'^' The
issue certainly cannot be dismissed out of hand,'*^ and the court
of appeals* opinion does not add much to a thoughtful resolution of
the problem.

In many consumer class actions the court's willingness or
ability to allocate the financial burden of giving notice will deter-

mine whether or not the plaintiff can proceed with his action.' "^^

The issue of who should pay for notice is not settled by rule 23,
which says only that the court shall direct notice to be given. '*^

Still, the general rule is that the plaintiff must bear this burden,
for, after all, it is he who seeks, and presumably will obtain, the
benefits of the class action procedure. '"^^ Indeed, to require a de-

involving public utility corporations, in which the circumstances may be
such that the defendant may have to provide or pay for notice. Id. at 1009 n.5.

''*°/c2. at 1008. The cost of notice required by the district court was
$21,660 ($1,000 for individual notice, $20,660 for notice by publication).
52 F.R.D. at 267-68. Of this amount, the defendant was ordered to pay 90%
or $19,494. 54 F.R.D. at 573. It was estimated that individual notice to the
two million identifiable class members would have cost over $200,000. 52
F.R.D. at 260.

^4^52 F.R.D. at 269.

^"^^See Comment, Class Actions Under Federal Rule 23(h)(3)—The Notice
Requirement, 29 Md. L. Rev. 137, 156 (1969).

''''See Dolgow v. Anderson, 43 F.R.D. 472, 498 (E.D.N.Y. 1968).

^^^Fed. R. Civ. P. 23(c) (2). The plaintiff's ability to give notice is not

a prerequisite to maintaining a class action under 23(a) or (b). It may be
argued, however, that a representative's capacity to pay for notice is a factor

in his ability to adequately protect the interests of the class. See id. 23(a) (4).

'^^See Alameda Oil Co. v. Ideal Basic Indus., Inc., 326 F. Supp. 98 (D.

Colo. 1971); Cusick v. N.V. Nederlandsche Combinatie Voor Chem. Indus.,



390 INDIANA LAW REVIEW [Vol. 7:361

fendant to take the extraordinary step of paying for notice to the

class opposing him raises the equitable uncertainties inherent in
compelling a party to act against his own best interests. '"**

There are, however, recognized situations in which the courts

can exercise the power to assign the burden of notice costs to the
defendant, especially when the defendant is better able to bear the
expensed "^^ Dolgow v. Anderson^ ^^ is typical of the first cases which
have allocated costs in this mannerJ ^^ Ordinarily, such cases have
been stockholders* derivative actions, and the rationale for shifting
the notice cost burden, as stated in Dolgow, was based upon three
factors : the fiduciary duty owed to the plaintiffs by the corporate
defendants, the interest of the defendants in res judicata, and the
ability to bear the expense of notice.' ^° Later, courts not only re-

jected the rigid rule that the plaintiff must always bear all notice
costs, but went on to articulate a broader view of the various factors
involved in the allocation determination. In Berland v. Mack^^^ the

court set forth the following relevant factors: the merits of the

claim, the defendant's interests in res judicata, the number of
named plaintiffs, the financial capacity of the named plaintiffs, the

317 F. Supp. 1022 (E.D. Pa. 1970) ; Herbst v. Able, 47 F.R.D. 11 (S.D.N.Y.

1969); Richland v. Cheatham, 272 F. Supp. 148 (S.D.N.Y. 1967); 3B J.
Moore, Federal Practice f 23.55 (2d ed. 1969).

^''^One case, for example has stated that:

On the other hand, where as here the plaintiffs are numerous, un-
identified and have no relation to the defendant other than the pur-
chase of a manufactured good, the imposition cost isic^ of notice
on the defendant at an early stage of the case would be highly unfair

and raise serious questions of due process.

Cusick V. N.V. Neterlandsche Combinatie Voor Chem. Indus., 317 F. Supp.
1022, 1025 n.6 (E.D. Pa. 1970). See also Ward & Elliott, The Contents and
Mechanics of Rule 23 Notice, in The Class- Action—A Symposium^ 10 B.C.
IND. & Com. L. Rev. 557, 566 (1969).

^^^See Developments in the Law—Multiparty Litigation in the Federal
Courts, 71 Harv. L. Rev. 874, 938 (1958).

'^M3 F.R.D. 472 (E.D.N.Y. 1968). This case was a class action by stock-
holders against their corporation and its principal officers for manipulating

stock prices and misleading investors.

i^^See also Bragalini v. Biblowitz, CCH Fed. Sec. Law Rptr. 1192.537
. (S.D.N.Y. 1969) ; Berland v. Mack, 48 F.R.D. 121 (S.D.N.Y. 1969) ; Miller

V. Alexander Grant & Co., CCH Fed. Sec. Law Rptr. 1(93,287 (E.D.N.Y.
1971) ; Lamb v. United Sec. Life Co., CCH Fed. Sec. Law Rptr. If 93,489 (S.D.
Iowa 1972).

'^°43 F.R.D. at 498-500.

^^'48 F.R.D. 121 (S.D.N.Y. 1969).



1973] CONSUMER CLASS ACTIONS 391

size of the plaintiffs' claim relative to that of the entire class, the

ability of the plaintiff or plaintiffs to pay for the initial notice, and

the total cost of the required notice.^ ^^ Finally, in some recent class
actions, courts have required the defendants to pay either all or a
significant portion of the costs of notice even though the cases were
not stockholders' derivative suits. ^" In Ostapowicz v. Johnson

Bronze Co.'^'^ the court stressed the plaintiff's inability to pay and

the likelihood of his success upon the merits and concluded that the
costs should be apportioned equally betv/een the plaintiff and

defendant.

Still, the allocation of costs of notice to a defendant in the

normal adversarial situation is not easily justified. Some guidance
may be found in an analogy to preliminary injunctions which can
place significant burdens upon a defendant and thus also require
the close scrutiny of the courts which are asked to apply them.'^^
Similarly, a comparison might be drawn to discovery orders which
can, and often do, subject defendants to substantial expenditures/^*
Perhaps ultimately it would be advisable to leave the question of
notice cost allocation to the cautious discretion of the trial court

judge who is obviously in the best position to consider the real
hardships involved in each situation. ^^^ At any rate, it is clear

^"/d. at 132. See also Feder v. Harrington, 52 F.R.D. 178, 184 (S.D.N.Y.

1970) (Berland tests applied) ; Korn v. Franchard Corp., 50 F.R.D. 57,
60-61 (S.D.N.Y. 1970) (referred to Berland tests but found expense of notice
not sufficiently burdensome to relieve plaintiffs from defraying the costs).

'"5ee, e.g., Battle v. Municipal Housing Authority, 53 F.R.D. 423, 426
(S.D.N.Y. 1971) (class action under 23(b)(2) but requiring notice with

expense of preparation and mailing to be borne by defendant).

^^^54 F.R.D. 465 (W.D. Pa. 1972). The Ostapowicz court cited Eisen
V. Carlisle & Jacquelin, 52 F.R.D. 253 (S.D.N.Y. 1971). 54 F.R.D. at 466.

^^^The court of appeals viewed the preliminary injunction as a provisional

remedy utilized "to preserve the status quo" and rejected the district court's
analogy. 479 F.2d at 1014. However, such a limited conception of the pre-

liminary injunction has been criticized:

The concept status quo lacks sufficient stability to provide a satis-
factory foundation for judicial reasoning. The better course is to
consider directly how best to preserve or create a state of affairs in
which effective relief can be awarded to either party at the con-

clusion of the trial.

Developments in the Laiv—Injunctions, 78 Harv. L. Rev. 994, 1058 (1965).
^^^C/. Trans World Airlines, Inc. v. Hughes Tool Co., 449 F.2d 51 (2d

Cir. 1971), rev'd on other grounds, 409 U.S. 363 (1973) (discovery costing

several million dollars ordered).

i5 7pQj,. example, the court might look for the significance of such ironies

as a defendant who gratuitously offers to pay the entire cost of generating



392 INDIANA LAW REVIEW [Vol. 7:361

that this issue of cost allocation needs further examination and
certainly should not be dismissed without complete judicial con-

sideration.'^®

D. Preliminary Hearing on the Merits

As discussed earlier, the district court ordered and held a
preliminary hearing on the merits to better determine whether

shifting a portion of the costs of notice to the defendant would
be justified.'^^ The court of appeals rejected such a hearing because
it is "not authorized" by the rule and because the district court
had no jurisdiction "to pass on the merits."^ *° This holding is also
vulnerable to several compelling counterarguments. First, rule

23 does not, at any point, specifically preclude such a hearing;
and, if "authorization'' by the rule is indeed necessary, such
authority might be found under 23 (d).^^' It is submitted, how-
ever, that if nothing in the rule would prevent it, and such a hear-

ing is otherwise lawful and appropriate, then any lack of an ex-
plicit and specific requirement or express authorization in the rule

a list of thousands or millions of "identifiable" class members, yet who balks
at the "burdensome" cost of providing notice—especially when the former
cost is equal to or greater than the latter.

'^^Note also that the plaintiff in Eisen argued that to require a party

to pay for a notice which he simply cannot afford denies him access to relief
and thus may raise constitutional questions under Boddie v. Connecticut, 401
U.S. 371 (1971). Brief for Appellee at 20. The Boddie case involved the
application of a state's cost requirements to indigent welfare recipients

seeking a divorce. The Court did observe in that case that, "a cost require-
ment, valid on its face, may offend due process because it operates to fore-
close a particular party's opportunity to be heard." 401 U.S. at 380.

^^^52 F.R.D. at 270-72; 54 F.R.D. at 565.

^^°479 F.2d at 1015-16.

^^^Fed. R. Civ. P. 23(d). This section of the rule gives the court a broad

authority to make various orders in conducting class actions. In part, the rule
provides, "In the conduct of actions to which this rule applies, the court

may make appropriate orders . . . (3) imposing conditions on the repre-
sentative parties. . . ." Id. See Dolgow v. Anderson, 43 F.R.D. 472, 501

(E.D.N.Y. 1968); Advisory Comm. Note, 39 F.R.D. at 106-07. The con-
cluding sentence of this section of the rule provides that these "orders may
be combined with an order under Rule 16, and may be altered or amended
as may be desirable from time to time." Fed. R. Civ. P. 23(d). Rule 16
provides that "the court may in its discretion . . . direct the attorney for
the parties to appear before it for a conference to consider . . . such . . .

matters as may aid in the disposition of the action." Fed. R. Civ. P. 16(a).
Thus, arguably, these rules provide sufficient "authority" for the preliminary

hearing conducted by the trial court.



1973] CONSUMER CLASS ACTIONS 393

should not be interpreted as disallowing a procedure which would

aid the court in making necessary collateral determinations.

Most notably, however, in rejecting the district court's pre-
liminary hearing on the merits, the court of appeals relied upon
cases which are clearly distinguishable from the instant case. Each
of the those cases was concerned with use of the preliminary hear-
ing for the initial class action determination and not with the sub-
sequent question of who should bear the costs of notice once the
propriety of the class action has been established.'*^ The reasons
given by those courts for rejecting the preliminary hearings in the
situations before them have little or no application here. In deter-
mining whether a case may be maintained as a class action, the court
must see whether the prerequisites of rule 23(a) and (b) (3) are
met.^" The cases cited by the court of appeals correctly argue that
the rule 23 prerequisites do not require that the plaintiff demon-
strate the merit of his claim before his case can be considered

"maintainable" as a class action—so long as the court is con-
vinced that the complaint is not frivolous.'*^ Thus, those cases

recognized that a hearing on the merits, if used as a prede-

terminant to proceeding under rule 23, would be an additional
and unnecessary barrier to the maintenance of class actions.'*^
Since the courts can determine whether the rule's prerequisites

^"Miller v. Mackey Int'l, Inc., 452 F.2d 424 (5th Ch\ 1971); Kahan v.
Rosentiel, 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). The only case cited by the court of appeals
which might lend support to its rejection of the Eisen district court's use

of the preliminary hearing is Berland v. Mack, 48 F.R.D. 121 (S.D.N.Y. 1969).
The Berland court stated that such a hearing is "illusory." Id. at 132. How-
ever, it must be noted that first on the Berland court's list of factors to be

considered in allocating the cost of notice is "the apparent merit or lack

of merit in the claim." Id.

^^^See notes 23, 25 supra & accompanying text.

^*^3B J. Moore, Federal Practice ^ 23.45[3] (2d ed. 1969). See, e.g., Katz

V. Carte Blanche Corp., 52 F.R.D. 510, 513-14 (W.D. Pa. 1971). Similarly,

some preliminary showing of a defendant's freedom from wrongdoing is

"substantially irrelevant" in determining the maintainability of a class action.

Fogel V. Wolfgang, 47 F.R.D. 213, 218 (S.D.N.Y. 1969).

'"^'But see Milberg v. Western Pac. R.R., 51 F.R.D. 280 (S.D.N.Y. 1970),

appeal dismissed, 443 F.2d 1301 (2d Cir. 1971) ; Dolgow v. Anderson, 43

F.R.D. 472 (E.D.N.Y. 1968).



394 INDIANA LAW REVIEW [Vol. 7:361

have been met without resort to a preliminary hearing on the
merits, the use of such a procedural devise would be "redundant/""

The district court in Eisen applied the preliminary hearing on
the merits in an entirely different context/*^ In Eisen, the district
court had already determined that the case could be maintained
as a class action. The decision to hold a preliminary hearing on the
merits had absolutely nothing to do with determining the propriety
of the class action. The hearing used by Judge Tyler was strictly
limited to its stated purpose : **the allocation of the cost of notice."' *°

Such a hearing is not precluded by the reasoning of the cases cited
by the court of appeals.

The court of appeals may have been correct in stating that the
district court did not, at this time, have ^'jurisdiction to pass on the

merits of the case. . . .'"^"^ But as to the district court^s preliminary
hearing, that observation is irrelevant. The fact is, the district court
did not "pass" on the merits of this case. The district court looked
very closely at the merits to make an informed determination as
to the "likelihoods" involved, but did not pass on the merits.'

^°

Other aspects of the Second Circuit's rejection of this pre-

liminary hearing are similarly questionable. The court of appeals
said that the findings of such a hearing are arrived at without

appropriate safeguards and are extremely, and probably irre-

^^^Green v. Wolf Corp., 406 F.2d 291, 301-02 n.l5 (2d Cir. 1968).

^*^In fact, at least two of the cases cited by the court of appeals expressly
recognized the distinction between a preliminary hearing on the merits used

to determine whether a case is maintainable as a class action and such a

hearing used as a prelude to allocating the cost of notice. The principal case
relied upon by the court of appeals was Miller v. Mackey Int'l, Inc., 452 F.2d
424 (5th Cir. 1971), which stated:

those cases which approve the Dolgow procedure often do so in
on entirely different context, i.e. a hearing before assessing costs of

notice.

Id, at 429 n.5 (emphasis added). See also Katz v. Carte Blanche Corp., 52

F.R.D. 510, 513 (W.D. Pa. 1971). A later opinion in the Katz case may be
cited for support of a preliminary hearing as used in the- context of a pre-

liminary step to an apportionment of costs of notice. See Katz v. Carte

Blance Corp., 53 F.R.D. 539 (W.D. Pa. 1971), in which the court, in con-

cluding that the plaintiff must bear the initial cost of notice, observed that

"[a]s a result of an essentially evidentiary hearing, substantial evidence as

to the merits presently appears in the records." Id. at 546 n.l5.

'^^54 F.R.D. at 567.

169479 F 2d at 1016.

^^^See 54 F.R.D. at 571, in which the district court stated, "Plaintiff and

the class have established that they may likely carry their burden of producing



1973] CONSUMER CLASS ACTIONS 395

parably, prejudicial.'^^ But the court of appeals did not allege
that the preliminary hearing in this particular case was actually
unfair. The court simply made the statement that "in most cases"
such hearings will be prejudical.'^^ No reason was given as to why
it should be assumed that the district court is incapable of holding
a preliminary hearing on the merits which conforms to constitu-
tional standards of due process.' ^^ To say that such a hearing is
necessarily prejudicial is to say that the district court is incapable

of maintaining a consistently objective viewpoint through to the

completion of the trial on the merits.'^'*

V. Conclusions

If the Eisen case stands, its impact upon consumer class
actions will be devastating. Under this most recent Eisen opinion,
the consumer plaintiff simply cannot pursue the class action device
—he is closed out from every angle. If, for example, he can afford
to pay the formidable cost of even the most minimal notice re-
quirements, he will surely be unable to pay for notice to every
individual "identifiable" member of his massive class. If the
plaintiff can somehow clear the notice hurdle (if, for example, not
many of his class are "identifiable"), then the quietus of his class
action will be the inaccessibility of the fluid class recovery method
of distributing damages. The Second Circuit's latest Eisen opinion
has appropriately been labeled the "death knell" of consumer and
environmental class actions. '^^

evidence that the defendants fixed prices." Id. (emphasis added). See also
54 F.R.D. at 573 stating, "Plaintiff has excellent evidence that the Exchange
has not satisfied [its regulatory] duties." Id. (emphasis added).

^^'479 F.2d at 1015.

''Ud.

'^'Cf. Fuentes v. Shevin, 407 U.S. 67 (1972); Sniadach v. Family Fin.
Corp., 395 U.S. 337 (1969).

'^^The express purpose of the hearing held in Eisen was to aid the court
in its determination of allocating costs of notice. See 54 F.R.D. at 566. The
court stated quite clearly that its findings and conclusions were binding
"only" for that purpose, and further, that these findings would "not be con-
sidered to prejudice any party's right to introduce more evidence and proffer
further argument when the merits are reached for final determination." Id,
at 567 (emphasis added). More problems arise, however, when the ultimate
trial on the merits is before a jury. Serious steps would have to be taken
to help insure that the jury would not be prejudiced by the results of prior
hearing on the merits.

175479 F.2d at 1026 (Oakes, J., dissenting).



396 INDIANA LAW REVIEW [Vol. 7:361

But the Second Circuit has reached a doubtful result. This
opinion seems utterly inconsistent with the purpose and necessary
flexibility of amended rule 23. Even the Eisen court would agree
that one of the primary functions of a class action is the vindica-
tion of small claims which have legally actionable significance only

if taken as a group.^^* Yet, in this most recent opinion, the court
places a disturbing emphasis upon the smallness of the individual
claims involved.^ ^^ The precept that rule 23 must be given a liberal
interpretation has been affirmed so many times that it hardly needs
repeating.'^® The desire to protect "many small investors" was
part of the philosophy behind the revision of rule 23,'^' and the

new rule was designed to provide a "thoroughly flexible remedy."' ®°

This most recent Eisen opinion does not square with any of these
guidelines.

The class suit was an invention of equity'®' which resulted
from the "practical necessity" of allowing large groups with com-
mon interests to enforce their rights.'®^ In a case of this nature,
the fluid class recovery and the notice system outlined by the
district court present the best pratical method of benefiting the
class. The damage question in class actions must be approached
pragmatically, and the remedy must provide at least substantial
justice.'" Practicality must not outweigh constitutional rights,
but it must be remembered that class actions—and particularly
large consumer class actions—are fundamentally distinct from
ordinary adversary proceedings. Procedures which are fundamental

to normal litigation involving a single plaintiff and defendant may

'7^5ee 391 F.2d at 563, citing Escott v. Barchris Constr. Corp., 340 F.2d

731, 733 (2d Cir.), cert, denied, 382 U.S. 816 (1965). See also Ford,

Federal Rule 23: A Device for Aiding the Small Claimant, in The Class Action
—A Symposium, 10 B.C. Ind. & Com. L. Rev. 501 (1969).

)77See, e.g., 479 F.2d at 1010, 1017.

''^See, e.g., Schneider v. Electric Auto-Lite Co., 456 F.2d 366, 370 (6th

Cir. 1972) ; Korn v. Franchard Corp., 456 F.2d 1206, 1209 (2d Cir. 1972)

;

Arkansas Educ. Ass'n v. Board of Educ, 446 F.2d 763, 768 (8th Cir. 1971)

;

Kahan v. Rosenstiel, 424 F.2d 161, 169 (3d Cir.), cert, denied, 398 U.S. 950
(1970); 391 F.2d at 563.

'^^Korn V. Franchard Corp., 50 F.R.D. 57, 60 (S.D.N.Y. 1970).

^«°391 F.2d at 560.

^^^Hansberry v. Lee, 311 U.S. 32, 41 (1940).

^»2Montgomery Ward & Co. v. Langer, 168 F.2d 182, 187 (8th Cir. 1948).

^«=^Feit V. Leasco Data Processing Equip. Corp., 332 F. Supp. 544, 587

(E.D.N.Y. 1971).



1973] CONSUMER CLASS ACTIONS 397

be unnecessary or subject to appropriate modification in some
rule 23(b) (3) class actions/®"^ If an unreasonably rigid notice
requirement stops the expansion of class actions, then progress

toward protection of the public's rights will not have advanced
much beyond the old rule's nemesis of required intervention. In
addition, it must be pointed out that there is no preordained re-
quirement that the plaintiff must always pay the cost of notice
in these cases, and a preliminary hearing on the merits to help the

court make such a cost allocation determination may be appro-
priate, necessary, and authorized by rule 23.

The opponents of large class actions under rule 23 have been
vocal and effective. ^^^ These critics see such suits as tools of

harassment used to coerce defendants into large settlements which

benefit only the lawyers who handle the litigation. Consumer class
actions are characterized as unmanageable monstrosities which

are flooding the already overcrowded court dockets. '°^ The court
of appeals was obviously influenced by such arguments, for it
adopted the phrase describing these suits as "legalized black-

mail"'®^ and compared these class actions to "the old-fashioned

strike suits made famous a generation or two ago. . . ."'^^ But a
comparison of rule 23 class actions to strike suits is inaccurate.

A strike suit, which might be brought upon a frivolous claim, is
motivated by the desire for a coerced settlement. ^°' Rule 23 has

safeguards against such practices. First, the court can exercise

^^'^See Miller, Problems in Administering Relief in Class Actions Under
Federal Rule 23(h)(3), 54 F.R.D. 501, 507 (1972).

^^^See, e.g., Handler, Some Shifts from Substantive to Procedural Inno-
vations in Antitrust Suits—The Twenty-third Annual Antitrust Review,
71 COLUM. L. Rev. 1 (1971) ; Handler, Twenty-fourth Annual Antitrust Re-

view, 72 CoLUM. L. Rev. 1, 34-42 (1972) ; Simon, Class Actions—Useful Tool
or Engine of Destruction, 55 F.R.D. 375 (1972).

^^^But see Weinstein, The Class Action Is Not Abusive, 167 N.Y.L.J. 1

(May 1, 1972) & 1 (May 2, 1972) ; Hearings on Consumer Protection Act
of 1970, S. 3201, Before the Senate Cemm. on the Judiciary, 91st Cong., 2d

Sess. 212-17 (1970) (statement of Ralph Nader).

^^^479 F.2d at 1019, citing Handler, The Shift from Substantive to Pro-

cedural Innovations in Antitrust Suits—The Tiventy-third Annual Antitrust
Review, 71 CoLUM. L. Rev. 1, 9 (1971).

^^"^See Dole, The Settlement of Class Actions for Damages, 71 CoLUM.

L. Rev. 971, 974-75 (1971).



398 INDIANA LAW REVIEW [Vol. 7:361

its discretionary power to refuse to allow a frivolous class action.' '°

Secondly, the abuse of the "secret settlements" has been carefully

guarded against in subdivisions (d) (2) and (e) of rule 23. Under
23(d) (2), notice to class members of any step in the action can
be ordered, and 23(e) requires court approval of any settlement
and notice to all class members of dismissal or compromise.'"

The compelling reasons for sustaining the progress of rule
23 in this area must be weighed against the arguments of those
who oppose massive class actions. Foremost of these reasons is
the absence of a comparable, available remedy which offers the
flexibility and results attainable under rule 23. The Court of
Appeals for the Second Circuit had recognized earlier that re-
payment of wrongfully obtained profits could not be obtained
through any public administrative agency and that this * Responsi-
bility must ultimately rest on the judicial system.'"'^ Now the court
stresses that the SEC has exclusive jurisdiction to regulate rates.' '^

However, as other courts have pointed out, the SEC does not have
the primary responsibility for enforcement of competition."^ The
SEC lacks standing to commence antitrust suits, "^ and it certainly
cannot award damages or bring a class action.'^* Clearly, there
is a strong public policy in favor of private antitrust litigation,"^

and the injustice of allowing the wrongdoer to retain illegal profits
and of denying compensation to the aggrieved parties is obvious.

''°5ce Fed. R. Civ. P. 23(a), (b).

""'See, e.g., Rothman v. Gould, 52 F.R.D. 494 (S.D.N.Y. 1971) (requiring
notice to class of proposed settlement). It should also be noted that the

Federal Rules of Civil Procedure provide additional protection for defendants

against vexatious litigation, See Fed. R. Civ. P. 12 (motion to dismiss) ; id.

56 (motion for summary judgment) ; Miller v. Mackey Int'l, Inc., 452 F.2d
424, 428-29 (5th Cir. 1971).

'^^391 F.2d at 567 (emphasis added) ; see Comment, Recovery of Damages
in Class Actions, 32 U. Chi. L. Rev. 768, 785 (1965).

^"479 F.2d at 1011.

'^*Thill Sec. Corp. v. New York Stock Exch., 433 F.2d 264, 272 (7th
Cir. 1970), cert, denied, 401 U.S. 994 (1971).

'''^See Hawaii v. Standard Oil Co., 405 U.S. 251 (1972).

^'^54 F.R.D. at 573. The district court pointed out that "the Ck>mmission

has done all that it could do by requiring the Exchange to establish the Rule

which lowered the differential in 1966." Id.

^'^^See Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 131

(1969); United States v. Borden Co., 347 U.S. 514, 518 (1954); Monarch

Life Ins. Co. v. Loyal Protective Life Ins. Co., 326 F.2d 841, 845 (2d Cir.

1963), cert, denied, 376 U.S. 952 (1964).



1973] CONSUMER CLASS ACTIONS 399

The private class action is the only means of providing re-
payment of illegal profits when those profits result from small
individual wrongs perpetrated on the massive scale made possible
by a technological, industrial society. ''* Defendants characterize
such repayment as "confiscation" and judicial creation of a "pot
of gold."''' But if consumer fraud or price fixing is proven at trial,
would it be preferable to leave the illegally obtained "pot of gold"
in the corporate coffers ?^°° Without the private consumer class
action there will be little to deter those who would reap huge profits
by treading a "little" upon the rights of many. Public faith in our
judicial system requires that a forum be provided for the adjudica-
tion of such violations. The historic role of the courts has been to
find some means of compensating when a wrong has been done^°'
and, in so doing, to avoid letting lawbreakers retain the fruits of

their illegality.^°^

No doubt the critics are correct in claiming that these suits
have considerable in terrorem effect,^°^ but arguably that aspect

of the consumer class action provides a necessary deterrent—an
important supplement to law enforcement. ^^'^ If these private

actions can be maintained, they will provide a significant deterrent

to conduct proscribed by federal laws.^°^ The court of appeals has
argued that Congress should create "some public body" to handle

these problems f°^ however, since private actions already play such

'"^See Dolgow v. Anderson, 43 F.R.D. 472, 482-83 (E.D.N.Y. 1968).

^'^'^See, e.g., Simon, Class Actions—Useful Tool or Engine of Destruc-
tion, 55 F.R.D. 375, 383-84 (1972).

^°°See In Re Coordinated Pretrial Proceedings in Antibiotic Antitrust
Actions, 333 F. Supp. 278, 287 (S.D.N.Y. 1971).

=°'Biglo V. RKO Radio Pictures, Inc., 327 U.S. 251 (1946). The Supreme
Court declared that "[t]he constant tendency of the courts is to find some
way to which damages can be awarded where a wrong has been done." Id.
at 265, quoting from Story Parchment Co. v. Paterson Parchment Paper Co.,
282 U.S. 555, 565-66 (1931).

^°^See Hanover Shoe Co. v. United Shoe Mach. Corp., 392 U.S. 481, 494

(1968).

2°3See, e.g., 479 F.2d at 1019.

'^°'*See Pomerantz, New Developments in Class Actions—Has Their Death
Knell Been Sounded?, 25 Bus. Law. 1259, 1261 (1970).

'^°^See Miller, Prohletns in Adnn,inistering Judicial Relief hi Class Actions

under Federal Rule 23(b) (S), 54 F.R.D. 501, 508 (1972).

2°M79 F.2d at 1019.



400 INDIANA LAW REVIEW [Vol. 7:361

an important role in the legislative scheme of federal antitrust
and securities laws,^°^ Congress has already acted. Congressional
policy clearly favors private litigation for effective enforcement of

antitrust laws.^°® Again deferring to Congress, the opponents of
consumer class actions make the argument that the recoveries
involved are actually penalties, and only Congress should deter-
mine how such money is best spent.^°' However, under the doc-
trine of cy pres, the courts have long been recognized as being

capable of similar determinations.^
'°

All this is not to say that every consumer class action must
be allowed. Each case will necessarily turn on its own facts,^"
and certainly there will be some cases which are not manageable.
But the Eisen decision would prohibit virtually all large class
actions. Instead, because of the vital public interest involved in

class actions of this type, dismissal of an otherwise meritorious suit
for management reasons should be the exception rather than the
rule.^'^ Because of policy arguments favoring class actions, doubts

should be resolved in favor of their use,^^^ and, when the determ-
ination is close, courts should err in favor of the class suit.^''* It

should be noted that the rule itself provides some means which
the courts can utilize to avoid dismissal of class actions as unman-
ageable.^ ^^ One such alternative, which was completely ignored
by the Eisen court, is the possibility that the class could be divided

^°^See Esplin v. Hirschi, 402 F.2d 94 (10th Cir. 1968), cert, denied, 394

U.S. 928 (1969).

206"Congress has expressed its belief that private antitrust litigation is

one of the surest weapons for effective enforcement of the antitrust laws."

Minnesota Mining & Mfg. Co. v. N.J. Wood Finishing Co., 381 U.S. 311, 318
(1965).

^""^See 479 F.2d at 1019.

^^^See note 101 supra. See also Miller, Problems in Administering

Judicial Relief in Class Actions under Federal Rule 23(h)(3), 54 F.R.D. 501,

510 (1972).

2^^City of Philadelphia v. American Oil Co., 53 F.R.D. 45, 73 (D.N.J.

1971).

^^^See Manual for Complex Litigation 28 n.36 (West Pub. 1973).

^'^'Katz V. Carte Blanche Corp., 41 U.S.L.W. 2661 (3d Cir. May 22, 1973).

2i4Egpiin v^ Hirschi, 402 F.2d (10th Cir. 1968), cert, denied, 394 U.S.

928 (1969).

^^^See, e.g., Fed. R. Civ. P. 23(c)(4) which provides for the restruc-

turing of complex cases by dividing the class into subclasses.



1973] CONSUMER CLASS ACTIONS 401

into subclasses for easier management or even test litigation.^'*
The management of these cases presents an enormous chal-

lenge, demanding an imaginative, yet considered, response from
legal practitioners and the courts.^' ^ In some cases, the difficulties
v^ill be overwhelming,^'® but this result cannot be the foregone

conclusion v^hich the Second Circuit has now declared. Injured
parties should feel that they can rely upon our judicial system.
Indeed, in cases such as this, those who have been injured can turn
to no other viable alternative. Judge Oakes, who dissented from a
denial of rehearing in Eisen, referred to the court's suggestion that

the matter could be handled by some vague, future Congressional
remedy as "an abdication of judicial responsibility."^" There may
be an understandable reluctance to take on the burden of these

cases, but this indisposition should not result from the supposed
reason that the courts do not have the capability or skill to handle

^^^Id. See also 7A C. Wright & A. Miller, Federal Practice and
Procedure § 1790 (1972). The court in Green v. Wolf Corp., 406 F.2d 291
(2d Cir. 1968), appropriately summed up the consideration as follows:

In sum, we hold that this is a proper case for a class action. We
recommend to the district court that it make use of the freedom af-
forded it by Rule 23 to manage the litigation efficiently and fairly,
including the creation of any necessary subclasses. We recognize that
this might, in cases such as this, place additional burdens on judges
but the alternatives are either no recourse for thousands of stock-

holders to whom the courthouse would thus be out of bounds or a
multiplicity and scattering of suits with the inefficient administration
of litigation which follows in its wake.

Id. at 301.

^^^The freedom to allow these class actions does leave much to the dis-
cretion of the trial judge. Fears of any abuses which might result may,
however, be considerably allayed if orders permitting suits to proceed as

class actions are made appealable, as the Second Circuit has indicated such
orders should be. See 479 F.2d at 1007 n.l; note 20 supra.

^'^Although dismissal should be the exception, the following cases have

rejected class actions at least partly on the basis of manageability problems.

Schaffner v. Chemical Bank, 339 F. Supp. 329, 330 (S.D.N.Y. 1972) (re-

jecting class of "all persons and institutions who are or have been bene-
ficiaries of any trust or trusts of which defendant is trustee and for whose

account defendant executes securities transactions") ; City of Philadelphia

V. American Oil Co., 53 F.R.D. 45 (D.N.J. 1971) (rejecting class of all non-

governmental gasoline purchasers in Delaware, Pennsylvania, and New
Jersey); Hawaii v. Standard Oil Co., 301 F. Supp. 982 (D. Hawaii 1969),
rev'd, 431 F.2d 1282 (9th Cir. 1970), aff'd, 405 U.S. 251 (1972) (rejecting

class of all gasoline purchasers in Hawaii).

2'9479 F.2d at 1024 (Oakes, J., dissenting).



402 INDIANA LAW REVIEW [Vol. 7:361

such complex problems.^^° The courts do have the expertise—if they
lack the necessary funds or personnel, then these should be ex-

panded to meet the demands being made upon the judiciary by an
expanding society.

The most striking flaw in the arguments of the critics of large
class actions is the failure to suggest an available alternative
remedy.^^' In denying rehearing of the Eisen case, the judges of

the Second Circuit have stressed the likelihood that the Supreme
Court will hear this case under its certiorari jurisdiction.^^^ But
if the Eisen decision stands as it is now, the consumer has lost this
hoped-for remedy against monopolies and others whose technologi-
cal trangressions assume proportions large enough to affect mil-
lions. For such consumers, the procedural device of massive class
actions under rule 23 will be dead. If that is the case, the search

for a viable alternative remedy must immediately be given our
most urgent national attention.

David R. Kelly

^^°The handling of the Drug Cases clearly indicates that the courts have
the capability and expertise to deal with class action litigation of this kind.
See Hearings on the Consumer Protection Act of 1970, S. 3201, Before the
Senate Comm. on the Judiciary, 91st Cong., 2d Sess. 182-83 (1970) (statement
of Judge Alfred P. Murrah).

^^'The court of appeals in Eise^i has suggested that the injunctive relief

should be sought, but this falls short of what is needed. See 479 F.2d at 1020.
The wrongdoer will not be deterred when he knows that, even if his illegal
activity might be enjoined, he can, in any event, keep whatever ill-gotten

profits he has made. In addition, an injunction alone provides no financial

compensation to aggrieved parties.

222See note 94 supra.