Opinion ID: 733378
Heading Depth: 3
Heading Rank: 2

Heading: Recovery From a Single Fund.

Text: 29 BHC's second major argument in support of federal jurisdiction is that the class members have a common and undivided interest in recovering from a fund, and that the total value of that fund should be used to determine whether the jurisdictional minimum has been reached. BHC bases this argument on its assertion that the plaintiffs seek[ ] disgorgement of all benefits of payments for order flow received by BHC, whether identifiable to a particular transaction or not. Appellee's Brief at 17 (emphasis in original). Because this right to disgorgement (BHC contends) necessarily depends on the theory that BHC breached a fiduciary duty to the class as a whole, the object of the plaintiffs' suit can only be to share in the[ ] fruits [of BHC's breach] based on the total amount of disgorgement, and not on the basis of individual plaintiffs' trades with BHC. Id. at 22 (emphasis added). BHC thus concludes that the claims to recover its order flow payments are held jointly by the plaintiffs, and the entire amount of the benefits ... [should] be considered for jurisdictional purposes. Id. at 17. 30 Preliminarily, BHC's reading of the complaint overstates the contentions and goals of the class. The complaint (1) alleges that plaintiff and the other members of the class are entitled to recover any monies paid as kickbacks or commercial bribes to BHC on customer transactions; and (2) seeks a judgment [r]equiring ... BHC to pay to plaintiff and the members of the class the amount of kickbacks and other inducements received from market makers for the execution of customer orders. Joint Appendix at 16, 20. While BHC views these passages as a specific claim that BHC disgorge all order flow payments that it received for all of its customer transactions, whether identifiable to a particular transaction or not, Appellee's Brief at 17, 19, we think this reading adds considerable gloss. The quoted sections of the complaint are not at all inconsistent with a collective demand by the class members for the disgorgement of order flow payments received in respect of their individual transactions, as accurately as that amount can be calculated. 10 31 Even if BHC's reading of the complaint were sound, the plaintiffs' claims still cannot be aggregated because the class members have no common and undivided interest in the fund of damages that they might receive. BHC's argument to the contrary rests almost entirely on the First Circuit's opinion in Berman v. Narragansett Racing Ass'n, 414 F.2d 311 (1st Cir.1969), which we think is inapposite. In Berman, a group of racehorse owners filed class actions to collect prize money allegedly owed to them by three race tracks under similar purse agreements. 414 F.2d at 312. The substantive issue was whether the race tracks, which had paid the winning horse owners 44.7% of the track's ticket sales proceeds, also owed them 44.7% of what the tracks took in as breakage--the small change that the tracks pocketed after rounding their bettors' payouts down to the lowest dime. Id. at 313. Reversing prior dismissals for lack of jurisdiction, the First Circuit held that the amount in controversy was the total amount of breakage sought by the plaintiffs as prize money, and not each plaintiff's individual share of it. Id. at 314-15, 317. The court held that the horse owners' interest in the money was common and undivided, and analogized their lawsuit to traditional common fund cases such as a shareholder's derivative action or a suit against a trustee by the distributees of an estate. Id. at 315. 32 BHC contends that, just as the fund as a whole was created to benefit either the tracks or the owners as an entity in Berman, the order flow payments in this case belong either to BHC or to the purported class as an entity because no individual customer transactions could generate the payments. But the crucial fact upon which Berman turned is that, under the disputed purse agreements in that case, no single plaintiff could claim an individual entitlement to any portion of the disputed prize money, because the agreements obligated the tracks to pay a certain percentage of their annual shares to the group of owners whose horses win purses. 414 F.2d at 313, 315 (emphasis added). The agreements create[d] no specific rights in any individual winner, but instead gave the owners an integrated right against the tracks. Id. at 315 n. 10. The First Circuit explicitly distinguished Berman from cases such as Oliver v. Alexander (cited in Shields v. Thomas, supra ), in which each plaintiff in a joint action sues on his own rights under his own separate contract. Id. at 315-16. 33 If the rationale of Berman is sound, it does not apply here, where Gilman alleges (and BHC does not for present purposes dispute) that BHC accepted order flow payments for handling securities transactions involving the class members' individual trading orders. BHC's argument--that its disgorgement of order flow payments would produce a common fund in which all class members would have a common and undivided interest--proceeds from the wrong point: the disgorgement of the payments to create the fund. Such a fund is created to facilitate the litigation process in virtually every class action, and has nothing necessarily to do with whether the plaintiffs shared a pre-existing (pre-litigation) interest in the subject of the litigation. 34 Under the classic common fund cases, what controls is the nature of the right asserted, not whether successful vindication of the right will lead to a single pool of money that will be allocated among the plaintiffs. See Pierson v. Source Perrier, S.A., 848 F.Supp. 1186, 1188 (E.D.Pa.1994) (rejecting a claim that the plaintiffs' request for disgorgement of profits ... creates a 'common and undivided interest,'  because [t]he proper focus should [ ] be upon the ... nature and value of the rights that [the plaintiffs] have asserted). To call any recovery that a class might win a fund to which the class plaintiffs are jointly entitled is merely added verbiage. There is no fund. The claim remains one on behalf of ... separate individuals for the damage suffered by each due to the alleged ... conduct of defendant.... Rock Drilling Local Union No. 17 v. Mason & Hanger Co., 217 F.2d 687, 695 (2d Cir.1954) (employees' allegation that union official's bribe-taking reduced their wages and impaired their working conditions was a series of separate and distinct claims that could not be aggregated to satisfy the amount in controversy). 35 In summary, BHC points to certain unitary characteristics of the plaintiffs' claims in order to avail itself of the common fund doctrine: the aggregation of the stock transactions on which order flow payments are made; the overall benefit that BHC derives from those payments (and that Gilman seeks to capture); and the single pot that would be created to receive and distribute damages. But these features of the case do not demonstrate a unitary claim; they merely reflect the problems of theory and proof in this case, and the named plaintiff's efforts to solve or plead around them. 36 Reliance on the aggregation of the transactions is Gilman's attempt to deal with the facts that (i) the benefit to BHC cannot be assigned to particular transactions or to activity in any single customer's account, and that (ii) any harm to plaintiffs is similarly elusive. Reliance on the device of a single pot from which the claimants would draw their damages is Gilman's effort to deal with the fact that damages (if any) cannot be proven or distributed on the basis of any single customer's transactions. It is of course commonplace to collect class action damages wholesale, put the proceeds in a single fund, and distribute the proceeds retail upon a showing of specific entitlement in accordance with the judgment. Thus, the aggregation of transactions and the pooling of damages are simply expedients of litigation and pleading that facilitate Gilman's efforts: (a) to show the existence of a duty to him and the other class members; (b) to demonstrate causation sufficient to justify reallocating the order flow payments from BHC to its customers; and (c) to collect damages for any or all of the claimants. 37 BHC's effort to aggregate the transactions and damages in this case fails to satisfy its burden of proof concerning the amount in controversy. 38