Court Opinion

ID: 9463960
Source: CourtListenerOpinion
Date Created: 2023-08-04 23:21:27.191869+00
Date Added: 2024-06-11T17:38:23.134245
License: Public Domain

MULLIGAN, Circuit Judge
(dissenting):
Ironically enough, the majority states that its holding is compelled by Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974) (Eisen IV) and Rule 23(c)(2) although the Court in that case construed the rule to require the representative plaintiffs to pay the costs of notifying the prospective class of the pending action. The majority reaches this result by finding that the plaintiffs, who admittedly are only seeking the list of names and addresses of the potential plaintiff class in order to notify them of the pending action, are seeking instead a discovery which makes the cost allocable to the defendants in the discretion of the district court thus circumventing Rule 23 and Eisen IV. The majority then proceeds to find no abuse of discretion by the district court in foisting the special computer programming cost upon the defendant fund. Since the only purpose of obtaining the required information is to notify the class as mandated by Rule 23, Eisen IV compels the conclusion *652that the cost of such notification be borne initially, at least, by the plaintiffs. The majority forces the defendant to subsidize the suit against it, a result which is aberrant to our jurisprudence and to the extent that it depends upon the premise that the defendant has greater financial resources is further in conflict with Eisen IV. In sum, we believe Judge Palmieri’s opinion for the panel properly disposed of the issue now before us en banc.1
I
In Eisen IV the Court stated, “The usual rule is that a plaintiff must initially bear the cost of notice to the class.” Id. at 178, 94 S.Ct. at 2153. The majority does not claim that this case falls outside the usual rule.2 Instead, the majority has decided that obtaining the names and addresses of the prospective class is not part of the notification process mandated by Rule 23(c)(2) but is rather within a discovery process governed by an amalgam of Rules 26(b)(1) and 34. As a matter of logic this is bewildering. The only purpose of the plaintiffs here in obtaining the data is to notify the class; it is an essential and unavoidable step in the notice giving process. As Judge Palmieri observed “the cost of obtaining the name and address to be affixed to the envelope does not differ in kind from the cost of printing the notice and of procuring, stuffing and posting the envelopes.” At 642. The majority now creates in effect a bicephalous rule which is anomalous. The cost of printing, stuffing and postage of the notice must be borne by the plaintiffs but the cost of obtaining the names and addresses to put on the envelopes may be thrust upon the defendants in the discretion of the trial bench. As Eisen IV held, “the plaintiff must pay for the cost of notice as part of the ordinary burden of financing his own suit.” 417 U.S. at 179, 94 S.Ct. at 2153. We cannot appreciate how it can be reasonably held that the expense incurred in producing the list of addresses is distinguishable from the expense of preparing and mailing the notice.
The majority cites no authority at all for its novel position except to claim that the result is mandated by Rule 23 and Eisen IV. But Rule 23(c) requires the district court to direct “the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.” (Emphasis supplied). This language would clearly indicate that the draftsmen of the rule made no distinction between the identification of the class and the notification of individual members. Notification posits identification which is an inseparable part of the process.
How then does Eisen IV compel a result which seemingly contradicts its holding? This is the crucial point in the majority holding since it is the basis for the determination that the discovery Rule 34 is applicable and not Rule 23. The majority finds that it “hardly requires our extended discussion” to establish that the list sought is within the scope of permissible discovery established by the rules. Its reasoning is as follows:
Under Rule 26(b), “[pjarties may obtain discovery regarding any matter . relevant to the subject matter involved in the pending action . . . .” Fed.R. Civ.P. 26(b)(1). The holding of Eisen IV *653itself propels us ineluctably to the conclusion that the names and addresses of class members are “relevant to the subject matter” of a class action. By mandating that a representative plaintiff in a class suit send individualized notice to the members of his class, Eisen raises as a potential issue in all such litigation whether the required notice has properly been sent. A list of the names and addresses would of course be essential to the resolution of that issue.
This is an exercise in sophistry and not syllogistic reasoning. No one questions that Rule 23 mandates that the plaintiffs have the obligation to notify the class and the majority in that part of the opinion we have excerpted admits that a list of the names and addresses is an essential step in the required notification. How then can it avoid the holding of Eisen IV that such costs must be assumed by the plaintiffs? The deus ex machina employed is discovery under Rule 34. We do not maintain that discovery in class action cases is limited to the search for evidence or leads relevant to the substantive merits of the underlying controversy. It properly may encompass inquiry to determine whether class action requirements can be satisfied.3 However, that was not the purpose of the plaintiffs here. The district court has certified the class and found that the action was properly maintainable as a class action. The panel unanimously agreed and no one in the en banc panel disagrees. There is no issue as to numerosity or a predominance of common questions of law or fact. The plaintiffs have never sought discovery relief under Rule 34. In the memoranda submitted by the plaintiffs to Judge Griesa prior to his opinion below there is no mention of Rule 34. Judge Griesa expressly and correctly perceived the issue as being “who is to bear certain expenses connected with the giving of notice.” Sanders v. Levy, 69 Civ. 1242, Slip op. at 2 (S.D.N.Y. May 15, 1975).
No party here, certainly not the plaintiffs, is seeking “discovery” as a method of determining whether notice has “properly” been sent. Plaintiffs are not anticipating potential issues and seeking discovery to maintain a position. They were avowedly and quite simply seeking the list to notify the class under Rule 23. Should any issue arise as to “proper notification”, e. g., was the list complete, was the notice appropriate, was the postage adequate, presumably it would be raised by a putative member of the class but not in limine by the plaintiffs who are required to notify and pay the costs of notification under Eisen IV.
The raw tape data from which the proper list can be ascertained is fully available to the plaintiffs. The only issue is who is to pay the expense of the special programming necessary to make it usable. The names and addresses which will be so produced will be equally accurate no matter who pays the cost. Since the obligation of proper notification is admittedly on the plaintiffs we cannot understand by what alchemy the majority decides that the cost becomes attributable to the defendant. We can only conclude that the majority while purporting to follow Eisen IV is in fact flouting its holding.4
II
Having decided that the notification required by Rule 23 has been somehow transmogrified by Eisen IV into a discovery procedure not governed by Rule 23, the majority proceeds to find no abuse of discretion in requiring the defendant fund to *654finance the suit against it, by relying on two factors which it finds persuasive. In rejecting the “inflexible” rule espoused by the Supreme Court, the majority then proceeds to impose its own by holding that there is no injustice in requiring one whose business is vast and complex to pay the substantial costs involved, while suggesting that the result might be different if the defendant’s business was small and simple. But class actions for damages are invariably' brought against those who are relatively opulent and affluent in comparison with the plaintiffs. This is inherent in the theory of the action. The impecunious or those of modest means are seldom if ever the target of such damage actions. The deeper pocket is invariably in the trousers of the defendant. This consideration moreover was expressly rejected in Eisen IV where the Court stated, “There is nothing in Rule 23 to suggest that the notice requirements can be tailored to fit the pocketbooks of particular plaintiffs.” 417 U.S. at 176, 94 S.Ct. at 2152. The majority’s attempt to transmute notification into discovery, as we have indicated, is totally unpersuasive.
The labored reasoning of the majority becomes evident in the analogy it draws. The majority argues that great corporations must expend millions to provide the government with information necessary to comply with the internal revenue laws. The information thus sought, however, is to determine whether there has been any violation of those laws and the retention of such records and data is imposed by those laws. But what law demands that the defendant maintain lists of past and present customers who might in the future band together to sue the corporation in some class whose perimeters will be fixed by the accidents and exigencies of possible litigation? There is no question that the information sought here has nothing to do with the merits of the underlying action. Nor is it relevant to determine whether the class action is properly maintainable. It is sought simply for notification purposes and not discovery in any sense in which that process has ever been defined. Moreover, the data is available if the plaintiffs are willing to assume the burdens, as well as the benefits, of the class action they have initiated. To require corporate defendants to so arrange their computer programming as to anticipate the endless variety of prospective classes which might some day bring class actions is, of course, unrealistic and not required by any law we know of until this decision which hopefully will be short lived.
The second consideration stressed by the majority is that when the plaintiffs sought to redefine by excluding some 18,000 investors the class they had initially selected, the defendants opposed the attempt. This resulted in a higher cost than would have resulted if the plaintiffs had been successful in reducing the class. Thus as the majority seems to view the matter, the defendant fund has somehow brought the burden of spending $16,580 at 1973 levels upon its own head. But the district court found that the exclusion of the 18,000 “would involve an arbitrary reduction in the class,” since these people “logically belong in the class.” Sanders v. Levy, 69 Civ. 1242, Slip op. at 7, 10 (S.D.N.Y. May 15, 1975). The determination of the scope of the class was on the merits. We cannot agree that by opposing an improper class a defendant thus becomes liable for any increased costs of notification. The class cannot become proper only if the defendant bears the costs of notifying the members. If this is to be the law the opportunities for abuse become obvious.5
*655The majority is not totally insensitive to the obvious inequity of requiring the defendant to finance the class action brought against it. It suggests that if the plaintiffs ultimately lose discretionary costs “might” be assessed against them. But this is unrealistic. The plaintiffs have consistently maintained that they cannot afford to pay the $16,580 costs entailed. Their average stake in the litigation is in the range of $2 to $24. The prospect of the defendant obtaining reimbursement is dim indeed. The further suggestion that the costs may be recouped from counsel to the plaintiffs is admitted only as a possibility if the suit is found to be frivolous. If it is simply unsuccessful on the merits there is no hope at all of reimbursement. On the other hand, if the plaintiff class is successful there is no question that the prevailing parties will be entitled to costs, Fed.R.Civ.P. 54(a). Cost transference at this stage of the litigation therefore is hardly justified by the highly doubtful recoupment possibilities envisaged by the majority in derogation of the normal principles reiterated in Eisen IV6
Although responsible commentators have indicated that class actions for damages have in fact become a financial bonanza only for the attorneys and not for members of the class and have, in effect, converted the federal courts into small claims courts,7 a burden not inconsiderable in days of overcrowded calendars and apparently not alleviated by Eisen IV, see notes 5 & 6 supra, we do not rest our decision at all on that basis. Nor do we rest it on our recognition which is implicitly shared by the majority that strike suits may be encouraged by the added prospect of obtaining settlements of non-meritorious claims because of the increased cost of defending them. Rather we base our dissent on the ground that the costs involved here are unquestionably costs of notification which must be borne by the plaintiffs under Rule 23 and therefore are clearly within the rule of Eisen IV. The strained attempt to convert notification into Rule 34 discovery is conceptually unsound and unprecedented. We would therefore adhere to the well-reasoned opinion of Judge raimieri for the panel.

. Hon. Edmund L. Palmieri, United States District Judge for the Southern District of New York, sat by designation on the original panel and was the author of the majority decision. At 636 (2d Cir., June 30, 1976). Fed.R.App.P. 35, which provides for en bancs, makes no allowance for the participation of members of the original panel who are not judges of the Court of Appeals. Thus, Judge Palmieri has not participated in this en banc consideration.

. In Eisen IV the Court noted that the district court in allocating the cost of notification between the parties had relied on cases where a fiduciary duty had pre-existed between the plaintiff and the defendant. While finding none in Eisen IV the Court expressed no opinion as to whether the usual rule would be followed in such cases. 417 U.S. at 178 n. 15, 94 S.Ct. 2140. Plaintiffs had argued before the panel that they were in a fiduciary position with the defendants and that therefore the possible loophole in Eisen IV applied. Judge Hays, dissenting in the panel opinion, espoused that position but it has been understandably abandoned in the en banc majority opinion.

. See Annot., Discovery for Purposes of Determining Whether Class Action Requirements Under Rule 23(a) & (b) of Federal Rules of Civil Procedure Are Satisfied, 24 A.L.R. Fed. 872 (1975). Here, of course, it has already been determined that the requirements for the class action have been satisfied.

. We note that in Eisen IV the petitioner’s brief argued, “Subjecting Respondents to the cost of notice does not differ in effect from requiring parties to make substantial expenditures to comply with discovery orders . . . .” Petitioner’s brief at 40 — 41. The same argument was advanced on oral argument before the Supreme Court, 42 U.S.L.W. 3493. The Court did not even dignify this argument by any discussion in its opinion.

. The majority does not make clear what weight the district court is to attribute to either the wealth factor or the opposition-by-defendant-to-size-of-class factor in determining who should bear the cost. Is one factor sufficient or must both be present? It does seem clear that the court is limiting its holding to those cases involving computer technology and Rule 34 and not business records under Rule 33. We expect that until the Supreme Court intervenes, this court will be asked to further rule on this issue. The burden is not inconsiderable. There were 176 class actions filed in the Southern District of New York alone in fiscal 1976 and at the end of fiscal 1976, 408 class actions were pending in that district. There were 724 pending at that time in all the districts of this Circuit. Total filings of class actions in United States courts increased from 2,717 in 1974 to 3,584 in 1976 with 5,987 pending at the end of *655fiscal 1976. Administrative Office of the United States Courts, 1976 Annual Repfcrt of the Director 117-24.

. The imposition of the cost of giving notice upon the plaintiff has apparently not proved any great hindrance to class actions. See Note, The Rule 23(b)(3) Class Action: An Empirical Study, 62 Geo.L.J. 1123, 1145^48 (1974); Developments in the Law — Class Actions, 89 Harv.L.Rev. 1319, 1434 n.223 (1976) as well as the statistics set forth in note 5 supra.

. Free World Foreign Cars, Inc. v. Alfa Romeo, S.p.A., 55 F.R.D. 26, 30 (S.D.N.Y. 1970) (Weinfeld, J.); H. Friendly, Federal Jurisdiction: A General View 119-20 (1973). In this action the interests of the class members, as we have indicated, range from $2.00 to $24.00.