Court Opinion

ID: 9463959
Source: CourtListenerOpinion
Date Created: 2023-08-04 23:21:27.186887+00
Date Added: 2024-06-11T17:38:23.129519
License: Public Domain

On rehearing en banc
Before KAUFMAN, Chief Judge, and HAYS, FEINBERG, MANSFIELD, MULLIGAN, OAKES, TIMBERS, GURFEIN, VAN GRAAFEILAND and MESKILL, Circuit Judges.
Appeal from an order of the United States District Court for the Southern District of New York, Griesa, J., holding the suit to be maintainable as a class action pursuant to Rule 23(b)(3), Fed.R.Civ.P., and directing the defendant mutual investment fund to cull names and addresses of class members from its computerized records. On rehearing en banc, the Court of Appeals held that the district court acted within its discretion in ordering defendant mutual fund to extract the names and addresses of class members at its own expense.
Affirmed.
MULLIGAN, VAN GRAAFEILAND and MESKILL, Circuit Judges, dissent.
HAYS, Circuit Judge:
Upon this rehearing en banc we are confronted with the novel question whether, under the Federal Rules of Civil Procedure, the district court was empowered to order a defendant at its own expense to cull from its computerized records the names and addresses of the members of the class represented by plaintiffs. We hold that the district court was possessed of discretion to require the production of the list which plaintiffs demand in order to meet their *647obligations under Rule 23(c)(2), Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974) (Eisen IV), of providing individualized notice to the members of the class. On the record before us, the district court did not abuse its discretion.
The defendant Oppenheimer Fund, Inc., which was required by the district court to produce the names and addresses of the members of the class, is an “open-end” investment company registered under the Investment Company Act of 1940, 15 U.S.C. §§ 80a-l et seq. Shares of the fund are sold to the public at prices reflecting the current value of the fund’s assets plus a service charge; shareholders of the fund are free to liquidate their interests by exchanging their shares for a sum determined to represent their proportionate share of the fund’s net assets. The roster of shareholders, who number well over 100,000, is of course constantly changing. It scarcely need be said that the computer plays an integral role in the operations of the fund; indeed, in the absence of computer technology, operations so vast and complex as those of the fund might well be impossible to conduct.
The defendant Oppenheimer Management Corporation is the investment adviser which manages the fund’s investment portfolio. All of the voting stock of the investment adviser is owned by the defendant Oppenheimer & Co. Individual defendants are directors of Oppenheimer Fund; some of the individual defendants, in addition to occupying directorships in the fund, are officers, directors, or partners of Oppenheimer & Co. or the Oppenheimer Management Corporation.
The plaintiffs are shareholders of the fund. The essence of their complaint is that defendants overvalued restricted securities purchased by the fund; the overvaluation of the fund’s assets is alleged in turn to have caused the inflation of the prices at which plaintiffs purchased shares in the fund and to have caused overpayments to the fund’s manager, defendant Oppenheimer Management Corporation, whose fees are computed as a percentage of the net asset value of the fund’s portfolio.
In their initial motion for class determination pursuant to Rule 23(c)(1), plaintiffs sought to represent all who purchased shares of the fund between March 28, 1968, and April 24,1970. After this Court’s holding in Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (2d Cir. 1973) (Eisen III), aff’d, 417 U.S. 156, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974) (Eisen IV), plaintiffs sought a redefinition of the class to exclude those who had sold their shares in the fund. Plaintiffs hoped thus to reduce the cost of the individualized notice to class members which Eisen III and Eisen IV required plaintiffs to bear, by including the notice in a regular mailing by the fund to its shareholders. At the time when plaintiffs requested the modified class determination, there were approximately 171,000 shareholders of the fund, 103,000 of whom had purchased their shares during the class period; those who had purchased during the class period and subsequently sold their shares — and thus would have been excluded from the class if plaintiffs’ proposed modification had been accepted — numbered some 18,000. The defendants opposed the class modification, preferring the broader class definition. By its order, the district court rejected plaintiffs’ proposed redefinition of the class and directed that notice be effected by a separate mailing to all class members. Thus to notify a class so defined will cost the plaintiffs $20,000, in comparison to the $5,000 expense which their proposed class definition and method of notice would have entailed. The district court, however, required the fund to shoulder the expense, about $16,000, of extracting from its computerized records the list of the names and addresses of the class members. Defendants appeal from the district court’s order insofar as it determined that the lawsuit was properly maintainable as a class action and that defendants should, at their own expense, provide the plaintiffs with the names and addresses of class members.
A panel of this Court determined that the district court’s order was appealable and *648that the litigation was manageable as a class action. 558 F.2d 642 (1976). We do not reconsider these aspects of the panel’s decision, and we limit our discussion to the question, answered in the negative by the panel, whether defendants were properly required to bear the cost of furnishing plaintiffs with the list of class members.
Eisen IV held that Rule 23(e)(2), reflecting constitutional principles of due process, see Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950), commands that “individual notice must be provided to those class members who are identifiable through reasonable effort.” 417 U.S. at 175, 94 S.Ct. at 2151. The Supreme Court further held in Eisen IV that the representative plaintiff was required to bear the cost of notice:
“In the absence of any support under Rule 23, petitioner’s effort to impose the cost of notice on respondents must fail. The usual rule is that a plaintiff must initially bear the cost of notice to the class. . . . [T]he plaintiff must pay for the cost of notice as part of the ordinary burden of financing his own suit.”
Id. at 178-79, 94 S.Ct. at 2153. The Court in Eisen IV had no occasion to consider which party would bear the cost of determining the names and addresses of those to whom the notice would be sent, because the plaintiff in Eisen, unlike the plaintiffs in the instant litigation, was unwilling to bear even the expense of printing and mailing the required notice.
Defendants argue that, since it is prerequisite to sending the notice mandated by Eisen IV that plaintiffs obtain the names and addresses of those to whom the notice will be sent, Eisen should govern the allocation of the cost of providing the information. We disagree. In Eisen, the plaintiff’s effort to impose the costs of notice upon the defendants failed “[i]n the absence of any support under Rule 23.” Here, Federal Rule of Civil Procedure 34 provides the basis for requiring the fund, at its own expense, to provide plaintiffs with discoverable information contained in its computerized records.
It hardly requires our extended discussion to establish that the information sought by plaintiffs as to the names and addresses of the members of the class is indeed within the broad scope of permissible discovery established by our Federal Rules. Under Rule 26, “[p]arties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action . . . .” Fed.R. Civ.P. 26(b)(1). The holding of Eisen IV itself 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 of the class members would of course be essential to the resolution of that issue. See Appleton Electric Co. v. Advance United Expressways, 494 F.2d 126, 138 (7th Cir. 1974); Brennan v. Midwestern United Life Ins. Co., 450 F.2d 999 (7th Cir. 1971), cert. denied, 405 U.S. 921, 92 S.Ct. 957, 30 L.Ed.2d 792 (1972).
Under Rule 34(a), plaintiffs were entitled “to inspect and copy, any designated documents (including . . . data compilations from which information can be obtained, translated, if necessary, by the respondent through detection devices into reasonably usable form) . . . .” Rule 34, therefore, provided ample basis for the district court’s order compelling the defendant fund to produce from its computerized records the discoverable information concerning the names and addresses of the class members. The 1970 amendments to the Federal Rules rendered Rule 34 specifically applicable to the discovery of computerized information:
“The inclusive description of ‘documents’ is revised to accord with changing technology. It makes clear that Rule 34 applies to electronic data compilations from which information can be obtained only with the use of detection devices, and that when the data can as a practical *649matter be made usable by the discovering party only through respondent’s devices, respondent may be required to use his devices to translate the data into usable form. In many instances, this means that respondent will have to supply a print-out of computer data.”
Advisory Committee Note, 48 F.R.D. 459, at 527 (1970).
Defendants argue, however, that because plaintiffs’ requests for computerized information require the fund to devise, at a cost in excess of $16,000, a special computer program to extract the names of the class members, plaintiffs should be required to bear the added expense. We acknowledge that Rule 34, coupled with Rule 26(c), allows the district court to shift the expense of special computer programming to the discovering party where the demand for information would impose upon the respondent “undue burden or expense”, but we hold that in the instant case the trial judge did not abuse his discretion in declining so to do.
Rule 33, which defendants contend would dictate a different result, is inapplicable. That Rule provides, in pertinent part:
“(c) Option to Produce Business Records. Where the answer to an interrogatory may be derived or ascertained from the business records of the party upon whom the interrogatory has been served or from an examination, audit or inspection of such business records, or from a compilation, abstract or summary based thereon, and the burden of deriving or ascertaining the answer is substantially the same for the party serving the interrogatory as for the party served, it is a sufficient answer to such interrogatory to specify the records from which the answer may be derived or ascertained and to afford to the party serving the interrogatory reasonable opportunity to examine, audit or inspect such records and to make copies, compilations, abstracts or summaries.”
It may well be that where ordinary business records are concerned Rule 33 would generally require that the discovering party bear the expense of data compilation unless for special reason the compilation can be undertaken only by the respondent.1 However, Rule 33(c) cannot derogate from the general command of Rule 34 that the respondent to a demand for computerized information produce a “reasonably usable” print-out of data contained in a computer’s memory. Unlike Rule 34, Rule 33 was not especially tailored to the discovery problems posed by contemporary computer technology.
Here, the demand for computerized information creates a necessity for special programming, entailing the substantial expenditure of $16,000 by the fund. Nonetheless, there is no warrant for applying an inflexible rule that the discovering party bear the expense. Computers, which in general make information more readily available, may occasionally make information more difficult to discover. Even where a party adapts his computer software strictly in accordance with legitimate business purposes, complex electronic processes may be required to extract information which might have been obtainable through a minimum of effort had different systems been used. If the information demanded is such as the respondent might reasonably have expected to be required to make available for public examination or for use in the judicial process, it seems not unfair to require production of the information albeit necessitating special programming. In this and other respects, computer technology presents discovery problems with which the courts have developed relatively little familiarity.
The Rules do not leave the courts without power to avoid a litigant’s unreasonable appropriation to himself of his opponent’s computer resources. “[T]he courts have ample power under Rule 26(c) to protect respondent against undue burden of expense, either by restricting discovery or re*650quiring that the discovering party pay costs.” Advisory Committee Note, supra, 48 F.R.D. at 527. See also Federal Judicial Center, Manual for Complex Litigation 12.715, at 152 (Tent. Draft July 21,1976); 8 C. Wright & A. Miller, Federal Practice and Procedure § 2218, at 658-59 (1970). However, the draftsmen of Rule 34 chose — wisely, in light of the relative judicial inexperience with the discovery problems posed by computer technology — not to burden discovery of computerized information with the more rigid principle of Rule 33(c). The existence of discretion pursuant to Rule 26(c) to reallocate the costs of discovery of computerized information in order to avoid abuse merely underlines the general rule: “The responding party who is required to prepare a printout or otherwise make the data reasonably usable for the discovering party must ordinarily bear the expense of doing this.” Id. at 659.2
The district court did not err in declining to exercise its discretion pursuant to Rule 26(c) to impose the costs of obtaining the computerized data upon the plaintiffs. Although compliance with the district court’s order entails an expenditure by the fund in excess of $16,000, we cannot say the burden thus imposed is unreasonable in light of the nature of the information sought and the extent and character of the fund’s business operations. Although an expense of $16,000 seems large in absolute terms, the cost of identifying the name and address of each present or former shareholder who is a member of the class is only thirteen cents. Considering the extent of the fund’s business therefore, the burden of compliance with the Rule 34 discovery demand is not excessive. There is no injustice in requiring one whose business is vast and complex to go to proportionately greater lengths to meet the law’s legitimate requirements for disclosure of business-related information than might be expected of one whose business is small and simple. Great corporations, for example, must expend millions to provide to the government information necessary to comply with internal revenue laws; an individual taxpayer may provide the required information at a cost to himself of a mere few dollars. It is scarcely unreasonable, moreover, to demand of a respondent that he employ his computer resources to provide discoverable information of a relatively simple nature where, as here, the respondent makes extensive use of computers in the operation of its business.
The order of the district court allocating the costs of discovery of the computerized names and addresses of the class members was not unreasonable, moreover, in light of the district court’s definition of the class. The plaintiffs sought to redefine the class to exclude former shareholders of the fund, so that the individualized notice mandated by Eisen IV could be inserted, at small expense, in one of the fund’s regular mailings. The defendants opposed the class redefinition and the proposed method of notice on the grounds, respectively, that the more restrictive class definition would exclude potential class members as to whom .the legal and factual issues would be similar to those raised by plaintiffs,3 and that the proposed notice to all the fund’s shareholders would prejudice the fund by notifying even those shareholders not involved in the *651litigation.4 The district court rejected plaintiffs’ proposed redefinition of the class. Plaintiffs, accordingly, are required to bear an expense of $20,000 to notify the class, in comparison to the $5,000 cost which plaintiffs had contemplated. But the district court declined to impose on plaintiffs the added cost of discovering the names and addresses of the class members, which cost was occasioned by the court’s agreement with defendant that the fund would have been harmed by the proposed class redefinition. The considerations advanced by the defendant in opposition to plaintiffs’ proposed class redefinition were undoubtedly entitled to some weight; still, they did not require the class definition ultimately accepted by the district court.5 See Eisen IV, 417 U.S. at 179 n. 16, 94 S.Ct. 2140, 40 L.Ed.2d 732 and Eisen III, 479 F.2d at 1023 (Oakes, J., dissenting from denial of rehearing en banc) (raising possibility that class may be divided into subclasses pursuant to Rule 23(c)(4) so as to minimize cost of notice borne by representative plaintiff). Cf. Esen III, 479 F.2d at 1009 n. 5 (suggesting that notice may be included in regular mailing by defendant to class members). As such, we are not disposed to hold that the district court’s refusal to impose on plaintiffs the cost of discovery of the computerized names and addresses was an abuse of its discretion. Indeed, the order of the district court accommodated the competing interests in a manner which was fair and imaginative.
We note, finally, that our affirmance of the district court’s order is without prejudice to a claim by the defendant fund for discretionary taxation of the cost of discovery against plaintiffs, should the plaintiffs ultimately lose. See 15 U.S.C. §§ 77k(e), 77000(e) and 78i(e); Fed.R.Civ. Pro. 54(d). If plaintiffs’ suit proves frivolous, their attorneys might be held liable for the cost of discovery which, defendant fund is now required to bear. 28 U.S.C. § 1927. Plaintiffs have represented that they are unwilling to bear the cost of discovery of the names and addresses of the class members. However, their present unwillingness to pay this cost does not immunize them from a judgment for costs, nor does it necessarily diminish the deterrent effect of such a judgment against a strike suit.6 The mere possibility that plaintiffs may prove to be judgment-proof does not affect our decision, since here, unlike in Eisen, there is a basis in the Federal Rules for imposition of the cost of discovery on the defendant fund. Cf. Eisen III, 479 F.2d at 1020 (Hays, J., concurring).
Affirmed.

. We intimate no view as to what the result in the instant case would be if Rule 33(c) were deemed applicable.

. Professors Wright and Miller note, “In many instances the peculiarities of computerized information actually will oblige the disclosing party to engage in fairly sophisticated electronic manipulation and analysis of the data in his computer system.” Id.

. Accordingly, defendants might have been bound by collateral estoppel if they lost on the merits, but, if the defendants won, they would not have been entitled to assert res judicata against the former shareholders who were not class members. Compare Neaderland v. Commissioner, 424 F.2d 639, 642 (2d Cir.), cert. denied, 400 U.S. 827, 91 S.Ct. 53, 27 L.Ed.2d 56 (1970) (collateral estoppel), with Saylor v. Lindsley, 391 F.2d 965, 968 (2d Cir. 1968) (res judicata).
On the other hand, the issues presented might have been somewhat different for those 'who had sole their shares than for those who were still shareholders; the members of the former group might not have been damaged by the alleged overvaluation of the fund’s net assets.

. However, under Rule 23(c)(2) the district court could have supervised the form of notice included in one of the fund’s regular mailings, so as to avoid undue prejudice to the fund. In any event, the fund has already notified its shareholders on many occasions of the penden-cy of this litigation.

. See notes 3-4 supra.

. The requirement that plaintiffs bear the $20,-000 expense of notifying the class is itself a formidable deterrent to frivolous litigation, for, if plaintiffs lose, they cannot recover their disbursements.