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June 22, 1977


558 F.2d 636. 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.

En Banc. Kaufman, Chief Judge, and Hays, Feinberg, Mansfield, Mulligan, Oakes, Timbers, Gurfein, Van Graafeiland, and Meskill, Circuit Judges. Judges Mulligan, Van Graafeiland and Meskill dissent.

Author: Hays

On rehearing en banc

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 obligations under Rule 23(c)(2), Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 40 L. Ed. 2d 732, 94 S. Ct. 2140 (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. ยงยง 80a-1 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, 40 L. Ed. 2d 732, 94 S. Ct. 2140 (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 that the litigation was manageable as a class action. 558 F.2d 636 (2d Cir., 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(c)(2), reflecting constitutional principles of due process, see Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 94 L. Ed. 865, 70 S. Ct. 652 (1950), commands that "individual notice must be provided to those class members who are identifiable through reasonable effort." 417 U.S. at 175. 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. . . . The plaintiff must pay for the cost of notice as part of the ordinary burden of financing his own suit."

Id. at 178-79. 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 "in the absence of any support under Rule 23." Here, Federal Rule of Civil Procedure 34 provides the basis for ...

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