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Richard D. Greenfield and Samuel Moshinsky, on Behalf Ofthemselves and All Others Similarly Situated v. Villager Industries, Inc., et al., Appeal of Dupont Gloreforgan Incorporated, One of the Class Ofplaintiffs Above-named, in No. 72-1998.appeal of Burnham & Company, Inc., an Interested Party Andapplicant in Its Own Behalf and in Behalf of Itscustomers and Accounts, in No. 72-1999
United States Court of Appeals, Third Circuit. - 483 F.2d 824
Argued April 23, 1973.Decided June 21, 1973.Rehearing Denied July 27, 1973
Charles M. Solomon, Fox, Rothschild, O'Brien & Frankel, Philadelphia, Pa., and Charles H. Miller, New York City, for appellants.
Aaron M. Fine, Philadelphia, Pa., for appellees.
Charles H. Miller, Michael H. Graham, Marshall, Bratter, Greene, Allison & Tucker, New York City, for Burnham & Co., Inc.
Before VAN DUSEN, ALDISERT and ROSENN, Circuit Judges.
ALDISERT, Circuit Judge.
This appeal presents the question whether the notice to prospective class members ordered by the district court was "the best notice practicable" under the class action rule 23(c)(2), F.R.Civ.P.
Appellants are registered owners of stock of Villager Industries, Inc., acquired during the years 1968 and 1969. Appellant Burnham is a New York investment banking and brokerage firm holding 22,972 shares of Villager common stock in street name for some 111 customers. Appellant du Pont is a brokerage corporation which, as a result of a recent merger with three other stock brokerage firms, holds 52,670 shares of Villager common stock in street names for 334 customers. Appellants were not formal parties to litigation brought by plaintiff-appellees, shareholders of Villager, against the defendant-appellees, Villager corporation and certain of its officers, directors and other shareholders. Burnham and du Pont present this appeal, contending that the district court failed to provide them with adequate notice of the hearing held on August 31, 1972, at which approval of a proposed settlement of the class action was obtained.
Plaintiffs instituted this action in federal district court, alleging that during the period January 1, 1968, to. December 31, 1969, defendants violated the federal securities laws in that they failed to disclose or misrepresented facts in prospectuses, registration statements, proxy materials, periodic reports, and releases filed with the Securities and Exchange Commission. Plaintiffs moved for a determination that the suit be maintained as a class action. However, not until nineteen months later, following settlement negotiations, did the district court order the suit to "proceed and be maintained as a class action" for settlement purposes only. The participating litigants also presented the district court with a proposed "notice to class members," the purpose of which was to inform absentee class members of the existence of the class action and the proposed settlement.1
In the case at bar, prospective class members were required to perform the affirmative of filing a verified claim
We are not unmindful that after seven years' experience with the 1966 amendments, thoughtful criticisms of the class action device under Rule 23(b), (c) are now emerging with increasing frequency from distinguished members of the federal judiciary who have had vast experience in this field. See Eisen v. Carlisle & Jacquelin, 479 F.2d 1005, 1018-1020 (2d Cir. 1973), "Class actions have sprawled and multiplied like the leaves of the green bay tree." Friendly, Federal Jurisdiction: A General View, Columbia University Press, at 120, "Something seems to have gone radically wrong with a well intentioned effort."
Experience teaches that it is counsel for the class representative and not the named parties, who direct and manage these actions. Every experienced federal judge knows that any statements to the contrary is sheer sophistry
For dangers associated with class action settlements, see, McGough and Lerach, Termination of Class Actions: The Judicial Role, 33 U.Pitt.L.Rev. 445 (1972)
See cases, McGough and Lerach, Ibid., at 463, n. 74
Zerkle v. Cleveland-Cliffs Iron Co., 52 F.R.D. 151 (S.D.N.Y.1971); Percodani v. Riker-Maxson Corp., 50 F.R.D. 473 (S.D.N.Y.1970); Norman v. McKee, 290 F.Supp. 29 (N.D.Cal.1968), aff'd, 431 F. 2d 769 (9th Cir. 1970); Roman v. Master Industries, Inc., CCH Fed.Sec.L.Rep. [1966-67 Transfer Binder] p91,806 (S.D. N.Y.1966); Neuwirth v. Allen, CCH Fed. Sec.L.Rep. [1961-64 Transfer Binder] p 91,324 (S.D.N.Y.), aff'd, 338 F.2d 2 (2d Cir. 1964)
For a complete exposition of the notice requirements of Rule 23 and related issues, see generally Symposium, Federal Rule 23-The Class Action, 10 B.C.Ind. & Com.L.Rev. 497 (1969). See especially Ward & Elliott, The Contents and Mechanics of Rule 23 Notice, 10 B.C.Ind. & Com.L.R.ev. 557 (1969)