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Oppenheimer Fund v. Sanders (2)

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Citation Edit

Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340 (1978) (full-text).

Factual Background Edit

Sanders and others brought a class action under Fed. R. Civ. P., Rule 23(b)(3), on behalf of themselves and a class of purchasers against the Oppenheimer Fund, Inc. ("Fund"), the corporation managing its investment portfolio, and a brokerage firm. The complaint alleged, inter alia, that the defendants, other than the Fund, had violated federal securities laws by issuing or causing to be issued misleading prospectuses and annual reports about the Fund. Recovery was requested in the amount by which Fund shares had been overvalued.

Plaintiffs sought to require the Fund's transfer agent to compile a list of names and addresses of all members of the class, so that notice could be sent as required by Fed. R. Civ. P., Rule 23(e)(2).[1] The proposed class, consisting of all persons who had acquired shares during a particular time span, numbered approximately 121,000 persons of whom approximately 103,000 still held shares.

Deposition testimony of the transfer agents' employees indicated that compilation of the requested list would entail manual sorting of a great many records, keypunching 150,000 to 300,000 computer cards, and creating several new computer programs. The cost of this compilation was estimated at $16,000.

In light of this information (and the possibility of plaintiffs' responsibility for the cost, based upon the decision of the court of appeals in Eisen v. Carlisle & Jacquelin,[2] plaintiff moved to redefine the class to include only those persons who purchased shares during the time span and still held those shares.

Trial Court Proceedings Edit

The district court agreed with the defendants' objection that this would arbitrarily exclude 18,000 former Fund shareholders. The Court also rejected plaintiff’s proposal that notice be included in a regular fund mailing, since it would also reach 68,000 shareholders who were not class members, with possible ill effects on the Fund. The district court did hold, however, that the cost of compiling the list of class members was the responsibility of the defendants.

Appellate Court Proceedings Edit

A divided panel of the court of appeals reversed the order of the district court insofar as it required the defendants to bear the cost of the compilation, holding that the identification of class members is an integral step in notifying them, and that this responsibility was to be borne by the plaintiff. On rehearing en banc, however, the court of appeals reversed the panel, holding that plaintiffs could obtain the names through the federal discovery rules, and that the district court had not abused its discretion under Fed. R. Civ. P., Rule 26(c).[3]

If the motion for a protective order is denied in whole or in part, the court may, on such terms and conditions as are just, order that any party or person provide or permit discovery. The provisions of Rule 37(a)(4) apply to the award of expenses incurred in relation to the motion.

Fed. R. Civ. P. 26(c) protects parties from "undue burden and expense" in complying with discovery requests.

U.S. Supreme Court Proceedings Edit

On certiorari, the U.S. Supreme Court reversed and remanded, holding, inter alia, that it was Fed.R.Civ.P., Rule 23(d),[4] and not Rule 26(b)(1),[5] that empowered the district court to direct the defendants to help representative plaintiffs compile a list of class members. The Court also held that the district court had acted within its authority under Rule 23(d) in requiring the defendants to assist in the identification of class members, since the only means of identification was by reference to the records kept by the transfer agent, and the defendants apparently had control of those records.

The Supreme Court found, however, that the district court had abused its discretion by requiring the defendants to bear the expense of the transfer agent's compilation. The Court reasoned that when the burden of extracting information from a defendant's computerized records is substantially the same for either party, the plaintiffs should bear the expense of programming, since it is the plaintiffs who seek to maintain the suit as a class action. When there is significant cost in extracting the information from the defendant's computerized records, the proper test whether the cost is "substantial," not whether it is modest in relation to a party's ability to pay. The Court found the estimated $16,000 cost "substantial" and ruled for the defendants, stating that ". . . we do not think a defendant should be penalized for not maintaining his records in the form most convenient to some potential future litigants whose identity and perceived needs could not have been anticipated.”[6]

ReferencesEdit

  1. “In any class action maintained under subdivision (b)(3), the court shall direct to the members of the class the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.” Fed. R. Civ. P. 23(c)(2).
  2. 479 F.2d 1005 (2d Cir. 1973)(full-text).
  3. ”Upon motion by a party or by the person from whom discovery is sought, and for good cause shown, the court in which the action is pending or alternatively, on matters relating to a deposition, the court in the district where the deposition is to be taken may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense, including one or more of the following: (1) that the discovery not be had; (2) that the discovery may be had only on specified terms and conditions, including a designation of the time or place; (3) that the discovery may be had only by a method of discovery other than that selected by the party seeking discovery; (4) that certain matters not be inquired into, or that the scope of the discovery be limited to certain matters; (5) that discovery be conducted with no one present except persons designated by the court; (6) that a deposition after being sealed be opened only by order of the court; (7) that a trade secret or other confidential research, development, or commercial information not be disclosed or be disclosed only in a designated way; (8) that the parties simultaneously file specified documents or information enclosed in sealed envelopes to be opened as directed by the court. Fed. R. Civ. P., Rule 26(c).
  4. “ In the conduct of actions to which this rule applies, the court may make appropriate orders: (1) determining the course of proceedings or prescribing measures to prevent undue repetition or complication in the presentation of evidence or argument; (2) requiring, for the protection of the members of the class or otherwise for the fair conduct of the action, that notice be given in such manner as the court may direct to some or all of the members of any step in the action, or of the proposed extent of the judgment, or of the opportunity of members to signify whether they consider the representation fair and adequate, to intervene and present claims or defenses, or otherwise to come into the action; (3) imposing conditions on the representative parties or on intervenors; (4) requiring that the pleadings be amended to eliminate therefrom allegations as to representation of absent persons, and that the action proceed accordingly; (5) dealing with similar procedural matters. The orders may be combined with an order under Rule 16, and may be altered or amended as may be desirable from time to time.” Fed. R. Civ. P. 23(d).
  5. “Unless otherwise limited by order of the court in accordance with these rules, the scope of discovery is as follows:
    (1) In General. Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.” Fed. R. Civ. P. 26(b)(1).
  6. 437 U.S. at 363.

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