Taking Mass from Class

"Class actions have sprouted and multiplied like the leaves of the green bay tree," groused Federal Appeals Judge Harold Medina in 1973. He had just heard one of the numerous appeals that have marked the course of the undisputed king of mass class actions: the complex lawsuit brought by New York Shoe Salesman Morton Eisen on behalf of all persons who had bought or sold odd lots of stock (less than 100 shares) on the New York Stock Exchange between 1962 and 1966. Last week, eight years after Eisen was first filed, the Supreme Court handed down a final ruling on the suit--and effectively defoliated Medina's bay tree. From now on, class actions on behalf of large numbers of plaintiffs who have each suffered similar small losses will have practically no chance of succeeding.

In his suit, Eisen claimed that the two brokerage firms then in control of odd-lot trading--Carlisle & Jacquelin and DeCoppet & Doremus--had engaged in illegal price-fixing that slightly increased the fee for each transaction. Eisen figured that he himself was only entitled to $70 in damages, but the total possible damage award to the likely 2 million other potential members of the class was estimated to be at least $7.8 million. Eisen's problem was to satisfy a judge that the huge, unwieldy group of odd-lot traders could be managed under precise rules authorized by Congress. Those rules were designed to ensure that all potential members of a class actually share the same interest. One key provision: each class member must be notified about the suit so that he may opt out or hire a lawyer to represent his viewpoint.

Bad Burden. With millions of possible Eisen members, it was little wonder that one judge pronounced the suit a "Frankenstein monster posing as a class action." Lower courts ruling on Eisen's suit did seek to interpret the rules as liberally as possible so that narrow technicalities would not derail an otherwise valid consumer claim. But the Supreme Court Justices last week concluded unanimously that the plaintiff had to give individual notice to "all class members who can be identified with reasonable effort." The requirement, said Justice Lewis Powell for the court, "is not a discretionary consideration to be waived in a particular case." Furthermore, said Powell, the plaintiff must bear the costs of notification.

The twin requirements impose a crushing burden. For Eisen, such costs could come to $272,000. If he were later to win, he could recover that expense as well as damages, but the initial outlay would have been prohibitive for a shoe salesman who makes $300 a week.

The ruling still leaves open the possibility of smaller class actions, in which there are fewer and more easily accessible members. But the complex legal issues involved in many class actions often mean lawyers' fees that only a large number of plaintiffs can afford. "In a sense," says Attorney Raymond Bonner of Public Citizens Litigation Group, "what's happened here is that it's better for business to cheat a million people out of a dollar each than to cheat one person out of $1 million." Which is to say that suits like Eisen's, which have attacked hotel overcharges, credit-card finance charges and preferential air-fare charges for youths, are now apparently out of the question for all but the very wealthy.

This file is automatically generated by a robot program, so viewer discretion is required.