Class Quest for $70

A man who has been wronged can usually sue the fellow who did it to him. But what if a complicated legal fight is necessary to secure satisfaction, and its cost promises to be far more than the amount recovered? Sometimes in such cases, the only answer is a legal phenomenon called a class action--that is, a suit filed by the person wronged on behalf of himself and unnamed hundreds or thousands of others who can be classified with him as similarly wronged.

Class actions provide a way for the claims of many individuals to be settled at one time, eliminating repetitious litigation and providing an economical way to obtain redress since the legal fees can be taken from the total damages awarded. Such important cases as the school-desegregating Brown v. Board of Education and the one-man one-vote Reynolds v. Sims were both class actions. And the practice is now likely to grow more common. The reason is a 2-to-l decision by the U.S. Court of Appeals in New York City on what may be the largest class action ever brought to recover damages.

3,750,000 Parties. The suit was filed by a New York wholesale shoe salesman named Morton Eisen, who felt that he had been charged excessive brokerage fees for odd lots (less than 100 shares) of stock he had bought and sold. Nearly 99% of all U.S. odd-lot transactions go through two Wall Street firms, so Eisen had a convenient target for his suit. The firms were also vulnerable because the Securities and Exchange Commission had disclosed in 1963 that their virtual monopoly on odd-lot trading had led to abuses. Claiming that the abuses amounted to illegal price fixing, Eisen sued--to get back the princely sum of $70.

To spread out the legal costs of the suit, Eisen brought it as a class action on behalf of all investors who have dealt in odd lots between 1960 and 1966 (the period covered by the statute of limitations). Since huge numbers of investors deal in odd lots, the number of potential parties to Eisen's suit was an estimated 3,750,000.

New rules governing class actions have recently been adopted in the federal court system; under these rules all the potential claimants in a class action are bound by the results unless they make a timely request not to be included. Courts therefore take careful precautions to be sure that the individual in the case will adequately represent the general cause and that his interests clearly parallel those of the entire class. Eisen's case was the first major Court of Appeals test of the new rules, and the Second Circuit held that the district judge erred in refusing to accept Eisen's suit as a class action. In so doing, the court emphasized that the rules should be interpreted as liberally as possible. If the cause of action is apparently valid, said the court, an effort should be made to avoid throwing out the suit on narrow, technical grounds.

Liberal Interpretation. In general, the impact of the ruling will be to open the way for more and larger class actions. For Eisen, the decision improved chances of regaining his money--almost. The biggest obstacle remaining is that federal rules provide that adequate notice must be given to other members of the class so that they can protect their interests or opt out if they wish.

Since the sending of individual notices to even a fraction of the 3,750,000 would be a prohibitive task, that would seem to finish Eisen off. But again the Court of Appeals indicated that the requirement should be interpreted as liberally as possible. Eisen's lawyers will probably try to maintain that a newspaper ad would be sufficient, and the question will have to be argued at length before a district court. Eisen, who wants that $70, is pressing on.

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