Oppenheimer Fund v. Sanders (2)

Citation: Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340 (1978).

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). 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,” plaintiff moved to redefine the class to include only those persons who purchased shares during the time span and still held those shares.

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.

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 bane, 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),

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), which protects parties from "undue burden and expense" in complying with discovery requests.

On certiorari, the United States Supreme Court reversed and remanded, holding, inter alia, that it was Fed.R.Civ.P., Rule 23(d), and not Rule 26 (b) (1), 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.”