PARKLANE HOSIERY Co., Inc., et al. v.

SHORE
U.S. Supreme Court
439 U.S. 322 (1979)

Mr. Justice STEWART delivered the opinion of the Court.

[I] This case presents the question whether a party who has had issues of fact
adjudicated adversely to it in an equitable action may be collaterally estopped from
relitigating the same issues before a jury in a subsequent legal action brought against it by
a new party.
[P] The respondent brought this stockholder's class action against the petitioners
in a Federal District Court. The complaint alleged that the petitioners, Parklane Hosiery
Co., Inc. (Parklane), and 13 of its officers, directors, and stockholders, had issued a
materially false and misleading proxy statement in connection with a merger.1 The proxy
statement, according to the complaint, had violated §§ 14 (a), 10 (b), and 20 (a) of the
Securities Exchange Act of 1934, 48 Stat. 895, 891, 899, as amended, 15 U.S.C. §§ 78n
(a), 78j (b), and 78t (a), as well as various rules and regulations promulgated by the
Securities and Exchange Commission (SEC). The complaint sought damages, rescission
of the merger, and recovery of costs.
Before this action came to trial, the SEC filed suit against the same defendants in
the Federal District Court, alleging that the proxy statement that had been issued by
Parklane was materially false and misleading in essentially the same respects as those
that had been alleged in the respondent's complaint. Injunctive relief was requested.
After a 4-day trial, the District Court found that the proxy statement was materially false
and misleading in the respects alleged, and entered a declaratory judgment to that effect.
SEC v. Parklane Hosiery Co., 422 F.Supp. 477. The Court of Appeals for the Second
Circuit affirmed this judgment. 558 F.2d 1083.
The respondent in the present case then moved for partial summary judgment
against the petitioners, asserting that the petitioners were collaterally estopped from
relitigating the issues that had been resolved against them in the action brought by the
SEC.2 The District Court denied the motion on the ground that such an application of
collateral estoppel would deny the petitioners their Seventh Amendment right to a jury
1
The amended complaint alleged that the proxy statement that had been issued to the
stockholders was false and misleading because it failed to disclose: (1) that the president
of Parklane would financially benefit as a result of the company's going private; (2)
certain ongoing negotiations that could have resulted in financial benefit to Parklane; and
(3) that the appraisal of the fair value of Parklane stock was based on insufficient
information to be accurate.
2
A private plaintiff in an action under the proxy rules is not entitled to relief simply by
demonstrating that the proxy solicitation was materially false and misleading. The
plaintiff must also show that he was injured and prove damages. Mills v. Electric Auto-
Lite Co., 396 U.S. 375, 386-390. Since the SEC action was limited to a determination of
whether the proxy statement contained materially false and misleading information, the
respondent conceded that he would still have to prove these other elements of his prima
facie case in the private action. The petitioners' right to a jury trial on those remaining
issues is not contested.
trial. The Court of Appeals for the Second Circuit reversed, holding that a party who has
had issues of fact determined against him after a full and fair opportunity to litigate in a
nonjury trial is collaterally estopped from obtaining a subsequent jury trial of these same
issues of fact. 565 F.2d 815. The appellate court concluded that "the Seventh
Amendment preserves the right to jury trial only with respect to issues of fact, [and] once
those issues have been fully and fairly adjudicated in a prior proceeding, nothing remains
for trial, either with or without a jury.” Id., at 819. Because of an intercircuit conflict,3
we granted certiorari. 435 U.S. 1006.

[R] The threshold question to be considered is whether, quite apart from the right
to a jury trial under the Seventh Amendment, the petitioners can be precluded from
relitigating facts resolved adversely to them in a prior equitable proceeding with another
party under the general law of collateral estoppel. Specifically, we must determine
whether a litigant who was not a party to a prior judgment may nevertheless use that
judgment "offensively" to prevent a defendant from relitigating issues resolved in the
earlier proceeding.4

Collateral estoppel, like the related doctrine of res judicata,5 has the dual purpose
of protecting litigants from the burden of relitigating an identical issue with the same
party or his privy and of promoting judicial economy by preventing needless litigation.
Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313,
328-329. Until relatively recently, however, the scope of collateral estoppel was limited
by the doctrine of mutuality of parties. Under this mutuality doctrine, neither party could
use a prior judgment as an estoppel against the other unless both parties were bound by
the judgment…. Based on the premise that it is somehow unfair to allow a party to use a
prior judgment when he himself would not be so bound,7 the mutuality requirement
3
The position of the Court of Appeals for the Second Circuit is in conflict with that taken
by the Court of Appeals for the Fifth Circuit in Rachal v. Hill, 435 F.2d 59.
4
In this context, offensive use of collateral estoppel occurs when the plaintiff seeks to
foreclose the defendant from litigating an issue the defendant has previously litigated
unsuccessfully in an action with another party. Defensive use occurs when a defendant
seeks to prevent a plaintiff from asserting a claim the plaintiff has previously litigated and
lost against another defendant.
5
Under the doctrine of res judicata, a judgment on the merits in a prior suit bars a second
suit involving the same parties or their privies based on the same cause of action. Under
the doctrine of collateral estoppel, on the other hand, the second action is upon a different
cause of action and the judgment in the prior suit precludes relitigation of issues actually
litigated and necessary to the outcome of the first action.
7
Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313,
329; Hansberry v. Lee, 311 U.S. 32, 40.
provided a party who had litigated and lost in a previous action an opportunity to
relitigate identical issues with new parties.
[1] By failing to recognize the obvious difference in position between a party who
has never litigated an issue and one who has fully litigated and lost, the mutuality
requirement was criticized almost from its inception.8 Recognizing the validity of this
criticism, the Court in Blonder-Tongue Laboratories, Inc. v. University of Illinois
Foundation, supra, abandoned the mutuality requirement, at least in cases where a
patentee seeks to relitigate the validity of a patent after a federal court in a previous
lawsuit has already declared it invalid. The "broader question" before the Court,
however, was "whether it is any longer tenable to afford a litigant more than one full and
fair opportunity for judicial resolution of the same issue.” 402 U.S., at 328. The Court
strongly suggested a negative answer to that question:

In any lawsuit where a defendant, because of the mutuality principle, is forced to

present a complete defense on the merits to a claim which the plaintiff has fully
litigated and lost in a prior action, there is an arguable misallocation of resources.
To the extent the defendant in the second suit may not win by asserting, without
contradiction, that the plaintiff had fully and fairly, but unsuccessfully, litigated
the same claim in the prior suit, the defendant's time and money are diverted from
alternative uses -- productive or otherwise -- to relitigation of a decided issue.
And, still assuming that the issue was resolved correctly in the first suit, there is
reason to be concerned about the plaintiff's allocation of resources. Permitting
repeated litigation of the same issue as long as the supply of unrelated defendants
holds out reflects either the aura of the gaming table or 'a lack of discipline and of
disinterestedness on the part of the lower courts, hardly a worthy or wise basis for
fashioning rules of procedure.' Kerotest Mfg. Co. v. C-O-Two Co., 342 U.S.
180, 185 (1952). Although neither judges, the parties, nor the adversary system
performs perfectly in all cases, the requirement of determining whether the party
against whom an estoppel is asserted had a full and fair opportunity to litigate is a
most significant safeguard.

Id., at 329.

The Blonder-Tongue case involved defensive use of collateral estoppel -- a plaintiff was
estopped from asserting a claim that the plaintiff had previously litigated and lost against
8
This criticism was summarized in the Court's opinion in Blonder-Tongue Laboratories,
Inc. v. University of Illinois Foundation, supra, at 332-327. The opinion of Justice
Traynor for a unanimous California Supreme Court in Bernhard v. Bank of America Nat.
Trust & Savings Assn., 19 Cal. 2d 807, 812, 122 P. 2d 892, 895, made the point
succinctly: "No satisfactory rationalization has been advanced for the requirement of
mutuality. Just why a party who was not bound by a previous action should be precluded
from asserting it as res judicata against a party who was bound by it is difficult to
comprehend."
another defendant. The present case, by contrast, involves offensive use of collateral
estoppel -- a plaintiff is seeking to estop a defendant from relitigating the issues which
the defendant previously litigated and lost against another plaintiff. In both the offensive
and defensive use situations, the party against whom estoppel is asserted has litigated and
lost in an earlier action. Nevertheless, several reasons have been advanced why the two
situations should be treated differently….

First, offensive use of collateral estoppel does not promote judicial economy in the same
manner as defensive use does. Defensive use of collateral estoppel precludes a plaintiff
from relitigating identical issues by merely "switching adversaries." Bernhard v. Bank of
America Nat. Trust & Savings Assn., 19 Cal. 2d, at 813, 122 P. 2d, at 895.12 Thus
defensive collateral estoppel gives a plaintiff a strong incentive to join all potential
defendants in the first action if possible. Offensive use of collateral estoppel, on the other
hand, creates precisely the opposite incentive. Since a plaintiff will be able to rely on a
previous judgment against a defendant but will not be bound by that judgment if the
defendant wins, the plaintiff has every incentive to adopt a "wait and see" attitude, in the
hope that the first action by another plaintiff will result in a favorable judgment…. Thus
offensive use of collateral estoppel will likely increase rather than decrease the total
amount of litigation, since potential plaintiffs will have everything to gain and nothing to
lose by not intervening in the first action.13

A second argument against offensive use of collateral estoppel is that it may be unfair to
a defendant. If a defendant in the first action is sued for small or nominal damages, he
may have little incentive to defend vigorously, particularly if future suits are not
foreseeable... Allowing offensive collateral estoppel may also be unfair to a defendant if
the judgment relied upon as a basis for the estoppel is itself inconsistent with one or more
previous judgments in favor of the defendant. Still another situation where it might be
[*331] unfair to apply offensive estoppel is where the second action affords the
defendant procedural opportunities unavailable in the first action that could readily cause
a different result.15

12
Under the mutuality requirement, a plaintiff could accomplish this result since he
would not have been bound by the judgment had the original defendant won.
13
The Restatement (Second) of Judgments § 88 (3) (Tent. Draft No. 2, Apr. 15, 1975)
provides that application of collateral estoppel may be denied if the party asserting it
"could have effected joinder in the first action between himself and his present
adversary."
15
If, for example, the defendant in the first action was forced to defend in an
inconvenient forum and therefore was unable to engage in full scale discovery or call
witnesses, application of offensive collateral estoppel may be unwarranted. Indeed,
differences in available procedures may sometimes justify not allowing a prior judgment
to have estoppel effect in a subsequent action even between the same parties, or where
defensive estoppel is asserted against a plaintiff who has litigated and lost. The problem
of unfairness is particularly acute in cases of offensive estoppel, however, because the
defendant against whom estoppel is asserted typically will not have chosen the forum in
the first action.
 C

[2] We have concluded that HN8the preferable approach for dealing with these
problems in the federal courts is not to preclude the use of offensive collateral estoppel,
but to grant trial courts broad discretion to determine when it should be applied. The
[**652] general rule should be that in cases where a plaintiff could easily have joined in
the earlier action or where, either for the reasons discussed above or for other reasons, the
application of offensive estoppel would be unfair to a defendant, a trial judge should not
allow the use of offensive collateral estoppel.
In the present case, however, none of the circumstances that might justify reluctance to
allow the offensive use of collateral estoppel is present. [3] The application of offensive
collateral [*332] estoppel will not here reward a private plaintiff who could have joined
in the previous action, since the respondent probably could not have joined in the
injunctive action brought by the SEC even had he so desired. [4] Similarly, there is no
[***563] unfairness to the petitioners in applying offensive collateral estoppel in this
case. First, in light of the serious allegations made in the SEC's complaint against the
petitioners, as well as the foreseeability of subsequent private suits that typically follow a
successful Government judgment, the petitioners had every incentive to litigate the SEC
lawsuit fully and vigorously. Second, the judgment in the SEC action was not
inconsistent with any previous decision. Finally, there will in the respondent's action be
no procedural opportunities available to the petitioners that were unavailable in the first
action of a kind that might be likely to cause a different result.19

We conclude, therefore, that none of the considerations that would justify a refusal to
allow the use of offensive collateral estoppel is present in this case. Since the petitioners
received a "full and fair" opportunity to litigate their claims in the [*333] SEC action,
the contemporary law of collateral estoppel leads inescapably to the conclusion that the
petitioners are collaterally estopped from relitigating the question of whether the proxy
statement was materially false and misleading.

II

The question that remains is whether, notwithstanding the law of collateral

estoppel, the use of offensive collateral estoppel in this case would violate the petitioners'
Seventh Amendment right to a jury trial. n20

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n20 HN9The Seventh Amendment provides: "In Suits at common law, where the value in
controversy shall exceed twenty dollars, the right to jury trial shall be preserved. . . ."
19
It is true, of course, that the petitioners in the present action would be entitled to a jury
trial of the issues bearing on whether the proxy statement was materially false and
misleading had the SEC action never been brought -- a matter to be discussed in Part II of
this opinion. But the presence or absence of a jury as factfinder is basically neutral, quite
unlike, for example, the necessity of defending the first lawsuit in an inconvenient forum.
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[***HR11] [11]
"[The] thrust of the [Seventh] Amendment was to preserve the right to jury trial as it
existed in 1791.” Curtis v. Loether, 415 U.S. 189, 193. At common law, a litigant was
not entitled to have a jury determine issues that had been previously adjudicated by a
chancellor in equity….

[***564] Recognition that an equitable determination could have collateral-estoppel

effect in a subsequent legal action was the major premise of this Court's decision in
Beacon Theatres, Inc. v. Westover, 359 U.S. 500. In that case the plaintiff sought a
declaratory judgment that certain arrangements between it [*334] and the defendant
were not in violation of the antitrust laws, and asked for an injunction to prevent the
defendant from instituting an antitrust action to challenge the arrangements. The
defendant denied the allegations and counterclaimed for treble damages under the
antitrust laws, requesting a trial by jury of the issues common to both the legal and
equitable claims…. It is thus clear that the Court in the Beacon Theatres case thought
that if an issue common to both legal and equitable claims was first determined by a
judge, relitigation of the issue before a jury might be foreclosed by res judicata or
collateral estoppel. To avoid this result, the Court held that when legal and equitable
claims are joined in the same action, the trial judge has only limited discretion in
determining the sequence of trial and "that discretion . . . must, wherever possible, be
exercised to preserve jury trial.” Id., at 510.

Both the premise of Beacon Theatres, and the fact that it enunciated no more than a
general prudential rule were confirmed by this Court's decision in Katchen v. Landy, 382
U.S. 323. In that case the Court held that HN10a bankruptcy court, sitting as a statutory
court of equity, is empowered to adjudicate [*335] equitable claims prior to legal
claims, even though the factual issues decided in the equity action would have been
triable by a jury under the Seventh Amendment if the legal claims had been adjudicated
first. The Court stated: "Both Beacon Theatres and Dairy Queen recognize that there
might be situations in which the Court could proceed to resolve the equitable claim first
even though the results might be dispositive of the issues involved in the legal claim.”
Id., at 339.

[5] Thus the Court in Katchen v. Landy recognized that an equitable determination can
have collateral-estoppel [***565] effect in a subsequent legal action and that this
estoppel does not violate the Seventh Amendment.

B
Despite the strong support to be found both in history and in the recent decisional law of
this Court for the proposition that an equitable determination can have collateral-estoppel
effect in a subsequent legal action, the petitioners argue that application of collateral
estoppel in this case would nevertheless [**654] violate their Seventh Amendment right
to a jury trial. The petitioners contend that since the scope of the Amendment must be
determined by reference to the common law as it existed in 1791, and since the common
law permitted collateral estoppel only where there was mutuality of parties, collateral
estoppel cannot constitutionally be applied when such mutuality is absent.

The petitioners have advanced no persuasive reason, however, why the meaning of the
Seventh Amendment should depend on whether or not mutuality of parties is present.
HN11A litigant who has lost because of adverse factual findings in an equity action is
equally deprived of a jury trial whether he is estopped from relitigating the factual issues
against the same party or a new party. In either case, the party against whom estoppel is
asserted has litigated questions of fact, and has had the facts determined against him in an
earlier proceeding. [*336] In either case there is no further factfinding function for the
jury to perform, since the common factual issues have been resolved in the previous
action….

The Seventh Amendment has never been interpreted in the rigid manner advocated by the
petitioners. On the contrary, many procedural devices developed since 1791 that have
diminished the civil jury's historic domain have been found not to be inconsistent with
the Seventh Amendment. See Galloway v. United States, 319 U.S. 372, 388-393
(directed verdict does not violate the Seventh Amendment); Gasoline Products Co. v.
Champlin Refining Co., 283 U.S. 494, 497-498 (retrial limited to question of damages
does not violate the Seventh Amendment even though there was no practice at common
law for setting aside a verdict in part); Fidelity & Deposit Co. v. United States, 187 U.S.
315, 319-321 (summary judgment does not violate the Seventh Amendment).
***
The law of collateral estoppel, like the law in other procedural areas defining the scope of
the jury's function, has evolved since 1791. Under the rationale of the Galloway [**655]
case, these developments are not repugnant to the Seventh Amendment simply for the
reason that they did not exist in 1791. Thus if, as we have held, the law of collateral
estoppel forecloses the petitioners from relitigating the factual issues determined against
them in the SEC action, nothing in the Seventh Amendment dictates a different result,
even though because of lack of mutuality there would have been no collateral estoppel in
1791.

The judgment of the Court of Appeals is

Affirmed.

Mr. Justice REHNQUIST, dissenting.

[1] It is admittedly difficult to be outraged about the treatment accorded by the federal
judiciary to petitioners' demand for a jury trial in this lawsuit. Outrage is an emotion all
but [*338] impossible to generate with respect [***567] to a corporate defendant in a
securities fraud action, and this case is no exception. But the nagging sense of unfairness
as to the way petitioners have been treated, engendered by the imprimatur placed by the
Court of Appeals on respondent's "heads I win, tails you lose" theory of this litigation, is
not dispelled by this Court's antiseptic analysis of the issues in the case. [2] It may be
that if this Nation were to adopt a new Constitution today, the Seventh Amendment
guaranteeing the right of jury trial in civil cases in federal courts would not be included
among its provisions. But any present sentiment to that effect cannot obscure or dilute
our obligation to enforce the Seventh Amendment, which was included in the Bill of
Rights in 1791 and which has not since been repealed in the only manner provided by the
Constitution for repeal of its provisions.

The right of trial by jury in civil cases at common law is fundamental to our history and
jurisprudence. Today, however, the Court reduces this valued right, which Blackstone
praised as "the glory of the English law," to a mere "neutral" [*339] factor and in the
name of procedural reform denies the right of jury trial to defendants in a vast number of
cases in which defendants, heretofore, have enjoyed jury trials…. n1

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n1 Because I believe that the use of offensive collateral estoppel in this particular case
was improper, it is not necessary for me to decide whether I would approve its use in
circumstances where the defendant's right to a jury trial was not impaired.

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The Seventh Amendment provides:

"In Suits at common law, where the value in controversy shall exceed twenty dollars, the
right of trial by jury shall be preserved, and no fact tried by a jury, [**656] shall be
otherwise reexamined in any Court of the United States, than according to the rules of the
common law."

The history of the Seventh Amendment has been amply documented by this Court and by
legal scholars, n2 and it would serve no useful purpose to attempt here to repeat all that
has been written on the subject. Nonetheless, the decision of this case turns on the scope
and effect of the Seventh Amendment, which, perhaps more than with any other
provision of the Constitution, are determined by reference to the historical [*340]
setting in which the Amendment was adopted. See Colgrove v. Battin, 413 U.S. 149, 152
(1973). It therefore is appropriate to pause to review, albeit [***568] briefly, the
circumstances preceding and attending the adoption of the Seventh Amendment as a
guide in ascertaining its application to the case at hand.

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n2 See, e. g., Colgrove v. Battin, 413 U.S. 149 (1973); Capital Traction Co. v. Hof, 174
U.S. 1 (1899); Parsons v. Bedford, 3 Pet. 433 (1830); Henderson, The Background of the
Seventh Amendment, 80 Harv. L. Rev. 289 (1966) (hereinafter Henderson); Wolfram,
The Constitutional History of the Seventh Amendment, 57 Minn. L. Rev. 639 (1973)
(hereinafter Wolfram). See also United States v. Wonson, 28 F. Cas. 745 (No. 16,750)
(CC Mass. 1812) (Story, C. J.).

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It is perhaps easy to forget, now more than 200 years removed from the events, that the
right of trial by jury was held in such esteem by the colonists that its deprivation at the
hands of the English was one of the important grievances leading to the break with
England. See Sources and Documents Illustrating the American Revolution 1764-1788
and the Formation of the Federal Constitution 94 (S. Morison 2d ed. 1929); R. Pound,
The Development of Constitutional Guarantees of Liberty 69-72 (1957); C. Ubbelohde,
The Vice-Admiralty Courts and the American Revolution 208-211 (1960). The extensive
use of vice-admiralty courts by colonial administrators to eliminate the colonists' right of
jury trial was listed among the specific offensive English acts denounced in the
Declaration of Independence. n3 And after [*341] war had broken out, all of the 13
newly formed States restored the institution of civil jury trial to its prior prominence; 10
expressly guaranteed the right in their state constitutions and the 3 others recognized it by
statute or by common practice. n4 Indeed, "[the] right to trial by jury was probably the
only one universally secured by the first American state constitutions . . . .” L. Levy,
Legacy of Suppression: Freedom of Speech [**657] and Press in Early American
History 281 (1960). n5

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n3 The Declaration of Independence states: "For depriving us in many cases, of the

benefits of Trial by Jury.” Just two years earlier, in the Declaration of Rights adopted
October 14, 1774, the first Continental Congress had unanimously resolved that "the
respective colonies are entitled to the common law of England, and more especially to the
great and inestimable privilege of being tried by their peers of the vicinage, according to
the course of that law.” 1 Journals of the Continental Congress 69 (1904).
Holdsworth has written that of all the new methods adopted to strengthen the
administration of the British laws, "the most effective, and therefore the most disliked,
was the extension given to the jurisdiction of the reorganized courts of admiralty and
vice-admiralty. It was the most effective, because it deprived the defendant of the right
to be tried by a jury which was almost certain to acquit him.” 11 W. Holdsworth, A
History of English Law 110 (1966). While the vice-admiralty courts dealt chiefly with
criminal offenses, their jurisdiction also was extended to many areas of the civil law.
Wolfram 654 n. 47.

n4 Ga. Const., Art. LXI (1777), in 2 The Federal and State Constitutions Colonial
Charters, and Other Organic Laws 785 (F. Thorpe ed. 1909) (hereinafter Thorpe); Md.
Const., Art. III (1776), in 3 Thorpe 1686-1687; Mass. Const., Art. XV (1780), in 3
Thorpe 1891-1892; N. H. Const., Art. XX (1784), in 4 Thorpe 2456; N. J. Const., Art.
XXII (1776), in 5 Thorpe 2598; N. Y. Const., Art. XLI (1777), in 5 Thorpe 2637; N. C.
Const., Declaration of Rights, Art. XIV (1776), in 5 Thorpe 2788; Pa. Const.,
Declaration of Rights, Art. XI (1776), in 5 Thorpe 3083; S. C. Const., Art. XLI (1778),
in 6 Thorpe 3257; Va. Const., Bill of Rights, § 11 (1776), in 7 Thorpe 3814. See
Wolfram 655.

n5 When Congress in 1787 adopted the Northwest Ordinance for governance of the
territories west of the Appalachians, it included a guarantee of trial by jury in civil cases.
2 Thorpe 960-961.

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One might justly wonder then why no mention of the right of jury trial in civil cases
should have found its way into the Constitution that emerged from the Philadelphia
Convention in 1787. Article III, § 2, cl. 3, merely provides that "The Trial of all Crimes,
except in Cases of Impeachment, shall be by Jury.” The [***569] omission of a clause
protective of the civil jury right was not for lack of trying, however. Messrs. Pinckney
and Gerry proposed to provide a clause securing the right of jury trial in civil cases, but
their efforts failed. n6 Several reasons [*342] have been advanced for this failure. The
Federalists argued that the practice of civil juries among the several States varied so
much that it was too difficult to draft constitutional language to accommodate the
different state practices. See Colgrove v. Battin, supra, at 153. n7 Whatever the reason
for the omission, however, it is clear that even before the delegates had left Philadelphia,
plans were under way to attack the proposed Constitution on the ground that it failed to
contain a guarantee of civil jury trial in the new federal courts. See R. Rutland, George
Mason 91 (1961); Wolfram 662.

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n6 The proposal was to add the following language to Art. III: "And a trial by jury shall
be preserved as usual in civil cases.” 2 M. Farrand, The Records of the Federal
Convention of 1787, p. 628 (1911). The debate regarding this proposal is quoted in
Colgrove v. Battin, supra, at 153-155, n. 8.

n7 The objection of Mr. Gorham of Massachusetts was that "[the] constitution of Juries
is different in different States and the trial itself is usual in different cases in different
States.” 2 M. Farrand, supra, at 628. Commentators have suggested several additional
reasons for the failure of the convention to include a civil jury guarantee. See Henderson
294-295; ("[The] true reason for omitting a similar provision for civil juries was at least
in part that the convention members simply wanted to go home"); Wolfram 660-666.

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The virtually complete absence of a bill of rights in the proposed Constitution was the
principal focus of the Anti-Federalists' attack on the Constitution, and the lack of a
provision for civil juries featured prominently in their arguments. See Parsons v.
Bedford, 3 Pet. 433, 445 (1830). Their pleas struck a responsive chord in the populace,
and the price exacted in many States for approval of the Constitution was the appending
of a list of recommended amendments, chief among them a clause securing the right of
jury trial in civil cases. n8 Responding to the pressures for a civil jury [*343] guarantee
generated during the ratification debates, the first Congress under the new Constitution at
its first session in 1789 proposed to amend the Constitution by adding the following
language: "In suits at common law, between man and man, the trial by jury, as one of the
best securities to the rights of the people, ought to remain inviolate.” 1 Annals of Cong.
435 (1789). That provision, altered in language to what became the Seventh
Amendment, was proposed by the Congress in 1789 to the legislatures of the several
States and became effective with its ratification by Virginia on December 15, 1791. n9

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n8 See Henderson 298; Wolfram 667-703. Virginia's recommended jury trial amendment
is typical: "That, in controversies respecting property, and in suits between man and man,
the ancient trial by jury is one of the greatest securities to the rights of the people, and
[ought] to remain sacred and inviolable.” 3 J. Elliot, Debates on the Federal Constitution
658 (2d ed. 1836).

n9 The Judiciary Act of September 24, 1789, which was passed within six months of the
organization of the new government and on the day before the first 10 Amendments were
proposed to the legislatures of the States by the First Congress, provided for a civil jury
trial right. 1 Stat. 77.

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The [***570] foregoing sketch is meant to suggest what many of those who oppose the
use of juries in civil trials seem to ignore. The founders of our Nation considered the
right of trial by jury in civil cases an important [**658] bulwark against tyranny and
corruption, a safeguard too precious to be left to the whim of the sovereign, or, it might
be added, to that of the judiciary. n10 Those who passionately advocated the right to a
civil jury trial did not do so because they considered the jury a familiar procedural device
that should be continued; the concerns for the institution of jury trial that led to the
passages of the Declaration of Independence and to the Seventh Amendment were not
animated by a belief that use of juries would lead to more efficient judicial
administration. Trial by a jury of laymen rather than by the sovereign's judges [*344]
was important to the founders because juries represent the layman's common sense, the
"passional elements in our nature," and thus keep the administration of law in accord with
the wishes and feelings of the community. O. Holmes, Collected Legal Papers 237
(1920). Those who favored juries believed that a jury would reach a result that a judge
either could not or would not reach. n11 It is with these values that underlie the Seventh
Amendment in mind that the Court should, but obviously does not, approach the decision
of this case.

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -

n10 Thomas Jefferson stated: "I consider [trial by jury] as the only anchor yet imagined
by man, by which a government can be held to the principles of its constitution.” 3 The
Writings of Thomas Jefferson 71 (Washington ed. 1861).

n11 Wolfram 671. Professor Wolfram has written:

"[The] antifederalists were not arguing for the institution of civil jury trial in the belief
that jury trials were short, inexpensive, decorous and productive of the same decisions
that judges sitting without juries would produce. The inconveniences of jury trial were
accepted precisely because in important instances, through its ability to disregard
substantive rules of law, the jury would reach a result that the judge either could not or
would not reach. Those who favored the civil jury were not misguided tinkerers with
procedural devices; they were, for the day, libertarians who avowed that important areas
of protection for litigants in general, and for debtors in particular, would be placed in
grave danger unless it were required that juries sit in civil cases.” Id., at 671-672.

- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
B

The Seventh Amendment requires that the right of trial by jury be "preserved.” Because
the Seventh Amendment demands preservation of the jury trial right, our cases have
uniformly held that the content of the right must be judged by historical standards. E. g.,
Curtis v. Loether, 415 U.S. 189, 193 (1974); Colgrove v. Battin, 413 U.S., at 155-156;
Ross v. Bernhard, 396 U.S. 531, 533 (1970); Capital Traction Co. v. Hof, 174 U.S. 1, 8-9
(1899); Parsons v. Bedford, supra, at 446. Thus, in Baltimore & Carolina Line v.
Redman, 295 U.S. 654, 657 (1935), the Court stated that "[the] right of trial by jury thus
preserved is the right which existed under the English common law when the
Amendment was adopted.” [*345] And in Dimick v. Schiedt, 293 U.S. 474, 476 (1935),
the Court held: "In order to [***571] ascertain the scope and meaning of the Seventh
Amendment, resort must be had to the appropriate rules of the common law established at
the time of the adoption of that constitutional provision in 1791.” n12 If a jury would
have been impaneled in a particular kind of case in 1791, then the Seventh Amendment
requires a jury trial today, if either party so desires.

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -

n12 The majority suggests that Dimick v. Schiedt is not relevant to the decision in this
case because it dealt with the second clause of the Seventh Amendment. Ante, at 336 n.
23. I disagree. There is no intimation in that opinion that the first clause should be
treated any differently from the second. The Dimick Court's respect for the guarantees of
the Seventh Amendment applies as much to the first clause as to the second.

- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -

To be sure, it is the substance of the right of jury trial that is preserved, not the incidental
or collateral effects of common-law practice in 1791. Walker v. New Mexico & S. P. R.
Co., 165 U.S. 593, 596 (1897). "The aim of the Amendment, as this Court has held, is to
preserve the substance of the common-law right of trial by jury, as distinguished from
[**659] mere matters of form or procedure, and particularly to retain the common-law
distinction between the province of the court and that of the jury. . . .” Baltimore &
Carolina Line v. Redman, supra, at 657. Accord, Colgrove v. Battin, supra, at 156-157;
Gasoline Products Co. v. Champlin Refining Co., 283 U.S. 494, 498 (1931); Ex parte
Peterson, 253 U.S. 300, 309 (1920). "The Amendment did not bind the federal courts to
the exact procedural incidents or details of jury trial according to the common law of
1791, any more than it tied them to the common-law system of pleading or the specific
rules of evidence then prevailing.” Galloway v. United States, 319 U.S., at 390.

To say that the Seventh Amendment does not tie federal courts to the exact procedure of
the common law in 1791 does [*346] not imply, however, that any nominally
"procedural" change can be implemented, regardless of its impact on the functions of the
jury. For to sanction creation of procedural devices which limit the province of the jury
to a greater degree than permitted at common law in 1791 is in direct contravention of the
Seventh Amendment. See Neely v. Martin K. Eby Constr. Co., 386 U.S. 317, 322
(1967); Galloway v. United States, supra, at 395; Dimick v. Schiedt, supra, at 487; Ex
parte Peterson, supra, at 309-310. And since we deal here not with the common law qua
common law but with the Constitution, no amount of argument that the device provides
for more efficiency or more accuracy or is fairer will save it if the degree of invasion of
the jury's province is greater than allowed in 1791. To rule otherwise would effectively
permit judicial repeal of the Seventh Amendment because nearly any change in the
province of the jury, no matter how drastic the diminution of its functions, can always be
denominated "procedural reform."

The guarantees of the Seventh [***572] Amendment will prove burdensome in some
instances; the civil jury surely was a burden to the English governors who, in its stead,
substituted the vice-admiralty court. But, as with other provisions of the Bill of Rights,
the onerous nature of the protection is no license for contracting the rights secured by the
Amendment. Because "'[maintenance] of the jury as a fact-finding body is of such
importance and occupies so firm a place in our history and jurisprudence . . . any
seeming curtailment of the right to a jury trial should be scrutinized with the utmost
care.'" Dimick v. Schiedt, supra, at 486, quoted in Beacon Theatres, Inc. v. Westover,
359 U.S. 500, 501 (1959).

Judged by the foregoing principles, I think it is clear that petitioners were denied their
Seventh Amendment right to a [*347] jury trial in this case. Neither respondent nor the
Court doubts that at common law as it existed in 1791, petitioners would have been
entitled in the private action to have a jury determine whether the proxy statement was
false and misleading in the respects alleged. The reason is that at common law in 1791,
collateral estoppel was permitted only where the parties in the first action were identical
to, or in privity with, the parties to the subsequent action. It was not until 1971 that the
doctrine of mutuality was abrogated by this Court in certain limited circumstances.
Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313.
n14 [**660] But developments in the judge-made doctrine of collateral estoppel,
however salutary, cannot, consistent with the Seventh Amendment, contract in any
material fashion the right to a jury trial that a defendant would have enjoyed in 1791. In
the instant case, resort to the doctrine of collateral estoppel does more than merely
contract the right to a jury trial: It eliminates the right entirely and therefore contravenes
the Seventh Amendment.

***

No doubt parallel "procedural reforms" could be instituted in the area of criminal

jurisprudence, which would accomplish much the same sort of expedition of court
calendars and conservation of judicial resources as would the extension of collateral
estoppel in civil litigation. Government motions for summary judgment, or for a directed
verdict in favor of the prosecution at the close of the evidence, would presumably save
countless hours of judges' and jurors' time. It can scarcely be doubted, though, that such
"procedural reforms" would not survive constitutional scrutiny under the jury trial
guarantee of the Sixth Amendment. Just as the principle of separation of powers was not
incorporated by the Framers into the Constitution in order to promote efficiency or
dispatch in the business of government, the right to a jury trial was not guaranteed in
order to facilitate prompt and accurate decision of lawsuits. The essence of that right lies
in its insistence that a body of laymen not permanently attached to the sovereign
participate along with the judge in the factfinding [*349] necessitated by a lawsuit. And
that essence is as much a part of the Seventh Amendment's guarantee in civil cases as it is
of the Sixth Amendment's guarantee in criminal prosecutions.

Relying on Galloway v. United States, Gasoline Products Co. v. Champlin Refining Co.,
and Fidelity & Deposit Co. v. United States, 187 U.S. 315 (1902), the Court seems to
suggest that the offensive use of collateral estoppel in this case is permissible under the
limited principle set forth above that a mere procedural change that does not invade the
province of the jury and a defendant's right thereto to a greater extent than authorized by
the common law is permissible. But the Court's actions today constitute a far greater
infringement of the defendant's rights than it ever before has sanctioned. In Galloway,
the Court upheld the modern form [**661] of directed verdict against a Seventh
Amendment challenge, but it is clear that a similar form of directed verdict existed at
common law in 1791. E.g., Beauchamp v. Borret, Peake 148, 170 Eng. Rep. 110 (N. P.
1792); Coupey v. Henley, 2 Esp. 540, 542, 170 Eng. Rep. 448, 449 (C. P. 1797). The
modern form did not materially alter the [***574] function of the jury. Similarly, the
modern device of summary judgment was found not to violate the Seventh Amendment
because in 1791 a demurrer to the evidence, a procedural device substantially similar to
summary judgment, was a common practice. E. g., Pawling v. United States, 4 Cranch
219, 221-222 (1808). The procedural devices of summary judgment and directed verdict
are direct descendants of their common-law antecedents. They accomplish nothing more
than could have been done at common law, albeit by a more cumbersome procedure. See
also Montgomery Ward & Co. v. Duncan, 311 U.S. 243, 250 (1940). And while at
common law there apparently was no practice of setting aside a verdict in part, the Court
in Gasoline Products permitted a partial retrial of "distinct and separable" issues because
the change in procedure would not impair the substance of the right to jury trial. 283
U.S., at 498. The parties in Gasoline Products still enjoyed the right to have a jury
determine all issues of fact.

By contrast, the development of nonmutual estoppel is a substantial departure from the

common law and its use in this case completely deprives petitioners of their right to have
a jury determine contested issues of fact. I am simply unwilling to accept the Court's
presumption that the complete extinguishment of petitioners' right to trial by jury can be
justified as a mere change in "procedural incident or detail.”....

II
Even accepting, arguendo, the majority's position that there is no violation of the Seventh
Amendment here, I nonetheless would not sanction the use of collateral estoppel in this
case….

In my view, it is "unfair" to apply offensive collateral estoppel where the party who is
[**662] sought to be estopped has not had an opportunity to have the facts of his case
determined by a jury. Since in this case petitioners were not entitled to a jury trial in the
Securities and Exchange Commission (SEC) lawsuit, I would not estop them from
relitigating the issues determined in the SEC suit before a jury in the private action. I
believe that several factors militate in favor of this result.

First, the use of offensive collateral estoppel in this case runs counter to the strong federal
policy favoring jury trials, even if it does not, as the majority holds, violate the Seventh
Amendment...

Second, I believe that the opportunity for a jury trial in the second action could easily
lead to a different result from that obtained in the first action before the court and
therefore that it is unfair to estop petitioners from relitigating the issues before a jury.
***
The ultimate irony of today's decision is that its potential for significantly conserving the
resources of either the litigants or the judiciary is doubtful at best. That being the case, I
see absolutely no reason to frustrate so cavalierly the important federal policy favoring
jury decisions of disputed fact questions. The instant case is an apt example of the
minimal savings that will be accomplished by the Court's decision. As the Court admits,
even if petitioners are collaterally estopped from relitigating whether the proxy was
materially false and misleading, they are still entitled to have a jury determine whether
respondent was injured by the alleged misstatements and the amount of damages, if any,
sustained by respondent. Ante, at 325 n. 2. Thus, a jury must be impaneled in this case
in any event. The time saved by not trying the issue of whether the proxy was materially
false and misleading before the jury is likely to be insubstantial. It is just as probable
that today's decision will have the result of coercing defendants to [***578] agree to
consent orders or settlements [*356] in agency enforcement actions in order to preserve
their right to jury trial in the private actions. In that event, the Court, for no compelling
reason, will have simply added a powerful club to the administrative agencies' arsenals
that even Congress was unwilling to provide them.

MULLANE, Special Guardian, v. CENTRAL HANOVER BANK & TRUST CO.,

Trustee, et al.
U.S. Supreme Court
339 U.S. 306 (1950)

Mr. Justice JACKSON delivered the opinion of the Court.

[I] This controversy questions the constitutional sufficiency of notice to

beneficiaries on judicial settlement of accounts by the trustee of a common trust fund
established under the New York Banking Law. The New York Court of Appeals
considered and overruled objections that the statutory notice contravenes requirements of
the Fourteenth Amendment and that by allowance of the account beneficiaries were
deprived of property without due process of law. 299 N.Y. 697, 87 N.E. 2d 73. The
case is here on appeal under 28 U.S.C. § 1257.
[F] Common trust fund legislation is addressed to a problem appropriate for state
action. Mounting overheads have made administration of small trusts undesirable to
corporate trustees. In order that donors and testators of moderately sized trusts may not
be denied the service of corporate fiduciaries, the District of Columbia and some thirty
states other than New York have permitted pooling small trust estates into one fund for
investment administration. The income, capital gains, losses and expenses of the
collective trust are shared by the constituent trusts in proportion to their contribution. By
this plan, diversification of risk and economy of management can be extended to those
whose capital standing alone would not obtain such advantage.

Statutory authorization for the establishment of such common trust funds is

provided in the New York Banking Law, § 100-c…. Under this Act a trust company
may, with approval of the State Banking Board, establish a common fund and, within
prescribed limits, invest therein the assets of an unlimited number of estates, trusts or
other funds of which it is trustee. Each participating trust shares ratably in the common
fund, but exclusive management and control is in the trust company as trustee, and
neither a fiduciary nor any beneficiary of a participating trust is deemed to have
ownership in any particular asset or investment of this common fund. The trust company
must keep fund assets separate from its own, and in its fiduciary capacity may not deal
with itself or any affiliate. Provisions are made for accountings twelve to fifteen months
after the establishment of a fund and triennially thereafter. The decree in each such
judicial settlement of accounts is made binding and conclusive as to any matter set forth
in the account upon everyone having any interest in the common fund or in any
participating estate, trust or fund.

[P] In January, 1946, Central Hanover Bank and Trust Company established a
common trust fund in accordance with these provisions, and in March, 1947, it petitioned
the Surrogate's Court for settlement of its first account as common trustee. During the
accounting period a total of 113 trusts, approximately half inter vivos and half
testamentary, participated in the common trust fund, the gross capital of which was
nearly three million dollars. The record does not show the number or residence of the
beneficiaries, but they were many and it is clear that some of them were not residents of
the State of New York.

The only notice given beneficiaries of this specific application was by publication
in a local newspaper in strict compliance with the minimum requirements of N.Y.
Banking Law § 100-c (12): "After filing such petition [for judicial settlement of its
account] the petitioner shall cause to be issued by the court in which the petition is filed
and shall publish not less than once in each week for four successive weeks in a
newspaper to be designated by the court a notice or citation addressed generally without
naming them to all parties interested in such common trust fund and in such estates, trusts
or funds mentioned in the petition, all of which may be described in the notice or citation
only in the manner set forth in said petition and without setting forth the residence of any
such decedent or donor of any such estate, trust or fund." Thus the only notice required,
and the only one given, was by newspaper publication setting forth merely the name and
address of the trust company, the name and the date of establishment of the common trust
fund, and a list of all participating estates, trusts or funds.

At the time the first investment in the common fund was made on behalf of each
participating estate, however, the trust company, pursuant to the requirements of § 100-c
(9), had notified by mail each person of full age and sound mind whose name and address
were then known to it and who was "entitled to share in the income therefrom … [or]…
who would be entitled to share in the principal if the event upon which such estate, trust
or fund will become distributable should have occurred at the time of sending such
notice." Included in the notice was a copy of those provisions of the Act relating to the
sending of the notice itself and to the judicial settlement of common trust fund accounts.

Upon the filing of the petition for the settlement of accounts, appellant was, by
order of the court pursuant to § 100-c (12), appointed special guardian and attorney for all
persons known or unknown not otherwise appearing who had or might thereafter have
any interest in the income of the common trust fund; and appellee Vaughan was
appointed to represent those similarly interested in the principal. There were no other
appearances on behalf of any one interested in either interest or principal.

Appellant appeared specially, objecting that notice and the statutory provisions
for notice to beneficiaries were inadequate to afford due process under the Fourteenth
Amendment, and therefore that the court was without jurisdiction to render a final and
binding decree. Appellant's objections were entertained and overruled, the Surrogate
holding that the notice required and given was sufficient. 75 N.Y.S. 2d 397. A final
decree accepting the accounts has been entered, affirmed by the Appellate Division of the
Supreme Court, 275 App. Div. 769, 88 N.Y.S. 2d 907, and by the Court of Appeals of
the State of New York. 299 N.Y. 697, 87 N.E. 2d 73.

[R] The effect of this decree, as held below, is to settle "all questions respecting
the management of the common fund." We understand that every right which
beneficiaries would otherwise have against the trust company, either as trustee of the
common fund or as trustee of any individual trust, for improper management of the
common trust fund during the period covered by the accounting is sealed and wholly
terminated by the decree….

We are met at the outset with a challenge to the power of the State -- the right of
its courts to adjudicate at all as against those beneficiaries who reside without the State of
New York. It is contended that the proceeding is one in personam in that the decree
affects neither title to nor possession of any res, but adjudges only personal rights of the
beneficiaries to surcharge their trustee for negligence or breach of trust. Accordingly, it
is said, under the strict doctrine of Pennoyer v. Neff, 95 U.S. 714, the Surrogate is
without jurisdiction as to nonresidents upon whom personal service of process was not
made.

Distinctions between actions in rem and those in personam are ancient and
originally expressed in procedural terms what seems really to have been a distinction in
the substantive law of property under a system quite unlike our own…. The legal
recognition and rise in economic importance of incorporeal or intangible forms of
property have upset the ancient simplicity of property law and the clarity of its
distinctions, while new forms of proceedings have confused the old procedural
classification. American courts have sometimes classed certain actions as in rem because
personal service of process was not required, and at other times have held personal
service of process not required because the action was in rem….

[1] Judicial proceedings to settle fiduciary accounts have been sometimes termed
in rem, or more indefinitely quasi in rem, or more vaguely still, "in the nature of a
proceeding in rem." It is not readily apparent how the courts of New York did or would
classify the present proceeding, which has some characteristics and is wanting in some
features of proceedings both in rem and in personam. But in any event we think that the
requirements of the Fourteenth Amendment to the Federal Constitution do not depend
upon a classification for which the standards are so elusive and confused generally and
which, being primarily for state courts to define, may and do vary from state to state.
Without disparaging the usefulness of distinctions between actions in rem and those in
personam in many branches of law, or on other issues, or the reasoning which underlies
them, we do not rest the power of the State to resort to constructive service in this
proceeding upon how its courts or this Court may regard this historic antithesis. It is
sufficient to observe that, whatever the technical definition of its chosen procedure, the
interest of each state in providing means to close trusts that exist by the grace of its laws
and are administered under the supervision of its courts is so insistent and rooted in
custom as to establish beyond doubt the right of its courts to determine the interests of all
claimants, resident or nonresident, provided its procedure accords full opportunity to
appear and be heard.

Quite different from the question of a state's power to discharge trustees is that of
the opportunity it must give beneficiaries to contest. Many controversies have raged
about the cryptic and abstract words of the Due Process Clause but there can be no doubt
that at a minimum they require that deprivation of life, liberty or property by adjudication
be preceded by notice and opportunity for hearing appropriate to the nature of the case.

In two ways this proceeding does or may deprive beneficiaries of property. It

may cut off their rights to have the trustee answer for negligent or illegal impairments of
their interests. Also, their interests are presumably subject to diminution in the
proceeding by allowance of fees and expenses to one who, in their names but without
their knowledge, may conduct a fruitless or uncompensatory contest. Certainly the
proceeding is one in which they may be deprived of property rights and hence notice and
hearing must measure up to the standards of due process.
 Personal service of written notice within the jurisdiction is the classic form of
notice always adequate in any type of proceeding. But the vital interest of the State in
bringing any issues as to its fiduciaries to a final settlement can be served only if interests
or claims of individuals who are outside of the State can somehow be determined. A
construction of the Due Process Clause which would place impossible or impractical
obstacles in the way could not be justified.

Against this interest of the State we must balance the individual interest sought to
be protected by the Fourteenth Amendment. This is defined by our holding that
"HN3The fundamental requisite of due process of law is the opportunity to be heard."
Grannis v. Ordean, 234 U.S. 385, 394. This right to be heard has little reality or worth
unless one is informed that the matter is pending and can choose for himself whether to
appear or default, acquiesce or contest.

The Court has not committed itself to any formula achieving a balance between
these interests in a particular proceeding or determining when constructive notice may be
utilized or what test it must meet. Personal service has not in all circumstances been
regarded as indispensable to the process due to residents, and it has more often been held
unnecessary as to nonresidents. We disturb none of the established rules on these
subjects. No decision constitutes a controlling or even a very illuminating precedent for
the case before us. But a few general principles stand out in the books.

An elementary and fundamental requirement of due process in any proceeding

which is to be accorded finality is notice reasonably calculated, under all the
circumstances, to apprise interested parties of the pendency of the action and afford them
an opportunity to present their objections. Milliken v. Meyer, 311 U.S. 457; Grannis v.
Ordean, 234 U.S. 385; Priest v. Las Vegas, 232 U.S. 604; Roller v. Holly, 176 U.S. 398.
The notice must be of such nature as reasonably to convey the required information,
Grannis v. Ordean, supra, and it must afford a reasonable time for those interested to
make their appearance, Roller v. Holly, supra, and cf. Goodrich v. Ferris, 214 U.S. 71.
But if with due regard for the practicalities and peculiarities of the case these conditions
are reasonably met, the constitutional requirements are satisfied. "The criterion is not the
possibility of conceivable injury but the just and reasonable character of the
requirements, having reference to the subject with which the statute deals." American
Land Co. v. Zeiss, 219 U.S. 47, 67; and see Blinn v. Nelson, 222 U.S. 1, 7.

But when notice is a person's due, process which is a mere gesture is not due
process. The means employed must be such as one desirous of actually informing the
absentee might reasonably adopt to accomplish it. The reasonableness and hence the
constitutional validity of any chosen method may be defended on the ground that it is in
itself reasonably certain to inform those affected,… or, where conditions do not
reasonably permit such notice, that the form chosen is not substantially less likely to
bring home notice than other of the feasible and customary substitutes.

It would be idle to pretend that publication alone, as prescribed here, is a reliable

means of acquainting interested parties of the fact that their rights are before the courts.
It is not an accident that the greater number of cases reaching this Court on the question
of adequacy of notice have been concerned with actions founded on process
constructively served through local newspapers. Chance alone brings to the attention of
even a local resident an advertisement in small type inserted in the back pages of a
newspaper, and if he makes his home outside the area of the newspaper's normal
circulation the odds that the information will never reach him are large indeed. The
chance of actual notice is further reduced when, as here, the notice required does not even
name those whose attention it is supposed to attract, and does not inform acquaintances
who might call it to attention. In weighing its sufficiency on the basis of equivalence
with actual notice, we are unable to regard this as more than a feint.

Nor is publication here reinforced by steps likely to attract the parties' attention to
the proceeding. It is true that publication traditionally has been acceptable as notification
supplemental to other action which in itself may reasonably be expected to convey a
warning. The ways of an owner with tangible property are such that he usually arranges
means to learn of any direct attack upon his possessory or proprietary rights. Hence, libel
of a ship, attachment of a chattel or entry upon real estate in the name of law may
reasonably be expected to come promptly to the owner's attention. When the state within
which the owner has located such property seizes it for some reason, publication or
posting affords an additional measure of notification. A state may indulge the
assumption that one who has left tangible property in the state either has abandoned it, in
which case proceedings against it deprive him of nothing, … or that he has left some
caretaker under a duty to let him know that it is being jeopardized. Ballard v. Hunter,
204 U.S. 241; Huling v. Kaw Valley R. Co., 130 U.S. 559. As phrased long ago by Chief
Justice Marshall in The Mary, 9 Cranch 126, 144, "It is the part of common prudence for
all those who have any interest in [a thing], to guard that interest by persons who are in a
situation to protect it."

In the case before us there is, of course, no abandonment. On the other hand these
beneficiaries do have a resident fiduciary as caretaker of their interest in this property.
But it is their caretaker who in the accounting becomes their adversary. Their trustee is
released from giving notice of jeopardy, and no one else is expected to do so. Not even
the special guardian is required or apparently expected to communicate with his ward and
client, and, of course, if such a duty were merely transferred from the trustee to the
guardian, economy would not be served and more likely the cost would be increased.

This Court has not hesitated to approve of resort to publication as a customary

substitute in another class of cases where it is not reasonably possible or practicable to
give more adequate warning. Thus it has been recognized that, in the case of persons
missing or unknown, employment of an indirect and even a probably futile means of
notification is all that the situation permits and creates no constitutional bar to a final
decree foreclosing their rights. Cunnius v. Reading School District, 198 U.S. 458; Blinn
v. Nelson, 222 U.S. 1; and see Jacob v. Roberts, 223 U.S. 261.

Those beneficiaries represented by appellant whose interests or whereabouts

could not with due diligence be ascertained come clearly within this category. As to
them the statutory notice is sufficient. However great the odds that publication will never
reach the eyes of such unknown parties, it is not in the typical case much more likely to
fail than any of the choices open to legislators endeavoring to prescribe the best notice
practicable.

Nor do we consider it unreasonable for the State to dispense with more certain
notice to those beneficiaries whose interests are either conjectural or future or, although
they could be discovered upon investigation, do not in due course of business come to
knowledge of the common trustee. Whatever searches might be required in another
situation under ordinary standards of diligence, in view of the character of the
proceedings and the nature of the interests here involved we think them unnecessary. We
recognize the practical difficulties and costs that would be attendant on frequent
investigations into the status of great numbers of beneficiaries, many of whose interests
in the common fund are so remote as to be ephemeral; and we have no doubt that such
impracticable and extended searches are not required in the name of due process. The
expense of keeping informed from day to day of substitutions among even current
income beneficiaries and presumptive remaindermen, to say nothing of the far greater
number of contingent beneficiaries, would impose a severe burden on the plan, and
would likely dissipate its advantages. These are practical matters in which we should be
reluctant to disturb the judgment of the state authorities.

Accordingly we overrule appellant's constitutional objections to published notice

insofar as they are urged on behalf of any beneficiaries whose interests or addresses are
unknown to the trustee.

As to known present beneficiaries of known place of residence, however, notice

by publication stands on a different footing. Exceptions in the name of necessity do not
sweep away the rule that within the limits of practicability notice must be such as is
reasonably calculated to reach interested parties. Where the names and post-office
addresses of those affected by a proceeding are at hand, the reasons disappear for resort
to means less likely than the mails to apprise them of its pendency.

The trustee has on its books the names and addresses of the income beneficiaries
represented by appellant, and we find no tenable ground for dispensing with a serious
effort to inform them personally of the accounting, at least by ordinary mail to the record
addresses…. Certainly sending them a copy of the statute months and perhaps years in
advance does not answer this purpose. The trustee periodically remits their income to
them, and we think that they might reasonably expect that with or apart from their
remittances word might come to them personally that steps were being taken affecting
their interests.

We need not weigh contentions that a requirement of personal service of citation

on even the large number of known resident or nonresident beneficiaries would, by
reasons of delay if not of expense, seriously interfere with the proper administration of
the fund. Of course personal service even without the jurisdiction of the issuing authority
serves the end of actual and personal notice, whatever power of compulsion it might lack.
However, no such service is required under the circumstances. This type of trust
presupposes a large number of small interests. The individual interest does not stand
alone but is identical with that of a class. The rights of each in the integrity of the fund
and the fidelity of the trustee are shared by many other beneficiaries. Therefore notice
reasonably certain to reach most of those interested in objecting is likely to safeguard the
interests of all, since any objection sustained would inure to the benefit of all. We think
that under such circumstances reasonable risks that notice might not actually reach every
beneficiary are justifiable. "Now and then an extraordinary case may turn up, but
constitutional law like other mortal contrivances has to take some chances, and in the
great majority of instances no doubt justice will be done." Blinn v. Nelson, supra, 7.

The statutory notice to known beneficiaries is inadequate, not because in fact it

fails to reach everyone, but because under the circumstances it is not reasonably
calculated to reach those who could easily be informed by other means at hand. However
it may have been in former times, the mails today are recognized as an efficient and
inexpensive means of communication. Moreover, the fact that the trust company has
been able to give mailed notice to known beneficiaries at the time the common trust fund
was established is persuasive that postal notification at the time of accounting would not
seriously burden the plan.

In some situations the law requires greater precautions in its proceedings than the
business world accepts for its own purposes. In few, if any, will it be satisfied with
[*320] less. Certainly it is instructive, in determining the reasonableness of the
impersonal broadcast notification here used, to ask whether it would satisfy a prudent
man of business, counting his pennies but finding it in his interest to convey information
to many persons whose names and addresses are in his files. We are not satisfied that it
would. Publication may theoretically be available for all the world to see, but it is too
much in our day to suppose that each or any individual beneficiary does or could examine
all that is published to see if something may be tucked away in it that affects his property
interests. We have before indicated in reference to notice by publication that, "Great
caution should be used not to let fiction deny the fair play that can be secured only by a
pretty close adhesion to fact." McDonald v. Mabee, 243 U.S. 90, 91.

We hold that the notice of judicial settlement of accounts required by the New
York Banking Law § 100-c (12) is incompatible with the requirements of the Fourteenth
Amendment as a basis for adjudication depriving known persons whose whereabouts are
also known of substantial property rights. Accordingly the judgment is reversed and the
cause remanded for further proceedings not inconsistent with this opinion.

Reversed.

Mr. Justice DOUGLAS took no part in the consideration or decision of this case.

Mr. Justice BURTON, dissenting.

 These common trusts are available only when the instruments creating the
participating trusts permit participation in the common fund. Whether or not further
notice to beneficiaries should supplement the notice and representation here provided is
properly within the discretion of the State. The Federal Constitution does not require it
here.

Morton EISEN, et al. v. CARLISLE & JACQUELIN et al.

417 U.S. 156 (1974)
U.S. Supreme Court

Mr. Justice POWELL delivered the opinion of the Court.

On May 2, 1966, petitioner filed a class action on behalf of himself and all other
odd-lot1 traders on the New York Stock Exchange (the Exchange). The complaint
charged respondents with violations of the antitrust and securities laws and demanded
damages for petitioner and his class. Eight years have elapsed, but there has been no trial
on the merits of these claims. Both the parties and the courts are still wrestling with the
complex questions surrounding petitioner’s attempt to maintain his suit as a class action
under Fed. Rule Civ. Proc. 23. We granted certiorari to resolve some of these
difficulties. 414 U.S. 908 (1973).

[P] Petitioner brought this class action in the United States District Court for the
Southern District of New York. Originally, he sued on behalf of all buyers and sellers of
odd lots on the Exchange, but subsequently the class was limited to those who traded in
odd lots during the period from May 1, 1962, through June 30, 1966. 52 F.R.D. 253, 261
(1971). Throughout this period odd-lot trading was not part of the Exchange’s regular
auction market but was handled exclusively by special odd-lot dealers, who bought and
sold for their own accounts as principals. Respondent brokerage firms Carlisle &
Jacquelin and DeCoppet & Doremus together handled 99% of the Exchange’s odd-lot
business. S.E.C., Report of Special Study of Securities Markets, H. R. Doc. No. 95, pt.
2, 88th Cong., 1st Sess., 172 (1963). They were compensated by the odd-lot differential,
a surcharge imposed on the odd-lot investor in addition to the standard brokerage
commission applicable to round-lot transactions. For the period in question the
differential was 1/8 of a point (12½¢) per share on stocks trading below $40 per share
and 1/4 of a point (25¢) per share on stocks trading at or above $40 per share.6
Petitioner charged that respondent brokerage firms had monopolized odd-lot
trading and set the differential at an excessive level in violation of 1 and 2 of the Sherman
Act, 15 U.S.C. 1 and 2, and he demanded treble damages for the amount of the
overcharge. Petitioner also demanded unspecified money damages from the Exchange
for its alleged failure to regulate the differential for the protection of investors in violation

1
Odd lots are shares traded in lots of fewer than a hundred. Shares traded in units of a
hundred or multiples thereof are round-lots.
6
On July 1, 1966, the $40 “breakpoint” was raised to $55.
of 6 and 19 of the Securities Exchange Act of 1934, 15 U.S.C. 78f and 78s. Finally, he
requested attorneys’ fees and injunctive prohibition of future excessive charges.

A critical fact in this litigation is that petitioner’s individual stake in the damages
award he seeks is only $70. No competent attorney would undertake this complex
antitrust action to recover so inconsequential an amount. Economic reality dictates that
petitioner’s suit proceed as a class action or not at all. Opposing counsel have therefore
engaged in prolonged combat over the various requirements of Rule 23. The result has
been an exceedingly complicated series of decisions by both the District Court and the
Court of Appeals for the Second Circuit. To understand the labyrinthian history of this
litigation, a preliminary overview of the decisions may prove useful.

In the beginning, the District Court determined that petitioner’s suit was not
maintainable as a class action. On appeal, the Court of Appeals issued two decisions
known popularly as Eisen I and Eisen II. The first held that the District Court’s decision
was a final order and thus appealable. In the second the Court of Appeals intimated that
petitioner’s suit could satisfy the requirements of Rule 23, but it remanded the case to
permit the District Court to consider the matter further. After conducting several
evidentiary hearings on remand, the District Court decided that the suit could be
maintained as a class action and entered orders intended to fulfill the notice requirements
of Rule 23. Once again, the case was appealed. The Court of Appeals then issued its
decision in Eisen III and ended the trilogy by denying class action status to petitioner’s
suit. We now review these developments in more detail.

Eisen I

As we have seen, petitioner began this action in May 1966. In September of that
year the District Court dismissed the suit as a class action. 41 F.R.D. 147. Following
denial of his motion for interlocutory review under 28 U.S.C. 1292 (b), petitioner took an
appeal as of right under 1291. Respondents then moved to dismiss on the ground that the
order appealed from was not final. In Eisen I, the Court of Appeals held that the denial of
class action status in this case was appealable as a final order under 1291. 370 F.2d 119
(1966), cert. denied, 386 U.S. 1035 (1967). This was so because, as a practical matter,
the dismissal of the class action aspect of petitioner’s suit was a “death knell” for the
entire action. The court thought this consequence rendered the order dismissing the class
action appealable under Cohen v. Beneficial Loan Corp., 337 U.S. 541, 546 (1949).

Eisen II

Nearly 18 months later the Court of Appeals reversed the dismissal of the class
action in a decision known as Eisen II. 391 F.2d 555 (1968). In reaching this result the
court undertook an exhaustive but ultimately inconclusive analysis of Rule 23.
Subdivision (a) of the Rule sets forth four prerequisites to the maintenance of any suit as
a class action: “(1) the class is so numerous that joinder of all members is impracticable,
(2) there are questions of law or fact common to the class, (3) the claims or defenses of
the representative parties are typical of the claims or defenses of the class, and (4) the
representative parties will fairly and adequately protect the interests of the class.” The
District Court had experienced little difficulty in finding that petitioner satisfied the first
three prerequisites but had concluded that petitioner might not “fairly and adequately
protect the interests of the class” as required by Rule 23(a)(4). The Court of Appeals
indicated its disagreement with the reasoning behind the latter conclusion and directed
the District Court to reconsider the point.

In addition to meeting the four conjunctive requirements of 23(a), a class action

must also qualify under one of the three subdivisions of 23(b).7 Petitioner argued that the
suit was maintainable as a class action under all three subdivisions. The Court of
Appeals held the first two subdivisions inapplicable to this suit8 and therefore turned its
attention to the third subdivision, (b)(3). That subdivision requires a court to determine
whether “questions of law or fact common to the members of the class predominate over
any questions affecting only individual members” and whether “a class action is superior
to other available methods for the fair and efficient adjudication of the controversy.”
More specifically, it identifies four factors relevant to these inquiries. After a detailed
review of these provisions, the Court of Appeals concluded that the only potential barrier
to maintenance of this suit as a class action was the Rule 23(b)(3)(D) directive that a
court evaluate “the difficulties likely to be encountered in the management of a class
action.” Commonly referred to as “manageability,” this consideration encompasses the
whole range of practical problems that may render the class action format inappropriate
for a particular suit. With reference to this litigation, the Court of Appeals noted that the
difficulties of distributing any ultimate recovery to the class members would be
formidable, though not necessarily insuperable, and commented that it was “reluctant to
permit actions to proceed where they are not likely to benefit anyone but the lawyers who
bring them.” 391 F.2d, at 567. The Court therefore directed the District Court to conduct

7
If the subclass lost, it is argued that other investors not members of that subclass could
not be precluded from prosecuting successful suits of their own, since they had never had
their day in court or necessarily even been apprised of the subclass’ action. See
Hansberry v. Lee, 311 U.S. 32 ; F. James, Civil Procedure 11.26 (1965); 1B J. Moore,
Federal Practice µ 0.411 1. (1974). If the subclass won, strict application of the doctrine
of mutuality of estoppel would limit the usefulness of that subclass victory in suits
brought by investors not members of that subclass….
8
Before the Court of Appeals, petitioner dropped the contention that the suit qualified
under subdivision (b)(1)(B). The court held subdivision (b)(1)(A) inapplicable on the
ground that the prospective [417 U.S. 156, 164] class consisted entirely of small
claimants, none of whom could afford to litigate this action in order to recover his
individual claim and that consequently there was little chance of “inconsistent or varying
adjudications with respect to individual members of the class which would establish
incompatible standards of conduct for the party opposing the class . . . .” Subdivision
(b)(2) was held to apply only to actions exclusively or predominantly for injunctive or
declaratory relief. Advisory Committee’s Note, Proposed Rules of Civil Procedure, 28
U.S.C. App., p. 7766.
“a further inquiry… in order to consider the mechanics involved in the administration of
the present action.” Ibid.

Finally, the Court of Appeals turned to the most imposing obstacle to this class
action - the notice requirement of Rule 23(c)(2). The District Court had held that both
the Rule and the Due Process Clause of the Fifth Amendment required individual notice
to all class members who could be identified. 41 F.R.D., at 151. Petitioner objected that
mailed notice to the entire class would be prohibitively expensive and argued that some
form of publication notice would suffice. The Court of Appeals declined to settle this
issue, nothing that “[o]n the record before us we cannot arrive at any rational and
satisfactory conclusion on the propriety of resorting to some form of publication as a
means of giving the necessary notice to all members of the class on behalf of whom the
action is stated to be commenced and maintained.” 391 F.2d, at 569.

The outcome of Eisen II was a remand for an evidentiary hearing on the questions
of notice, manageability, adequacy of representation, and “any other matters which the
District Court may consider pertinent and proper.” Id., at 570. And in a ruling that
aroused later controversy, the Court of Appeals expressly purported to retain appellate
jurisdiction while the case was heard on remand.

Eisen III

After it held the evidentiary hearing on remand, which together with affidavits
and stipulations provided the basis for extensive findings of fact, the District Court issued
an opinion and order holding the suit maintainable as a class action. 52 F.R.D. 253
(1971). The court first noted that petitioner satisfied the criteria identified by the Court of
Appeals for determining adequacy of representation under Rule 23(a)(4). Then it turned
to the more difficult question of manageability. Under this general rubric the court dealt
with problems of the computation of damages, the mechanics of administering this suit as
a class action, and the distribution of any eventual recovery. The last-named problem had
most troubled the Court of Appeals, prompting its remark that if “class members are not
likely ever to share in an eventual judgment, we would probably not permit the class
action to continue.” 391 F.2d, at 567. The District Court attempted to resolve this
difficulty by embracing the idea of a “fluid class” recovery whereby damages would be
distributed to future odd-lot traders rather than to the specific class members who were
actually injured. The court suggested that “a fund equivalent to the amount of unclaimed
damages might be established and the odd-lot differential reduced in an amount
determined reasonable by the court until such time as the fund is depleted.” 52 F.R.D., at
265. The need to resort to this expedient of recovery by the “next best class” arose from
the prohibitively high cost of computing and awarding multitudinous small damages
claims on an individual basis.

Finally, the District Court took up the problem of notice. The court found that the
prospective class included some six million individuals, institutions, and intermediaries
of various sorts; that with reasonable effort some two million of these odd-lot investors
could be identified by name and address;9 and that the names and addresses of an
additional 250,000 persons who had participated in special investment programs
involving odd-lot trading10 could also be identified with reasonable effort. Using the then
current first-class postage rate of six cents, the court determined that stuffing and mailing
each individual notice form would cost 10 cents. Thus individual notice to all
identifiable class members would cost $225,000, 7 and additional expense would be
incurred for suitable publication notice designed to reach the other four million class
members.

The District Court concluded, however, that neither Rule 23(c)(2) nor the Due
Process Clause required so substantial an expenditure at the outset of this litigation.
Instead, it proposed a notification scheme consisting of four elements: (1) individual
notice to all member firms of the Exchange and to commercial banks with large trust
departments; (2) individual notice to the approximately 2,000 identifiable class members
with 10 or more odd-lot transactions during the relevant period; (3) individual notice to
an additional 5,000 class members selected at random; and (4) prominent publication
notice in the Wall Street Journal and in other newspapers in New York and California.
The court calculated that this package would cost approximately $21,720.

The only issue not resolved by the District Court in its first opinion on remand
from Eisen II was who should bear the cost of notice. Because petitioner understandably
declined to pay $21,720 in order to litigate an action involving an individual stake of only
$70, this question presented something of a dilemma:

“If the expense of notice is placed upon [petitioner], it would be the end of a
possibly meritorious suit, frustrating both the policy behind private antitrust
actions and the admonition that the new Rule 23 is to be given a liberal rather than
a restrictive interpretation, Eisen II at 563. On the other hand, if costs were
arbitrarily placed upon [respondents] at this point, the result might be the
imposition of an unfair burden founded upon a groundless claim. In addition to
the probability of encouraging frivolous class actions, such a step might also
result in [respondents’] passing on to their customers, including many of the class
members in this case, the expenses of defending these actions.” 52 F.R.D., at
269.

Analogizing to the laws of preliminary injunctions, the court decided to impose

the notice cost on respondents if petitioner could show a strong likelihood of success on
9
These two million traders dealt with brokerage firms who transmitted their odd-lot
transactions to respondents Carlisle & Jacquelin and DeCoppet & Doremus via teletype.
By comparing the odd-lot firms’ computerized records of these teletype transactions and
the general-services brokerage firms’ computerized records of all customer names and
addresses, the names and addresses of these two million odd-lot traders can be obtained.
10
In the period from May 1962 through June 1968, 100,000 individuals had odd-lot
transactions through participation in the Monthly Investment Plan operated by the
Exchange and 150,000 persons traded in odd lots through participation in a number of
payroll deduction plans operated by Merrill Lynch, Pierce, Fenner & Smith.
the merits, and it scheduled a preliminary hearing on the merits to facilitate this
determination. After this hearing the District Court issued an opinion and order ruling
that petitioner was “more than likely” to prevail at trial and that respondents should bear
90% of the cost of notice, or $19,548. 54 F.R.D. 565, 567 (1972).

Relying on the purported retention of jurisdiction by the Court of Appeals after

Eisen II, respondents on May 1, 1972, obtained an order directing the clerk of the District
Court to certify and transmit the record for appellate review. Subsequently, respondents
also filed a notice of appeal under 28 U.S.C. 1291. Petitioner’s motion to dismiss on the
ground that the appeal had not been taken from a final order was denied by the Court of
Appeals on June 29, 1972.

On May 1, 1973, the Court of Appeals issued Eisen III. 479 F.2d 1005. The
majority disapproved the District Court’s partial reliance on publication notice, holding
that Rule 23(c)(2) required individual notice to all identifiable class members. The
majority further ruled that the District Court had no authority to conduct a preliminary
hearing on the merits for the purpose of allocating costs and that the entire expense of
notice necessarily fell on petitioner as representative plaintiff. Finally, the Court of
Appeals rejected the expedient of a fluid-class recovery and concluded that the proposed
class action was unmanageable under Rule 23(b)(3)(D). For all of these reasons the
Court of Appeals ordered the suit dismissed as a class action. One judge concurred in the
result solely on the ground that the District Court had erred in imposing 90% of the notice
costs on respondents. Petitioner’s requests for rehearing and rehearing en banc were
denied. 479 F.2d, at 1020.

Thus, after six and one-half years and three published decisions, the Court of
Appeals endorsed the conclusion reached by the District Court in its original order in
1966 - that petitioner’s suit could not proceed as a class action. In its procedural history,
at least, this litigation has lived up to Judge Lumbard’s characterization of it as a
“Frankenstein monster posing as a class action.” Eisen II, 391 F.2d, at 572.

II

At the outset we must decide whether the Court of Appeals in Eisen III had
jurisdiction to review the District Court’s orders permitting the suit to proceed as a class
action and allocating the cost of notice. Petitioner contends that it did not. Respondents
counter by asserting two independent bases for appellate jurisdiction: first, that the orders
in question constituted a “final” decision within the meaning of 28 U.S.C. 1291… and
were therefore appealable as of right under that section….

Restricting appellate review to “final decisions” prevents the debilitating effect on

judicial administration caused by piecemeal appellate disposition of what is, in practical
consequence, but a single controversy. While the application of 1291 in most cases is
plain enough, determining the finality of a particular judicial order may pose a close
question. No verbal formula yet devised can explain prior finality decisions with
unerring accuracy or provide an utterly reliable guide for the future…. We know, of
course, that 1291 does not limit appellate review to “those final judgments which
terminate an action . . .,” Cohen v. Beneficial Loan Corp., 337 U.S., at 545 , but rather
that the requirement of finality is to be given a “practical rather than a technical
construction.” Id., at 546. The inquiry requires some evaluation of the competing
considerations underlying all questions of finality - “the inconvenience and costs of
piecemeal review on the one hand and the danger of denying justice by delay on the
other.” Dickinson v. Petroleum Conversion Corp., 338 U.S. 507, 511 (1950)(footnote
omitted).

We find the instant case controlled by our decision in Cohen v. Beneficial Loan
Corp., supra. There the Court considered the applicability in a federal diversity action of
a forum state statute making the plaintiff in a stockholder’s derivative action liable for
litigation expenses, if ultimately unsuccessful, and entitling the corporation to demand
security in advance for their payment. The trial court ruled the statute inapplicable, and
the corporation sought immediate appellate review over the stockholder’s objection that
the order appealed from was not final. This Court held the order appealable on two
grounds. First, the District Court’s finding was not “tentative, informal or incomplete,”
337 U.S., at 546 , but settled conclusively the corporation’s claim that it was entitled by
state law to require the shareholder to post security for costs. Second, the decision did
not constitute merely a “step toward final disposition of the merits of the case….” Ibid.
Rather, it concerned a collateral matter that could not be reviewed effectively on appeal
from the final judgment. The Court summarized its conclusion in this way:

“This decision appears to fall in that small class which finally determine
claims of right separable from, and collateral to, rights asserted in the action, too
important to be denied review and too independent of the cause itself to require
that appellate consideration be deferred until the whole case is adjudicated.” Ibid.

Analysis of the instant case reveals that the District Court’s order imposing 90%
of the notice costs on respondents likewise falls within “that small class.” It conclusively
rejected respondents’ contention that they could not lawfully be required to bear the
expense of notice to the members of petitioner’s proposed class. Moreover, it involved a
collateral matter unrelated to the merits of petitioner’s claims. Like the order in Cohen,
the District Court’s judgment on the allocation of notice costs was “a final disposition of
a claimed right which is not an ingredient of the cause of action and does not require
consideration with it,” id., at 546-547, and it was similarly appealable as a “final
decision” under 1291. In our view the Court of Appeals therefore had jurisdiction to
review fully the District Court’s resolution of the class action notice problems in this
case, for that court’s allocation of 90% of the notice costs to respondents was but one
aspect of its effort to construe the requirements of Rule 23(c)(2) in a way that would
permit petitioner’s suit to proceed as a class action.10
10
As explained in Part III of this opinion, we find the notice requirements of Rule 23 to
be dispositive of petitioner’s attempt to maintain the class action as presently defined.
We therefore have no occasion to consider whether the Court of Appeals correctly
resolved the issues of manageability and fluid-class recovery, or indeed, whether those
issues were properly before the Court of Appeals under the theory of retained
 III

Turning to the merits of the case, we find that the District Court’s resolution of
the notice problems was erroneous in two respects. First, it failed to comply with the
notice requirements of Rule 23(c)(2), and second, it imposed part of the cost of notice on
respondents.

Rule 23(c)(2) provides that, in any class action maintained under subdivision (b)
(3), each class member shall be advised that he has the right to exclude himself from the
action on request or to enter an appearance through counsel, and further that the
judgment, whether favorable or not, will bind all class members not requesting exclusion.
To this end, the court is required to direct to class members “the best notice practicable
under the circumstances, including individual notice to all members who can be
identified through reasonable effort.” We think the import of this language is
unmistakable. Individual notice must be sent to all class members whose names and
addresses may be ascertained through reasonable effort.

The Advisory Committee’s Note to Rule 23 reinforces this conclusion. See 28

U.S.C. App., p. 7765. The Advisory Committee described subdivision (c)(2) as “not
merely discretionary” and added that the “mandatory notice pursuant to subdivision (c)
(2)… is designed to fulfill requirements of due process to which the class action
procedure is of course subject.” Id., at 7768. The Committee explicated its incorporation
of due process standards by citation to Mullane v. Central Hanover Bank & Trust Co.,
339 U.S. 306 (1950), and like cases.

In Mullane the Court addressed the constitutional sufficiency of publication notice

rather than mailed individual notice to known beneficiaries of a common trust fund as
part of a judicial settlement of accounts. The Court observed that notice and an
opportunity to be heard were fundamental requisites of the constitutional guarantee of
procedural due process. It further stated that notice must be “reasonably calculated,
under all the circumstances, to apprise interested parties of the pendency of the action and
afford them an opportunity to present their objections.” Id., at 314…. The Court then
held that publication notice could not satisfy due process where the names and addresses
of the beneficiaries were known…. In such cases, “the reasons disappear for resort to
means less likely than the mails to apprise them of [an action’s] pendency.” Id., at
318….

Viewed in this context, the express language and intent of Rule 23(c)(2) leave no
doubt that individual notice must be provided to those class members who are identifiable
through reasonable effort. In the present case, the names and addresses of 2,250,000
class members are easily ascertainable, and there is nothing to show that individual notice

jurisdiction.
cannot be mailed to each. For these class members, individual notice is clearly the “best
notice practicable” within the meaning of Rule 23(c)(2) and our prior decisions.

Petitioner contends, however, that we should dispense with the requirement of

individual notice in this case, and he advances two reasons for our doing so. First, the
prohibitively high cost of providing individual notice to 2,250,000 class members would
end this suit as a class action and effectively frustrate petitioner’s attempt to vindicate the
policies underlying the antitrust and securities laws. Second, petitioner contends that
individual notice is unnecessary in this case, because no prospective class member has a
large enough stake in the matter to justify separate litigation of his individual claim.
Hence, class members lack any incentive to opt out of the class action even if notified.

The short answer to these arguments is that individual notice to identifiable class
members is not a discretionary consideration to be waived in a particular case. It is,
rather, an unambiguous requirement of Rule 23. As the Advisory Committee’s Note
explained, the Rule was intended to insure that the judgment, whether favorable or not,
would bind all class members who did not request exclusion from the suit. 28 U.S.C.
App., pp. 7765, 7768. Accordingly, each class member who can be identified through
reasonable effort must be notified that he may request exclusion from the action and
thereby preserve his opportunity to press his claim separately or that he may remain in
the class and perhaps participate in the management of the action. There is nothing in
Rule 23 to suggest that the notice requirements can be tailored to fit the pocketbooks of
particular plaintiffs.13

Petitioner further contends that adequate representation, rather than notice, is the
touchstone of due process in a class action and therefore satisfies Rule 23. We think this
view has little to commend it. To begin with, Rule 23 speaks to notice as well as to
adequacy of representation and requires that both be provided. Moreover, petitioner’s
argument proves too much, for it quickly leads to the conclusion that no notice at all,
published or otherwise, would be required in the present case. This cannot be so, for
quite apart from what due process may require, the command of Rule 23 is clearly to the
contrary. We therefore conclude that Rule 23(c)(2) requires that individual notice be sent
to all class members who can be identified with reasonable effort.14

13
Petitioner also argues that class members will not opt out because the statute of
limitations has long since run out on the claims of all class members other than petitioner.
This contention is disposed of by our recent decision in American Pipe & Construction
Co. v. Utah, 414 U.S. 538 (1974), which established that commencement of a class
action tolls the applicable statute of limitations as to all members of the class.
14
We are concerned here only with the notice requirements of subdivision (c)(2), which
are applicable to class actions maintained under subdivision (b)(3). By its terms
subdivision (c)(2) is inapplicable to class actions for injunctive or declaratory relief
maintained under subdivision (b)(2). Petitioner’s effort to qualify his suit as a class
action under subdivisions (b)(1) and (b)(2) was rejected by the Court of Appeals....
 We also agree with the Court of Appeals that petitioner must bear the cost of
notice to the members of his class. The District Court reached the contrary conclusion
and imposed 90% of the notice cost on respondents. This decision was predicated on the
court’s finding, made after a preliminary hearing on the merits of the case, that petitioner
was “more than likely” to prevail on his claims. Apparently, that court interpreted Rule
23 to authorize such a hearing as part of the determination whether a suit may be
maintained as a class action. We disagree.

We find nothing in either the language or history of Rule 23 that gives a court any
authority to conduct a preliminary inquiry into the merits of a suit in order to determine
whether it may be maintained as a class action. Indeed, such a procedure contravenes the
Rule by allowing a representative plaintiff to secure the benefits of a class action without
first satisfying the requirements for it. He is thereby allowed to obtain a determination on
the merits of the claims advanced on behalf of the class without any assurance that a class
action may be maintained. This procedure is directly contrary to the command of
subdivision (c)(1) that the court determine whether a suit denominated a class action may
be maintained as such “[a]s soon as practicable after the commencement of [the]
action....”….

Additionally, we might note that a preliminary determination of the merits may

result in substantial prejudice to a defendant, since of necessity it is not accompanied by
the traditional rules and procedures applicable to civil trials. The court’s tentative
findings, made in the absence of established safeguards, may color the subsequent
proceedings and place an unfair burden on the defendant.

In the absence of any support under Rule 23, petitioner’s effort to impose the cost
of notice on respondents must fail. The usual rule is that a plaintiff must initially bear the
cost of notice to the class. The exceptions cited by the District Court related to situations
where a fiduciary duty pre-existed between the plaintiff and defendant, as in a
shareholder derivative suit.15 Where, as here, the relationship between the parties is truly
adversary, the plaintiff must pay for the cost of notice as part of the ordinary burden of
financing his own suit.

Petitioner has consistently maintained, however, that he will not bear the cost of
notice under subdivision (c)(2) to members of the class as defined in his original
complaint. See 479 F.2d, at 1008; 52 F.R.D., at 269. We therefore remand the cause
with instructions to dismiss the class action as so defined.16

15
See, e. g., Dolgow v. Anderson, 43 F.R.D. 472, 498-500 (EDNY 1968). We, of
course, express no opinion on the proper allocation of the cost of notice in such cases.
16
The record does not reveal whether a smaller class of odd-lot traders could be defined,
and if so, whether petitioner would be willing to pay the cost of notice to members of
such a class. We intimate no view on whether any such subclass would satisfy the
requirements of Rule 23. We do note, however, that our dismissal of the class action as
originally defined is without prejudice to any efforts petitioner may make to redefine his
class either under Rule 23(c)(4) or Fed. Rule Civ. Proc. 15.
 The judgment of the Court of Appeals is vacated and the cause remanded for
proceedings consistent with this opinion.

Mr. Justice DOUGLAS, with whom Mr. Justice BRENNAN and Mr. Justice
MARSHALL concur, dissenting in part.

While I am in general agreement with the phases of this case touched on by the
Court, I add a few words because its opinion does not fully explore the issues which will
be dispositive of this case on remand to the District Court.

Federal Rule Civ. Proc. 23(c)(4) provides: “When appropriate (A) an action may
be brought or maintained as a class action with respect to particular issues, or (B) a class
may be divided into subclasses and each subclass treated as a class, and the provisions of
this rule shall then be construed and applied accordingly.”

As Judge Oakes, speaking for himself and Judge Timbers, said below:

“The plaintiff class might, for example, be divided into much smaller
subclasses… of odd lot buyers for particular periods, and one subclass treated as a
test case, with the other subclasses held in abeyance. Individual notice at what
would probably be a reasonable cost could then be given to all members of the
particular small subclass who can be easily identified.” 479 F.2d 1005,
1023(dissenting from denial of rehearing en banc).
 Or a subclass might include those on monthly investment plans, or payroll
deduction plans run by brokerage houses.1 The possibilities, though not infinite, are
numerous.

The power to create a subclass is clear and unambiguous. Who should be

included and how large it should be are questions that only the District Court should
resolve. Notice to each member of the subclass would be essential under Rule 23(c)(2);
and under Rule 23(c)(2)(A) any notified member may opt out. There would remain the
question whether the subclass suit is manageable. But since the subclass could be chosen
in light of the non-manageability of the size of the class whose claims are presently
before us, there is no apparent difficulty in that sense.

The statute of limitations, it is argued, has run or is about to run on many of these
classes. We held in American Pipe & Construction Co. v. Utah, 414 U.S. 538 , that the
start of a class action prior to the running of the statute protects all members of the class.
Whether that rule should obtain for the benefit of other members who could have been
included in the subclass bringing suit, but for the manageability issue, is a question we
have not decided.2 Moreover, if the subclass sues and wins or sues and loses, questions
covering the rights of members of the larger class who are not parties would be raised.
1
The parties and courts below concentrated on whether a class action could be
sustained on behalf of all six million odd-lot investors, so that the record is limited in
information bearing on what manageable subclasses could be created.

There is, nonetheless, indication that certain subclasses might be economically

manageable. Counsel for respondent Carlisle & Jacquelin stated in oral argument before
the Court of Appeals that 100,000 shareholders participate in his client’s Monthly
Investment Plan, and that Carlisle & Jacquelin corresponds with those investors. Merrill
Lynch corresponds with 150,000 people participating in a payroll deduction investment
plan. Whether Eisen or any other plaintiff who may come forward to intervene fits in
such a subclass, we do not know. But if brokerage houses correspond regularly in the
course of business with such odd-lot investors, the marginal cost of providing the
individual notice required by Rule 23(c)(2) might be nothing more than printing and
stuffing an additional sheet of paper in correspondence already being sent to the investor,
or perhaps only programing a computer to type an additional paragraph at the bottom of
monthly or quarterly statements regularly mailed by the brokers.

A subclass of those who had engaged in numerous transactions might also be

defined, so that the recovery per class member might be large enough to justify the cost
of notice and management of the [417 U.S. 156, 181] action. A survey of only four of
14 wire firms revealed 2,000 customers with 10 or more transactions between 1962 and
1966. 52 F.R.D. 253, 259, 267, and n. 10.

By defining more definite subclasses such as those discussed, moreover, the

problems inherent in distributing an eventual judgment would be reduced. Class
members would be more readily identifiable, with more readily accessible transaction
records and individually provable damages.
These are questions we have not answered. 3 But the fact that unresolved questions of
law would remain is not an insurmountable obstacle, and Rule 23(c)(4)(B) expressly
authorizes subclasses to sue in lieu of a full class.

***

The Court permits Eisen to redefine his class either by amending his complaint
pursuant to Fed. Rule Civ. Proc. 15, or by proceeding under Rule 23(c)(4). While Eisen
may of course proceed by amending his complaint to define a subclass, it is clear that he
need not do so.6 Definition of the subclass would properly be accomplished by order of
the District Court, as permitted by Rules 23(c)(4) and 23(c)(1), without amendment of the
complaint as filed. While the complaint alleges that Eisen sues on his behalf and on
behalf of all purchasers and sellers of odd lots, it adds, “Plaintiff will fairly insure the
adequate representation of all such persons.” Problems of manageability covered by Rule
23(b)(3)(D) arise only after issues are joined and the District Court is engaged in shaping
up the litigation for a trial on the merits. If it finds that a subclass would be more
appropriate, no new action need be started nor any amended complaint filed….

It is as plain as words can make it that the court which decides that a full class
action can be maintained can alter or amend its order “before the decision on the merits.”
One permissible way in which the court’s order may be changed is to have it “altered” as
provided in Rule 23(c)(1) by reducing the larger class to a subclass as provided in the
same subsection - Rule 23(c)(4)(B). The prerequisites of a class cause of action are
described in Rule 23(a). In the instant case that hurdle has been passed and we are at the
stage of notice requirements and manageability. Not an iota of change is made in the
cause of action by restricting it to a subclass.

The purpose of Rule 23 is to provide flexibility in the management of class

actions, with the trial court taking an active role in the conduct of the litigation…. Lower
2
In this case, the entire class was defined in the original complaint, and the defendants
were put on notice within the period of limitation of their potential liability, serving the
purpose of the statute of limitations even if the substantive merits were eventually to be
prosecuted in the form of a subclass action with the class action held in abeyance.
“Within the period set by the statute of limitations, the defendants have the essential
information necessary to determine both the subject matter and size of the prospective
litigation, whether the actual trial is conducted in the form of a class action, as a joint suit,
or as a principal suit with additional intervenors.” American Pipe & Construction Co. v.
Utah, 414 U.S. 538, 555….
6
Were Eisen to be remitted to an individual action, as he would be if he refused to pay
the cost of notice even to a subclass, amendment of the complaint might be called for by
the District Court. Under Rule 23(d)(4), the District Court may in some instances require
that pleadings be amended to eliminate class allegations. The Advisory Committee Notes
indicate that this provision is to be applied only when a suit must proceed as a nonclass,
individual action, not when, as here, an appropriate class exists and the action must be
prosecuted in the first instance by a subclass only because of problems of manageability.
See 28 U.S.C. App., p. 7767.
federal courts have recognized their discretion to define those subclasses proper to
prosecute an action without being bound by the plaintiff’s complaint…. And, as Rule
23(c)(1) clearly indicates, the courts retain both the power and the duty to realign classes
during the conduct of an action when appropriate…. That discretion can be fully retained
only if the full-class complaint is preserved when a subclass is defined to prosecute the
action. The bounds of the subclass can then be narrowed or widened by order of the
District Court as provided in Rule 23(c)(1), without need to amend the complaint and
without the constraints which might exist if the complaint had earlier been amended
pursuant to Rule 15 to include only the subclass.

I agree with Professor Chafee that a class action serves not only the convenience
of the parties but also prompt, efficient judicial administration. 7 I think in our society
that is growing in complexity there are bound to be innumerable people in common
disasters, calamities, or ventures who would go begging for justice without the class
action but who could with all regard to due process be protected by it. Some of these are
consumers whose claims may seem de minimis but who alone have no practical recourse
for either remuneration or injunctive relief. Some may be environmentalists who have no
photographic development plant about to be ruined because of air pollution by radiation
but who suffer perceptibly by smoke, noxious gases, or radiation. Or the unnamed
individual may be only a ratepayer being excessively charged by a utility, or a
homeowner whose assessment is slowly rising beyond his ability to pay.

The class action is one of the few legal remedies the small claimant has against
those who command the status quo…. I would strengthen his hand with the view of
creating a system of law that dispenses justice to the lowly as well as to those liberally
endowed with power and wealth.