The opinion of the court was delivered by: BRYAN
FREDERICK van PELT BRYAN, District Judge:
Defendant Kestenberg moves pursuant to Rules 12(b)(6) and 23, F.R.Civ.P., to dismiss this suit as a class action upon the ground that this is not an appropriate case for the maintenance of a class action. The two other individual defendants have joined in the motion.
A previous motion to dismiss as a class action on the same ground, made by these three defendants, was denied by Judge Palmieri in an opinion dated August 16, 1966. Judge Palmieri held that at that stage of the case it appeared (1) that there were "sufficient common questions of law and fact to permit this action to proceed subject to certain conditions;" (2) "that a class action is superior to other available methods for the fair and efficient adjudication of the controversy;" and (3) that the contention that the class was not adequately defined was not well taken, and that "it cannot be said that the named plaintiffs do not adequately represent the class."
Judge Palmieri's opinion thoroughly discusses the basis of the action, and the factual and legal considerations bearing on a motion of this nature. It is unnecessary to repeat that discussion here.
The order entered on his opinion dated October 28, 1966, denied defendants' motion without prejudice to a renewal
"if at any time during or after pretrial proceedings the facts reveal (a) that the alleged misrepresentations were so varied as to render inappropriate a class action or (b) that the named plaintiffs do not adequately represent the class."
It directed that the action was to be divided into two sub-classes covering respectively the first and second counts of the complaint; that a list of all unnamed plaintiffs should be prepared and that the attorneys for the plaintiffs should send a notice pursuant to Rule 23(c) (2) in the form and language prescribed by the order to each of the unnamed plaintiffs giving each the option to request exclusion from this litigation with returns to be filed with the clerk of the court. Finally, the order enjoined the prosecution of any claims for relief by any unnamed member of the sub-class, except those who elected to exclude themselves from this litigation.
The notice to be sent to all members of the class prescribed by Judge Palmieri's order after describing the nature of the action stated that it was a class action on behalf of the members of the class; that a judgment would finally adjudicate the rights of all class members who did not request exclusion whether or not they joined in the action; that only those class members who elected to exclude themselves from the litigation would be free to commence or further prosecute separate actions for the relief sought; and that any member of the class not requesting exclusion might enter an appearance through his counsel. It required any class member who desired to be excluded from the litigation to sign a form so signifying and return it to the clerk of the court.
The prescribed notice was sent to all members of the two sub-classes. It was accompanied by a letter from the attorneys for the plaintiffs which was unauthorized by Judge Palmieri and which will be referred to again later. Infra, p. 625. A number of elections to be excluded were received but, not surprisingly, a substantial majority of the members of the class did not reply at all.
Defendants' renewed motion to dismiss proceeds on the theory that since Judge Palmieri's decision circumstances have so radically changed as to demonstrate that this suit is not properly maintainable as a class action. In the light of Judge Palmieri's well-considered opinion and the determinations which he made I do not think that the defendants have made such a demonstration.
The facts upon which defendants rely are as follows:
When defendants moved before Judge Palmieri three separate actions in the New York Supreme Court were pending against these defendants charging fraud in the sale of the securities involved in the suit at bar. None of these were class actions. In one of them (Samuels) based upon state statutes the eight plaintiffs were represented by the same attorneys who represent the plaintiffs here. On the prior motion the impression was apparently given to Judge Palmieri that the eight Samuels plaintiffs would join in the suit at bar as members of the class. However, there was no commitment to that effect and after the entry of Judge Palmieri's order they all elected to be excluded from this suit. The form of Judge Palmieri's order permitted them to make such an election.
The plaintiffs in a second state court action pending when the prior motion was made (Guvarin) have also elected to exclude themselves from this action. Such election was permitted by Judge Palmieri's order and the Guvarin plaintiffs were within their rights in so doing. A third state court action falls within the terms of the ...