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In re Cendant Corp. Litigation

November 18, 1998


The opinion of the court was delivered by: William H. Walls, U.S.D.J.



Walls, District Judge

This matter comes before the Court on the motion of plaintiff Alan E. Casnoff to clarify the May 29, 1998 Consolidation Order or, in the alternative, for an order providing for the appointment of separate lead plaintiff and lead counsel and the motion of plaintiff Dr. Lisa Lewis to clarify or modify the Order of August 24, 1998. Oral argument by the parties was heard on October 23, 1998. For the reasons that follow, the motions of plaintiffs Lewis and Casnoff are denied. FACTS

On May 29, 1998, Magistrate Judge Pisano, by order, consolidated the fifty-two suits then pending against Cendant Corporation, many of its senior officers and directors, it predecessor, CUC International, Inc., Ernst & Young (the accounting firm for CUC), and various other party defendants. The order also consolidated all related actions filed with the Court after the date of the order. On July 16 and July 20, respectively, Lewis and Casnoff filed complaints against Cendant and other defendants on behalf of all purchasers of Cendant's common stock between April 15, 1998 and July 14, 1998. On August 24, 1998, the Magistrate Judge consolidated these two actions with the others based on his May consolidation order.

Both Lewis and Casnoff now request that their actions be removed from the earlier Cendant litigation. They argue that their class is entirely different from that of the consolidated Cendant litigation because their class period (April 15, 1998 to July 14, 1998) begins when the class period in the underlying litigation ends (April 14, 998). They assert that their claims arise from separate misrepresentations and wrongdoing by the defendants. Specifically, the petitioners maintain that the claims of the consolidated class are based upon Cendant's April 15, 1998 disclosure that its earnings for 1997 would be restated due to potential accounting irregularities during 1997. In contrast, according to them, the claims of their class of Cendant common stock purchasers between April 15, 1998 and July 14, 1998 are based upon Cendant's July 14, 1998 disclosure that the 1997 earnings would be reduced by a greater amount than earlier anticipated and that 1995 and 1996 earnings would also be restated. They argue that the April 15, 1998 disclosure was false and misleading and that their claims do not share common issues of fact and law with the underlying litigation. The Court is asked to create a separate and distinct class designation for those who purchased Cendant's common stock between April 15, 1998 and July 14, 1998.

As an alternate remedy, plaintiff Casnoff argues that if his action is consolidated with the others, the Court should appoint him lead plaintiff for the class of the April 15-July 14 period. Casnoff urges the Court to do so because the "Casnoff [class] requires representation by separate lead counsel throughout the litigation in order to protect its separate and distinct interests." (Pl. Casnoff's Mem. in Supp. of Mot. to Clarify at 8-9.) Finally, he argues that if the "Court ultimately determines to maintain its consolidation of the Casnoff action into the underlying Cendant Litigation . . . , the bidding for Lead Counsel in the underlying litigation [should] have no effect on appointment of lead counsel in the Casnoff action." (Id. at 9.)


A. The Lewis and Casnoff Actions Were Properly Consolidated with the Other Pending Actions

The Court consolidated all actions relating to the Cendant case pursuant to Fed.R.Civ.P. 42(a) because they present common issues of law and fact and it is in the interests of judicial economy to do so:

When actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated; and it may make such orders concerning proceedings therein as may tend to avoid unnecessary cost or delay. Fed. R. Civ. P. 42(a).

Such a consolidation is common in federal securities class action cases. See, e.g. Wright & Miller, 9 Federal Practice & Procedure: Civil 2d (1994) at §§ 2384-95. The Private Securities Litigation Reform Act of 1995 ("PSLRA") directs that cases should be consolidated where, as here, there is "more than one action on behalf of a class asserting substantially the same claim or claims." See 15 U.S.C. § 78u- 4(a)(3)(B)(ii).

Neither Rule 42 nor the PSLRA demands that actions be identical before they may be consolidated. Rule 42 requires only "a common question of law or of fact;" the PSLRA permits consolidation of cases with "substantially the same claim or claims arising under" the securities laws. 15 U.S.C. § 78-u(a)(3)(B)(ii). Courts which have addressed the issue have held that differing class periods alone will not defeat consolidation or create a conflict. See, e.g. In re Olsten Corp. Securities Litig., 3 F.Supp.2d 286, 293 (E.D.N.Y., 1998)(consolidating securities fraud class action cases even though the class periods were slightly different); Lax v. First Merchants Acceptance Corp., 1997 WL 461036, *7 ("varying class periods . . . can nevertheless be harmonized because all of the complaints are based upon a common set of operative facts."); Chan v. Orthologic Corp., No. CIV 96-1514 PHX RCV, slip op at 6-8 (D. Ariz. Dec. 19, 1996)(no conflict at early stage of litigation between plaintiff groups with different class periods; Malin v. IVAX Corp., No. 96-1843-CIV-MORENO, slip op. At 6-7 (S.D. Fla. Nov. 1, 1996)(later purchaser can adequately represent entire class because amended complaint will include all class periods).

All the actions consolidated by this Court are based on securities fraud claims that arise from a common course of conduct. The dates on which the misrepresentations occurred do not change their nature. Both the April and July statements disclosed false and allegedly fraudulent conduct. Lewis and Casnoff argue that the April statement was itself fraudulent because it downplayed or failed to disclose the extent of the accounting irregularities. They claim that the plaintiff class in the underlying litigation believed that the April statement disclosed the truth and based their claims accordingly. Instead, their claims are grounded upon the July declaration which allegedly revealed the April statement ...

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