The opinion of the court was delivered by: Walls, District Judge.
Pursuant to Federal Rule of Civil Procedure 23(e), Lead
Plaintiffs, the New York State Common Retirement Fund ("NYSCRF"),
the California Public Employees' Retirement System ("CalPERS")
and the New York City Pension Fund ("NYCPF"), move for (i)
approval of two settlements, one with Cendant Corporation
("Cendant") and the HFS Individual Defendants named below, and
one with Ernst & Young LLP ("E & Y"), and (ii) approval of the
Plan of Allocation of the Net Settlement Fund. The Cendant
settlement provides for a payment to the class of $2,851,500,000
in cash, provides for additional payment to the class from
Cendant and the HFS Individual Defendants in the event they
recover damages in their suits against E & Y — 50% of any
recovery — and imposes certain corporate governance changes on
Cendant. The E & Y settlement provides for a cash payment of
$335,000,000 to the class. For the reasons stated, the
settlements and Plan of Allocation are approved.
Cendant was formed by the merger of CUC International, Inc.
("CUC") and HFS Incorporated ("HFS") on December 17, 1997. CUC,
the surviving corporation, was renamed Cendant after the merger.
Holders of HFS common stock were issued shares of CUC common
stock pursuant to a Registration Statement dated August 28, 1997
and a Joint Proxy Statement/Prospectus. Am. Compl. ¶ 33.
On March 31, 1998, Cendant filed its Form 10-K Annual Report
with the SEC including its 1997 financial statements. Two weeks
later, after the close of the stock market on April 15, 1998,
Cendant announced that it had discovered accounting
irregularities in certain former CUC business units. As a result,
it announced that it expected to restate its annual and quarterly
financial statements for 1997 and possibly for earlier periods as
well. The next day, Cendant's stock fell 47%, from $35-5/8 to
$19-1/16 per share. Shareholder suits were then filed in this and
other districts against Cendant, its officers and directors, and
other parties including E & Y. E & Y had acted as CUC's
independent public accountant from 1983 through the formation of
Cendant, and post-merger audited the financial statements of
Cendant Membership Services ("CMS"),*fn1 a wholly-owned
subsidiary of Cendant, for the year ended December 31, 1997.
These financial statements of CMS were consolidated into
Cendant's financial statements and included in Cendant's Form
10-K for the 1997 fiscal year. On July 14, 1998, Cendant
announced that it would also restate CUC's annual and quarterly
financial statements for 1995 and 1996. Following this
announcement, Cendant's stock fell by another 9% to $15-11/16 per
share. Finally, on August 28, 1998, Cendant filed with the SEC a
report prepared by Willkie Farr & Gallagher ("WF & G"), the law
firm it had engaged to perform an independent investigation,
which disclosed, among other things, that Cendant would restate
its 1995, 1996, and 1997 financial statements by approximately
$500 million. Cendant's stock then fell 11% to $11-5/8 on August
31, 1998, the first trading day after Cendant's disclosure of the
Following the selection of Lead Plaintiffs and approval of Lead
Counsel (the process is addressed in companion opinion discussing
Lead Counsel's fee request), on December 14, 1998, Lead
Plaintiffs filed an amended and consolidated class action
complaint on behalf of all persons and entities who purchased or
acquired Cendant or CUC publicly traded securities, excluding
PRIDES, during the period of May 31, 1995 through August 28, 1998
(the "class period"), and were injured thereby. Concurrently,
plaintiffs filed a motion for class certification, granted on
January 27, 1999.
The Amended Complaint named as defendants Cendant, E & Y, and
individual officers and directors of Cendant, CUC, and HFS. Lead
Plaintiffs alleged that defendants Walter A. Forbes, E. Kirk
Shelton, Christopher K. McLeod, Cosmo Corigliano, and Anne M.
Pember, officers of CUC before the merger, reviewed or were aware
of the false and misleading statements alleged in the complaint,
and "were in a position to control or influence their contents or
otherwise cause corrective or accurate disclosures to have been
made." Am. Compl. ¶¶ 16-17. The complaint asserted that the
following defendants, together with defendants Walter Forbes,
Shelton, and McLeod, were members of CUC's Board of Directors
before the merger, signed the Registration Statement, and were
named therein as directors of Cendant upon the completion of the
merger: Burton C. Perfit, T. Barnes Donnelley, Stephen A.
Greyser, Kenneth A. Williams, Barlett Burnap, Robert R.
Rittereiser, and Stanley M. Rumbough, Jr. Id. at ¶ 18 (all of
the named officers and directors of CUC are referred to
collectively as the "CUC Individual Defendants"). The following
defendants, except Scott Forbes, were directors of HFS before the
merger and were named in the Registration Statement as directors
Cendant upon the completion of the merger: Henry R. Silverman,
John D. Snodgrass, Michael P. Monaco, James E. Buckman, Scott E.
Forbes, Steven P. Holmes, Robert D. Kunisch, Leonard S. Coleman,
Christel DeHaan, Martin L. Edelman, Brian Mulroney, Robert E.
Nederlander, Robert W. Pittman, E. John Rosenwald, Jr., Leonard
Schutzman, and Robert F. Smith (collectively, the "HFS Individual
Defendants"). Scott Forbes served as the Senior Vice
President-Finance of HFS and then Cendant from August 24, 1993 to
April 15, 1998, and later the Executive Vice President and Chief
Accounting Officer of Cendant.
Plaintiffs claimed that defendants made several materially
false and misleading statements during the class period.
Plaintiffs alleged that a number of CUC and Cendant's filings
with the SEC from June 1995 through April 1998 were materially
false and misleading as were their press releases from May 31,
1995 through June 2, 1998 in which they announced their quarterly
and annual earnings. Am. Compl. ¶¶ 66-67. These press releases
and SEC filings, according to plaintiffs, contained or
incorporated by reference Cendant and CUC financial statements
that were not prepared in conformity with Generally Accepted
Accounting Principles ("GAAP") and contained other assertions
that were materially false and misleading. Am. Compl. ¶¶ 68-82.
In particular, plaintiffs alleged that Cendant and CUC overstated
their revenues, net income, and operating income for the 1995,
1996, and 1997 fiscal years through various improper accounting
practices. These included manipulation of merger reserves
(reserves created which consist of the anticipated future costs
of a business combination), irregular revenue recognition
practices, CUC's improper accounting for membership
cancellations, as well as a number of other improper accounting
practices by CUC and its subsidiaries including Comp-U-Card. Am.
Compl. ¶¶ 71-78.
In addition, plaintiffs asserted that the August 28, 1997
Registration Statement and the Joint Proxy Statement/Prospectus
were materially false and misleading because of the financial
statements incorporated by reference therein, misrepresentations
contained in the Merger Agreement which was an appendix to the
Joint Proxy Statement/Prospectus, and misrepresentations
regarding the "due diligence" conducted by HFS in connection with
the merger. Am. Compl. ¶¶ 86-102. The complaint further
maintained that E & Y failed to audit CUC's annual and quarterly
reports for 1995, 1996, and 1997 in accordance with Generally
Accepted Auditing Standards ("GAAS") and review standards
established by the American Institute of Certified Public
Accountants (the "AICPA"). Am. Compl. ¶ 7. Plaintiffs claimed
that E & Y's misrepresentations included: its assertions in its
certifications that it had audited CUC's financial statement in
accordance with GAAS; that it had planned and performed those
audits to obtain reasonable assurance that the financial
statements were free of material misstatements; that in its
opinion, CUC's financial statements presented CUC's financial
position fairly, in conformity with GAAP; and that its audits
provided a "reasonable basis" for its opinions. Am. Compl. ¶ 134.
Plaintiffs plead that all defendants violated § 11 of the
Securities Act of 1933 (the "Securities Act"), 15 U.S.C. § 77k;
that Cendant violated § 12(a)(2) of the Securities Act,
15 U.S.C. § 77l(a)(2); that defendants Walter Forbes, Shelton, McLeod,
and Corigliano violated § 15 of the Securities Act,
15 U.S.C. § 77o; that defendants Cendant, Walter Forbes, Shelton, McLeod,
Corigliano, Pember, Silverman, Snodgrass, Monaco, Buckman, Scott
Forbes, and E & Y violated § 10(b) of the Securities Exchange Act
of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b) and Rule 10b-5,
17 C.F.R. § 240.10b-5; that defendants Walter Forbes, Shelton,
McLeod, Corigliano, Pember, Silverman, Snodgrass, Monaco,
Buckman, and Scott Forbes violated
§ 20(a) of the Exchange Act, 15 U.S.C. § 78t(a); that defendants
Walter Forbes, Shelton, McLeod, Corigliano, Silverman, Snodgrass,
and Buckman violated § 20A of the Exchange Act,
15 U.S.C. § 78t-1; and that Cendant, the HFS Individual Defendants except
Scott Forbes, and the CUC Individual Defendants except Pember
violated § 14(a) of the Exchange Act, 15 U.S.C. § 78n(a) and Rule
14a-9, 17 C.F.R. § 240.14a-9.
Lead Plaintiffs successfully defended this Amended Complaint
against defendants' motions to dismiss. In July 1999, the Court
denied all motions except for E & Y's to dismiss plaintiffs'
Section 10(b) and Rule 10b-5 claims against it for stock
purchases made after April 15, 1998. See In re Cendant Corp.
Litig., 60 F. Supp.2d 354 (D.N.J. 1999).
B. Lead Plaintiffs' Argument In Support of Settlement
Cendant's $2.8 billion payment represents approximately 37% of
Lead Plaintiffs' estimate of reasonable compensation damages of
$8.5-8.8 billion,*fn2 and over 58% of Cendant's estimated
damages. Joint Decl. ¶ 131. This settlement provides for
potential additional recovery for the class of 50% of any net
recovery that Cendant or the HFS Defendants receive in any
litigation against E & Y. Further, through the settlement Cendant
is bound to institute significant corporate governance
improvements. In exchange, the class agrees to release: "all
claims that were, or could have been, brought against the CUC
Defendants (who were not parties to the Stipulation), Cendant,
and the HFS Individual Defendants." Lead Counsel continue:
Inclusion of the CUC Individual Defendants was a
non-negotiable condition of the Cendant Settlement.
Cendant insisted that (i) it did not want lingering
cross or indemnity claims against the Company made by
any CUC Individual Defendant; and (ii) it was
necessary to preserve claims against those
individuals, who are not settling parties, and
against the liability insurance policies covering
those individuals, to the maximum extent allowed by
law. Lead Plaintiffs and Lead Counsel believe that
such a condition was reasonable, and agreed to it in
order to obtain the outstanding recovery for the
The entire amount of the Cendant settlement will earn interest
for the class beginning on the earlier of August 20, 2000 or five
days after settlement approval. The amount will be paid into an
escrow account within 120 days after the approval becomes final.
The E & Y settlement of $335 million "is the largest amount
ever paid by an accounting firm in a securities class action."
Brf. at 1. It earns interest for the benefit of the class as of
April 14, 2000. The settlement amount and any interest will be
deposited into escrow no later than 90 days after settlement
2. The Plan of Allocation
The plan calculates loss amounts per Cendant share, note, or
option for each day in the class period, based on the amount of
artificial inflation caused by CUC and Cendant's issuance of
materially false and misleading financial statements and other
financial information. Each shareholder's settlement payment,
then, depends on the date his or her shares were acquired (and,
if applicable, sold). See Section G, below.
Further, the plan recognizes Section 11 claims of those who
acquired Cendant common stock in exchange for HFS shares at
merger. The interests of these class members will be calculated
under the damages provision of Section 11. See n. 10. If
Section 11 damages are greater than losses determined under
Section 10(b), a plaintiff will receive Section 11 statutory
damages, if not, he or she will receive Section 10(b) damages.
Lead Plaintiffs assert that the proposed settlements are fair,
reasonable and adequate and should be approved by the Court. See
In re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab.
Litig., 55 F.3d 768 (3d Cir. 1995). Factors to be considered
(1) the complexity, expense, and likely duration of
the litigation . . .; (2) the reaction of the class
to the settlement . . .; (3) the stage of the
proceedings and the amount of discovery completed . .
.; (4) the risks of establishing liability . . .; (5)
the risks of establishing damages . . .; (6) the
risks of maintaining the class action through the
trial . . .; (7) the ability of the defendants to
withstand a greater judgment; (8) the range of
reasonableness of the settlement fund in light of the
best possible recovery . . .; [and] (9) the range of
reasonableness of the settlement fund to a possible
recovery in light of all the attendant risks of
Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir. 1975); see also
Coffee Decl. ¶ 17.
In regard to the first factor, Lead Plaintiffs assert that the
claims "involve numerous complex legal and technical accounting
issues." Additionally, "because this case settled prior to the
taking of depositions and pre-trial preparation, there is no
question that continued litigation would have greatly increased
the expense and duration of this action." Brf. at 13; see also
In re Ikon Office Solutions, Inc. Securities Litig., 194 F.R.D.
166 (E.D.Pa. 2000), cited in Coffee Decl. ¶ 17 ("in the absence
of a settlement, this action will likely extend for months or
even years longer"). Finally, even if a larger judgment were
received at trial, additional delay would likely occur through
the appellate process.
The second factor is linked to the number of objectors to
settlement. Here, out of 478,000 notices of settlement sent,
three class members object to the settlements (Tere Throenle,
Betty Duncan (to the E & Y settlement) and Robert and Janice
Davidson (objecting on behalf of themselves and various trusts)).
An additional class member objects to the Plan of Allocation (Ann
Mark). Two other objections by non-class members were filed, one
by Martin Deutch, derivative action plaintiff, and the other by
the State Board of Administration of Florida. Lead Plaintiffs
state that the four class member objectors "collectively have
losses constituting less than 1/10,000 of 1% of the Class's
damages." Reply Brf. at 2. The objectors' holdings are described:
• Tere Throenle purchased 100 shares of Cendant stock
on April 17, 1998 and lost approximately $600;
• Betty Duncan, trustee of the Esther J. Johnston
Trust, bought an unspecified number of CUC 3% Notes
and claims a $1,294 loss;
• The Davidsons, as individuals and trustees,
received CUC stock in July 1996 when their business
was merged into the company, "and by year end had
sold over 80% of it for $635 million — most of that
• Ann Mark exchanged 100 HFS shares for 240 CUC
shares in the merger and also purchased 400 shares
in the open market.
The third factor looks to the stage of the proceedings. Here,
Lead Counsel contend that they "conducted a thorough and
efficient investigation and analysis" of all claims. As example,
they hired a damages expert and an investment banking expert to
evaluate Cendant's ability to contribute to settlement. See
Joint Decl. ¶¶ 112-17. They conclude "this case had advanced to a
stage where the parties `certainly [had] a clear view of the
strengths and weaknesses of their cases.'" Brf. at 16 (quoting
In re Warner Communications Securities Litig., 618 F. Supp. 735,
745 (S.D.N.Y. 1985), aff'd, 798 F.2d 35 (2d Cir. 1986)).
Lead Plaintiffs next address the fourth factor — the risks of
While Lead Counsel believe there is substantial
evidence to support the Class's claims . . . the
complexities and uncertainties of this litigation
clearly warrant approval of the Settlements. In
particular . . . the claims against E & Y and all but
two of the Individual Defendants were less [strong].
Brf. at 16-17. Moreover, because of the Private Securities
Litigation Reform Act's prohibition against collection of damages
in excess of a defendant's determined liability, "a key factor
for Lead Plaintiffs and Lead Counsel was the proportion of
liability a jury was likely to assess against Cendant, E & Y and
the 28 Individual Defendants." See 15 U.S.C. § 78u-4(f); see
generally The Private Securities Litigation Reform Act
("PSLRA"), 15 U.S.C. § 77k, 77l, 77z1, 77z-2, 78j-1, 78t, 78u,
78u-4, & 78u-5. Lead Plaintiffs add that the difficulty of
establishing E & Y's liability is even greater due to defenses
accorded to accounting firms under the PSLRA. See Coffee Decl.
¶ 17(c). As for the director-defendants, "of the 28 Individual
Defendants, 18 were non-employee, or `outside' directors of
Cendant who were named as defendants only on claims charging
violations of Section 11 of the Securities Act and Section 14 of
the Securities Exchange Act." Brf. at 18. And these outside
director-defendants possess a "due diligence" defense. Joint
Decl. ¶ 131. Moreover, the HFS inside directors could assert this
defense to Section 11 and Section 14 claims. Finally, "[o]f the
five CUC Individual Defendants who were not outside directors . .
. only [two] were identified by the Investigation as having
played an active role" in the fraud. Brf. at 19.
With reference to the fifth factor, the risks of establishing
damages, Lead Plaintiffs remark that Cendant and E & Y vigorously
disputed plaintiffs' expert's conclusion that the maximum class
damages total approximately $8.5 billion. Plaintiffs conclude
that proof of damages at trial would, at best, result in a battle
of experts with unpredictable results.
Although Lead Plaintiffs detail why defendants would be unable
to withstand a greater judgment (the seventh settlement factor),
their position can be summed up in three words — "Pennzoil vs.
Texaco." In 1985, Pennzoil obtained an $11.1 billion judgment in
Texas state court against Texaco for interference with contract.
Texaco was unable to post bond for appeal equal to the entire
amount. It instead sought bankruptcy protection and Pennzoil
eventually agreed to accept a $3 billion settlement. Lead
Plaintiffs allege that even if the maximum recovery were obtained
at trial, Cendant would be unable to post the necessary bond for
appeal, let alone pay the amount to the class.
Plaintiffs' reply brief expands their argument that 37% of the
maximum damages is a "superior result." Reply Brf. at 5. They
refer to a study of 377 securities class action settlements
between January 1991 and June 1996 made by the National Economic
Research Association, Inc. ("NERA"), which "revealed that the
average settlement comprises between 9% and 14% of plaintiffs'
claimed damages." Denise Martin et al., National Econ. Research
Ass'n, Recent Trends IV: What Explains Filings and Settlements
in Shareholder Class Actions 10-11 (NERA 1996). See also In re
Prudential Securities, Inc. L.P. Litig., MDL No. 1005, 1995 WL
798907 (S.D.N.Y. 1995) (approving settlement of between 1.6% and
5% of claimed damages); In re Crazy Eddie Securities Litig.,
824 F. Supp. 320 (E.D.N.Y. 1993) (settlement of between 6% and 10%
of damages); In re Michael Milken & Assocs. Securities Litig.,
150 F.R.D. 57 (S.D.N.Y. 1993) (7.5%).
Alternatively, they propose that reasonableness of settlements
may be evaluated by determining the corporate payor's
contribution as a percentage of its market capitalization.
According to plaintiffs, Cendant's $2.85 billion contribution
represents 21% of its 1999 average capitalization and 27% of its
July 19, 2000 market capitalization. (Plaintiffs' full amount of
damages — between $8.5 billion and $8.8 billion — represents
approximately 95% of Cendant's market capitalization of $9.21
billion as of the close of trading August 10, 2000.) By contrast,
mega-fund settlements which involved companies with
capitalizations of over $1 billion ranged from 1% (In re Waste
Management, Inc., No. 97-7709, 1999 WL 967012 (N.D.Ill. 1999))
to 7.6% (In re Informix Corp. Securities Litig., No. 97-1289
(N.D.Cal. 1999)) of total capitalization. Reply Brf. at 6-7. A
securities case in the Eastern District of Pennsylvania, In re
Ikon Office Solutions, Inc. Securities Litig., 194 F.R.D. 166
(E.D.Pa. 2000), recently settled for 6.2% of IKON's average 1999
market capitalization of $1.8 billion and between 5.2% and 8.7%
of over $1 billion in claimed damages.
Lead Plaintiffs add "a final yardstick in considering the
quality of a settlement is how much was available from insurance
to cover the claims." Here, they state that the $3.18 billion
total settlement is 12 times available insurance coverage. In
contrast, the NERA report determined that class actions
settlements typically amount to 3.4 times total insurance
proceeds. Reply Brf. at 7.
They then address approval of the Plan of Allocation, "governed
by the same standards of review applicable to the approval of the
settlement as a whole: the plan must be fair, reasonable and
adequate." In re Oracle Securities Litig., [1994-1995 Transfer
Binder] Fed. Sec. L. Rep. (CCH) ¶ 98,355 at 90,446 (N.D. Cal.
June 18, 1994) (Walker, J.). This plan is briefly explained
above. Lead Plaintiffs, relying on the work of Forensic
Economics, Inc., assert that this plan is fair, reasonable and
adequate and should be approved.
C. E & Y's Brief in Support
D. Objectors to Settlement
Derivative plaintiff, Martin Deutch, objects to the settlement
both as a current shareholder whose interest in Cendant will
allegedly be diminished as a result of settlement and as
derivative plaintiff whose derivative claims will arguably be
diminished by settlement.
He objects on the following grounds:
• The notice of settlement is defective because it
does not inform shareholders that (a) certain
derivative claims will be "compromised" and (b)
contribution claims by Cendant against at least the
HFS Individual Defendants will be barred.
• Approval of the settlement violates due process
because it compromises certain derivative claims
"even though the interests of the Derivative
Plaintiff, the Company, and its current
shareholders in those claims are not adequately
represented in the class action."
• The settlement fails to allocate Cendant's payment
to the class between Section 10(b) claims and
Section 11 claims — critical for determining the
value of remaining contribution claims if
• The settlement is "grossly unfair to Cendant and
its current shareholders because it likely
eviscerates pending state law derivative claims and
contribution claims against individual defendants,
without any payment by the individual defendants
for the release of those claims."
• The settlement is an illegal indemnification.
These objections along with Deutch's motion to intervene to
object to settlement under Federal Rule of Civil Procedure 24 are
discussed in a separate opinion. See In re Cendant Corp.
Securities Litig., 109 F. Supp.2d 235 (D.N.J. 2000).
Class members Janice and Robert Davidson object to the
settlement on behalf of themselves and as trustees of various
trusts (collectively "the Davidsons").*fn3
The Davidsons argue that given the size of their holdings,
their objections "must be given considerable weight." Dav. Brf.
at 4. Their first objection is that Lead Plaintiffs did not
adequately represent their interests. They rely on the brief
filed by Lead Counsel in a related dispute that contends that
Lead Plaintiffs did not believe the Davidsons to be class
members.*fn4 They assert that "[t]he failure of Class counsel to
represent and protect the Davidsons' interests is reason enough
to disapprove this Settlement." Id. at 6 (citing Amchem
Prods., Inc. v. Windsor, 521 U.S. 591, 627-28, 117 S.Ct. 2231,
138 L.Ed.2d 689 (1997)). Alternatively, they contend that because
they acquired shares in connection with the purchase of their
business, to effectuate settlement the court must create a
subclass to represent their status. Id.
They also argue that the proposed settlement is not fair to the
class as a whole because members are treated unequally. Here, the
settlements and Plan of Allocation are based upon a fraud on the
market theory and awards damages commensurate with such a theory.
Damages under this theory, however, "have not been shown by the
proponents of this Settlement to be the most appropriate for
class members who did not receive their shares as a result of
market transactions." Id. at 10. Further, "[t]he Plan of
Allocation essentially assumes — without proving-that the
fraudulent inflation in CUC's per share stock price increased
constantly throughout the Class period. It therefore assumes in
and out purchasers and sellers assumed no damages." Id. at 8.
Moreover, "Shareholders who acquired their shares early in the
class period and retained them are penalized in favor of
latecomers." Id. at 11.
Additionally, the Davidsons maintain that the proceedings
leading to settlement have been deficient as a matter of law
because Lead Plaintiffs were chosen when the class consisted of
purchasers between May 1997 and April 1998. The class was later
opened to those who received shares as early as May 1995
(encompassing the Davidsons). Yet, the Davidsons were never
offered Lead Plaintiff status.
Finally, they assert that the corporate governance concessions
"are entitled to no weight in this Court's consideration of the
Settlement because they provide only illusory benefit to the
class members." Id. at 15.
After the hearing of June 28, 2000, the Court allowed the
Davidsons to supplement their objections to the Plan of
Allocation. They did so. Their objections and Lead Counsel's
response are discussed in detail later.
Betty Duncan, a member of the settlement class who held CUC
Notes purchased on November 14, 1997 and sold on November 28,
1998, for loss of $1,294, objects to the settlement.
She first objects on behalf of non-institutional private
purchasers. She claims that these "smaller" investors "have no
commonality or identity of interest in terms of their financial
capacity to sustain loss, their degree of investment
diversification, or their level of sophistication as investors,
with the designated Lead Plaintiffs." Dun. Brf. at 2.
She further objects that other than the unsupported
declarations of Lead Counsel as to defendants' abilities to
sustain larger settlements, "this Court has had no opportunity to
receive relevant testimony from Lead Counsel's experts regarding
the financial conditions, cash flows, or capacities to withstand
greater judgments." Id. at 4. Moreover, she specifically
disagrees with class counsel's conclusion that E & Y's payment
was reasonable where the firm's "culpability is clear." Id. at
5. She takes issue with the settlement notice for two reasons (1)
the notice does not inform class members of the tax consequences
of the proposed settlements and (2) the notice is not
Tere Throenle, a class member who purchased 100 shares of
Cendant stock on April 17, 1998, objects to settlement. She
initially claims that the Notice of Settlement was defective in
that it denied class members access to crucial information. For
example, each settling party did not include a statement which
listed "issues on which the parties disagree." 15 U.S.C. § 78u-4
(a)(7)(B)(ii). The notice only allegedly identified one risk
of continued litigation — the PSLRA's proportionate liability
restrictions. Throenle asserts that this "risk" is nonsense
because proportionate liability restrictions exist only where a
defendant has committed no knowing violation of the law. She
argues that this case involves defendants' knowing violations of
the securities acts.
She further alleges that the notice stated that additional
information was on file with the Clerk of the Court but "the
district court clerk flatly refused Throenle's requests for the
brief supporting the proposed settlements."
In addition, Throenle maintains that Lead Plaintiffs have acted
only in their own interests and have abandoned the claims of
individual investors. She suggests that Lead Counsel may own
interests in Cendant which compromises their ability to represent
the class. She also contends that the corporate governance
reforms will not benefit those who no longer own Cendant stock.
As for the E & Y settlement, she states "Lead plaintiffs thus
propose to trade their solid case against E & Y for half of a
mediocre case they do not control." Brf. at 26.
She requests permission to conduct discovery focused on
adequacy of representation in order to either create a subclass
or appoint new Lead Plaintiffs and Counsel. Throenle also objects
to the fee request, discussed in a companion opinion.
Ann Mark objects to the Plan of Allocation on the following
• The plan fails to recognize that the Section 11
claims of former HFS shareholders are "materially
stronger" than all other claims in the action.
• The Section 11 claims possessed by the former HFS
shareholders are "virtually identical" to claims
held by PRIDES shareholders who settled for nearly
100 cents on the dollar.
• The recent case of Amchem Prods. v. Windsor,
mandates a strict analysis of competing interests
in a class action settlement.
The State Board of Administration of Florida and the Teachers
Retirement System of Louisiana submit a letter urging the Court
to extend the class opt-out deadline.*fn6 (These objecting
parties are not included in the class settlement as they have
already opted out and are pursuing their own actions against
Cendant.) They also ask that in settlement the Court direct all
parties to the ...