In re Cendant Corp., Derivative Action Litigation, Civ. No. 98-1998 (WHW).

• Decision Date: 19 November 2002
• Docket Number: Civ. No. 98-1998 (WHW).
• Citation: 232 F.Supp.2d 327
• Parties: In re CENDANT CORPORATION, DERIVATIVE ACTION LITIGATION.
• Court: U.S. District Court — District of New Jersey

Page 327

232 F.Supp.2d 327

In re CENDANT CORPORATION, DERIVATIVE ACTION LITIGATION.

Civ. No. 98-1998 (WHW).

United States District Court, D. New Jersey.

November 19, 2002.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Bruce E. Gerstein, Barry S. Taus, Brett Cebulash, Kevin S. Landau, Garwin Bronzaft, Gerstein & Fisher, L.L.P., New York, NY, David M. Taus, Law Office of Francis J. DeVito, P.A., Hackensack, NJ, Elwood S. Simon, John P. Zuccarini, Elwood S. Simon & Associates, P.C., Birmingham, MI, Thomas G. Shapiro, Shapiro Haber & Urmy LLP, Boston, MA, Richard B. Brualdi, Law Offices of Richard B. Brualdi, New York, NY, Jerald Stein, Law Offices of Jerald Stein, New York, NY, Robert I. Harwood, Wechsler, Harwood, Halebian & Feffer, New York, NY, Joseph A. Rosenthal, Norman M. Monhait, Rosenthal, Monhait, Gross & Goddess, P.A., Wilmington, Delaware, for Derivative Plaintiff Martin G. Deutch.

Jonathan Lerner, Samuel Kadet, Skadden, Arps, Slate, Meagher & Flom, L.L.P., New York, NY, Michael Rosenbaum, Carl Greenberg, Budd, Larner, Gross, Rosenbaum, Greenberg & Sade, P.C., Short Hills, NJ, for Nominal Defendant Cendant Corp., Herbert J. Stern, Stern Greenberg & Kilcullen, Roseland, NJ, James G. Kreissman, Simpson, Thacher & Bartlett, New York, NY, for the HFS Defendants, Steven S. Radin, Sills, Cummis, Zuckerman, Radin, Tischman, Epstein & Gross, Newark, NJ, Dennis J. Block, Cadwalader, Wickersham & Taft, New York, NY, for

the CUC Defendants, Richard J. Schaeffer, Bruce Handler, Dornbush, Mensch, Mandelstam & Schaeffer, LLP, New York, NY, for Defendant Shelton, Donald A. Robinson, Lapidus & Livelli, Newark, NJ, Gary P. Naftalis, Kramer, Levin, Naftalis & Frankel, New York, NY, for Defendant Corigliano.

Michael Griffinger, Gibbons, Del Deo, Doaln, Griffinger & Vecchione, PC, Newark, NJ, for the Special Litigation Committee.

Brian Fintan Moore, Lowenstein Sandler, PC, Roseland, NJ, for Consolidated-Defendant.

OPINION

WALLS, District Judge.

This matter is before the Court on the application of Bruce E. Gerstein of Garwin, Bronzaft, Gerstein & Fisher, LLP, lead counsel ("Lead Counsel") for Plaintiff Martin Deutch ("Derivative Plaintiff" or "Deutch") in the above-captioned matter, brought on behalf of nominal defendant Cendant Corporation ("Cendant"), for approval of the proposed settlement against certain defendants (the "Settlement Agreement") and for attorneys' fees and reimbursement of expenses. Lawrence W. Schonbrun ("Schonbrun"), counsel for shareholder Walter Kaufman, submitted an objection to the proposed award for attorneys' fees and presented his objections before the Court at oral argument on October 21, 2002. Both the settlement and the application for attorneys' fees are approved.

BACKGROUND

Cendant was formed on December 17, 1997, through the merger of CUC International, Inc. ("CUC") and HFS, Inc. ("HFS"). On April 15, 1998, Cendant announced "accounting irregularities" regarding the past financial performance of CUC. Several actions were filed as a result of this disclosure. This derivative action was first brought on April 27, 1998, and a Verified Amended Derivative Complaint (the "Amended Complaint") was filed on December 7, 1998 by Derivative Plaintiff on behalf of Cendant, naming several defendants. The first group of defendants were Henry R. Silverman, Martin L. Edelman, John D. Snodgrass, James E. Buckman, Michael P. Monaco, Stephen P. Holmes, Robert D. Kunisch, E. John Rosenwald Jr., Christel Dehaan (collectively the "HFS Defendants"), and Leonard S. Coleman, Brian Mulroney, Robert E. Nederlander, Robert W. Pittman, Robert F. Smith, and Leonard Schutzmann (collectively the "Cendant Director Defendants"). These defendants, along with nominal defendant Cendant, are parties to the Settlement Agreement. Other groups of defendants came from CUC: T. Barnes Donnelley, Stanley Rumbough, Jr., Bartlett Burnap, Burton C. Perfit, Robert T. Tucker (along with Robert P. Rittereiser, Frederick Green, Anthony G. Petrello, Stephen A. Greyser, Craig R. Stapleton, and Carole G. Hankin, the "CUC Director Defendants"); and Walter A. Forbes, Christopher K. McLeod, E. Kirk Shelton, and Cosmo Corigliano (the "CUC Officer Defendants"). The Amended Complaint also named Amy Lipton and Bear Stearns, Inc., as defendants, although each were dismissed by order of the Court dated August 9, 1999.

While this action proceeded, certain of Cendant's shareholders prosecuted a securities class action case against Cendant for the accounting irregularities at CUC (the "Class Action"). An agreement to settle the Class Action for $3.2 billion was reached on March 17, 2000, and this Court approved the settlement on August 14, 2000 over Deutch's objections. The Court of Appeals for the Third Circuit affirmed the Court's approval of the settlement on August 28, 2001. This action, therefore, became an effort to recoup from the defendants the $3.2 billion that the corporation paid out in the settlement of the Class Action.

On September 19, 2000, a Cendant shareholder brought a second derivative action in Delaware state court, captioned Resnik v. Silverman, et al., Civil Action No. 18329 (the "Resnik Action"). By order of the Delaware Chancery Court dated May 2, 2001, the Resnik Action was stayed pending the resolution of this case.

Derivative Plaintiff now comes before the Court seeking approval of the Settlement Agreement between him and Cendant, the Cendant Director Defendants, and the HFS Director Defendants (collectively, the "Settling Defendants"). The settlement calls for a payment of $54 million in return for a release of the Settling Defendants from this action and the Resnik action. Significantly, the settlement expressly preserves the claims against CUC Officer Defendants E. Kirk Shelton, Walter A. Forbes, Christopher K. McLeod, and Cosmo Corigliano, and defendants Stuart Bell, Amy Lipton, and Anne Pember, as well as claims against the Reliance Insurance Company, which wrote certain Director and Officer liability policies for Cendant and which is currently in liquidation in Pennsylvania.

ANALYSIS

I. Settlement

Rule 23.1 governs a court's analysis of the fairness of a settlement of a shareholder derivative action: "The action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to shareholders or members in such manner as the court directs." In evaluating the settlement of a derivative action, the courts of this district should consider the factors applied initially to class action settlement agreements, and later to derivative actions. Bell Atlantic Corp. v. Bolger, 2 F.3d 1304, 1315 (3d Cir.1993), citing Shlensky v. Dorsey, 574 F.2d 131, 147-149 (3d Cir.1978). Thus, courts are required to "independently and objectively analyze the evidence and circumstances before it in order to determine whether the settlement is in the best interest of those whose claims will be extinguished." In re Cendant Corp. Litig., 264 F.3d 201, 231 (3d Cir.2001) (internal quotation omitted). Under Rule 23(e), which governs the evaluation of a class action settlement, the District Court acts as a fiduciary guarding the rights of absent class members and must determine that the proffered settlement is "fair, reasonable, and adequate." Id.

In analyzing the Settlement Agreement, the Court must apply the nine-factor test developed in Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir.1975). They are:

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.

9. The range of reasonableness of the settlement fund in light of all the attendant risks of litigation.

Id. The proponents of a settlement bear the burden to demonstrate that these factors weigh in favor of settlement. In re Cendant, 264 F.3d at 232.

Here there has been no objection made to the settlement itself; Schonbrun at oral argument stated that his sole objection was to the amount of the attorneys' fees, not to the settlement. Nevertheless, as required, the Court will examine each of the factors.

The complexity, expense, and likely duration of the litigation. This factor is designed to capture "the probable costs, in both time and money, of continued litigation." In re Cendant, 264 F.3d at 234 (citation omitted). Derivative Plaintiff contends, "Continued prosecution of this action through trial and subsequent appeals against the vigorous, determined, and resourceful opposition of the individual defendants would undoubtedly require significant time and would entail enormous additional effort and expense with no promise of any greater recovery than that earned in the Settlement." Derivative Plaintiff argues that this case, unlike the Class Action, "involves complexities unique to derivative lawsuits, such as: (a) futility of demand issues; (b) the effect of the [Special Litigation Committee] on the future viability of this action; (c) the effect of the indemnification provisions contained in Cendant's by-laws on the defendants' liability and type of damages; (d) whether each individual defendant breached his or her fiduciary duties; (e) whether causation and damages can be established with respect to each individual defendant; and (f) whether insurance would ultimately cover any claims brought by Derivative Plaintiff." Derivative Plaintiff points out that this case is more complex than the Class Action, "where liability of the Company was basically assured from the outset."

This litigation was filed in 1998 and has been the subject of large-scale discovery and...