In re Cendent Corp. Securities Litigation, CIV. 98-1664(WHW).

Decision Date15 August 2000
Docket NumberNo. CIV. 98-1664(WHW).,CIV. 98-1664(WHW).
Citation109 F.Supp.2d 235
PartiesIn re CENDANT CORPORATION SECURITIES LITIGATION.
CourtNew Jersey Supreme Court

Carl Greenberg, Budd Larner Gross Rosenbaum Greenberg & Sade P.C., Short Hills, NJ.

Steven S. Radin, Matthew S. Hawkins, Sills Cummis Radin Tischan Epstein & Gross, Newark, NJ.

Greg A. Danilow, Weil, Gothshal & Manges LLP, New York City.

Richard J. Schaeffer, Dornbush Mensch Mandelstam & Schaeffer, New York City.

Donald A. Robinson, Robinson Lapidus & Livelli, Newark, NJ.

Gary P. Naftalis, Kramer Levin Naftalis & Frankel, New York City.

Samuel Kadet, Skadden, Arps, Slates, Meagher & Flom LLP, New York City.

Herbert Jay Stern, Stephen M. Greenberg, Stern & Greenberg, Roseland, NJ.

James G. Kreissman, Jacob S. Pultman, Simpson Thacther & Barlett, New York City.

Dennis P. Orr, Mayer Brown & Platt, New York City.

Douglas S. Eakeley, Lowenstein Sandler PC, Roseland, NJ.

Alan N. Salpeter, Caryn L. Jacobs, Mayer, Brown & Platt, Chicago, IL.

Robert G. Cohen, William P. Hammer, Jr., Ernst & Young LLP, New York City.

James M. Altman, George B. Yankwitt, Robinson, Silverman, Pearce, Aronsohn & Berman, New York City.

William F. Maderer, Saiber Schlesinger Staz & Goldstein, Newark, NJ.

Helen Gradd, Daniel E. Reynolds, Lankler Siffert & Wohl LLP, New York City.

Thomas G. Griggs, Edwards & Caldwell, Hawthorne, NJ.

Ronald L. Bernstein, Gretchen Baumgardner, Douglas W. Greene, Perkins Coie LLP, Seattle, WA.

Daniel J. Beller, Paul, Weiss, Rifkind, Wharton & Garrison, New York City.

Max W. Berger, Daniel L. Berger, Jeffrey N. Leibell, Bernstein Litowitz Berger & Grossmann LLP, New York City.

Charles H. Landesman, Kearney, NJ.

I. Walton Bader, Bader and Bader, White Plains, NY.

James N. Benedict, Clifford Chance Rogers & Wells, New York City.

Robert J. Fettweis, Roth & Fettweis, Newark, NJ.

Edward J. Dauber, Greenberg Dauber Epstein & Tucker, Newark, NJ.

Eric Tunis, Orange, NJ.

James A. Plaisted, Walder Sondak & Brogan, P.A., Roseland, NJ.

Henry D. Gradstein, Joel M. Kozberg, Eileen M. Cohn, Gradstein, Luskin & Van Dalsem, P.C., Los Angeles, CA.

James C. Gulotta, Jr., Stone, Pigman, Walther, Whittman & Mutchinson, New Orleans, LA.

Margaret E. Haering, Hurwitz & Sagarin, LLC, Milford, CT.

Michael J. Pucillo, Burt & Pucillo, West Palm Beach, FL.

George Vuoso, Gordon, Altman, Butkowsky, Weitzen, New York City.

Bruce E. Gerstein, Barry S. Taus, Brett Cebulash, Garwin, Bronzaft, Gerstein & Fisher, New York City.

David M. Taus, Francis J. Devito, P.A., Hackensack, NJ.

Elwood S. Simon, John P. Zuccarini, Elwood S. Simon & Associates, P.C., Birmingham, MI.

Michael H. Schaalman, Paul D. Bauer, Quarles & Brady LLP, Milwaukee, WI.

D.Greg Durbin, McCormick Barstow Sheppard Wayte & Carruth LLP, Fresno, CA.

James Moyle Clifford, Chance Rogers & Wells, New York City.

Gerald J. Rodeos, Leonard Barrack, Barrack, Rodos & Bacine, Philadelphia, PA.

Robert A. Hoffman, Barrack, Rodoes & Bacine, Haddonfield, NJ.

Seth R. Lesser, Bernstein Litowitz, Berger & Grossman, Hackensack, NJ.

Joel M. Leifer, Joel M. Leifer & Associates, New York City.

Arthur N. Abbey, Jill S. Abrams, Abbey, Gardy & Squitieri, LLP, New York City.

Allyn Z. Lite, Joseph J. DePalma, Lite DePalma Greenberg & Rivas, LLC, Newark, NJ.

Andrew L. Barroway, Schiffrin Craig & Barroway, LLP, Bala Cynwyd, PA.

Joseph Sacca, Jonathan J. Lerner, Skadden, Arps, Slates, Meagher & Flom, New York City.

Lisa C. Cohen, Schindler Cohen & Hochman, New York City.

Jonathan D. Thier, Cahill Gordon & Reindel, New York City.

Andrew R. Jacobs, Michael E. Coslet, Fitzsimmons Ringle & Jacobs, P.C., Newark, NJ.

Melvin Brosterman, Lawrence Greenwald, Stroock Stroock & Lavan, LLP, New York City.

David Sorokoff, Deloitte & Touche, New York City.

James J. McGuire, White & Case, New York City.

Richard L. Klein, Wilkie Farr & Gallagher, New York City.

Thomas G. Shapiro, Shapiro, Iiaber & Urmer, Boston, MA.

Myron D. Rumeld, Proskauer Rose LLP, New York City.

Steven Pontell, Verde Steinberg & Pontell, Fort Lee, NJ.

Howard Sirota, Sirota & Sirota, New York City.

Gerald Palmer, Ricky Shackelford, Jones Day, Los Angeles, CA.

C. Benjamin Nutley, Kendrick & Nutley, San Diego, CA.

Stuart Wechsler, New York City.

Paul Rothstein, Gainesville, FL.

Lawrence Schonbrun, Berkeley, CA.

Corporation Counsel City of N.Y. Law Dept., New York City.

OPINION

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.

A. The Action

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 ("Registration Statement") 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"),1 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 audit report.

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 of 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...

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