Del Sontro v. Cendant Corp., Inc.
| Decision Date | 12 August 2002 |
| Docket Number | Civ. Action No. 01-4130 (WHW). |
| Citation | 223 F.Supp.2d 563 |
| Parties | Rick DEL SONTRO, Plaintiff, v. CENDANT CORPORATION, Defendant. |
| Court | U.S. District Court — District of New Jersey |
Daniel S. Sweetser, Esq., Lozier, Lazzaro & Sweetser, P.C., Princeton Junction, NJ, for Plaintiff, Rick Del Sontro.
Carl Greenberg, Budd Larner Gross Rosenbaum Greenberg & Sade, P.C., Short Hills, NJ, for Defendant, Cendant Corporation.
Plaintiff Rick Del Sontro ("Plaintiff") alleges that Defendant Cendant Corporation, Inc. ("Cendant" or "Defendant") violated Sections 11 and 12(a)(2) of the Securities Act of 1933, 15 U.S.C. §§ 77k and 77l(a)(2), (the "Securities Act") and Sections 10(b) and 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78n(a), (the "Exchange Act") by including materially false and misleading financial statements for CUC International, Inc. ("CUC") in the joint registration statement and proxy/ prospectus issued in connection with the 1997 merger of CUC and HFS Inc. ("HFS") that formed Cendant.1 Plaintiff asserts a claim for promissory estoppel out of Cendant's alleged promise to settle the claims of its employees who were excluded from the class action on the same terms as it settled with the Class.
This matter is before the Court on Defendant's Motion to Dismiss: (1) each of the federal securities law claims because they are time barred and (2) the promissory estoppel claim because there was no clear and definite promise on which Plaintiff reasonably relied. Plaintiff opposes the motion on the grounds that: (1) the federal securities law claims were filed within the applicable periods and alternatively, equitable principles prohibit defendant from raising a statute of limitations defense and (2) the promissory estoppel claim is based on Cendant's clear and definite promise to settle claims with its employees who were excluded from the class.
After Defendant filed this Motion to Dismiss, Plaintiff filed an Amended Complaint adding a claim under New Jersey's state securities laws and a Second Amended Complaint adding a breach of contract claim. Plaintiff concedes that it was improper for him to file the Second Amended Complaint without leave of court. As such, Plaintiff now moves for leave to file the Second Amended Complaint pursuant to Fed.R.Civ.P. 15(a). Defendant opposes this motion and moves to: (1) strike the amended complaints because they were filed in violation of the automatic stay provisions or (2) to strike the additional state claim because it is time barred and the breach of contract claim because the "offer" of settlement was nothing more than a gratuitous and conditional proposal. Plaintiff asserts: (1) that the automatic stay provision only applies to discovery and does not prohibit the filing of an amended complaint and (2) that the additional claims should be permitted because the state securities claims were timely filed and alternatively, equitable principles bar Defendant from raising a statute of limitations defense and the breach of contract claim is based on a legally enforceable "offer." Defendant also moves for sanctions pursuant to Rule 11 arguing that Plaintiff's claims are not warranted under existing law.
After reviewing the parties submissions and hearing oral argument, this Court: (1) grants Defendant's Motion to Dismiss Plaintiff's federal securities law claims because such claims were not filed with the applicable statute of limitations or statute of repose periods, (2) grants Defendant's Motion to Dismiss Plaintiff's promissory estoppel claim because the promise on which Plaintiff relied was not "clear and definite," (3) denies Plaintiff's Motion for Leave to File A Second Amended Complaint because the breach of contract claim which Defendant seeks to add is insufficient as a matter of law, (4) grants Defendant's request to strike Plaintiff's First Amended Complaint because the state securities claims are time barred, and (6) denies Defendant's Motion for Sanctions because Plaintiff's claims were not frivolous, legally unreasonable, or without factual foundation.
Cendant was formed by the December 17, 1997 merger of HFS with and into CUC. On April 15, 1998, Cendant publicly announced its discovery of potential accounting irregularities at certain business units of the former CUC. In the wake of this announcement, Cendant's stock prices declined precipitously. On August 28, 1998 Cendant publicly announced that what it had previously described as "accounting irregularities" was really fraud. Finally on September 29, 1998, Cendant restated earnings for 1995, 1996, 1997 and the first two quarters of 1998 demonstrating that its previously reported earnings were grossly inflated. Each of these reports caused the stock to further plummet.
On April 15, 1998, Plaintiff was a Senior Vice-President of Cendant and owned about 50,000 shares of stock purchased through his exercise of options. Plaintiff sold half of his stock in mid August 1998, and sold the remaining shares in late 1998/ early 1999. Plaintiff's out of pocket loss was approximately $1,000,000.
Beginning on April 16, 1998, alleged purchasers and acquirers of CUC and Cendant securities filed securities fraud lawsuits against Cendant for violations of various federal securities laws, including Sections 11 and 12(a)(2) of the Securities Act and Sections 10(b) and 14(a) of the Exchange Act. Excluded from the class definition were "officers and directors of Cendant and its subsidiaries and affiliates." (Kadet Cert. Ex.B ¶ 25.)
Plaintiff asserts that when he found out about the class action lawsuit, he asked Paul McNicol, Counsel for Cendant if Cendant wanted its employees to opt out of the class. McNicol informed Plaintiff that he had discussed the issue with James Buckman, General Counsel for Cendant, who told him that the company encouraged its employees to remain in the class. Mr. McNicol did not mention Plaintiff's exclusion from the class. For the next year and a half, Plaintiff believed that he was a member of the class. He periodically received updates about the class action from his broker, Prudential Securities. He was also provided with information from Cendant about the status of the class action via public announcements and meetings. On April 14, 2000, Plaintiff received notification from his broker stating that its "records indicate that [he] meet[s] the requirement of eligibility [for the class] outlined below." (Del Sontro Aff. at ¶ 20.) For these reasons, from 1998 to mid-April 2000, Plaintiff believed he was a member of the class.
On April 20, 2000, Cendant's General Counsel, issued an interoffice memorandum (the "April 20 Memo") to all Cendant employees in which he addressed frequently asked questions concerning the settlement of securities class actions. The memo stated: "[s]pecifically excluded from the Class are the Individual Defendants and officers and directors of Cendant and its subsidiaries and affiliates." (the "Excluded Employees") (Kadet Cert. Ex.H). The memo explained:
The Board has determined that Cendant will settle claims of such persons excluded from the Class separately, at the same time and at the same amount of money as such persons would have received had they not been excluded from the Class ... Please note, however, that this separate settlement with the persons excluded from the Class is totally voluntary on the part of Cendant and Cendant reserves the right to alter the terms of such separate settlement or to rescind its determination to provide such settlement in its sole and absolute discretion. [(the "Voluntary Settlement")].
(Kadet Cert. Ex. H). According to Plaintiff, this memo was the first information that Plaintiff received from any source indicating that he was excluded from the Class.
In March 2000, Plaintiff told the President of the Real Estate Division of his intention to leave the company if he does not receive a promotion. From mid-April to May 1, 2000, Plaintiff had several communications with Defendant's HR Department about his separation package, however, Defendant said nothing to Plaintiff about relinquishing his rights under the Settlement Plan if he left.
On April 27, 2000, Mr. Buckman sent another interoffice memorandum (the "April 27 Memo") to inform the Excluded Employees that if they wished to participate in the Voluntary Settlement they would be required to submit to Cendant a proof of claim and release, identical in form to that provided to class members, no later than July 1, 2000. (Kadet Cert. Ex. I.)
On or about May 1, 2000, Plaintiff gave Defendant formal notice that he was leaving in two weeks. According to Plaintiff, during a meeting where Plaintiff was discussing his separation package, either the Executive Vice President or the HR Manager again confirmed to Plaintiff that his separation from Defendant has no bearing on his eligibility for the Settlement Program. Further, in the days following Plaintiff's last day at Cendant, the Vice-President in Cendant's Legal Department asked Plaintiff if Cendant could deduct the balance of his $100,000 loan from his settlement payment.
On May 25, 2000 Mr. Buckman sent a third memorandum to inform the Excluded Employees of further developments with respect to the proposed Voluntary Settlement. The memo explained that the proposed Voluntary Settlement would be open only to Excluded Employees who "continue to be employees of Cendant or any of its subsidiaries and affiliates on the date that the settlement funds are distributed." (Kadet Cert. Ex. J.) This memorandum also reiterated the warning that "this proposed settlement is in the discretion of the Board and its subject to change at any time." Id.
Plaintiff alleges that on June 29, 2000, he submitted his Proof of Claim and Release to Defendant. Plaintiff explains that he was entitled to $500,000...
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