Welch & Forbes Inc. v. Cendant Corp.

• Decision Date: 21 March 2001
• Docket Number: No. 99-5555,99-5555
• Citation: 243 F.3d 722
• Parties: (3rd Cir. 2001) IN RE: CENDANT CORPORATION PRIDES LITIGATION, WELCH & FORBES, INC., AN INSTITUTIONAL INVESTMENT MANAGER, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, v. CENDANT CORPORATION, MERRILL LYNCH & CO.; CHASE SECURITIES, INC.; HENRY R. SILVERMAN; WALTER A. FORBES; COSMO CORIGLIANO JOANNE A. ABOFF FAMILY TRUST, APPELLANT Pursuant to Rule 12a
• Court: U.S. Court of Appeals — Third Circuit

Page 722

243 F.3d 722 (3rd Cir. 2001)

IN RE: CENDANT CORPORATION PRIDES LITIGATION,

WELCH & FORBES, INC., AN INSTITUTIONAL INVESTMENT MANAGER, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, v. CENDANT CORPORATION, MERRILL LYNCH & CO.; CHASE SECURITIES, INC.; HENRY R. SILVERMAN; WALTER A. FORBES; COSMO CORIGLIANO JOANNE A. ABOFF FAMILY TRUST, APPELLANT

Pursuant to Rule 12a

No. 99-5555

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued December 15, 2000

Filed March 21, 2001

On Appeal from the United States District Court for the District of New Jersey District Judge: Honorable William H. Walls

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

Howard B. Sirota (argued) Sirota & Sirota Llp 110 Wall Street, 21st Floor New York, New York 10005, Counsel for Appellant

Roger Kirby (argued) Kirby McInerney & Squire Llp 830 Third Avenue, 10th Floor New York, New York 10022, Counsel for Plaintiffs-Appellees

Samuel Kadet (argued) Skadden, Arps, Slate, Meagher & Flom Llp Four Times Square New York, New York 10036, Counsel for Defendants-Appellees

Before: Scirica, Fuentes and Garth, Circuit Judges

OPINION OF THE COURT

Garth, Circuit Judge

This appeal arises out of a class action filed on behalf of investors in Cendant Corporation ("Cendant") after Cendant disclosed prior "accounting irregularities" on April 15, 1998.¹ Several actions were filed as a result of this disclosure, including an action commenced on June 15, 1998 on behalf of purchasers of Cendant's Feline PRIDES shares. The PRIDES litigation was subsequently consolidated with the other pending Cendant actions. However, on August 4, 1998, the District Court ruled that separate lead plaintiffs and lead counsel were to represent the interests of the PRIDES shareholders, as distinct from the rest of the Cendant class. (JA1300-01.)

The firm of Kirby, McInerney & Squire, formerly Kaufman, Malchman, Kirby & Squire, ("Kirby") was appointed as lead counsel of the Cendant PRIDES class. On November 12, 1998, Kirby filed a motion for class certification, for summary judgment on the claims under S 11 of the Securities Act, and for injunctive relief. On behalf of the PRIDES class, Kirby entered into a proposed settlement agreement with Cendant on March 17, 1999--three and a half months after Kirby's motions were filed and no more than nine months after the action had been started.

Under the settlement agreement, Cendant agreed to issue Rights to new PRIDES, with a stated value of $11.71. (JA576-79.) Those rights were in trade for existing PRIDES. The total possible number and amount of Rights to be distributed pursuant to the agreement was 29,161,474, with an approximate stated value of $341,500,000. (JA590.) Regarding Kirby's attorneys' fees, the settlement agreement provided: "Cendant... will take no position on an application by Lead Counsel for an award of fees and expenses provided that such application shall not request fees in excess of 10% percent [sic] of the aggregate Stated Value of 29,161,474 Rights, which is approximately $341,500,000, plus reasonable expenses incurred by Lead Counsel in connection with this Action." (JA590.)

The Notice of Pendency of Class Action summarized the proposed settlement of the PRIDES litigation. (JA239-52.) In connection with "Lead Counsel's fees and expenses," the Notice stated: "Lead Counsel has notified the other signatories hereto that it intends to apply to the Court for an award of fees, in an amount not to exceed 10% of the aggregate Stated Value of 29,161,474 Rights, or approximately $34.1 million, plus reasonable expenses." (JA247.) The Notice went on to explain how the attorneys' fees would be paid, first out of "Unclaimed Rights,"² then out of "Opt Out Rights," then out of the rights of class members with claims.³

The Notice also asserted:

You also should know that the lead counsel appointment process included a court-mandated bidding process. This was intend to assure that the largest possible portion of any recovery remained with participating class members, or conversely that qualified lead counsel took the least possible sums from the benefits to be obtained by participating class members. In Lead Counsel's view, under the fee mechanism proposed by Lead Counsel and described herein, there is a substantial likelihood that a substantial part, if not all, of the fees sought will be obtained from Unclaimed Rights and Opt Out Rights. As a consequence, in Lead Counsel's view, those Class Members who become Authorized Claimants will not have to pay any of Lead Counsel's fees, or if they do, there is a substantial likelihood that it will be less than the amount otherwise payable under the bids approved by the Court in the process of appointing lead counsel.

(JA247.)

On May 4, 1999, the Joanne A. Aboff Trust ("Trust") filed several objections to the notice of settlement, all of which pertained to Kirby's representation and fee request,⁴ as well as a notice of its intention to appear at the settlement hearing. (JA38-78.) At the settlement hearing on May 18, 1999, lead counsel stated that "[t]here is no objection to the settlement," (JA736), and the Trust's attorneys objected only to selection of class counsel and Kirby's request for attorneys' fees.

On June 15, 1999, the District Court signed an Opinion and Order approving the settlement, stating: "The Court considers the settlement to be eminently fair and reasonable. The class is made completely whole by such compensation. There are no objections voiced to the settlement--only to the request for attorney fees. The proposed settlement is approved subject to the following modifications to the attorneys' fees." In re Cendant Corp. PRIDES Litig., 51 F.Supp.2d 537, 541 (D.N.J. 1999).

The District Court granted Kirby's request for expenses, finding that the requested expenses of $2,367,493 were "reasonable and necessary to the prosecution of this litigation." 51 F.Supp.2d at 542. Then the Court found that, for attorneys' fees, Kirby should receive a number of Rights equivalent to 5.7% of the balance of Rights received by the Class. That percentage amounts to 1,650,680 Rights, valued at approximately $19,329,463. The District Court directed "Lead Counsel to seek to satisfy payment of these awards of expenses and fees from any unclaimed Rights. Then, and only then, to the extent that such fees and expenses have not been satisfied by unclaimed Rights, shall any deficiency be assessed against and borne by the class." 51 F.Supp.2d at 542. The Court went on to instruct that "[a]ny rights unclaimed after authorized class claimants and Lead Counsel have been issued their entitled Rights shall be canceled by Cendant Corporation." 51 F.Supp.2d at 542.

On June 15, 1999, the District Court entered an Order and Judgment⁵ certifying the PRIDES class for settlement, approving the settlement "and the distribution of Rights and New PRIDES to Authorized Claimants set forth therein," dismissing with prejudice all settled claims, and awarding Lead Counsel 1,650,680 Rights as reasonable attorneys' fees and 202,177 Rights as reimbursement of Lead Counsel's reasonable expenses. (JA728-30.) On the same date and as part of its opinion, the District Court denied the Trust's application for attorneys' fees. On July 22, 1999, the Trust timely appealed the District Court's June 15 Orders and Judgment.

We have jurisdiction over this appeal pursuant to the final order doctrine of 28 U.S.C. S 1291, and we review the District Court's award of attorneys' fees for an abuse of discretion, "which can occur `if the judge fails to apply the proper legal standard or to follow proper procedures in making the determination, or bases an award upon findings of fact that are clearly erroneous.' " Zolfo, Cooper & Co. v. Sunbeam-Oster Co., 50 F.3d 253, 257 (3d Cir. 1995) (quoting Electro-Wire Prods., Inc. v. Sirote & Permutt, P.C. (In re Prince), 40 F.3d 356, 359 (11th Cir. 1994)).

On August 27, 1999, Kirby filed a Motion in this court to dismiss the Trust's appeal for lack of standing, as well as presenting the standing issue in its appellate brief.

I.

Before we consider the merits of the Trust's appeal, a threshold question must be answered: does the Trust have standing to challenge the District Court's award of attorneys' fees to Kirby? See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94-95 (1998) (stating that "[t]he requirement that jurisdiction be established as a threshold matter `spring[s] from the nature and limits of the judicial power of the United States' and `is inflexible and without exception' "). Because "the core component of standing is an essential and unchanging part of the case-or-controversy requirement of Article III," Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992), we may not hear this appeal if the Trust does not have standing.

"Ordinarily, only a party aggrieved by a judgment or order of a district court may exercise the statutory right to appeal therefrom. A party who receives all that he has sought generally is not aggrieved by the judgment affording the relief and cannot appeal from it." Deposit Guar. Nat'l Bank v. Roper, 445 U.S. 326, 333 (1980) (emphasis added). In Ace Heating & Plumbing Co. v. Crane Co., the Third Circuit explicated the application of this principle to class actions, holding: "aggrieved class members may appeal any final order of a district court in proceedings held pursuant to Rule 23. This general proposition holds true even though such class members have the right to exclude themselves from the class." 453 F.2d 30, 32 (3d Cir. 1971) (emphasis added).

The standing question in this case is troublesome, because it appears as if the PRIDES settlement has provided the class members with full recovery and because any reduction in the amount of attorneys' fees to Kirby will not be distributed among the class members, but instead those rights will be returned to and canceled by Cendant. Therefore, Kirby...