Cendant Corp. Case 04/16/1998

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Company Name(s): 
Case Name: 
Cendant Corp. Case 04/16/1998
Case Status: 
Lawsuit Filed
Case Status: 
Judgment Issued
Case Status: 
Settlement Proposed
Case Status: 
Settlement Approved
Case Status: 
Case Dismissed
Affected Securities
Lawsuit Overview
Type of Lawsuit: 
Shareholder Class Action
Date Filed: 
Class Period Begin: 
Class Period End: 
Court of Filing: 
United States District Court for the District of New Jersey
Date Settled: 
Settlement Amount: 

According to a press release dated April 12, 2005, rejecting an appeal brought by three law firms that demanded portions of the $55 million in attorneys fees awarded in the $3.2 billion settlement of the Cendant Corp. securities litigation, the Third Circuit U.S. Court of Appeals has ruled that the lawyers who were named to lead the case have the power to say who gets paid. The ruling is a setback for three firms -Wolf Haldenstein Adler Freeman & Herz in New York; Miller Faucher & Cafferty in Philadelphia; and Finkelstein Thompson & Loughran in Washington, D.C. Wolf Haldenstein had asked for more than $530,000 in fees and costs, Miller Faucher had requested about $107,000, and Finkelstein Thompson was seeking about $45,000. In a prior appeal, the Third Circuit had reversed an award of $262 million to the plaintiff lawyers after finding that U.S. District Judge William Walls of the District of New Jersey had erred when he held an auction to select the lead lawyers in the case. Since Walls ultimately allowed the lawyers who were retained by the lead plaintiff to match the low bid, the Third Circuit found the error of holding the auction was harmless on the issue of choosing lead counsel. However, since the auction resulted in a fee agreement that differed from the $187 million cap that was placed on the fees in the original retainer, the court held that Walls erred when he awarded a larger fee. On remand, the lead plaintiffs and their lawyers - Leonard Barrack, Gerald Rodos and Jeffrey Golan of Barrack Rodos & Bacine in Philadelphia, and Max Berger, Daniel Berger and Jeffrey Leibell of Bernstein Litowitz Berger & Grossmann in New York - agreed to a $55 million fee award. Walls approved the fee as reasonable, noting that it represented just 1.7 percent of the $3.2 billion settlement, and that the lead lawyers had logged about 35,000 hours prosecuting the case.

On June 15, 1999, the Judge William Walls of the United States District Court for the District of New Jersey entered an order and judgment approving the settlement and awarding fees to counsel to the class. According to the settlement, Cendant agreed to pay $2.85 billion, and its auditors, Ernst & Young LLP, agreed to pay $335 million in the securities fraud settlement. Two law firms that represented shareholders will receive $262 million in fees. The settlements do not encompass all litigation asserting claims associated with the accounting irregularities.

On the PRIDES settlement agreement all eligible persons will receive a new security - a Right -- for each PRIDES security held on April 15, 1998. The PRIDES settlement agreement also requires Cendant to offer to sell 4 million additional PRIDES (having identical terms to currently outstanding PRIDES) (the "Additional PRIDES") at "theoretical value" to holders of Rights for cash. Under same agreement, the Company also agreed to file a shelf registration statement for an additional 15 million PRIDES, which could be issued by Cendant at any time for cash. However, during the last 30 days prior to the expiration of the Rights in February 2001, Cendant will be required to make these additional PRIDES available to holders of Rights at a price in cash equal to 105% of the theoretical value of the additional PRIDES as of a specified date. The PRIDES, if issued, would have the same terms as the currently outstanding PRIDES and could be used to exercise Rights.

In re: Cendant Corporation Litigation, Master File No. 98-1664 (WHW) (D.N.J.) (the 'Securities Action'), is a consolidated action consisting of over sixty constituent class action lawsuits, that were originally filed in the United States District Court for the District of New Jersey, the District of Connecticut, and the Eastern District of Pennsylvania. The Securities Action is brought on behalf of all persons who acquired securities of the Company and CUC, except our PRIDES securities, between May 31, 1995 and August 28, 1998. The Court granted the lead plaintiffs' unopposed motion for class certification on January 27, 1999. Named as defendants are the Company; twenty-eight current and former officers and directors of the Company, CUC and HFS; and Ernst & Young LLP ('Ernst & Young'), CUC's former independent accounting firm.

The Amended and Consolidated Class Action Complaint in the Securities Action alleges that, among other things, the lead plaintiffs and members of the class were damaged when they acquired securities of the Company and CUC because, as a result of accounting irregularities, the Company's and CUC's previously issued financial statements were materially false and misleading, and the allegedly false and misleading financial statements caused the prices of the Company's and CUC's securities to be inflated artificially. The Amended and Consolidated Complaint alleges violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the "Securities Act") and Sections 10(b), 14(a), 20(a), and 20A of the Securities Exchange Act of 1934 (the "Exchange Act"). Lead plaintiffs in the Securities Action seek damages for themselves in unspecified amounts.

The PRIDE's class action was filed on June 15, 1998 on behalf of purchasers of the Company's PRIDES securities between February 24 and July 15, 1998. The PRIDES Action is a consolidation of Welch & Forbes, Inc. v. Cendant Corp., et. al. with seven other class action lawsuits filed on behalf of purchasers of PRIDES. Named as defendants are the Company; Cendant Capital I, a statutory business trust formed by the Company to participate in the offering of PRIDES securities; seventeen current and former officers and directors of the Company, CUC and HFS; Ernst & Young; and the underwriters for the PRIDES offering, Merrill Lynch & Co.; Merrill Lynch, Pierce, Fenner & Smith Incorporated; and Chase Securities Inc. The allegations in the Amended Consolidated Complaint in the PRIDES Action are substantially similar to those in the Securities Action, and violations of Sections 11, 12(a)(2) and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act are asserted. Damages in unspecified amounts are sought.

The original securities class action complaint alleges that Cendant (and its predecessor corporation, CUC International Inc.) and three of its officers violated the Securities Exchange Act of 1934 by publishing false and misleading financial statements and by overstating its income by over $100 million. TD Plaintiffs allege that the market price of Cendant stock was artificially inflated during the Class Period as a result of the misrepresentations.