Thursday, November 7, 2013

In re Cendant Corp. Litigation case brief

In re Cendant Corp. Litigation case brief summary
264 F.3d 201 (2001)

In consolidated securities fraud actions governed by the Private Securities Litigation Reform Act of 1995 (PSLRA), class action plaintiffs reached an agreement to settle their claims against defendants, a corporation, officers, and an auditor. Plaintiff objectors appealed the orders of the United States District Court for the District of New Jersey, which approved the settlement, its allocation plan, and its attorney fee award.


  • The objectors argued that the settlement and its plan of allocation of damages were inadequate, and that the district court improperly conducted an auction for lead counsel. 
  • The appellate court first held that, although corporate liability was virtually conceded, the lack of substantial objections by class members, the early stage of the proceedings, and the litigation risks indicated that the settlement with the corporation was reasonable, and the uncertain liability of the auditor provided even stronger support for settlement with the auditor. 
  • Further, since the claims were not necessarily unequal, the allocation plan which treated all claims equally was properly approved. 
  • However, while the PSLRA did not preclude appointment of lead counsel by auction, such auction was not warranted where the lead plaintiff was not shown to lack the responsibility and motivation to obtain qualified counsel at a reasonable fee. 
  • The error in conducting the auction was nonetheless harmless, since the original counsel were approved after meeting the auction price, but, in view of the error, counsel's fee application should have been submitted in accordance with the original retainer agreement.

The order awarding attorney fees to plaintiffs' counsel was vacated, but the orders approving the settlement and plan of allocation were affirmed.

Suggested Study Aids For Securities Regulation Law
Securities Regulation in a Nutshell, 10th (Nutshell Series)
Securities Regulation: Examples & Explanations, 5th Edition
Securities Regulations: The Essentials

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