In Re Cendant Corporation Litigation

264 F.3d 201 (3rd Cir. 2001)

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Nature of the Case

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Facts

CUC International, Inc. (CUC) and HFS Incorporated (HFS) merged in 1997 to form Cendent. Cendant is currently one of the world's largest consumer and business service companies; among its more well-known businesses are Avis, Century 21, and the Ramada and Howard Johnson hotel franchise chains. By April 15, 1998, Cendant announced that it had discovered 'accounting irregularities' in certain units of the former CUC. The next day, Cendant's stock fell 47%, from $35-5/8 to $19-1/16 per share. This class action suit was eventually instituted. Under the Private Securities Litigation Reform Act of 1995 (PSLRA or Reform Act) one of a district court's first tasks is to select a lead plaintiff. Once the lead plaintiff has been appointed, the statute provides that the lead plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class.' The District Court selected as lead plaintiff a group made up of three pension funds (the CalPERS Group or Lead Plaintiff). The Lead Plaintiff then asked the District Court to appoint as lead counsel two firms with which it had previously negotiated a Retainer Agreement, Bernstein, Litowitz, Berger, & Grossmann of New York City, and Barrack, Rodos & Bacine of Philadelphia. The court declined deciding instead to select lead counsel via an auction, but giving the CalPERS Group's chosen counsel the option to match what the court determined to be the lowest qualified bid. Those firms exercised this option and were appointed as lead counsel. Following the settlement of the case, Lead Counsel petitioned for and was awarded a sum of $ 262 million in counsel fees, even though that amount was at least $76 million higher than that provided for under the Retainer Agreement.