November 7, 2022


Case Studies

Our firm served as one of two lead counsel for the class in In re Cendant Corporation Litigation, Master File No. 98-1664 (WHW), before the Honorable William H. Walls of the U.S. District Court for the District of New Jersey. We were retained by the two largest state pension funds and the largest municipal pension fund in the country – the New York State Common Retirement Fund, California Public Employees’ Retirement System and New York City Pension Funds – to represent them in the lawsuits. Each of the Funds had suffered losses in the range of $30 million. The case stemmed from a restatement of financial statements that was announced just a few months after a highly-publicized merger of two high-flying companies, HFS Incorporated and CUC International, Inc., was consummated. The resulting company was named Cendant Corporation. Through our prosecution of the case, BR&B succeeded in certifying a class of purchasers of Cendant and CUC publicly traded securities during the period from May 31, 1995 through August 28, 1998, and recovering for the Class nearly four times more than had ever been recovered in the history of federal securities law class actions.

By the time the dust had settled, we had achieved recoveries of more than $3.3 billion for the class, as well as highly significant corporate governance changes that we negotiated as part of the settlement with Cendant. Notably, the $3.3 billion recovery represented nearly 40% of the damages suffered by class members, and provided very significant payments – in a number of cases, in excess of $100 million – for the largest claimants, many of which were public pension funds. The recovery from CUC’s prior auditor, Ernst & Young LLP, still stands as the largest amount ever received in a federal securities law class action from an outside auditor.

Litigation Highlights:
  • In September 1998, just a few months after Cendant’s stunning announcement, Judge Walls appointed the Funds as the lead plaintiffs pursuant to the PSLRA. Shortly thereafter, Judge Walls appointed our firm, as one of the Funds’ chosen counsel, to be co-lead counsel for the injured investors.
  • In December 1998, we filed a comprehensive consolidated class action complaint on behalf of purchasers and acquirers of all Cendant and CUC publicly traded securities except for Cendant PRIDES (which had their own case). The Complaint asserted claims against Cendant, certain of its officers and directors, certain former officers and directors of CUC, and E&Y for alleged violations of the federal securities laws. At the same time, we also moved for certification of a Class of all persons and entities, other than defendants and their affiliates, who purchased or acquired publicly traded securities of Cendant and its predecessor, CUC, during the period from May 31, 1995 through August 28, 1998. At the same time, we filed a motion for partial summary judgment, seeking a liability finding against Cendant for the false statements made in the registration statement for the merger.
  • At the end of January 1999, the court granted our motion for certification of the class, which encompassed persons and entities who acquired: (a) Cendant and CUC common stock, including stock acquired in exchange for HFS common stock in the Merger; (b) Cendant and CUC common stock options; and (c) various notes issued by Cendant and CUC.
  • Many of the defendants moved to dismiss the complaint, claiming either that it failed to state legal claims against them, or that it did so without sufficient “particularity.” In July 1999, the judge denied all but one of the motions, granting E&Y’s motion to dismiss the claims brought against it for purchases of Cendant securities made after April 15, 1998 (the date of the initial disclosure, which informed investors that they could no longer rely on previously-issued E&Y statements).
  • Also, in July 1999, the court heard oral argument on various motions to stay proceedings in our case pending the outcome of an investigation being conducted by the U.S. Attorneys’ Office relating to Cendant. While permitting the U.S. Attorneys’ Office to intervene for the purpose of moving to stay the case, the Court, with limited exceptions, denied the motions seeking a stay. This was a key ruling in terms of allowing us to continue prosecuting the case.
  • From the outset of the case, we conducted an extensive investigation concerning the allegations of wrongdoing pertaining to each defendant, the damages suffered by the class, and the financial capabilities of the defendants. We inspected hundreds of thousands of documents produced by Cendant, E&Y, the individual defendants and various non-parties. Through negotiations with Cendant concerning the class motion and the partial summary judgment motion filed at the outset of the case, we obtained from Cendant copies of all documents that were part of the internal investigation conducted in preparation of the audit committee report filed with the SEC in August 1998, notwithstanding that under the PSLRA, with very limited exceptions, there is a statutorily-imposed stay of discovery once any defendant files a motion to dismiss the complaint.

    Additionally, we took two further very important steps that laid the groundwork for the remarkable recoveries achieved from Cendant and E&Y in the case: first, we retained an expert consultant in the field of assessing damages in securities law cases, which allowed the lead plaintiffs to put into a proper context our goals for the litigation, and the ultimate positions taken by defendants during settlement negotiations; second, we undertook a concerted effort to retain an eminently qualified investment banking firm to assess the financial capability of Cendant, and provide advice on various possible settlement structures that might, eventually, be negotiated. At the time, this was the first instance that such an analysis had been undertaken in the context of a securities class action. With the lead plaintiffs’ consent, after obtaining many proposals and interviewing a number of investment bankers, we retained Lazard Frères & Co., LLC, an internationally renowned investment banking firm, to assist in this type of analysis and settlement negotiations.