# In Re: Cendant Corp. > Court of Appeals for the Third Circuit ยท August 28, 2001 URL: https://www.frixlaw.com/law-library/cases/3011585 ## Case - **Court:** Court of Appeals for the Third Circuit - **Decided:** August 28, 2001 - **Opinion:** Opinion - **Cited by:** 0 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/3011585 ## Opinion text Opinions of the United 2001 Decisions States Court of Appeals for the Third Circuit 8-28-2001 In Re: Cendant Corp. Precedential or Non-Precedential: Docket 00-2520 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2001 Recommended Citation "In Re: Cendant Corp." (2001). 2001 Decisions. Paper 196. http://digitalcommons.law.villanova.edu/thirdcircuit_2001/196 This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova University School of Law Digital Repository. It has been accepted for inclusion in 2001 Decisions by an authorized administrator of Villanova University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu. Volume 1 of 3 Filed August 28, 2001 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT Nos. 00-2520, 00-2683, 00-2708, 00-2709, 00-2733, 00-2734, 00-2769, 00-3653 IN RE: CENDANT CORPORATION LITIGATION JOANNE A. ABOFF FAMILY TRUST, U/A DATED 2/11/92, Appellant in No. 00-2520 BETTY DUNCAN, Appellant in No. 00-2683 TERE THROENLE, Appellant in No. 00-2708 JANICE G. DAVIDSON; ROBERT M. DAVIDSON, in his capacity as trustee of Robert M. Davidson Charitable Remainder Unitrust, and as co-trustee of Elizabeth A. Davidson Irrevocable Trust, Emilie A. Davidson Irrevocable Trust, John R. Davidson Irrevocable Trust, Emilie A. Davidson Charitable Remainder Unitrust and John R. Davidson Charitable Remainder Unitrust, Appellants in No. 00-2709 FAYE SCHONBRUNN, Appellant in No. 00-2733 ANN MARK, Appellant in No. 00-2734 NEW YORK CITY PENSION FUNDS, Appellant in No. 00-2769 NEW YORK CITY PENSION FUNDS, Appellant in No. 00-3653 On Appeal From the United States District Court For the District of New Jersey (D.C. Civ. No. 98-cv-01664) District Judge: Honorable William H. Walls Argued: May 22, 2001 Before: BECKER, Chief Judge, SLOVITER and AMBRO, Circuit Judges. (Filed: August 28, 2001) HOWARD B. SIROTA, ESQUIRE (ARGUED) Sirota & Sirota 110 Wall Street New York, NY 10005 Counsel for Appellant Joanne A. Aboff Family Trust EDWARD W. COCHRAN, ESQUIRE (ARGUED) Cochran & Cochran 2872 Broxton Road Shaker Heights, OH 44120 FRANK H. TOMLINSON, ESQUIRE Pritchard, McCall & Jones 505 North 20th Street, Suite 800 Birmingham, AL 35203 PAUL S. ROTHSTEIN, ESQUIRE 626 Northeast First Street Gainesville, FL 32601 Counsel for Appellant Betty Duncan 2 C. BENJAMIN NUTLEY, ESQUIRE (ARGUED) Kendrick & Nutley 468 North Camden Drive, Suite 200 Beverly Hills, CA 90210 RICHARD GALEX, ESQUIRE Galex, Tortoreti & Tomes 150 Tices Lane East Brunswick, NJ 08816 Counsel for Appellant Tere Throenle GERALD W. PALMER, ESQUIRE (ARGUED) RICKY L. SHACKELFORD, ESQUIRE EUGENIA L. CASTRUCCIO, ESQUIRE Jones, Day, Reavis & Pogue 555 West Fifth Street, Suite 4600 Los Angeles, CA 90013 Counsel for Appellants Robert and Janice Davidson LAWRENCE W. SCHONBRUN, ESQUIRE (ARGUED) Law Office of Lawrence W. Schonbrun 86 Eucalyptus Road Berkeley, CA 94705 Counsel for Appellant Faye Schonbrunn 3 JOHN HALEBIAN, ESQUIRE (ARGUED) Wechsler, Harwood, Halebian & Feffer 488 Madison Avenue, 8th Floor New York, NY 10022 KENNETH A. ELAN, ESQUIRE Law Offices of Kenneth A. Elan 217 Broadway New York, NY 10007 Counsel for Appellant Ann Mark MICHAEL D. HESS, ESQUIRE LEONARD J. KOERNER, ESQUIRE LORNA B. GOODMAN, ESQUIRE ELIZABETH S. NATRELLA, ESQUIRE (ARGUED) LESLIE CONASON, ESQUIRE Corporation Counsel of the City of New York New York City Law Department 100 Church Street New York, NY 10007 Counsel for Appellants New York City Pension Funds MAX W. BERGER, ESQUIRE DANIEL L. BERGER, ESQUIRE (ARGUED) JEFFREY N. LEIBELL, ESQUIRE Bernstein, Litowitz, Berger, & Grossman, LLP 1285 Avenue of the Americas, 33rd Floor New York, NY 10019 4 LEONARD BARRACK, ESQUIRE GERALD J. RODOS, ESQUIRE JEFFREY W. GOLAN, ESQUIRE Barrack, Rodos, & Bacine 3300 Two Commerce Square 2001 Market Street Philadelphia, PA 19103 Counsel for Appellees California Public Employees' Retirement System, New York State Common Retirement Fund and The New York City Pension Funds ARTHUR R. MILLER, ESQUIRE (ARGUED) 228 Harvard Law School Langdell West Areeda Hall 225 1565 Massachusetts Avenue Cambridge, MA 02138 Counsel for Appellees Barrack, Rodos, & Bacine and Bernstein, Litowitz, Berger & Grossmann, LLP ALAN N. SALPETER, ESQUIRE (ARGUED) MICHELE ODORIZZI, ESQUIRE CARYN L. JACOBS, ESQUIRE Mayer, Brown & Platt 190 South LaSalle Street Chicago, IL 60603-3441 DOUGLAS S. EAKLEY, ESQUIRE PETER L. SKOLNIK, ESQUIRE Lowenstein, Sandler, PC 65 Livingston Avenue Roseland, NJ 07068 5 KATHRYN A. OBERLY, ESQUIRE ROBERT G. COHEN, ESQUIRE WILLIAM P. HAMMER, JR., ESQUIRE Ernst & Young, LLP 787 Seventh Avenue New York, NY 10019-6018 Counsel for Appellee Ernst & Young, LLP CARL GREENBERG, ESQUIRE MICHAEL M. ROSENBAUM, ESQUIRE Budd, Larner, Gross, Rosenbaum, Greenberg & Sade 150 John F. Kennedy Parkway CN 1000 Short Hills, NJ 07078-0999 SAMUEL KADET, ESQUIRE Skadden, Arps, Slate, Meagher & Flom Four Times Square New York, NY 10036 Counsel for Appellee Cendant Corporation HERBERT J. STERN, ESQUIRE Stern, Greenberg & Kilcullen 75 Livingston Avenue Roseland, NH 07068 Counsel for Appellee James E. Buckman 6 DAVID M. BECKER, ESQUIRE General Counsel MEYER EISENBERG, ESQUIRE Deputy General Counsel ERIC SUMMERGRAD, ESQUIRE Deputy Solicitor LUIS DE LA TORRE, ESQUIRE (ARGUED) Special Counsel NATHAN A. FORRESTER, ESQUIRE Senior Counsel Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549-0606 Counsel for Amicus Curiae Securities and Exchange Commission JOSEPH A. GRUNDFEST, ESQUIRE The William A. Franke Professor of Law and Business Stanford Law School Crown Quadrangle 559 Nathan Abbott Way Stanford, CA 94305-8610 MELANIE M. PIECH, ESQUIRE Lieff, Cabraser, Heimann & Bernstein, LLP 275 Battery Street, 30th Floor San Francisco, CA 94111 Counsel for Amicus Curiae Barclays Global Investors, N.A., Franklin Resources, Inc., New Hampshire Retirement System and Public Employees' Retirement Association of Colorado 7 OPINION OF THE COURT BECKER, Chief Judge. I. INTRODUCTION & SUMMARY 9 II. FACTS & PROCEDURAL H ISTORY 15 A. Background 15 B. The Appointment of Lead Plaintiff and Lead Counsel 17 C. Class Certification, the Filing of the Amended Complaint, and the Reaching of a Settlement 22 D. The Terms of the Settlement and the Plan of Allocation 24 E. Preliminary Settlement Approval, the Se ttlement Notice, and the Fairness Hearing 27 F. The Appeals and the Issues Presented by Each Appeal 29 III. THE FAIRNESS OF THE SETTLEMENT AND THE PLAN OF ALLOCATION 32 A. Approval of the Settlement: The Applica tion of the Girsh Factors 32 1. The First Girsh Factor: Complex ity & Likely Duration of Litigation 35 2. The Second Girsh Factor: The Re action of the Class 37 3. The Third Girsh Factor: The Sta ge of Proceedings 39 4. The Fourth Girsh Factor: The Ri sks of Establishing Liability 41 5. The Fifth Girsh Factor: The Ris ks of Establishing Damages 44 6. The Sixth Girsh Factor: The Ris ks of Maintaining the Class Action Through Trial 45 7. The Seventh Girsh Factor: The A bility of the Defendants to Withstand a Greater Judgment 46 8. The Final Girsh Factors: The Ra nge of Reasonableness of Settlement Fund in Light of the Best Possible Recovery & in Light of 8 Litigation Risks 49 9. Summing Up the Girsh Factors 52 B. Intra-class Conflicts 53 1. Throenle's Arguments 53 a. The Lead Plaintiff 's Allege d Conflicts of Interest 53 b. The Corporate Governance Change s 57 2. Mark's Arguments 61 C. The Davidsons' Objections 66 1. Class Certification Findings 67 2. Notice of the Settlement 67 3. Intra-Class Conflicts 68 4. Alleged Flaws in the Plan of Allocation 70 IV. COUNSEL SELECTION AND COUNSEL FEES 71 A. Introduction: Attorney-Client Tension i n the Class Action Context 71 1. The Problem With Class Actions 71 2. The Evolution of Judicial Review of Cou nsel Fees In Class Actions 73 3. The PSLRA 82 B. The Reform Act's Procedures; Selection of the CalPERS Group As Lead Plaintiff 84 1. Legal Standards 84 a. Identifying the Presumptive Lea d Plaintiff 84 b. Determining Whether the Presump tion Has Been Rebutted 93 2. Application of the Standards Here 96 C. The Auction 100 1. May NYCPF Validly Object to the Auction ? 100 2. Does the Reform Act Ever Permit an Auction? 103 3. Was the Auction in this Case Permissibl e? 111 D. Counsel Fees 114 V. CONCLUSION 12 4 I. INTRODUCTION & SUMMARY These are consolidated appeals from the District Court's approval of a $3.2 billion settlement of a securities fraud class action brought against Cendant Corporation and its auditors, Ernst & Young, and the Court's award of $262 9 million in fees to counsel for the plaintiff class. Both the settlement and the fee award are challenged in these appeals. The enormous size of both the settlement and the fee award presages a new generation of "mega cases" that will test our previously developed jurisprudence. This case is governed by the Private Securities Litigation Reform Act of 1995 (PSLRA or Reform Act). Under the 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, after appointing a lead plaintiff, declined to approve its choice of counsel, instead choosing to select lead counsel by means of an auction. The most important question presented by these appeals is whether this decision was compatible with the PSLRA. Closely intertwined, and also of great importance, are issues involving the proper procedures for selecting a lead plaintiff and for awarding counsel fees in cases governed by the Reform Act. Before we can reach these issues, however, we must decide whether the District Court abused its discretion in approving the settlement and the plan for allocation of damages, to which objections were interposed. Some objectors argue forcefully that the settlement was inadequate under the nine-factor test that this Court developed for reviewing the fairness, reasonableness, and adequacy of class action settlements in Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975). Noting that the class's case was exceptionally strong because Cendant (the main defendant) virtually conceded liability and because some of the plaintiffs' claims (i.e., those presented underS 11 of the Securities Act of 1933) were strict liability claims, these objectors contend that, notwithstanding the threat of bankruptcy if the settlement was too high, a considerably higher figure could have been extracted under these favorable liability circumstances without running the risk that Cendant would seek bankruptcy protection. In their submission, the class should have received a fuller recovery of its alleged $8.8 billion loss. 10 These objections are weighty, but other Girsh factors counsel strongly in favor of approving the Cendant settlement--the reaction of the class, the stage of the proceedings, the risk of establishing damages, the range of reasonableness in light of the possible recovery and the litigation risks, and, though to a lesser degree, the complexity of the litigation. Although we think that the question of the fairness of the settlement under the Girsh factors is closer than the District Court made it out to be, our application of those factors supports the conclusion that the District Court did not abuse its discretion in approving the Cendant settlement. The issue is even clearer with respect to the settlement between the class and Ernst & Young (E&Y), against which the case was far more difficult. As with Cendant's settlement, the reaction of the class, the risk of establishing damages, and the range of reasonableness of the recovery weigh in favor of approving the E&Y settlement. These factors are augmented by two other Girsh factors that weigh strongly in favor of the E&Y settlement: the complexity of litigation and the risk of establishing liability. Because the ability to withstand a greater judgment is the only Girsh factor that cuts against approving the E&Y settlement, we conclude that the District Court did not abuse its discretion in approving it. One objector also argues that the District Court should not have approved the settlement because the entities that comprise the lead plaintiff were too conflicted to represent the class adequately. The bases for this claim are two-fold. First, the institutional investors that make up the lead plaintiff continued to hold Cendant stock during the litigation and settlement process, and thus, the objector submits, had very different motives from other investors who had sold their stock. Second, the lead plaintiff negotiated as part of the settlement certain corporate governance changes that will benefit only those class members that continue to hold Cendant stock. We are unpersuaded by the first argument because it is clear that Congress, in passing the PSLRA, for better or for worse, anticipated and implicitly approved the notion that entities that continued to hold stock in the defendant corporation 11 would serve as lead plaintiffs notwithstanding the existence of many class members who did not. With respect to the second argument, there is no evidence that the lead plaintiff gave up anything of value to the class members to induce Cendant to agree to the corporate governance changes. We therefore hold that the District Court did not abuse its discretion in approving the settlement. We then turn to the objections regarding the allocation of the settlement fund. One objector contends that the claims under S 11 of the Securities Act of 1933, which only a subset of the class possesses, are legally stronger than the other claims held by class members, i.e., claims under S 10(b) of the Securities Exchange Act of 1934. Based on this disparity, the objector argues that the S 11 claimants should receive a larger share of the settlement proceeds. We conclude, however, that the S 11 claims here are not necessarily legally stronger than the S 10(b) claims, and that, at any rate, the basis for measuring the different legal strengths of the claims involved is too speculative to support the objector's contention. We thus hold that the District Court did not abuse its discretion in approving a settlement allocation that treated all claims more or less equally. Having determined that the settlement may stand, we must examine the District Court's award of counsel fees. Because the Reform Act establishes a detailed and integrated process for choosing a lead plaintiff, selecting lead counsel, and approving counsel's fee, we discuss these issues sequentially. In this case, the District Court selected as lead plaintiff a group made up of three pension funds (the CalPERS Group or Lead Plaintiff). Following the dictates of the Reform Act, the court first identified that Group, which is made up of three huge government pension funds, as being the movant with the largest financial interest in the relief sought by the class. The court then made a preliminary determination that the CalPERS Group satisfied Federal Rule of Civil Procedure 23's typicality and adequacy requirements, which, under the PSLRA, made it the presumptive lead plaintiff. The District Court ultimately appointed the CalPERS Group as lead plaintiff because it determined that no member of the plaintiff class had 12 succeeded in rebutting the statutory presumption. We find no fault with the court's decisions on this score. 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 initially to approve the Lead Plaintiff 's choice, 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, and consonant with the results of the auction, 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. We conclude that the court's decision to hold an auction to select lead counsel was inconsistent with the Reform Act, which is designed to infuse lead plaintiffs with the responsibility (and motivation) to drive a hard bargain with prospective lead counsel and to give deference to their stewardship. Although we believe that there are situations under which the PSLRA would permit a court to employ the auction technique, this was not one of them. Here, inasmuch as the Lead Plaintiff conducted its counsel search with faithful observance to the letter and spirit of the Reform Act, it was improper for the District Court to supplant the CalPERS Group's statutorily-conferred right to select and retain lead counsel by deciding to hold an auction. In sum, we hold that the District Court erred in using an auction to appoint lead counsel; rather it should have done so pursuant to the terms of the Retainer Agreement. Because the District Court's process resulted in the firms chosen by the Lead Plaintiff being appointed lead counsel anyway, this error was harmless (with regard to the selection of lead counsel). However, because the terms of the Retainer Agreement required the prior approval of the pension funds comprising the CalPERS Group, and that 13 prior approval was not obtained, the fee request here was improper. The fee award must therefore be set aside and this matter remanded to the District Court with instructions to dismiss the fee application and to decline to accept any further applications that are submitted without the prior approval of the Funds. It goes without saying that the principal focus after remand will be the counsel fee application which will be resubmitted. The parties have extensively briefed and argued the fee award issue, understanding that if the award is set aside the District Court will need guidance on remand. Having this need in mind--along with the fact that this case, in its various facets, has been before this Court seven times now--we will set forth the standards that the court should follow in evaluating a properly-submitted fee request in Reform Act cases so as to help bring this now protracted matter to a close. Although in general the court should use the same seven-factor test that our cases have developed for reviewing fee requests in other class action contexts, review in PSLRA cases must be modified to take into account the changes wrought by the Reform Act. The biggest change, we believe, is that courts should afford a presumption of reasonableness to fee requests submitted pursuant to an agreement between a properly-selected lead plaintiff and properly-selected lead counsel. This is not to say, however, that this presumption cannot be overcome. There is an arguable tension between the general schema of the PSLRA on the one hand and its overarching provision that requires the court to insure that counsel fees not exceed a reasonable amount, see 15 U.S.C. S 78u-4(a)(6), on the other. We hold that the presumption will be rebutted when a district court finds the fee to be (prima facie) clearly excessive. For the past decade, counsel fees in securities litigation have generally been fixed on a percentage basis rather than by the so-called lodestar method. Consistent with that approach, we have held that, when the percentage fee is challenged, the Court's obligation to award a reasonable fee will be best exercised by application of the factors described in Gunter v. Ridgewood Energy Corp., 223 F.3d 190 (3d Cir. 2000). Gunter itself allows for the possibility of a lodestar 14 cross-check, see id. at 200, even though the lodestar approach is no longer favored. We conclude that, in determining whether the retainer agreement between the Lead Plaintiff and Lead Counsel is clearly excessive, the court should first use the Gunter factors to evaluate it, for the lodestar cross-check is quite time consuming. But if the court cannot otherwise come to a resolution, it can consider a lodestar cross-check. In determining whether the presumption of reasonableness of a properly submitted fee request has been rebutted here, the District Court will have to consider the powerful arguments of the objectors that: (1) this was a simple case in terms of liability; (2) the settlement was achieved without a great deal of work by lead counsel; and (3) both the fee award of $262 million under the auction and (potentially up to) $187 million under the Retainer Agreement are staggering in their size, and, on the basis of the evidence in the record, may represent compensation at an astonishing hourly rate (as well as an extraordinarily high lodestar "multiplier"). We conclude by explaining that, if the court's deliberations were to confirm that the fee agreed to by a lead plaintiff and lead counsel was clearly excessive, the court will need to set a reasonable fee according to the standards our previous cases have set down for class actions not governed by the PSLRA. II. FACTS & PROCEDURAL HISTORY A. Background Cendant Corporation, the main defendant, was formed by a December 17, 1997 merger of CUC International, Inc. (CUC) and HFS Incorporated (HFS). Pursuant to a Registration Statement and Joint Proxy Statement/Prospectus, HFS shareholders tendered their shares in exchange for CUC shares. HFS was then merged into CUC and the combined company was renamed Cendant. 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. 15 On March 31, 1998, Cendant filed its Form 10-K Annual Report with the SEC, which included the company's 1997 financial statements. Two weeks later, after the close of trading on April 15, 1998, Cendant announced that it had discovered "accounting irregularities" in certain units of the former CUC. The notice stated that Cendant expected to restate its annual and quarterly financial statements for 1997 and possibly for earlier periods as well; it also stated that Cendant had retained the law firm Willkie Farr & Gallagher (Willkie Farr) to conduct an investigation into its past financial statements and the allegations of fraud made by some Cendant employees. The next day, Cendant's stock fell 47%, from $35-5/8 to $19-1/16 per share, triggering several class action lawsuits on behalf of investors who purchased CUC or Cendant stock during 1997. On July 14, 1998, Cendant announced that it would also restate CUC's annual and quarterly financial statements for 1995 and 1996. Following this announcement, Cendant's stock fell by another 9%, to $15-11/16 per share. On August 28, 1998, Cendant filed Willkie Farr's report of its investigation, with the SEC. The report revealed that Cendant would restate its 1995, 1996, and 1997 financial statements by approximately $500 million. On August 31, 1998, the first trading day after Cendant's disclosure of the Willkie Farr report, Cendant's stock fell another 11%, to $11-5/8. The disclosure of the report triggered several more lawsuits arising from purchases of CUC securities during the broader period of alleged fraud. All told, Cendant shareholders lost more than $20 billion in market capitalization. Between April and August 1998, at least sixty-four putative securities fraud class action lawsuits were filed nationwide as a result of the above disclosures. Generally speaking, the lawsuits alleged that, from 1995 to 1998, CUC/Cendant had issued a series of materially false and misleading statements in the form of quarterly reports, annual reports, registration statements, prospectuses, and press releases, and that these statements artificially inflated CUC/Cendant's stock price. The lawsuits named as defendants Cendant, its officers and directors, and other parties--including E&Y, which had acted as CUC's 16 independent public accountant from 1983 until the time of the creation of Cendant. E&Y had also performed a post- merger audit of the financial statements of Cendant Membership Services, a wholly-owned subsidiary of Cendant, for the year ending December 31, 1997. The lawsuits alleged that E&Y had issued unqualified reviews and audit opinions certifying CUC's quarterly and annual reports, and that E&Y had failed to adhere to Generally Accepted Auditing Standards and thus lacked any reasonable basis for its opinions and reports. Cendant eventually filed a cross-claim against E&Y, detailing allegations that E&Y became aware of the fraud long before it was made public but chose to conceal and facilitate it, thereby continuing to garner millions of dollars in fees. Alternatively, Cendant alleged that E&Y was negligent in failing to discover the fraud earlier. E&Y strenuously denied all the allegations made in the amended cross-claim, pointing out that Cendant had not provided any evidence or documentation to back up the allegations. By order of the Judicial Panel on Multidistrict Litigation, all cases relating to Cendant's accounting irregularities were transferred to the United States District Court for the District of New Jersey. On May 29, 1998, the District Court consolidated all of them under the caption In re Cendant Corporation Litigation. B. The Appointment of Lead Plaintiff and Lead Counsel After consolidation, two of the District Court's first responsibilities were to appoint a lead plaintiff and lead counsel to represent the putative class. The PSLRA lays out detailed procedures for courts to follow in making these decisions, directing them to appoint "the most adequate plaintiff " as the lead plaintiff, and instructing them to "adopt a presumption" that the most adequate plaintiff is the movant that "has the largest financial interest in the relief sought by the class" and "otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure." 15 U.S.C. S 78u-4(a)(3)(B)(i) & (iii)(I).1 The _________________________________________________________________ 1. The Reform Act inserted identical amendments into the Securities Act of 1933 and the Securities Exchange Act of 1934. All citations are to the Exchange Act provisions. 17 presumption "may be rebutted only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff will not fairly and adequately protect the interests of the class or is subject to unique defenses that render such plaintiff incapable of adequately representing the class." Id.S 78u- 4(a)(3)(B)(iii)(II). With regard to the selection of lead counsel, the statute provides that "[t]he most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class." Id. S 78u-4(a)(3)(B)(v). Fifteen individuals and groups filed motions to serve as lead plaintiff, and the District Court held a hearing on August 4, 1998. It soon became clear that the CalPERS Group--a consortium of the three largest publicly-managed pension funds in the United States: the California Public Employees' Retirement System (CalPERS), the New York City Pension Funds (NYCPF), and the New York State Common Retirement Fund (NYSCRF)--had, by far,"the largest financial interest in the relief sought by the class." According to the District Court, the members of the CalPERS Group alleged combined losses in excess of $89 million, while the largest amount alleged by any other movant was $10.6 million. See In re Cendant Corp. Litig., 182 F.R.D. 144, 147 (D.N.J. 1998). This fact, in conjunction with the District Court's express finding that it satisfied Rule 23's "adequacy" and "typicality" requirements, see id. at 147-48, rendered the CalPERS Group the presumptive lead plaintiff. Two competing movants, the Joanne A. Aboff Family Trust (Aboff) and Douglas Wilson, offered three reasons why the presumption had been rebutted, but the District Court rejected their claims. Aboff and Wilson: (1) contended that they were better suited to be lead plaintiff than the CalPERS Group because they had negotiated a lower fee schedule with their lawyers; (2) argued that the CalPERS Group could not fairly and adequately protect the interests of the class because one of the Group's chosen counsel had made substantial campaign contributions to the sole trustee of one of the funds that make up the CalPERS Group, thereby creating an appearance of impropriety; and (3) suggested that the District Court should select lead 18 plaintiff "through a process of competitive bidding." Id. at 148-49. The District Court concluded that the CalPERS Group could not fairly and adequately represent the interests of the holders of convertible Cendant derivative securities known as PRIDES, see id. at 149-50, and severed the PRIDES claims from the main action.2 The court eventually appointed the CalPERS Group as lead plaintiff of the main Cendant action. See id. at 149.3 The court then turned to selection of lead counsel. The CalPERS Group had filed a motion seeking to have Barrack, Rodos & Bacine (BRB) and Bernstein Litowitz Berger & Grossman LLP (BLBG) appointed lead counsel pursuant to a Retainer Agreement that it had negotiated with them, which dictated not only the formula for determining attorneys fees but also included a Plan for Monitoring Litigation, a section outlining a Theory of Recovery, and a part captioned Consultation Regarding Settlement Negotiations.4 The District Court, however, decided to select (Text continued on page 21) _________________________________________________________________ 2. The court based this conclusion on the fact that all members of the CalPERS Group had sizeable holdings in Merrill Lynch, a defendant with respect to the claims involving PRIDES. See id. at 149. The court eventually appointed a different lead plaintiff and lead counsel in the PRIDES action. See id. at 149-50. 3. Although the District Court and some of the parties refer to members of the CalPERS Group as "co-Lead Plaintiffs," we agree with the Securities and Exchange Commission that "[t]here is one lead plaintiff under the Reform Act: an individual, an institution or a properly- constituted group." Brief for the Securities and Exchange Commission as Amicus Curiae, at 11 n.8 (emphasis added). The statute always speaks of the lead plaintiff in the singular, requiring that the court appoint "as lead plaintiff the member or members of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of class members" and stating that the presumptively "most adequate plaintiff . . . is the person or group of persons" that satisfies the statute's three threshold requirements. 15 U.S.C. S 78u-4(a)(3)(B)(i) & (iii) (emphasis added). The biggest consequence of this distinction is that only one "entity" is entitled to speak for the class: the lead plaintiff. In cases where a group serves as lead plaintiff, it is for the group's members to decide how the group will make decisions, but it is the group--not its constituent members--that speaks for the class. A fortiori, we use the singular "Lead Plaintiff " throughout this opinion. 4. The Retainer Agreement declares that the members of the CalPERS Group "have agreed to proceed together to seek a Co-Lead Plaintiff 19 position," and states that the funds, if selected as Lead Plaintiff, will "seek the appointment of BRB and BLBG as Co-Lead Counsel to the Class." The Agreement provides that Lead Counsel will "receive fees, as awarded by the Court, from the proceeds of any judgment or settlement," and that Lead Counsel "will advance all costs and out-of-pocket expenses." The Retainer Agreement contains four sections set off by roman numerals. The first deals with attorneys fees, providing: I. Attorneys Fees. The fee will be a function of both the timing and size of the recovery but, unless agreed to by the Funds, will, in no event exceed the following: A. Initiation of action through to commencement of discovery: 1. Recovery of $0 to $400 million - fee of 5%; 2. Additional recoveries above $400 million - fee of 3%. B. Commencement of discovery through to conclusion of all fact and expert discovery: 1. Recovery of $0 to $100 million - fee of 17.5%; 2. Additional recoveries of above $100 million to $300 million - fee of 10%; 3. Additional recoveries of above $300 million to $500 million - fee of 7.5%; 4. Additional recoveries of above $500 million- fee of 5%. C. Proceedings after conclusion of all discovery, including motions for summary judgment, if any, through and including trial and post-trial proceedings: 1. Recovery of $0 to $150 million - fee of 20%; 2. Additional recoveries above $150 million to $400 million - fee of 12.5%; 3. Additional recoveries above $400 million - fee of 7.5% In any event, we [i.e., BRB and BLBG] will not submit any fee application to the Court without the prior approval of The Funds, and all fee applications would, of course, be subject to final approval of the Court. Travel, meals and lodging expenses shall be reasonable and subject to the approval of Co-Lead Plaintiffs prior to reimbursement. Section II is captioned "Plan for Monitoring Litigation," and requires Lead Counsel to: (1) provide the CalPERS Group with "all significant pleadings" at least 24 hours before filing; (2) make monthly status reports, including statements as to time expended and expenses incurred; (3) promptly advise the CalPERS Group of"any significant developments in the case, including settlement discussions"; and (4) 20 lead counsel via auction. The court acknowledged that the PSLRA provides that "[t]he most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class." 15 U.S.C. S 78u- 4(a)(3)(B)(v); see Cendant Corp. Litig., 182 F.R.D. at 150 (quoting this language from the Reform Act). But it reasoned that "the Court's approval is subject to its discretionary judgment that lead plaintiff 's choice of representative best suits the needs of the class," and concluded that "mechanisms" other than the lead plaintiff 's choice were available to assist the court in making that determination. Id. at 150. The court pointed to the "emerging trend" of using auctions "to simulate the free market in the selection of class counsel," and stated that it would hold an auction to select lead counsel and to determine its fee. Id. at 150-51. Recognizing that the Reform Act confers upon the Lead Plaintiff the "opportunity" to "select and retain" lead counsel, the District Court ruled that counsel chosen by the CalPERS Group would have the chance to match what the court determined to be the lowest qualified bid. Id. at 151. Later, the District Court made clear that any winning bidder would have to agree to comply with all provisions of the Retainer Agreement that the CalPERS Group had negotiated with its chosen counsel (except, of course, the fee grid). The District Court solicited input about how the auction should be conducted and held a hearing on August 19, 1998. The court eventually required that bids be submitted _________________________________________________________________ schedule periodic meetings to discuss "case developments" and "joint strategies in the prosecution of the case." Section III is captioned "Theory of Recovery," and declares that the goal of the case was "to maximize the recovery obtained from sources outside the corporation . . . without unduly penalizing Cendant or its long-term shareholders." Lead Counsel agreed "to vigorously represent your collective interests, and the interests of the Class, to maximize the recovery for the Class of Cendant securities purchasers in this case, while being cognizant of the interests of the long-term holders of Cendant securities." Section IV is captioned "Consultation Regarding Settlement Negotiations," and it requires Lead Counsel to "consult with" and obtain approval from the CalPERS Group before entering into a final settlement agreement. 21 pursuant to a grid it had designed,5 and received nine bids to serve as lead counsel in the main Cendant action.6 The District Court rejected the bid by counsel for appellant Aboff, which would have generated fees of 1-2% of the total settlement depending on the size of the settlement and the timing of the recovery, characterizing it as unrealistic and "quasi-philanthropic," and stating that "[u]nless the eventual monetary recovery in this case is in the billions, such an apparently `cheap' fee does not make professional sense."7 In contrast, the court expressly found that counsel proposed by the Lead Plaintiff was qualified and that its proposed fee scale was "realistic," but also concluded that another qualified bidder had submitted a lower "realistic" bid. Counsel chosen by the Lead Plaintiff exercised its power to meet this lower bid, and was thus appointed lead counsel. C. Class Certification, the Filing of the Amended Complaint, and the Reaching of a Settlement After a case management conference, the newly- appointed Lead Plaintiff filed its Amended and Consolidated _________________________________________________________________ 5. The grid for the main Cendant action required that counsel submit a fee in terms of a percentage of the total class recovery. Movants were directed to propose fees depending on the phase at which the litigation was resolved (the horizontal axis) and the size of the eventual recovery (the vertical axis). The phases of litigation listed on the grid were: from pleadings through adjudication of any motion to dismiss; during discovery through adjudication of a summary judgment motion; after adjudication through a trial verdict; and post-trial. The sizes of recovery listed on the grid were: first 100 million; second 100 million; third 100 million; next 50 million; next 50 million; next 50 million; next 50 million; and over 500 million. 6. The court required that the bids be submitted under seal. This Court recently held that the District Court abused its discretion by imposing such a confidentiality order. See In re Cendant Corp., No. 99-5485, at 23 (3d Cir. Aug. 8, 2001). 7. The case did, of course, settle for an amount well into the billions, reflecting the perspicacity of Mr. Sirota, Aboff 's counsel. We need not decide whether Mr. Sirota could have negotiated such a large settlement because we are satisfied that, from the perspective of the District Court at the time, its decision in selecting counsel was not an abuse of discretion. 22 Class Action Complaint (the Complaint or Amended Complaint) along with a motion for class certification on December 14, 1998. The Complaint defined the class represented as [a]ll persons and entities who purchased or otherwise acquired publicly traded securities . . . either of Cendant or CUC during the period beginning May 31, 1995 through and including August 28, 1998 and who were injured thereby, including all persons or entities who exchanged shares of HFS common stock for shares of CUC stock pursuant to the Registration Statement . . . . Excluded from the Class are: (i) defendants; (ii) members of the family of each individual defendant; (iii) any entity in which any defendant has a controlling interest; (iv) officers and directors of Cendant and its subsidiaries and affiliates; and (iv) [sic] the legal representatives, heirs, successors or assigns of any such excluded party. The Amended Complaint alleged claims under bothS 10(b) of the Securities Exchange Act of 1934 [hereinafter "S 10(b) claims"] and S 11 of the Securities Act of 1933 [hereinafter "S 11 claims"], as well as numerous other claims that are not relevant for the purposes of our discussion and decision. The Complaint set out S 10(b) claims for all class members, but presented S 11 claims only for those class members who received Cendant stock via the HFS merger. CUC, however, acquired via merger fourteen other companies during the class period. As with the HFS merger, these other mergers involved the filing of registration statements with the SEC during the class period, and thus these mergers also gave rise toS 11 claims (as well as claims under S 12 of the Securities Act of 1933) for those who received CUC stock via these mergers. On January 27, 1999, the District Court granted Lead Plaintiff 's motion for class certification, defining the certified class as including "all purchasers or acquirers of Cendant Corporation or CUC International, Inc. publicly traded securities between May 31, 1995 and August 28, 1998 who were injured thereby." Several of the defendants then filed motions to dismiss. In an order issued July 27, 1999, the District Court denied all of them except E&Y's 23 motion to dismiss S 10(b) claims against it that were related to stock purchases made after April 15, 1998. See In re Cendant Corp. Litig., 60 F. Supp. 2d 354 (D.N.J. 1999). On August 6, 1999, the court approved the form of the notice of the class action to be sent to potential class members and ordered its dissemination. The District Court required Lead Plaintiff to mail notice to all record holders of Cendant and CUC stock and to all brokers in the transfer records, and to publish notice of the class action on three different days in The Wall Street Journal, The New York Times (National Edition), and the Dow Jones Business Newswire. In all, the Class Administrator sent 261,224 notices. Both the individually mailed and published notices included the definition of the Class as stated in the Complaint, and warned potential class members that if they failed to follow the specific procedures for opting out of the Class, they would be deemed class members and would be bound by any settlement or judgment. The notice stated that any class member who wanted to opt out had to file a written request for exclusion postmarked by December 27, 1999, which served as the final opt-out date. On December 7, 1999, almost three weeks before the final opt-out date, Cendant announced a proposed settlement that would require it to pay $2.85 billion to the class members, and ten days later the parties announced that a proposed settlement had been reached between E&Y and the Lead Plaintiff (collectively, "the Settlement"). On December 27, 1999, the opt-out period closed pursuant to the class notice. Out of over 100,000 class members, only 234 opted out before the deadline. See In re Cendant Corp. Sec. Litig., 109 F. Supp. 2d 235, 257 (D.N.J. 2000). On March 17, 2000, Cendant and the Lead Plaintiff submitted settlement documents to the District Court, including a Plan of Allocation for the distribution of settlement proceeds among class members. D. The Terms of the Settlement and the Plan of Allocation The defendants' obligations under the Settlement consist of three primary elements: 24 1) Cash Payment: Cendant agreed to pay $2,851,500,000 and E&Y agreed to pay $335,000,000 into the settlement pool, which brings the total settlement money to approximately $3.2 billion. Interest will accrue on this money until it is paid out to the Class. 2) 50% of any recovery from E&Y: Cendant and the individual defendants from HFS Inc. are currently suing E&Y over E&Y's role in the fraud. Fifty percent of any net recovery from this action will go to the Class. 3) Corporate governance changes: Cendant will institute corporate governance changes, including putting a majority of independent directors on its Board of Directors; placing only independent directors on the Board's Audit, Nominating, and Compensation Committees; de-classifying the Board and providing for the annual election of all directors; and precluding the repricing of any employee stock option after its grant, except with the approval of a majority of voting shareholders. In exchange for these undertakings, the Class has agreed to release Cendant, E&Y, the HFS individual defendants, and the CUC individual defendants from all claims that "are based upon, are related to, arise from or are connected with any facts, circumstances, statements, omissions, events or other matters raised or referred to in the pleadings in the Litigation or which could have been asserted against Cendant, the HFS Individual Defendants and the other Released Parties by the Lead Plaintiffs and any Class Member." Stipulation of Settlement with Cendant Corp. and Certain Other Defs. at 12. The Settlement also contains a Plan of Allocation, which will be used to allocate the settlement money among the class members. The specifics of the Plan of Allocation are somewhat complex because it involves calculating the"true value" of Cendant/CUC stock for any given day during the class period. To get the "true value" of Cendant stock on any given day, one has to remove from the actual price the artificial inflation that Cendant's fraud caused in the price, a process made trickier by the fact that, unlike many other 25 frauds, the fraudulent statements made by Cendant were not in the form of a surprising announcement that caused the stock to rise a certain amount which would provide a fair indication of how much the fraud affected the price. Instead, Cendant's fraud consisted of releasing financial statements that met the market's expectations, while the truth was that Cendant was falling far short of these expectations. Cendant did, however, make several announcements revealing the fraud that caused the price of its stock to plummet, namely, the three announcements made on April 15, July 14, and August 28, 1998. The Plan of Allocation works backwards from these price drops to develop an equation for determining the true, non-artificially-inflated value of Cendant stock for any day during the class period. This "true value" is then compared to the actual price of Cendant/CUC stock on that day to determine how much that day's purchasers of Cendant/CUC stock overspent. The Plan uses this amount of overpayment to determine the class members' damages. The Plan of Allocation also allows class members who had received their stock in CUC's merger with HFS to receive as damages the greater of (1) their damages calculated under S 10(b) as determined by the Plan, or (2) their damages as calculated under S 11, which would give them the difference between what they paid for the Cendant stock (i.e., the value of the HFS securities that they traded in to get the Cendant stock) and the value of the Cendant stock as of the day the lawsuit was brought (April 16, 1998, the date the first lawsuit was filed). This S 11 provision draws upon the text of the 1933 Act, described in the margin.8 _________________________________________________________________ 8. Title 15 U.S.C. S 77k (the codification of S 11 of the 1933 Act) actually provides for three ways of determining S 11 damages: (1) the difference between the amount paid for the stock and the stock's price the day the lawsuit was brought (the method used above); (2) the difference between the amount paid for the stock and the amount received for it when it was sold, if it was sold before the lawsuit was brought; and (3) the difference between the amount paid for the stock and the amount received for it when it was sold, if it was sold after the lawsuit was brought but before judgment, only if such damages are less than the 26 Lead Plaintiff 's damages expert used the Plan of Allocation's damage determination method to calculate the total damages suffered by the Class from the Cendant fraud as $8.8 billion. At oral argument on this appeal and in a supplemental affidavit, Lead Plaintiff represented that the Claims Administrator had received over 118,000 proofs of claim from class members, for a total of $4.9 billion claimed losses. The $3.185 billion cash payment in the Settlement thus represents approximately a 36% recovery rate on the Class's total losses and a 64% recovery rate on the actually claimed losses. Of the $4.9 billion claimed losses, approximately $2.1 billion are losses claimed by class members who acquired Cendant stock in the HFS merger deal. E. Preliminary Settlement Approval, the Settlement Notice, the Attorneys Fees Request, and the Fairness Hearing On March 29, 2000, the District Court granted preliminary approval to the proposed settlement and enjoined all actions or claims that were contemplated by it. In early April, pursuant to the order containing the settlement approval, the Class Administrator mailed 478,000 notices of the Settlement and proof of claim form packages [hereinafter "the Settlement Notice"] to potential class members, and also published notices in The Wall Street Journal and The New York Times. The Settlement Notice summarized the course of the litigation and the terms of the Settlement, including Lead Plaintiff 's Plan of Allocation of the settlement funds. It also informed the _________________________________________________________________ damages as calculated under (1). See 15 U.S.C. S 77k(e). Only (1) is relevant to this case, however. Regarding option (2), if the class members sold their stock before April 16, 1998 (the day the lawsuit was brought) they would have no damages--the fraud was not revealed until after trading ended on April 15, 1998, so the stock price before April 16 was at least as artificially inflated by the fraud at the sale of the stock as it was at the purchase. Regarding option (3), because the price of Cendant stock continued to decline after the day the lawsuit was filed as more fraud was revealed, this option would result in greater damages than those calculated under (1) and thus cannot be used under the provisions of 15 U.S.C. S 77k(e). 27 class members that Lead Counsel intended to submit an application for attorneys fees totaling 8.275% of the total settlement fund and for reimbursement of expenses in the amount of $15,855,000. The Notice stated that the District Court would conduct a fairness hearing on June 28, 2000, and contained information about how class members could go about objecting to the Settlement. It provided that any class member could appear at the fairness hearing to object to the Settlement. Class members were also allowed simply to state an objection to the Settlement in writing, although, as we discuss below in Part III.A.2, there is some dispute over how clear the Settlement Notice was on this point. Prior to the fairness hearing, Lead Counsel petitioned the District Court for an award of $262,468,857 in attorneys fees and $14,623,806 in expenses. Lead Counsel noted that its fee request "adhere[d] precisely to the parameters in the lowest qualified bid proposal" established by the court's auction.9 At the hearing on the request to approve the Settlement and for counsel fees, six parties raised objections to the substantive provisions of the Settlement. Three were class members (Betty Duncan, Ann Mark, and Tere Throenle); two were not class members (Martin Deutch, a derivative plaintiff, and the State Board of Administration of Florida, which opted out of the Class); and one was a party whose class status is unclear (the Davidsons).10 Four class members filed objections to the fee _________________________________________________________________ 9. In contrast, had the District Court not held the auction and appointed Lead Counsel pursuant to the Retainer Agreement that it had negotiated with the CalPERS Group, see supra n.4 and accompanying text, the maximum allowable fee--"unless agreed to by The Funds"-- would have been approximately $187 million. 10. Janice and Robert Davidson, for themselves and as trustees of trusts for the benefit of their children (collectively, the Davidsons), have participated in this appeal as objectors to the Settlement. The procedural history of their claims presents a special situation. On June 20, 2000, in response to a motion by the Davidsons for clarification of the class definition specifying that they were not class members or, in the alternative, an extension of time for them to opt out of the Class, the District Court issued an order that: (1) ruled that the Davidsons were covered by the class definition and thus were included in the Class; (2) refused the Davidsons' request for an extension of time to opt out of the 28 request: NYCPF (a member of the CalPERS Group); Aboff; Faye Schonbrunn; and Throenle. August 15, 2000, the District Court formally approved the Settlement, entering two opinions and orders approving the Settlement and Plan of Allocation and rejecting all of the objectors' objections. See In re Cendant Corp. Sec. Litig., 109 F. Supp. 2d 235 (D.N.J. 2000); In re Cendant Corp. Sec. Litig., 109 F. Supp. 2d 273 (D.N.J. 2000). On August 16, 2000, the District Court filed an opinion and order awarding Lead Counsel approximately $262 million in attorneys fees pursuant to the schedule that had been pre- set via the auction. See In re Cendant Corp. Sec. Litig., 109 F. Supp. 2d 285 (D.N.J. 2000). Several of the objectors appealed these rulings. F. The Appeals and the Issues Presented by Each Appeal This opinion addresses three appeals from the District Court's approval of the Settlement and the Plan of Allocation, and four appeals from its award of counsel fees.11 _________________________________________________________________ Class; and (3) enjoined the Davidsons from arbitrating their claims in California, an action which they had initiated on December 17, 1998. See In re Cendant Corp. Sec. Litig., 194 F.R.D. 158 (D.N.J. 2000). The Davidsons appealed this order. On May 9, 2001, two weeks before oral argument in the present appeal, a panel of this Court filed an opinion affirming in part and reversing in part the District Court's June 20, 2000 Order. In particular, the panel majority generally affirmed the court's Order but left the extent of the scope of the matters to be arbitrated to the arbitrator. However, the full Court has since voted to rehear the Davidsons' appeal en banc, thereby vacating the panel opinion, so at this time it is not clear whether the Davidsons will be held to be class members, whether they will be given an extended time to opt out of the Class, or whether they will be permitted to pursue their claims in arbitration. If any of these possibilities comes to pass, the Davidsons' objections in this appeal will be mooted. However, for reasons set forth infra at Part III.C, we will take up the Davidsons' objections in this opinion. 11. This is the seventh appeal from this case that this Court has heard so far. The preceding six are: In re Cendant Corp., No. 99-5485 (3d Cir. Aug. 8, 2001); In re Cendant Corp. Litigation , 2001 WL 487903, No. 00- 2185, (3d Cir. May 9, 2001) (this is the Davidsons' appeal that gave rise 29 These appeals were consolidated for argument. On appeal, the objectors to the Settlement and the Plan of Allocation are: Tere Throenle (00-2708): Throenle challenges the overall fairness to the Class of the Cendant part of the Settlement, and contends that the Lead Plaintiff suffered from a conflict of interest that prevented it from fairly representing all class members because it continued to hold Cendant stock during and after the settlement negotiations.12 Betty Duncan (00-2683): Duncan challenges the overall fairness to the Class of the E&Y part of the Settlement.13 Ann Mark (00-2734): Mark claims that the proposed allocation of the settlement money among the Class is unfair because class members with S 11 claims should have received more than class members with S 10(b) claims.14 The Davidsons (00-2709): The Davidsons contend that the District Court erred by not making explicit Fed.R.Civ.P. 23 findings when certifying the Class; that the notice given to the Class was insufficient; that there are intra-class conflicts arising from the disparate treatment of class members under the terms _________________________________________________________________ to the since-vacated opinion and is now pending an en banc hearing, see supra n.10); In re Cendant Corp. PRIDES Litigation, 243 F.3d 722 (3d Cir. 2001); In re Cendant Corp. PRIDES Litigation, 235 F.3d 176 (3d Cir. 2000); In re Cendant Corp. PRIDES Litigation, 234 F.3d 166 (3d Cir. 2000); In re Cendant Corp. PRIDES Litigation, 233 F.3d 188 (3d Cir. 2000). 12. Throenle purchased 100 shares of Cendant stock during the class period and lost approximately $600. 13. Duncan bought an unspecified number of CUC notes and claims a loss of $1,294. 14. Mark exchanged 100 shares of HFS for 240 shares of CUC in the HFS merger and also purchased 400 Cendant shares in the open market during the class period. 30 of the Settlement; and that the Plan of Allocation is flawed.15 Objector Deutch's contentions are addressed in a separate opinion by this panel. See In re Cendant Corp. Sec. Litig. (Deutch), No. 00-2684 (3d Cir. Aug. 28, 2001). Objector State Board of Administration of Florida did not appeal. The objectors to the court's award of counsel fees are: NYCPF (00-2769; 00-3653): NYCPF argues that the District Court's decision to select lead counsel by means of an auction was inconsistent with the PSLRA, and contends that the Retainer Agreement negotiated between the Lead Plaintiff and Lead Counsel remains in effect. It also contends that the fee award approved by the District Court constitutes an excessively high percentage of the recovery given the circumstances. Aboff (00-2520): Aboff argues that the fee award was "grossly excessive," and also claims that the notices that were sent to class members did not contain sufficient information so as to allow them to evaluate the reasonableness of the fee request. Throenle (00-2708): Throenle contends that the fee request was improper and excessive. Faye Schonbrunn (00-2733): Schonbrunn argues that the District Court ignored this Court's jurisprudence governing fee requests, and claims that the court's award was excessive.16 Securities and Exchange Commission (SEC): The SEC appears as amicus curiae, contending that auctions are generally not consistent with the Reform Act. _________________________________________________________________ 15. The Davidsons held a substantial amount of CUC stock stemming from the merger of their company into CUC, although it is not clear from the record or the briefs exactly how many shares they held or how large their losses were. 16. For the most part, Schronbrunn's arguments are duplicative of, or subsumed by, those made by other objectors. Accordingly, we will not identify them separately. 31 Barclays Global Investors, N.A. et al (the Barclays Group): The Barclays Group appears as amicus curiae, arguing that the auction in this case was improper because there was no reason to believe that the Lead Plaintiff lacked the capacity or willingness to negotiate vigorously in the counsel selection and retention process. The District Court had jurisdiction pursuant to 15 U.S.C. SS 77v & 78aa and 28 U.S.C. S 1331, and we have jurisdiction under 28 U.S.C. S 1291. III. THE FAIRNESS OF THE SETTLEMENT AND THE PLAN OF ALLOCATION The objectors' arguments as to the fairness and adequacy of the Settlement fit into two basic categories. First, they argue that the District Court erred in applying the nine- factor test that we developed in Girsh v. Jepson , 521 F.2d 153 (3d Cir. 1975), for determining whether a settlement is fair, reasonable, and adequate under Federal Rule of Civil Procedure 23(e). Second, they contend that the District Court erred in approving the Settlement because there were serious intra-class conflicts that caused the Lead Plaintiff to represent the Class inadequately in negotiating the Settlement. See, e.g., Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997). We review the District Court's approval of a class action settlement, including its determination that the settlement was fair, reasonable, and adequate, for abuse of discretion. See In re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liability Litig., 55 F.3d 768, 782 (3d Cir. 1995) [hereinafter "GM Trucks"]. A. Approval of the Settlement: The Application of the Girsh factors Rule 23(e) sets out the basic charter for a court's analysis of the fairness of a class action settlement. It provides: "A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs." We have interpreted this rule to require courts to " `independently and objectively analyze the evidence and circumstances 32 before it in order to determine whether the settlement is in the best interest of those whose claims will be extinguished.' " GM Trucks, 55 F.3d at 785 (quoting 2 Herbert Newberg & Alba Conte, Newberg on Class Actions S 11.41). Under Rule 23(e), the District Court acts as a fiduciary guarding the rights of absent class members and must determine that the proffered settlement is"fair, reasonable, and adequate." Id. In approving the Settlement, the District Court applied the nine-factor test this Court developed in Girsh, which provides the analytic structure for determining whether a class action settlement is fair, reasonable, and adequate under Rule 23(e). See id. The nine Girsh factors are: (1) the complexity, expense and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through the trial; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; and (9) the range of reasonableness of the settlement fund in light of all the attendant risks of litigation. See Girsh, 521 F.2d at 157. The proponents of a settlement bear the burden of proving that these factors weigh in favor of approval. See GM Trucks, 55 F.3d at 785. Objectors Throenle and Duncan submit that the District Court abused its discretion in its application of the Girsh test to this settlement. In particular, Throenle argues that a correct application of the Girsh factors weighed against the settlement with Cendant, and Duncan raises a similar 33 argument as to the settlement with E&Y.17 Because there is substantial overlap between Throenle's and Duncan's arguments, we will consider these arguments together, noting any differences where relevant.18 In our review of the _________________________________________________________________ 17. Throenle does raise some points against the settlement with E&Y as well, but the bulk of her argument centers on the Cendant settlement. 18. Duncan raises another argument that we dispose of summarily. GM Trucks held that a district court reviewing a proposed class action settlement should make a preliminary determination, under which a presumption of fairness for the settlement is established if the court finds that: (1) the negotiations occurred at arms length; (2) there was sufficient discovery; (3) the proponents of the settlement are experienced in similar litigation; and (4) only a small fraction of the class objected. See GM Trucks, 55 F.3d at 785. Duncan contends that the District Court should not have accorded the Settlement a threshold presumption of fairness because there was insufficient discovery directed to uncovering E&Y's involvement in the fraud, which, she submits, compels the conclusion that the Lead Plaintiff 's negotiations with E&Y were not at arms-length. More specifically, Duncan argues that there is a strong possibility that three Cendant former employees who have pled guilty to federal criminal charges arising from this fraud may eventually give testimony implicating E&Y more fully in this fraud. (The three former employees are Cosmo Corigliano, the former chief financial officer; Anne Pember, a former senior vice president and controller; and Casper Sabatino, a former vice president of accounting and financial reporting. Duncan refers to these three as "the three felons.") Duncan asserts that "this Court can reasonably conclude that the testimony of the three felons will ultimately establish the fraudulent intent by E&Y." Duncan's Opening Br. at 40. We reject this argument for two reasons. First, Duncan uses the wrong standard of review. She says that this Court "can reasonably conclude" that more discovery will lead to more information against E&Y; the question, however, is not what this Court can reasonably conclude, but whether the District Court abused its discretion in finding otherwise. See GM Trucks, 55 F.3d at 782, 785. Second, E&Y points out in its brief that Sabatino told investigators that he and others at Cendant took steps to deceive E&Y as to the existence of the fraud. This is corroborated by the Willkie Farr Report on the Cendant fraud, which states that Cendant officials tried to conceal the fraud from E&Y. Indeed, the SEC also filed a complaint against Corigliano, Pember, and Sabatino on the date of their guilty pleas which accused them of lying to E&Y and of withholding material information from E&Y. These factors support the conclusion that E&Y was not an active participant in the fraud but was itself 34 District Court's application of the Girsh factors, we will first consider the strength of each side's arguments on each factor, and then, based on the totality of the factors, determine whether the District Court abused its discretion in finding overall that the Girsh factors weighed in favor of the Settlement. 1. The First Girsh Factor: Complexity, Expense & Likely Duration of Litigation This factor captures "the probable costs, in both time and money, of continued litigation." GM Trucks , 55 F.3d at 812 (internal quotation marks and citation omitted). The District Court found that this case would involve complex and protracted discovery, extensive trial preparation, and difficult legal and factual issues, and that this factor therefore weighed in favor of approval of the Settlement. The court focused on a number of specific variables that increased the case's complexity: the number of defendants; the complex accounting issues involved with respect to damages; the need for expert review and testimony; the fact that Cendant and E&Y were blaming each other for the accounting errors; and the possibility of unknown novel legal issues raised by the PSLRA. The court also found that litigation would likely be drawn out, with an extended discovery period necessary and a trial date that would likely not occur until 2002. See In re Cendant Corp. Sec. Litig., 109 F. Supp. 2d at 256-57. _________________________________________________________________ deceived by Cendant officials, rendering Duncan's contentions that the Corigliano, Pember, and Sabatino testimony will reveal E&Y's fraud an exercise in optimism. In sum, Duncan's arguments here are built on pure speculation that relies almost exclusively on the naked allegations made in Cendant's complaint against E&Y. See supra Part II.A. Moreover, Duncan's "wait and see" approach to the E&Y settlement (i.e., waiting for further discovery to develop) would likely mean a substantial delay to the Class in receiving settlement money even though there is no evidence that, given time, more information implicating E&Y would come to light. Therefore, we reject Duncan's arguments that there was insufficient discovery regarding E&Y's involvement, and we thus conclude that it was not an abuse of discretion for the District Court to give an initial presumption of fairness to the Settlement. 35 The objectors counter with a number of arguments. Throenle's best argument is that the liability aspect of the case against Cendant is simple--Cendant basically admits that its employees had the requisite scienter forS 10(b) liability, and there is strict liability for Cendant on the S 11 claims--so that the only truly contested issue is damages. She adds that the District Court's denial of the defendants' motions to dismiss means that the plaintiffs have surmounted the most formidable barrier posed by the PSLRA, namely, the heightened pleading standards put in place by the Act. As to the complexity of the case against E&Y, Duncan argues that we will not know enough about this issue until the parties engage in more discovery to determine E&Y's involvement. She asserts that if the three Cendant employees who pled guilty to fraud implicate E&Y in their testimony, see supra n.18, the plaintiffs' case against E&Y will be uncomplicated. We find Throenle's objections with respect to the Cendant portion of the Settlement to have considerable merit. We agree with Throenle's contention that Cendant's basic liability does not present a difficult or complex issue. Cendant has indicated that, insofar as liability is concerned, it would argue at trial that it is not responsible for any illegal actions taken by its employees because these acts were not done to benefit Cendant. However, because (as we explain below) we are skeptical of the viability of this defense for Cendant, see infra Part III.A.4, the fact that Cendant would likely raise it increases only minimally the complexity and likely duration of the litigation. We are thus dubious that this case, insofar as it involves Cendant's liability, presents numerous complex legal and factual issues that would result in substantial costs of time and money. But this does not necessarily militate against an attractive settlement, a point we address later. The issue of damages against Cendant is different in character, for it involves technical accounting issues and hence can be quite complex. Thus, we agree that this factor weighs in favor of settlement insofar as the damages determination is concerned. We note in this regard that the damages determination formula developed by the Lead Plaintiff 's damages expert is complicated and difficult to 36 follow; if Cendant constructed its own damages determination formula (as we presume it would), the damages issue could appreciably lengthen and complicate this litigation. Still, we think that, compared to a case in which basic liability is contested, the damages issues involved here would increase only moderately the time and expense required to litigate. Regarding Duncan's arguments on the complexity of determining E&Y's liability, we note that E&Y has consistently and strenuously denied any fault for this fraud, and as we have explained, see supra n.18, there does not seem to be good reason to think that the three convicted Cendant employees will implicate E&Y. E&Y points out that the fraud was perpetrated at Cendant facilities by Cendant employees, and no evidence has surfaced in the investigations following the fraud that E&Y employees participated in or even knew about the fraud. E&Y also emphasizes the fact that the Willkie Farr report describes numerous instances in which Cendant employees admitted concealing or falsifying information to prevent E&Y from discovering the truth. We agree with E&Y that establishing liability and damages against it would involve fairly complex and protracted litigation. In sum, while the complexity and duration of litigation factor does not weigh as heavily in favor of settlement as the District Court concluded, we do think it does weigh somewhat in favor of the Cendant part of the Settlement, and strongly in favor of the E&Y part of the Settlement. 2. The Second Girsh Factor: The Reaction of the Class The District Court found that this factor cut strongly in favor of the Settlement, as the number of objectors was quite small in light of the number of notices sent and claims filed. The claims administrator sent 478,000 notices of the Settlement to potential class members, and also published notices in The Wall Street Journal and The New York Times. Over 30,000 settlement claims were filed as of June 12, 2000 (more than two weeks before the fairness hearing), and almost 120,000 claims were filed by May 15, 2001. Yet only four class members objected to the Settlement (Throenle, Duncan, the Davidsons, and Mark, 37 who objected only to the Plan of Allocation), and only two non-class members objected as well (Deutch and the State Board Administration of Florida). As the District Court noted, none of the objectors was an institutional investor (although the Davidsons had very large holdings), and only 234 class members opted out of the Class; the court took the latter number "as an extremely favorable indicator of class reaction." 109 F. Supp. 2d at 257. Throenle argues that the low number of objectors is attributable to the confusing notice to the Class; she contends that the notice implied that objectors had to appear personally before the court to lodge objections. Throenle also asserts that she had difficulty obtaining relevant documents from the clerk's office before the objection deadline, and that "[s]uch a fundamental deprivation of due process very likely hindered[other] objectors." Throenle Br. at 47. Duncan submits that the number of objectors and opt-outs is "meaningless" because the opt-out and objection-filing deadlines occurred before the three arrested Cendant employees pled guilty. The District Court correctly found that this factor weighed strongly in favor of the Settlement. The vast disparity between the number of potential class members who received notice of the Settlement and the number of objectors creates a strong presumption that this factor weighs in favor of the Settlement, and the objectors' arguments otherwise are not convincing. Although it is true that the Settlement Notice could have been clearer on how to object to the Settlement, the District Court pointed out that the notice provided the address and phone numbers for Lead Plaintiff 's counsel in the event that class members had questions about any matter in the notice. See 109 F. Supp. 2d at 255. A confused class member who wanted to make an objection could have easily called class counsel and clarified the process by which to make it. Throenle's assertion about her difficulty in obtaining documents from the clerk's office is troubling, but the fact is that she did receive the relevant documents in time and no other class member has complained of this problem. Furthermore, Duncan's contention that more people would have objected had the objection deadline date occurred after the three 38 Cendant employees pled guilty to fraud is purely speculative; nothing in these employees' statements to investigators implicates E&Y, and in fact the statements reflect that they tried to conceal the fraud from E&Y. We therefore conclude that this factor cuts strongly in favor of the Settlement. 3. The Third Girsh Factor: The Stage of Proceedings This factor "captures the degree of case development that class counsel have accomplished prior to settlement. Through this lens, courts can determine whether counsel had an adequate appreciation of the merits of the case before negotiating." GM Trucks, 55 F.3d at 813. In considering this factor, the District Court took note of the formal and informal discovery in which Lead Counsel had engaged, and then concluded that "[t]he record reveals, and the Court finds, that the parties understood the merits of the class action and could fairly, safely and appropriately decide to settle the action with Cendant and E&Y. Counsel conducted extensive discovery, retained and used experts, and litigated pre-trial motions." 109 F. Supp. 2d at 259 (internal quotation marks and citation omitted). The court then described in detail the "extensive discovery" undertaken by the Lead Counsel, which included analysis of Cendant's public filings, review of the Willkie Farr Report, review of various documents produced by Cendant during informal and formal discovery, and interviews with various Cendant and E&Y employees. See id. at 258-59. The court also noted that, in preparation for settlement negotiations, Lead Plaintiff had retained the investment firm Lazard Freres and damages expert Forensic Economics, Inc., to assist it in determining damages. See id. at 258. Both Throenle and Duncan argue that there was insufficient discovery. In particular, they point to the fact that no depositions were taken and that Lead Counsel mainly engaged in only informal discovery. Duncan in particular argues that the early stage of discovery means that the Settlement was not negotiated "under a real and credible threat of litigation." Duncan's Opening Br. at 52. The objectors are correct that the Settlement was reached early in the litigation, with discovery itself at an early stage. 39 However, the merits of the liability case against Cendant were fairly clear. With respect to the S 11 claims, Cendant has admitted that its financial statements contained materially false information, and Cendant has strict liability for its registration statements that incorporated these financial statements. As for the S 10(b) claims, Cendant employees have basically admitted committing fraud, so Cendant was going to be on the hook for a substantial amount, if not all, of the Class's S 10(b) damages at all events. In its argument on the fourth Girsh factor (the risk of establishing liability), Lead Plaintiff relies on the fact that Cendant has advanced the defense that it should not be held liable for the Class's damages that were caused by the illegal acts of its various officers, because these acts were not done for the benefit of the corporation. As we explain below, see infra Part III.A.4, on the record before us we do not think that Cendant would have much chance of success with this defense. While it is not clear whether Lead Plaintiff had an "adequate appreciation" of the merit of this defense, its viability turns more on legal considerations than on factual development, see id., so it does not substantially affect Throenle and Duncan's claim that more discovery was needed. Given the foregoing, it is unclear what depositions and interrogatories (with the requisite motions to compel) would have added to the liability considerations. It is true that the extent of the Class's damages was not clear-cut, but Lead Plaintiff retained its own damages expert to calculate the Class's damages and also reviewed a damages report prepared by the National Economic Research Association, Inc., which Cendant hired as its damages expert. The issue of damages appears to have been headed for resolution as a battle of the experts at trial. While Federal Rule of Civil Procedure 26 expert witness discovery might have been helpful on the damages issue, it is not clear what it would have added to the settlement calculus. Therefore, although this litigation was settled at an early stage, because of the nature of the case Lead Plaintiff had an excellent idea of the merits of its case against Cendant insofar as liability was concerned at the time of the Settlement. Lead Plaintiff also underwent a sufficient 40 process for determining the Class's damages before the Settlement. Because of this, Lead Plaintiff was able to form an "adequate appreciation of the merits of the case [against Cendant] before negotiating." GM Trucks , 55 F.3d at 813. We thus conclude that this factor cuts strongly in favor of the settlement with Cendant. Because the case against E&Y was strongly contested and much more complex, it is correspondingly more difficult to ascertain the merits of the case against E&Y because of the early settlement. However, Duncan's conjecture about what evidence of E&Y's involvement in the fraud may turn up from further discovery is undermined by the results of the investigation of the three former Cendant employees charged with criminal fraud, which indicates that they concealed the fraud from E&Y. See supra n.18. Therefore, although we note the possibility that further discovery might have illuminated the merits of the case against E&Y, we temper this with the observation that it seems unlikely that evidence of E&Y's further involvement in the fraud would come to light. For these reasons, we conclude that the stage of proceedings factor is neutral as to the settlement with E&Y. 4. The Fourth Girsh Factor: The Risks of Establishing Liability A court considers this factor in order to "examine what the potential rewards (or downside) of litigation might have been had class counsel decided to litigate the claims rather than settle them." GM Trucks, 55 F.3d at 814. The District Court concluded that the risks of establishing liability varied with the particular defendant. As to Cendant, the court concluded that liability was easily established, but that things got more complex for the S 10(b) claims when the proportionality of liability was considered:"the jury might have found that Cendant bore only a small proportion of the responsibility for the damages suffered by the Class." 109 F. Supp. 2d at 260 (internal quotation marks omitted) (citing the PSLRA's provisions on proportionate liability, which provide that a defendant is jointly and severally liable on a S 10(b) claim only if the defendant knowingly committed the fraud; otherwise the defendant is only liable for the percentage of his 41 responsibility for the fraud, see S15 U.S.C. 78u- 4(f)19). Proportionality of liability is only an issue as to the S 10(b) claims; if Cendant were to lose on the S 11 claims at trial, it would be jointly and severally liable on these claims. See 15 U.S.C. S 77k(f). As to E&Y, the court reasoned that the level of scienter required by S 10(b), E&Y's potential due diligence defenses under Section 11, and the fact that there was no evidence that E&Y knew about the fraud while it was being committed meant that Lead Plaintiff faced significant obstacles in establishing E&Y's liability. The court concluded that this factor weighed strongly in favor of settlement in E&Y's case, less so for Cendant, and"overall [this factor] weighs in favor of settlement." 109 F. Supp. 2d at 261. Throenle concentrates her argument on the District Court's conclusion that the risk of establishing liability with Cendant increases when the PSLRA's proportionate liability _________________________________________________________________ 19. 15 U.S.C. S 78u-4(f) provides, in pertinent part: (f) Proportionate liability (2) Liability for damages (A) Joint and several liability Any covered person against whom a final judgment is entered in a private action shall be liable for damages jointly and severally only if the trier of fact specifically determines that such covered person knowingly committed a violation of the securities laws. (B) Proportionate liability (i) In general Except as provided in subparagraph (A), a covered person against whom a final judgment is entered in a private action shall be liable solely for the portion of the judgment that corresponds to the percentage of responsibility of that covered person, as determined under paragraph (3). Paragraph 3 of S 78u-4(f) provides in pertinent part that the factfinder should make findings as to "the percentage of responsibility of [the defendant], measured as a percentage of the total fault of all persons who caused or contributed to the loss incurred by the plaintiff." 42 provisions are factored into the equation. She counters that, although the PSLRA limited defendants' joint and several liability in S 10(b) actions, defendants who are found to have knowingly committed S 10(b) violations are still jointly and severally liable for the fraud damages under the PSLRA. See 15 U.S.C. S 78u-4(f)(2). She thus argues that, because Cendant would be charged with knowing whatever its employees knew and its employees knowingly committed the fraud, Cendant would be jointly and severally liable, not proportionately liable, on the S 10(b) claims. On this basis, Throenle submits that the proportionate liability provisions of the PSLRA really do not pose a risk to establishing Cendant's liability.20 Lead Plaintiff counters Throenle's argument by pointing to Rochez Brothers, Inc. v. Rhoades, 527 F.2d 880 (3d Cir. 1975), in which we set out a two-part test for determining when the fraud of an officer of a corporation is imputed to the corporation: the fraud is imputed "when the officer's fraudulent conduct was (1) in the course of his employment, and (2) for the benefit of the corporation." Id. at 884. Lead Plaintiff notes that Cendant argued in the District Court that it was not liable for the illegal acts of its officers because these acts were not for Cendant's benefit, and that Cendant used just this defense to defeat a summary judgment motion on S 10(b) claims by an opt-out plaintiff in this very case. See In re Cendant Corp. Sec. Litig., 109 F. Supp. 2d 225, 232-34 (D.N.J. 2000) [hereinafter "Yeager v. Cendant" or"Yeager"]. The court denied the plaintiff 's summary judgment motion in Yeager because of the possibility that "a reasonable trier of fact could conclude that the true motive of the wrongdoers was the preservation of their employment, salaries, emoluments, and reputations, as well as their liberty, at the expense of the corporation's well-being." Id. at 233 (internal quotation marks and brackets omitted). Lead Plaintiff contends that the possibility that Cendant could establish this defense to _________________________________________________________________ 20. Duncan's argument on this factor is that further discovery would turn up evidence establishing E&Y's liability. As we have noted above, this claim is not only speculative, but also undermined by the evidence in the record. Thus, we agree with the District Court's conclusion that the risk of establishing E&Y's liability is substantial. 43 limit its liability posed a risk of establishing liability, so that the District Court correctly concluded that this factor weighed in favor of the Settlement. We do not agree with the District Court that there was a significant risk of establishing joint and several liability against Cendant in this case. Rochez Brothers makes clear that a corporate officer's fraud is imputed to the corporation "even if the officer's conduct was unauthorized, effected for his own benefit but clothed with apparent authority of the corporation, or contrary to instructions." 527 F.2d at 884. The reason for this is that "a corporation can speak and act only through its agents and so must be accountable for any acts committed by one of its agents within his actual or apparent scope of authority and while transacting corporate business." Id. Based on the record before us, it would not seem difficult for the plaintiffs to establish that the high-ranking CUC officers who published the false financial statements in CUC's name were acting within the apparent scope of their authority and were transacting corporate business, whether or not they were feathering their own nest. In sum, we agree that there would be little risk in establishing Cendant's joint and several liability on the S 10(b) claims. As to the risk of establishing E&Y's liability, we agree with the District Court's analysis that a number of factors make this factor weigh strongly in favor of approval of the E&Y portion of the Settlement: the lack of any evidence that E&Y knew about the fraud; E&Y's due diligence defenses on the S 11 claims; the complexity of the case against E&Y; and the prospect of fierce litigation. Overall, then, the risks of establishing liability factor cuts substantially in favor of approval of the E&Y portion of the Settlement, but cuts against approval of the Cendant portion of the Settlement. 5. The Fifth Girsh Factor: The Risks of Establishing Damages Like the fourth factor, "this inquiry attempts to measure the expected value of litigating the action rather than settling it at the current time." GM Trucks , 55 F.3d at 816. Lead Plaintiff presented evidence to the District Court that 44 the total amount of damages to class members ranges between $8.5 and $8.8 billion. Lead Plaintiff cautioned, however, that establishing damages at trial would lead to a "battle of experts," with each side presenting its figures to the jury and with no guarantee whom the jury would believe. The District Court accepted this argument, as well as E&Y's statement that it was prepared to prove at trial that the decline in Cendant's stock following the announcements of the fraud was largely due to factors and conduct in which E&Y was not involved. The court thus found that this factor weighed in favor of settlement. Throenle and Duncan do not offer persuasive arguments regarding this factor, and we find the District Court's reasoning on this factor sound. As we set forth in the margin, the damages determination proffered by Lead Plaintiff 's expert is complex and hard to follow, freighted with involved calculations and conceptually difficult issues.21 Were a jury confronted with competing expert opinions of corresponding complexity, there is no compelling reason to think that it would accept Lead Plaintiff 's determination rather than Cendant's, which would posit a much lower figure for the Class's damages. This risk in establishing damages means that this factor weighs in favor of approval of the Settlement. 6. The Sixth Girsh Factor: The Risks of Maintaining the Class Action Through Trial The District Court found that this factor slightly weighed in favor of settlement because, "[u]nder Federal Rule of Civil Procedure 23(a), a district court `may decertify or modify a class at any time during the litigation if it proves to be unmanageable,' " and proceeding to trial would always entail the risk, even if slight, of decertification. In re Cendant Corp. Sec. Litig., 109 F. Supp. 2d at 262 (quoting In re Prudential Ins. Co. of Am. Sales Practices Litig., 148 _________________________________________________________________ 21. For example, as we stated in the Facts & Procedural History section, the damages determination involves calculating the"true value" of Cendant/CUC stock for any given day during the class period, i.e., the value that the stock would have had if the fraud had not been committed, which requires a complex and conceptually difficult damages determination. 45 F.3d 283, 321 (3d Cir. 1998)). The objectors argue that this factor is really neutral. In our view the risk of decertification appears to be extremely slight; hence we agree with the objectors. 7. The Seventh Girsh Factor: The Ability of the Defendants to Withstand a Greater Judgment There is a dispute among the parties as to what this factor means, i.e., whether it concerns the ability of the defendants to withstand a judgment for the $8.8 billion maximum damages sought by the Class, as Lead Plaintiff and E&Y argue, or whether it focuses on the ability of the defendants to withstand a settlement or a judgment for any amount higher than the $3.2 billion for which they are settling, as the objectors contend. The District Court took note of this dispute, but appears not to have taken a position on it, as it found that there was insufficient financial data to determine what the defendants could afford to pay. Lead Plaintiff and E&Y reason that the use of the term "judgment" rather than "settlement" in the formulation of this Girsh factor supports their contention that it concerns only the possible judgment at trial for the full amount of damages sought rather than other possible larger settlements. This reasoning is not terribly persuasive, because Girsh uses the phrase "the ability of the defendants to withstand a greater judgment," 521 F.2d at 157 (emphasis supplied), and the comparative term "greater" implies a comparison with the current settlement. If this factor was intended to reference the ability of the defendants to withstand a judgment for what the plaintiffs claim as their damages, then it would presumably be stated in those terms (e.g., "the ability of the defendants to withstand a judgment for what the plaintiffs claim") rather than as "the ability of the defendants to withstand a greater judgment." Furthermore, because both a settlement and a judgment take money out of Cendant's pocket, distinguishing the two in the context of this factor makes little sense from a practical point of view. We think a better interpretation of this factor is that it is concerned with whether the defendants could withstand a 46 judgment for an amount significantly greater than the Settlement. Our case law supports this view. See In re Prudential, 148 F.3d at 321-22 (finding no error in the district court's analysis of this factor that considered whether the defendant could withstand a judgment for an amount greater than the proposed settlement); GM Trucks, 55 F.3d at 818 (same). Thus, our consideration here is whether Cendant could withstand a judgment for an amount significantly greater than $2.85 billion, and whether E&Y could withstand a judgment for an amount significantly greater than $335 million. The District Court concluded that, although the defendants failed to produce financial information that showed that they could not pay a judgment greater than what the Settlement provided, this was not enough to reject the Settlement because the other factors cut clearly in favor of settlement. However, the District Court went on to find that at least as far as Cendant is concerned, objective benchmarks support Lead Counsel and Cendant's stance that sustaining a larger judgment, and possibly even a larger settlement, might prove fatal. Particularly, the significant percentage of Cendant's market capitalization that will be paid to the class-- approximately 25-30%. Even more striking is that Lead Plaintiffs' total damages calculation [i.e. the $8.8 billion] represents approximately 80-95% of [Cendant's] market capitalization (depending on market close)--a figure difficult for this Court to imagine Cendant paying without seeking shelter in our bankruptcy laws. 109 F. Supp. 2d at 263. Thus, while the District Court did not find that Cendant could not pay more than the $2.85 billion it contributed to the Settlement, it did find that if this case went to trial and Cendant was held liable for an amount close to $8.8 billion, it would probably declare bankruptcy. Regarding E&Y's ability to withstand a greater judgment, the court did not have any of E&Y's financial information before it, so it could not ascertain whether E&Y could pay more than its $335 million share of the Settlement. The court then determined that, because of the lack of financial 47 information, this factor weighed neither for nor against the Settlement. Throenle and Duncan argue that the District Court erred when it found that this factor was neutral, because both Cendant and E&Y are able to pay greater amounts than they would under the Settlement. Throenle contends that Cendant's announcement after the Settlement was reached that it was resuming its share repurchasing activity shows that Cendant has the ability to pay significantly more than $2.85 billion. Duncan points to E&Y's post-settlement sale of its consulting business to Cap Gemini for $11 billion as evidence of the need to get more information as to E&Y's ability to pay more. We agree with the objectors' contentions that the defendants could afford to pay more than they did under the Settlement. This does not end our analysis of this factor, however. The District Court was surely right that somewhere between Cendant's settlement payout ($2.85 billion) and the potential judgment ($8.8 billion), Cendant would likely be tipped into declaring bankruptcy. It is not clear on the record where this point would occur--it is probably not clear even to Cendant's directors at this point --but it is very likely that bankruptcy would have been a risk if Cendant were faced with a substantially higher judgment. There is inevitably a measure of speculation involved in this determination, especially given the lack of record development on this issue, so even though we think that it is likely that both Cendant and E&Y could have paid substantially more than they did under the Settlement, we must remain cognizant that the possibility of bankruptcy is quite real when the settlement or judgment numbers sufficiently increase. At the same time, the proponents of a settlement bear the burden of proving that the Girsh factors weigh in favor of approval. See GM Trucks, 55 F.3d at 785. Given these observations, we disagree with the District Court that the ability to withstand a greater judgment factor is neutral with regard to the Settlement. Rather, we think that this factor cuts against approval of the Settlement, albeit only moderately, because of the built-in limitations of this kind of analysis and the lurking 48 possibility of bankruptcy for Cendant (and perhaps E&Y as well) if faced with a judgment near $8.8 billion. 8. The Final Girsh Factors: The Range of Reasonableness of the Settlement Fund in Light of the Best Possible Recovery & in Light of Litigation Risks The District Court began its analysis of these factors by noting that the maximum amount of total damages against all defendants is approximately $8.5 billion (later amended to $8.8 billion), so that the total settlement amount of nearly $3.2 billion from all defendants represents a 36-37% recovery rate by the plaintiff Class. "This far exceeds recovery rates of any case cited by the parties." In re Cendant Corp. Sec. Litig., 109 F. Supp. 2d at 263 (citing cases and a volume describing a range of recoveries from 1.6% to 14% for securities class action settlements 22). Because Cendant paid the bulk of the $3.2 billion settlement, the court considered the proportionate fairness of the E&Y settlement separately. E&Y was only potentially liable for $6.2 billion in damages (i.e., the damages sustained by pre-April 15, 1998 purchasers), and, if E&Y and Cendant bear equal responsibility for these damages,23 then E&Y's settlement payment of $335 million represented 9.25% of the damages for which it was responsible. The court found that this was in line with the range of recoveries referenced above, and that it was well above the norm for recoveries against accounting firms in securities litigation. _________________________________________________________________ 22. The District Court cited the following: Denise Martin et al., National Economic Research Association, Inc., Recent Trends IV: What Explains Filings and Settlements in Shareholder Class Actions 10-11 (1996) (securities settlements range from 9%-14% of claimed damages); In re Prudential Sec., Inc. L.P. Litig., MDL No. 1005, 1995 WL 798907 (S.D.N.Y. Nov. 20, 1995) (approving settlement of between 1.6% and 5% of claimed damages); In re Crazy Eddie Sec. Litig., 824 F. Supp. 320 (E.D.N.Y. 1993) (settlement of between 6% and 10% of damages); In re Michael Milken & Assocs. Sec. Litig., 150 F.R.D. 57 (S.D.N.Y. 1993) (7.5%). 23. This is of course a highly questionable proposition insofar as the S 10(b) claims were concerned, as it appears from the record that Cendant would likely bear a much higher proportionate responsibility than E&Y for the fraud. 49 The objectors' arguments about these factors challenge the District Court's calculations, contending that the Class's damages were $13 to 20 billion rather than $8.8 billion, so that the recovery rate for the Settlement would be much lower than the District Court concluded. These arguments are flawed, however, because they calculate the Class's damages by using the drop in Cendant's market capitalization after the fraud was revealed. A stock's drop in market capitalization is not a proper measure of damages in securities cases under the statutory scheme laid out in S 10(b) or S 11. See 15 U.S.C.S 77k(e) (S 11 damages) & S 78u-4(e) (S 10(b) damages). Thus, the objectors' arguments are unavailing.24 Furthermore, we find the District Court's conclusion that these factors weigh in favor of the Settlement to be persuasive. The fact that the recovery rate for the Class here apparently exceeds the recovery rates in other securities class action settlements tends to support the reasonableness of the Settlement even though the Class faced low litigation risks in its claims against Cendant (because of the relative ease of establishing Cendant's liability). The lower recovery rate of E&Y's portion of the Settlement is justified by the greater litigation risks the Class faced in establishing E&Y's liability. For these reasons, we conclude that these factors weigh in favor of approval of the Settlement. _________________________________________________________________ 24. The reason why a drop in market capitalization is an inaccurate determiner of damages can be clarified by the following example. Suppose that Samantha Shareholder bought one share of Cendant stock at $20. The stock then rose to $25, but when the fraud was announced it dropped to $15, whereupon Shareholder sold. Shareholder's damages are $5 because that is the difference between what she paid for the stock and what she sold it for after the fraud was revealed ($20 - $15); these are her "out-of-pocket" damages. See Sowell v. Butcher & Singer, Inc., 926 F.2d 289, 297 (3d Cir. 1991) ("The proper measure of damages to reflect the loss proximately caused by the defendants' deceit is the out- of-pocket rule. That rule is the traditional measure of damages in a Rule 10b-5 action.") (internal quotation marks and citation omitted). If we used the drop in market capitalization to determine Shareholder's damages, however, we would conclude that she had damages of $10 ($25 - $15), which is greater than her out-of-pocket loss and is thus not a proper measure of her damages. 50 Volume 2 of 3 51 9. Summing Up the Girsh Factors Insofar as the Cendant portion of the Settlement is concerned, we conclude that the second (reaction of the class), third (stage of the proceedings), fifth (risk of establishing damages), eighth and ninth (range of reasonableness in light of the best possible recovery and of litigation risks) Girsh factors all weigh strongly in favor of approval of the settlement with Cendant. The first factor (complexity of litigation) weighs moderately in favor of approval, while the seventh factor (ability to withstand a greater judgment) weighs moderately against approval and the fourth factor (risk of establishing liability) weighs more heavily against approval of the settlement with Cendant. Finally, the sixth factor (risk of maintaining the class action) is effectively neutral. As to the E&Y portion of the Settlement, we conclude that the first (complexity of litigation), second (reaction of the class), fourth (risk of establishing liability), fifth (risk of establishing damages), eighth and ninth (range of reasonableness in light of the best possible recovery and of litigation risks) Girsh factors all weigh strongly in favor of approval of the Settlement. The third factor (stage of the proceedings) and the sixth factor (risk of maintaining the class action) are neutral, while the seventh factor (ability to withstand a greater judgment) weighs moderately against the E&Y portion of the Settlement. Given this analysis, we conclude that the District Court did not abuse its discretion in finding that the Girsh factors 52 overall weighed in favor of approving the Settlement and that therefore the Settlement was fair, reasonable, and adequate. As should be clear from our analysis, we think that this question with respect to the Cendant portion of the Settlement is closer than the District Court made it out to be. In particular, the lack of any serious risk of establishing Cendant's liability and its probable ability to pay substantially more in settlement raise concerns in our minds concerning the fairness and adequacy of this Settlement. However, a quick reference to the preceding discussion of the Girsh factors makes clear that the balance clearly weighed in favor of approval of the Cendant settlement. As to E&Y, there can be no question as to the propriety of the approval. Furthermore, under our standard of review applicable here we accord deference to the District Court's exercise of discretion, and can set aside its decision only if there was an abuse of that discretion, which is absent here. For these reasons, we hold that the District Court did not abuse its discretion in concluding that the Settlement was fair, reasonable, and adequate based on its application of the Girsh factors. B. Intra-class Conflicts Throenle and Mark have presented objections to the Settlement that fall under the general rubric of intra-class conflicts. Throenle presents two related arguments for setting aside the District Court's order approving the Settlement, while Mark attacks the Plan of Allocation. 1. Throenle's Arguments a. The Lead Plaintiff 's Alleged Conflicts of Interest Throenle first argues that the members of the CalPERS Group (who comprise Lead Plaintiff) were too conflicted to serve adequately in that capacity because they continued to hold huge amounts of Cendant stock during the Settlement negotiations, rendering them more concerned with protecting their interests in Cendant's future prospects than with achieving maximum recovery for the Class from Cendant. Throenle's argument is based on the general assertion that a lead plaintiff who retains a substantial investment in a defendant corporation cannot adequately represent a class in a lawsuit against that corporation 53 because this lead plaintiff will naturally be conflicted between trying to get maximum recovery for the class and trying to protect its ongoing investment in the corporation, e.g., by settling cheap or by securing corporate governance changes in lieu of cash, both of which are alleged here. Because of this, she argues that we should set aside the Settlement. Throenle's thesis is attractive. The problem with it is that Congress seems to have rejected it when it enacted the lead plaintiff provisions of the PSLRA. The Reform Act establishes a presumption that the class member"most capable of adequately representing the interests of class members" is the shareholder with the largest financial stake in the recovery sought by the class. 15 U.S.C.S 78u- 4(a)(3)(B)(i) & (iii)(I). The plaintiff with the largest stake in a given securities class action will almost invariably be a large institutional investor, and the PSLRA's legislative history expressly states that Congress anticipated and intended that such investors would serve as lead plaintiffs. See S. Rep. No. 104-98, at 11 (1995), reprinted in 1995 U.S.C.C.A.N. 679, 690 ("The Committee intends to increase the likelihood that institutional investors will serve as lead plaintiffs by requiring the court to presume that the member of the purported class with the largest financial stake in the relief is the `most adequate plaintiff.' "). We presume that Congress was aware that an institutional investor with enormous stakes in a company is highly unlikely to divest all of its holdings in that company, even after a securities class action is filed in which it is a class member. By establishing a preference in favor of having such investors serve as lead plaintiffs, Congress must have thought that the situation present here does not inherently create an unacceptable conflict of interest. See id. ("The Committee believes that an institutional investor acting as lead plaintiff can, consistent with its fiduciary obligations, balance the interests of the class with the long-term interests of the company and its public investors."). For this reason, the simple fact that the institutional investors who comprise Lead Plaintiff retained Cendant stock while the Settlement was negotiated is not nearly enough, standing 54 alone, to support Throenle's claim that Lead Plaintiff was so conflicted that the Settlement should be overturned. 25 _________________________________________________________________ 25. Although we have held that the fact that the members of the CalPERS Group continued to hold Cendant stock does not warrant overturning the Settlement, we call attention to an issue of potential intra-class conflicts with which district courts will need to grapple in future cases at the class certification stage. See In re Party City Securities Litigation, 189 F.R.D. 91, 108-10 (D.N.J. 1999) (noting the possibility of a significant conflict in many securities class actions between the interests of individuals and institutions that purchased and then sold stock in the defendant firm--"Sell Plaintiffs"--and those who bought and continue to hold such stock--"Hold Plaintiffs"). In economic terms, the potential conflict may be demonstrated as follows. The motivation of a rational Sell Plaintiff is simple: he wants to secure the largest possible recovery. The rational Hold Plaintiff, however, is in a more complicated situation; her goal is to reach a settlement that will maximize the combined value of her share of the settlement and the stock that she continues to hold in the defendant firm. Consequently, though a rational Sell Plaintiff would be perfectly willing to push the defendant firm one dollar short of declaring bankruptcy, a rational Hold Plaintiff rarely would be so willing because the increased value of her share of the settlement fund would almost certainly be offset by a corresponding decrease in the value of her stock. Thus, there will often be a significant conflict between the interests of Sell Plaintiffs and Hold Plaintiffs, particularly in cases where the class's expected damages are very large. We acknowledge that settlements among market participants are not always a function of rational behavior, as economists assume. Indeed, most settlements are probably based on intuition--although market factors doubtless inform the exercise of the parties' judgment. What is important to realize, however, is that this issue is one of class configuration. It is not merely a problem with the identity of the lead plaintiff, because it is equally problematic to have a Sell Plaintiff represent a class that includes Hold Plaintiffs as it is to have a Hold Plaintiff represent a class that includes Sell Plaintiffs. Properly understood, the issue is whether the conflict between the interests of Sell Plaintiffs and Hold Plaintiffs in a particular case is sufficiently severe so as to prevent a putative class from satisfying Rule 23's requirements for class certification, regardless whether the problem is seen as one of commonality, see Fed. R. Civ. P. 23(a)(2) (providing that a class action may be maintained only if "there are questions of law or fact common to the class"), typicality, see Fed. R. Civ. P. 23(a)(3) (permitting class certification only if "the claims or defenses of the representative parties are typical of the claims or defenses of the class"), adequacy of 55 Throenle appears implicitly to acknowledge this point, because she also argues that there is specific evidence that Lead Plaintiff did not adequately represent the Class's interests in this case, and that this evidence rebuts the PSLRA's presumption that the CalPERS Group was the most adequate plaintiff. See 15 U.S.C. S 78u-4(a)(3)(B)(iii)(II) (providing that the presumption that the largest shareholder is the most adequate plaintiff "may be rebutted only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff. . . will not fairly and adequately protect the interests of the class"). Throenle points to two factors as evidence that Lead Plaintiff did not adequately protect the Class's interests. The first is that while some people originally placed the Class's total damages at $13-20 billion, Cendant only paid $2.85 billion, which is too low a percentage of the Class's total damages. Her second piece of evidence is that Liberty Media Co. agreed to invest $400 million in Cendant soon after the announcement of the Settlement; because Lead Plaintiff must have known about this impending deal"[t]his obviously gave the Lead Plaintiffs--to the extent they retained substantial Cendant holdings--a tremendous incentive to settle cheap." Throenle's Opening Br. at 31. Throenle does not clearly explain how she concluded that the Class's damages were $13-20 billion; apparently it is derived from Cendant's loss of market capitalization caused by the announcement of the fraud. As we noted above in _________________________________________________________________ representation, see Fed. R. Civ. P. 23(a)(4) (stating that a class may be certified only if "the representative parties will fairly and adequately protect the interests of the class"), or predominance, see Fed. R. Civ. P. 23(b)(3) (allowing for class certification if "the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members"). Because here no party on appeal objects to class certification based on conflicts between Sell Plaintiffs and Hold Plaintiffs, we need not decide whether this matter should have been certified as two separate classes or as a single class with sub-classes. We do, however, call these issues to the attention of district courts for future cases, and note that the use of separate classes or sub-classes is not inconsistent with the Reform Act because that statute deals with the identification of a lead plaintiff, and not with the proper means for defining a class in the first place. 56 our Girsh factor analysis, however, loss in market capitalization is not a proper measure of damages inS 10(b) or S 11 cases. See 15 U.S.C. S 78u-4(e) (S 10(b) damages) & S 77k(e) (S 11 damages); supra Part III.A.8. Thus, Throenle's argument based on this $13-20 billion figure has no legitimate basis and we reject it for that reason. Similarly, Throenle's accusations about the Cendant- Liberty Media deal are based upon speculation; she offers no evidence that Lead Plaintiff knew about this impending deal or that it affected the settlement calculations, except for the fact that the deal was announced soon after the Settlement was announced (nine days later). Furthermore, even if this speculation were correct, Throenle's argument on its own is not persuasive. It is unclear how this impending deal, if Lead Plaintiff knew of it, "obviously gave Lead Plaintiff . . . a tremendous incentive to settle cheap," as Throenle contends. Why would an upcoming infusion of cash investment in Cendant impel Lead Plaintiff to settle this litigation cheaply? Lead Plaintiff would have such an incentive only if: (1) Liberty Media made the deal contingent upon Cendant achieving a favorable settlement of this case; (2) Lead Plaintiff became aware that Liberty Media had taken this position; and (3) Lead Plaintiff determined that the Liberty Media deal was worth more to it (as a current shareholder of Cendant) than a larger settlement was worth to it (as a class member). As with her other charges, Throenle offers no evidence that any of these suppositions are true. For these reasons, we reject Throenle's assertion that Lead Plaintiff was in conflict with the interests of the class members so that the Settlement should be overturned. b. The Corporate Governance Changes Throenle also argues that the corporate governance changes that Lead Plaintiff obtained from Cendant as part of the Settlement benefitted only institutional investors who continued to hold large blocks of Cendant stock, and not the Class as a whole, so that the District Court abused its discretion in approving a settlement that provided an individual benefit to certain class members at the expense of more recovery for the Class overall. 57 The corporate governance changes that Lead Plaintiff negotiated include Cendant's agreement to: (1) ensure that a majority of its Board of Directors would be independent directors; (2) place only independent directors on the Board's Audit, Nominating, and Compensation Committees; (3) de-classify the Board and provide for the annual election of all directors; and (4) preclude the repricing of any employee stock option after its grant, except with the approval of a majority of voting shareholders. Although these corporate governance changes were not negotiated until after the monetary portion of the Settlement was agreed upon, Lead Plaintiff did make it known to Cendant at the beginning of the negotiation process that it was going to ask for corporate governance changes. Obviously, these changes benefit only current and future Cendant shareholders, as they are meant to reduce the chance of future fraud by limiting the control of Cendant's internal officers and directors. The Lead Plaintiff, however, was appointed to represent the interests of the Class, which is defined as all persons who purchased Cendant stock between May 31, 1995 and August 28, 1998, many of whom have long since sold their shares. On the basis of these facts, which are essentially undisputed, Throenle argues that the inclusion of the corporate governance changes in the Settlement warrants overturning the Settlement. She acknowledges that she has no evidence that Lead Plaintiff gave up something in the negotiations (presumably up-front dollars) in order to get the corporate governance changes. Throenle's argument is thus based upon the common sense premise that "you don't get something for nothing." Throenle contends that the only thing of value that Lead Plaintiff had to offer Cendant for the governance changes was its acceptance of less money for the Class. Therefore, Throenle maintains, Lead Plaintiff sold out the interests of the class members (by accepting less money than it could have gotten) in order to get something of value for itself and for other current and future Cendant shareholders. Under this view, Lead Plaintiff breached its duty to the Class in negotiating these corporate governance changes, and the District Court abused its discretion in approving the Settlement given this conflict. 58 Throenle's argument here has an intuitive pull, but ultimately it is unpersuasive for two reasons. First, the received wisdom of the street does not necessarily have force in this Court as a matter of law. The truth of the maxim "you don't get something for nothing" is not something that we can judicially notice. We need evidence, and there is no affirmative evidence backing up Throenle's claims, although there is some evidence against them. Lead Plaintiff strenuously denies that it took any less monetary recovery to get the corporate governance changes. Apparently, the corporate governance changes were not negotiated until after the monetary recovery was determined, and Lead Counsel who negotiated the Settlement made declarations to the District Court stating that Cendant was explicitly told that the money it paid into the Settlement would not be decreased in any way as an exchange for implementing the corporate governance changes. Cendant's general counsel confirmed this declaration, and stated that Cendant did not request or receive any concessions, economic or otherwise, in exchange for adopting the corporate governance changes. Thus, Lead Plaintiff submits that we should leave intact the District Court's factual finding that "Thr [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/3011585. Public record. Not legal advice.