In Re: Cendant Corp

Opinions of the United

2001 Decisions States Court of Appeals

for the Third Circuit

5-9-2001

In Re: Cendant Corp

Precedential or Non-Precedential:

Docket 00-2185

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Volume 1 of 2

Filed May 9, 2001

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 00-2185

IN RE: CENDANT CORPORATION LITIGATION

JANICE G. DAVIDSON; ROBERT M. DA VIDSON, 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 T rust, Emilie A.

Davidson Charitable Remainder Unitrust and John R.

Davidson Charitable Remainder Unitrust,

Appellants

On Appeal from the United States District Court

for the District of New Jersey

(D.C. Civil Action No. 98-cv-01664)

District Judge: Honorable William H. W alls

Argued: November 16, 2000

Before: SLOVITER, AMBRO, and GARTH, Circuit Judges

(Filed: May 9, 2001)

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, California 90013

Counsel for Appellants

SAMUEL KADET, ESQUIRE (Argued)

JOSEPH N. SACCA, ESQUIRE

KAREN CACACE, ESQUIRE

Skadden, Arps, Slate, Meagher &

Flom LLP

Four Times Square

New York, New York 10036

Counsel for Appellee Cendant

Corporation

LEONARD BARRACK, ESQUIRE

GERALD J. RODOS, ESQUIRE

JEFFREY W. GOLAN, ESQUIRE

Barrack, Rodos & Bacine

3300 Two Commerce Square

2001 Market Street

Philadelphia, Pennsylvania 19103

MAX W. BERGER, ESQUIRE

DANIEL L. BERGER, ESQUIRE

JEFFREY N. LEIBELL, ESQUIRE

Bernstein Litowitz Berger &

Grossmann LLP

1285 Avenue of the Americas

New York, New York 10019

Counsel for Appellees California

Public Employees' Retirement System,

New York State Common Retirement

Fund, and New York City Pension

Funds

2

OPINION OF THE COURT

AMBRO, Circuit Judge:

Janice G. Davidson and Robert M. Davidson, in their

individual capacities and as trustees of certain trusts

(collectively, the "Appellants"),1 appeal from a final decision

of the United States District Court for the District of New

Jersey (the "District Court"). That decision, involving a

securities class action lawsuit (the "class action"), held that

Appellants, as a result of their failur e to opt out of the

class, were subject to the class settlement, and could not

further pursue arbitration in California of claims they

brought against Appellee Cendant Corporation ("Cendant").

Appellants have presented this Court with thr ee issues

on appeal. First, they assert that the District Court erred in

holding that the class included them. Second, Appellants

argue that the District Court abused its discr etion in failing

to grant them an extension of time to opt out of the class.

Finally, they contend that the District Court err ed in

enjoining their arbitration claims and, in doing so, violated

the Federal Arbitration Act, 9 U.S.C. S 1 et seq. (the "FAA").

After considering these arguments, we hold that the District

Court did not err in finding that Appellants wer e members

of the class and did not abuse its discretion in refusing to

grant them an extension of time to opt out of the class.

However, we hold that the District Court did err in

enjoining, in its entirety, Appellants' arbitration. While

Appellants are subject to the class settlement, and

therefore are enjoined from pursuing any claims that fall

within that settlement, they are not enjoined from

pursuing, in arbitration, any claims that fall outside the

settlement's scope.

I. Facts and Procedural History

In 1982, Janice Davidson founded Davidson &

_________________________________________________________________

1. Janice G. Davidson and Robert M. Davidson, solely in their individual

capacities, are collectively referr ed to as the "Davidsons."

3

Associates, Inc. ("DAI"), an entity later incorporated in

California in 1984. From 1984 until 1996, the Davidsons

were officers and directors of DAI. In that capacity, they led

the company as it developed, manufactured, published, and

distributed educational and entertainment softwar e

products for home and school use. The company derived its

revenues from sales to software distributors, specialty

software stores, computer superstor es and mass

merchandisers in international markets, international

catalog sales to schools and teachers, and thr ough

technology licensing and software manufacturing.

In April 1993, DAI issued an initial public of fering ("IPO"),

selling 200 million shares of common stock at $13 per

share. Thereafter, DAI listed its stock on NASDAQ. After the

IPO, the Davidsons controlled approximately 70% of DAI's

outstanding common stock, with a majority of that stock in

various charitable and irrevocable trusts contr olled by the

Davidsons as trustees.2

Following the IPO, DAI received a number of unsolicited

inquiries with respect to possible mergers, acquisitions,

joint ventures, and direct investments. No initial inquiry

resulted in a transaction. However, in June 1995, the

Davidsons were approached by CUC Inter national, Inc.

("CUC") in connection with its possible acquisition of DAI.

Although the first round of negotiations ended without an

agreement, the negotiations were r esumed in December

1995 and continued until July 1996, when CUC acquir ed

DAI through a merger and DAI became a subsidiary of

CUC.

In connection with the merger, DAI shar eholders received

85/100 of a CUC share in exchange for each DAI share, as

negotiated in part based on the market price of each

company's shares. As a result, the Davidsons received

1,259,634 shares of CUC common stock, and the trusts

controlled by the Davidsons received 31,245,465 shares of

_________________________________________________________________

2. The Davidsons claim to have controlled 78% of DAI's outstanding

shares immediately after the IPO. Cendant alleges that, at the time DAI

merged with CUC International, Inc. (later Cendant), the Davidsons

controlled 71.3% of the outstanding DAI common shares (1.4% in each

person's individual capacity and 68.5% in the various trusts).

4

CUC common stock. The merger agreement also contained

an arbitration provision3 and a "bust out" provision.4

Following the merger, the Davidsons became directors of

CUC and officers and directors of CUC's DAI subsidiary. In

addition, the DAI shares owned by the public were

exchanged for common shares of CUC that could be

immediately traded over the New York Stock Exchange

("NYSE"). Appellants' shares, however , could not be

immediately traded. Due to the number of shar es

Appellants received, they were deemed affiliates of CUC and

could not publicly trade their stock on the NYSE unless

their shares were subsequently made part of a registered

public offering separate from the DAI/CUC merger.5

In January 1997, following several months of acrimony

between CUC senior management and the Davidsons, CUC

terminated them as corporate officers though they

remained directors. In March 1997, Appellants served CUC

with a demand for arbitration, asserting claims in

connection with the DAI/CUC merger agr eement and

specifically as to the Davidsons' employment

responsibilities with CUC. In May 1997, Appellants and

_________________________________________________________________

3. The arbitration provision provided:

Any controversy, dispute or claim arising out of or relating to

this

Agreement or the breach hereof which cannot be settled by mutual

agreement . . . shall be finally settled by arbitration . . . .

The parties

agree that this clause has been included to rapidly and

inexpensively resolve any disputes between them with respect to

this

Agreement, and that this clause shall be gr ounds for dismissal of

any court action commenced by either party with r espect to this

Agreement, other than post-arbitration actions seeking to enforce

an

arbitration award.

4. The "bust out" provision per mitted DAI to terminate the merger

agreement if CUC's average share price fell below $29 per share in a

defined period in order to protect the bargained-for value to be received

by the DAI shareholders.

5. As discussed below, Appellants' shares were restricted pursuant to the

Securities Act of 1933. See 17 C.F.R.S 230.145; infra note 16 and

accompanying text. However, the restrictions could be easily

circumvented. In fact, just four months after the merger, in October

1996, Appellants sold more than twenty million of the shares they

received in the DAI/CUC merger.

5

CUC entered into a settlement agreement (the "Settlement

Agreement"), which provided, inter alia, for the Davidsons

to receive options to purchase 1.6 million shares of CUC

common stock6 in exchange for a r elease by Appellants and

the Davidsons' resignation from all r emaining positions

with CUC. The Settlement Agreement also contained an

arbitration provision.7

Thereafter, on December 18, 1997, CUC and HFS, Inc.

("HFS") merged, with CUC as the surviving company. Upon

completion of the merger the company became known as

Cendant.

After the close of the stock market on April 15, 1998,

Cendant publicly disclosed that accounting and

bookkeeping irregularities had occurred at CUC and that it

would restate its earnings for 1997. This caused its stock

value to plummet 46% and triggered several class action

lawsuits on behalf of investors who purchased CUC or

Cendant stock during 1997. In late August 1998, Cendant

further disclosed that the irregular accounting activity

dated back to 1995, and that in addition to the 1997

restatement, new earnings would be r eleased for 1995 and

1996. This second disclosure triggered several more

lawsuits involving purchases of CUC securities during the

_________________________________________________________________

6. Interestingly, at oral argument Cendant conceded that these 1.6

million options are not, and have never been, considered part of the

class action.

7. That provision stated:

Notwithstanding anything to the contrary contained in this

Agreement or the Surviving Agreements and Rights, any

controversy, dispute or claim arising out of or relating to this

Agreement or any of the Surviving Agreements and Rights or the

breach hereof or thereof which cannot be settled by mutual

agreement shall be finally settled by binding arbitration in

accordance with the Federal Arbitration Act . .. . The parties

agree

that this Section has been included to rapidly and inexpensively

resolve any disputes between them with r espect to this Agreement

or any of the Surviving Agreements and Rights, and that this

Section shall be grounds for dismissal of any court action

commenced by any party with respect to this Agr eement or any of

the Surviving Agreements and Rights, other than post-arbitration

actions seeking to enforce an arbitration awar d.

6

broader period of alleged fraud. This new time frame

presumably included the time during which Appellants

engaged in the merger transaction with CUC. In total,

Cendant restated and reduced its pr e-tax operating income

for the relevant periods by approximately $500 million.

Between April and August 1998, at least sixty-four

purported securities fraud class action lawsuits wer e filed

as a result of the April 1998 disclosur e. By order of the

Judicial Panel on Multidistrict Litigation (the"MDL Panel"),

all Cendant cases relating to the accounting irregularities

were transferred to the District of New Jersey. During the

process to consolidate the class actions in the District of

New Jersey, fifteen motions were filed for appointment as

the lead plaintiff. On May 29, 1998, the District Court

consolidated all of the accounting irregularity actions

pending against Cendant under the caption In r e Cendant

Corporation Securities Litigation.8 On September 8, 1998,

the District Court appointed the California Public

Employees' Retirement System, the New Y ork State

Common Retirement Fund, and the New York City Pension

Funds, all public investment funds, as lead plaintif fs

(collectively, the "Lead Plaintiffs").

Following a case management conference, the Lead

Plaintiffs on December 14, 1998, filed their Amended and

Consolidated Class Action Complaint (the "Complaint").

That Complaint defined the class repr esented 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

_________________________________________________________________

8. While this Court has heard arguments on and issued decisions in

other Cendant cases involving different subject matters, see, e.g., In re

Cendant Corp. Prides Litig., 233 F.3d 188 (3d Cir. 2000) (hereinafter

Cendant Prides I); In re Cendant Corp. Prides Litig., 235 F.3d 176 (3d

Cir.

2000) (hereinafter Cendant Prides II); In re Cendant Corp. Prides Litig.,

243 F.3d 722 (3d Cir. 2001), those decisions do not affect the outcome

of this case.

7

Statement . . . . Excluded from the Class ar e: (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.

Also on December 14, 1998, the Lead Plaintif fs filed a

motion for class certification. That motion defined the class

as

all persons and entities who purchased or acquired

Cendant Corporation ("Cendant" or the "Company") or

CUC International, Inc. ("CUC") publicly traded

securities during the period May 31, 1995 thr ough

August 28, 1998, inclusive (the "Class Period"), and

were injured thereby, including but not limited to all

persons who exchanged their HFS Incorporated ("HFS")

common stock for common stock of CUC pursuant to

a Registration Statement and Joint Proxy

Statement/Prospectus dated August 28, 1997.

Excluded from the Class are defendants her ein,

members of the immediate family of each of the

Individual Defendants, officers and directors of

Cendant, parents, subsidiaries and affiliates of the

Company, and the legal representatives, heirs,

successors or assigns of any such excluded party. . . .

Lead Plaintiffs asserted they would be adequate class

representatives because they "allege a continuing course of

conduct that affected all Class members, whether they

bought early or late in the Class Period, or whether they

bought Cendant securities on the open market or pursuant

to the Registration Statement and Joint Prospectus in the

Merger."

Three days later, on December 17, 1998, Appellants

initiated arbitration in California against Cendant, seeking

rescission of the Settlement Agreement and damages

resulting from receipt of the overvalued CUC shares in

connection with the DAI/CUC merger. In response, on

January 21, 1999, Cendant filed suit in the United States

District Court for the Central District of Califor nia (the

8

"California Central District") seeking to enjoin the

arbitration. Cendant's complaint alleged violations of its

rights under the FAA and did not interpose the existence of

the class action as a ground for seeking injunctive relief

from the arbitration.

Meanwhile, on January 27, 1999, the District Court

granted Lead Plaintiffs' motion for class certification.

Without restating or affirmatively announcing the class

definition, the District Court ordered the certified class to

represent "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."

In response to Cendant's motion to enjoin pr eliminarily

the California arbitration and Appellants' motion for

summary judgment to dismiss Cendant's complaint,filed

on February 17, 1999, the California Central District, on

April 14, 1999, found in favor of Appellants. It ruled that

Appellants were entitled to summary judgment because

"the evidence indicates that claims for r escission of the

agreement are covered by the br oad arbitration provision."

The California Central District entered afinal order

dismissing Cendant's injunction action, though it did not

explicitly compel arbitration. Cendant appealed that order.9

In an exercise of caution, Appellants, on April 14, 1999,

filed a "placeholder" action in the Califor nia Central

District. They did so to ensure that, in the event a court

determined that some or all of their claims were not

arbitrable, they nonetheless would comply with the one

year statute of limitations applicable to their claims. That

complaint expressly stated that they wer e not waiving their

right to arbitrate.10

_________________________________________________________________

9. That appeal, Cendant Corp. v. Davidson, J., et al., No. 99-55788, is

currently pending before the United States Court of Appeals for the

Ninth Circuit. The parties agreed to stay further proceedings in the

arbitration until the Ninth Circuit rules on Cendant's appeal.

10. "[T]his Complaint is filed in or der to ensure that plaintiffs have

brought an action with respect to the claims asserted herein within any

applicable statute of limitation, . . . in the event that any of

plaintiffs'

claims are determined not to be arbitrable . . . . By bringing this

action,

however, plaintiffs do not intend to waive, and are not waiving, their

rights under various agreements to arbitrate all or any of the claims

asserted herein."

9

Meanwhile, the District Court, on August 6, 1999,

approved the form, and order ed dissemination, of the notice

to be sent in the class action. In that order , the District

Court required that Cendant make available to Lead

Plaintiffs the stock transfer recor ds reflecting the names

and addresses of Cendant's and CUC's shar eholders. The

District Court further required Lead Plaintiffs 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 T imes (National Edition), and the

Dow Jones Business Newswire. The District Court

determined that this notice "constitute[d] the best notice

practicable under the circumstances to members of the

Class, and will satisfy the requirements of constitutional

due process and Rule 23 of the Federal Rules of Civil

Procedure."

Thereafter, Cendant petitioned the MDL Panel to transfer

Appellants' placeholder action pending in the California

Central District. On August 12, 1999, the MDL Panel

transferred that action from the Califor nia Central District

to the District of New Jersey pursuant to 28 U.S.C.S 1407.

On October 8, 1999, the accounting firm of Heffler,

Radetich & Saitta LLP, the Class Administrator, mailed the

class notice to all known potential class members, as well

as 239 brokerage firms and 141 banks and other

institutions. Initially, 19,069 notices were sent via first

class mail. Then, through November 29, 1999, the Class

Administrator mailed notice to numerous other potential

plaintiffs based on written requests, telephone requests,

names supplied by nominees, and bulk requests by

nominees. In all the Class Administrator sent 261,224

notices.

Of these notices, at least ten were mailed to Appellants at

three separate addresses -- two in Palos Verdes, California

and one in Torrance, California. The notices mailed to the

Palos Verdes addresses were all returned to the Class

Administrator by the United States Postal Service as

undeliverable, with no forwarding address. The notice sent

to the Torrance address was not r eturned. However, the

Davidsons claim never to have received the individual

10

notice because they had moved to Incline Village, Nevada

and did not inform Cendant of their change of address. The

Davidsons also claim to have missed the published notice.

Both the individually mailed notices and the published

notice included the definition of the class as stated in the

Complaint. Further, in accordance with an order of the

District Court, the class notice warned potential class

members that if they failed to follow the specific exclusion

procedures, they would be deemed class members and

would be bound by any settlement or judgment. The

individual notice stated:

15. If you are a member of the Class . .. and you

wish to remain a member of the Class, you need not

take any further action at this time. . . .

16. As a Class member (unless you request to be

excluded from the Class), you will be bound by any

judgment, whether favorable or unfavorable, enter ed in

this Action. . . .

. . .

19. How To Be Excluded From The Class: YOU WILL

BE EXCLUDED FROM THE CLASS ONLY UPON

SPECIFIC REQUEST AS DESCRIBED BELOW. If you

request to be excluded, you will not be entitled to share

in the proceeds of a recovery obtained by settlement or

favorable judgment in the litigation, if any. Y ou also

will not be bound by a judgment, if any, in favor of

either the Class or defendants.

20. If you wish to be excluded from the Class, you

must so indicate by filing a written Request for

Exclusion, POSTMARKED ON OR BEFORE December

27, 1999 . . . .

The published notice similarly warned:

IF YOU PURCHASED OR ACQUIRED THE PUBLICL Y

TRADED SECURITIES . . . OF CENDANT OR CUC AS

DESCRIBED ABOVE, AND YOU DO NOT REQUEST

EXCLUSION FROM THE CLASS, YOUR RIGHTS WILL

BE AFFECTED BY THIS LITIGATION. . . .

11

If you wish to be excluded from the Class, you must,

in accordance with the instructions contained in the

Notice, submit a written request for exclusion . . . .

Additionally, the class action received considerable media

coverage independent from the published notices.

On December 7, 1999, almost three weeks befor e the

final opt-out date, Cendant announced a pr oposed

settlement that would require it to pay $2.85 billion to the

class members (the "Class Action Settlement"). 11 On

December 27, 1999, pursuant to the class notice, the opt-

out period closed. The Appellants never filed a written opt-

out, as required by the District Court and the class notice.

In February 2000, Appellants claim that Cendant

indicated, for the first time, that it would take the position

that they were class members. On March 17, 2000,

Cendant and the Lead Plaintiffs submitted settlement

documents to the District Court, including a Plan of

Allocation for the distribution of settlement pr oceeds among

class members. Then, on March 29, 2000, the District

Court preliminarily approved the Class Action Settlement12

and enjoined all actions or claims that were contemplated

by it. Pursuant to the order containing that approval, the

Class Administrator on April 7, 2000, mailed notice of the

Class Action Settlement and proof of claim for m packages

to Appellants at their new Nevada address. This package

included Lead Plaintiffs' Plan of Allocation of the settlement

funds.

The Plan of Allocation provided that any losses class

members suffered from their transactions in CUC and

Cendant securities would be offset by any gains they

received through transactions in CUC and Cendant

securities prior to Cendant's April 15, 1998 disclosure of

the alleged accounting fraud. Thus, any damages

Appellants suffered as a result of the DAI/CUC merger

would be offset by the substantial gains they received in the

_________________________________________________________________

11. It is interesting to note that the Davidsons never claim that they

were

unaware of this announcement.

12. Formal approval of the Class Action Settlement occurred on August

15, 2000.

12

sale of over twenty million shares of the artificially-inflated

stock before the disclosure.

On April 27, 2000, possibly after learning of their

discounted recovery under the Class Action Settlement and

Plan of Allocation, Appellants filed a motion seeking

clarification of the class definition, or in the alternative an

extension of the time period to opt out of the class. Cendant

opposed Appellants' motion, and cross-moved to enforce the

injunction against other proceedings. The Lead Plaintiffs

filed a brief responding to Appellants' motion, asserting that

they did not represent the interests of Appellants in

prosecuting their claims.13

Finally, on June 20, 2000, the District Court ruled that

Appellants were within the class, denied them an extension

of time to opt out, and enjoined them from arbitrating their

claims in California. See In re Cendant Corp. Sec. Litig., 194

_________________________________________________________________

13. The Lead Plaintiffs stated:

Lead Plaintiffs agree that the Davidsons are excluded from the

Class. The Davidsons were officers and dir ectors of CUC and its

DAI

subsidiary during the Class Period. CUC was the surviving entity

in

the merger of HFS into CUC; the name was simply changed to

Cendant after the merger. Thus, while it was necessary to make it

clear to Class Members in the Notice of Pendency that whether they

purchased Cendant or CUC publicly-traded securities, they were all

part of the same Class, the exclusion of Cendant's officers and

directors applied to all such officers and directors, whether

before or

after the name change. Indeed, it would make no sense to exclude

only officers and directors of Cendant after the merger, when it

was

CUC's fraudulent financial statements -- issued by the officers

and

directors of the company before the mer ger (when the company was

named CUC) -- that formed the heart of this Action. Lead

Plaintiffs

did not prosecute this class action to pr otect the interests of

Cendant's officers and directors, whether they served before or

after

the CUC/HFS merger, and such officers and directors should not be

allowed to participate in the distribution of the Settlement Funds

that have now been recovered.

As a result, the Davidsons are, and should be, excluded from the

Class.

At oral argument before the District Court the Lead Plaintiffs took the

position that the trust shares were included in the class.

13

F.R.D. 158, 165-66 (D.N.J. 2000). First, the District Court

held that Appellants were within the class because their

shares were publicly traded within the meaning of the class

definition. See id. at 164. Second, it looked to the class

exclusions and determined that, despite the exclusion of

officers and directors of Cendant, the Davidsons, as former

officers and directors of CUC, were not excluded from the

class. See id. Further, it found that Appellants did not meet

their burden of showing excusable neglect for an extension

of time to opt out of the class pursuant to Federal Rule of

Civil Procedure 6(b), and therefor e denied their request. See

id. at 165. Finally, the District Court held that it had the

authority to enjoin the ongoing California arbitration

between Appellants and Cendant in order to implement the

proposed Class Action Settlement, and thus it enjoined that

arbitration. See id. at 165-66.

On July 19, 2000, Appellants filed a timely notice of

appeal.

II. Discussion

A. Class Membership

Appellants claim initially that the District Court erred in

holding that they were class members. The District Court

concluded that their shares were publicly traded, and thus

were within the class definition.14 See Cendant Sec. Litig.,

194 F.R.D. at 163-64. It further found that the Davidsons

were not "officers and directors of Cendant and its

subsidiaries and affiliates," and concluded that they did not

qualify for exclusion from the class on those grounds. See

id. at 164.

We accord a District Court's interpr etation of its own

orders "particular deference." In re Fine Paper Antitrust

Litig., 695 F.2d 494, 498 (3d Cir . 1982). The District Court,

in determining whether Appellants were class members,

interpreted its own orders, the or der certifying the class

_________________________________________________________________

14. As previously noted, the class definition included "all persons and

entities who purchased or acquired Cendant. . . or CUC . . . publicly

traded securities during the period May 31, 1995 thr ough August 28,

1998," and excluded "officers and dir ectors of Cendant."

14

and the order approving the class notice, both of which

contained the class definition. Therefor e, its interpretation

of the class definition in those orders is entitled to

"particular deference."15

1. The Class Definition

The class definition begins: "[A]ll persons and entities

who purchased or acquired" stock. Appellants received their

shares through the DAI/CUC merger . This Court has

defined "purchasers" of stock to include those who buy on

an open market and those who exchange stock in one

company for stock in another company pursuant to a

merger between the two companies or an acquisition of one

company by the other. See In re Penn Cent. Sec. Litig., 494

F.2d 528, 533 (3d Cir. 1974) (citing SEC v. Nat'l Sec. Inc.,

393 U.S. 453, 467 (1969)). By virtue of the DAI/CUC

merger, Appellants "purchased" stock.

The class definition then requires that the purchaser or

acquirer obtained "Cendant . . . or CUC . . . publicly traded

securities." As a result of the DAI/CUC mer ger Appellants

received a total of 32,505,099 shares of CUC stock. The

question that we must address is whether that stock was

"publicly traded" so as to fall within the class definition.

Appellants argue the District Court err ed in holding that

their shares were publicly traded securities because the

Court did not give the term "publicly traded" its commonly-

used definition. They assert that "publicly traded" means

_________________________________________________________________

15. Appellants' attempt to distinguish Fine Paper by relying on Pittsburgh

Terminal Corp. v. Baltimore & Ohio R.R. Co., 824 F.2d 249, 254 (3d Cir.

1987), is unfounded as the Pittsburgh T erminal court itself distinguished

its case from Fine Paper as well as the current situation. Pittsburgh

Terminal did not involve a court interpreting its own order, but instead

dealt with the court interpreting a stipulation by the parties. "There is

no

basis for extending this principle [of "particular deference" articulated

in

Fine Paper] to demand similar deference in the present case to the

district court's interpretation of a stipulation underlying a previous

order

. . . ." Id. Moreover, "Fine Paper is further distinguishable because it

was

a class action and because it involved distribution of a single fund." Id.

at 254 n.5. Just as in Fine Paper, this case is a class action where the

District Court is interpreting its own or ders and ultimately distributing

a single fund of $2.85 billion.

15

tradeable on the public markets. Because the shar es they

received were newly issued, had not been traded on any

market, and were precluded when issued fr om being traded

on those markets, Appellants argue that these shares could

not, in the plain sense of the term, have been"publicly

traded." In essence, they contend that because their shares

were not immediately tradeable publicly, they could not be

deemed "publicly traded" within the meaning of the class

definition. We believe the publicly traded/publicly tradeable

argument to be a distinction without a dif ference and agree

with the District Court that Appellants' shar es were indeed

"publicly traded" securities.

At the outset, Appellants' argument does not paint the

picture fully. While it is true that their shar es differed from

the shares issued to other public investors as a result of

the DAI/CUC merger (the difference being that Appellants'

shares were not immediately tradeable), that difference was

not due to the quality of the shares received. Appellants

received exactly the same type of shares of common stock

as all other DAI shareholders, specifically a class of CUC

security that was publicly traded on the NYSE.

The restriction on sale of the CUC stock held by

Appellants emanated solely from the quantity of shares

they received as a result of the mer ger, not in any way from

the type of security they received. Due to the number of

shares Appellants received, they wer e deemed to be

affiliates of CUC and their ability immediately to resell

these shares was subject to the limitations of the Securities

Act of 1933,16 as well as the ter ms of affiliate agreements

signed by the Davidsons in connection with the DAI/CUC

merger agreement.17

_________________________________________________________________

16. While Cendant alleges that the restriction is based on Rule 144A, it

seems that Appellants were restricted fr om immediately selling their

shares pursuant to Rule 145. See Cendant Sec. Litig., 194 F.R.D. at 163.

That rule deems Appellants to be affiliates for Rule 145 purposes and

thus subjects them to the registration r equirements for sale of those

securities pursuant to the Securities Act of 1933. See 17 C.F.R.

S 230.145.

17. The affiliate agreements, signed by the Davidsons, provided in part,

"I understand that I may be deemed to be an `affiliate' of the Company,

as such term is defined for purposes of Rule 145 . . . promulgated under

the Securities Act of 1933 . . . and that the transferability of the

shares

of common stock . . . is restricted."

16

These restrictions could be avoided entir ely, however, if

Appellants were to sell shares of CUC stock under any

subsequent registration statement. Noticing the burden

placed on Appellants, CUC granted Appellants liberal rights

to demand a second registration statement that would allow

them to "piggyback" their shares and ther efore remove any

sales restriction from the securities. In fact, Appellants did

just that, selling more that twenty million shares just four

months after the transfer. In all, by January 16, 1998,

Appellants had disposed of more than twenty-five million of

their thirty-two and a half million CUC shar es for proceeds

totaling more than $635 million. This exposes a logical

disconnect in Appellants' argument. Having traded publicly

tens of millions of shares of CUC common stock so soon

after the DAI merger, and then to claim that they are not

"publicly traded" securities within the class definition, is a

non sequitur. Thus, despite the restriction on immediate

resale, Appellants did receive "publicly traded" securities

within the meaning of the class definition.

The class definition sets the relevant period of trading as

"May 31, 1995 through and including August 28, 1998."

The DAI/CUC merger, in which Appellants"purchased"

their shares, took place in July 1996. This clearly places

Appellants within the relevant period under the class

definition.

The relevant part of the class definition concludes: "and

who were injured thereby." Appellants' alleged injury is

shown by the fact that they pursued their claims against

Cendant. Yet they posit that the class did not adequately

represent them in redressing the injury they actually

received, as the class relied on the fraud on the market

theory. Appellants proffer that the claims pursued by the

Lead Plaintiffs on behalf of the class r elating to the

accounting irregularities affected those who purchased CUC

and/or Cendant stock on the open market. However , they

argue that the only way the fraud on the market theory

could have affected the DAI/CUC merger was to keep CUC's

price inflated so that the "bust out" pr ovision that could

have terminated that merger was not triggered. Because

Appellants did not purchase their securities on the open

market, but instead acquired them through individual

17

negotiations with CUC, they argue that the fraud on the

market theory is not applicable to them.

We find this argument unavailing. First, the fraud on the

market theory did affect the DAI/CUC mer ger because,

during the negotiations between DAI and CUC, the

purchase price was determined by "r eference to, among

other factors, the range of prices at which CUC stock was

trading." This demonstrates that Appellants' Rule 10(b)(5)

claim rests, at least in part, on the same fraud on the

market theory pursued by the class, as the mer ger

negotiations were based on artificial market prices. In fact,

Cendant points out that membership in the class actually

gave Appellants an advantage in their Rule 10(b) claim by

lessening their burden of proof because in a typical Rule

10(b) claim a plaintiff must show individual r eliance on a

material misstatement, whereas under the fraud on the

market theory reliance is presumed. See In re Apple

Computer Sec. Litig., 886 F.2d 1109, 1113-14 (9th Cir.

1989).

Cendant further points this Court to In r e Discovery Zone

Securities Litigation, 181 F.R.D. 582 (N.D. Ill. 1998), to

show that Appellants' fraud on the market ar gument is

incorrect. In that case, the court consider ed whether an

entity that acquired newly-issued shares of common stock

through a merger that were not immediately tradeable (just

as Appellants' shares were not) was a member of a class

proceeding under a fraud on the market theory. See id. at

590-92. The court concluded that the fact that the

acquiring entity's claims were based on its individual

negotiations with the defendant, rather than on pur chases

in the open market, did not exclude it from a"fraud-on-the-

market class" given that its claims and the claims of open

market purchasers were based on the same"overall

scenario" of conduct by the defendants. See id. at 591-92;

see also In re Scorpion Techs., Inc. Sec. Litig., No. C 93-

20333, 1994 WL 774029, at *5 (N.D. Cal. Aug. 10, 1994);

In re Nat'l Student Mktg. Litig., M.D.L. Docket No. 105, 1973

WL 431, at *5 (D.D.C. Oct. 2, 1973).

Appellants cannot argue that their claims ar e based on a

qualitatively different "overall scenario" from the claims

raised in the class action. Under Discovery Zone ,

18

Appellants' claims would be properly included in the class

despite their individual negotiations with CUC that shape

their particular fraud claim. Accordingly, we believe that

Appellants' injuries fit within the class definition.

2. Class Exclusions

Having concluded that Appellants are within the class

because they purchased or acquired CUC publicly traded

securities during the relevant class period and allege they

were injured thereby, we must next determine whether they

fall within any of the exclusions. The only exclusion

possible is that the Davidsons are excepted fr om the class

as "officers and directors of Cendant." The District Court

determined that, pursuant to the plain meaning of the class

definition, the exclusion only disqualified officers and

directors of Cendant, and did not exclude for mer officers

and directors of CUC. See Cendant Sec. Litig., 194 F.R.D. at

164.

The Davidsons submit that Cendant, as the surviving

entity of the CUC/HFS merger, is mer ely a continuation of

CUC and therefore the exclusion includes all officers and

directors of CUC and Cendant. Most important, the

Davidsons point to the Lead Plaintiffs' belief that they did

not represent the interests of the Davidsons, as Lead

Plaintiffs believed that the Davidsons wer e excluded from

the class due to their former positions as officers and

directors of CUC. See supra note 13.

Again, we accord "particular deference" to the District

Court's interpretation of its own orders. See Fine Paper,

695 F.2d at 498. While we find the Lead Plaintiffs'

statement to be of interest, we do not believe that the

District Court erred in finding that the officer and director

exception did not apply to the Davidsons. In fact, the plain

meaning rule, as well as other canons of construction,

require such a finding.

When the language of an instrument is plain, we look no

further than the words of that document itself to determine

its meaning. See Tamarind Resort Assocs. v. Govt. of V.I.,

138 F.3d 107, 110 (3d Cir. 1998) ("It is axiomatic that

where the language of a contract is clear and unambiguous,

it must be given its plain meaning."); Mellon Bank v. Aetna

19

Bus. Credit, Inc., 619 F.2d 1001, 1010 (3d Cir. 1980) ("A

court is not authorized to construe a contract in such a

way as to modify the plain meaning of its wor ds, under the

guise of interpretation.") (internal quotations omitted); see

also Richard A. Lord, 11 Williston on Contracts S 32:3, at

408 (4th ed. 1999).

Further, we look by analogy to canons of interpretation

for statutes. One is that "[w]e presume that [Congress's]

clear use of different terminology within a body of

legislation is evidence of an intentional dif ferentiation."

Lankford v. Law Enforcement Assistance Admin., 620 F.2d

35, 36 (4th Cir. 1980); accord Russello v. United States, 464

U.S. 16, 23 (1983) ("[W]here Congr ess includes particular

language in one section of a statute but omits it in another

section of the same Act, it is generally presumed that

Congress acts intentionally and purposely in the disparate

inclusion or exclusion.") (internal quotations omitted);

Barmes v. United States, 199 F.3d 386, 389 (7th Cir. 1999)

("Different language in [a] separate clause in a statute

indicates Congress intended distinct meanings."); Cabell

Huntington Hosp. v. Shalala, 101 F.3d 984, 988 (4th Cir.

1996) ("Where Congress has chosen dif ferent language in

proximate subsections of the same statute, courts are

obligated to give that choice effect.") (internal quotations

omitted); Fla. Public Telecomms. Assoc., Inc. v. FCC, 54 F.3d

857, 860 (D.C. Cir. 1995) (stating that when Congress uses

different language in differ ent sections of statute, it does so

intentionally). Cf. Booth v. Churner, 206 F.3d 289, 294 (3d

Cir. 2000) ("[It is the] normal rule of statutory construction

that identical words used in differ ent parts of the same act

are intended to have the same meaning.") (internal

quotations omitted). Thus, the choice of dif ferent words to

address analogous or related issues signifies different

meanings. See E. Allan Farnsworth, 2 Farnsworth on

Contracts S 7.11, at 284 & n.12 (2d ed. 1998).

Similarly, we look to the canon expressio unius est

exclusio alterius (the expression of one thing is the

exclusion of another) for the proposition that when parties

list specific items, without any more general or inclusive

term, they intend to exclude unlisted items, even though

they are similar to listed items. See id. at 281. Finally, this

20

Court has stated that we "must give full cr edit to the

language the parties have chosen to include -- or not

include -- in their agreement." Orlando v. Interstate

Container Corp., 100 F.3d 296, 301 (3d Cir. 1996).

Applying these rules of interpretation to the language of

the class definition, we find that the District Court correctly

interpreted the class exclusion to include only officers and

directors of Cendant and not any of its pr edecessors in

interest, including pre-merger officers and directors of CUC.

The language used in the class definition clearly excludes

only Cendant's officers and directors. Because the

Davidsons were never officers and dir ectors of Cendant, the

plain language excludes them.

Looking to the class definition as a whole supports the

conclusion that the intention was only to exclude Cendant's

officers and directors. We need not look further than the

first sentence of the class definition to confirm this view. It

begins by stating that the class intends to cover all

purchasers of Cendant or CUC securities. This indicates

that the drafter, as well as the adopting court, intended to

include purchasers of either company's stock. However, the

language of the class exclusion only excludes officers and

directors of Cendant. Following the canons of construction,

the choice of different words --"Cendant or CUC" as

opposed to "Cendant" -- indicates that the two clauses

have different meanings. To conclude otherwise is

counterintuitive.

Further, we look to the canon of expr essio unius est

exclusio alterius for the proposition that when parties list

specific items, without a term of general inclusion, they

intend to exclude unlisted items. Here the class definition's

language indicates that it intentionally excluded CUC from

the class exception. Because we must give ef fect to the

language included, as well as not included, we conclude

that the District Court was correct in holding that the

Davidsons were not excluded from the class as former

officers and directors of pre-mer ger CUC.

3. Opt-Out by Implication

After finding that Appellants fit within the class

definition, and that the Davidsons are not excluded under

21

the exceptions, we must determine if Appellants opted out

of the class. At oral argument and thr oughout their briefs,

Appellants concede that they did not follow the for mal opt-

out procedure provided in the class notice, but appear to

argue that they impliedly opted out of the class. They

contend that the purpose of an opt-out requir ement is to

force a party to take a position in or out of a class so that,

in attempting to resolve claims against it, a defendant

knows the exposure it faces, both to the class and to the

opt-outs. Appellants further argue that they clearly took a

position outside the class by filing the Califor nia arbitration

and by reaffirming their unequivocal desire to arbitrate in

the placeholder action. They cite In re Piper Funds, Inc.,

Institutional Government Income Portfolio Litigation, 71 F.3d

298 (8th Cir. 1995), for the proposition that a formal opt-

out is not always necessary. See id. at 304.

However, we find Piper Funds distinguishable from this

case. In Piper Funds, the appellant attempted to opt out of

the class by formally advising the district court through a

letter of its intention and desire to opt out before an opt-out

period and procedure had been developed by the court.

Although the district court denied that request, the Eighth

Circuit reversed, stating that it did not dispute the normal

rule forbidding an opt-out until after a Rule 23 notice, but

believed that in some cases there must be an exception. It

found that the exception applies when a party with an

immediate right to arbitrate attempts to opt out before the

Rule 23 procedure is initiated but is denied that request.

See id. Here Appellants never infor med the District Court of

their intention to opt out, neither before nor after the Rule

23 class notice was distributed. Thus, Piper Funds does not

advance their argument.

Moreover, numerous courts have held that the mere

pendency of an individual litigation or arbitration does not

relieve a plaintiff of the obligation to opt out of a class

action. See, e.g., In re Prudential Sec. Inc. Ltd. P'ship Litig.,

164 F.R.D. 362, 370 (S.D.N.Y. 1996) ("It is well-established

that pendency of an individual action does not excuse a

class member from filing a valid request for exclusion.")

(internal quotations omitted); In r e Prudential-Bache Energy

Income P'ship Sec. Litig., No. MDL-0888, 1995 WL 20613, at

22

*2 (E.D. La. Jan. 6, 1995) (rejecting class member's claim

that pending arbitration proceeding was sufficient notice of

intent to opt out); Supermarkets Gen. Corp. v. Grinnell

Corp., 59 F.R.D. 512, 513 (S.D.N.Y . 1973) ("[T]he existence

of [the individual] action did not automatically exclude

plaintiffs as potential members of the class. The exclusion

could only be effected by compliance with the provisions of

Rule 23(c)(2)(B)."). In this context, Appellants cannot

succeed in their argument that Cendant's knowledge of the

arbitration was sufficient notice for their opting out, and

thus Appellants did not opt out of the class impliedly.

* * * * *

In sum, Appellants fall within the class definition

because they purchased or acquired CUC or Cendant

publicly traded securities. The Davidsons wer e not excluded

from the class as former officers and directors of pre-

merger CUC because the exception only excluded officers

and directors of Cendant. Furthermor e, we conclude that

Appellants failed to opt out of the class and thus are bound

by the class settlement. We therefor e affirm the District

Court's finding that Appellants are within the class.

B. Extension of the Opt-Out Deadline

Appellants further allege that the District Court erred in

refusing to grant them an extension of time to opt out of

the class. They maintain that if they are enjoined from

pursuing the arbitration and are found to be within the

class definition, they should still not be included as class

members because the District Court abused its discr etion

in failing to extend the time for them to opt out of the class.

Federal Rule of Civil Procedure 6(b) pr ovides:

When by these rules or by a notice given ther eunder or

by order of court an act is requir ed or allowed to be

done at or within a specified time, the court for cause

shown may at any time in its discretion . . . (2) upon

motion made after the expiration of the specified period

permit the act to be done where the failure to act was

the result of excusable neglect . . . .

Fed. R. Civ. P. 6(b). The definition of"excusable neglect"

recently has been discussed in a related litigation, In re

23

Cendant Corp. Prides Litigation. There, the United States

District Court for the District of New Jersey, District Judge

Walls (the same District Judge as in this case), stated:

The Supreme Court has decreed that the determination

of whether one party's neglect to adhere to a deadline

is excusable should take into account all relevant

circumstances surrounding the delay. See Pioneer

Invest. Servs. Co. v. Brunswick Assoc. Ltd. Partnership,

507 U.S. 380, 395 (1993). Relevant factors include"the

danger of prejudice to the [nonmovant], the length of

the delay and its potential impact on judicial

proceedings, the reason for the delay, including

whether it was within the reasonable contr ol of the

movant, and whether the movant acted in good faith."

Id. at 395. To this roster, the Third Circuit has added

"(1) whether the inadvertence reflected pr ofessional

incompetence such as ignorance of the rules of

procedure, (2) whether an asserted inadvertence

reflects an easily manufactured excuse incapable of

verification by the court, and, (3) a complete lack of

diligence." Dominic v. Hess Oil V.I. Corp., 841 F.2d 513,

517 (3d Cir. 1988).

In re Cendant Corp. Prides Litig., 189 F.R.D. 321, 324

(D.N.J. 1999), aff 'd, 233 F .3d 188, 196-97 (3d Cir. 2000)

(alteration in original).

This Court reviews a District Court's findings concerning

excusable neglect for abuse of discretion. See Cendant

Prides I, 233 F.3d at 189, 197; Jones v. Chemetron Corp.,

212 F.3d 199, 205 (3d Cir. 2000); see also In re

PaineWebber Ltd. P'ship Litig., 147 F .3d 132, 135 (2d Cir.

1998); Silber v. Mabon, 18 F.3d 1449, 1453 (9th Cir. 1994).

An abuse of discretion occurs when the action of the

District Court is clearly contrary to reason and not justified

by the evidence. See Springfield Crusher , Inc. v.

Transcontinental Ins. Co., 372 F.2d 125, 126 (3d Cir. 1967).

A District Court also abuses its discretion if it is influenced

by erroneous legal conclusions or applies the wrong legal

standards. See Cendant Prides I, 233 F .3d at 192 (holding

that an abuse of discretion occurs when the District Court's

decision "rests upon a clearly erroneous finding of fact, an

errant conclusion of law or an improper application of law

24

to fact.") (internal quotations omitted); Oddi v. Ford Motor

Co., 234 F.3d 136, 146 (3d Cir. 2000); Hanover Potato

Prods., Inc. v. Shalala, 989 F.2d 123, 127 (3d Cir. 1993);

see also Corley v. Rosewood Care Ctr., Inc., 142 F.3d 1041,

1052 (7th Cir. 1998). In addition, we have stated that "[a]n

abuse of discretion can occur when no r easonable person

would adopt the district court's view." Rode v. Dellarciprete,

892 F.2d 1177, 1182 (3d Cir. 1990).

Here the District Court found that Appellants' alleged

failure to receive notice did not warrant an extension of the

opt-out deadline. See Cendant Sec. Litig., 194 F.R.D. at

165; In re NASDAQ Market-Makers Antitrust Litig., No. 94-

3996, 1999 WL 395407, at *2 (S.D.N.Y. June 15, 1999);

Gross v. Barnett Banks, Inc., 934 F . Supp. 1340, 1345

(M.D. Fla. 1995) (finding that no extension was warranted

where the class notice was sent to a potential class

member's old address despite having been advised of the

change of address). The District Court found unconvincing

Appellants' argument that Cendant had not tr eated them as

class members until after the class opt-out deadline had

passed. It found that Appellants did not become class

members until they failed to opt out before the deadline.

Consequently, Cendant had no reason to tr eat Appellants

as class members or inform them of their potential class

status. Finally, the District Court did not accept Appellants'

explanation of their delay as warranting an extension of

time to opt out. See Cendant Sec. Litig., 194 F.R.D. at 165.

We hold that the District Court did not abuse its

discretion in refusing to allow Appellants an extension of

time to opt out of the class. As stated above, we will not

find an abuse of discretion unless the decision is clearly

contrary to reason and not justified by the evidence or

prevailing law. Here the District Court found that

Appellants did not meet the excusable neglect standard

simply because they allegedly did not receive notice and

because Cendant (the defendant) did not infor m potential

plaintiffs (Appellants) of their rights and duties. See In re

Prudential Ins. Co. of Am. Sales Practices Litig. , 177 F.R.D.

216, 231 (D.N.J. 1997) ("[D]ue process does not require

that every class member receive actual notice so long as the

court reasonably selected a means likely to apprise

25

interested parties."). The District Court pointed to the

individually mailed notice, the published notice, and the

press coverage that the initiation of the class action and the

proposed settlement received in holding that Appellants

should have been aware of the class action and the

potential it had to affect their inter ests. See Cendant Sec.

Litig., 194 F.R.D. at 165.

In addition to the District Court's reasoning, Appellants

do not qualify for the excusable neglect exception because

their actions cause prejudice to Cendant and may not

comport with the good faith requirement. 18 See Cendant

Prides I, 233 F.3d at 195. While Appellants argue that

_________________________________________________________________

18. The dissent argues that "the majority's attempt to cure the

deficiencies of the District Court's analysis[is in]consistent with our

jurisprudence which requires the District Court to explain its excusable

neglect reasoning." It points out that our most recent articulation of

this

principle is in In re Orthopedic Bone Scr ew Products Liability

Litigation,

No. 99-2054, wherein we assert that we " `have imposed a duty of

explanation on District Courts when they conduct"excusable neglect"

analysis.' " Id. at 13 (quoting Cendant Prides I, 233 F.3d at 196). From

these statements the dissent makes the leap of logic that the duty to

explain the rationale for excusable neglect deter minations means that all

Pioneer factors must be explicitly consider ed by the District Court.

While

a consideration of all relevant Pioneer factors is optimal, this best

practice is not our law. Our law is that " `it is a salutary practice [for

a

court] to give the litigants, either orally or in writing, at least a

minimum

articulation of the reasons for its decision.' " Orthopedic Bone Screw,

No.

99-2054, at 13 (quoting Interpace Corp. v. City of Philadelphia, 438 F.2d

401, 404 (3d Cir. 1971)). What the District Court did in this case, unlike

in Orthopedic Bone Screw in which no explanation was given, meets the

minimum articulation threshold.

The dissent then castigates our opinion for noting additional reasons

not to find excusable neglect in this appeal. Y et we are merely following

precisely what we did in one of the Cendant opinions the dissent cites to

support its position. In Cendant Prides II, 235 F.3d 176 (3d Cir. 2000),

this Court, after holding that the District Court abused its discretion by

failing to analyze the Pioneer excusable neglect factors, went on to

analyze those factors, including prejudice and bad faith, the same

factors the dissent finds us in error for analyzing. After determining

that

any delay or neglect on the part of appellant was excusable neglect, the

Cendant Prides II Court remanded "solely for inclusion in settlement

proceedings," not for analysis of the excusable neglect factors, as the

dissent seems to imply is required. See id. at 182, 183-84.

26

Cendant will not be prejudiced by excluding them from the

class because Cendant knew of their claims befor e it

reached the class settlement, their argument is

unpersuasive. Reliance by Appellants on Mars Steel Corp. v.

Continental Illinois National Bank & Trust Co. of Chicago,

120 F.R.D. 51 (N.D. Ill. 1988), In r e Del-Val Financial Corp.

Securities Litigation, 154 F.R.D. 95 (S.D.N.Y. 1994), and

Dominic v. Hess Oil V.I. Corp., 841 F .2d 513 (3d Cir. 1988),

is unavailing, as those cases are easily distinguishable on

the prejudice issue. In Mars Steel, the court granted an

extension of time to opt out because the defendant did not

even argue that it would suffer pr ejudice. See Mars Steel,

120 F.R.D. at 53. Similarly, in Del-V al, the court extended

the time to opt out of the class action because the party

seeking exclusion intended to proceed with arbitration

against a non-settling defendant, and therefor e the settling

defendant would not be prejudiced by the extension. See

Del-Val, 154 F.R.D. at 97 n.2. Finally, Dominic did not even

involve a class action. In that individual pr oducts liability

action, the District Court granted plaintiff an extension of

_________________________________________________________________

The dissent argues as pungently as possible that the procedural

posture of the Cendant Prides II case makes its excusable neglect

analysis unavailable for support by the majority her e in analyzing

whether the District Court correctly denied Appellants' motion to extend

the time for them to opt out of the class. Cendant Prides II made a de

novo determination with respect to the excusable neglect factors not

applied by the District Court in that case afterfinding that the District

Court abused its discretion by failing to apply the Pioneer factors in

denying the late filing of a proof of claim in a class action. Cendant

Prides II, 235 F.3d at 183. Here we conclude that the District Court did

not abuse its discretion in denying the motion to extend the time for

Appellants to opt out of the class. In so doing, we apply the same

standard of review (abuse of discr etion) as our Court applied in Cendant

Prides II. While we also discuss other Pioneer factors supporting our

affirmance, this discussion is not necessary to our decision to affirm.

But in Cendant Prides II the analysis of Pioneer factors was necessary to

the decision and thus required de novo consideration.

In this context, we find the dissent's characterization of our excusable

neglect analysis as "[in]consistent with[this Court's] jurisprudence" to

be

unsupported. Moreover, for the dissent to conclude that a duty of

explanation meeting a minimum articulation thr eshold equals full blown

articulation is fallacious.

27

time to serve notice and the complaint on a thir d party

defendant who was already subject to personal jurisdiction

of the court. See Dominic, 841 F.2d at 516. This Court

affirmed, finding no prejudice to the third-party defendant

because it was already a party to the suit and knew of all

the claims and specific allegations.

Here Cendant, the settling defendant, would clearly be

prejudiced by a finding that Appellants ar e not within the

class. Appellants' substantial holdings could subject

Cendant to additional liabilities for the accounting fraud

allegations that they settled in the class action vis-a-vis all

eligible persons who did not opt out of the class. Permitting

Appellants to opt out now will deprive Cendant of the

finality it sought in settling the class action, r egardless

whether the March 24, 2000 letter from Appellants'

counsel, see infra note 21, put it on notice of Appellants'

claims and specific allegations before the District Court

formally approved the settlement.19 Cf. Prudential Sales

Practices Litig., 164 F.R.D. at 371-72 ("Defendants would be

loath to offer substantial sums of money in compromise

settlements of class actions unless they can r ely on the

notice provision of Rule 23 to bind class members.").

Finally, it is plausible to argue that Appellants do not

meet the excusable neglect standard because the record

draws into question whether they may have failed to

comport with the good faith requirement. See Mars Steel,

120 F.R.D. at 52 (holding that a party's tar diness designed

to gain a tactical advantage violates the good faith

requirement). Appellants, in their brief to this Court, claim

that "[t]hey did not wait strategically to see what kind of

settlement was proposed before communicating their intent

to arbitrate their claims." Yet it is possible to infer they did

_________________________________________________________________

19. One could argue that because Cendant pr oposed a settlement before

the opt-out period passed it could not have known whether Appellants

later would opt out. While it is true that Cendant proposed a settlement

on December 7, 1999, three weeks before the final opt-out date,

December 27, 1999, that settlement was not appr oved until March 29,

2000, three months after the final opt-out date. Therefore, because the

Appellants did not opt out, it is fair to say that Cendant was bargaining

for finality as to the Appellants' claims when its settlement was

approved.

28

just that, seemingly seeking a strategic advantage in not

filing a formal opt-out, and in the timing of their motion for

clarification of the class or in the alter native for an

extension of time to opt out of the class.

From the time of the initial disclosure of the accounting

irregularities through the present, Appellants have acted

with abundant caution. First, they filed a placeholder suit

in the California Central District to ensur e that they

complied with the statute of limitations in the event that

the Ninth Circuit ruled against them (thus for eclosing their

opportunity to arbitrate). In addition, Appellantsfiled

objections to the Class Action Settlement and Plan of

Allocation, just in case this Court, as we have, determines

that they are class members subject to the ter ms of the

settlement.20 However, even though they were aware of the

existence of the class action before the opt-out date passed,

Appellants never filed a protective opt-out to ensure that

their claims would be arbitrated. With sophisticated

investors such as the Davidsons, who were assisted by

exceptional counsel, it is not a leap of faith to make the

logical inference that their failure tofile a formal opt-out

was a strategic decision.

Additionally, as previously mentioned, the opt-out period

closed on December 27, 1999. Appellants contend in their

brief to this Court that they learned in February 2000 that

Cendant considered them class members. Y et, they took no

court action until after they received the Plan of Allocation

mailed on April 7, 2000.21 Only after they discovered that

their recovery under the Class Action Settlement was

significantly less than expected did they file, on April 27,

2000, a motion for clarification of the class definition, or in

the alternative for an extension of time to opt out of the

class. This tardiness again points to Appellants attempting

to gain a tactical advantage and counsels against extending

the opt-out period.

_________________________________________________________________

20. That case is currently pending befor e this Court, No. 00-2709.

21. While Appellants' counsel did send Cendant's counsel a letter on

March 24, 2000, indicating that Appellants did not consider themselves

to be part of the class, they took no formal action to ensure this

position

until three weeks after the Class Administrator provided them with the

Plan of Allocation.

29

As a result, we find that the District Court did not abuse

its discretion in refusing to grant Appellants an extension

of time to opt out. We agree with the District Court that

Appellants did not qualify for the excusable neglect

exception and therefore affirm its holding.

C. Enjoining of the California Arbitration

Finally, Appellants and the dissent argue that the District

Court erred in enjoining the ongoing Califor nia arbitration.

They specifically contend that it violated the F AA by

enjoining the arbitration mandated by the Califor nia

Central District as well as several agreements among the

Appellants, DAI, and CUC/Cendant calling for , inter alia,

arbitration of disputes.22

_________________________________________________________________

22. Conversely, Appellants and the dissent ar gue that the District Court

should have been res judicata bound by the decision of the California

Central District with respect to its decision to deny Cendant's motion to

enjoin the arbitration. In other words, they allege that the District

Court

should have given preclusive effect to the California Central District's

decision that the Appellants' claims were arbitrable and, under the

doctrine of res judicata, referred their claims back to arbitration in

California. The fatal flaw of this contention is acknowledged by the

dissent. The parties before the Califor nia Central District Court did not

brief, and that Court in its three and one-half page decision did not

mention, whether any of the Appellants were putative class members.

Without even acknowledgment of the class action, it is spurious to

suggest that res judicata precludes the District Court from deciding

whether Appellants' claims could be decided in the class action, i.e.,

whether they were class members. See Hopewell Township Citizens I-95

Comm. v. Volpe, 482 F.2d 376, 381 (3d Cir. 1973) (finding res judicata

does not apply where "at least much of the subject matter of the present

lawsuit has not been and could not have been ar gued in the previous

actions"); see also Sid Richardson Carbon & Gasoline Co. v. Interenergy

Res., Ltd., 99 F.3d 746, 756 (5th Cir . 1996) (holding that res judicata

did

not apply on the basis that it "is axiomatic that a claim that has not yet

accrued is not ripe for adjudication, and hence it is not a claim that

`could have been litigated' in a previous lawsuit").

Here the California Central District"was not, and could not have been,

presented with -- and thus did not, and could not, decide -- the issue

of whether the Davidsons and the Trusts ar e Class Members." The

California Central District issued its or der on April 14, 1999, over

eight

months before the final opt-out date for the class action in New Jersey

30

The District Court's authority to enter such an injunction

derives from the All Writs Act, 28 U.S.C. S 1651. Under that

Act, "[t]he Supreme Court and all courts established by Act

of Congress may issue all writs necessary or appropriate in

aid of their respective jurisdictions and agr eeable to the

usages and principles of law." When a federal court has

jurisdiction over a case, the All Writs Act grants it ancillary

jurisdiction to issue all writs "necessary or appropriate in

aid of " that jurisdiction. See In r e Baldwin-United Corp.,

770 F.2d 328, 335 (2d Cir. 1985). Ther e is an analogous

provision in the Anti-Injunction Act. 28 U.S.C.S 2283 ("A

court of the United States may not grant an injunction to

stay proceedings in a State court except as expressly

authorized by Act of Congress, or where necessary in aid of

its jurisdiction, or to protect or effectuate its judgments.").

The power given to federal courts under the All W rits Act

and the Anti-Injunction Act allows them to enjoin state

court proceedings when necessary to protect federal court

judgments. See Kelly v. Merrill Lynch, Pierce, Fenner &

Smith, Inc., 985 F.2d 1067, 1068-69 (11th Cir. 1993). "Such

`federal injunctive relief may be necessary to prevent a state

court from so interfering with a federal court's

consideration or disposition of a case as to seriously impair

the federal court's flexibility and authority to decide that

case.' " Baldwin-United, 770 F .2d at 335 (quoting Atlantic

Coast Line R.R. Co. v. Bhd. of Locomotive Eng'rs, 398 U.S.

281, 295 (1970)). In class actions, this power allows federal

courts to protect settlement efforts and to prevent

"inconsistent and inequitable results." In re Joint E. & S.

Dist. Asbestos Litig., 134 F.R.D. 32, 38 (S.D.N.Y. 1990).

Further, "the All-Writs Act per mits courts to certify a

national class action and to stay pending federal and state

cases brought on behalf of class members." Id. at 37.

_________________________________________________________________

-- December 27, 1999. Consequently, at the time the California Central

District issued its ruling, Appellants were no more than potential class

members, with every right to opt out of the class to pursue their

arbitration claims. Cendant could not have asked the California Central

District to declare Appellants class members given their unilateral right

to opt out of the class up until December 27, 1999. Because the issue

of whether Appellants were class members could not have been argued

in the previous action, res judicata is inapplicable.

31

The All Writs Act and the Anti-Injunction Act also give

the federal courts the power to enjoin arbitrations. See

Kelly, 985 F.2d at 1069; PaineW ebber P'ship Litig., 1996 WL

374162, at *4 ("[A] Court may enjoin arbitration -- even

before judgment has been entered in this action -- where

that injunction would be `in aid of its jurisdiction' within

the terms of the Baldwin-United line of cases."). The District

Court, in finding that it had the authority to enjoin the

continued prosecution of class members' claims, relied on

PaineWebber for the proposition that a district court has

the ability to enjoin an ongoing arbitration in or der to give

effect to a class settlement. See PaineW ebber, 1996 WL

374162. In that case, the court denied fifteen plaintiffs'

attempts to arbitrate claims covered by a class action where

they all failed to opt out of the class befor e the deadline.

See id. at *4-5.

We agree that, notwithstanding the federal courts' power

to enjoin other proceedings, there ar e strong policies that

support giving effect to agreements to arbitrate. "The FAA

was enacted to reverse centuries of judicial hostility to

arbitration agreements by placing arbitration agreements

upon the same footing as other contracts." Pritzker v. Merrill

Lynch, Fenner & Smith, Inc., 7 F.3d 1110, 1113 (3d Cir.

1993) (internal quotations omitted). Put another way, the

FAA seeks "to assure those who desir ed arbitration and

whose contracts related to interstate commer ce that their

expectations would not be undermined by federal judges."

Southland Corp. v. Keating, 465 U.S. 1, 13 (1984). In

particular, our Court recognizes that"federal law

presumptively favors the enforcement of arbitration

agreements." Harris v. Green T ree Fin. Corp., 183 F.3d 173,

178 (3d Cir. 1999).

We also recognize that the Supreme Court requires that

arbitrable claims be arbitrated, "even wher e the result

would be the possible inefficient maintenance of separate

proceedings in different forums." Dean Witter Reynolds, Inc.

v. Byrd, 470 U.S. 213, 217 (1985); accord Piper Funds, 71

F.3d at 303. In fact, the FAA "r equires piecemeal resolution

when necessary to give effect to an arbitration agreement."

Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460

U.S. 1, 20 (1983) (emphasis omitted). Securities lawsuits

32

often may require bifurcated pr oceedings in order to give

effect to arbitration agreements. See Dean Witter, 470 U.S.

at 218 n.5.

In the same vein, the mere existence of a parallel

proceeding that seeks to adjudicate the same in personam

cause of action does not in itself provide sufficient grounds

for an injunction against a state action or arbitration in

favor of a pending federal action. See Carlough v. Amchem

Prods., Inc., 10 F.3d 189, 202 (3d Cir. 1993); see also

Baldwin-United, 770 F.2d at 336 (citing Vendo Co. v. Lektro-

Vend Corp., 433 U.S. 623, 642 (1977) ("We have never

viewed parallel in personam actions as inter fering with the

jurisdiction of either court.")); PaineW ebber, 1996 WL

374162, at *3. Even actions derived from the same cause

against the same defendants may be maintained

simultaneously in federal and state courts. See Carlough,

10 F.3d at 202; see also Westinghouse Elec. Corp. v.

Newman & Holtzinger, P.C., 992 F .2d 932, 937 (9th Cir.

1993) (refusing to apply the All Writs Act because the state

complaint alleged a contract breach independent of the

District Court's protective order, and thus the state court

adjudication would not affect interpretation or enforcement

of the order). "Any doubts as to the pr opriety of a federal

injunction against state court proceedings should be

resolved in favor of permitting the state courts to proceed

in an orderly fashion . . . ." Atlantic Coast Line R.R., 398

U.S. at 297.

Moreover, an injunction may only be issued under the

Anti-Injunction Act when there is a "r eal or potential

conflict [that] threatens the very authority of the federal

court." Vernitron Corp. v. Benjamin, 440 F.2d 105, 108 (2d

Cir. 1971). For an injunction to be "necessary . . . in aid of

. . . jurisdiction" "it is not enough that the requested

injunction is related to that jurisdiction, but it must be

necessary in aid of that jurisdiction." Carlough, 10 F.3d at

202 (internal quotations and emphasis omitted). That is, an

injunction will only be "necessary" "to pr event a state court

[or arbitrator] from so interfering with a federal court's

consideration or disposition of a case as to seriously impair

the federal court's flexibility and authority to decide that

case." Id.

33

Yet a class action calls for distinct rules in connection

with the need to have as many common issues as possible

disposed of in a single proceeding. See Coopers & Lybrand

v. Livesay, 437 U.S. 463, 470 (1978) ("Ther e are special

rules relating to class actions and, to that extent, they are

a special kind of litigation."); Henry v. City of Detroit

Manpower Dept., 763 F.2d 757, 763 (6th Cir. 1985) (same);

Avila v. Van Ru Credit Corp., No. 94-c-3234, 1995 WL

41425, at * 9 (N.D. Ill. Jan. 31, 1995) ("[C]lass actions

involve complex litigation and special rules."); Coca-Cola

Bottling Co. of Elizabethtown, Inc. v. Coca-Cola Co. , 98

F.R.D. 254, 271 (D. Del. 1983) ("[C]ommon issues should be

resolved in one class proceeding."); Fed. R. Civ. P. 23 (b)(3)

(stating that a class action is maintainable when"questions

of law or fact common to the members of the class

predominate over any questions affecting only individual

members, and that a class action is superior to other

available methods for the fair and efficient adjudication of

the controversy"). For example, in multidistrict class

actions consolidated in a single district court, sound

authority exists to enjoin other parties, even states, from

bringing actions that would affect the rights of any

plaintiffs or class members. In Baldwin-United, the Second

Circuit found that the existence of multiple and harassing

state actions could only frustrate the district court's effort

to craft a settlement because the success of any federal

settlement depended on the parties agreeing to release "any

and all related civil claims the plaintif fs had against the

settling defendants based on the same facts." See Baldwin-

United, 770 F.2d at 337. The court concluded "that the

existence of actions in state court would jeopar dize [the

district court's] ability to rule on the settlements, would

substantially increase the cost of litigation,[and] would

create a risk of conflicting results . .. . Under the

circumstances we conclude that the injunction .. . was

unquestionably `necessary or appropriate in aid of ' the

federal court's jurisdiction." Id. at 333, 338. Similarly, in

Asbestos Litigation, the court's injunction was necessary to

implement the settlement covering "all pr esent and future

persons injured by asbestos-containing pr oducts." Asbestos

Litig., 134 F.R.D. at 38.

34

In deciding whether to enter the injunction that Cendant

sought enjoining the California arbitration, the District

Court here had to reconcile two seemingly conflicting lines

of authority and policies: the one giving it authority to issue

all orders to maintain and preserve its jurisdiction over the

consolidated multidistrict litigation cases in this Cendant

group of actions, and the public policy favoring giving effect

to arbitration agreements such as those enter ed between

Cendant and Appellants.

Appellants and the dissent rely on the Eighth Circuit's

decision in Piper Funds, 71 F.3d 298, in support of their

argument that the District Court violated the FAA by

enjoining the California arbitration. Despite their assertions

to the contrary, Piper Funds is of little help to Appellants.

Although the Eighth Circuit did find that the district court

there should not have enjoined the arbitration, it did so

under circumstances far different fr om ours. It found that

because the appellant clearly, in writing, expr essed its

desire to opt out of a class before the class notice and opt-

out procedure were even developed, the injunction violated

the FAA and appellant's immediate right to arbitrate by

enjoining the arbitration pending a formal opt-out. See

Piper Funds, 71 F.3d at 303-04; see also VMS Sec. Litig, 21

F.3d 139, 141-42 (7th Cir. 1994) (holding that where class

members had not opted out of class action, they wer e

bound by class action settlement which released their

claims against the defendant even though they had

obtained an award in the arbitration filed before resolution

of the class action).

In Piper Funds, the Eighth Circuit stated:

[P]roper regard for the F AA required that the court

promptly take one of three actions: it could stay the

class action while [the potential class member's] claim

is arbitrated; it could deny the request to opt out (for

example, because [the potential class member's]

arbitration claim is not arbitrable or its r equest to opt

out was too late); or it could grant the r equest to opt

out.

71 F.3d at 304 (emphasis added). Its acknowledgment that

proper regard for the FAA allows a court to deny a request

35

to opt out, because that request came too late, concedes

the merits of the situation we have here, a point the dissent

glosses over. Where a party who desir es arbitration fails

timely to opt out of the class, the FAA does not preclude a

district court from denying a class member's r equest to

pursue arbitration. Thus, Piper Funds is, by its own words,

unavailing where Appellants fail to opt out of the class. See

PaineWebber, 1996 WL 374162, at *5 (finding that case

inapposite to Piper Funds where the plaintiffs did not

immediately express their position that they would opt out

but instead waited until after the opt-out deadline had

passed); Prudential P'ship Litig., 158 F .R.D. at 304 ("Class

members who wish to opt out in order to . . . seek

arbitration in a forum in existence at the time of the

original opt-out deadline have no excuse for their neglect to

opt out; they are simply seeking to escape consequences

known to them at the time they chose to remain in the

class.").

Appellants and the dissent cite no case law holding that

the FAA trumps, and thereby forgives, Appellants' failure to

opt out. This presages that the District Court did not

violate the policies of the FAA when it enjoined Appellants

from proceeding with their arbitration after they did not opt

out of the class. See, e.g., VMS Sec. Litig., 21 F.3d at 141-

42.

As for the enjoining of the California arbitration in its

entirety, we review the terms of an injunction for abuse of

discretion. John F. Harkins Co. v. W aldinger Corp., 796 F.2d

657, 658 (3d Cir. 1986). Any finding that is a prerequisite

to the issuance of an injunction (here whether Appellants

were subject to the class action, e.g., were members of the

class and were properly denied an extension of time to opt

out) is reviewed according to the standar d applicable to

that particular determination, and we willfind an abuse of

discretion vis-a-vis the injunction if the District Court's

prerequisite finding was in error under the applicable

standard of review. See id.

We note, however, that the District Court could enjoin

only claims in arbitration that were resolved by the Class

Action Settlement. Conversely, the District Court could not

enjoin the arbitration with respect to any claims that were

36

not covered by the Class Action Settlement. In its June 20,

2000 Order, the District Court granted Cendant's cross-

motion to enforce the March 29, 2000 injunction against

continued prosecution by Appellants of their arbitration

proceeding against Cendant. To the extent that their prior

agreements to arbitrate covered claims not disposed of or

released in the Class Action Settlement, the District Court

was without the authority to enjoin those pr oceedings

because its action was not "necessary or appr opriate in aid

of [its] . . . jurisdiction." The arbitration of issues outside

the scope of the class action, e.g., possibly the 1.6 million

stock options that Cendant concedes were beyond the

scope of the class action, does not interfer e with the

District Court's disposition and does not seriously impair

its flexibility and authority to decide the class action.

Further, arbitration of issues outside the bounds of the

class action issues cannot lead to inconsistent and

inequitable results, as that arbitration pr esents no "real or

potential conflict that threatens the very authority of the

federal court." Vernitron Corp., 440 F.2d at 108. These

"parallel" actions can be maintained without conflict. See

Carlough, 10 F.3d at 202.

Unlike Baldwin-United and Asbestos Litigation, where the

proposed settlements called for enjoining all claims, as they

would have affected the settlement and pr ovided for

inconsistent holdings, the settlement in this case only

requires that the class members release claims dealing with

"publicly traded securities."23 The arbitration of peripheral

claims, possibly including the 1.6 million options, cannot

affect the District Court's ability or authority to settle the

class claims dealing with publicly traded securities. An

injunction preventing the arbitration of those claims is

clearly not necessary in aid of the District Court's

jurisdiction in the class action. Therefor e, we find the

District Court abused its discretion in enjoining, in its

entirety, the California arbitration, as it did not have the

_________________________________________________________________

23. "Each Class Member shall release all`Released Claims,' which

include any and all claims . . . that are based upon, related to, arise

from, or are connected with the pur chase, acquisition, sale or

disposition

of CUC, HFS, or Cendant publicly-traded securities .. . during the Class

Period . . . ."

37

authority, under the All Writs Act, to enjoin those actions or

proceedings that were outside the scope of the class action

and could not have had any effect on its flexibility and

authority to decide and settle the class action. 24

It must be noted that through this opinion we take no

position on whether any issues remain for r esolution in

arbitration. It is entirely possible that all of the issues

before the arbitrator have been settled and/or released by

the class action. We make no determination on this issue

because we believe it is for the arbitrator, not the District

Court, to determine whether a claim befor e him was

decided in the class action. See, e.g., Great Western

Mortgage Corp. v. Peacock, 110 F.3d 222, 232 (3d Cir. 1997)

("[A] court compelling arbitration should pr eserve the

remaining disputed issues for the arbitrator to decide.").

Respecting the principles of the FAA, as well as the opt-

out requirement of class actions, we will allow the

California arbitration to proceed, subject to affirmance by

the Court of Appeals for the Ninth Circuit, but only to the

extent of arbitrating claims that were not settled and

released in the class action. We further hold that it is for

the arbitrator to determine whether the claims Appellants

are pursuing in the California arbitration were disposed of

in the Class Action Settlement. To the extent that the

claims were not included in the class action, the arbitrator

has the power to decide those issues. He is only pr ecluded

from deciding any issues that were r esolved (either through

a court decision or release of claims) as part of the class

action. See PaineWebber, 1996 WL 374162, at *4 ("[T]he

Court has the ability to enjoin further litigation by class

members involving the subject matter of this class action,

pursuant to the reasoning of Baldwin-United and its

progeny.").

_________________________________________________________________

24. Strangely, the dissent gives the strong impression that we approve

and are not reversing the District Court's order enjoining the

arbitration.

As review of this opinion shows, that is misleading. What the dissent

really argues is that, in limiting our r eversal to only those issues

outside

the scope of the class action, we are not r eversing the District Court

enough. In our view, the dissent's position -- that reversal of the

injunction is called for as to all issues included as well as not included

in the class action -- simply goes too far .

38

We close with a general comment on the well-crafted

dissent of Judge Garth challenging, inter alia , our holding

that the District Court can enjoin those claims in the

arbitration resolved in the Class Action Settlement.

Hyperbole aside, the dissent's theme is implicitly as follows.

The FAA trumps the All Writs Act. If arbitration is elected

as a means to resolve a dispute, a subsequent injunction,

the dissent argues, "can never be appr opriate in a case

such as this one." Because arbitration was elected by

Appellants the month prior to class certification, and

because the California District Court ruled over Cendant's

objection that the California arbitration should not be

enjoined, the New Jersey District Court in a class action is

shorn of the ability to enjoin any aspect of Appellants'

claims in that arbitration.

The dissent's theme is counterposed by our theme:

Appellants -- who concededly knew of the class action, filed

their arbitration complaint after the class action was

begun, knew that there was an opt-out r equirement in that

action (though they claim not to have received notice of the

precise date), and did not request an extension of time to

opt out until no less than two months after they learned of

the opt-out deadline -- can no longer seek to arbitrate

claims already decided in the class action. Appellants (and

no one else) controlled whether they wer e in or out of the

class. They could have opted out of the class at any time

during the opt out period, covering almost a full year after

they sought arbitration, but never did so. Had they done so,

they could have arbitrated their claims en toto .25

This theme, juxtaposed against that of the dissent,

follows a reasoning tailored to the specific facts of each case

rather than a certitude generalized to exclude all

consideration of when class action determinations prevail

over arbitration. We leave for another day that issue. Also

not before us is whether the claims of Appellants are

enforceable under the FAA. They ar e. But not always! As

noted in Piper Funds, in quoting S 12(d) of the National

Association of Security Dealers' Code with r espect to

_________________________________________________________________

25. Thus, we disclaim the dissent's Rabelaisian r emark that enjoining an

arbitration in this case "can never be appr opriate."

39

arbitration as a means of resolving disputes in the

securities industry, " `such claims shall be eligible for

arbitration . . . pursuant to the parties' contractual

agreement, if any, if a claimant demonstrates that it has

elected not to participate in the putative or certified class

action or, if applicable, has complied with any conditions

for withdrawing from the class prescribed by the court.' "

Piper Funds, 71 F.3d at 302. Here Appellants failed to

demonstrate that they affirmatively elected not to

participate in the putative or certified class and did not

comply with any conditions for withdrawing fr om that class.

They are left with the consequences of their failure to act.

III. Conclusion

For the foregoing reasons, we affir m the District Court's

rulings as to the inclusion of Appellants in the class as well

as its refusing to grant them an extension of time to opt

out. However, we reverse the District Court's enjoining of

the entire arbitration and will allow that arbitration to

proceed, though only as to issues not r esolved as part of

the class action. We further hold that it is for the arbitrator,

not the District Court, to determine which, if any, of

Appellants' claims are ripe for decision in accordance with

this Opinion and the Class Action Settlement.

40

Volume 2 of 2

Filed May 9, 2001

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 00-2185

IN RE: CENDANT CORPORATION LITIGATION

JANICE G. DAVIDSON; ROBERT M. DA VIDSON, 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

On Appeal from the United States District Court

for the District of New Jersey

(D.C. Civil Action No. 98-cv-01664)

District Judge: Honorable William H. W alls

Argued: November 16, 2000

Before: SLOVITER, AMBRO, and GARTH, Circuit Judges

(Filed: May 9, 2001)

GARTH, Circuit Judge, dissenting.

I respectfully dissent from the majority's decision. In

particular, and apart from any other doctrine of law, I

cannot understand how the majority can permit a New

Jersey District Court to enjoin arbitration and thereby

overrule an order by a companion district court in

California compelling arbitration,1 when that arbitration

order was entered months before notice of class

certification was even distributed and when that order

embraced each and every one of the Davidsons' claims.

This issue of arbitration vis-a-vis class certification is of

overriding importance, and its proper r esolution cannot be

overemphasized. Indeed, just recently this Court has

announced the formation of a Task For ce on selection of

class counsel and has enumerated a number of issues for

the Task Force to consider.2 I suggest that this question of

arbitration-class certification is one which in my opinion

should assume prominence in the Task For ce's labors.

I.

I suggest that the sequence in which the majority

discusses issues in its opinion is inappropriate and in effect

"puts the cart before the horse." I should not be surprised

that the discussion of the arbitration injunction issue--

unquestionably the most significant and important in this

case and an issue of first impression--was relegated to the

very last discussion in an otherwise mundane appeal.

Obviously, if one "goes into" the arbitration injunction

discussion with a holding that the appellants--the

Davidsons--were and are class members, all else falls into

the majority's theory. As one goes in, that's how one comes

out. That is the tactic employed by the majority her e.

_________________________________________________________________

1. The California Central District Court's order, Cendant Corp. v.

Davidson, No. 99-0587 (C.D. Cal. April 8, 1999) appears in the appendix

at App. 704-09.

2. See, e.g., Cendant Corp. PRIDES Litig., 243 F.3d 721 (3d Cir. 2001),

discussing our overall supervisory role and our responsibilities in the

selection of class counsel and in attorneys' fee awards as well as in

safeguarding fair settlements of class actions.

42

However, if, with an understanding of the r ecord and a

correct understanding of the case authority and res

judicata, we recognize, as I do, that the opinion and order

of the California Central District Court which required

Cendant to arbitrate with the Davidsons pr eceded any class

certification and also preceded by approximately seven

months any distribution of a class notice which pr escribed

an opt-out period, then a completely differ ent and a correct

result obtains.

Accordingly, the proper course of action for the majority

would have been to deal with the arbitration injunction

first. If the majority then concluded, as I feel it should have,

that the arbitration order both preceded and preempted the

class action as to the Davidsons, then the issue of whether

the Davidsons fit within the class definition is completely

irrelevant because they could not have been class

members. As I will discuss later, that is the only and the

correct result of this appeal. In light of my conviction that

the arbitration issue necessarily had to be decided before

the issue of the Davidsons' inclusion in the class, I will

discuss the issues in that order.

II.

The majority characterizes its holding with r espect to the

New Jersey District Court's injunction of the Davidsons'

arbitration as follows: "we hold that the District Court did

err in enjoining, in its entirety, Appellants' arbitration.

While Appellants are subject to the class settlement, and

therefore are enjoined fr om pursuing any claims that fall

within that settlement, they are not enjoined from pursuing,

in arbitration, any claims that fall outside the settlement's

scope." (Maj. Op. at 1 (emphasis added).)

In discussing the arbitration injunction, the majority

correctly cites language from the Supr eme Court

emphasizing the preferred status of arbitration under the

Federal Arbitration Act ("FAA"). (Maj. Op. at 32.) However,

because "Appellants . . . cite no case law holding that the

FAA trumps, and thereby forgives,[the Davidsons'] failure

to opt out," the majority holds that "the District Court did

not violate the policies of the FAA when it enjoined

43

Appellants from proceeding with their arbitration after they

did not opt out of the class." (Maj. Op. at 36.) Accordingly,

the majority concludes that "the District Court could enjoin

. . . claims in arbitration that were r esolved by the Class

Action Settlement." (Maj. Op. at 36.) The majority could not

be more wrong.

Indeed, I strongly disagree with the majority's decision for

several reasons. I would hold that the New Jersey District

Court did abuse its discretion, indeed it gr ossly abused its

discretion, in enjoining the arbitration and not giving effect

to the California Central District Court's or der compelling

arbitration, and I would hold that the entir e arbitration

must be allowed to go forward.

A.

First, the majority wholly ignored the timing of the

initiation of the arbitration and of the class action. Because

of the importance of the various events, I note in the

margin the timeline of these events and the dates on which

they occurred.3 Further, I recite the chronology of the most

significant events that occurred:

_________________________________________________________________

3. Timeline:

December 14, 1998 Lead Plaintiffs file an Amended Consolidated Class

Action Complaint ("ACCAC") and move for class

certification.

December 17, 1998 The Davidsons initiate arbitration against Cendant

pursuant to their Settlement Agreement.

January 21, 1999 Cendant files suit in the District Court for the

Central District of California to enjoin the

arbitration (claiming that the Davidsons' claims

are barred by the Settlement Agreement).

January 27, 1999 The New Jersey District Court grants the motion

for class certification.

February 17, 1999 Cendant moves for a pr eliminary injunction of the

arbitration; the Davidsons move for summary

judgment on the injunction action.

April 8, 1999 The California Central District Court dismisses

Cendant's injunction action and finds that the

Davidsons' claims must be arbitrated.

April 1999 Cendant appeals the California Central District

Court's decision, and Cendant and the Davidsons

44

1) the Amended Consolidated Class Action Complaint and

motion for class certification were filed on December 14,

1998;

2) the Davidsons filed a Notice of Claims for arbitration

against Cendant on December 17, 1998;

3) the class was certified on January 27, 1999;

4) on April 8, 1999, the California Central District Court

issued an opinion and order declining to enjoin the

Davidsons' arbitration and finding that the Davidsons'

claims must be arbitrated;

5) in October 1999, class notice was first disseminated

and the opt-out period began (almost a year after the

Notice of Claims for arbitration was filed);

6) the opt-out period for the class action expir ed on

December 27, 1999.

The majority ignores the most salient fact--that the

Davidsons initiated arbitration before the class was certified

--indeed, before any notice of certification was ever

formulated or distributed. Despite this and despite the fact

_________________________________________________________________

agree to stay arbitration pending the Ninth

Circuit's resolution of the appeal.

August 6, 1999 The New Jersey District Court or ders

dissemination of class notice.

October 1999 Class notice is disseminated.

December 17, 1999 A proposed settlement of the class action is

reached.

December 27, 1999 The opt-out period for the class action expires.

March 29, 2000 The New Jersey District Court grants preliminary

approval of the settlement of the class action.

April 2000 The Davidsons file a motion in the New Jersey

District Court for clarification of the class to

exclude them or for extension of the opt-out

period.

June 20, 2000 The New Jersey District Court enjoins the

Davidsons' arbitration and finds that they ar e

class members.

August 15, 2000 The final settlement of the class action is approved

by the New Jersey District Court and class

members release all claims against Cendant.

45

that no case authority--I repeat, no case authority--exists

which holds that an arbitration initiated prior to class

certification, thereafter ordered by a federal district court,

and on appeal to its Court of Appeals4 may be enjoined, the

majority here nevertheless and perplexingly holds that the

New Jersey District Court properly enjoined the Davidsons'

arbitration of issues covered by the class action.

B.

The majority states that the District Court had authority

to enjoin the Davidsons' arbitration under the All W rits Act,

28 U.S.C. S 1651.5 The majority goes on, however, to make

several points that contravene its own eventual holding: 1)

that the Supreme Court, and the FAA,"require[ ] that

arbitrable claims be arbitrated" in most cir cumstances; 2)

that federal district courts may only enjoin state court

proceedings and arbitrations under the All W rits Act in rare

instances;6 and 3) that the Anti-Injunction Act, 28 U.S.C.

S 2283, also limits the situations in which injunctions of

other proceedings by federal district courts ar e permissible.

(Maj. Op. at 31-39.) By making these points, the majority

has, in effect, done much of my work for me.

_________________________________________________________________

4. The California Central District Court's order of April 8, 1999 is

presently pending before the Ninth Cir cuit.

5. Incidentally, the New Jersey District Court did not explicitly invoke

the

All Writs Act in enjoining the Davidsons' arbitration. I will assume,

however, that the All Writs Act is where the District Court found its

authority to issue the injunction, in light of the lack of such authority

under Rule 23 of the Federal Rules of Civil Pr ocedure itself. As the

Second Circuit observed in In re Baldwin-United Corp. Litig.:

We do not find independent authority for the issuance of the

injunction in the Fed.R.Civ.P. 23(d) pr ovision empowering the

district judge to issue orders appropriate"for the protection of

the

members of the class or otherwise for the fair conduct of the

action";

that rule is a rule of procedure and cr eates no substantive rights

or

remedies enforceable in federal court.

770 F.2d 328, 335 (2d Cir. 1985).

6. We should not lose sight of the fact that, here, a federal district

court

in New Jersey enjoined a California arbitration after a California federal

district court had previously denied Cendant's application to reject the

Davidsons' arbitration claims.

46

Picking up after the majority's eloquent recitation of these

points, one would expect that the majority would logically

hold that the District Court's order enjoining the Davidsons'

arbitration was without legal foundation and authority and

must, therefore, be reversed. Inexplicably, the majority,

without basis in reason and without support in the cases

and statutes on which it relies, has err oneously held

otherwise, leading to this dissent.

1.

The All Writs Act states: "The Supr eme Court and all

courts established by Act of Congress may issue all writs

necessary or appropriate in aid of their r espective

jurisdictions and agreeable to the usages and principles of

law." 28 U.S.C. S 1651(a). To explain why the majority erred

in relying on the All Writs Act to support its affirming the

District Court's injunction, I will flesh out in more detail

the scope of the Act and the meaning of the phrase

"necessary7 . . . in aid of . . . jurisdiction[ ]."

In Turner Broadcasting System, Inc. v. Federal

Communications Commission, the Supreme Court stated:

The All Writs Act, 28 U.S.C. S 1651(a), is the only

source of this Court's authority to issue an injunction.

We have consistently stated, and our own Rules so

require, that such power is to be used sparingly.

"[J]udicial power to stay an act of Congr ess, like

judicial power to hold that act unconstitutional, is an

awesome responsibility calling for the utmost

circumspection in its exercise. . . .

_________________________________________________________________

7. Though the All Writs Act contains the phrase "necessary or appropriate

in aid of . . . jurisdiction[ ]," 28 U.S.C. S 1651(a) (emphasis added),

the

scope of authority to issue injunctions under the Act is necessarily

limited by the Anti-Injunction Act, which pr ovides that "[a] court of the

United States may not grant an injunction to stay pr oceedings in a State

court except as expressly authorized by Act of Congress, or where

necessary in aid of its jurisdiction, or to pr otect or effectuate its

judgments." 28 U.S.C. S 2283. Therefor e, the appropriate inquiry under

the All Writs Act in conjunction with the Anti-Injunction Act is whether

the injunction is "necessary in aid of . . . jurisdiction." (Emphasis

added).

47

An injunction is appropriate only if (1) it is"necessary

or appropriate in aid of [our] jurisdictio[n]," 28 U.S.C.

S 1651(a), and (2) the legal rights at issue are

"indisputably clear."

507 U.S. 1301, 1303 (1993) (internal citations omitted).

In sanctioning the New Jersey District Court's injunction

as authorized under the All Writs Act, the majority

erroneously relies on several cases.8 First, the majority

misapplies In re Baldwin-United Corp. Litig., 770 F.2d 328

(2d Cir. 1985). In Baldwin-United, the district court had

issued an injunction against state court actions under the

All Writs Act, stating that "the injunction was necessary `in

aid of preserving [the court's] jurisdiction.' " 770 F.2d at

333 (quoting 28 U.S.C. S 1651). The district court had

found that "the existence of competitive litigation . . . would

jeopardize its ability to rule on the settlements, would

substantially increase the cost of litigation, would create a

risk of conflicting results, and would pr event the plaintiffs

from benefiting from any settlement alr eady negotiated or

from reaching a new and improved settlement in the federal

court." 770 F.2d at 333.

The Second Circuit affirmed the district court's grant of

a preliminary injunction in Baldwin-United , observing that

an injunction is proper under the All W rits Act when

"necessary to prevent a state court fr om so interfering with

a federal court's consideration or disposition of a case as to

seriously impair the federal court's flexibility and authority

to decide that case." 770 F.2d at 335 (quoting Atlantic Coast

_________________________________________________________________

8. The majority also perplexingly contradicts itself in its discussions of

the FAA and the Anti-Injunction Act. It corr ectly observes that "the

Supreme Court requires that arbitrable claims be arbitrated, even where

the result would be the possible inefficient maintenance of separate

proceedings in different forums," and it points out that "the FAA requires

piecemeal resolution when necessary to give ef fect to an arbitration

agreement." (Maj. Op. at 32 (internal citations and quotation marks

omitted).) However, only two pages later , the majority contradicts this

mandate, averring in its discussion of the Anti-Injunction Act that "a

class action calls for distinct rules in connection with the need to have

as many common issues as possible disposed of in a single proceeding."

(Maj. Op. at 34.) This statement is simply incorr ect in the context of

this

case, in light of FAA and Anti-Injunction Act jurisprudence.

48

Line R.R. Co. v. Brotherhood of Locomotive Engineers, 398

U.S. 281, 295 (1970) (dicta)). The Second Cir cuit held that

this standard was met in Baldwin-United because "[t]he

existence of multiple and harassing actions by the states

could only serve to frustrate the district court's efforts to

craft a settlement in the multidistrict litigation before it

[because t]he success of any federal settlement was

dependent on the parties' ability to agree to the release of

any and all related civil claims the plaintif fs had against the

settling defendants based on the same facts," which release

would be uncertain "[i]f states or others could derivatively

assert the same claims on behalf of the same class or

members of it." 770 F.2d at 337.

The holding in Baldwin-United that an injunction was

proper under the All Writs Act is wholly inapplicable to this

case for several reasons. First, it concer ned derivative

lawsuits in state courts by the states themselves, not

arbitration by an individual under the FAA. Second, the

lawsuits were commenced after the class settlement was

reached, contrasted with the Davidsons' arbitration, which

was initiated before the CalPERS class was even certified.

Finally, whereas the district court in Baldwin-United

properly held that the injunction was necessary to preserve

its jurisdiction under the All Writs Act because of the

dangers to the class settlement from these derivative

lawsuits, an injunction of the Davidsons' arbitration is not

necessary to the settlement of the claims of the other

CalPERS class members because the settlement of the class

action here is not at all contingent on the Davidsons'

participation in the class action. Moreover , the Davidsons

have already received a final judgment in their favor from a

competent court--the California Central District Court--

holding their claims to be arbitrable. (I discuss this issue of

res judicata hereafter.)

The majority also cites In re PaineW ebber Partnership

Litig., 1996 WL 374162 (S.D.N.Y. July 1, 1996), a case that

the District Court relied upon in enjoining the arbitration.

The majority observes that, in PaineWebber, "the court

denied fifteen plaintiffs' attempts to arbitrate claims covered

by a class action where they all failed to opt out of the class

before the deadline," a situation which the majority

apparently likens to the instant case. (Maj. Op. at 32.)

49

In PaineWebber, after the opt-out period had expired and

a tentative settlement had been reached, fifteen class

members who had failed to opt out initiated separate state

court litigation and arbitration, both covering similar claims

to those in the class action. Relying on Baldwin-United, the

district court enjoined the state litigation and the

arbitration under the All Writs Act, observing that such an

injunction was appropriate "where a federal court is on the

verge of settling a complex matter, and state court

proceedings may undermine its ability to achieve that

objective." 1996 WL 374162, at 3 (quoting Standard

Microsystems Corp. v. Texas Instruments, Inc., 916 F.2d 58,

60 (2d Cir. 1990). The district court further noted that "this

consolidated class action is analogous to a r es over which

the Court requires full control, ther eby justifying a stay

pursuant to the All Writs and Anti-Injunction Acts, at least

to the extent that parties to this litigation seek to bring a

new action in a different forum." 1996 WL 374162, at 3.

In fact and in law, PaineWebber is wholly inapposite to

this case, and I fail to understand why the majority has

relied upon it. In PaineWebber, the plaintiffs did not seek

arbitration until after the class had been certified, after

notice of the class action had been sent out, after the opt-

out period had expired, and after a tentative settlement of

the class action had been reached. The observations by the

district court in PaineWebber that"the Court has the ability

to enjoin further litigation by class members involving the

subject matter of this class action," 1996 WL 374162, at 4

(S.D.N.Y. July 1, 1996) (emphasis added), and that an

injunction was proper "to the extent that parties to this

litigation seek to bring a new action in a different forum,"

1996 WL 374162, at 3 (emphasis added), have no r elevance

or application here, where the Davidsons' arbitration did

not constitute "further litigation" or "a new action" but

rather was commenced before class certification and was

confirmed as the appropriate course of action by a federal

district court in California long befor e class notice was

disseminated. Accordingly, the reasoning employed by the

district court in PaineWebber to issue an injunction under

the All Writs Act cannot be used to justify the injunction

here.

50

Another case cited by the majority, In r e Joint Eastern

and Southern Districts Asbestos Litig., 134 F.R.D. 32

(E.D.N.Y. 1990), concerned consolidation of asbestos-

related proceedings against the defendant. Class counsel

and the defendant reached a proposed settlement, after

which "the court directed that all inter ested parties appear

. . . and show cause why the proposed class should not be

certified and asbestos-related proceedings in other forums

stayed." 134 F.R.D. at 35. After these hearings, a class

action complaint and motion for certification wasfiled,

which motion was granted by the court in conjunction with

a stay of "any pending asbestos-related pr oceedings

brought on behalf of class members." 134 F .R.D. at 35.

In asserting that the injunction in Asbestos was

"necessary and appropriate in aid of " the district court's

jurisdiction of the class action under the All W rits Act, the

district court pointed out that:

To permit pending actions against [the defendant] to

proceed in their present form would substantially

impair or impede the interests of other asbestos

claimants and would significantly deplete the assets

available to resolve all pending and futur e cases. These

pending cases, if allowed to continue independently,

will seriously hinder the ability of the court to evaluate

the adequacy and fairness of the proposed settlement

of the class action by constantly depleting [the

defendant]'s assets.

134 F.R.D. at 36. In addition, the district court in Asbestos

described asbestos litigation as having reached"crisis

proportions." Specifically, the district court observed:

Over 100,000 pending asbestos personal injury and

wrongful death cases have backlogged the courts--

preventing many injured persons fr om obtaining much

needed compensation in a timely and efficient manner.

Even more troubling is the current r ealization that

each day, as more judgments are paid, the possibility

that similarly situated claimants will not r eceive the

full value of their claims becomes increasingly likely. A

fundamental tenet of our legal system--equal

treatment--no longer exists for asbestos victims.

51

134 F.R.D. at 33.

To suggest that the necessity of enjoining the Davidsons'

arbitration is even remotely comparable to the national

"crisis" of asbestos litigation is preposterous. The District

Court in this case was not faced with hundreds of

thousands of individual actions threatening to impair the

settlement of the class action before it. Indeed, the District

Court was faced with only a single arbitration pr oceeding

that had been decided and was on appeal in another

Circuit, that had been commenced before class certification

pursuant to arbitration agreements between Cendant and

the Davidsons, and that made claims available to no other

Cendant shareholders. In other words, wher eas the

injunction in Asbestos served to stay countless actions by

class members, which actions could of course seriously

impact the possibility and quality of settlement of the class

action, the District Court here enjoined one arbitration

arising out of circumstances peculiar to the Davidsons and

which could not have any imaginable impact on the

administration and disposition of other class members'

claims.

The case before us simply does not meet the

requirements for issuance of an injunction under the All

Writs Act, and none, I repeat, none, of the cases that the

majority cites furnishes even a modicum of authority for

the conclusion that the majority desires to r each. Unlike

Baldwin-United, PaineWebber, and Asbestos, the injunction

issued by the New Jersey District Court was not"necessary

in aid of its jurisdiction." The Davidsons initiated their

arbitration against Cendant under an agreement between

the Davidsons and Cendant not applicable to other class

members and, as will be discussed infra, the claims in their

arbitration overlapped only slightly with the claims in the

class action. In addition, there is no thr eat that allowing

this arbitration, initiated before class certification and long

before expiration of the opt-out period, to pr oceed would

expose Cendant to future claims by other putative class

members, because such claims would necessarily be

commenced much later in the course of the class action

and would therefore be more analogous to the cases relied

upon by the majority and discussed above.

52

The arbitration would neither "interfer[e] with [the New

Jersey District Court's] consideration or disposition" of the

class action, nor would it "seriously impair the[New Jersey

District Court's] flexibility to decide" the class action, nor

would it "undermine [the New Jersey District Court's]

ability to achieve" class settlement. Baldwin-United, 770

F.2d 328, 335 (2d Cir. 1985); PaineWebber, 1996 WL

374162, at 3 (S.D.N.Y. July 1, 1996). Accor dingly, I

fervently disagree with the majority's holding that the New

Jersey District Court had authority to enjoin the arbitration

under the All Writs Act.9

2.

Because the Davidsons initiated arbitration so early,

indeed before the class had even been certified, those cases

cited by the majority which permit injunctions of

arbitrations initiated by class members at the time when

the class action is nearing settlement are just not

applicable to this appeal, and the majority has err ed

grievously in attempting to support its holding based on

such authority. In light of the fact that the Davidsons

commenced arbitration pursuant to unique agr eements

_________________________________________________________________

9. The majority cites still another case, In re Prudential Partnership

Litig.,

158 F.R.D. 301, 304 (S.D.N.Y. 1994), which it claims bolsters its

unsupportable conclusion that one district court can enjoin an

arbitration that another district court has ruled must go forward. In re

Prudential does not invoke the All Writs Act but should be discussed

briefly because it too is completely distinguishable from the instant

case.

The court in In re Prudential Partnership Litig. stated: "Class members

who wish to opt out in order to . . . seek arbitration in a forum in

existence at the time of the original opt-out deadline have no excuse for

their neglect to opt out; they are simply seeking to escape consequences

known to them at the time they chose to remain in the class." 158

F.R.D. 301, 304 (S.D.N.Y. 1994); (See Maj. Op. at 36). By contrast, in

this case, the Davidsons did not "wish to opt out in order to . . . seek

arbitration." They had already sought arbitration almost a year before the

opt-out period even began and over a year before the expiration of the

opt-

out period and, most importantly, had received a final judgment in their

favor. This is not a case in which the Davidsons received notice of the

class settlement and then suddenly decided to arbitrate their claims

instead of participating in the settlement. Rather , they sought to compel

arbitration before the class was even certified.

53

between themselves and Cendant, the majority's holding

that the injunction was "necessary . . . in aid of " the

District Court's jurisdiction under the All W rits Act is

equally untenable. Indeed, the one case wher e the facts are

analogous to this appeal, in that the arbitration

commenced before the class was certified and notices were

distributed, is the Eighth Circuit case of In re Piper Funds,

Inc., Inst. Gov't Income Portfolio Litig., 71 F .3d 298 (8th Cir.

1995), a case relying on the FAA rather than the All Writs

Act to reverse a district court's injunction of an arbitration

initiated before class certification.

In Piper Funds, the Eighth Circuit held that the district

court had improperly enjoined an arbitration commenced,

as here, before class certification and before the notice of

class action had been disseminated and the opt-out period

had begun. Piper Funds differs slightly from this case in

that the plaintiff in Piper Funds, Park Nicollet, had

specifically expressed its desire to opt out of the class

before the opt-out period had even begun. The Eighth

Circuit pointed out that "the FAA does not authorize a

district court to enjoin arbitration" and observed that "there

are very few reported cases in which a federal court has

enjoined arbitration." 71 F.3d at 302. It listed three reasons

why the district court's reasons for the injunction were not

sufficient, all of which are equally applicable in this case: 1)

"Park Nicollet has a contractual right to immediate

submission of its securities law claims to arbitration," 71

F.3d at 303; 2) "Park Nicollet's contractual and statutory

right to arbitrate may not be sacrificed on the altar of

efficient class action management," 71 F .3d at 303; and 3)

the Court did not accept "the class action parties'

conclusory assertion that immediate arbitration by Park

Nicollet (and perhaps others) will frustrate their class action

settlement." 71 F.3d at 303.

Though relying on the FAA to hold that the district

court's injunction of the arbitration had been in error, the

Eighth Circuit did address the All W rits Act, stating:

The district court based its injunction on the All W rits

Act, 28 U.S.C. S 1651, which has been invoked by

federal class action courts to enjoin persons not within

the court's jurisdiction from frustrating a court order

54

or court-supervised settlement. We agr ee with the

district court that it has the power, under Fed.R.Civ.P.

23 augmented by the All Writs Act, to contr ol conduct

by absent class members that affects management or

disposition of the class action. However, exercise of this

power must be "agreeable to the usages and principles

of law," S 1651(a), which in this case include the FAA

as well as Rule 23.

71 F.3d at 300 n.2 (internal citations omitted).

To put the Eighth Circuit's holding mor e firmly in the

context of the All Writs Act, the FAA's clear preference for

arbitration over other forms of litigation dictates that an

injunction can never be appropriate in a case such as this

one because "the legal rights at issue [can never be]

`indisputably clear' " where issuance of an injunction would

violate the principles of the FAA, and, ther efore, the second

prong of the test of the propriety of an injunction, set forth

by the Supreme Court in Turner Br oadcasting System, Inc.

v. Federal Communications Commission, can never be met.

It is true that the Court in Piper Funds noted in dictum

that the district court may properly have denied the party's

request to opt out if, for example, "its r equest to opt out

was too late." 71 F.3d at 304. The majority seizes upon that

language as reason enough to justify its holding in this

case, disregarding the Eighth Circuit's indisputable

reasoning that it is inappropriate under the FAA for a

district court to enjoin a previously initiated arbitration

simply because the party did not follow the standar d opt-

out procedure. (See Maj. Op. at 35-36.) However, the

majority's willful blindness to the similarities between this

case and Piper Funds is just another example of the

majority's unwillingness to accept the fact that the

arbitration sought by the Davidsons preempted any class

membership and could not be enjoined.

In fact, in both this case and Piper Funds, the plaintiffs

did not follow the standard opt-out procedure. In Piper

Funds, the plaintiff attempted to opt out before the opt-out

period had begun, and, here, the Davidsons initiated

arbitration well before the opt-out period began but did not

explicitly opt out of the class. The Davidsons did not opt

55

out at that time, undoubtedly because neither the

Davidsons nor Cendant believed that the Davidsons were

class members. Moreover, when the Davidsons filed their

motion in the District Court seeking clarification of the

class definition, the Lead Plaintiffs filed a brief stating that

"Lead Plaintiffs agree that the Davidsons are excluded from

the class." (App. 918.) The Davidsons obviously could not

have been found to be members of the class if the District

Court had honored the California District Court's order

compelling arbitration.10

Moreover, the majority errs in r elying on In re VMS Sec.

Litig., 21 F.3d 139 (7th Cir. 1994), to support its point that

a late opt-out terminates a party's right to arbitrate.

Though, as the majority notes, the plaintiffs in VMS "had

obtained an award in the arbitration filed before resolution

of the class action," (Maj. Op. at 35), the pr ogression of

events in that case differed markedly fr om this case. In

VMS, class actions were filed and consolidated into one

class action, and a proposed settlement was approved,

subject to notice to class members, hearing, andfinal

approval. Then, the Hubbards initiated arbitration.

Subsequently, class notice was disseminated and the opt-

out period expired without the Hubbards opting out. The

district court then enjoined the Hubbards' arbitration, but

the arbitrators heard the Hubbards' claims anyway and

granted them an award.

The Seventh Circuit held that "[t]he arbitrators `exceeded

their power' when they decided to act on the Hubbar ds'

claims [because t]he Hubbards' claims against Prudential

arising from their investment in the VMS Mortgage

Investment Fund were subject to the class action

settlement, and had already been resolved." VMS, 21 F.3d

at 145. Indeed, the claims in VMS had been r esolved in the

class settlement before the Hubbar ds even initiated

arbitration.

_________________________________________________________________

10. Additionally, in Section IV, infra , I discuss the New Jersey District

Court's failure to comply with this court's dir ections in noting that,

after

the California arbitration had been enjoined, the Davidsons were too late

to opt out of the class. The District Court failed to apply the Supreme

Court's Pioneer analysis and our instructions in its opinion.

56

By contrast, the Davidsons' arbitration commenced

before the class was even certified. Additionally, the

Davidsons initiated arbitration pursuant to br oad and

binding arbitration agreements (see Part II.C.2, infra),11the

predominance of which had already been confirmed by a

federal district court in California, wher eas the Hubbards'

arbitration was not pursuant to such an agreement.12

Accordingly, the Seventh Circuit's opinion in VMS

understandably contained no reference to the guiding

principles of the FAA. Because of these significant

differences between VMS and this case, the Seventh

Circuit's decision that the Hubbards wer e bound to the

class settlement after they failed to opt out has no

relevance to the instant case. Indeed, I have no quarrel with

the VMS decision and might very well have joined in the

VMS holding if that case were befor e me.

By asserting that the Davidsons' right to arbitrate is not

extinguished by their failure to opt out of the class, I am

not "gloss[ing] over" the Eighth Cir cuit's statement in Piper

Funds regarding late opt outs as the majority suggests.

(Maj. Op. at 36.) I am simply affording more importance to

the Eighth Circuit's actual holdings r egarding the

predominance of the FAA than to itsfleeting statement in

dictum regarding late opt-outs. The majority, by contrast,

has attempted to support and justify its holding her e by

resorting to odd and assorted dicta from the cases which it

has cited and I have distinguished, all of which, other than

Piper Funds, are irrelevant to the issue presented here of

arbitration preceding class action. (See Maj. at 35-36

(quoting In re VMS Sec. Litig., 21 F .3d 139 (7th Cir. 1994);

In re PaineWebber P'ship Litig., 1996 WL 374162 (S.D.N.Y.

July 1, 1996); In re Prudential P'ship Litig., 158 F.R.D. 301

(S.D.N.Y. 1994).)

I believe, as I have earlier stated, that the only case

relevant to the issue before us is Piper Funds, which, while

_________________________________________________________________

11. Singularly, the majority opinion makes no mention of the terms and

breadth of the arbitration agreements entered into by the Davidsons and

Cendant in its discussion and analysis.

12. In addition, as will be discussed in Part III infra, the class

settlement

here did not "resolve" the Davidsons' claims.

57

not binding on us in the Third Circuit, nonetheless, with

unimpeachable reasoning, supports a holding that, under

the FAA, and despite the All Writs Act, the New Jersey

District Court could not have and should not have enjoined

the Davidsons' arbitration.

C.

1.

The Davidsons argue that the New Jersey District Court

should have given res judicata effect to the decision by the

California Central District Court. In addr essing this

argument by the Davidsons, the New Jersey District Court

stated:

Plaintiffs' assertion that the Court is r es judicata-

barred from hearing this action is meritless. The

Central District of California was not pr esented with

the issue before this Court--whether the Davidsons are

within the CalPERS settling class. While the Court

directed arbitration of claims arising fr om the 1996

acquisition and 1997 Settlement Agreement, that

direction was made under different factual (and

procedural) circumstances. As Cendant says, it did not

argue that the Davidsons were class members--at

most, they were potential members. Obviously, that

issue was not before the Central District of California

impliedly or actually.

194 F.R.D. 158, 166 (D.N.J. 2000). I believe that the New

Jersey District Court incorrectly applied the doctrine of res

judicata and that the Davidsons are corr ect that the

California Central District Court's decision precluded the

New Jersey District Court from enjoining the Davidsons'

arbitration.

Initially, I should explain that there ar e two forms of

preclusion under the doctrine of res judicata: claim

preclusion and issue preclusion (also r eferred to as

collateral estoppel). As the Third Circuit stated in In re

Graham:

58

Claim preclusion applies to claims that `wer e or could

have been raised' in a prior action involving the`parties

or their privies' when the prior action had been

resolved by `a final judgment on the merits.' Claim

preclusion thus bars relitigation of any claim that

could have been raised in the prior action even if it was

not so raised.

In re Graham, 973 F.2d 1089, 1093 (3d Cir.1992) (internal

citations omitted). Issue preclusion, on the other hand,

"bars relitigation only of an issue identical to that

adjudicated in the prior action." Witkowski v. Welch, 173

F.3d 192, 198 n.8 (3d Cir. 1999); see also In re Braen, 900

F.2d 621, 628-29 n. 5 (3d Cir.1990).

Here, we are considering Cendant's motion for an

injunction of the arbitration, a motion made in both

California and in New Jersey. The Califor nia Central

District Court dismissed Cendant's action seeking an

injunction, and that decision is currently on appeal before

the Ninth Circuit Court of Appeals.13 The decision of the

California Central District Court constitutes a "final

judgment on the merits" and that the doctrine of claim

preclusion applies to that decision.

The Supreme Court has described the doctrine of claim

preclusion as follows: "A final judgment on the merits of an

action precludes the parties or their privies from relitigating

issues that were or could have been raised in that action."

Federated Department Stores, Inc. v. Moitie, 452 U.S. 394,

398 (1981). Therefore, it must be deter mined whether

Cendant's motion for an injunction of the Davidsons'

arbitration in the New Jersey District Court was"or could

have been raised" in the California Central District Court.

Cendant's complaint before the California Central District

Court asking the court to enjoin the arbitration was based

solely on the several agreements between Cendant and the

Davidsons and did not mention the issue of the Davidsons'

_________________________________________________________________

13. Under federal law, a judgment on appeal is still a final judgment for

res judicata purposes. See Huron Holding Corp. v. Lincoln Mine Operating

Co., 312 U.S. 183, 188-89 (1941); Transaero, Inc. v. La Fuerza Aerea

Boliviana, 99 F.3d 538, 540 (2d Cir . 1996).

59

putative class membership at all. In addition, as the New

Jersey District Court pointed out, the issue of the

Davidsons' class membership could not have been before

the California Central District Court because, at the time of

the California Central District Court's decision, the opt-out

period had not even begun and, therefor e, the Davidsons

had not yet irrevocably failed to opt out of the class action.

The New Jersey District Court found this distinguishing

feature to be dispositive of the res judicata question, as

does the majority here, which describes the fact that the

Davidsons' putative class membership was not addr essed

in the California injunction action as a "fatal flaw." (Maj.

Op. at 30-31 n.22.) Indeed, the New Jersey District Court

reasoned that, because the Davidsons' class membership

"was not before the Central District of California impliedly

or actually," 194 F.R.D. at 166, the California court's

decision that the Davidsons' could not be enjoined did not

preclude the New Jersey District Court fr om enjoining the

arbitration after the expiration of the opt-out period.

However, it is the New Jersey District Court's and the

majority's analyses, not mine, that are fatallyflawed. What

the New Jersey District Court and the majority fail to

realize is that the Davidsons' class membership is irrelevant

to the issue of whether to enjoin the arbitration. Because of

the timing of the arbitration and the class action and

because of the lack of authority to enjoin the Davidsons'

arbitration under the All Writs Act, all discussed in detail in

the preceding sections, the New Jersey District Court could

not base its authority to issue an injunction on the

(arguable) fact of the Davidsons' class membership.

Therefore, contrary to the majority's position, it is far from

"spurious to suggest that res judicata pr ecludes the District

Court from deciding whether Appellants' claims could be

decided in the class action." (Maj. Op. at 30-31 n.22.) The

issue before the New Jersey District Court, whether to

enjoin the Davidsons' arbitration at Cendant's r equest, was

precisely the same issue that was befor e the California

Central District Court and that the California court decided

more than a year before the New Jersey District Court dealt

with the issue. Thus, it is completely irrelevant that

"Cendant's complaint [in the California Central District

60

Court] . . . did not interpose the existence of the class

action as a ground for seeking injunctive r elief from the

arbitration." (Maj. Op. at 9.)

Because the injunction issues before the California and

New Jersey courts were the same, the New Jersey District

Court was required to afford the decision of the California

court res judicata effect. The Califor nia Central District

Court held that, with regard to the Davidsons' claims

regarding rescission of the Settlement Agreement, "[t]he

Supreme Court has held that an arbitrator must resolve a

claim to rescind a contract based upon fraud in the

inducement when the contract contains a broad arbitration

provision." (App. 705 (citing Prima Paint Corp. v. Flood &

Conklin Mfg. Co., 388 U.S. 395, 404-05 (1967).) The court

also held that the remaining claims, regar ding the merger

of CUC and DAI, should also be submitted to arbitration

because "whether or not the claims were r eleased depends

on whether the settlement agreement can be r escinded, and

depends also on the scope of the release in the agreement.

Both of these issues must be determined by an arbitrator,

pursuant to the clear intent of the parties to submit such

disputes to binding arbitration." (App. 706.) This clear

holding by the California Central District Court left no room

for the New Jersey District Court to enjoin the Davidsons'

arbitration, and the New Jersey District Court err ed in

doing so. The majority has similarly erred in upholding the

New Jersey court's injunction.

2.

It is worth mentioning briefly that a review of the

arbitration clauses in the February 19, 1996 Mer ger

Agreement and the May 27, 1997 Settlement Agr eement

between the Davidsons and Cendant makes clear that the

California Central District Court's decision to dismiss

Cendant's injunction action and to allow the arbitration to

go forward was the correct decision. The arbitration clause

in the Merger Agreement states: "Any controversy, dispute

or claim arising out of or relating to this Agr eement or the

breach hereof which cannot be settled by mutual agreement

. . . shall be finally settled by arbitration . . ." (App. 524.)

The clause goes on to state that "[t]he decision of the

61

arbitrator on the points in dispute will be final,

unappealable and binding and judgment on the awar d may

be entered in any court having jurisdiction thereof." (App.

524.) Additionally, the clause states:

The parties agree that this clause has been included to

rapidly and inexpensively resolve any disputes between

them with respect to this Agreement, and that this

clause shall be grounds for dismissal of any court action

commenced by either party with respect to this

Agreement, other than post-arbitration actions seeking

to enforce an arbitration award.

(App. 524-25 (emphasis added).

The Settlement Agreement contains similar language. The

agreement to arbitrate states:

Notwithstanding anything to the contrary contained in

this Agreement or the Surviving Agreements and

Rights, any controversy, dispute or claims arising out

of or relating to this Agreement or any of the Surviving

Agreements and Rights or the breach her eof or thereof

which cannot be settled by mutual agreement shall be

finally settled by binding arbitration in accor dance with

the Federal Arbitration Act . . .

(App. 668.) The arbitration clause in the Settlement

Agreement also states that "[t]he decision of the arbitrator

on the points in dispute will be final, unappealable and

binding, and judgment on the award may be enter ed in any

court having jurisdiction thereof." (App. 669.) Finally, as in

the Merger Agreement, the arbitration clause in the

Settlement Agreement states:

The parties agree that this Section has been included

to rapidly and inexpensively resolve any disputes

between them with respect to this Agreement or any of

the Surviving Agreements and Rights, and that this

Section shall be grounds for dismissal of any court

action commenced by any party with respect to this

Agreement or any of the Surviving Agr eements and

Rights, other than post-arbitration actions seeking to

enforce an arbitrator award.

(App. 669-70 (emphasis added).)

62

In their Notice of Claims for arbitration, the Davidsons

raised claims in connection with both the Mer ger

Agreement and the Settlement Agreement. They explicitly

invoked both arbitration clauses in support of arbitrating

these claims, stating that "[t]his dispute pr operly is before

this arbitration tribunal by virtue of an arbitration

provision set forth in the Settlement Agr eement between the

Davidsons and CUC," and "[t]his dispute also is properly

before this arbitration tribunal by virtue of an arbitration

provision set forth in . . . the `Mer ger Agreement.' " (App.

535-36.) The Davidsons also cited similarly wor ded

arbitration provisions in their Employment Agr eements with

CUC and in their Noncompetition Agreements with CUC in

support of arbitrating their claims. (App. 537-38.)

These broad arbitration clauses clearly pr eclude a court

from mandating that the Davidsons participate in a class

action concerning the claims for which they sought

arbitration, and the clauses support the Califor nia Central

District Court's decision.

3.

One final point in connection with the preclusive effect of

the California Central District Court's decision: in light of

the California court's clear holding that the arbitration

could not be enjoined, the majority misapplies our decision

in Great Western Mortgage Corp. v. Peacock, 110 F.3d 222

(3d Cir. 1997). This court held in Peacock: "Once a dispute

is determined to be validly arbitrable, all other issues are to

be decided at arbitration. . . . It would be anomalous for a

court to decide that a claim should be referr ed to an

arbitrator rather than a court, and then, by deciding issues

unrelated to the question of forum, for eclose the arbitrator

from deciding them." 110 F.3d at 230-31.9

The majority perplexingly fails to realize that the dispute

between the Davidsons and Cendant has already been

"determined to be validly arbitrable" by the California

Central District Court. Accordingly, it is"anomalous" and

indeed erroneous for the majority here to issue this opinion

which clearly "foreclose[s] the arbitrator from deciding" the

very issues raised in the arbitration, which a competent

63

court with jurisdiction over both parties has held to be

arbitrable.

D.

Because of the timing of the Davidsons' commencement

of the arbitration and the initiation of the class action,

because of the fact that the requirements of the All Writs

Act were not met in this case for issuance of an injunction,

because of this case's dissimilarity to Baldwin-United,

PaineWebber, and Asbestos and its similarity to Piper

Funds, and because of the appropriate application of the

doctrine of res judicata to this case, ther e can be no doubt

that the New Jersey District Court grossly abused its

discretion in enjoining the Davidsons' arbitration.

Accordingly, I am satisfied that, at this point, the issue of

whether the Davidsons can be deemed to fall within the

class definition is irrelevant. The Davidsons sought

arbitration pursuant to the arbitration clauses in the

Merger Agreement and the Settlement Agr eement, and the

California Central District Court confir med that arbitration

was proper. As noted earlier, that order is presently on

appeal to the Court of Appeals for the Ninth Cir cuit and

should have been given res judicata effect by the New

Jersey District Court. The only way the issue of the

Davidsons' class membership could become relevant is if

the Ninth Circuit reversed the Califor nia Central District

Court's decision and held that the Davidsons' claims were

not properly before the arbitrator . Because of that remote

possibility, I will nonetheless discuss below the issue of the

Davidsons' class membership.

III.

The majority holds that the District Court did not err in

finding that the Davidsons were within the class definition.

It bases its holding in part on its interpretation of the term

"publicly traded" in the class definition, which the majority

reads to include the Cendant shares acquir ed by the

Davidsons in the Merger Agreement. The majority concedes

that there were restrictions placed on the Davidsons' sales

of the stock they acquired in the Merger Agreement, but

64

observes that "[t]he restriction on sale of the CUC stock

held by Appellants emanated solely from the quantity of

shares they received as a result of the merger, not in any

way from the type of security they received." (Maj. Op. at

16.)

Further, the majority notes that the r estrictions on the

Davidsons' sale of their shares "could be avoided entirely

. . . if Appellants were to sell shares of CUC stock under

any subsequent registration statement." (Maj. Op. at 17.)

Accordingly, the majority reaches the conclusion--a

conclusion for which no relevant authority is cited--that

the Davidsons' shares were "publicly traded," asserting that

"[h]aving traded publicly tens of millions of shares of CUC

common stock so soon after the DAI merger , and then to

claim that they are not `publicly traded' securities within

the class definition, is a non sequitur." (Maj. Op. at 17.)

I cannot agree with the majority's holding on this issue,

because the Davidsons' shares were not"publicly traded,"

and I would hold that the District Court and the majority

of this court have erred in holding otherwise.

Pursuant to the Agreement and Plan of Mer ger of DAI

and CUC, shares of DAI were to be converted as follows:

"each share of common stock, par value $0.00025 per

share, of [DAI] issued and outstanding immediately prior to

the Effective Time . . . shall, by virtue of the Merger . . . be

converted into and shall become 0.85 of one fully paid and

nonassessable share of common stock, $.01 par value per

share, of [CUC]." (App. 475.) The Agr eement was entered

into on February 19, 1996. Also on that date, the

Davidsons signed letters upon which the merger was

conditioned. The letters stated, inter alia:

I hereby represent, warrant and covenant to [CUC]

that:

(a) I will not transfer, sell or otherwise dispose of any

of the [CUC] shares except (i) pursuant to an effective

registration statement under the Securities Act, or (ii)

as permitted by, and in accordance with, Rule 145, if

applicable, or another applicable exemption under the

Securities Act; and

65

(b) I will not (i) transfer, sell, or otherwise dispose of

any [DAI] Shares prior to the Effective Time (as defined

in the Merger Agreement) or (ii) sell or otherwise reduce

my risk (within the meaning of the Securities and

Exchange Commission's Financial Reporting Release

No. 1, "Codification of Financial Reporting Policies,"

Section 201.01 [47 F.R. 21028] (May 17, 1982) with

respect to any [CUC] shares until after such time (the

"Delivery Time") as consolidated financial statements

which reflect at least 30 days of post-mer ger combined

operations of [CUC] and [DAI] have been published by

[CUC], except as permitted by Staf f Accounting Bulletin

No. 76 issued by the Securities and Exchange

Commission.

(App. 1129, 1131.)

In light of these limitations on the Davidsons' shar es, the

District Court clearly erred in finding that they were

"publicly traded," and the majority compounded that error

by subscribing to the District Court's ruling. The

Davidsons' shares were certainly "common stock," but not

all common stock is necessarily "publicly traded." The

Merger Agreement placed restrictions on the Davidsons'

trading of their CUC shares, differ entiating them from freely

and publicly traded CUC common stock. Further , there is

no basis for the majority's speculative assertion that the

restrictions were entered into because of the quantity, and

not the quality, of the shares. Regardless of the reason,

there were restrictions on the Davidsons' shares of CUC

common stock, and, therefore, those shar es were not

"publicly traded."

Nor am I convinced by the majority's argument that the

Davidsons could have avoided the restrictions on their

shares by selling under subsequent registration statements.

The fact that the Davidsons were able to over come the

restriction on their shares (in other wor ds, that the

restriction did not amount to an absolute pr ohibition on

trading) does not suddenly transform the r estricted shares

which are not publicly traded into "publicly traded

securities." Whether the restriction made the Davidsons'

shares wholly untradeable or tradeable only after some

66

maneuvering, the fact remains that the shar es simply were

not "publicly traded securities."

I agree with the majority that the Davidsons meet the

class definition in other respects, because they "purchased

or otherwise acquired" their shares within the relevant time

period, they were "injured ther eby," and they are not

"officers and directors of Cendant." However, the dispositive

point, and the point on which I diverge fr om the majority,

is the majority's position that the Davidsons' shar es are

"publicly traded securities." "Publicly traded securities" is

the cornerstone of "class membership" as the class was

certified. Because the Davidsons' shares wer e not "publicly

traded," they do not meet the class definition. Accordingly,

the District Court erred in finding the Davidsons to be class

members, even according "particular defer ence" to the

District Court on this finding.14

_________________________________________________________________

14. The majority uses the "particular defer ence" standard of review in

referring to the District Court's interpr etations of the District Court's

own orders. I do not think that it is appr opriate to accord the District

Court "particular deference" on this issue because I do not believe that

the District Court's finding as to the Davidsons' membership in the class

amounted to an "interpretation of its own or der." The majority asserts

that, "[h]ere, the District Court, in determining whether Appellants were

class members, interpreted its own orders, the order certifying the class

and the order approving the class notice, both of which contained the

class definition." (Maj. Op. at 14-15.) In so holding, the majority

accords

a "particular deference" to the District Court's interpretations.

While it is true that those orders gave content to the class definition,

the District Court did not draft the definition itself. I believe that

"particular deference" can be accor ded when the District Court claims to

have a better insight on the meaning of an or der as the author of that

order. This is not such a case.

Indeed, I believe that the orders in this case approving class

certification and approving class notice ar e analogous to consent decrees

approved by courts, in that they are "hybrid[s] of . . . contract[s] and .

. .

court order[s]." Holland v. New Jersey Dept. of Corrections, Nos. 00-1801,

2356, 2357, at 20. As this court has just recently held in Holland, the

appropriate standard of review for such decrees is plenary or de novo

review, and not the "particular defer ence" review held by the majority.

Holland, at 21-24. Hence, the majority exer cised an incorrect standard

of review over the District Court's orders certifying the class and

approving class notice.

67

My interpretation of "publicly traded" as not including the

Davidsons' shares is bolstered by the definition of "publicly

traded" in the Internal Revenue Code Regulations.

Regulation S 1.170A-13 defines "publicly traded securities"

as follows:

In general. Except as provided in paragraph (c)(7)(xi)(C)

of this section, the term `publicly traded securities'

means securities . . . for which (as of the date of

contribution) market quotations are readily available

on an established securities market.

I.R.C. Reg. S 1.170A-13(c)(7)(xi)(A). The exceptions section

states:

Exception. Securities described in paragraph (c)(7)(xi)

(A) or (B) of this section shall not be consider ed

publicly traded securities if-- (1) The securities are

subject to any restrictions that materially af fect the

value of the securities to the donor or pr event the

securities from being freely traded . . . .

I.R.C. Reg. S 1.170A-13(c)(7)(xi)(C)(1) (emphasis added).

The Davidsons' shares precisely fall into this exception,

in that restrictions were placed on the shares that

prevented them from being freely traded. Therefore,

according to the definition of "publicly traded" in the

Internal Revenue Code Regulations, the Davidsons' shares

were not "publicly traded."

Moreover, the majority once again tur ns a blind eye to

the Amended and Consolidated Class Action Complaint

("ACCAC"), which by its terms supports the Davidsons'

position that the class action was not intended to cover

their claims. The ACCAC describes the class members"as

purchasers on the [NYSE] and acquir ers pursuant to the

Registration Statement and the Joint Proxy

Statement/Prospectus [of the merger of CUC and HFS]."

(App. 156.) In addition, the ACCAC states:

Lead Plaintiffs' claims are typical of the members of the

Class. Plaintiffs and all other members of the Class

acquired their CUC common stock pursuant to the

Registration Statement and Joint Proxy

Statement/Prospectus, and purchased their CUC and

68

Cendant publicly traded securities on the open market

and sustained damages as a result of defendants'

wrongful conduct complained of herein.

(App. 156.) These statements make clear that the lead

plaintiffs intended the class to consist only of purchasers of

the Cendant shares on the market and pur chasers

pursuant to the HFS/CUC merger. The Davidsons fall into

neither of these categories.

In addition, the fact that the claims in the ACCAC for the

most part differ from the Davidsons' claims against

Cendant lends still further support to excluding the

Davidsons from the class. Of the fourteen counts in the

ACCAC, only five cover the time period during which the

Davidsons acquired their shares. In addition, as the

Davidsons point out, the ACCAC alleges claims for violation

of Section 11 of the Securities Act, 15 U.S.C. S 77k, only in

connection with the HFS/CUC merger. The Davidsons

would (and did) pursue such claims on their own behalf in

arbitration, but the ACCAC does not make those claims for

the Davidsons.15 The ACCAC only intended to cover merger-

related claims in connection with the HFS/CUC merger and

further reinforces the point that the CalPERS class did not

include the Davidsons.16

I therefore disagree with the majority's holding regarding

the Davidsons' class membership, because I am convinced

that the District Court clearly erred in finding that the

Davidsons are within the class.

_________________________________________________________________

15. In their Notice of Claims for arbitration, the Davidsons made claims

under SS 11, 12(a)(2), and 17 of the Securities Act, 15 U.S.C. S 77a, et

seq., S 10(b) of the Securities and Exchange Act, 15 U.S.C. S 78j(b), as

well as under various sections of the Califor nia Corporations Law and

common law. The ACCAC also alleges violations of sections 11 and 12 of

the Securities Act and S 10(b) of the Securities and Exchange Act, but its

section 11 and section 12 claims are not the same claims that the

Davidsons have asserted in arbitration, and only theS 10(b) claims in

the ACCAC arguably cover claims of the Davidsons.

16. See note 4, supra.

69

IV.

I have still another disagreement with the majority

opinion and its holdings. The majority holds that the

District Court did not abuse its discretion in its analysis of

whether to grant the Davidsons' request for an extension of

the time to opt out. In considering the Davidsons's request

for an extension of the opt-out deadline under Rule 6(b) of

the Federal Rules of Civil Procedure, the District Court

described the factors to be considered in connection with

the excusable neglect standard in detail, citing the Supreme

Court's decision in Pioneer Investment Services Co. v.

Brunswick Assoc. Ltd. Partnership, 507 U.S. 380, 395

(1993), and the Third Circuit's earlier opinion concerning

this standard, Dominic v. Hess Oil V .I. Corp., 841 F.2d 513,

517 (3d Cir. 1988). See In re Cendant Corp. Sec. Litig., 194

F.R.D. 158, 165 (D.N.J. 2000).

However, the District Court in this case, as in other cases

when it gave only lip service to the Pioneer factors, did not

comply with the Supreme Court's or our instructions. See

In re Cendant Corp. PRIDES Litig., 235 F .3d 176 (3d Cir.

2000); In re Cendant Corp. PRIDES Litig. , 234 F.3d 166 (3d

Cir. 2000).17 The District Court here stated only that the

Davidsons' "alleged failure to receive notice . . . does not

warrant an extension of the exclusion deadline." 194 F.R.D.

at 165. It gave as its reasons: class notice was adequately

published; the case got independent press coverage; "the

Davidsons' assertion that their failure to opt out is

excusable because Cendant acted as though they wer e not

_________________________________________________________________

17. The majority cites another Cendant appeal in which we affirmed the

District Court's decision that certain plaintif fs' late filing of proofs

of

claim was "excusable neglect." (Maj. Op. at 28 (citing In re Cendant Corp.

PRIDES Litig., 233 F.3d 188 (3d Cir . 2000)).) Because that appeal

concerned a situation in which the District Court had found excusable

neglect, it does not particularly illuminate our analysis of the District

Court's failure to conduct a complete excusable neglect analysis here.

Moreover, as I note in the text above, at least two ot

This text is long and has been trimmed here. Open the source document for the complete record.