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. e du/thir dc ir c uit_2001/197Filed August 28, 2001

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 00-2684

IN RE: CENDANT CORPORATION LITIGATION

MARTIN DEUTCH, Derivatively on Behalf of Cendant Corp., Appellant

On Appeal from the United States District Court for the District of New Jersey (D.C. No. 98-cv-01664) District Judge: Hon. William H. Walls

Argued May 22, 2001

Before: BECKER, Chief Judge, SLOVITER and AMBRO, Circuit Judges

(Filed: August 28, 2001)Bruce E. Gerstein (Argued)

Brett Cebulash Garwin, Bronzaft, Gerstein &
Fisher LLP New York, NY 10036

Elwood S. Simon
Elwood S. Simon & Associates Birmingham, MI 48009

David M. Taus
Francis J. Devito Hackensack, NJ 10166-0153

Richard Brualdi
Law Offices of Richard B. Brualdi New York, NY 10006

Thomas G. Shapiro Shapiro, Haber & Urmy Boston, MA 02109

Attorneys for Appellant
Martin Deutch

Daniel L. Berger (Argued) Max W. Berger Jeffrey N. Leibell Bernstein, Litowitz, Berger &

Grossmann New York, NY 10019

Jeffrey W. Golan
Leonard Barrack
Gerald J. Rodos Barrack, Rodos & Bacine Philadelphia, PA l9l03

Attorneys for Appellee California Public Employees' Retirement System, et al.

Samuel Kadet (Argued)
Jonathan J. Lerner Joseph N. Sacca Skadden, Arps, Slate, Meagher &

2Flom LLP

New York, NY 10036

Carl Greenberg
Michael M. Rosenbaum Budd, Larner, Gross, Rosenbaum, Greenberg & Sade, P.C. Short Hills, NJ 07078-0999

Attorneys for Appellee Cendant Corporation

James G. Kreissman (Argued)

Jacob S. Pultman
Simona G. Strauss Simpson, Thacher & Bartlett New York, NY 10017

Herbert J. Stern
Joel M. Silverstein Stern & Greenberg Roseland, NJ 07068

Attorneys for Appellees HFS Inc.
Directors

Greg A. Danilow (Argued) Weil, Gotshal & Manges LLP New York, NY 10153

Alan N. Salpeter Mayer, Brown & Platt Chicago, IL 60603

Douglas S. Eakeley
Lowenstein Sandler Roseland, NJ 07068

Cadwalader, Wickersham & Taft New York, NY 10038

Sills Cummis Radin Tischman Epstein & Gross, P.A. Newark, NJ 07102-5400

Attorneys for Appellees CUC
Directors

3OPINION OF THE COURT

SLOVITER, Circuit Judge.

Martin Deutch appeals from the District Court's judgment and orders approving the settlement of a securities fraud class action brought against Cenda nt Corporation, 28 individual defendants, and Ernst & Young, an accounting firm. Under the settlement, Cendant a greed to pay $2.85 billion in cash to the class and Ernst & Young

agreed to pay $335 million to the class. In additio n, Cendant and certain of the individual defendants pr omised to pay the class 50% of any recovery obtained in th eir cross-claims against Ernst & Young. In exchange, th e class agreed to release any and all claims that could hav e been brought against the defendants in the class action.

A number of class members objected to the settlemen t. Deutch, who was not a member of the class but rathe r a current shareholder of Cendant, also objected and m oved to
intervene as both a current shareholder and as a de rivative action plaintiff. In two separate opinions filed on August 15, 2000, the District Court rejected the objections of the class members and Deutch respectively and approved the

settlement.

The approvals generated a flurry of appeals. The ap peals of the class members are being disposed of in a sep arate opinion, holding, inter alia, that the District Cou rt did not abuse its discretion in rejecting the class members ' objections to the settlement and plan of allocation . See In re Cendant Corp. Sec. Litig., Nos. 00-2520, 00-2683 , 00-

2708, 00-2709, 00-2733, 00-2734, 00-2769 and 00-365 3 (3d Cir. Aug. 28, 2001). In this opinion, we turn t o Deutch's appeal, which presents distinct issues of law relat ing to a current shareholder seeking to present claims on be half of the settling corporation.

4I.

FACTS AND PROCEDURAL POSTURE

Many of the facts set forth in the following sectio n of this opinion will also be set forth and discussed in gre ater length in the principal opinion dealing with the ap peals of the objecting class members. The abbreviated facts included here are those necessary to put Deutch's
contentions in context.

A. Discovery of the Misconduct

On December 17, 1997, CUC International, Inc. ("CUC ") merged with HFS Inc. ("HFS"). As part of the merger
, shareholders of HFS stock were issued shares of CUC common stock pursuant to a Registration Statement d ated August 28, 1997 and a Joint Proxy Statement/Prospec tus. The surviving corporation was renamed Cendant Corp. ("Cendant"). Cendant is now one of the world's fore most consumer and business service companies, providing shopping, dining, travel, mortgage, and real estate brokerage services. It owns, among other things, Ce ntury 21, Avis, and the Ramada and Howard Johnson hotel
franchises.

On March 31, 1998, Cendant filed a Form 10-K Annual Report with the Securities Exchange Commission ("SE C"), which included its 1997 financial statements. On Ap ril 15, 1998, Cendant announced that it had discovered accounting irregularities in certain former CUC bus iness units and that the annual and quarterly financial
statements for 1997 would be restated. Cendant also suggested that financial statements from earlier pe riods might need to be corrected as well. The next day, C endant's stock fell from $35 5/8 a share to $19 1/16 a share - a 47% drop. The Audit Committee of Cendant's Board of
Directors hired the law firm of Willkie Farr & Gall agher to conduct an independent investigation into the irreg ularities, and the law firm in turn hired the accounting firm of Arthur Andersen LLP to assist in the investigation. On July 14, 1998, Cendant announced that CUC's financial
statements for 1995 and 1996 would also be restated

. Following this announcement, Cendant's stock droppe d to

5$15 11/16. On August 28, 1998, Cendant filed with t he

SEC a report prepared by Willkie Farr which disclos ed, among other things, that the 1995, 1996, and 1997 financial statements materially misstated revenue a nd income. Cendant's stock further dropped to $11 5/8 on the next trading day.

B. The Securities Fraud Class Action

Numerous plaintiffs claiming to have acquired CUC o r Cendant securities filed lawsuits against Cendant a nd others alleging, inter alia, federal securities law violations. By an order of the Judicial Panel on Multidistrict Litigation
the suits were transferred to the United States Dis trict Court for the District of New Jersey and then conso lidated. The District Court appointed the California Public Employees' Retirement System, the New York State Common Retirement Fund, and the New York City Pensi on Funds as Lead Plaintiff.1 See In re Cendant Corp. L itig., 182 F.R.D. 144 (D.N.J. 1998). The District Court later approved the law firms of Barrack, Rodos & Bacine and Bernst ein Litowitz Berger & Grossman LLP to be Lead Counsel f or the class. See In re Cendant Corp. Litig., 191 F.R.D. 3 87 (D.N.J. 1998).

C. The Amended and Consolidated Class Action Complaint

On December 14, 1998, the Lead Plaintiff filed an amended and consolidated class action complaint ("Amended Complaint") on behalf of all persons and entitieswho purchased or acquired Cendant or CUC publiclytraded securities, excluding the PRIDES securities, 2 during the period of May 31, 1995 through August 28, 1998

___________________________________________________ ______________

1. We refer to Lead Plaintiff in the singular for t he reasons explained at In re Cendant Corp. Sec. Litig., Nos. 00-2520 et al ., Opinion at 19 n.3.

2. The term "PRIDES securities" refers to a derivat ive security based on Cendant common stock. The District Court separated all claims brought by holders and former holders of the PRIDES securit ies and appointed a different lead plaintiff and counsel. The PRIDES cl aims were settled on March 17, 1999 for $341.5 million in Cendant securi ties and the District Court approved the PRIDES settlement. See In re Cen dant Corp. PRIDES Litig., 51 F. Supp. 2d 537 (D.N.J. 1999), vacated i n part by 243 F.3d 722 (3d Cir. 2001) (vacating attorneys' fees award).

6("Class Period"). The Amended Complaint named as

defendants Cendant, 12 individuals who were former officers and/or directors of CUC (the "CUC Individu al Defendants"),3 16 individuals who were former offic ers and/or directors of HFS (the "HFS Individual Defend ants"),4 and Ernst & Young ("E&Y"), which had been CUC's independent public accountant before the merger.

The Amended Complaint alleged that Cendant (as successor to CUC), E&Y, and certain of the CUC and HFS
Individual Defendants made numerous false and misle ading statements during the Class Period, in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U. S.C. S 78j(b), and Rule 10b-5, 17 C.F.R. S 240.10b-5. Specifically, a number of SEC filings and press rel eases issued by CUC allegedly overstated its revenues and operating income for 1995, 1996, and 1997 through improper accounting practices, which allegedly viol ated Generally Accepted Accounting Principles and were concealed by the defendants.

The Amended Complaint alleged that all of the defendants except Anne Pember and Scott Forbes caus ed the August 28, 1997 Registration Statement issued i n conjunction with the CUC/HFS merger to contain fals e and misleading statements, in violation of Section 11 o f the Securities Act of 1933, 15 U.S.C. S 77k. The Amende d Complaint next alleged that Cendant violated Sectio n 12(a)(2) of the Securities Act, 15 U.S.C. S 77l(a)( 2), by selling securities through a false and misleading prospectus. The Amended Complaint further alleged violations by certain of the individual defendants of Section 15 of the Securities Act, 15 U.S.C. S77o, Section 2 0(a) of

___________________________________________________ ______________

3. The CUC Individual Defendants are Walter A. Forb es, E. Kirk Shelton, Christopher K. McLeod, Cosmo Corigliano, Anne M. Pe mber, Burton C. Perfit, T. Barnes Donnelley, Stephen A. Greyser, Ke nneth A. Williams, Barlett Burnap, Robert P. Rittereiser, and Stanley M. Rumbough, Jr.

4. The HFS Individual Defendants are Henry R. Silve rman, John D. Snodgrass, Michael P. Monaco, James E. Buckman, Sco tt E. Forbes, Steven P. Holmes, Robert D. Kunisch, Leonard S. Col eman, Christel DeHaan, Martin L. Edelman, Brian Mulroney, Robert E . Nederlander, Robert W. Pittman, E. John Rosenwald, Jr., Leonard Schutzman, and
Robert F. Smith.

7the Securities Exchange Act, 15 U.S.C. S 78t(a), Se ction 20A

of the Securities Exchange Act, 15 U.S.C. S 78t-1, and Section 14(a) of the Securities Exchange Act, 15 U. S.C. S 78n(a), and Rule 14a-9, 17 C.F.R. S 240.14a-9.

D. Class Certification, Notice, and Settlement Negotiations

Concurrent with the filing of the Amended Complaint
, Lead Plaintiff filed a motion to certify the class pursuant to Fed. R. Civ. P. 23(a) and (b)(3), which the Distric t Court granted on January 27, 1999. Lead Counsel began
settlement discussions with Cendant and the HFS Individual Defendants in June 1999, and Lead Counse l began settlement discussions with E&Y in the subseq uent
months.

On December 7, 1999, several months after notice to the class of the pendency of the class action, Cendant, the HFS Individual Defendants, and the Lead Plaintiff advis ed the District Court that they had agreed to a settlement . Shortly thereafter, E&Y and the Lead Plaintiff informed the court that they too had settled. On March 17, 2000, the s ettling parties executed a Stipulation of the Settlement.

E. Terms of the Settlement and Plan of Allocation

The settlement with Cendant and the HFS Individual Defendants provides for a payment by Cendant to the class of $2,851,500,000 in cash, provides for an addition al payment of 50% of any recovery by Cendant and the H FS Individual Defendants in their cross-claims against E&Y, and imposes certain corporate governance changes on Cendant. These changes include constituting Cendant 's Board of Directors with a majority of independent d irectors, constituting the Audit, Nominating, and Compensatio n Committees of the Board entirely with independent directors, and providing for the annual election of all directors. In exchange, the class members would rel ease all
claims that were filed or could have been filed in the action against Cendant, the HFS Individual Defendants, and the
CUC Individual Defendants.

As part of the Stipulation of Settlement, Cendant, the HFS Individual Defendants, and the Lead Plaintiff a greed to

8request the District Court to approve the settlemen t as fair,

reasonable, and adequate. In addition, these partie s asked the court to permanently bar all claims for contrib ution pursuant to the Private Securities Litigation Refor m Act (hereafter "Reform Act"), specifically the provisio n codified at 15 U.S.C. S 78u-4(f)(7)(A), and as may be provid ed by applicable federal and state statutes or common law

. However, the parties also asked the court to declar e that the settlement was not a waiver or release of any c laims that could be brought by Cendant against E&Y or any current or former officer or director of CUC, HFS, or Cendant.

The E&Y settlement provides for a cash payment of $335,000,000 to the class. In conjunction with the Cendant and E&Y settlement, the Lead Plaintiff proposed a P lan of Allocation covering what each class member would re ceive
from the settlement. Neither the E&Y settlement nor the Plan of Allocation is at issue in Deutch's appeal.

F. Settlement Notice, Objections, and Approval

The District Court granted preliminary approval of both settlements on March 29, 2000, and Lead Plaintiff proceeded with the required notices of settlement o f class actions, mailing over 478,000 to class members and publishing notices in national newspapers and media . Only four class members objected to the settlements and/ or the
Plan of Allocation.

Martin Deutch, who was not a member of the class bu t rather a current shareholder of Cendant, also objec ted and
moved to intervene as a current shareholder and a derivative action plaintiff.5 Deutch objected on the following grounds:

___________________________________________________ ______________

5. Deutch had earlier commenced a derivative action in the District Court on behalf of Cendant against several of the C UC and HFS Individual Defendants who were officers and/or dire ctors of Cendant. Deutch alleged that the individual defendants breac hed their fiduciary duty of loyalty because, acting on insider informat ion, they sold over

four million shares of Cendant stock at artificially inf lated prices in order

to realize over $180 million for their personal gain, and that they breached their fiduciary duties of loyalty, good faith, and due care in mismanaging

9(1) Cendant was not adequately represented i n the

class action because 13 of the 14 members of Cendant's board of directors that negotiated and approved the settlement were also defendants in the class action and therefore operated under a conflict of interest;

(2) The settlement was grossly unfair to Cen dant and
its current shareholders because it eliminat ed valuable contribution claims against the individual d efendants without any meaningful payment into the sett lement by these defendants;

(3) The settlement failed to allocate the po rtion of Cendant's $2.85 billion settlement that was

___________________________________________________ ______________

and wasting corporate assets. Deutch also alleged t hat Bear Stearns Companies, Inc. and its subsidiary, Bear Stearns an d Co., Inc., were grossly negligent in advising HFS on the Cendant me rger.

Several defendants moved to dismiss the complaint. On August 9, 1999, the District Court held that Deutch need not have made a demand to Cendant's board of directors to bring that actio n because any such demand would have been futile. However, the court d ismissed the claims against the Bear Stearns defendants on the basis th at Deutch lacked standing to sue on behalf of HFS. See In re Cendant Corp. Derivative Action Litig., 189 F.R.D. 117 (D.N.J. 1999).

After the Cendant settlement was announced, Deutch moved for partial summary judgment against the individual def endants, arguing
that these defendants violated Section 11 of the 19 33 Securities Act, 15 U.S.C. S 77k(f), and were liable to Cendant for con tribution under Section 11(f) for monies to be paid out in the sett lement. On April 14, 2000, the District Court denied summary judgment, h olding that Deutch's motion for summary judgment was not ripe f or consideration because any right to contribution is inchoate until after settlement has been approved and Cendant has paid more than its fa ir share of the settlement. See In re Cendant Corp. Derivative Acti on Litig., 96 F. Supp. 2d 394, 397 (D.N.J. 2000). The court also noted tha t Deutch's derivative action complaint did not include any allegations pe rtaining to Cendant's
decision to settle or the structure of the settleme nt. See id. at 399. The court later imposed Rule 11 sanctions on Deutch's a ttorney for improperly moving for summary judgment. See In re C endant Corp. Derivative Action Litig., 96 F. Supp. 2d 403 (D.N.J . 2000). That action remains pending.

10attributable to Section 11 claims, which was critical for

determining the value of the contribution cl aims that will remain if the settlement is approved;

(4) The settlement constituted an illegal in demnification
of individual officers and directors of Cend ant, CUC, and HFS;

(5) The Notice of Settlement was defective b ecause it
did not inform current Cendant shareholders that certain derivative claims would be compromis ed and that contribution claims by Cendant against the HFS
defendants would be barred.

On June 28, 2000, the District Court conducted a fairness hearing at which the objectors were given an opportunity to be heard. On August 15, 2000, the Di strict Court issued two opinions rejecting the objections and approving the Cendant and E&Y settlements and the P lan of Allocation. See In re Cendant Corp. Sec. Litig., 109 F. Supp. 2d 235 (D.N.J. 2000) (rejecting the class mem bers' objections); In re Cendant Corp. Sec. Litig., 109 F . Supp. 2d 273 (D.N.J. 2000) (rejecting Deutch's objections).

In the corresponding judgment approving the Cendant settlement, the court ordered that "[a]ll actions a nd claims for contribution are permanently barred, enjoined a nd finally discharged (i) as provided by 15 U.S.C.S 78 u4(f)(7)(A), and (ii) as may be provided by applicab le federal or state statutes or common law." App. at 16. Moreo ver, the court noted that "this Judgment shall not be deemed a waiver or release of and shall not preclude Cendant

. . . from asserting any claims . . . against E&Y, its pr esent or former officers, directors, partners and employees, or against any current or former officers or directors of CUC, HFS or Cendant, either in the form of a cross-claim
, counterclaim, third-party complaint, or other form. " App. at
16.

Deutch filed a timely appeal. On appeal, he makes t he following arguments:

(1) The District Court erred by refusing to consider whether the settlement was fair to Cendant, where the corporation was effectively unrepresented in connection

11with the settlement because its board of dir ectors faced

personal liability in the class action and t herefore operated under a conflict of interest;

(2) The District Court erred by entering a c ontribution
bar order in favor of the HFS Individual Def endants without first determining whether their paym ent into the settlement was sufficient to extinguish their liability;

(3) The District Court failed to analyze the fairness or adequacy of the HFS Defendants' settlement s eparately
in order to ensure that the settlement did n ot impair the rights of Cendant, which will lose valua ble contribution rights;

(4) The District Court erred by denying Deut ch's motion to intervene as of right under Fed. R . Civ. P. 24(a) in order to protect Cendant's and its current shareholders' rights to contribution;

(5) The District Court erred by approving th e Notice of Settlement which failed to notify current Ce ndant
shareholders that Cendant's contribution cla ims were being abrogated under the settlement;

(6) The District Court allowed Cendant to as sume the bulk of the settlement payment, thereby perm itting an illegal indemnification of individual defend ants for the substantial federal securities law claims pe nding against them;

(7) The District Court failed to determine w hat portion
of the settlement was attributable to Sectio n 11 of the 1933 Securities Act, 15 U.S.C. S 77k.

II.

DISCUSSION

A. Jurisdiction and Standard of Review

We have jurisdiction under 28 U.S.C. S 1291. We wil l uphold a district court's approval of a class actio n settlement unless there has been an abuse of discre tion.

12See In re General Motors Corp. Pick-Up Truck Fuel T ank

Prod. Liability Litig., 55 F.3d 768, 782-83 (3d Cir . 1995) (hereafter In re GM Trucks).

B. Relevance of Settlement's Fairness, Reasonablene ss, and Adequacy to Cendant

Deutch's principal objection to the settlement is t hat the District Court evaluated it without considering Cen dant's
interests. Deutch contends that the District Court was required by Fed. R. Civ. P. 23(e) to consider the s ettlement's fairness, reasonableness, and adequacy with regard to Cendant because the majority of its board of direct ors suffered a serious conflict of interest at the time the board agreed to settle. He alleges that 13 of Cendant's 1 4 board members at that time faced personal liability in th e class action, effectively making Cendant an unrepresented party
in the settlement.6

The District Court rejected Deutch's view of its responsibility. It stated that Rule 23 "requires co urt scrutiny of settlements to protect absent class mem ber," and that "[t]he standard is whether the settlement is fair, reasonable and adequate to the class." In re Cendan t Corp. Sec. Litig., 109 F. Supp. 2d at 280. The court note d that in
In re Prudential Ins. Co. of Am. Sales Practices Li tig., 148 F.3d 283 (3d Cir. 1998), we stated that "Rule 23(e) imposes on the trial judge the duty of protecting absentees , which is executed by the court's assuring the settlement rep resents adequate compensation for the release of the class claims." Id. at 316 (quotation omitted). It cited other cour ts of appeals' decisions that had taken a similar view. S ee, e.g., In re Jiffy Lube Sec. Litig., 927 F.2d 155, 159 (4t h Cir. 1991) ("[F]or Rule 23(e) to be satisfied, the court must determine only that sufficient compensation is bein g paid to the class, without necessarily speculating as to th e

___________________________________________________ ______________

6. Deutch has not specified the individual defendan ts to whom he referred but it appears, from the subsequent deriva tive action filed in Delaware by his counsel on behalf of a different pl aintiff, that they are Henry Silverman, Martin Edelman, John Snodgrass, Ja mes Buckman, Michael Monaco, Stephen Holmes, Brian Mulroney, Rob ert Nederlander, Robert Pittman, Robert Smith, Leonard Coleman, Leon ard Schutzman,

and Robert Schutzman.

13appropriateness of the contributions of the various settling

defendants."); In re Warner Comm. Sec. Litig. , 798 F.2d 35, 37 (2d Cir. 1986) ("If the total compensation to cl ass members is fair, reasonable, and adequate, the cour t is not required to supervise how the defendants apportion liability for that compensation among themselves.").

The District Court declined to apply the "entire fa irness" standard advocated by Deutch, which the court belie ved would require it to "substitute its judgment for th e judgment of Cendant's board to determine whether th e settlement is in the company's best interest." In r e Cendant Corp. Sec. Litig., 109 F. Supp. 2d at 280. Instead, it held that any claim that the Cendant settlement is unfai r to
Cendant and its current shareholders should be brou ght as a derivative action under Delaware corporate law. S ee id.

Deutch argues that our decision in Eichenholtz v. Brennan, 52 F.3d 478 (3d Cir. 1995), requires consi deration of the interests of persons other than class member s. Eichenholtz involved a securities fraud class actio n brought against International Thoroughbred Breeders ("ITB")
, individual members of ITB's Board of Directors, and three registered brokers. ITB and the individual board me mbers negotiated a settlement with the class, which conta ined a provision that would prevent the non-settling defen dants from commencing any claim for contribution or indem nity against the settling defendants. The non-settling d efendants appealed from the district court's approval of the settlement as being fair, reasonable, and adequate to the clas s and

ITB.

In our opinion on appeal, we stated that "[w]here t he rights of third parties are affected, it is not eno ugh to
evaluate the fairness of the settlement to the sett ling parties; the interests of such third parties must b e considered." Id. at 482. That is the language on wh ich Deutch relies, but he takes it out of context. In r esponse to the argument by the settling parties that the non-s ettling defendants had no standing, we held that the non-se ttling defendants did have standing to object because they claimed to have "suffered a cognizable prejudice by the approval of the partial settlement." Id. at 483. We ultimately held that the non-settling defendants would not be

14prejudiced because they would be responsible only f or their

portion of the liability. See id. at 487. Therefore we affirmed the district court's approval of the partial settle ment.

Cendant does not stand in the position of a non-set tling defendant or an unrepresented third party whose rig hts are affected by the settlement. Quite the contrary. Cen dant is a settling defendant. Therefore, Eichenholtz does n ot control our disposition of this case.

Deutch also cites to Judge Newman's concurrence in In re Warner Comm. Sec. Litig., 798 F.2d 35, 37 (2d Ci r. 1986). In that case, a class member who still owned stock in Warner Communications, Inc. sought to overturn the district court's approval of a securities fraud cla ss action settlement against Warner, one of its subsidiaries, and
certain of their officers and directors. The class member argued, much like Deutch argues now, that the distr ict court should have compelled a greater contribution from the individual defendants. The Court of Appeals for the Second Circuit affirmed the district court's approv al of the settlement after noting that the district court's f iduciary
duties covered the class members and not the defend ants.
See id. at 37.

In a separate concurring opinion, Judge Newman agre ed with the majority that "normally, once a district c ourt is satisfied that the total compensation paid to class members
in settlement of a class action is fair and reasona ble, the
court need not be concerned as to how the defendant s apportion liability for the settlement among themse lves." Id. at 38 (Newman, J., concurring). He then noted:

[I]n a case such as this, where the apportio nment between corporate and individual defendants can have economic significance for a shareholder-clai mant, some scrutiny of the portion contributed by a cor porate defendant normally would be appropriate. In such circumstances, a settlement might well be sh own to be unreasonable to a shareholder if the corpora te
defendant contributed so much more than a fa ir share as to cause a discernable incremental pro ra ta decline
in the value of the shareholder's stock belo w the
reduction attributable to a fair contributio n.

15Id. Judge Newman's view apparently did not convince his

colleagues but he ultimately concurred with the jud gment of the majority because the Delaware Court of Chanc ery had already determined in a derivative action that the
allocation of the settlement's burdens between the corporation and the individual defendants was fair. See id.

To the extent that Judge Newman's view was that the fairness of the allocation between the corporation and other
defendants is an issue to be considered in a deriva tive action, we agree. Deutch's allegations that Cendant was unrepresented in the settlement negotiations becaus e a majority of its board of directors operated under a conflict
of interest and that Cendant's board members breach ed their duty of loyalty are best made in a shareholde r derivative action. See, e.g., Wolf v. Barkes, 348 F .2d 994, 996 (2d Cir. 1965) ("A new derivative suit against management for fraud or waste in releasing corporat e claims for inadequate payment can redress improper settlements even without setting them aside."); In re Warner Comm. Sec. Litig., 618 F. Supp. 735, 753 (S.D.N.Y. 1985) ("If [the objector] believes that the settlement is unfair to Warner he should pursue his objection in the Delawa re Chancery Court . . . . This Court is concerned sole ly with the fairness of the settlement to the class."), aff 'd, 798 F.2d 35 (2d Cir. 1986) (noting that the Delaware Chancer y Court had already resolved the issue of apportionment of the burdens of the settlement between the corporations and their officers).

Significantly, counsel for Cendant informed us at o ral argument that the same counsel for Deutch in this a ppeal
has commenced a derivative action in Delaware Chanc ery Court on behalf of a different Cendant shareholder. That action, entitled Resnik v. Silverman et al., Civ. A . No. 18329 (Del. Ch. filed Sept. 19, 2000), includes the alleg ation that
13 of the HFS Individual Defendants breached their duties of loyalty and good faith by causing Cendant to obt ain releases of their personal liability when settling the class action. Thus, the derivative action plaintiff will have an opportunity to make the same argument that Deutch i s trying to make here.

16In so holding, we are not convinced by Deutch's

contentions that the state law derivative action wi ll be inadequate to protect Cendant's rights. Deutch asse rts that a derivative action is not the functional equivalen t of a contribution claim, but, as his counsel conceded at oral argument, the alleged damages in the derivative act ion are
similar to those in a contribution claim.

Deutch also argues that a state law derivative acti on plaintiff will face significant roadblocks to Cenda nt's recovery from the directors for their fair share of liability. He first notes that a derivative action plaintiff w ill have to satisfy the demand requirement. See Aronson v. Lewi s, 473 A.2d 805, 811-12 (Del. 1984) (recognizing that the demand requirement "exists at the threshold, first to insu re that a stockholder exhaust his intracorporate remedies, an d then to provide a safeguard against strike suits"). This is a generally applicable requirement for any derivative action and does not make the derivative action inadequate. Next, Deutch complains that Delaware law allows Cendant's
officers and directors to seek indemnification. If so, that reflects the policy of the state corporation law bu t does not provide a basis for objection by current shareholde rs to a
class action settlement.

We believe that the District Court correctly identi fied the applicable law - under Fed. R. Civ. P. 23(e), court s must determine whether the settlement is fair, reasonabl e, and adequate to the class. The fiduciary duty to the cl ass exists because the very nature of the class action device prevents many who have claims from directly participating in the litigation process. See In re GM Trucks, 55 F.3d at 805 ("Rule 23(e) imposes on the trial judge the duty of protecting absentees."); see also 2 Herbert Newberg & Alba Conte, Newberg on Class Actions S 11.46, at 11-105 to 11- 106 (3d ed. 1992) ("The court must be assured that the settlement secures an adequate advantage for the cl ass in return for the surrender of litigation rights again st the defendants."). Deutch has not persuaded us that the court's fiduciary duty under Rule 23(e) should be e xtended to include defendant corporations even if they may be controlled by individuals who have conflicts of int erest.

17Deutch has made several other arguments that requir e

little discussion. He argues that the Notice of Set tlement
was deficient because it failed to inform current C endant
shareholders that the settlement would eliminate Ce ndant's rights to contribution. However, Deutch fails to sh ow that current Cendant shareholders who were not part of t he
class should have been notified of the settlement. Rule 23(e) requires only that "notice of the proposed dismissa l or compromise [of the class action] shall be given to all members of the class." Because there is no requirem ent imposed by Rule 23(e) or our case law to inform cur rent shareholders of corporate defendants of the settlem ent or the allocation, we reject Deutch's objection to the Notice of

Settlement.

Deutch also argues that the District Court erred by denying his motion to intervene as of right, becaus e he had a right to intervene as a derivative action plainti ff to protect Cendant's rights to contribution.7 Under Fed. R. Ci v. P. 24(a), an applicant can intervene as of right "when the applicant claims an interest relating to the proper ty or transaction which is the subject of the action and the applicant is so situated that the disposition of th e action may as a practical matter impair or impede the appl icant's ability to protect that interest, unless the applic ant's interest is adequately represented by existing part ies."
Inasmuch as we have declined to hold that Cendant w as unrepresented in the settlement negotiations, we se e no reason why Deutch is entitled to intervene in order to object

to the settlement on behalf of Cendant. As we noted above, the proper forum for Deutch's allegations is a deri vative

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7. In addition, Deutch argued before the District C ourt that he could intervene as of right in order to protect his inter est as a current
Cendant shareholder. The District Court rejected this argum ent, stating that the logical result would be that a corporation could no t settle any lawsuit against it without first obtaining the approval of every shareholder. See In re Cendant Corp. Sec. Litig., 109 F. Supp. 2d at 277. Although Deutch listed this issue in his statement of issues on app eal, he did not argue the point in his brief and therefore we will not co nsider it. See Travitz

v. Northeast Dep't ILGWU Health & Welfare Fund, 13 F.3 d 704, 711 (3d Cir. 1994) ("When an issue is not pursued in the argumen t section of the brief, the appellant has abandoned and waived that issue on appeal.").

18action against Cendant's board members for breach o f

fiduciary duties. Therefore, the District Court did not err in denying Deutch's motion to intervene as of right in the class action and granting him only permissive inter vention under Rule 24(b).

C. Allocation of the Burdens of Settlement

Deutch's remaining contentions stem primarily from his belief that Cendant may have paid more than its fai r share
of the settlement to the benefit of the HFS Individ ual Defendants. He argues first that the District Court should
not have released the HFS Individual Defendants fro m certain contribution claims that could have been br ought by Cendant without first determining whether the HF S Individual Defendants paid their fair share into th e settlement.

The District Court's order approving the settlement provides that "[a]ll actions and claims for contrib ution are permanently barred, enjoined and finally discharged (i) as provided by 15 U.S.C. S 78u-4(f)(7)(A), and (ii) as may be provided by applicable federal or state statutes or common law." App. at 16. The court added that "this Judgme nt shall
not be deemed a waiver or release of and shall not preclude Cendant . . . from asserting any claims . . . again st E&Y, its present or former officers, directors, partners and employees, or against any current or former officer s or directors of CUC, HFS or Cendant, either in the for m of a cross-claim, counterclaim, third-party complaint, o r other form." App. at 16.

In entering the contribution bar, the District Cour t believed itself bound by the settlement discharge p rovision of the Reform Act which provides:

A covered person who settles any private act ion at any time before final verdict or judgment shall be discharged from all claims for contribution brought by other persons. Upon entry of the settlement by the court, the court shall enter a bar order con stituting the final discharge of all obligations to the pl aintiff of the settling covered person arising out of the a ction. The
order shall bar all future claims for contri bution arising
out of the action -

19(i) by any person against the settling cover ed person;

and

(ii) by the settling covered person against any person, other than a person whose liability has been extinguished by the settlement of the settli ng covered

person.

15 U.S.C. S 78u-4(f)(7)(A).

Deutch reads the language of subsection (ii) to mea n that "only a person who has paid to extinguish his own l iability - i.e., one whose liability is not extinguished by the payment of another - is entitled to a contribution bar." Br. of Appellant at 32. In his view, because the HFS In dividual Defendants have not paid their fair share into the settlement, they are not entitled to a contribution bar but
rather are liable for contribution claims from Cend ant.

We acknowledge at the outset that there is some que stion as to the scope of the contribution bar imposed by the
District Court. The District Court's order does not identify by name those parties who are covered by the contri bution bar. However, in its opinion denying Deutch's motio n to intervene as of right the court stated, "[a]ll part ies concede that the HFS Individual Defendants are covered by t he contribution bar for Section 10(b) claims and outsi de HFS
defendant-directors for Section 11 claims as well. Disputed is the impact of the bar on the CUC Individual Defe ndants who arguably are not parties to settlement but whos e liability to the plaintiff class is extinguished by the settlement as structured." In re Cendant Corp. Sec. Litig., 109 F. Supp. 2d at 277 n.4.

The issue of the contribution bar is raised by Deut ch because he argues that the District Court erred in imposing
a contribution bar in favor of the HFS Individual Defendants without first determining if they had pa id their fair share into the settlement. However, we believe this is an inappropriate time to flesh out the various unce rtainties with respect to the scope of the contribution bar. Because no party has yet filed a claim for contribution, th e District Court was not required to decide the issue raised h ere by
Deutch.

20It is not necessary to determine who is covered by the

contribution bar in order to address Deutch's argum ent
that the District Court should have determined if t he HFS Individual Defendants paid their fair share into th e settlement before imposing a contribution bar in th eir favor. Nothing in the text of 15 U.S.C. S 78u-4(f)(7)(A) o r in the legislative history of the Reform Act suggests that there is such a requirement, see H.R. Conf. Rep. No. 104-369 (1995), reprinted in 1995 U.S.C.C.A.N. 730; S. Rep. No. 104-98 (1995), reprinted in 1995 U.S.C.C.A.N. 679, and we decline to impose one in this case.

Deutch argues that such a requirement is supported by the Reform Act's policy of favoring proportionate l iability among wrongdoers. The proportionate liability provi sions of the Reform Act do not support Deutch's argument, as they merely state that "a covered person against whom a final judgment is entered in a private action shall be li able solely for the portion of the judgment that corresponds to the percentage of responsibility of that covered person ." 15 U.S.C. S 78u-4(f)(2)(B)(i).8 Thus, when there is a final judgment in an action where other defendants have previously settled, i.e., a partial settlement,"the verdict or judgment shall be reduced by the greater of - (i) a n amount that corresponds to the percentage of responsibilit y of that [settling] covered person; or (ii) the amount paid to the

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8. The Act further provides:

In any private action, the court shall instr uct the jury to answer special interrogatories, or if there is no j ury, shall make findings, with respect to each covered person and each of the other persons claim by any of the parties to have caused o r contributed to the

loss incurred by the plaintiff, including persons who have entered into settlements with the plaintiff or plaintiffs , concerning-

(i) whether such person violated the securit ies laws;

(ii) the percentage of responsibility of suc h person, measured as a percentage of the total fault of all persons who caused or contributed to the loss incurred by the plai ntiff; and

(iii) whether such person knowingly committe d a violation of the
securities laws.

15 U.S.C. S 78u-4(f)(3)(A).

21plaintiff by that [settling] covered person." 15 U. S.C. S 78u4(f)(7)(B). Such a reduction is appropriate because nonsettling defendants would otherwise be prejudiced i f they were held fully liable for the entire amount of the verdict or judgment. The situation before us is different beca use there
has been a full settlement of claims.

Two of the cases on which Deutch relies, Eichenholt z v. Brennan, 52 F.3d 478 (3d Cir. 1995), and TBG, Inc. v. Bendis, 36 F.3d 916 (10th Cir. 1994), both involved partial settlements in which non-settling defendants would have been prejudiced if proportionate fault had not been determined. However, neither Eichenholtz nor TBG discusses the situation where the parties have nego tiated a full settlement of claims, and where the rationale behind proportionate fault reduction in partial settlement s (avoiding prejudice to non-settling defendants) is inapplicable. Indeed, one of the benefits of a full settlement
is the avoidance of a determination of the merits. See, e.g., Young v. Katz, 447 F.2d 431 (5th Cir. 1971) ("In ex amining a proposed compromise for approval or disapproval u nder Fed. R. Civ. P. 23(c) the court does not try the ca se. The very purpose of compromise is to avoid the delay an d expense of such a trial.") (quotation omitted). Mor eover, both Eichenholtz and TBG were decided before the applicable date of the Reform Act.

Inapplicable here for the same reasons are United S tates v. Alcan Aluminum, Inc., 25 F.3d 1174 (3d Cir. 1994 ), and Herbst v. International Tel. & Tel. Corp., 72 F.R.D . 85 (D. Conn. 1976), where releases of contribution claims were negotiated by the parties. That the Reform Act sign ificantly changed the law of securities fraud since Herbst a nd the other cases on which Deutch relies cannot be gainsa id. We therefore find no support for Deutch's position in the cases
he cites.

The District Court's order approving the settlement takes great care in preserving to Cendant any claims "aga inst any current or former officers or directors of CUC, HFS or Cendant, either in the form of a cross-claim, count erclaim, third party complaint, or other form." App. at 16. Thus, the settlement itself should not prejudice a derivative action plaintiff, and the District Court did not err in re jecting

22Deutch's claim that the court should not impose a

contribution bar in favor of the HFS Individual Def endants without first determining if they have paid their f air share
into the settlement.

Deutch relies on language in our decision in Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975)9 to support hi s contention that the District Court was required to analyze
the value of the contribution of the HFS Individual Defendants. The language to which Deutch refers 10 was directed to our concern that the district court had approved a class action settlement without providing an adeq uate
record that would enable us to fulfill our review f unction.

Unlike the situation in Girsh, there was no deficie ncy in
the record in this case. The District Court conside red the nine Girsh factors before finding the Cendant settl ement to be fair, reasonable, and adequate. The court recogn ized that questions had been raised about the value of t he HFS
Individual Defendants' contribution and noted that" the HFS Defendants have agreed to contribute to the cla ss 50%

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9. In Girsh, we set forth nine factors that should be considered in
connection with a class action settlement's fairnes s, reasonableness, and adequacy. The nine Girsh factors are: (1) the compl exity, expense, and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and th e amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through the trial; (7) the ability of the defendant s to withstand a greater judgment; (8) the range of reasonableness of the se ttlement fund in light of the best possible recovery; and (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation. See id. at 156-57.
10. We noted:

The district court did not specifically deal with the Gluck

settlement and we are, therefore, at a loss and without the benefit of its analysis as to why $10,000.00 was a fair and adequate settlement of all claims against defendant Gluck. It ma y be that the $10,000.00 contribution is overly generous. On the othe r hand, it may be grossly inadequate. The determination as to the fairness of this aspect of the settlement must depend upon fa cts still to be developed.

Id. at 159 (emphasis in original).

23of any recovery against E & Y." In re Cendant Corp. Sec.

Litig., 109 F. Supp. 2d at 284. In its opinion reje cting the objections of the class members, the District Court stated: "The Court recognizes that this recovery is inchoat e but once again affirms that it is not `illusory.' This does not mean that valuation is impossible, but only difficu lt." In re Cendant Corp. Sec. Litig., 109 F. Supp. 2d at 256. As Deutch notes, the court stated that it need not con sider the "added value from recovery against E & Y" before it held that the Cendant settlement was fair, reasonable, a nd adequate. Id. This did not amount to an abuse of th e court's discretion.

Deutch further argues that the HFS Individual Defendants' promise to give 50% of their recovery a gainst E&Y to the class was illusory. He states that "the settlement creates no obligation for the HFS Defend ants to prosecute the suit after the settlement is final or to guarantee some minimum amount commensurate with their liability - even though the other parties hav e fully complied with their obligations." Br. of Appellant at 44.

However, implicit in the settlement is a promise to make a good faith effort to seek recovery against E&Y. S ee Russell v. Princeton Labs., Inc., 50 N.J. 30, 38, 231 A.2d 800, 805 (1967) ("A contract should not be read to vest a pa rty . . . with the power virtually to make his promise illuso ry."); Nolan v. Control Data Corp., 243 N.J. Super. 420, 4 31, 579 A.2d 1252, 1258 App. Div. (1990) (implying a good f aith requirement because a "[l]iteral interpretation of these clauses would go far towards making these contracts illusory, a result which courts usually seek to avo id"); 2 Joseph M. Perillo & Helen Hadjiyannakis Bender, Cor bin on Contracts S 5.28, at 149-50 (rev. ed. 1995) ("An im plied obligation to use good faith is enough to avoid the finding of an illusory promise.").11

Deutch also argues that the District Court was requ ired, but failed, to determine the amount paid into the

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11. We note that Cendant and the HFS Individual Def endants subsequently did file cross-claims against E&Y and were for the most part successful in overcoming E&Y's motion to dismi ss. See In re Cendant Corp. Sec. Litig., 139 F. Supp. 2d 585 (D.N .J. 2001).

24settlement to release the claims brought under Sect ion 11

of the 1933 Securities Act, 15 U.S.C. S 77k(f). He contends that this determination was necessary because the contribution bar mandated by 15 U.S.C. S 78u-4(f) c annot bar "contribution claims for S 11 violations agains t inside directors . . . under any circumstance." Reply Br. of Appellant at 16.12

Once again, we conclude that whether, and to what extent, the HFS Individual Defendants are covered u nder the contribution bar is better presented in a contr ibution claim, if any, brought by Cendant, E&Y, or the CUC Individual Defendants against those defendants. We need only hold that the District Court was not required under the Reform Act or Rule 23(e) to apportion the settl ement according to the plethora of claims raised in the c lass action. See, e.g., Cotton v. Hinton, 559 F.2d 1326, 1330 (5th Cir. 1977) ("It cannot be overemphasized that neith er the trial court in approving the settlement nor this Co urt in reviewing that approval have the right or the duty to reach any ultimate conclusions on the issues of the fact and law which underlie the merits of the dispute.") (quotat ion omitted).

Finally, Deutch argues that because Cendant is payi ng the entire cash amount of the settlement, it consti tutes an impermissible indemnification of the HFS Individual Defendants for securities law violations. Deutch ag ain cites to Eichenholtz, 52 F.3d at 483, where we held that there was no express or implied right to indemnification under the federal securities laws and recognized that"fed eral
courts disallow claims for indemnification because such claims run counter to the policies underlying the f ederal
securities acts." Id. at 484.

Ordinarily, indemnification refers to the reimburse ment by a corporation to its directors and officers for liabilities

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12. Deutch apparently refers to 15 U.S.C. S 78u-4(f )(10), which defines "covered person" as "(i) a defendant in any private action arising under this chapter [i.e., Section 10(b) claims]; or (ii) a defendant in any private action arising under section 77k of this title [i.e ., Section 11 claims],

who
is an outside director of the issuer of the securit ies that are the subject
of the action."

25incurred in connection with actions brought against them

in their official capacities. See, e.g., Kirschbaum v. WRGSB Associates, 243 F.3d 145, 156 (3d Cir. 2001). Cenda nt has not reimbursed the HFS Individual Defendants, all o f whom were directors and/or officers of Cendant at some p oint during the class period. Instead, the settlement pr ovides for Cendant to make a direct payment to the class of $2 .85 billion. Deutch has not cited to any case in which a court
has determined that a full settlement of claims amo unted to
an indemnification of certain defendants. Therefore , we decline to hold that the settlement between Cendant , the HFS Individual Defendants, and the Lead Plaintiff
amounted to an indemnification of the HFS Individua l
Defendants.

III.

CONCLUSION

Deutch has not convinced us that his objections to the settlement are supported by the applicable law, nor has he persuaded us that new rules are required for a deri vative action plaintiff. Whether Cendant's board members breached their fiduciary duties to the corporation is best addressed in a derivative action, and not in connec tion with approval of a class action settlement. The District Court was not required by Rule 23 or the Reform Act to co nsider
the effect of the settlement on Cendant nor was it required
to determine the relative fault of the defendants b efore approving the settlement. Therefore, we hold that t he District Court did not abuse its discretion in reje cting Deutch's objections to the settlement.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

26