Court Opinion

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Opinions of the United
2000 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

12-1-2000

In Re: Cendant Corp Prides Litigation
Precedential or Non-Precedential:

Docket 00-1822

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Recommended Citation
"In Re: Cendant Corp Prides Litigation" (2000). 2000 Decisions. Paper 242.
http://digitalcommons.law.villanova.edu/thirdcircuit_2000/242

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Filed December 1, 2000

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 00-1822

IN RE: CENDANT CORPORATION PRIDES LITIGA TION

WELCH & FORBES, INC., an institutional investment
manager, individually and on behalf of all others similarly
situated

v.

CENDANT CORPORATION; MERRILL LYNCH & CO.;
CHASE SECURITIES, INC.; HENRY R. SILVERMAN;
WALTER A. FORBES; COSMO CORIGLIANO

       CHASE MANHATTAN BANK, as
       custodian for Capital Income Builder,
       Inc.; INCOME FUND OF AMERICA,
       INC.; CAPITAL WORLD GROWTH AND
       INCOME, INC.,
       (Pursuant to Rule 12(a), F.R.A.P.)
       Appellants

Appeal from the United States District Court
for the District of New Jersey
(D.C. Civ. No. 98-cv-02819)
District Judge: Honorable William H. W alls

Argued: October 25, 2000

Before: BECKER, Chief Judge, MANSMANN and
FUENTES, Circuit Judges.

(Filed: December 1, 2000)
       Gerald T. Ford, Esquire (Ar gued)
       Landman, Corsi, Ballaine & Ford
       One Gateway Center
       Suite 400
       Newark, NJ 07102

        Counsel for Appellants

       Michael M. Rosenbaum, Esquire
        (Argued)
       Carl Greenberg, Esquire
       Budd, Larner, Gross, Rosenbaum,
        Greenberg & Sade
       150 John F. Kennedy Parkway
       CN 1000
       Short Hills, NJ 07078-0999

        Counsel for Appellee Cendant
        Corporation

       Roger W. Kirby, Esq.
       Kirby, McInerney & Squire
       830 Third Avenue
       10th Floor
       New York, NY 10022

        Counsel for Appellee Welsch &
        Forbes, Inc.

OPINION OF THE COURT

MANSMANN, Circuit Judge.

Chase Manhattan Bank appeals the District Court's
denial of its Fed. R. Civ. P. 60(b) motion for reconsideration
of the final judgment excluding Chase from the settlement
of a securities fraud action that investors br ought against
Cendant. Chase's portion of the settlement fund, which
would have exceeded $23 million, reverts to Cendant under
the terms of the settlement Stipulation. Specifically, Chase
claims alternatively, either that its handling of its claims
did not constitute neglect on its part, or that the District
Court erred in failing to apply correctly the standards for

                                 2
determining "excusable neglect" in denying Chase's proof of
claim.1

Cendant counters Chase's appeal on numerous gr ounds,
only one of which we need consider in this appeal, the
other claims having been resolved against Cendant in our
opinion in a related case, In re Cendant Corporation Prides
Litigation, No. 00-5199, slip op. (3d Cir . Nov. ___, 2000).2
Cendant's sole remaining counter-ar gument is that the
District Court properly denied Chase the ability to
participate in the settlement because Chase failed to
demonstrate "excusable neglect." Because the facts before
us are incomplete, and because the District Court did not
make clear its reasoning and application of the"excusable
neglect" factors, we find that we do not have a sufficient
basis to review the District Court's ruling for abuse of
discretion. See Gunter v. Ridgewood Ener gy, 223 F.3d 190
_________________________________________________________________

1. We need not reach Chase's arguments regarding its motion to extend
the time for filing an appeal. The District Court disallowed Chase's
claims by an order dated January 14, 2000, and this order was certified
as appealable on February 22, 2000. Chase missed the thirty day period
for filing an appeal from this decision, but later filed a motion asking
the
District Court to extend the time for filing an appeal pursuant to Federal
Rule of Appellate Procedure 4(a)(5). The District Court denied the motion
and Chase appeals. Even if we were to rule in Chase's favor on this
score, however, the most that we could possibly do is consider the record
that was before the District Court on January 14, 2000. See United
States v. Gilchrist, 215 F.3d 333, 339 (3d Cir. 2000) ("An argument not
raised in the district court is not properly pr esented for appellate
review."). Because Chase had provided no excuse for its late cures as of
that date, we would be compelled (on that recor d) to affirm the District
Court's disallowance of Chase's claims.

In light of our disposition, we also need not consider Chase's argument
that the short cure period and the allegedly inadequate notice of the
need to submit excuses to preserve claims worked a due process
violation in this case. Finally, we decline to consider Chase's argument
that its initial proofs of claim were valid.

2. In 00-5199, we concluded that the District Court had retained the
discretion to allow late-filed and late-cur ed claims. Equally applicable
here (though that case involved Fed. R. Civ. P . 6(b)(2) and this case
involves Fed. R. Civ. P. 60(b)) is our second conclusion in 00-5199 that
the appropriate standard under which to evaluate requests to allow tardy
proofs of claim or cures is "excusable neglect."

                               3
(3d Cir. 2000). We will, therefor e, vacate the District Court's
decision and remand this case to the District Court
with directions to undertake a more thor ough
determination, with requisite factualfindings, of whether
the circumstances support Chase's claims of"excusable
neglect."

Because related litigation is already the subject of at least
three published opinions, each exhaustively setting forth
the procedural and factual background, we will not do so
here, but instead refer interested parties to these prior
dispositions.3 We set forth only those facts crucial to a
resolution of the dispute here.

I.

This appeal is one of several which arise out of the large
securities fraud class action (Cendant PRIDES litigation)
involving Cendant and its former officers. In June 1999, the
District Court approved a $340 million settlement of the
Cendant PRIDES class action litigation. Under the terms of
the Stipulation of Agreement of Settlement and
Compromise (the "Stipulation"), Cendant agreed to
distribute one Right, with a theoretical value of $11.71, for
each PRIDES owned as of the close of business on April 15,
1998. See also In re Cendant Corp. Prides Litig., 51 F. Supp.
2d at 539-40. To collect the Rights, each PRIDES owner
was required to submit a valid proof of claim by June 18,
1999. The proofs of claim could take the for m of "monthly
brokerage account statements," or if PRIDES were not held
in brokerage accounts, the form of "business records
maintained in the ordinary course of business." Under the
terms of the Settlement Hearing Order , a settlement
administrator, Valley Forge Administrative Services, was to
verify the proofs of claim. The Rights, which are publicly
traded, expire on February 14, 2001, when, in combination
_________________________________________________________________

3. In re Cendant Corp. Litig., 182F.R.D. 144 (D.N.J. 1998), In re Cendant
Corp. Prides Litig., 51 F. Supp. 2d 537 (D.N.J. 1999), and In re Cendant
Corp. Prides Litig., 189 F.R.D. 321 (D.N.J. 1999), provide a full factual
and procedural history of this litigation.

                               4
with the current PRIDES, they will be exchanged for new
PRIDES.4

Chase is custodian for three mutual funds in which it
held PRIDES: Capital Income Builder, Inc. ("CIB"), Income
Fund of America ("IFA"), and Capital and World Growth and
Income, Inc. ("World Growth"). As of April 15, 1998, Chase
held 400,000 PRIDES for CIB, with a settlement value of
$4,684,000; 1,400,000 PRIDES for IFA, with a settlement
value of $16,394,000; and 220,000 PRIDES for W orld
Growth, with a settlement value of $2,576,200; with a total
of $23,654,200 for all three funds. Pursuant to the terms of
the Stipulation, Chase submitted three timely proofs of
claim to participate in that settlement. For two of the
claims, IFA and World Growth, the administrator requested
of Chase additional documentation, that is, the
administrator sent a Request to Cure. Chase supplied the
additional information, and though it was apparently sent
four days late, the administrator approved the IFA and
World Growth claims.

Cendant moved to disallow Chase's claims and those of
other class members because of various minor filing delays.
Chase alleges that neither Cendant, the PRIDES Class, nor
the District Court, notified it of either that motion or the
resulting Court ruling that claimants had to submit an
excuse for any delay in order to preserve a claim.5 That is
why, maintains Chase, it did not submit an excuse. As a
result, the District Court, on January 14, 2000, denied
Chase's claims. On February 23, 2000, the District Court
certified its January order as final and appealable. As to
_________________________________________________________________

4. Cendant agreed to issue two New Income Prides or two New Growth
Prides to any person who delivered to Cendant three Rights, together
with existing Income or Growth Prides, r espectively, before the
expiration
of the close of business on February 14, 2001, unless the Prides are
amended. Id. Because time is short, the District Court should expedite
its consideration of this case. We also dir ect the Clerk of this Court
that
any further appeals should be assigned to this panel.

5. To support its allegation that alter natively Cendant, the PRIDES
Class, and the District Court at various points failed to send it crucial
notices, Chase asserts that other class members wer e similarly
neglected, and consequently, failed to comply with r equests or to meet
deadlines.

                               5
the CIB claim, though the administrator asserts that it sent
a Request to Cure, Chase claims that the letter was never
received. The administrator denied that claim for failure to
cure.

Chase insists that it first learned of these dispositions in
April of 2000, and on April 24, 2000, filed a motion under
Fed. R. Civ. P. Rule 60(b) to vacate the denial of its claims
and to extend the time to appeal under Rule 4(a)(5). On
June 8, 2000, the District Court denied Chase's motion,
though as Chase notes, the District Court found that
permitting late-curing claimants to participate in the
settlement would not prejudice Cendant.6

II.

Chase challenges the District Court's denial of its 60(b)
motion to permit it to participate in the underlying
settlement. Specifically, Chase asserts on appeal that the
District Court erred in refusing to excuse Chase's delays in
providing excuses for earlier minor filing delays due to lack
of notice and the District Court failed to apply pr operly the
standards for determining "excusable neglect" outlined in
Pioneer Inv. Servs. v. Brunswick Assoc. Ltd. Ptrshp , 507
U.S. 380 (1993). The District Court, maintains Chase,
erroneously applied to Chase's IFA, W orld Growth, and CIB
funds, the presumption that Chase received various
notices, when the funds had not. Chase insists that had
the District Court properly applied the law it would have
excused the delay and permitted Chase to participate in the
settlement, based upon the following factors, among others:
lack of prejudice to Cendant; the inconsequential four-day
delay as to IFA and World Growth; Chase's timely filing of
its 60(b) motion; the delay's lack of impact on the judicial
proceedings; class notices which were confusing or not
received, and Chase's unchallenged good faith in handling
the claims of all three funds.

We review the District Court's denial of the 60(b) motion
for abuse of discretion.7 In re: O'Brien Envntl. Energy, 188
_________________________________________________________________

6. See infra note 8.
7. The analysis in this case parallels that in a related case, In re
Cendant
Corporation Prides Litigation, No. 00-5198, slip op. (3d Cir. Nov. ___,
2000). For purposes of clarity, pertinent portions of 00-5198 are
repeated here.

                               6
F.3d 116, 122 (3d Cir. 1999). W e have held as to abuse of
discretion, generally, that "an abuse of discretion arises
when the [D]istrict [C]ourt's decision r ests upon a clearly
erroneous finding of fact, an errant conclusion of law or an
improper application of law to fact." Oddi v. Ford Motor Co.,
2000 WL 1517673, at *7 (3d Cir. 2000) (citation omitted).
An abuse of discretion may also occur "when no reasonable
person would adopt the district court's view." Id. Finally,
"we will not interfere with the [D]istrict [C]ourt's exercise of
discretion unless there is a definite and firm conviction that
the court . . . committed a clear error of judgment in the
conclusion it reached upon a weighing of the r elevant
factors." Id.

 A. The 60(b) "Excusable Neglect" Analysis

Our prime inquiry is whether Chase should have been
relieved from the effects of the District Court's January 22,
2000 order denying its claims.

Fed. R. Civ. P. 60(b) provides, in pertinent part:

Rule 60. Relief From Judgment or Or der

* * *

        (b) Mistakes; Inadvertence; Excusable Neglect; Newly
        Discovered Evidence; Fraud, Etc. On motion and upon
        such terms as are just, the court may r elieve a party or
        a party's legal representative fr om a final judgment,
        order, or proceeding for the following reasons: (1)
        mistake, inadvertence, surprise, or excusable neglect
        . . . or (6) any other reason justifying r elief from the
        operation of the judgment. The motion shall be made
        within a reasonable time, and for reasons (1), (2), and
        (3) not more than one year after the judgment, order,
        or proceeding was entered or taken.

* * *

(Emphasis supplied).

In Pioneer, supra, the Supreme Court delineated the
analysis required for a finding of "excusable neglect" (made
applicable to Rule 60(b) though Pioneer was a bankruptcy
case) and held that courts are permitted, where
appropriate, to accept late filings even wher e caused by

                                7
inadvertence, mistake, or   carelessness, as well as by
intervening circumstances   beyond a party's control. At the
outset, the Supreme Court   pronounced that the inquiry is
essentially equitable and   necessitates considering a
situation's totality:

       Because Congress has provided no other guideposts for
       determining what sorts of neglect will be considered
       "excusable," we conclude that the deter mination is at
       bottom an equitable one, taking account of all r elevant
       circumstances surrounding the party's omission.

Id. at 395.

While "all relevant circumstances" are properly
considered, the Supreme Court specifically delineated four
factors:

       These include . . . the danger of prejudice to the
       debtor, the length of the delay and its potential impact
       on judicial proceedings, the reason for the delay,
       including whether it was within the reasonable control
       of the movant, and whether the movant acted in good
       faith.

Id. In the wake of Pioneer, we have imposed a duty of
explanation on District Courts when they conduct
"excusable neglect" analysis. In Chemetr on Corp. v. Jones,
72 F.3d 341 (3d Cir. 1995), we addr essed the Bankruptcy
Rule that permits courts to accept late-filed claims when
the late-filing was due to "excusable neglect." In Chemetron
we held that the bankruptcy court's "analysis failed to
adequately consider the totality of the circumstances
presented." Id. at 349. Specifically, we faulted the court for
failing "to make additional relevant factualfindings,
including the danger of prejudice to the debtor , the length
of the delay and its potential impact on judicial
proceedings, the reason for the delay, and whether the
movant acted in good faith." Id. at 350. We thus
"remand[ed] the issue to the bankruptcy court, with
directions [to] undertake a more comprehensive and
thorough determination of whether the totality of the
circumstances support claimants' defense of`excusable
neglect.' " Id.; see also O'Brien , 188 F.3d at 127 (faulting a

                                 8
district court for not making specific findings as to
prejudice).

In our view, the District Court's June 7, 2000, decision
suffers from the same deficiencies identified in Chemetron
and O'Brien. For example, there is not any indication that
the District Court ever separately considered the CIB claim.
Though the District Court devotes four pages to a
discussion of Chase's "excuses," the only mention of CIB
regards Chase's assertion that the administrator should
have sent the Request to Cure to CIB one day earlier than
it did. Certainly, absent from the discussion is a point by
point analysis of prejudice, delay, potential impact on
judicial proceedings, or the reason for the delay (with
respect to CIB) that our earlier cases contemplated.

With regard to the IFA and W orld Growth claims, the
District Court failed to address with specificity: whether
Cendant would suffer any prejudice if Chase's motion were
granted8; the length of the delay and, particularly, what
effect it would have on judicial administration; and whether
Chase acted in good faith. We find that this lack of
explanation violates the principles we established in
Chemetron.

The "reason" for the delay is the one Pioneer factor that
the District Court expressly considered. W e conclude,
nevertheless, that the District Court inadequately analyzed
even this factor. Under O'Brien, the relevant question is
whether Chase has a valid reason for waiting so long in
_________________________________________________________________

8. We note, nonetheless, that in ter ms of prejudice to Cendant, the
District Court found on October 21, 1999, that Cendant would not suffer
any prejudice when the District Court extended the deadline for filing
initial proofs of claim from June 18 to September 7, 1999. The Court
found that Cendant would not be harmed because the original limits of
Cendant's financial obligation has not been expanded. Cendant's
argument that it is now prejudiced because the settlement money which
might now go to Chase will not remain for Cendant to recoup is without
merit. In truth, since the only "prejudice" Cendant would suffer by being
forced to pay Chase is the "loss of a windfall," we conclude that Cendant
will not suffer any prejudice. See O'Brien, 188 F.3d at 128; and In re
Cendant Corporation Prides Litigation, No. 00-5199, slip op. (3d Cir. Nov.
___, 2000) for further discussion of the District Court's finding that a
time extension would not prejudice Cendant.

                               9
bringing forward its explanation   for its late cures. Chase
claims that it "delayed" because   it assumed that its cure
documentation had been accepted,   and, therefor e, it did not
have any reason to "explain" its   late submission.

The record on appeal discloses that, first, Chase received
Requests to Cure the IFA and World Growth claims on July
28, 1999. Under the terms of these letters, Chase was
required to respond by August 4. It did not do so. Nor did
Chase explain the late cures when it sent its r esponses on
August 12. Second, the administrator sent Chase additional
letters by regular mail dated August 5, 1999, r equesting
additional information. Chase's Class Action Group did not
receive these letters until November 15, 1999, and did not
respond until January 4, 2000. Third, on January 24,
2000, a Chase employee in Brooklyn received a letter,
which had been sent by Federal Express, fr om the PRIDES
Class. That letter informed Chase that the District Court
had disallowed the IFA and World Gr owth claims, but the
letter mistakenly stated that the deadline for filing an
appeal was February 14, 2000. This letter was "lost" in
Chase's interoffice mail system while en r oute to Chase's
Class Action Group.

The District Court pointed to each of these facts and held
that they demonstrated that Chase did not have a valid
reason for delay. The District Court explained:"The Court
finds that it cannot ignore Chase's own deficiencies in
handling the Cendant class action correspondence."
Although these facts ultimately may mitigate against Chase,
several issues remain unresolved which may bear on the
culpability question. Chase's own deficiencies, however, do
not automatically bar a finding of "excusable neglect." In
O'Brien, we held that, when considering the r eason for a
movant's delay, a District Court must examine both parties'
conduct, and we specifically concluded that a movant's
negligence can still be excusable if it were due, in part, to
the conduct of another party. See O'Br ien, 188 F.3d at 128.
In short, with respect to Pioneer's"reason for the delay"
factor, the District Court should have examined both the
administrator's and the PRIDES Class' actions in
determining whether Chase's delay were excusable. The
District Court did not do so.

                               10
At best, the District Court's opinion denying Chase's
60(b) motion does not address three of the four factors
outlined in Pioneer. We thus find that in failing to apply the
Pioneer factors, the District Court did not act in the sound
exercise of its discretion. At this juncture, we would
normally review de novo the substantive matter of whether
"excusable neglect" excuses Chase's delay in submitting the
proof of claims. O'Brien, 188 F .3d at 122 (in determining
whether there exists an error, the Court of Appeals will
"review de novo the District Court's application of the law
to the facts"); see also 3d. Cir. L.A. R. 28(b)(review is
plenary where lower court erred in applying a legal precept).
That inquiry, however, requires our own application of the
law to the facts; unfortunately, we find that because such
significant gaps remain in the factual findings, we are
frustrated in our ability to make a proper determination.

B. Factual Gaps in the Record

We find that the District Court did not r esolve several
factual disputes bearing on the degree to which other
parties bear responsibility for Chase's delay in providing an
excuse for its late cures. Though not exhaustive, we offer
the following examples of pending factual issues: 9

(1) Cendant alleges that the administrator sent letters to
       Chase on August 27, 1999, advising it that its cur e
       documentation had been submitted late and
       suggesting that it provide the District Court a reason
       for the late cures by September 6, 1999. These letters
       are critical and represent the only notice that Chase is
       alleged to have received directing it to submit excuses
       for its late cures. Chase denies receiving these letters.
       Whether these letters were sent, and if so, which party
       lost them, matters considerably. Nevertheless, the
       District Court did not make a finding in its opinion as
       to whether these letters were sent or r eceived.

(2) In its October 21, 1999, Order, the District Court
_________________________________________________________________

9. The record also   appears unclear as to whether Chase ever received a
request to cure or   a notice of rejection for the CIB claim. At oral
argument, however,   Chase's counsel conceded that the District Court
had made a factual   finding that Chase received these letters.

                                 11
       stated that late-cure claimants, such as IF A and World
       Growth, would be allowed to participate in the
       settlement only if they could demonstrate that the late
       cures were due to "excusable neglect." The PRIDES
       Class counsel apparently did not seek an explanation
       from Chase. Cendant defends this decision by ar guing
       that the District Court was unwilling to consider any
       explanation that had not been offered prior to
       September 7, 1999. The District Court's June, 2000,
       opinion is not clear as to whether Cendant's assertion
       is correct, and the District Court did not make any
       finding as to whether the PRIDES Class counsel was
       obligated to notify Chase.

(3) Cendant maintains that the PRIDES Class counsel
       sent the January notification letter to a Chase office in
       Brooklyn, notwithstanding Chase's designation of a
       Manhattan Post Office box as its contact addr ess,
       presumably because the letter was to be sent by
       Federal Express which does not deliver to post office
       boxes. The District Court should have examined, but
       did not, Chase's choice of Federal Express, per haps as
       well as the veracity of the claim that Federal Expr ess
       does not deliver to post office boxes. Arguably, this
       point is important because had the letter been sent in
       the usual fashion to the designated address,
       presumably it would not have been lost or delayed.

(4) Chase insists that the PRIDES Class counsel should
       have faxed the January notification letter to its Class
       Action Group. Cendant counters that, thr ough no fault
       of its own, the PRIDES Class counsel did not have
       Chase's fax number. The District Court never evaluated
       these assertions, which are important for assessing the
       relative culpability of each party.

III.

After a careful review of the recor d, we find that the
District Court's opinion denying Chase's 60(b) motion fails
to address three of the four requir ed Pioneer factors.
Furthermore, without the District Court's resolution of
unsettled factual disputes, such as those set out above, we

                               12
are unable to determine whether the District Court properly
exercised its discretion in applying the r eason for the delay
factor. In Gunter, supra, we vacated an award of attorney's
fees because a District Court had failed to explain its
decision adequately. We wrote: "Notwithstanding our
deferential standard of review, it is incumbent upon a
district court to make its reasoning and application of the
. . . jurisprudence clear, so that we, as a r eviewing court,
have a sufficient basis to review for abuse of discretion."
Gunter, 223 F.3d at 196. Thus, we will vacate the District
Court's June 8, 2000, order and will remand this matter to
the District Court for fact-finding and a thor ough,
systematic, application of the law to the facts.

A True Copy:
Teste:

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

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