P. Schoenfeld Asset Management LLC v. Cendant Corp.

Citations: 161 F. Supp. 2d 349; 2001 U.S. Dist. LEXIS 12792; 2001 WL 958760Docket: 98-4734(WHW), 98-5384(WHW)

Court: District Court, D. New Jersey; August 24, 2001; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Plaintiffs in the consolidated cases against Cendant Corp. and related defendants filed a motion for reargument regarding the Court's prior ruling that had partially granted and partially denied motions to dismiss their complaints. The Court's decision on May 7, 2001, determined that the plaintiffs did not sufficiently plead facts indicating scienter—knowledge or reckless disregard for the truth—related to press releases issued by Cendant after April 15, 1998. Specifically, the Court found that the allegations concerning the May 5, 1998 press release lacked evidence of falsity, and claims regarding Cendant's intentions to finalize a deal were not supported by adequate factual inferences. The plaintiffs sought to extend the class period against defendants Walter Forbes and Cosmo Corigliano to July 14, 1998, arguing that the Court previously acknowledged reliance on the April 15 announcement until that date. They contend that this extension would necessitate a reevaluation of the sufficiency of their claims against Cendant for the extended period, particularly in light of potential control person liability for Forbes and Corigliano under Section 20(a). The motion for reargument was denied without oral argument.

Cendant argues that the plaintiffs' motion for reargument is flawed due to their failure to previously assert that Forbes and Corigliano's inaction regarding control person liability claims against them established Cendant's liability post-April 15, 1998. Cendant contends that the Court could not have 'overlooked' this issue since it was not raised during the motions to dismiss. Additionally, Cendant critiques the plaintiffs' reasoning, which assumes a primary violation of securities laws can stem from an individual defendant's secondary control person liability. 

Under Federal Rule of Civil Procedure 59(e), parties may seek to amend a judgment within ten days, and Local Civil Rule 7.1(g) permits reargument on matters the Court may have overlooked. The Third Circuit emphasizes that such motions aim to correct clear errors or present new evidence, not to rehash previously decided issues. Reconsideration is only warranted if there is (1) a change in law, (2) new evidence, or (3) a need to correct a clear legal error or prevent injustice. 

Cendant asserts that the plaintiffs’ claims lack merit, as the Court did not evaluate whether the plaintiffs met the pleading standards against Forbes or Corigliano because those defendants did not renew their motions. The plaintiffs did not argue that the class period for Cendant matched that of the non-moving defendants, nor did they assert that potential control person liability of Forbes or Corigliano between April 15 and July 14, 1998 created direct liability for Cendant. Consequently, the motion for reargument attempts to introduce matters that could have been previously raised, thus the Court cannot entertain it now.

Plaintiffs' argument regarding control person liability of Forbes and Corigliano under Section 20(a) to establish direct liability for Cendant under Section 10(b) and Rule 10b-5 is flawed. Control person liability does not create direct liability for the controlled entity; rather, an underlying Section 10(b) claim is necessary for such liability to exist. The court references Rochez Brothers, Inc. v. Rhoades, which emphasizes that a corporation cannot be held primarily liable for securities violations committed by its officers or employees without a valid underlying claim. The court also cites VT Investors v. R. D Funding Corp. to highlight that Section 20(a) liability is derivative of Section 10(b) liability, and plaintiffs provide no supporting case law for their assertions.

Plaintiffs suggest that if sufficient scienter is established against Forbes or Corigliano, their knowledge should be imputed to Cendant for liability purposes. However, the court does not need to address this issue. Comparing relevant case law, the court notes that plaintiffs have not sufficiently alleged that either Forbes or Corigliano knew or should have known that the statements made on April 15, 1998, were false or misleading. Plaintiffs acknowledge that claims against Corigliano cease following his termination on April 16, 1998, and the only statement they attempt to attribute to him post-termination is the April 15 announcement.

The court reiterates that an official's knowledge of falsity cannot be inferred solely from their position and that the 'group published statement' doctrine no longer applies after the Private Securities Litigation Reform Act (PSLRA). Plaintiffs fail to provide facts to suggest Corigliano was responsible for or had knowledge of the April 15 statement's falsity, nor can they infer such responsibility or knowledge for Forbes regarding other pre-announcement statements made by Cendant. Consequently, there are no grounds in the complaint to establish liability for either individual based on the alleged misrepresentations.

An April 27, 1998 letter from Forbes to Cendant's shareholders, which was publicly disseminated, asserted Cendant's strength, positive growth prospects, commitment to acquisitions, and limited accounting fraud attributed to a small number of individuals. The complaint did not allege that Forbes had knowledge of the statement's falsehood or misleading nature at the time it was made. Consequently, there were no grounds for imputing any post-April 15 knowledge from Corigliano or Forbes to Cendant. The plaintiffs' motion for reargument regarding the court's May 7, 2001 ruling on the motions to dismiss is denied. The court consolidated the cases on May 22, 2001, and relevant background information is detailed in previous court decisions and a Third Circuit opinion.