U.S. Third Circuit

APPEALS � Federal Rule of Civil Procedure 58 � Timeliness

In re Cendant Corporation Securities Litigation

No. 04-1410; Third Circuit; opinion by Ambro, U.S.C.J.; filed July 18, 2006. Before Judges Ambro, Becker and Stagg, District Judge, sitting by designation. On appeal from the District of New Jersey. [Sat below: Judge Walls.] [32 pp.]

Appellants Sheldon Danuff, SKAT Capital and Joel Zychick held common stock in Getko Group, which was acquired by CUC International. Through merger and acquisition, they received stock in Cendant Corporation in exchange for that stock.

CUC’s accounting irregularities spawned a securities class-action suit on behalf of all persons who acquired publicly traded securities of Cendant and CUC and who were injured thereby. Under a Plan of Allocation of Net Settlement Fund, appellants were entitled to seek compensation for losses sustained by holding Cendant stock from May 31, 1995, to Aug. 28, 1998. They sold a substantial share of their Cendant holdings during that period, but before the public disclosure of the accounting irregularities. The claims administrator found that under the plan’s “netting provision,” which ensures that claimants only recover for net losses, they did not merit compensation because the profits they made by selling stock at artificially inflated prices canceled out any losses they suffered on stock held after the irregularities were disclosed.

The District Court issued an order adopting the claims administrator’s recommendation. It was entered on the docket on Aug. 21, 2003. Appellants, asserting that the order did not satisfy the separate-document requirement of Rule 58, claim that entry of judgment was effected by operation of law under Federal Rule of Civil Procedure 58(b)(2)(B) on Jan. 19, 2004, and that their appeal, filed within 30 days thereafter, was therefore timely.

Federal Rule of Appellate Procedure 4(a)(1)(A) requires that notices of appeal be filed within 30 days after the order appealed from is entered. Under 4(a)(7)(A)(ii), if Federal Rule of Civil Procedure 58 requires a separate document to put the parties on notice that the time to appeal has started, the appeal period begins on the earlier of when that separate document is entered or when 150 days have run from the entry of the order in the docket.

Whether appellants’ appeal was timely depends on whether Aug. 21, 2003, or Jan. 19, 2004, began the appeal period. The answer depends on whether the order qualifies as a separate document.

Held: The separate-document rule does not require two separate documents, but a lengthy discussion of facts and procedural history precludes an order from complying with Rule 58. Because the final order here was not a separate document that triggered the 30-day appeal period, the seemingly late notice of appeal fits in the safe harbor Rule 58 and Federal Rule of Appellate Procedure 4(a)(7) provide, and was timely filed. However, appellants are not entitled to compensation under the allocation plan.

An order will be treated as a separate document under Rule 58 if it (1) is self-contained and separate from the opinion; (2) notes the relief granted; and (3) omits (or at least substantially omits) the court’s reasons for disposing of the parties’ claims.

The court holds that the order here satisfies the first criterion. The whole document is presented as an “order,” rather than an opinion, and this designation is confirmed by the docket. It is “self-contained” in that it is not stapled or otherwise attached to an opinion or memorandum.

The court rejects appellants’ argument that it is not “separate from” the court’s prior oral ruling because it is the sole document issued by the court that purports to dispose of their claims. Rule 58 does not expressly state that the separate document must be distinct from another document (as opposed to an oral decision), and no value would be furthered by finding a two-document rule implicit in the text. Hence, the rule is most reasonably read to mean only that the judgment must be in a document that is independent of the court’s opinion or decision, regardless of whether that opinion takes written form.

The second criterion is met, as the order does state the relief granted.

As to the third criterion, the order was six pages, five of which expounded on the background of the case.

The purpose of the separate-document requirement was to clarify when the time for appeal begins to run by imposing a clear line of demarcation between a judgment and an opinion or memorandum.

Facts and conclusions of law may be stated orally at the close of evidence or written in an opinion or memorandum. Neither are to appear in the Rule 58 judgment. A lengthy overview of background information, while not setting out the basis for a decision as much as does legal reasoning, nevertheless partakes more of a judicial opinion or memorandum than of a judgment. Because of the purpose of Rule 58 and because a putative judgment containing an extensive factual discussion might look to a party more like an opinion than a judgment, the mechanical application of Rule 58 does not contemplate judgments containing extensive factual recitations to be separate documents. The order does not satisfy the separate-document requirement and appellants were entitled to consider Jan. 19, 2004, as the date to begin their appeal period. The appeal was thus timely.

As to the merits of the appeal, Section IV of the plan gives specific calculations of allowed loss amounts for each share held to the end of the class period. Section V(B) matches stock acquisitions with subsequent stock sales on a first-in, first-out basis � the matching provision � and it subtracts all stock-sale profits from any losses to reduce claimant recoveries � the netting provision.

Appellants all assert that the “general” netting provision does not apply to them because their “specific” loss calculations are governed solely by another plan section, which does not contain a netting provision. Danuff and SKAT claim that the netting provision does not apply to them because they did not engage in “multiple transactions” that trigger netting. SKAT also contends that, even if deemed subject to the netting provision, it was entitled to compensation because it did not reap a net gain.

Interpreting the terms of the contract and construing it as a whole, the court rejects all three arguments.

� By Judith Nallin

For appellants � William J. Bailey (Huntington Carver) and James S. O’Brien Jr. and Leah D. Weitzen, of the N.Y. bar (Pryor Cashman Sherman & Flynn). For appellees � Max W. Berger, Daniel L. Berger and Jeffrey N. Leibell, of the N.Y. bar (Bernstein, Litowitz, Berger & Grossmann) and Leonard Barrack, Gerald J. Rodos and Jeffrey W. Golan, of the Pa. bar (Barrack, Rodos & Bacine).