Arjun Dua, Derivatively on Behalf of Nominal Defendant Avis Budget Group, Inc. v. Joseph A. Ferraro et al., and Avis Budget Group, Inc.
D.N.J.11/24/2025
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[[COURTLISTENER_SUBOPINION {"id":"11210413","type":"100trialcourt","part":"other","author":null,"source_field":"html_with_citations"}]]
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
ARJUN DUA, Derivatively on
Behalf of Nominal Defendant AVIS
No. 2:25-cv-15382
BUDGET GROUP, INC,
(MEF)(CF)
Plaintiff,
OPINION and ORDER
v.
JOSEPH A. FERRARO et al.,
Defendants,
and
AVIS BUDGET GROUP, INC.,
Nominal
Defendant.
* * *
For the purposes of this brief Opinion and Order, the Court
largely assumes familiarity with the facts and procedural
history of this case.
* * *
A shareholder1 brought a derivative action for the benefit of a
corporation,2 against certain of its directors and executive
1 Arjun Dua.
2 Avis Budget Group, Inc.
officers.3 See Verified Stockholder Derivative Complaint
(âComplaintâ) (ECF 1), at 1, ¶¶ 17-29.4
Around six weeks later, the parties together moved to dismiss
the action. See Stipulated Motion and [Proposed] Order
Voluntarily Dismissing Action Without Prejudice (âStipulated
Motionâ) (ECF 4) at 3.
The motion is denied.
* * *
Under Federal Rule of Civil Procedure 23.1(c), â[n]otice of a .
. . voluntary dismissal . . . must be given to shareholders or
members in the manner that the court orders.â
But here, no judicially-approved notice has been given.5
So out of the gate, it looks like the voluntary-dismissal motion
must be denied.
The parties, though, argue that the âCourt should exercise its
discretion to relieve the [p]arties of any requirement that they
provide written notice of the . . . [d]ismissal to [the]
shareholders.â Plaintiffâs Letter in Support of Voluntary
Dismissal Without Notice (âPlaintiffâs Letterâ) (ECF 6) at 2;
see also Defendantsâ Letter in Support of Voluntary Dismissal
Without Notice (âDefendantsâ Letterâ) (ECF 7) at 1-2.
This argument does not work, for the reasons set out below.
* * *
Where it applies,6 Rule 23.1(c) does not leave space for
âdiscretion[ary]â decision-making by the court. The Rule is
3 Joseph A. Ferraro, Izilda P. Martins, Jagdeep Pahwa, Anu
Hariharan, Bernardo Hees, Lynn Krominga, Glenn Lurie, and
Karthik Sarma. See Complaint ¶¶ 8, 19-29.
4 The complaint alleged violation of the Securities Exchange
Act, breach of fiduciary duty, unjust enrichment, and waste of
corporate assets. See id. ¶¶ 70-98.
5 Some notice was apparently provided via public filings to
investors. See Defendantsâ Letter in Support of Voluntary
Dismissal Without Notice (âDefendantsâ Letterâ) (ECF 7) at 3.
But that was not pre-approved by the Court.
6 The Rule does not always kick in. For example, â[i]nvoluntary
dismissals do not require . . . notice,â 5 Mooreâs Federal
directive and mandatory; it does not speak in the language of
choice. It says that notice âmust be given,â not that it may be
given. Fed. R. Civ. P. 23.1(c) (emphasis added).
And the cases are clear.
In general, as to the principle that the words of the Federal
Rules of Civil Procedure âshould be given their plain meaning.â
Elliott v. Archdiocese of N.Y.,
682 F.3d 213, 225
(3d Cir. 2012)
(quoting Berckeley Inv. Grp., Ltd. v. Colkitt,
259 F.3d 135
, 142
n.7 (3d Cir. 2001) (citing Bus. Guides, Inc. v. Chromatic
Commcâns Enters., Inc.,
498 U.S. 533, 540
, (1991)).
And in particular, as to Rule 23.1 --- with the Third Circuit
having described notice in cases covered by the Rule as a
âmust,â Cramer v. Gen. Tel. & Elecs. Corp.,
582 F.2d 259, 269
(3d Cir. 1978), and âessential.â
Id. at 268
; see also, e.g.,
Pittston Co. v. Reeves,
263 F.2d 328, 329
(7th Cir. 1959)
(holding that notice of voluntary dismissal âwas required,â and
that the district court âhad no discretion as to the giving of
the noticeâ); Lucking v. First Nat. Bank-Detroit,
142 F.2d 528,
529
(6th Cir. 1944) (holding, in the context of a voluntary
dismissal motion, that âthere can be no dismissal without the
approval of the courtâ); Cross v. Oneida Paper Prods. Co.,
117
F. Supp. 919, 921
(D.N.J. 1954) (holding, in the context of a
motion to vacate a voluntary dismissal order, that âthe words of
the rule make . . . notice . . . [a] mandatory condition[]
precedent to dismissalâ).7
Practice § 23.1.10[1][a] (3d ed. 2025) --- as when a court
dismisses a case on the merits or for lack of jurisdiction.
Here, though, the partiesâ motion seeks voluntary dismissal.
See Stipulated Motion at 2.
7 Lucking and Cross were decided under an earlier version of
Rule 23, which provided that ânotice of [any] proposed
[voluntary] dismissal or compromise shall be given to all
members of the class in such manner as the court directs.â Fed.
R. Civ. P. 23(c) (1958). Until 1966, what we now call class
actions and derivative actions were each governed by the same
rule, Rule 23. See 7C Wright & Millerâs Federal Practice &
Procedure § 1839 (3d ed. 2025). Therefore, pre-1966 cases
involving dismissals under the old Rule 23 are âauthoritative
for purposes of applying Rule 23.1â to dismissals under the
current Rule 23.1, which focuses only on derivative actions.
Id. And the analogy between the caselaw under the old Rule and
In a nutshell: Rule 23.1 requires what has not been given in
this case --- judicially-approved notice.
* * *
Against this conclusion, the parties argue that the Rule should
not be applied where its underlying purposes have been satisfied
--- and here, the argument goes, they have been.
Disregard for a moment the most serious objection to this
argument --- the one alluded to just above, that the Court is
charged with enforcing the Rule as written, not as it might have
been written based on its asserted purposes.
But even putting that aside, the partiesâ argument is not
persuasive.
To see why, look to the various asserted purposes of the Rule.
* * *
Per the parties, see Plaintiffâs Letter at 3-4; Defendantsâ
Letter at 2, one purpose of Rule 23.1 is to avoid prejudice to
the company in whose name a claim is brought, including by
ensuring that company claims are not boxed out for lack of
notice --- that cases are not dismissed after the limitations
period has expired, such that no one can pick up the baton after
a derivative plaintiff has walked away from the case she had
been pursuing.
That is a purpose of Rule 23.1. See 7C Wright & Millerâs
Federal Practice & Procedure § 1839 (3d ed. 2025); cf. Chester
B. McLaughlin, Capacity of Plaintiff-Stockholder to Terminate a
Stockholderâs Suit,
46 Yale L.J. 421
, 428 (1937) (making this
same point, but before Rule 23 became operative).
And that purpose may have been satisfied here.8
the new Rule is particularly tight here, on the question of the
mandatory-ness of todayâs Rule 23.1 --- because as to that
question, there is no real daylight between notice âshall be
givenâ (the language of the old Rule 23) and notice âmust be
givenâ (the language of todayâs Rule 23.1).
8 The parties argue that a three-year limitations period
applies, and that given when the clock began running, around 14
months would remain if the case were now dismissed. See
Plaintiffâs Letter at 3. If all this is right, nothing is cut
off by the limitations period and there would seem to be enough
* * *
Per the parties, Rule 23.1âs notice requirement also has a
second purpose.
In particular, Rule 23.1 requires notice so that shareholders
who receive a heads-up about the proposed dismissal can object
if they want to --- on the ground, say, that the dismissal was
the (improper) result of a private settlement, one that benefits
the plaintiff (and maybe her lawyers) but not the company whose
claims were the basis for the underlying lawsuit that is
proposed to be dismissed. See Stipulated Motion at 3;
Plaintiffâs Letter at 2-4 (same); Defendantsâ Letter at 1-2
(same); accord, e.g., 7C Federal Practice & Procedure § 1839;
Birnbaum v. Birrell,
17 F.R.D. 409, 411
(S.D.N.Y. 1955).
Here, the parties argue, there is nothing like that. No payment
has been made, and no payment will be made. See Stipulated
Motion at 3; see also Plaintiffâs Letter at 2-4; Defendantsâ
Letter at 1-2. See Plaintiffâs Letter, Declaration of Michael
I. Fistel, Jr. in Support of Voluntary Dismissal Without
Prejudice and Without Notice (âFistel Declarationâ) (ECF 6-1) at
¶ 10 (so swearing); Defendantsâ Letter, Declaration of Samuel I.
Portnoy in Support of Defendantsâ Letter Seeking Stipulated
Dismissal of the Action Without Prejudice and Without Notice
(ECF 7-1) at ¶ 2 (same).
So, the argument goes, notice is not necessary because it will
not turn up anything of concern.
But without more, this is not persuasive.
time for another litigant to put together a case and come
forward with it. Cf. Bushansky v. Armacost,
2014 WL 2905143
, at
*5 (N.D. Cal. June 25, 2014) (where the expiration of the
limitations period was âless than one yearâ from the date of
dismissal, there was a âdanger . . . of prejudice to
shareholdersâ). (There may be prejudice from a voluntary
dismissal in other circumstances, too --- based on harms
separate from the expiration of a limitations period. See,
e.g., Delahanty v. Newark Morning Ledger Co.,
26 F. Supp. 327,
328
(D.N.J. 1939) (â[T]he plaintiffs urge their right to
withdraw from the forum leaving defendants without opportunity
to dispel the clouds which plaintiffs have attempted to hang
over them or to bring fruition their prepared efforts to
disprove the allegations of the plaintiffs.â).)
Why? Because it is not always the case9 that a mandatory process
protection (like the Rule 23.1 notice requirement) can be
dispensed with because the substantive standard that is said to
animate it (like the requirement that settlements must be
appropriate) has been satisfied.
Can, say, constitutionally-required cross-examination (a process
protection) be skipped over because it is believed that the
witness is reliable anyway?10
Can the obligation to contact class-action members as to final
settlement approval (a process protection) be ignored because
the pay-out looks like enough to a judge?
Maybe there are reasons, here, to think that process can be put
aside because the substantive standard has been met --- that
pre-dismissal notice under Rule 23.1 can be bypassed in this
case because there has assertedly been no private settlement.
But if there are such reasons, the parties have not put them
forward.
* * *
Another point: even if some of the purposes of Rule 23.1 have
been satisfied here, that is still not a reason to forego
judicially-approved notice. Because the Rule has another
purpose, too. And that purpose cannot be achieved without
actually doing what Rule 23.1 requires --- giving notice.
In particular, Rule 23.1 notice is mandated, in part, to help
ensure that a derivative-action-plaintiff does not âbecomes
faint hearted prior to the litigationâs completion,â and
therefore âwilling to settle the action even though it might not
be in the best interests of all concerned.â 7C Federal Practice
& Procedure § 1839; see also William E. Haudek, The Settlement
and Dismissal of Stockholdersâ Actions --- Part I,
22 Sw. L.J.
767
, 771 (1968) (âThe plaintiff's loss of heart. . . has . . .
been held to be a target of the Rule.â).
The Third Circuit has landed on this conclusion. In Cramer v.
General Telephone & Electronics Corp.,
582 F.2d 259
(3d Cir.
9 And maybe not even typically the case.
10 See Crawford v. Washington,
541 U.S. 36, 68-69
(2004)
(holding âno,â and on that basis overturning Ohio v. Roberts,
448 U.S. 56
(1980)).
1978), for example, the court of appeals noted that Rule 23.1âs
ânotice requirement guards against dismissals which are due
primarily if not entirely to the named plaintiffâs change of
heart about prosecuting the action.â Id. at 269;11 accord, e.g.,
Papilsky v. Berndt,
466 F.2d 251, 258
(2d Cir. 1972) (âRule 23.1
safeguards will protect the corporation and absent stockholders
from a plaintiff who becomes âfaintheartedâ prior to the
completion of the litigationâ) (quoting Webster Eisenlohr, Inc.
v. Kalodner,
145 F.2d 316, 320
(3d Cir. 1944)).
In a derivative suit, âthe named plaintiff representsâ not just
himself, but also âthe corporation itself and the entire class
of stockholders.â Cramer,
582 F.2d at 268
; accord 5 Mooreâs
Federal Practice § 23.1.02[1] (3d ed. 2025).
This is a real burden to take on, and it implies a
responsibility to what can be a great many people. See 5
Mooreâs Federal Practice § 23.1.09[1] (explaining that
derivative-action plaintiffs stand in âa fiduciary relationship
with the corporation and other shareholdersâ).
On the Third Circuitâs understanding in Cramer, the Rule 23.1
notice obligation is there, in part, to help ensure that people
who volunteer themselves as derivative plaintiffs will
understand from the get-go what they have embarked on. They
will not, later, be able to casually change their minds. They
should step off the curb having thought things through in
advance, because getting out of the case in the middle of the
road will not necessarily be quick and straightforward. A
simple âchange of heart,â Cramer,
582 F.2d at 269
, would be
enough to shut down oneâs own case --- but more, in the form of
Rule 23.1 notice, is required to end a case brought by a person
standing in othersâ shoes.
On this understanding, the notice requirement is there at Time 2
in part to ensure that derivative plaintiffs are acting with
eyes wide open at Time 1, when they begin litigating.12
11 And per the Third Circuit, â[w]here the parties stipulate to
the dismissal of a derivative action prior to any adjudication
of the merits, all of the policies underlying the notice
requirement are implicated.â Cramer,
582 F.2d at 269
(emphasis
added). Not just the two purposes proffered by the parties.
12 And part of having eyes wide open at Time 1, when the
litigation is initiated, is knowing that a court will always be
And on this understanding, the Rule 23.1 notice requirement
always has at least some role to play. So it should be enforced
across the board, as the text of the Rule requires --- not just
in the subset of circumstances where the Ruleâs other purposes13
are thought to require notice.
* * *
A final note.
The parties suggest that pre-dismissal notice could prove
âburden[some] or expens[ive].â Plaintiffâs Letter at 3; see
Defendantsâ Letter at 2.
present at Time 2. To resolve the case on the merits. To
approve a settlement. Or to review the Rule 23.1 notice of a
voluntary dismissal. See Wolf v. Barkes,
348 F.2d 994, 997
(2d
Cir. 1965) (âcommencement of a derivative suit provides a handle
for judicial supervisionâ). The knowledge that there is no gap
in the fabric, that a derivative suit will necessarily end with
at least some judicial involvement --- that may tend to reduce
the number of âstrike suitsâ that may sometimes be brought in
the derivative context. See 7C Federal Practice & Procedure §
1839 & n.3 (suggesting that notice provisions are designed, in
part, to avoid âstrike suitsâ) (citing Daily Income Fund, Inc.
v. Fox,
464 U.S. 523
, 532 n.7 (1984); cf. Haudek, Stockholdersâ
Actions, at 769-70 (explaining that the notice obligation was
first introduced into the Federal Rules in the 1930s in part
because â[m]any stockholdersâ actions of doubtful merit were
brought simply to secure private settlements for the plaintiff
and his lawyerâ); Sidney Post Simpson, Fifty Years of American
Equity,
50 Harv. L. Rev. 171
, 190 (1936); see generally Tim
Oliver Brandi, The Strike Suit: A Common Problem of the
Derivative Suit and the Shareholder Class Action,
98 Dick. L.
Rev. 355
, 357 (1994). And judicial involvement in all
derivative cases, even ones that end in voluntary dismissal, may
also tend to reduce the value of threatening to bring a
frivolous lawsuit. Because if the threat comes to fruition and
the frivolous case is filed, then a court will eventually be
there to assess aspects of the lawsuit --- and courts have tools
at hand to address frivolous cases.
13 Like ensuring that there is enough time left in the
limitations period, and that there is no improper private
settlement.
But that is not an argument against notice, so much as an
argument for notice that balances the various competing factors.
Rule 23.1 allows notice to be provided âin the manner that the
court orders,â Fed. R. Civ. P. 23.1(c), and courts have
exercised their discretion to try to thread the needle, by
approving forms of notice that do not run up unnecessary costs.
See, e.g., Bushansky v. Armacost,
2014 WL 2905143
, at *6 (N.D.
Cal. June 25, 2014) (approving the âposting [of] a link on [the
relevant corporationâs] Investor Relations website and the
filing of a Form 8-K with the SECâ) (citing In re Rambus Inc.
Derivative Litig.,
2009 WL 166689
, at *2 (N.D. Cal. Jan. 20,
2009) (notice published on company website, in a press release,
and in an 8-K); In re MRV Comms., Inc. Derivative Litig.,
2013
WL 2897874
, at *1 (C.D. Cal. June 6, 2013} (notice filed as an
attachment to a Form 8-K, published on company website, and
published for one day in Investorâs Business Daily); Feuer v.
Thompson,
2012 WL 6652597
, at *2-3 (N.D. Cal. Dec. 13, 2012)
(notice published on a settlement website, in a Form 8-K, and
once in The Wall Street Journal and The New York Times); accord
7C Federal Practice & Procedure § 1839 (noting that where âthere
is an extremely large number of stockholdersâ notice by
publication may be ordered).
* * *
For the reasons set out above, the partiesâ motion to dismiss is
denied,
This is without prejudice. If the parties wish to renew their
motion after seeking and receiving court approval as to notice,
as envisioned by Rule 23.1, they may do so,1!4
IT IS on this 24th day of November, 2025, SO QRDERED.
LI
Michael BE. Farbiarz, U.S.D.J.
14 Tf a plaintiff does not seek to provide notice of voluntary
dismissal, but rather opts to hang back and not actively pursue
the case, which can be equivalent in practice to dismissal -~--
then courts have taken a variety of steps. See Haudek,
Stockholdersâ Actions, at 776-79.Case Information
- Court
- D.N.J.
- Decision Date
- November 24, 2025
- Status
- Precedential