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NEW YORK A New York state appeals court on
Thursday said its door remains open for settlements of merger
litigation where shareholders receive no money, approving an
accord tied to Verizon Communications Inc’s $130 billion
buyout of Vodafone Group Plc’s stake in their Verizon
The Appellate Division, First Department in Manhattan said a
lower court judge erred in rejecting a class-action settlement
requiring Verizon to disclose more information to shareholders
who thought it overpaid, and get a “fairness opinion” if it sold
some of the venture’s assets. It also entitled the shareholders’
lawyers to up to $2 million for fees and expenses.
“Disclosure-only” settlements have lost favor in recent
years, with critics saying they provide little benefit to
shareholders and companies, while forcing companies to pay fees
of shareholders’ lawyers in a so-called “merger tax.”
Judges in Delaware courts routinely approved such
settlements for many years but have in recent decisions made
clear those days are over, causing lawyers to file dozens of
merger-related lawsuits in other courts instead.
The Verizon settlement drew objections from two
shareholders, and was rejected in December 2014 by New York
State Supreme Court Justice Melvin Schweitzer.
He said the accord failed to materially boost shareholder
knowledge about the merger, which had closed in February 2014,
and could impede the New York-based phone company’s ability to
But in Thursday’s decision, a four-judge appellate division
panel said the added disclosures provided at least “some
benefit” to shareholders, while the fairness opinion requirement
could help insure good prices for asset sales.
The panel also tightened its nearly 27-year-old test for
approving such settlements, adding requirements that they be in
shareholders’ and companies’ best interests. It said the Verizon
settlement achieved both.
“Given the changing circumstances and concerns surrounding
nonmonetary settlements of class actions,” the Verizon case
offered an opportunity “to address present day concerns,”
Justice Marcy Kahn wrote.
The appellate division returned the case to the lower court
to determine legal fees.
“We are pleased,” Juan Monteverde, a lawyer for the
plaintiffs, said in an email. “Litigation that provides enhanced
corporate disclosures and corporate governance will continue to
play a vital role in protecting public shareholders.”
A lawyer for one of the objecting shareholders did not
immediately respond to requests for comment. The other objector,
Gerald Walpin, a former inspector general under President George
W. Bush, died last year.
The case is Gordon et al v. Verizon Communications Inc et
al, New York State Supreme Court, Appellate Division, 1st
Department, No. 653084/2013.
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