In Gordon v. Verizon Communications, the New York Appellate Division reversed the New York Supreme Court’s rejection of a non-monetary settlement to a class action challenging an M&A transaction.
The proposed settlement agreement in Gordon provided for (a) supplemental disclosures by Verizon relating to the valuation of Verizon Wireless, and (b) a “corporate governance reform” consisting of a requirement that, for the following three years, Verizon would obtain an independent fairness opinion if it sold (or independent financial advice if it spun off) more than 5% of Verizon’s assets.
The lower court rejected the settlement, expressly following the Delaware Court of Chancery’s seminal 2016 Trulia decision.
The Appellate Division reversed, declining to adopt the Trulia approach. Instead, the Appellate Division expanded the test for evaluating non-monetary settlements set forth in its 1990 Colt decision.
Applying this test, the Appellate Division approved the settlement, finding that the combination of the supplemental disclosures and the fairness opinion requirement provided “sufficient benefit” to the shareholders.
It appears that, as compared to Delaware courts, the New York Appellate Division is more receptive to approving non-monetary settlements.
As a result of Gordon, the plaintiffs’ bar may seek to file more M&A lawsuits in New York rather than Delaware. Following Trulia, there has been a significant decline in M&A litigation filings, particularly in Delaware.
The Colt test, as summarized in Gordon, requires consideration of five factors: likelihood of success, the extent of support from the parties, the judgment of counsel, the presence of good faith bargaining, and the nature of the issues in law and fact.
These authors explain tha the Gordon court added two new factors to consider: 1) whether the proposed settlement is in the best interests of the putative settlement class as a whole, and 2) whether the proposed settlement is in the best interests of the corporation.
Commentators have differing views on the likely practical effect of Gordon.
Some commentators interpret Gordon as reflecting that New York has staked out its own ground in articulating the standards for approving settlements, but they expect that, as a practical matter, the result in any given case is likely to be the same in New York as it would be in Delaware.
Other commentators—as a result of the court going out of its way to reject Trulia and its lengthy discussion of the “usefulness” of non-monetary settlements—interpret Gordon as signaling that a pre-Trulia type of disclosure-only settlement may now be approved in New York.
This article includes a details background on the case and several key points to consider.