Gordon v. Verizon Communications, Inc.
2017 NY Slip Op 742
N.Y. App. Div.2017Background
- Verizon announced in Sept. 2013 it would buy Vodafone’s 45% interest in Verizon Wireless for ~$130 billion; plaintiff Natalie Gordon filed a putative class action alleging excessive price and inadequate proxy disclosures.
- Plaintiff amended to allege material omissions in the preliminary proxy statement; parties negotiated and reached an MOU in Dec. 2013 producing a definitive proxy with supplemental disclosures and a corporate-governance reform (a three-year fairness-opinion requirement for large Verizon Wireless dispositions).
- A stipulation of settlement (July 2014) required additional disclosures, a three-year fairness-opinion rule for >5% asset dispositions (later framed as $14.4B), and provided defendants would not oppose plaintiffs’ fee application up to $2 million.
- Supreme Court preliminarily approved class notice and held a fairness hearing; only two objectors appeared; the merger was approved by ~99.8% of votes in Jan. 2014.
- The motion court declined final approval, finding the supplemental disclosures failed to materially enhance shareholder knowledge and that the governance term could unduly restrict directors; it also denied attorneys’ fees.
- The Appellate Division reversed, refined the Colt standard for review of disclosure-only settlements by adding two factors (benefit to the class as a whole and benefit to the corporation), approved the settlement, and remanded to determine a proper fee award.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the nonmonetary settlement (additional disclosures + governance reform) should be approved | Gordon: disclosures and a fairness-opinion governance reform provided tangible benefits and warrant approval | Verizon/objectors: supplemental disclosures were immaterial and governance term could impede directors; settlement produced no real shareholder benefit | Court: applying Colt factors plus two added factors (best interests of class and corporation), the disclosures and fairness-opinion requirement provided sufficient benefit to approve the settlement |
| Appropriate standard for reviewing disclosure-only settlements | Gordon: existing Colt factors suffice to assess fairness | Objectors: courts (and Delaware precedent) emphasize materiality of disclosures and stricter scrutiny | Court: refines Colt by adding two factors—whether settlement benefits the class as a whole and benefits the corporation—while retaining the original five Colt factors |
| Choice of law to govern review of the settlement | Gordon: New York law governs (settlement chose NY law and Verizon has NY principal office) | Objectors: urged Delaware materiality standards as persuasive | Held: New York law governs; Delaware decisions are persuasive but not controlling |
| Whether attorneys’ fees should be awarded and how to calculate them | Gordon: counsel secured nonmonetary class benefits and is entitled to fees; court should exercise equitable discretion using Freeman factors | Objectors: fees are unwarranted because benefits were minimal/illusory | Held: Fees may be awarded; remand to motion court to determine reasonable fee considering Freeman factors and stage/results of litigation |
Key Cases Cited
- Matter of Colt Indus. Shareholder Litig., 155 A.D.2d 154 (1st Dep't 1990) (articulates five-factor test for class settlement review)
- Colt Indus. Shareholder Litig., 77 N.Y.2d 185 (1991) (modification on other grounds; class members need not be bound on money claims)
- Rosenfeld v. Bear Stearns & Co., 237 A.D.2d 199 (1st Dep't 1997) (court may approve disclosure-only settlement as fair and in class interests)
- Seinfeld v. Robinson, 246 A.D.2d 291 (1st Dep't 1998) (corporate governance reforms can constitute sufficient nonmonetary benefits to support fee awards)
- Matter of Trulia, Inc. Stockholder Litig., 129 A.3d 884 (Del. Ch. 2016) (criticizes disclosure-only settlements where supplemental disclosures are not material)
- Maher v. Zapata Corp., 714 F.2d 436 (5th Cir. 1983) (a settlement may serve the corporation's best interests even without direct monetary relief)
- Matter of Freeman, 34 N.Y.2d 1 (1974) (factors for awarding attorneys' fees in equitable matters)