Tag Archives: Gordon v. Verizon

New Developments in Gordon v. Verizon Communications Class Action

There seem to be a good number of people trying to figure out what is going on in the securities class action suit in the New York State Supreme Court Gordon v. Verizon Communications, Inc., Index No. 653084/2013.  That is the case in which Judge Melvin Schweitzer famously rejected a proposed “merger tax” settlement in an opinion that received some attention.  It was a matter of some interest that a member of the New York State Bar, Gerald Walpin, filed successful papers in the case objecting to the settlement on policy grounds when the defense lawyers from the Wachtell Lipton firm stood mute in the effort to pay off the plaintiff’s counsel to allow the merger to proceed.  See Commentary on Abusive State Law Actions Following M&A Deals.

Some time ago I provided an update on developments in that case (Update on Status of Proposed Settlement in Gordon v. Verizon Communications, Inc.),  in which I noted that the plaintiff filed a notice of appeal, and that attorney Walpin sought to intervene in the case to pursue a motion for summary judgment, arguing that the defense lawyers in the case were conflicted by having agreed to the settlement.

Here is another update.  I provide this because it seems like a lot of class members are floundering around with no understanding of what is happening.

On August 3, 2015, Judge Anil Singh rejected several motions in the case, including the motion by Mr. Walpin to intervene and seeking summary judgment on behalf of the defendants, and a motion by by the plaintiff to introduce a new expert report addressing the proposed settlement and for reconsideration of Judge Schweitzer’s December 19, 2014 order denying the motion to approve that proposed settlement.  A copy of that decision is available here: Decision on motions in Gordon v. Verizon Communications.  On September 14, 2015, the plaintiff filed a Notice of Appeal of that order.  See Notice of Appeal in Gordon v. Verizon Communications.

That is pretty much all that the case docket sheet reveals.  By all outward appearances, the case is otherwise in stasis.

Since Judge Schweitzer’s decision, the “disclosure only” settlements of merger challenges — referred to by Judge Schweitzer as “merger tax” settlements — have come under attack and disrepute in a number of court decisions.  Most recently, several decisions in the Delaware Chancery Court have rejected such proposed settlements.  See Delaware Judge Tells Plaintiff Lawyers: The M&A ‘Deal Tax’ Game Is Over; Game Over?: Del. Chancery Court Rejects Disclosure-Only Settlement in H-P/Aruba Networks Merger Objection Lawsuit; and Transcript of Del. Chancery Court Hearing in Aruba Networks Stockholder Litigation, in which Vice Chancellor Laster addressed a proposed disclosure-only settlement in the H-P/Aruba merger challenge.

It seems that this sordid practice may be on the wane because judges finally are doing their jobs.  But in the meantime, the supposed beneficiaries of these cases — the shareholders — are kept totally in the dark about these developments.  Plaintiff’s counsel should be keeping these putative clients informed but, at least in this case, are obviously failing to do so, presumably because they see no vigorish in it.  What a “profession”!

Straight Arrow

October 16, 2015

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Update on Status of Proposed Settlement in Gordon v. Verizon Communications, Inc.

I’ve noticed a number of searches seeking further information on the status of the case Gordon v. Verizon Communications, Inc., Index No. 653084/2013, pending before Judge Melvin Schweitzer in the New York Supreme Court, New York County.  This is a putative class action challenging the acquisition by Verizon of Vodafone’s 45% minority stake in Verizon Wireless for $130 billion.  We previously discussed the objections lodged to a proposed settlement in that action, and Judge Schweitzer’s rejection of the settlement, in this post: Commentary on Abusive State Law Actions Following M&A Deals.  That was followed by a post on a scathing judicial statement on the impropriety of such “merger tax” cases (NY Court Flexes Muscles in Rejecting Bogus “Merger Tax” Settlement), which discussed a New York judge’s rejection of a proposed settlement in another knee-jerk merger challenge in the case City Trading Fund v. Nye, No. 651668/2014 (NY Sup. Ct.).  I recently received a note asking about where things stand in Gordon v. Verizon Communications, so here is an update.

The December 2014 opinion rejecting the settlement in Gordon (which can be found here: Decision and Order in Gordon v. Verizon Communications) was followed by the following:

  1.   One of the objectors, New York attorney Gerald Walpin, filed a motion for summary judgment on January 6, 2015, asking that the judge dismiss the plaintiff’s claim with prejudice.  The filing in support of that motion can be found here.  The plaintiff opposed that motion, in papers that can be found here.  Mr. Walpin filed this reply brief in favor of the summary judgment motion.  The briefing on that motion appears to have been completed on January 24, 2015.
  2.   The plaintiff then did two things: (i) on January 21, 2015, she filed a notice of appeal of the decision denying approval of the settlement (the notice of appeal can be found here); and (ii) on February 3, 2105, she filed a motion for reconsideration and reargument of the motion for approval of the settlement (the brief in support of the motion for reconsideration can be found here).  In other words, the plaintiff filed an appeal of the decision and then afterward asked that the same decision be reconsidered.  These are mutually inconsistent steps.  If the decision is appealed, the lower court loses jurisdiction over it and no longer can consider a reconsideration motion.  On the other hand, if a timely motion for reconsideration is filed, the earlier decision cannot properly be appealed until that motion is acted upon.  Filing the reconsideration motion after the notice of appeal might well be sanctionable.  The appeal seems flawed in any event because normally an appeal cannot occur before a case is finally decided.  Since Judge Schweitzer only denied a motion to approve the settlement, leaving the underlying case still pending in his court, there would appear to be no decision by him that is immediately appealable, absent a special order allowing an interlocutory appeal to occur.  The oppositions to the motion for reconsideration and reargument by the two objectors can be found here (opposition by Mr. Walpin), and here (opposition by objector Jonathan Crist).  Plaintiff’s reply brief in support of the motion for reargument is here.
  3.   As far as I can tell, no further action has occurred on either the motion for summary judgment or the motion for reconsideration of the denial of the settlement.  They each appear to be fully briefed.  Until some further action occurs, the proposed settlement is rejected and the case remains pending.

For those interested in the case, and in particular in the hearing held by Judge Schweitzer to consider the proposed settlement, a copy of the transcript of that hearing is available here:  Transcript of December 2, 2014 Hearing in Gordon v. Verizon Communications, Inc. on the motion for approval of proposed settlement.

Straight Arrow

March 2, 2015

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Commentary on Abusive State Law Actions Following M&A Deals

I devote this post to a commentary in the January 6, 2015 Wall Street Journal by Gerry Walpin, a highly-regarded New York litigator.  His op-ed piece entitled “How To Stop a Class-Action Scam” can be found here.

Gerald WalpinGerald Walpin

Gerry describes the abusive process now prevalent in filing suits objecting to corporate mergers or acquisitions.  Virtually every corporate m&a deal is met by a private action, normally filed in state court, challenging the transaction.  The calculation is simple: the plaintiff’s lawyer knows that completing the transaction is the company’s first priority and the cost of settling such a case is minor in comparison to the overall deal costs.  So, with virtually no work, the lawyers can bank a fee for entering into a “settlement” that really does not provide any significant benefit to the company or shareholders.  Usually, such settlements, being supported by all parties to the action, are rubber-stamped with the necessary court approval.  The deal is completed, making company management happy, and the settlement payment of legal fees makes the plaintiff’s lawyers happy.  It’s win-win, right?  Well, maybe so, if you don’t consider the interests of the shareholders, or, perhaps more importantly, the public interest in avoiding such abusive scams.

Here’s some of what Gerry had to say:

If you own any stock, you know the frustration of getting a notice announcing settlement of a lawsuit, commenced by a lawyer on behalf of a class composed of all shareholders—you included.  The notice informs you that, under this settlement, you get nothing.  What that really means is you get zilch but you must pay a pro rata share of your corporation’s legal expenses and of the legal fees for the lawyer who commenced the lawsuit—often millions of dollars. . . .

As soon as a corporation announces an asset acquisition or sale, the [plaintiff’s] lawyer finds one of his ready-plaintiffs and files a class action to stop the transaction. Such behavior is ubiquitous.  As an analysis of merger litigation in the February 2014 Texas Law Review showed, the likelihood of a shareholder suit exceeds 90%.

The defendant corporation, seeking to close the transaction and avoid costly litigation, accepts a quick settlement.  Both sides agree to wallpaper the settlement with meaningless “supplemental disclosures,” supposedly to demonstrate that the plaintiff lawyer contributed something of value, and thereby justify his claim to millions in legal fees.  Also, the corporation is forced to agree not to oppose the fee application. . . .

Case in point: On Nov. 10, 2014, I received a class-settlement notice regarding my Verizon  stock.  It concerned a September 2013 lawsuit commenced by a plaintiff’s lawyer filed only three days after Verizon announced its $130 billion purchase of Vodafone’s 45% minority stake in Verizon Wireless. The claim was that Verizon paid an “excessive and dilutive price” and that the company failed to disclose material information regarding the fairness of the transaction.

Yet the proposed nonmonetary settlement was limited to supplemental disclosures that added immaterial minutiae about the transaction, and Verizon’s agreement to obtain a fairness opinion from a financial adviser for “any transaction regarding assets of Verizon Wireless having a book value . . . in excess of $14.4 billion.”  Oh, and the plaintiffs lawyer sought $2 million in legal fees. . . .

[I] filed a 15-page objection with the court. . . .  In my objection, I detailed my reasons for concluding that this settlement was not in the interests of the shareholders the plaintiff’s counsel supposedly was representing.  Shareholders received nothing, while the plaintiff’s attorneys were to be paid $2 million, coming directly from shareholders. . . .

Happily, the New York Supreme Court judge on this case, Gordon v. Verizon Communications Inc., is Melvin L. Schweitzer, with an excellent reputation as conscientious, careful and courageous, and thus one who would not take the easy way to quickly close out a case by accepting any settlement.  [H]e rejected the proposed settlement and wrote that it would be “a misuse of corporate assets were plaintiff’s legal fees to be awarded.”  As for the supplemental disclosures, he ruled that they “fail to enhance the shareholders’ knowledge about the merger” and provide “no legally cognizable benefit to the shareholder class.”

Judge Schweitzer went on to decry the “tsunami of litigation” that abuses a “body of law meant to protect shareholder interests . . . turned on its head to diminish shareholder value by,” among other means, “imposing additional gratuitous costs, i.e. attorneys’ legal fees on the corporation.”

You can read an article in the New York Law Journal about Judge Schweitzer’s rejection of the settlement here And you can read Judge Schweitzer’s opinion here: Decision and Order in Gordon v. Verizon Communications.

Of course, Gerry Walpin is an experienced securities litigator who knew what to discuss in his objection, and Judge Schweitzer is perhaps more likely than many other judges to direct a jaundiced eye at the collusive settlement placed before him.  There was also another objector represented by counsel (Szenberg & Okun), who was reported as saying: “Lawyers should not be compensated for these type of actions and obtaining these useless settlements.”  The plaintiff’s law firm involved was Faruqi & Faruqi, a common player in these cases.

The state court judge is where the rubber really meets the road in these cases.  Even without a well-conceived objection filed by a knowledgeable shareholder, the judges in these cases should be turning away collusive settlements that do little other than line the pockets of opportunistic plaintiff’s lawyers — with the knowing assent of corporate abettors whose minds are focused elsewhere.  In the Verizon case, as Judge Schweitzer noted, the defense lawyers (heavy hitters Wachtell, Lipton, Rosen & Katz) were more focused on getting an extremely broad release of claims for the officers and directors than negotiating down the $2 million lawyer fees.  Court approval of these settlements is mandatory before they can proceed, and more judicial diligence is needed to make abusive practices like these unprofitable for the lawyers.

In some respects, the state of the law in this area is akin to federal securities class actions before 1995, when the Private Securities Litigation Reform Act was enacted to try to curb abusive practices in federal securities class actions.  Before then, federal securities class actions were virtually assured whenever a company suffered a significant stock price decline.  The statute made filing those actions a little more difficult.  Today, there are fewer abusive federal securities class actions filed, although the frequency of such filings is still significant, and more judicial skepticism for such claims is needed.

If state court judges are not willing to put the kibosh on the approval of extortion payments to plaintiff’s lawyers in order to complete these deals, statutory reform may be the only answer.  That would be difficult, though, because it would require changes to state laws governing the filing of such claims.  Delaware, the leading jurisdiction governing such corporate m&a transactions, tends to move through judicial, not legislative, reforms.  The recent brouhaha in Delaware over apparent judicial willingness to accept corporate “loser pays” by-laws for derivative actions could be where these issues are thrashed out.  But “loser pays” provisions won’t really do the job here, because it will be only the rare case that generates a judicial winner or loser, with collusive settlement being the norm.  There may be no recourse other than increased judicial willingness to hold the settling parties’ feet to the fire before approving such agreements.  Let’s hope that the state law judges will start earning their keep, as did Judge Schweitzer in the Verizon case.

Straight Arrow

January 6, 2015

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