The proposed settlement of a derivative suit before Judge Castel concerning Bank of America’s acquisitions of Countrywide and Merrill Lynch is being challenged by lawyers in a parallel case in Delaware state court. The parties to the federal case told Judge Castel on April 12 that they had settled. The next day, the Delaware lawyers filed a motion to enjoin the settlement, and Judge Castel signed an order to show cause that set a briefing schedule that will be complete by May 4. The motion papers were not (and still are not) available on ECF, but the grounds for the motion were made clear by a story in the New York Times: the Delaware lawyers contend the settlement amount of $20 million is grossly inadequate because it is a fraction of the $150 million SEC fine from the Merrill merger and because the bank’s insurance policy would result in the defendants paying nothing out of pocket. A Reuters story later provided additional background, including the unusual fact that two parallel derivative actions would proceed for so long without one case or the other being stayed.
On Friday, the settling plaintiffs opposed the motion before Judge Castel. A sample:
The Settlement not only obtains a payment of $20 million to BAC, but also achieves very substantial corporate governance changes—including the creation of an entirely new, Board level committee of independent directors to assess major new transactions and work in conjunction with BAC’s existing Disclosure Committee to ensure that such transactions are properly vetted. Corporate governance changes of this type are often approved as a component (or the entirety) of commendable settlements. The Delaware Objectors—two individual shareholders of BAC who have been content to pursue their claims in Delaware for the last three years (spurning all efforts to cooperate with Lead Plaintiffs until the eleventh hour)—have criticized the monetary component of the Settlement as too low. However, rather than voice their objections at the proper time, in connection with an orderly approval process after notice to all shareholders, the Delaware Objectors have stormed into Court seeking to “enjoin” the Settlement before it is even finalized. As with many such premature protests, the Delaware Objectors have spared no effort to cast the Settlement in alarmist terms, including the spurious charge that it is the product of “collusion” and a “reverse auction” process. Ignoring their own obligations to act in the best interests of BAC and not to cast aspersions for which they have no evidentiary basis, the Objectors and their counsel have publicly denigrated the Settlement and impugned the good faith and motivations of Lead Plaintiffs and Lead Counsel—falsely charging them with a failure to litigate, conduct discovery, or assess the strengths and weaknesses of the claims. As demonstrated below, the record overwhelmingly contradicts the Delaware Objectors’ groundless accusations. Lead Plaintiffs and their counsel litigated this Action intensively, prevailed on a hard-fought motion to dismiss, analyzed millions of pages of documents, participated in thirty-one depositions, and reviewed over 100 transcripts from other legal proceedings. The Settlement negotiations spanned over six months, were conducted before one of the nation’s most esteemed mediators, and were predicated upon a candid assessment of the claims and the damages recoverable by BAC. In these circumstances and because there is nothing—beyond the sheer label “collusion”—upon which to suppose that BAC’s or shareholders’ interests are not adequately represented, long-established legal authority bars the Delaware Objectors from being allowed to intervene . . . .