United States: Gordon v. Verizon: New York Parts Company With Delaware

On February 2, 2017, the New York Appellate Division, First Department, issued a decision in Gordon v. Verizon Communications, Inc., No. 653084/13, 2017 WL 442871 (1st Dep't 2017), approving the settlement of litigation over an acquisition by Verizon Communications ("Verizon") and articulating a new test to evaluate the fairness of such settlements. The Gordon decision signals that New York will remain a friendly venue to disclosure-based M&A settlements and may see increased shareholder M&A lawsuits as a result

As we have repeatedly written about ( here, here and here), Delaware Chancery Courts have spent the past year attempting to curtail, or eliminate altogether, M&A litigation settlements where the sole remedy is enhanced proxy disclosures. Chancellor Bouchard's landmark decision in In re Trulia Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016), rejected these "disclosure-only" settlements, finding that the "enhanced" disclosures produced by such settlements were not "material or even helpful" to stockholders. The Chancery Court bemoaned the proliferation of disclosure-only settlements in Delaware, and indicated that these types of settlements would be met by "continued disfavor" unless the supplemental disclosures are "plainly material," i.e., they must "significantly alter the 'total mix' of information made available."

In Trulia's wake, the number of M&A suits filed in Delaware plummeted—declining by almost 75% in the first half of 2016—as plaintiffs' counsel opted to file in federal court or states other than Delaware in the hope of finding more hospitable fora for "disclosure-only" resolutions.

The Gordon Case

Gordon arose out of Verizon's 2013 purchase of Vodafone's 45% stake in Verizon Wireless for $130 billion in cash and stock. Within three days of the announcement, Verizon shareholders filed a class action complaint in New York Supreme Court seeking to enjoin the transaction and alleging that Verizon's directors had breached their fiduciary duties by overpaying for the interest in Verizon Wireless. Negotiations to settle the lawsuit ensued, and in December 2013, the parties agreed to a settlement whereby Verizon would amend their proxy solicitation to include additional disclosures, and, for three years, Verizon would be required to obtain an independent fairness opinion for any disposition of more than 5% of its assets. As part of the settlement, defendants agreed not to oppose a fee award to plaintiffs' counsel up to $2 million.

On December 10, 2013, Verizon filed the definitive proxy, which contained four valuation-related supplemental disclosures negotiated by plaintiffs: (i) that the valuation of another company in which Verizon had an interest was a product of the negotiation between Verizon and Vodafone; (ii) details regarding Verizon's financial adviser's comparable companies analysis; (iii) details regarding Verizon's financial adviser's comparable transactions analysis; and (iv) a presentation of valuation ranges for Verizon assets.

At the trial court's fairness hearing, two Verizon shareholders objected to the settlement, arguing that the supplemental disclosures and the fairness opinion requirement provided no real benefit to Verizon's shareholders (one of the objectors retained a Fordham law professor who regularly provides expert testimony on behalf of objecting shareholders). The court agreed. Citing Delaware Chancery precedent regarding the requirement that supplemental disclosures "materially enhance" shareholder knowledge, the trial judge declined to approve the settlement, finding that the additional disclosures negotiated by plaintiffs were "unnecessary surplusage" that "individually and collectively fail[ed] to materially enhance the shareholders' knowledge about the merger." The trial court also found that the agreement regarding fairness opinions, far from providing a benefit to Verizon, "may actually curtail" the ability of Verizon's directors to use their informed business judgment in effecting asset dispositions.

On appeal, however, the Appellate Division reversed and approved the settlement. As an initial matter, the Appellate Division found that because the parties included a New York choice-of-law provision in the settlement agreement, New York law would apply (an implicit rejection of the trial court's frequent citation to Chancery precedent). Although Verizon is a Delaware corporation, it does not have a Delaware forum-selection clause in its corporate bylaws and the Appellate Division did not evaluate whether the internal affairs doctrine required application of Delaware law. Accordingly, Gordon applied the five-factor New York test for evaluating the settlement of merger litigation articulated in In re Colt Industry Shareholders Litigation, 155 A.D.2d 154, 160 (1st Dep't 1990): (i) the likelihood of plaintiffs' success on the merits; (ii) the extent of support from the shareholders; (iii) the judgment and competency of counsel; (iv) the presence of arms-length, good faith negotiation between the parties; and (v) "the nature of the issues of law and fact." In short order, the Appellate Division found that all five factors weighed in favor of approval of the settlement.

However, the inquiry did not end there. Noting the "need to curtail excesses" of corporate management and "overzealous litigating shareholders and their counsel," Gordon analyzed two new factors: whether (1) the non-monetary relief in a proposed settlement is in "the best interests of all members of the putative class of shareholders"; and (2) the proposed settlement is "in the best interest of the corporation." In connection with the first new factor, the Appellate Division found that the supplemental disclosures provided "some . . . albeit minimal" benefits, but that the fairness opinion requirement provided sufficient corporate governance reform to warrant approval. In evaluating the best interests of Verizon, the Appellate Division noted that settlement would permit the Company to avoid "having to incur the additional legal fees and expenses of a trial."

In connection with plaintiffs' fee request, Gordon considered factors such as the time and labor required to bring the action, the difficulty of the questions involved, and the benefit to the class from counsel's services. Noting the "significant number" of New York cases where courts awarded attorneys' fees even though "the benefits of the derivative litigation [were] 'scant,' 'slight,' 'modest' or even 'minimal,'" the Appellate Division remanded the matter back to the trial court for the determination of the fee award.


  • Delaware corporations should reexamine the adoption of exclusive forum bylaws. Verizon's lack of a Delaware forum selection bylaw allowed the Gordon shareholder-plaintiffs to file suit in New York and thereby evade recent Delaware precedent regarding merger settlements. In light of the precipitous decline in merger litigation filed in Delaware post-Trulia, it is fair to wonder whether the Gordon plaintiffs would have brought suit at all if the matter was required to proceed in Chancery Court. Consequently, Delaware corporations should consider whether the adoption of an exclusive forum bylaw would be beneficial to reduce frivolous merger-related suits.
  • Because of its lower standard, New York may become a more frequent venue for M&A litigation. Although the Gordon majority claimed its new "enhanced" Colt standard was "comparable" to the standard laid out by the Delaware Chancery Court in Trulia, it seems clear that the bar for approving these settlements is lower in New York. The five factors lifted from Colt are fairly superficial, as evidenced by the fact that the Appellate Division required only a few short sentences apiece to find that the Gordon settlement was sufficient. And although Gordon now requires New York trial courts to consider the additional hurdle of whether the settlement is in the "best interest" of the shareholder class, this does not rise to the rigorous "give versus get" analysis set out in Trulia.
  • New York's less demanding threshold for settlement approval may be beneficial in certain circumstances. A possible downside to the recent Delaware precedent is that quick-and-easy "disclosure-only" settlements are much more difficult to obtain. This burdens companies that would otherwise prefer to quickly pay plaintiffs' "highwayman's tax" to end the litigation. Indeed, plaintiffs may be more likely to demand more meaningful action by corporations (in order to satisfy the "material benefit" requirement under Trulia), which could extend the litigation and interfere with the closing of the transaction. Now that New York has articulated a more relaxed standard for settlement approval, corporate defendants (even those with Delaware exclusive forum bylaws) will have the option to permit corporate litigation to proceed in New York in the hope of obtaining quick relief.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
23 Jan 2019, Speaking Engagement, New York, United States

New York partner Rich Martinelli will be a featured panelist during the Society of Physician Engineers' event, "Intellectual Property Law & Tax Credits for Life Science Companies."

24 Jan 2019, Seminar, Hong Kong, China

Planning and conducting a due diligence investigation should combine a careful analysis of the target with a deep understanding of considerations specific to the acquiror or investor.

28 Jan 2019, Conference, New York, United States

Orrick is proud to once again sponsor The University of Texas at Austin School of Law’s (UT) Renewable Energy Law Conference, held in conjunction with UT’s Energy Week 2019.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions