Category: Class Actions
On February 8, 2018, Justice Shirley Werner Kornreich of the Commercial Division rejected a disclosure-only class action settlement in City Trading Fund v. Nye, 2018 BL 44689 (Sup. Ct. Feb. 08, 2018). The settlement provided for additional disclosures to shareholders in a proxy statement plus $500,000 in attorneys’ fees and expenses for plaintiffs’ counsel. As discussed below, the Commercial Division’s rejection of this disclosure-only settlement is one of the first applications of the First Department’s new standard for reviewing such settlements of merger challenge litigations.
First Department Adds Two New Factors to New York’s Standard of Review for Non-Monetary Settlements of Shareholder Class Actions
On February 2, 2017, the Appellate Division, First Department issued a unanimous decision in Gordon v. Verizon Communications, Inc., No. 653084/13, 2017 BL 31251 (1st Dep’t Feb. 2, 2017) that may have significant consequences for non-monetary settlements of shareholder class actions in New York. Justice Melvin L. Schweitzer, then of the Commercial Division, rejected the putative settlement due to concerns about whether shareholders could benefit from the additional disclosures that were to be made. In an opinion by Justice Marcy L. Kahn, the First Department reversed and approved the proposed settlement. Justice Kahn applied the five-factor test that the First Department adopted in Matter of Colt Indus. Shareholders Litig. (Woodrow v. Colt Indus, Inc.), 155 AD2d 154, 160 (1st Dep’t 1990), and added two new factors to that test. However, the Court’s failure to clearly define which parties these two new factors are meant to protect—i.e., the shareholders or the corporation—may lead to confusion as future courts and parties seek to apply this revised standard.