Bank of America Corporation’s directors have agreed to pay $62.5 million to resolve shareholder claims that they botched the company’s 2008 acquisition of Merrill Lynch & Co.
Southern District Judge P. Kevin Castel (See Profile) approved the settlement at a hearing on Jan. 11. BofA previously negotiated a deal to settle the claims for $20 million, but Castel expressed concerns over that deal and pushed the parties to renegotiate.
BofA announced its plan to buy Merrill for $50 billion in September 2008 at the height of the financial crisis. BofA’s shareholders voted in favor of the deal that December. In January 2009, after the deal closed, Merrill announced $15 billion in losses for the fourth quarter of 2008. In the months that followed, shareholders brought a flood of derivative actions on behalf of the company against its directors, alleging that the board overpaid for Merrill and didn’t act in the interest of shareholders.
A batch of cases were consolidated into multidistrict litigation before Castel. The Louisiana Municipal Police Employees’ Retirement System nabbed the role of lead plaintiff, and Saxena White and Kahn Swick & Foti were named lead counsel. Meanwhile, a trio of firms—Horwitz Horwitz & Paradis; Wolf Haldenstein Adler Freeman & Herz; and Chimicles & Tikellis—pursued a parallel derivative action in Delaware Chancery Court on behalf of a different lead plaintiff before Chancellor Leo Strine Jr. Neither Castel nor Strine were willing to cede jurisdiction to the other, even though the two cases were largely identical, and a settlement in one would render the other moot.
Last April, Kahn Swick and Saxena White reached a $20 million deal with BofA in the Manhattan federal action. The deal also called for corporate governance changes. The two firms later requested attorney fees of $13 million, or 65 percent of the settlement.
The lawyers for the shareholders in the Delaware state case immediately objected to the deal, calling it “grossly inadequate” and “the product of collusion.” They pointed out that their expert pegged damages in excess of $5 billion, and that the proposed deal would tap into just 4 percent of BofA’s $500 million in directors & officers insurance.
Davis Polk & Wardwell, which represented the BofA directors (including former CEO Kenneth Lewis), filed a brief defending the deal, arguing that it followed six months of arm’s length negotiations before a well-known mediator.
In May, Castel ruled that the Delaware shareholders needed to wait until the formal settlement review process to air their grievances. He kicked off that process in June by preliminarily approving the deal.
As expected, Horwitz Horwitz & Paradis; Wolf Haldenstein; and Chimicles & Tikellis filed a brief in November urging Castel to let them intervene and take over as lead counsel. They argued that Saxena White and Kahn Swick conducted no “meaningful discovery” and never prepared an expert report. They also pointed out that Bank of America agreed in September 2012 to pay $2.4 billion to resolve a shareholder class action over the Merrill deal.
Those gripes clearly made an impact on Castel. In a Jan. 4 decision, he wrote that he was “not yet persuaded of the fairness, reasonableness, and adequacy” of the deal. He also lamented that “some, most, or all” of the money would go toward attorney fees.
After a week of negotiation, all the parties—including the objectors from the Delaware case, presented a revised $62.5 million deal to Castel at a hearing on Jan. 11. Castel approved the new deal from the bench, bringing another chunk of BofA’s financial crisis woes to a close.
Michael Schwartz of Horwitz Horwitz & Paradis, who represented the shareholders in the Delaware case, said he thinks the new settlement is a fair result. He added that he and his colleagues plan to petition Castel to grant them legal fees.
“Our position is that we created value for the bank by pursuing claims vigorously,” he said. “Our objection itself created value.”
Joseph White III of Saxena White did not immediately return a call for comment.
Lawrence Portnoy of Davis Polk, who represented the BofA directors, declined to comment.
The case is In re: Bank of America Securities, Derivative, and Employee Retirement Income Security Act (ERISA) Litigation, 09-md-02058.
@|Jan Wolfe, a reporter for The Litigation Daily, an affiliate, can be contacted at email@example.com.