I think there will be an appeal of the ruling. Settlements are favored, and I think the judge made a mistake. Here's my thinking:
While the judge has not filed his ruling yet, I guess we know he had two objections to the settlement:
1) He wanted the "record date" to be in 2018 when the spinoff occurred
2) he thought the $100 million for legal fees was excessive
Let's look at each of these objections, and what happens next, from a legal perspective.
First there are two choices, once Judge Borrok files his ruling, declining to approve the settlement.
1- They can come up with a new proposed settlement, addressing the fees issue and the "record date" issue, or
2- They can appeal jhis ruling
In the first option, the fee reduction would be a positive. The record date is more difficult. To address this, you have to look at the nature of a derivative action.
The derivative action is the company's lawsuit against the directors/ third parties who injured the company by their actions.
If the company settles the action, the payment comes NOT to shareholders, but to the company, since the company is the actual plaintiff, represented by the plaintiffs as a "derivative action"
The problem with paying the company is that both the injured shareholders benefit and the shareholders who actually perpetrated the crime. That's why the settlement was structured as it was, so as to ONLY compensate those who were innocent shareholders.
The question becomes, how do you have a new settlement that only benefits the "innocent" shareholders at the time of the crime or bad acts?
If you say the injury took place at the time of the inadequate payout, then you need to determine how much of the injury was to the company's ongoing operations, and how much was not reflected in the payout. That's hard to do, which is why the settlement made sense. One could argue that the major damage was to the continuing operations of the company, since the innocent shareholders did get a payout, which in today's dollars, and with the ADR ratio at the time, was fairly good. (The plaintiffs argued that in their reply brief to the settlement objections)
Plus, the settlement needs to address the problem of guilty parties benefitting from the settlement.
So it's very difficult to come up with a new settlement that meets both the judge's objections.
I think it's more likely that the Plaintiffs appeal the ruling, and argue that the judge is misunderstanding the nature of a derivative lawsuit.
That is, that a derivative lawsuit is not a shareholder's action, but an action by the company brought BY shareholders, on behalf of the company.
And the only reasonable way to make the company whole is to pay the company today, what the current value of the injury is (the $300 million settlement amount). And then, you pay that only to shareholders who are innocent of wrongdoing, which is why the settlement agreement required a "record date"
That's what I think confused the judge. It's not really a "record date" like the date of a dividend.
It's LIKE a record date because you have to set the date when the proceeds due to the company are distributed, but only to "innocent" shareholders.
So I think it's more likely they file an appeal here, and get an appeals court to look at how the judge misunderstood the derivative action.
So the proposed settlement is a very fair and equitable resolution. given the nature of the action.
I think they have a good shot at prevailing on an appeal, and still making the settlement happen.
