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Del. Chancery Court Rejects Settlement in Challenge to Pay of Goldman Sachs Directors

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The Delaware Court of Chancery has rejected as unfair a proposed settlement in an investor suit challenging the compensation of Goldman Sachs Inc.'s non-employee directors, the latest in a string of cases taking a tougher stance on disclosure settlements.

Vice Chancellor Sam Glasscock III on Tuesday ruled that additional disclosures about its executive-pay plan did not provide enough benefit to a Goldman investor, who had agreed to release direct and derivative claims against the investment bank's directors.

"In return for a release of the monetary claims against them, the director defendants give up nothing," Glasscock wrote in a 12-page memorandum opinion.

Plaintiff Shiva Stein sued the bank last year, claiming that the board members had approved an excessive stock incentive plan for themselves and failed to provide sufficient details to investors. After briefing the directors' motion to dismiss the case, both sides agreed in March to a settlement that granted a broad release of claims in exchange for disclosures and a promise to continue practices already in place regarding executive compensation for at least three years.

Stein said that the reforms would bring Goldman in line with federal regulations that would allow the bank to claim $1.4 billion in tax benefits.

However, Fordham University law professor Sean J. Griffith objected to the settlement, arguing that the release was overly broad and that the concessions from the company provided no real benefit to investors. In response, the parties agreed to limit the released claims to breaches of fiduciary or disclosure duties and to narrow the scope of the release to exclude "unknown, foreign antitrust claims."

But Glasscock said on Tuesday that, while Goldman's disclosures and "acts of corporate hygiene may provide some value, they were unrelated to the derivative claims for damages and disgorgement underlying Stein's suit.

"I do not find it reasonable to approve a settlement that effectively resolves direct claims belonging to the plaintiff in return for voiding potentially-meritorious monetary causes of action belonging to the company," he said. "Therefore, I cannot approve the proposed settlement."

The directors' motion to dismiss the suit remains pending.

The ruling fit within a line of cases dating back to late 2015, in which the Chancery Court has cracked down on settlements that resolve investor lawsuits by providing additional information, but not monetary compensation, to the plaintiffs.

Griffith, director of the Fordham Corporate Law Center, had opposed a settlement agreement the case In re Riverbed Technology Stockholders Litigation in 2015, which earned him a modest award for attorney fees, even though the settlement was later approved. He also acted as amicus curiae in the the landmark In re Trulia Stockholder Litigation case, which outlined new standards for evaluating the "give" and "get" of disclosure settlements.

Both Glasscock and Chancery Court Chancellor Andre G. Bouchard have credited Griffith with helping to shape the court's thinking when it comes to evaluating the settlements.

Attorneys for Stein and the Goldman directors were not immediately available to comment on Wednesday.

Stein is represented by Brian E. Farnan, Michael J. Farnan and Rosemary J. Piergiovanni of Farnan LLP.

The director defendants are represented by Kevin G. Abrams, J. Peter Shindel Jr. and Matthew L. Miller of Abrams & Bayliss.

The case is captioned Stein v. Blankfein.