Stein v. Blankfein, C.A. No. 2017-0354-SG (Del. Ch. Oct. 23, 2018) (Glasscock, V.C.)
In this letter ruling, the Delaware Chancery Court declined to approve a settlement of derivative claims, finding that the proposed release was too great a “give” by the company compared to its “get” from the director defendants.
The plaintiff, Shiva Stein, brought derivative and direct claims against certain Goldman Sachs Group, Inc. directors. The direct claims allege failures to disclose material information in the company’s stock incentive plans and proxy statements. The derivative claims allege excessive compensation and unauthorized stock award issuances. In the proposed settlement, Stein would give up the direct and derivative claims. In return, the director defendants would cause the company to make certain executive compensation-related disclosures and continue certain already-implemented executive compensation-related practices for at least three years.
The Court held that the proposed settlement was unfair to the company because the director defendants would “give up nothing,” and explained, “The Director Defendants support a settlement that voids the derivative claims for damages against them – claims that are assets of the Company – by agreeing to have the Company take or maintain future acts of corporate hygiene.”
The Court was also troubled by the mismatch between the settlement consideration and the derivative claims. The disclosure and governance actions the director defendants committed to cause the company to take were “unrelated to the damages/disgorgement claims for conflicted overpayment that are at the heart of the derivative claims.” The Court did “not find it reasonable to approve a settlement that effectively resolves direct claims belonging to Plaintiff in return for voiding potentially-meritorious monetary causes of action belonging to the Company.”
This decision underscores the Court’s role in proposed settlements of class and derivative actions and illustrates the Court’s “give vs. get” analysis.