(Reuters) - A New York judge can consider whether to approve a $20 million settlement between Bank of America Corp (BAC.N) directors and shareholders who contend the bank overpaid for Merrill Lynch & Co, after a Delaware judge handling a similar lawsuit refused to intervene.
The settlement would resolve claims that Bank of America directors breached their duties for having misled shareholders about Merrill’s soaring losses, and hidden how Merrill was paying $3.6 billion of bonuses despite those losses.
It has drawn criticism from a group of shareholders who fear it could erase their claims in a similar lawsuit in Delaware’s Chancery Court. They argue the $20 million payout is too low.
But in an oral ruling on Friday, Delaware Chancellor Leo Strine denied a request by that group of shareholders to block U.S. District Judge Kevin Castel in Manhattan from reviewing the settlement, people familiar with his decision said. A clerk for Strine declined to comment.
Strine also granted a request by the directors to put the Delaware case on hold while U.S. District Judge Kevin Castel in Manhattan reviews the settlement, the people familiar said.
Bank of America and lawyers for the directors declined to comment. Lawyers for the Delaware plaintiffs and the New York plaintiffs did not immediately respond to requests for comment.
Under the proposed settlement, Bank of America would also create a board-level committee of independent directors to assess major new transactions for the second-largest U.S. bank, court papers show.
Bank of America agreed to buy Merrill on September 15, 2008, at the height of the financial crisis.
Merrill’s losses were a factor in the bank’s being forced to obtain a second federal bailout, and contributed to a 93 percent drop in its share price over six months. The takeover closed in January 2009.
The defendants include Kenneth Lewis, the Bank of America chief executive who engineered the takeover, which was once valued at $50 billion. Lewis left the bank at the end of 2009.
Castel also oversees nationwide shareholder litigation against Bank of America itself over the Merrill purchase, where damages could be much larger.
Plaintiffs in the Delaware case claimed the $20 million payout was grossly inadequate, representing just 4 percent of the directors’ insurance coverage. They also said their claims could be wiped out if Castel approved the settlement.
The lead plaintiffs in the New York case are the Hollywood Police Officers’ Retirement System in Florida, and the Louisiana Municipal Police Employees Retirement System.
Both cases are derivative lawsuits brought on behalf of Bank of America. Payouts from the lawsuits would go to the Charlotte, North Carolina-based lender rather than to shareholders.
The cases are In re: Bank of America Corp Stockholder Derivative Litigation, Delaware Chancery Court, No. CA4307; and In re: Bank of America Corp Securities, Derivative, and Employee Retirement Income Security Act (ERISA) Litigation, U.S. District Court, Southern District of New York, No. 09-md-02058.
Reporting by Jonathan Stempel in New York; Editing by Bernard Orr