Lawyers get $1.3 million in iPayment settlement

Company and management buyers concede on several points to allow merger to move forward

Email | Print By E. Thomas Wood

05-02-2006 12:41 PM — iPayment Inc. and the management team buying it out of public ownership have learned that playing by the book is no guarantee against potential litigation.

The Nashville-based payment-processing company revealed last night that it has settled a lawsuit challenging the buyout by Chairman and CEO Gregory S. Daily that was agreed to at the end of last year. Even though the company's board appointed a special committee of independent directors to consider Daily's initial proposal, and even though that committee twice turned down his offers while shopping the company to other potential bidders -- and spent seven months trying to deal with the conflict-of-interest issues raised by Daily's offer -- the company and its buyers have agreed to pay $1.3 million to the lawyers who represent the suing shareholders.

iPayment and its management have also given ground on several issues related to the structure of the deal, according to its filing with the Securities and Exchange Commission.  The breakup fee Daily will receive if the transaction does not happen is reduced from $25 million to a maximum of $18 million, and Daily's group will have to pay the shareholders part of any profit reaped by a quick flip of the company. The payout, of up to $69.3 million, will come due if Daily and co. sell half or more of iPayment within nine months after the merger closes.

The settlement provides that the buyout must be approved by a majority vote of company shares other than those held by Daily and his team. And the plaintiffs are allowed until May 26 to conduct further discovery in order to confirm iPayment's account of how the deal went down.

"Although iPayment and the individual defendants believe that the [lawsuit] is without merit," the filing states, "they recognize that the litigation would cause distraction and diversion of resources and that a successful outcome could not be guaranteed."

The law firm of noted class-action litigator William S. Lerach leads the group of plaintiff's attorneys that will divide the $1.3 million. Local firms Branstetter, Stranch & Jennings and Barrett, Johnston & Parsley will also get shares of the pot. Three lawsuits filed in May and June 2005, claiming breaches of fiduciary duties on the part of the company and its directors, were consolidated in August into a single case at Davidson County Chancery Court, which was revised in January after the buyout was announced.

Last month, Lerach's firm sued Brentwood-based prison health firm America Service Group Inc. after its stock swooned on news of an internal investigation. The Barrett firm has sued Nashville publisher Thomas Nelson Inc. over its own going-private transaction. (Full disclosure: Barrett, Johnston & Parsley also represents NashvillePost.com in its ongoing open-records litigation with the Tennessee Education Lottery Corp.)

Defense counsel for the various parties in the case are listed, in the following order, as Debevoise & Plimpton LLP of New York; Bass Berry & Sims PLC of Nashville; White & Case LLP of New York; Waller Lansden Dortch & Davis PLLC of Nashville; Akin Gump Strauss Hauer & Feld LLP of New York; and Neal and Harwell PLC of Nashville.