When Northpoint originally announced a $4 billion lawsuit against Verizon, charging the company with fraud after a failed merger attempt, the specter of punitive damages looked much like an oasis to parched Northpoint shareholders who have seen more than their share of financial desert. In the end, the only victors were the attorneys and the court appointed US Trustee, with the shareholders left holding the bag.

NorthPoint's lawsuit accused Verizon of fraud and negligent misrepresentation stemming from Verizon’s August 2000 takeover bid, which was withdrawn in November of that year, shortly after Northpoint first reported a serious sales slump. Several weeks later, Northpoint filed for Chapter 11 bankruptcy protection. The Baby Bell stated that it had the right to welch on the deal because NorthPoint had revised earlier financial reports, misrepresenting their financial status.

The lawsuit, the only remaining asset for the failed CLEC’s shareholders, offered a glimmer of hope that many of them could recoup at least a small portion of their losses, particularly toward the end of the process, when the California Superior Court rejected Verizon's bid to throw out the claims and scheduled the trial for July 29th. The shareholders also received nothing but optimism from their court appointed US Trustee Lynn Schoenmann, who repeatedly touted the strength of the case, urging them to attend the trial.

Unfortunately for shareholders, that trial never came. Verizon agreed to a settlement with the failed CLEC for 175 million dollars, and agreed to withdraw a $31.2 million bankruptcy claim. The U.S. Bankruptcy Court in San Francisco is expected to rule on the settlement within 45 days.

The question is, why would Northpoint settle with Verizon so close to a jury trial date? With American corporate confidence built on a foundation of mud thanks to recent scandals, Northpoint could have easily donned artificial tears, threw some dirt on their shirt and done their best playground victim imitation to a rather receptive audience. While their lofty goal of a four billion dollar settlement is slightly ludicrous, could not more than 175 million dollars could have been obtained? When your company’s only halfway tangible asset is a pending lawsuit, you’ll take what you can get, and leave your investors hanging out to dry.

So why did Verizon settle? "We agreed to this resolution because we believe that the settlement is a sensible result given the potential costs associated with a protracted jury trial," noted a Verizon spokesman in an interview with Bloomberg news. However, as DotComScoop points out in their most recent newsletter, a company Verizon’s size doesn’t settle to cover legal costs, they settle out of fear of a courtroom loss, and perhaps the current corporate scandal ridden climate was the trigger for that fear.

If the trial had made it before a jury it would have set a precedent in the legal system by testing the protection offered by material adverse change (MAC) provisions in acquisition agreements. According to several sources in this Law.com article, such a court battle most likely would not have gone well for Northpoint, despite investor optimism. These MAC agreements are worded incredibly vaguely, and give company’s in Verizon’s shoes ample leeway for backing out of such deals, morality, of course, be damned. To borrow a phrase from the late, great Douglas Adams, the resulting Northpoint loan defaults and implosion were "SEP".

While it's logical to subsequently believe that Northpoint was a master of its own destiny, and was responsible for the horrid shape the company was in, certain evidence would indicate that Verizon should be held accountable to some degree, if the U.S. justice system has an ounce of legitimacy. After all, according to this account of Verizon's summary adjudication hearing, Northpoint had a suitor lined up to pay 1.4 billion, a deal that went sour when Verizon sweetened the pot and presented a 1.6 million dollar deal.

And herein lies the gripe of the investors, their last hope dashed on the rocks, feeling slighted on all fronts. The tone at the Raging Bull Northpoint message board is indeed a somber one, reminiscent of Nirvana usenet fans circa April of ’94, though with a far more vengeful air. Most of the wrath is directed at Ms. E. Lynn Schoenmann, trustee of the bankruptcy estate, who noted in October of 2001 "I am the trustee of the bankruptcy estate, and as such I am responsible for representing the interests of creditors, and also other parties in interest, which includes shareholder…. My obligation is to represent the bankruptcy estate as a whole, without regard to any particular interest." According to most of the investors, this obligation was certainly not met.

In a letter responding to investor criticism, Ms. Schoenmann justifies her actions, noting that she "determined that it was in the best interests of the estate to accept the settlement", due in part because "Jury verdicts can not be predicted with certainty, and a trial could have resulted in no recovery for the estate." According to Schoenmann, in order to pay any rewards to shareholders, rewards of $750 million would have been required, a figure Schoenmann didn't think was attainable, despite consistent mentions of a "extremely solid case" and having been publicly quoted just two weeks earlier as saying "I think $4 billion is not out of the realm of possibility."

According to Frank Harding, Northpoint investor and operator of the stockskill.net website, Schoenmann pocketed 5 ¼ million dollars from the settlement. The rest of the 175 million dollar settlement will go to high priority creditors. When Broadband Reports asked him what chance investors had of seeing one red cent, he simply responded "It will be appalling and devastating to hundreds of small NorthPoint investors, including employees, if their hard earned dollars are allowed to go up in smoke without their day in court."