San Francisco, July 23 (Bloomberg) -- Verizon Communications Inc., the biggest U.S. local telephone company, will pay NorthPoint Communications Inc. $175 million to settle a $4 billion lawsuit over their failed merger.

NorthPoint filed suit November 2000, days after New York- based Verizon scrapped plans to acquire the high-speed Internet provider for an estimated $2.15 billion. San Francisco-based NorthPoint filed for Chapter 11 bankruptcy weeks later.

Under the settlement, Verizon will pay NorthPoint $175 million in cash and withdraw a $31.2 million bankruptcy claim, said Lynn Schoenmann, a trustee appointed to manage NorthPoint's remaining business.

``The settlement is in the best interests of NorthPoint's creditors,'' Schoenmann said. ``The litigation proved to be a very valuable asset.''

In its lawsuit filed in state court in San Francisco, NorthPoint had asked for $1 billion in actual damages, $1 billion for fraud, $1 billion for negligent misrepresentation, and an award of punitive damages that could have brought its total claims to more than $4 billion. A San Francisco jury was scheduled to hear the case starting next week.

``We believe that a jury would have found that we were within our rights under the terms of the contract,'' said Randal Milch, Verizon's deputy general counsel. ``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.''

Chapter 7

NorthPoint filed for bankruptcy protection in January 2001 and sold its operations to AT&T Corp. the following March for $135 million. U.S. Bankruptcy Judge Thomas Carlson in San Francisco converted NorthPoint's bankruptcy to a Chapter 7 liquidation in June 2001.

Shares of Verizon fell $1.22 to $27.43. They have fallen 42 percent this year. NorthPoint shares rose less than a cent to 23 cents.

Carlson still must approve the company's settlement with Verizon, Schoenmann said. A hearing will likely be held within the next 45 days.

The defunct Internet company still owes lenders $52 million, bondholders about $400 million, and other creditors about $100 million, according to Schoenmann.

In the lawsuit, NorthPoint said Verizon abandoned the takeover for reasons that had nothing to do with NorthPoint's finances, such as investor criticism. The agreement was supposed to help NorthPoint and Verizon together create a national Internet network using digital subscriber line, or DSL, technology.

Verizon has said NorthPoint's deteriorating business and finances gave it the right to abandon its August 2000 agreement to buy the Internet provider.