Zynga headquarters. Photo: Jason Doiy/ALM

The Delaware Court of Chancery has approved a more than $11 million insurer-funded settlement to resolve claims in Delaware and California for insider trading against the directors of online-gaming company Zynga Inc., after the state's high court revived a shareholder derivative suit in 2016.

Chancellor Andre G. Bouchard on Jan. 18 approved the agreement, under which Zynga's insurers will pay the San Francisco-based firm $12 million on behalf of the defendants. Zynga also agreed to pay $750,000, as a result of a coverage dispute with one of the insurers, according to court documents.

Zynga, whose online games include FarmVille and Words With Friends, did not respond to a call Tuesday seeking comment on the settlement.

Bouchard, in February 2016, had dismissed the case from Zynga shareholder Thomas Sandys, alleging that Zynga's directors had used confidential information to dump Zynga stock just before the price plummeted in 2012.

According to the complaint, the directors knew that Zynga was experiencing a “rapid decline” in users and virtual goods and that its performance on Facebook was trending negatively ahead of changes on the platform, which would impact users' access to its games. All told, Sandys claimed, the defendants' profits from the trades totaled more than $100 million.

The Delaware Supreme Court, however, reversed Bouchard's ruling in December 2016, finding that Sandys' complaint had adequately alleged that a pre-suit demand that the board consider its own litigation would have been futile.

Following the high court's reversal, Zynga expanded its board and formed a special litigation committee to investigate the allegations. The committee's 330-page report ultimately found no basis for claims of insider trading or potential breaches of the duties of loyalty or care by the Zynga directors and determined that further litigation would not be in the company's best interest.

Last March, the parties agreed to extinguish all derivative claims in Delaware and California, in exchange for a cash payment from Zynga's insurer's, RSUI Indemnity Co. Inc. and Allied World Insurance Co. In a related agreement, Zynga said it would pay up to $750,000, under its policy with RSUI, which had challenged some of its coverage obligations. In total, RSUI will pay $7.45 million and Allied World will pay $4.55 million to Zynga on behalf of the directors.

Bouchard also approved $2.25 million in attorney fees, scaling the final number back slightly from the $2.75 million plaintiffs' attorneys had initially requested in the case.

An attorney for Sandys and the board members did not immediately respond Tuesday to requests for comment.

According to court papers, the insurers have 10 days from the date of the judgment to make both of the payments.

The Supreme Court's 4-1 decision to revive the claims in late 2016 focused on the ability of a majority of Zynga's board to impartially consider whether to take legal action against some of the company's directors. In the ruling, Chief Justice Leo E. Strine Jr. called for caution in presuming director independence based on the personal ties and business entanglements of three board members.

“If our law is to have integrity, Delaware must be cautious about according deference to directors unable to act with objectivity,” Strine wrote. “To consider directors independent on a Rule 23.1 motion generates understandable skepticism in a high-salience context where that determination can short-circuit a merit's determination of a fiduciary duty claim.”

Sandys was represented by Norman M. Monhait and P. Bradford deLeeuw of Rosenthal, Monhait & Goddess and Jeffrey S. Abraham and Philip T. Taylor of the New York firm Abraham, Fruchter & Twersky.

Zynga and the director defendants were represented by a team of attorneys from Pillsbury Winthrop Shaw Pittman in San Francisco, Morris, Nichols, Arsht & Tunnell in Wilmington and Wilson Sonsini Goodrich & Rosati's Wilmington and Palo Alto, California, offices.

Attorneys from both sides were not immediately available to comment.

The case is captioned Sandys v. Pincus.