A Manhattan Supreme Court judge has rejected class certification and a proposed settlement in a shareholder lawsuit over Xerox Corp.'s planned tie-up with Japanese multinational photography firm Fujifilm Holdings Corp., saying the deal was unfair to Xerox investors.

The proposed settlement, announced last May, came as a win for activist investors Carl Icahn and Darwin Deason, who agreed to drop claims in a consolidated class action in exchange for the resignation of Xerox's CEO and five other board members.

The deal, which scrapped the $6.1 billion merger to give Fuji a majority stake in Xerox, included $7.5 million in attorney fees for class counsel, gave Icahn and Deason control of the Xerox board. Fuji has since filed its own lawsuit, seeking $1 billion are a result of the scuttled transaction.

A class of Xerox shareholders, however, had not been certified by the time the settlement was announced, and a group of 34 investors opposed the agreement on the grounds that it did not adequately compensate the class.

In a 15-page ruling, Justice Barry R. Ostrager said that Deason and Icahn did not adequately represent represent the class and found the deal not to be in the best interests of the shareholders. The settlement, he said, sought to bind a class that had not been certified to major corporate actions, without providing any monetary relief  in exchange for broad releases of derivative claims against Xerox directors.

The ruling also knocked out the proposed $7.5 million award of attorney fees to class counsel from Bernstein Litowitz Berger & Grossmann, Kessler Topaz Meltzer & Check and Grant & Eisenhofer.

"There were not exigent circumstances requiring purported class counsel to enter into the [settlement] other than the desire of Deason and Icahn to achieve control of the Xerox board, which purported class counsel facilitated," Ostrager said in an opinion published dated Sept. 10.

"The net result of the actions of the purported class representatives and purported class counsel was to transfer control of a public corporation to Messrs. Deason and Icahn via a private agreement that offered no tangible benefits to the interests of the class," he said.

The ruling was filed Thursday, according to an online docket.

An attorney for the proposed class did not immediately return a call Friday seeking comment on the ruling.

Eduard Korsinsky, founding partner of Levi & Korsinsky who represented objecting shareholder Carmen Ribbe, said his team would continue to press claims on behalf of Xerox shareholders who were harmed in the deal.

"We're gratified that Justice Ostrager saw our point of view, and we look forward to litigating the case on behalf of shareholders of Xerox, who have been damaged considerably," he said.

Counsel for Xerox could not immediately be reached for comment, and an attorney for Fuji declined to comment on the ruling.

The objecting shareholders were represented by attorneys from Levi & Korsinsky and Wolf Haldenstein Adler Freeman & Herz in New York. Xerox was represented by Paul, Weiss, Rifkind, Wharton & Garrison in New York, and Fuji was represented by attorneys from Morrison & Foerster.

The case was captioned In re Xerox Corporation Consolidated Shareholder Litigation.