Bank of America Corp. directors have reached a definitive settlement of litigation by shareholders, who accused the bank of overpaying for Merrill Lynch & Co, a federal judge said on Wednesday.  Among the defendants is Kenneth Lewis, former CEO of Bank of America, who engineered the takeover. In a written order, U.S. District Judge Kevin Castel in Manhattan did not reveal the settlement terms, but said the settlement and request for preliminary approval should be filed with his court within 14 days. What It Will Cost BofA. According to previously filed court papers, a $20 million settlement is expected to be the magic number to resolve claims that the bank directors misled shareholders about Merrill's soaring losses, and hid that Merrill was paying $3.6 billion of bonuses at the time.  Going forward, Judge Castel may delay final approval until after the end of a 10/22/12 trial he oversees in shareholder securities class-action litigation against BofA , which could result in much larger damages. Three Reasons for A Delay. Judge Castel attributed his decision to 3 reasons:  (i) a need to decide whether certain damages can be recovered in the class-action case or the director case;  (ii) the scope of insurance coverage for directors; and, (iii) a desire to better understand the facts. Since the Takeover. To recap, Bank of America agreed to buy Merrill on 9/15/08, resulting in the need for a second federal bailout out of the bank and a 93% drop in its share price in 6 months.  Nevertheless, the takeover successfully closed in January 2009. Since then, a second case against the directors... has been presented to Delaware Chancery Court, to the potential misfortune of shareholders.   The second case contends that the $20 million New York settlement was too low and could erase their claims.  In that case, shareholders brought lawsuits against the directors on behalf of Bank of America, thus payouts would go to the bank, not to shareholders. The case: In re: Bank of America Corp Securities, Derivative, and Employee Retirement Income Security Act (ERISA) Litigation, U.S. District Court, Southern District of New York, No. 09-md-02058. [Reuters, 6/21/12]