## Facts

- Google Inc. and On2 Technologies, Inc. (a Delaware corporation domiciled in New York) entered into a merger agreement in 2009.
- A common shareholder filed a New York shareholder class action against On2’s directors and others, alleging fiduciary breaches in connection with the merger and seeking primarily equitable and injunctive relief.
- Parallel shareholder litigation concerning the merger proceeded in the Delaware Court of Chancery.
- The parties negotiated a global settlement covering the New York and Delaware actions.
- The settlement required dismissal of the actions with prejudice and released “any and all” merger-related claims, including damages claims, by absent class members.
- The settlement did not provide any opt-out right for class members.
- More than 200 shareholders objected, arguing that out-of-state shareholders’ individual damages claims would be extinguished without an opportunity to opt out.

## Issues

1. Whether a New York court may approve a mandatory, non-opt-out settlement of a shareholder class action that releases and extinguishes out-of-state class members’ merger-related damages claims.
2. Whether due process requires an opt-out right for absent, out-of-state class members when a settlement has the practical effect of resolving their monetary claims, even if the complaint sought primarily equitable relief.

## Decision

- The Court of Appeals affirmed the Appellate Division, which had affirmed the trial court’s refusal to approve the settlement.
- The court held that the settlement could not be approved because it would deprive out-of-state class members of a cognizable property interest (their damages claims) without required procedural protections.
- The court treated the settlement’s practical effect—extinguishing damages claims—as controlling, notwithstanding the complaint’s equitable framing.
- The court distinguished prior New York authority denying an opt-out right in predominantly equitable class actions because this settlement’s broad release extended beyond what was necessary to resolve equitable claims.

## Legal Principles

- A settlement that binds absent class members on monetary claims implicates due process protections applicable to damages class actions.
- Out-of-state class members’ causes of action for money damages are cognizable property interests that cannot be extinguished without constitutionally sufficient procedures.
- When a settlement releases damages claims of absent, nonresident class members, due process generally requires notice, an opportunity to be heard, and an opportunity to opt out.
- The equitable label of the pleadings does not control if the settlement’s scope effectively disposes of damages claims.
- The breadth of a class settlement release is central to the due process analysis; a release of “any and all” merger-related claims may trigger opt-out requirements for nonresidents.

## Conclusion

The Court of Appeals held that New York courts may not approve a mandatory shareholder class settlement that extinguishes out-of-state class members’ merger-related damages claims without providing an opt-out right, because doing so violates due process by depriving nonresident shareholders of a property interest without adequate procedural protection.


Jiannaras v. Alfant, 27 N.Y.3d 349 (N.Y. 2016)