Michael Jiannaras, Plaintiff,v.Mike Alfant, et al., Appellants, et al., Defendant; Kathleen M. Ackerman, et al., Non-Party Respondents.BriefN.Y.March 30, 2016To Be Argued By: FREDERICK LIU (Admitted Pro Hac Vice) Time Requested: 30 Minutes APL-2015-00135 Queens County Clerk’s Index No. 21262/09 Court of Appeals STATE OF NEW YORK MICHAEL JIANNARAS, Plaintiff, —against— MIKE ALFANT, MIKE KOPETSKI, J. ALLEN KOSOWSKY, JAMES MEYER, AFSANEH NAIMOLLAH, THOMAS WEIGMAN, and ON2 TECHNOLOGIES, INC., Defendants-Appellants, —and— GOOGLE INC., Defendant, KATHLEEN M. ACKERMAN, et al., Non-Party Respondents. BRIEF FOR DEFENDANTS-APPELLANTS d DAVID WERTHEIMER HOGAN LOVELLS US LLP 875 Third Avenue New York, New York 10022 Telephone: (212) 918-3000 Facsimile: (212) 918-3100 NEAL KUMAR KATYAL FREDERICK LIU (Admitted Pro Hac Vice) MATTHEW A. SHAPIRO* HOGAN LOVELLS US LLP Columbia Square 555 Thirteenth Street, NW Washington, D.C. 20004 Telephone: (202) 637-5600 Facsimile: (202) 637-5910 *Admitted only in New York; *supervised by firm members Counsel for Defendants-Appellants Mike Alfant, Mike Kopetski, J. Allen Kosowsky, James Meyer, Afsaneh Naimollah, Thomas Weigman, and On2 Technologies, Inc. July 7, 2015 i CORPORATE DISCLOSURE STATEMENT Pursuant to Rule 500.1 (f) of the Rules of Practice of the Court of Appeals, Defendant-Appellant On2 Technologies, Inc. (now know as On2 Technologies, LLC), states that the following are its parents, subsidiaries, and affiliates: 1. Google Inc. 2. Google Finland Oy. ii STATEMENT OF RELATED LITIGATION Shortly after this action was commenced in New York State Supreme Court, parallel actions were filed in the Delaware Court of Chancery (see In re On2 Technologies, Inc. Shareholder Litig. [Del Ch, Cons. C.A. No. 4793-VCG]). The plaintiffs in the Delaware actions joined the global settlement agreement that was submitted to the Supreme Court for approval in this ca e. The Delaware court stayed the Delaware actions pending approval of the settlement agreement and has continued to stay those actions pending the outcome of this appeal. iii TABLE OF CONTENTS Page CORPORATE DISCLOSURE STATEMENT .................................................. i STATEMENT OF RELATED LITIGATION ........................................................ ii TABLE OF AUTHORITIES ............................................................................. v PRELIMINARY STATEMENT .......................................................................... 1 STATEMENT OF JURISDICTION ................................................................... 3 QUESTION PRESENTED ................................................................................... 4 STATEMENT OF FACTS .............................................................................. 4 ARGUMENT................................................................................................... 10 I. COLT HELD THAT OUT-OF-STATE CLASS MEMBERS HAVE NO DUE PROCESS RIGHT TO OPT OUT OF CLASS ACTIONS INVOLVING EQUITABLE RELIEF AND INCIDENTAL DAMAGES ..................................................................... 10 A. Under Colt’s First Holding, There Is No Due Process Right To Opt Out When Damages Are Incidental ............................. 10 B. The Damages In This Case Are Incidental ................................. 18 II. TO THE EXTENT LANGUAGE IN COLT MUST BE READ TO REQUIRE OPT-OUT RIGHTS IN THIS CASE, THAT LANGUAGE SHOULD BE OVERRULED ...................... ..................... 22 A. Due Process Does Not Require Opt-Out Rights When Damages Are Incidental .............................................................. 23 1. Colt’s Reasoning With Regard To Equitable Relief Informs The Constitutional Analysis For Incidental Damages ........................................................................... 24 2. Colt’s Reasoning Demonstrates That Due Process Does Not Require Opt-Out Rights When Damages Are Incidental .................................................................... 27 TABLE OF CONTENTS—Continued Page iv B. The Decisions Of Other State And Federal Courts Hold That Opt-Out Rights Are Unnecessary When Damages Are Incidental .............................................................................. 35 CONCLUSION .......................................................................................... 41 v TABLE OF AUTHORITIES Page(s) CASES: Allison v Citgo Petroleum Corp., 151 F3d 402 (5th Cir 1998) ........................ 12, 13, 14, 19, 20, 21, 27, 28, 31, 36 Amara v Cigna Corp., 925 F Supp 2d 242 (D Conn 2012) ........................................................... 37 Amgen Inc. v Connecticut Retirement Plans & Trust Funds, 568 US —, 133 S Ct 1184 (2013) .................................................................... 25 Barabin v Aramark Corp., 2003 WL 355417 (3d Cir Jan. 24, 2003, No. 02-8067) .................................... 37 Burnet v Coronado Oil & Gas Co., 285 US 393 (1932) ................................................................................ 22 Cafeteria & Rest. Workers Union, Local 473 v McElroy, 367 US 886 (1961) ................................................................................ 24 Califano v Yamasaki, 442 US 682 (1979) ................................................................................ 33 Cooper v Southern Co., 390 F3d 695 (11th Cir 2004) .................................................................... 36 Critchfield Physical Therapy v Taranto Group, Inc., 263 P3d 767 (Kan 2011) ............................................................................... 32 DeBoer v Mellon Mtge. Co., 64 F3d 1171 (8th Cir 1995) ..................................................................... 36 Ehrenhaus v Baker, 717 SE2d 9 (NC Ct App 2011) ............................................................ 29, 37 Eubanks v Billington, 110 F3d 87 (DC Cir 1997) ............................................................................. 31 TABLE OF AUTHORITIES—Continued Page(s) vi Gulf Oil Co. v Bernard, 452 US 89 (1981).................................................................................. 33 Higby v Mahone, 48 NY2d 15 (1979) ..................................................................................... 22 Hynson v Drummond Coal Co., 601 A2d 570 (Del Ch 1991) ................................................................. 20, 37 In re Celera Corp. Shareholder Litig., 59 A3d 418 (Del 2012) ................................................................................ 38 In re Colt Indus. Shareholder Litig., 77 NY2d 185 (1991) ................................................................................. passim In re Colt Indus. Shareholder Litig., 155 AD2d 154 (1st Dept 1990) .................................................................. 10 In re Countrywide Corp. Shareholder Litig., 2009 WL 2595739 (Del Ch Aug. 24, 2009, C.A. No. 3464-VCN) ................... 37 In re Integra Realty Resources, Inc., 354 F3d 1246 (10th Cir 2004) .............................................................. 35, 36 In re Lawson Software, 2011 WL 2185613 (Del Ch May 27, 2011, C.A. No. 6443-VCN).................... 37 In re Mobile Communications Corp. of Am., Inc. Consolidated Litig., 1991 WL 1392 (Del Ch Jan. 7, 1991, Civ. A. Nos. 10627, 10638, 10644, 10656, 10697) ................................................................................ 37, 39 In re Phila. Stock Exchange, Inc., 945 A2d 1123 (Del 2008) .......................................................................... 33,37 In re Wm. Wrigley Jr. Co. Shareholder Litig., 2009 WL 154380 (Del Ch Jan. 22, 2009, Civ. A. No. 3750 VCL) ................... 37 Jefferson v Ingersoll Intl. Inc., 195 F3d 894 (7th Cir 1999) ..................................................................... 36 TABLE OF AUTHORITIES—Continued Page(s) vii Johnson v Meriter Health Servs. Employee Retirement Plan, 702 F3d 364 (7th Cir 2012) ..................................................................... 20 Joseph v Shell Oil Co., 1985 WL 21125 (Del Ch Feb. 8, 1985, Civ. A. No. 7450) ............................... 20 Kincade v Gen. Tire & Rubber Co., 635 F2d 501 (5th Cir 1981) .................................................................. 33, 36 Lemon v Intl. Union of Operating Engrs., Local No. 139, 216 F3d 577 (7th Cir 2000) .................................................................. 31, 36 Mathews v Eldridge, 424 US 319 (1976) ................................................................................ 24 Morrissey v Brewer, 408 US 471 (1972) ................................................................................ 24 Neil v Zell, 275 FRD 256 (ND Ill 2011) ....................................................................... 37 Nelson v Appleway Chevrolet, Inc., 157 P3d 847 (Wash 2007) ....................................................................... 36 Noerr v Greenwood, 2002 WL 31720734 (Del Ch Nov. 22, 2002, No. 14320-NC) .................... 20, 32 Nottingham Partners v Dana, 564 A2d 1089 (Del 1989) .................................................................... 36, 37, 39 Ortiz v Fibreboard Corp., 527 US 815 (1999) ................................................................................ 40 People v Anderson, 66 NY2d 529 (1985) ................................................................................... 15 People v Bing, 76 NY2d 331 (1990) ................................................................................... 22 TABLE OF AUTHORITIES—Continued Page(s) viii People v Johnson, 66 NY2d 398 (1985) ................................................................................... 23 People v Peque, 22 NY3d 168 (2013) ................................................................................... 23 Phillips Petroleum Co. v Shutts, 472 US 797 (1985) .............................................................................. 16, 17 Policano v Herbert, 7 NY3d 588 (2006) ..................................................................................... 23 Reeb v Ohio Dept. of Rehab. & Corr., 435 F3d 639 (6th Cir 2006) ..................................................................... 37 Reynolds v Natl. Football League, 584 F2d 280 (8th Cir 1978) ..................................................................... 35 Robinson v Metro-North Commuter R.R., 267 F3d 147 (2d Cir 2001) ............................................................. 29, 31, 6 Shapiro v Nu-West Indus., Inc., 2000 WL 1478536 (Del Ch Sept. 29, 2000, No. Civ. A. 15442) ...................... 30 Sloan v Borgwarner, 263 FRD 470 (ED Mich 2009) ......................................................................... 37 Smith v Swormstedt, 57 US 288 (1853).................................................................................. 29 Thorn v Jefferson-Pilot Life Ins. Co., 445 F3d 311 (4th Cir 2006) ..................................................................... 37 Turner v Bernstein, 768 A2d 24 (Del Ch 2000) ....................................................... 19, 20, 27, 32, 37 Wacht v Cont. Hosts, Ltd., 1994 WL 525222 (Del Ch Sept. 16, 1994, Civ. A. No. 7954) .................... 20, 37 TABLE OF AUTHORITIES—Continued Page(s) ix Wal-Mart Stores, Inc. v Dukes, 564 US —, 131 S Ct 2541 (2011) ................................... 1, 13, 14, 19, 20, 21, 27 Walters v Natl. Assn. of Radiation Survivors, 473 US 305 (1985) ................................................................................ 24 Wells v Shearson Lehman/Am. Express, Inc., 72 NY2d 11 (1988) ..................................................................................... 33 Wurtzel v Park Towne Place Assocs. L.P., 2002 WL 31487894 (Pa Com Pl Nov. 5, 2002, Nos. 3511 June Term 2001, Control 90648) ............................................. 30 STATUTES : CPLR 901 (a) ................................................................................................... 29 CPLR 904 (a) ............................................................................................. 28, 29 CPLR 904 (b) .................................................................................................. 29 CPLR 908 ........................................................................................................ 29 CPLR 5602 (b) (1) ............................................................................................. 3 RULE : Fed Rules Civ Pro rule 23 (b) (2) ............................................................... 36 OTHER AUTHORITIES : American Law Institute, Complex Litigation: Statutory Recommendations and Analysis (1993) ............................................ 34 American Law Institute, Principles of the Law: Aggregate Litigation § 2.04 (2010) ............................................................ 19, 30 Samuel Issacharoff, Preclusion, Due Process, and the Right To Opt Out of Class Actions, 77 Notre Dame L Rev 1057 (2002) ........................................... 13 TABLE OF AUTHORITIES—Continued Page(s) x Robert H. Klonoff, Class Actions for Monetary Relief Under Rule 23(b)(1)(A) and (b)(1)(B): Does Due Process Require Notice and Opt-out Rights?, 82 Geo Wash L Rev 798 (2014) .................... ................. 13 Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 NYU L Rev 97 (2009) .......................................................................... 13 2 Newberg on Class Actions § 4:34 ................................................................. 30 David D. Siegel, New York Practice § 144 (5th ed 2015) ............................... 28 Diane P. Wood, Adjudicatory Jurisdiction and Class Actions, 62 Ind LJ 597 (1987) ................................................................................. 28, 30 7AA Wright & Miller, Federal Practice and Procedure § 1786 (3d ed 2005) ........ 31 1 PRELIMINARY STATEMENT This case presents the following question: Must out-of-state members of a class-action settlement be given the right to opt out of the class when the suit resolves their claims for equitable relief as well as their claims for incidental monetary relief—that is, relief that flows to the class as a whole on a non- individualized basis? Due process principles provide a clear answer: no. C urts from around the country have consistently held that actions that seek equitable relief but that also involve claims for incidental damages can be certifi d or class-wide resolution without giving class members the right to opt out. Indeed, courts routinely certify non-opt-out classes in cases indistinguishable fromthis one, where shareholders have challenged a corporate merger because of alleged breaches of fiduciary duty. The reasoning behind these decisions is straightforward. Due process protections vary along with the nature of the relief sought by the class, and as the Supreme Court of the United States’ recent decision in Wal-Mart Stores, Inc. v Dukes (564 US —, 131 S Ct 2541 [2011]) makes clear, determining whether opt- out rights are necessary hinges on whether monetary damages are individualized or incidental. Individualized damages entail considerations unique to each class member that may be divisive of class members’ interests, making opt-out rights 2 necessary. By contrast, incidental damages affect all lass members in an identical way, leaving no disparate issues preventing the certifi ation of a non-opt-out class. This shareholder class action is the quintessential litigation giving rise to damages that are incidental. The defendants either breached their fiduciary duties to all class members or to none of them; there was no requirement of individualized proof or special defenses that would have entitled some, but not other, class members to relief. And just as any equitable remedy would flow to the class as a whole, any incidental monetary relief here would be distributed on a class-wide basis in direct proportion to the number of shares each shareholder owned. In short, the action involves a shared group-wide injury and remedy. The trial court and Appellate Division read this Court’s decision in In re Colt Industries Shareholder Litigation (77 NY2d 185 [1991]) to require opt-out rights any time a class action involves damages claims, incidental or not. But when confronted with a class complaint that sought both equitable relief and damages, Colt squarely held that there was no right to opt out (id. at 195). The presence of damages claims meant that the class was not seeking exclusively equitable relief, but that did not matter; because the class was seeking “ predominantly equitable relief,” the Court held that opt-out rights were unnecessary (id. [emphasis added]). The lower courts’ categorical rule in this case cannot be reconciled with that holding, which should be read to mean that a non- 3 opt-out class is permissible when the damages claims re merely incidental. Colt thus does not require opt-out rights in this case, which involves just such claims for incidental damages. To the extent language in Colt must be read differently, that aspect of the decision should be overruled. As Colt itself recognized, the balance of interests tilts sharply against providing opt-out rights in suit involving equitable relief. Because a class seeking such a non-individualized remedy is a cohesive group with uniform interests, one’s interest in pursuing one’s own claims is slight, class adjudication carries little risk of an erroneous deprivation of those claims, and the interests of other affected parties and the State weigh in favor of a single, binding resolution. All of this holds equally for class actions that involve damages incidental to equitable relief. Accordingly, due process does not require opt-out rights in this case. The Appellate Division’s decision affirming the trial court’s refusal to approve the settlement on behalf of a non-opt-out class should be reversed. STATEMENT OF JURISDICTION This Court has jurisdiction to hear this appeal pursuant to CPLR 5602 (b) (1). The Supreme Court, Appellate Division, Second Judicial Department, entered its decision and order on January 14, 2015. On February 27, 2015, On2 and its former directors moved for leave to appeal to this Court. In a 4 decision and order dated May 8, 2015, the Appellate Division concluded that “[q]uestions of law have arisen, which, in [that court’s] opinion, ought to be reviewed by [this Court],” and accordingly certified the following question to this Court: “Was the decision and order of [the Appellat Division] dated January 14, 2015, properly made?” (A2).1 QUESTION PRESENTED Whether the federal constitutional requirement of due process mandates that out-of-state class members be given the right to op out of a class-action settlement that releases their claims for equitable relief andincidental damages. Defendants-Appellants preserved this question below (see A623-628, 785; brief for defendants-appellants in Jiannaras v Alfant, 124 AD3d 582 [2d Dept 2015], at 16-44; reply brief for defendants-appellants in Jiannaras, 124 AD3d 582, at 3-20). STATEMENT OF FACTS The Class Action and Proposed Settlement. On August 4, 2009, the Board of Directors of On2 Technologies, Inc., then a publicly held corporation organized under the laws of Delaware, agreed to merge the company with Google Inc. (A345, 788). Three days later, Michael Jiannaras filed a putative class action in New York State Supreme Court, Queens County, on behalf of On2’s 1 Citations beginning “A—” are references to pages in the Appendix filed in this Court. 5 shareholders against On2, its Board of Directors, and Google (A19, 41-42). His complaint alleged that On2’s directors had breached t ir fiduciary duties by, among other things, failing to secure the highest po sible price for On2’s shares in the merger and that On2 and Google had aided and abetted those breaches (A19- 20, 42-43). Jiannaras subsequently amended his complaint to additionally allege that the joint On2 preliminary proxy statement and Google pros ectus, which had been filed with the Securities and Exchange Commission after the New York action commenced, had failed to disclose material information about the negotiation process resulting in the merger agreement (A49-50, 7 -87). For relief, the amended complaint sought a declaration that the defn ants had breached their fiduciary duties, a rescission of the merger agreement, and an injunction prohibiting the proposed merger (A101). Other On2 shareholders filed similar actions seeking similar relief in the Delaware Court of Chancery (A789), and On2, its directors, and Google filed motions to dismiss or tay the New York action in preference to the pending actions in Delaware (A164). Soon thereafter, the plaintiffs in the New York and Delaware actions agreed with On2 and its directors to settle all claims relat d to the merger (A103-159). The parties to the New York action filed a stipulation of settlement requesting certification of a non-opt-out settlement class comprising all On2 shareholders 6 during the relevant period (A167, 170-171). As part of the stipulation, the plaintiffs acknowledged that the settlement was “fair, reasonable and adequate,” and On2 and its directors acknowledged that the class h d received “valuable benefits,” including a revised joint proxy statement a d prospectus disclosing additional information about the merger and the negotiation process (A166, 173- 174). The stipulation provided for the dismissal with prejudice of the New York and Delaware actions and the release of “any and all” merger-related claims, legal and equitable (A168-169, 171, 172-173, 175, 177). The New York trial court preliminarily certified the proposed settlement class, subject to final determination after a fairness hearing (A188-195). After On2 issued notice of the proposed settlement to all members of the proposed class, a minority of purported On2 sharehold rs filed objections in the trial court (A266-272), with those objectors appearing by counsel purportedly owning about 8% of On2’s outstanding shares and constituting less than 1% of all On2 shareholders.2 The objectors principally argued that the settlement was not fair, adequate, reasonable, or in the best interest of class members (A207-210). They also contended in the alternative that this Court’s decision in In re Colt 2 Specifically, counsel for the objectors asserted that he represented over 240 On2 shareholders (A774)—less than 1% of the approximately 28,000 settlement notices On2 had distributed to record and beneficial owners of On2’s stock (A266- 272). And he claimed that those shareholders owned approximately 15 million shares (A774)—about 8% of On2’s 179,575,296 outstanding shares as of the record date for the merger vote (A332). 7 Industries Shareholder Litigation (77 NY2d 185 [1991]) “require[d] [the] [c]ourt to preserve the right of absent class members” by permitting them to opt out of the settlement class (A211). The Trial Court’s Decision. After holding a fairness hearing at which objectors appeared and testified, the trial court issued a memorandum decision and order setting forth its views on the proposed settlement. The court found that the proposed settlement class satisfied the prerequisites to bringing a class action under New York Law, emphasizing in particular “the numerosity of the class and the presence of common questions of law and fact that predominate over individual issues, if any” (A790-791; see also A811-812). It further held that the proposed settlement was “fair, adequate, reasonable and in the best interests of the class members” (A811). According to the court, “the grave risks of litigation faced by the shareholders in this case virtually compel[led] a settlement” (A800), given that the objectors had provided nothing more than “[s]urmise, conjecture, and suspicion about alleged misconduct” (A802). The court also found that the additional disclosures provided under the settlement had conferred a benefit on On2 shareholders by “enabl[ing] them to cast a more informed vote on the proposed transaction” (A804). Notwithstanding these findings, the trial court refused to approve the settlement because it did not afford out-of-state class members the ability to opt out 8 (A791-792, 811-812). Adopting the objectors’ reading of Colt, the court explained that “[n]onresident class members must be allowed to op out if a settlement of the class action includes equitable relief but also extinguishes the class members’ ability to seek damages” (A791). The court did not view this as a discretionary matter, but rather thought its hands were tied. “If the class complaint seeks only monetary relief or both substantial monetary relief and equitable relief,” the court reasoned, “the trial judge is required to give out-of-state class members the opportunity to opt out of the class once it is certifi d” (id. [emphasis added; internal quotation marks omitted]). Indeed, the court indicated that discretionary considerations counseled against granting opt-out rights: It specifically declined to grant New York residents opt-out rights—despite appreciating that it “otherwise ha[d] discretion” to do so—because allowing individuals to exclude themselves from the class would undermine “economies of time, effort and expense” and “uniformity of result as to persons similarly situaed” (A792). When it came to the out-of-state class members, however, the trial court read Colt as leaving it with no choice but to grant opt-out rights. The Appellate Division’s Decision. A divided panel of the Appellate Division affirmed the trial court’s decision. The majority concluded that, because the settlement agreement would require class members to relinquish “the right to pursue a claim for damages,” “Colt is analogous to the instant case, and is 9 controlling” (A5). The majority noted, however, that “it is within the province of the Court of Appeals to reexamine its earlier preced nt and determine whether a compelling justification exists to overrule that precedent” (A6). Justice Dickerson dissented. He emphasized Colt’s holding that “ ‘there is no due process right to opt out of a class that seeks predominantly equitable relief’ ” (A10, quoting Colt, 77 NY2d at 195). Although Colt itself did not explain what it means for a class to seek “predominantly equitable relief,” Justice Dickerson observed that in the decades following the decision, courts and scholars had begun distinguishing between “individualized” damages claims and damages claims that are merely “incidental to the equitable relief sought” (A13). In light of Colt’s holding and the distinction between “individualized” and “incidental” damages, he concluded that “due process does not require the court to afford class members, out-of-state or otherwise, the opportunity to opt out” when the damages involved are merely “incidental” (A14). And because “the money damages at issue here are merely incidental to the equitable reli f sought,” Justice Dickerson would have approved the non-opt-out class (A15-16). On2 and its former directors timely moved for leav to appeal to this Court on February 27, 2015. The Appellate Division granted the motion on May 8, 2015 (A2). 10 ARGUMENT I. COLT HELD THAT OUT-OF-STATE CLASS MEMBERS HAVE NO DUE PROCESS RIGHT TO OPT OUT OF CLASS ACTIONS INVOLVING EQUITABLE RELIEF AND INCIDENTAL DAMAGES This Court’s decision in Colt resolves this case in favor of On2 and its former directors. Colt held that “there is no due process right to opt out of a class that seeks predominantly equitable relief” (77 NY2d at 195). A class action involves “predominantly equitable relief” so long as the only monetary relief at issue is incidental to the equitable relief sought—that is, so long as the monetary relief would flow to the class as a whole on a non-individualized basis. Because the only monetary relief at issue here is incidental, Colt did not require the trial court to grant opt-out rights to out-of-state class members. A. Under Colt’s First Holding, There Is No Due Process Right To Opt Out When Damages Are Incidental Colt involved a putative class action challenging a proposed merger between Colt Industries, Inc., and Morgan Stanley (77 NY2d at 188). The class complaint alleged that the defendants had breached their fiduciary duties and sought various forms of equitable relief as well as “any damages as m y have been sustained” from the merger (id. at 188-189; see also In re Colt Indus. Shareholder Litig., 155 AD2d 154, 161 [1st Dept 1990] [“It is undisputed that the consolidated class action complaint, when initially served and filed, sought equitable as well as monetary relief.”], order affd as modified 77 NY2d 185 [1991]). Based on the relief sought 11 in the complaint, the trial court certified a non-opt-out class (Colt, 77 NY2d at 189, 199). The parties then presented the court with a settlement agreement, which swept more broadly than the complaint (id. at 189-190, 199). The James S. Merritt Co., a Missouri corporation that owned some of Colt’s s ock, learned of the proposed settlement and asked to be excluded from the class so that it could pursue separate claims for damages that it had filed in federal district court (id. at 190). The trial court denied Merritt’s request (id.). On these facts, this Court rendered two holdings. First, the Court held that the trial court did not err in certifying a non-opt-out class at the outset of the case, “[g]iven the class compliant as filed” (id. at 199). That was because “there is no due process right to opt out of a class that seeks predominantly equitable relief” (id. at 195), and because the class complaint sought just that (id. at 196). That the class complaint included a request for damages did not make opt-out rights necessary. Second, this Court held that the trial court did err in denying Merritt’s subsequent request to opt out of the settlement class. Due process, the Court concluded, required that Merritt be granted the right to opt out because the proposed settlement would have compelled Merritt to relinquish its “entirely separate and distinct right” to pursue its damages claims (id. at 197). Given these two holdings, Colt cannot be read to establish a categorical rule requiring that out-of-state class members be granted th right to opt out in any case 12 involving any type of damages claim. Such a reading cannot be squared with Colt’s first holding that “[t]here is no due process right to opt out of a class that seeks predominantly equitable relief” (id. at 195 [emphasis added]). By definition, class actions involving “predominantly” equitable relief must also involve some damages claims; otherwise, they would be exclusively—not just predominantly— seeking an equitable remedy. And that was true in Colt, where the complaint sought damages as well as equitable relief. Notwithstanding that request for damages, Colt held that the trial court was “not required to give class members the opportunity to opt out of the class” given the relief sought in the complaint (id. at 187). That holding forecloses the rule adopted by the trial court and Appellate Division in this case, which would require opt-out rights for all damages claims. It is true that this Court in Colt did not explicitly identify which kinds of damages claims necessitate opt-out rights under its second holding—and which do not under its first. But as Justice Dickerson recognized, a distinction developed by courts and scholars in the decades following Colt sheds light on that question (A13-14). According to that distinction, due process requires opt-out rights for class actions that implicate both equitable relief and money damages only when the damages claims are “individualized”; by contrast, due process does not require opt- out rights when the damages claims are merely “incidental” to the claims for equitable relief (Allison v Citgo Petroleum Corp., 151 F3d 402, 415 [5th Cir 1998]; 13 see also Samuel Issacharoff, Preclusion, Due Process, and the Right To Opt Out of Class Actions, 77 Notre Dame L Rev 1057, 1068-1072 [2002]; Robert H. Klonoff, Class Actions for Monetary Relief Under Rule 23(b)(1)(A) and (b)(1)(B): Does Due Process Require Notice and Opt-out Rights?, 82 Geo Wash L Rev 798, 815, 822 [2014]). The Supreme Court of the United States recently relied on this distinction in Wal-Mart Stores, Inc. v Dukes (564 US —, 131 S Ct 2541 [2011]). “Individualized” damages claims, the Court explained, require inquiry into the “ ‘disparate merits of each individual’s case’ ” and thus disrupt the “ ‘indivisible nature’ ” of the class remedy (id. at —, —, 131 S Ct at 2557, 2560, quoting Allison, 151 F.3d at 415, and Richard A. Nagareda, Cl ss Certification in the Age of Aggregate Proof, 84 NYU L Rev 97, 132 [2009]). For example, claims seeking individualized damages might require each class member to offer individualized proof of an element of the claim, such as reliance or causation. Or a defendant may have defenses to the claims of some class members but not others. “Incidental” monetary claims, by contrast, do not involve such individualized determinations. Rather, like the equitable relief they accompany, they apply “as to all of the class members or as to none of them” (id. at —, 131 S Ct at 2557). “Incidental” damages, in other words, are those that “ ‘flow directly from liability to the class as a whole on the claims forming the basis of the 14 injunctive or declaratory relief’ ” (id. at —, 131 S Ct at 2560, quoting Allison, 151 F3d at 415). Because incidental damages by definition apply class-wide, they do not “ ‘entail complex individualized determinations’ ” or “ ‘require additional hearings to resolve the disparate merits of each individual’s case’ ” (id., 131 S Ct at 2560, quoting Allison, 151 F3d at 415). This distinction between individualized and incidental damages makes sense of both the opinion this Court issued in Colt and the particular facts of that case. Consider first the language and reasoning of this Court’s opinion. When this Court held that Merritt had a due process right to opt out in order to pursue separate damages claims, it must have viewed those claims as individualized, rather than merely incidental to the equitable relief sought by the class. That is the only reading that gives independent effect to Colt’s first holding that “there is no due process right to opt out of a class that seeks predominantly equitable relief” (77 NY2d at 195). Had Merritt’s damages claims been merely incidental rather than individualized, this Court, by granting the company the right to opt out, would have effectively been holding that ny damages claim necessitates opt-out rights— a rule this Court had expressly disavowed earlier in its opinion. The opinion in Colt contains numerous other indications that its second holding was limited to individualized damages claims, rather than extending to all damages claims as such. First, this Court observed that “the nature of the 15 adjudication changed dramatically” between the complaint and settlement, requiring opt-out rights at the settlement stage, but not before (id. at 199). Yet the existence of damages claims did not change between those two points; both the class complaint and Merritt’s separate action sought damages. The only change was in the nature of the damages at each point. Second, this Court took care to describe Merritt’s right to seek damages as “entirely s parate and distinct” from the equitable relief sought by the class (id. at 197)—signaling that that right’s “distinct” nature mattered. Third, the Court permitted only Merritt, and not any other out-of-state class member, to pursue an individual suit for damages (id. at 199)—suggesting that the Court thought there was something special or unique about Merritt’s particular claim for damages that made class-wide resolution of that claim inappropriate. The distinction between individualized and incidental damages also makes sense of Colt’s particular facts. “[I]t is well settled that the language of any opinion must be confined to the facts before the court” (People v Anderson, 66 NY2d 529, 535 [1985] [internal quotation marks and lterations omitted]), and the facts in Colt make clear that the damages sought by Merritt—the only damages warranting opt-out rights—were individualized rather than incidental. As this Court explained, “two years before the merger, Colt underwent a major recapitalization” (Colt, 77 NY2d at 188). Although the complaint sought damages 16 based only on the merger (id. at 189), the settlement’s release swept more broadly and extinguished the right to seek damages based on both the merger and the recapitalization (id. at 190). It was those damages claims arising out of the recapitalization—“separate and distinct” from any claims arising out of the merger alone—that Merritt sought to pursue on its own (brief for respondents in Colt, 77 NY2d 185 [No. 5148/88], at 2). What is more, those claims were not representative of the class claims because they included allegations of securities fraud that depended on “unique facts” for individual shareholders and because they focused on the “long-term interests of Merritt as a pre-1986 shareholder” (id. at 28- 29, 35). Thus, as the record that was before this Court demonstrates, the claims implicated by the settlement agreement in Colt were not just any claims for damages; they were non-incidental claims for individualized monetary relief. This conclusion is bolstered by a comparison to the damages at issue in the Supreme Court of the United States’ decision in Phillips Petroleum Co. v Shutts (472 US 797 [1985]). Shutts involved a nationwide class action brought on behalf of 28,000 class members from all 50 States seeking to recover interest on untimely royalty payments (id. at 799). The Supreme Court recognized that each cl ss member’s entitlement to damages depended on the particul standards of liability and defenses available under the state law governing his claim (id. at 816-818). The “substantive conflict” between the laws in different States necessarily 17 undermined class cohesion with respect to damages (id. at 822). In Wal-Mart’s terminology, the requested damages were “individualzed.” The Court consequently held that due process required opt-out rights for the out-of-state class members (id. at 812), while taking care to limit this holding to the particular type of damages sought (id. at 811 n 3). The fact that Colt regarded Shutts as “control[ling]” for purposes of its second holding only confirms that Merritt’s damages claims were of the same type—namely, individualized rather than incidental (77 NY2d at 198). Colt thus cannot mean what the trial court and Appellate Division said it meant. There is no basis in this Court’s opinion fr concluding that due process requires opt-out rights whenever a class action involves any damages, irrespective of the nature of those damages. On the contrary, Colt teaches that “varying degrees of procedural protection” are due “depending upon the posture of the parties and the xact nature of the relief sought by the class” (77 NY2d at 193 [emphasis added]). When damages are incidental—in that they would flow to “the class as a whole if granted,” with no disparate questions threatening class unity—a court need not grant opt-out rights (id. at 187). Only when adjudicating the damages claims would require individualized determinations must the court afford out-of-state class members the right to opt out. 18 B. The Damages In This Case Are Incidental The monetary claims at issue in this appeal clearly qualify as incidental rather than individualized. Indeed, the objectors have never contended otherwise.3 For good reason: The monetary claims squarely fit Wal-Mart’s definition of “incidental.” Moreover, they are similar to the claims asserted in the complaint in Colt, while bearing no resemblance to the claims later sserted by Merritt in that case. The trial court in this case definitively “construe[d] the [settlement] release to apply only to the merger transaction” (A803 [emphasis added]). So interpreted, the release covers just two types of monetary claims: those seeking damages for the defendants’ alleged breach of fiduciary duty to secure an adequate merger price, and those seeking damages for their alleged br ach of fiduciary duty to disclose all facts material to the shareholders’ decision whether to approve the acquisition (see A98-101). These two merger-based damages claims are similar to the claims asserted in the complaint in Colt (see 77 NY2d at 188-189). And like those claims, the merger-based damages claims here are incidental to the equitable relief sought by 3 Instead, the objectors argued in the Appellate Division that the specific nature of the damages claims at issue in this or any c se is simply irrelevant because out-of-state class members must always be given the right to opt out when damages are at stake—regardless of whether the damages “may or may not be fairly characterized as ‘incidental’ ” (brief for non-party respondents in Jiannaras, 124 A3d 582, at 9). 19 the class because any damages would be exactly the sam for each share, raising no individual issues at all (see Wal-Mart, 564 US at —, 131 S Ct at 2560). The premise for liability is identical for both the monetary and equitable claims— namely, that the director defendants breached their fiduciary duties in connection with the merger. Any damages would therefore “ ‘flow directly from liability to the class as a whole on the claims forming the basis of the injunctive or declaratory relief’ ” (id., 131 S Ct at 2560, quoting Allison, 151 F3d at 415). Those damages, moreover, would inure to “the class as a whole” (id., 131 S Ct at 2560 [emphasis omitted]), and be paid in proportion to the number of shares each shareholder owned. After all, the defen ants breached their duties either to all of the shareholders in the proposed class or to none of them (see Turner v Bernstein, 768 A2d 24, 31 [Del Ch 2000]). This is not a case in which some shareholders might ultimately be entitled to relief and others might not: The damages claims, like the claims for injunctive and declaratory relief, are “indivisible” (Wal-Mart, 564 US at —, 131 S Ct at 2557 [internal quotation marks omitted]; see also American Law Institute, Principles of the Law: Aggre ate Litigation § 2.04 [b] [2010] [defining “[i]ndivisible remedies” as those where “the distribution of relief to any claimant as a practical matter determines the application or availability of the same remedy to oher claimants”]). 20 Nor is this a case in which calculating damages owed to each class member would “require additional hearings” or “entail complex individualized determinations” (Wal-Mart, 564 US at —, 131 S Ct at 2560, quoting Allison, 151 F3d at 415). For when fiduciary duties are breached in relation to a corporate merger, “the particularities of any holder . . . have no bearing on the particular remedy” (Hynson v Drummond Coal Co., 601 A2d 570, 575 [Del Ch 1991]). It is immaterial, for example, whether any individual shareholder actually relied on an allegedly inadequate disclosure (Turner, 768 A2d at 31). And when a merger price is deemed unreasonable based on the directors’ breach of duty, damages are necessarily the same for each share, equal to the difference between an “adequate” merger price and the price actually paid (see Noerr v Greenwood, 2002 WL 31720734, *6 [Del Ch Nov. 22, 2002, No. 14320-NC]; Wacht v Cont. Hosts, Ltd., 1994 WL 525222, *4 [Del Ch Sept. 16, 1994, Civ. A. No. 7954]; Joseph v Shell Oil Co., 1985 WL 21125, *5 [Del Ch Feb. 8, 1985, Civ. A. No. 7450]). Accordingly, when a court declares that defendants have breached their fiduciary duties and finds that, as a result, the merger price was inadequate by a defined amount, it need only apply a simple arithmetic calculation to determine each class member’s damages: the number of shares multiplied by the per-share damage rate (Noerr, 2002 WL 31720734, *6; Turner, 768 A2d at 31, 33; see also Johnson v Meriter Health Servs. Employee Retirement Plan, 702 F3d 364, 371 [7th 21 Cir 2012] [holding that monetary relief sought in a cl ss action was incidental under Wal-Mart where damages for each class member could be computed by simple math]). By contrast, the damages claims later asserted by Merritt in Colt were not a matter of basic arithmetic. As noted, those claims included allegations of securities fraud that depended on “unique facts” for individual shareholders and that focused on the “long-term interests of Merritt as a pre-1986 shareholder” with distinct damages arising from a prior recapitalization (brief for respondents in Colt, 77 NY2d 185 [No. 5148/88], at 28-29, 35). Those claims accordingly “ ‘require[d] additional hearings’ ” and “ ‘entail[ed] complex individualized determinations’ ” (Wal-Mart, 564 US at —, 131 S Ct at 2560, quoting Allison, 151 F3d at 415). In no way could they be described as merely “incidental” to the equitable relief sought by the class in that case. In short, the monetary claims at issue here—like those asserted in the complaint in Colt but unlike those later asserted by Merritt—bear every hallmark of incidental damages: They are non-individualized claims premised on the exact same conduct that would support injunctive or declaratory relief, and, just like those equitable remedies, they would apply “as to all f the class members or as to none of them” (id. at —, 131 S Ct at 2557 [internal quotation marks omitted]). Because the monetary claims are incidental, the class action complaint seeks 22 “predominantly equitable relief” (Colt, 77 NY2d at 195), and this case falls squarely within Colt’s first holding, rather than its second. The trial court and Appellate Division therefore erred in reading Colt to require opt-out rights for the out-of-state class members. II. TO THE EXTENT LANGUAGE IN COLT MUST BE READ TO REQUIRE OPT-OUT RIGHTS IN THIS CASE, THAT LANGUAGE SHOULD BE OVERRULED For reasons discussed, this Court’s decision in Colt, when properly read, did not require the trial court to grant the out-of-state class members opt-out rights. But if, despite all of the foregoing, Colt is to be read to require opt-out rights even in class actions involving damages that are merely incidental, Colt should to that extent be overruled. Stare decisis does not command blind adherence to any erroneous interpretation of the federal Due Process Clause Colt may have rendered. “Although a court should be slow to overrule its precedents, there is little reason to avoid doing so when persuaded by the ‘lessons of experience and the force of better reasoning’ ” (People v Bing, 76 NY2d 331, 338 [1990], quoting Burnet v Coronado Oil & Gas Co., 285 US 393, 407-408 [1932, Brandeis, J., dissenting]). “This is especially so in constitutional interpretation[,] where legislative change is practically impossible” (id.; see also Higby v Mahone, 48 NY2d 15, 18 [1979]). Indeed, this Court has held that “the doctrine of stare decisis cannot be invoked to 23 sustain a decision which is in conflict with the State Constitution” (People v Johnson, 66 NY2d 398, 413 [1985])—a rule that would seem to apply equally to a decision in conflict with the Federal Constitution. This Court has not hesitated to depart from precedent when “a preexisting rule, once thought defensible, no longer . . . withstands the cold light of logic and experience” (People v Peque, 22 NY3d 168, 194 [2013], quoting Policano v Herbert, 7 NY3d 588, 604 [2006]). Colt, read as the trial court and Appellate Division read it, flunks on both counts. As a matter of “logic,” traditional principles of due process do not require opt-out rights for out-of-state class members in a class action involving equitable relief and incidental damages—as Colt’s own reasoning shows. As for “experience,” subsequent decisions— particularly the Supreme Court’s decision in Wal-Mart—have eroded whatever basis there might have been for requiring opt-out rights in such circumstances. Indeed, every other court to have considered the due process question has rejected the position adopted by the trial court and Appellat Division in this case. If Colt means what the trial court and Appellate Division said it meant, it is an outlier that should not stand. A. Due Process Does Not Require Opt-Out Rights When Damages Are Incidental If Colt compels the reading adopted by the trial court and Appellate Division, Colt cannot “withstand[] the cold light of logic” because due process 24 principles make clear that no opt-out rights are necessary when damages are merely incidental. “ ‘[D]ue process,’ unlike some legal rules, is not a technical conception with a fixed content unrelated to time, place and circumstances” (Cafeteria & Rest. Workers Union, Local 473 v McElroy, 367 US 886, 895 [1961] [internal quotation marks omitted]). Rather, “due process is flexible and calls for such procedural protections as the particular situation demands” (Morrissey v Brewer, 408 US 471, 481 [1972]; see also Walters v Natl. Assn. of Radiation Survivors, 473 US 305, 320 [1985] [due process is a “flexible concept” intended to ensure “fundamental fairness”]). “[I]dentification of the specific dictates of due process generally requires consideration of three distinct factors”: (1) the plaintiff’s interest, (2) the “risk of an erroneous deprivation,” and (3) the interests of other affected parties and the State itself (Mathews v Eldridge, 424 US 319, 335 [1976]). All three factors counsel against granting out-of-state class members opt-out rights in class actions involving equitable relief and incidental damages. 1. Colt’s Reasoning With Regard To Equitable Relief Informs The Constitutional Analysis For Incidental Damages In considering the due process question, this Court does not write on a blank slate. If Colt’s first holding means anything, it means that there is no due process right to opt out of a class action involving equitable relief—relief that will “necessarily benefit the class as a whole if granted” (Colt, 77 NY2d at 187). The Court’s reasons for reaching that holding are instructive. 25 Beginning with the first factor in the due process inquiry, Colt recognized that plaintiffs’ interests in pursuing their own ind vidual suits rather than submitting to a court’s jurisdiction over a class action is minimal when the class seeks equitable relief. That is because “[w]ith claims of this kind, a judgment benefits the class as a whole,” and so the class is cohesive, with uniform—and unified—interests (Colt, 77 NY2d at 195). Although class actions must always involve at least some common questions, suits seeking an indivisible remedy go a step beyond: They lack any issues that are not common. Because either veryone or no one in the class will benefit from the relief provided, no individualized issues threaten to divide class members into separate factions with diverse—and possibly divergent—interests in the litigation (see e.g. Amgen Inc. v Connecticut Retirement Plans & Trust Funds, 568 US —, —, 133 S Ct 1184, 1191 [2013] [observing that a class is “entirely cohesive” when “[i]t will prevail or fail in unison” and “[i]n no event will the individual circumstances of particular class members bear on the inquiry”]). With respect to the second due process factor, C lt further recognized that opt-out rights are not necessary to guard against the risk of an erroneous deprivation of the individual members’ claims because a class seeking equitable relief is so cohesive. As Colt emphasized, all class members already enjoy extensive procedural protections under New York law, including the prerequisites 26 to class certification of “numerosity, predominance, typicality, adequacy of representation, and superiority” (77 NY2d at 195). Given these other safeguards, this Court in Colt “believe[d] that the due process rights of the class members, whatever their ties to the forum State, are protected” (id.). Finally, as to the last factor in the due process inquiry, Colt detailed the significant interests weighing against providing opt- ut rights in class actions seeking equitable relief. When “the class seeks to enj in actual conduct that it considers to be detrimental to the class, there is an interest in consolidating the action in a single forum in order to avoid the possibility of conflicting judgments from different jurisdictions which would subject the defendants to varying and possibly inconsistent obligations” (id.). There is also an interest in preserving possibilities for settlement before trial (id.). “To permit limitless collateral challenges under these circumstances would greatly diminish [that] possibility . . . , because it would be likely that compromises carefully arrived at would be unraveled by subsequent litigation in other jurisdictions” (id. at 195-196). For all of these reasons, this Court concluded that “any interest in promoting individual control of litigation is outweighed by the importance of obtaining a single, binding determination” (id. at 195). 27 2. Colt’s Reasoning Demonstrates That Due Process Does Not Require Opt-Out Rights When Damages Are Incidental When incidental damages are added to the mix, nothig changes: The constitutional analysis is no different. That is because the balance of interests is the same in any suit seeking a non-individualized, across-the-board remedy, whether that remedy happens to be an injunction, a declaration, or incidental damages that “flow directly . . . to the class as a whole” (Wal-Mart, 564 US at —, 131 S Ct at 2560 [emphasis omitted], quoting Allison, 151 F3d at 415). “To the class as a whole” is the key phrase here. Incidental damages, no less than the equitable remedies they accompany, are indivisible. When a claim seeks equitable or incidental monetary relief, the defendant’s liability is an all-or-nothing proposition: Either the claim succeeds and the defendant is liable to all members of the class, or the claim fails and it is liable to none of them (see id. at —, 131 S Ct at 2558; Turner, 768 A2d at 31). The class members’ individual circumstances have no bearing at all on the appropriate remedy. Thus, the due process analysis is the same, whether a class action involves equitable relief alone or equitable relief together with incidental damages. Consider again the three due process factors: First, when class members are similarly situated for purposes of relief, the interests of individual members in pursuing their claims on their own is minimal— as Colt itself recognized (77 NY2d at 195). After all, the class is “a homogenous and cohesive group with few conflicting interests among its members” (Allison, 28 151 F3d at 413). Accordingly, there is no need to give members an opportunity to opt out of the suit (see David D. Siegel, New York Practice § 144 [5th ed 2015] [“When the remedy sought is one that redounds to the w ole class automatically, opting out will seldom if ever be appropriate.”]; Diane P. Wood, Adjudicatory Jurisdiction and Class Actions, 62 Ind LJ 597, 601 [1987] [“The more cohesive the class, . . . the more assured we are that any particul r member who comes before the court seeking to be a class representative will in fact be capable of satisfactorily standing in for the absentees, such that their due process rights will be fully respected.”]).4 Second, as Colt also recognized (77 NY2d at 195), this cohesiveness guards against the risk of an erroneous deprivation of class members’ claims, especially given the other procedural protections in place to approve a class action settlement.5 To certify a class under New York law, a court must find that the class is “so numerous” that joinder of all members is “impracticable”; that “questions of law or fact common to the class predominate over any questions affecting only 4 This cohesiveness is presumably why the New York class action statute does not require even notice, let alone opt-out rights, “[i]n class actions brought primarily for injunctive or declaratory relief” (CPLR 904 [a]). 5 It bears emphasis that class members are not “deprived” of their claims at all; rather, they are merely required to submit those claims to class, rather than individual, adjudication. Here, class members received a valuable benefit from the settlement—namely, “additional disclosures which enabled them to cast a more informed vote on the proposed transaction” (A804). The trial court expressly found that this benefit was fair and adequate (A807). The 1% of On2 shareholders who objected simply disagree with the trial court’s assessment. 29 individual members”; that the claims of the representative parties are “typical” of those of the class; that the representative parties “fairly and adequately protect the interests of the class”; and that the class device is “superior to other available methods for the fair and efficient adjudication of the controversy” (CPLR 901 [a]; see Smith v Swormstedt, 57 US 288, 303 [1853] [given these safeguards, “there can be very little danger but that the interest of all wi be properly protected and maintained”]). On top of all this, a court may require that all class members be given notice of the action and an opportunity to object (see CPLR 904 [a], [b]). The court must also give notice of any proposed settlement and must find, before dismissing the case, that the settlement is fair, adequate, reasonable, and in the best interests of the class members (CPLR 908). The fact th t 99% of On2 shareholders did not object after receiving notice of the settlement in this case is a testament to the lack of any erroneous deprivation of their claims. This fact also goes to show that when a class action seeks a unified, non-individualized remedy such as incidental damages, these protections safeguard all class members’ interests, without the need for opt-out rights (ee e.g. Robinson v Metro-North Commuter R.R., 267 F3d 147, 165 [2d Cir 2001] [observing that the “cohesion and unity” that exists among class members seeking incidental damages ensures that “adequate representation will generally safeguard absent class members’ interests and thereby satisfy the strictures of due process”]; Ehrenhaus v Baker, 717 SE2d 9, 23-24 [NC 30 Ct App 2011] [“When homogeneity exists and the class’s interests are aligned, non-opt-out certification does not offend due process. We assume each litigant does not need to be heard individually.”]).6 Given the “cohesiveness among the class, . . . [h]aving the representative before the court is exactly the same, in legal effect, as having each and every class member present. By definition, there can be no position that is not fully and fairly litigated before the court” (Wood at 604). So long as there are no special defenses or individualized issues, there is no “reason to be concerned about each member of the class having an opportunity to be present” because “it is reasonably certain that 6 Indeed, a non-opt-out class action may better protect each class member’s interests in incidental damages than individual suits would because, absent class- wide resolution, the commonality of claims raises the “risk that the individual case will impact the absent parties’ interests, with those parties being neither represented nor heard” (2 Newberg on Class Actions § 4:34). “Litigating each of these identical claims would pose a risk . . . thatdetermination of one poorly presented case might dispose of the claims of the other class members if each claim were tried separately” (Wurtzel v Park Towne Place Assocs. L.P., 2002 WL 31487894, *26 [Pa Com Pl Nov. 5, 2002, Nos. 3511 June Term 2001, Control 90648]). Thus, “[c]lass certification helps the absent parties—it guarantees that their interests will be adequately represented, and it provides them notice and opportunity to be heard about any settlement” (2 Newberg on Class Actions § 4:34 [footnotes omitted]; see also e.g. Shapiro v Nu-West Indus., Inc., 2000 WL 1478536, *4 [Del Ch Sept. 29, 2000, No. Civ. A. 15442] [finding a non-opt-out class permissible when resolution of the suit would “determine claims involving one set of actions by defendants that have a uniform effect upon a class of identically situated shareholders” and so could “effectively preclude” suits by those shareholders even if they were “not parties to this action”]; Principles of the Law: Aggregate Litigation § 2.04, Comment a [when relief is indivisible, “aggregate treatment does not so much impose a relationship among the claimants as it recognizes the preexisting interdependence of their claims”]). 31 the named representatives will protect the absent mmbers and give them the functional equivalent of a day in court” (7AA Wright & Miller, Federal Practice and Procedure § 1786 [3d ed 2005]).7 Third and finally, the interests of other affected parties and the Sate itself cut sharply in favor of withholding opt-out rights in class actions involving incidental damages, just as they do in suits involving equitable relief. For one thing, requiring opt-out rights could “subject the d fendants to varying and possibly inconsistent obligations”—a result Colt found problematic (77 NY2d at 195). Once again, that is because incidental monetary relief, just like injunctive or declaratory relief, necessarily affects the entire class at once. Here, for example, if the merger price paid by Google was inadequate, then i was inadequate for the entire class, and the defendants would owe a certain amount in damages on not just 7 In contrast, when individualized, rather than incidental, damages are at stake, the due process analysis is necessarily different. In such cases, the “assumption of cohesiveness” breaks down because “variations in individual class members’ monetary claims” lead to “divergences of interest that make unitary representation of a class problematic in the damages phase” (Eubanks v Billington, 110 F3d 87, 95-96 [DC Cir 1997]). Opt-out rights are thus necessary “in recognition of the potential divergence of interests within the class” (Lemon v Intl. Union of Operating Engrs., Local No. 139, 216 F3d 577, 580 [7th Cir 2000]; see also e.g. Allison, 151 F3d at 413 [“[A]s claims for individually based money damages begin to predominate, the presumption of cohesiveness decreases while the need for enhanced procedural safeguards to protect the individual rights of class members increases.”]; Robinson, 267 F3d at 165-66 (“[E]ntitlement to non- incidental damages may vary among class members depen ing on the circumstances and merits of each claim. The presumption of class homogeneity and cohesion falters, and thus, adequate representation alone may prove insufficient to protect absent class members interes s.”]). 32 some, but all, shares. If a plaintiff were later to obtain a judgment from another jurisdiction that the defendants owed a different amount per share, the defendants would be subject to varying obligations (see e.g. Turner, 768 A2d at 34 [“It would be wasteful and illogical to have this matter tried s veral times, so that different courts could reach irreconcilable decisions about identical issues such as the adequacy of the disclosures made to . . . stockholders by the defendant-directors and the fair value of [the company] on the date of the Merger.”]; Noerr, 2002 WL 31720734, *5 [noting the “palpable risk of inconsistent adjudications of the propriety of the same proxy disclosures”]; Critchfield Physical Therapy v Taranto Group, Inc., 263 P3d 767, 781-783 [Kan 2011] [affirming the certification of a class action seeking monetary relief because doing so would avoid inconsistent adjudications]). In addition, mandating an opt-out right would “greatly diminish” the possibility that class actions for incidental monetary relief—no less than those for equitable relief—“would ever settle before trial” (Colt, 77 NY2d at 195-196). After all, incidental monetary relief, like injunctive or declaratory relief, is by definition a class-wide remedy—and there is no point in settling a class-wide claim if it will not bring class-wide peace. As Colt noted, “subsequent litigation in other jurisdictions” could easily “unravel[]” a settlement if class members were given the right to opt out (id. at 196). If a settlement will not secure a final and complete 33 adjudication of all common claims, parties will have little motivation to negotiate one (see Kincade v Gen. Tire & Rubber Co., 635 F2d 501, 507 [5th Cir 1981]). As a result, the parties will not only fail to settle claims for incidental damages, but will also fail to settle accompanying claims for inju ctive or declaratory relief: Settlement of the equitable claims will be doomed by the inability to arrive at a complete resolution of the case without the threat of follow-on multitude of individual suits (see e.g. In re Phila. Stock Exchange, Inc., 945 A2d 1123, 1137 [Del 2008] [“[T]he settlement must either be as broad in scope as the law would allow and bind all class members, or there would be no settlement.”]). And all this, even though in the class action context “there is an overriding public interest in favor of settlement” (Kincade, 635 F2d at 507 [internal quotation marks omitted]; see also Wells v Shearson Lehman/Am. Express, Inc., 72 NY2d 11, 25 [1988] [noting the public policy in “put[ting] . . . disputes finally to rest”]). It gets even worse. If settlement is impossible, States will find themselves burdened with numerous individual adjudications of the exact same claim. That threatens to impose enormous costs on the judiciary and the litigants, even though the class action device is specifically intended to “save[] the resources of both the courts and the parties by permitting [common issues] to be litigated in an economical fashion” (Califano v Yamasaki, 442 US 682, 701 [1979]; see also e.g. Gulf Oil Co. v Bernard, 452 US 89, 99 n 11 [1981] [noting the “policy in favor of 34 having litigation in which common interests, or common questions of law or fact prevail, disposed of where feasible in a single lawsuit” [internal quotation marks omitted]]); American Law Institute, Complex Litigation: Statutory Recommendations and Analysis 16-17 [1993] [describing the “enormous cost” and “[j]udicial overload” associated with duplicative litigation]). Nor does this expense make the adjudicatory process more fair or rati nal. To the contrary, it may lead to inconsistent results in identical cases, with outcomes determined more by the idiosyncrasies of particular factfinders or the performance of particular counsel than by the merits of the case. As this analysis demonstrates, providing opt-out rights in a case like this one does not come without significant costs. Opt-outs harm defendants, who have a compelling interest in not having to defend against hundreds or thousands of individual lawsuits predicated on the exact same conduct—suits that should result in uniform relief but could instead create varying obligations. Opt-outs harm non- objecting class members, whose access to relief may be held hostage by a small minority that seeks exclusion from the class and so spoils a settlement for all. And opt-outs harm the public’s interests in efficiency, finality, and the resolution of cases through settlement. Of course, opt-out rights must be provided when the Constitution so demands. But when due process concerns do not exist, courts have rightly declined to permit exclusion from the class given the significant 35 countervailing interests at stake (see e.g. Reynolds v Natl. Football League, 584 F2d 280, 284 [8th Cir 1978] [“[W]hen the choice exists,” courts should decline to offer opt-outs “in order to avoid inconsistent adjudication or a compromise of class interests”]; In re Integra Realty Resources, Inc., 354 F3d 1246, 1266 [10th Cir 2004] [“to promote judicial economy and prevent theclass action device from becoming ineffective,” opt-out rights should not be offered when not required]). In short, everything Colt said about class actions involving equitable relief holds true for class actions involving incidental dmages. In both instances, “any interest in promoting individual control of litigation” seeking a non-individualized remedy “is outweighed by the importance of obtaining a single, binding determination” (Colt, 77 NY2d at 195). Colt’s reasoning, if not its specific holding, therefore compels the conclusion that due process does not require that out-of-state class members have the right to opt out of a class seeking incidental damages in addition to an injunction or declaratory relief. B. The Decisions Of Other State And Federal Courts Hold That Opt- Out Rights Are Unnecessary When Damages Are Incidental “Experience” confirms what Colt’s own “logic” makes clear: Due process does not require opt-out rights for out-of-state class members in class actions involving incidental damages. First, as discussed above, in the decades following Colt, courts and scholars have recognized a significant distinction between incidental and individualized 36 damages claims (see supra at 12-14). That distinction, which was central to the Supreme Court of the United States’ decision in Wal-Mart, undermines whatever basis Colt might have had for treating all damages claims alike for purposes of opt- out rights: If, as Wal-Mart made clear, only individualized damages claims threaten to undermine a class’s cohesiveness, then only those claims raise the kinds of due process concerns that could justify opt-out rights for out-of-state class members. Second, the federal and state courts that have considered the ue process question have agreed that opt-out rights are not requi d in suits involving incidental damages (see e.g. In re Integra Realty Resources, Inc., 354 F3d at 1265; Robinson, 267 F3d at 165; Jefferson v Ingersoll Intl. Inc., 195 F3d 894, 898 [7th Cir 1999]; Kincade, 635 F2d at 507; Nottingham Partners v Dana, 564 A2d 1089, 1101 [Del 1989]; Nelson v Appleway Chevrolet, Inc., 157 P3d 847, 855 [Wash 2007]). Indeed, federal courts routinely hold that cl ss claims for incidental damages can be certified under Federal Rule of Civil Procedure 23 (b) (2)—which governs suits involving “final injunctive relief or corresponding declaratory relief [that] is appropriate respecting the class as a whole”—even though class members have no absolute right to opt out (see e.g. Cooper v Southern Co., 390 F3d 695, 720 [11th Cir 2004]; Lemon v Intl. Union of Operating Engrs., Local No. 139, 216 F3d 577, 580-581 [7th Cir 2000]; Allison, 151 F3d at 415; DeBoer v Mellon Mtge. 37 Co., 64 F3d 1171, 1175 [8th Cir 1995]; Thorn v Jefferson-Pilot Life Ins. Co., 445 F3d 311, 330 n 25 [4th Cir 2006]; Reeb v Ohio Dept. of Rehab. & Corr., 435 F3d 639, 649-650 [6th Cir 2006]; Barabin v Aramark Corp., 2003 WL 355417, *1-2 [3d Cir Jan. 24, 2003, No. 02-8067]; Amara v Cigna Corp., 925 F Supp 2d 242, 264 [D Conn 2012], affd 775 F3d 150 [2d Cir 2014]; Sloan v Borgwarner, 263 FRD 470, 476 [ED Mich 2009]; Neil v Zell, 275 FRD 256, 268-269 [ND Ill 2011]). Even more pertinently, courts have not hesitated to certify non-opt-out classes challenging corporate mergers on facts indit guishable from those here (see e.g., Ehrenhaus 717 SE2d 9 at 22-24; In re Phila. Stock Exchange, 945 A2d at 1136-1137; Turner, 768 A2d at 30-35; Hynson, 601 A2d at 575-79; Nottingham Partners, 564 A2d at 1098-1101; In re Lawson Software, 2011 WL 2185613, *1-2 [Del Ch May 27, 2011, C.A. No. 6443-VCN]; In re Countrywide Corp. Shareholder Litig., 2009 WL 2595739, *2-3 [Del Ch Aug. 24, 2009, C.A. No. 3464-VCN], affd 996 A2d 321 [Del 2010]; In re Wm. Wrigley Jr. Co. Shareholder Litig., 2009 WL 154380, *4 [Del Ch Jan. 22, 2009, Civ. A. No. 3750 VCL]; Wacht, 1994 WL 525222, *9-10; In re Mobile Communications Corp. of Am., Inc. Consolidated Litig., 1991 WL 1392, *15-16 [Del Ch Jan. 7, 1991, Civ. A. Nos. 10627, 10638, 10644, 10656, 10697], affd 608 A2d 729 [Del 1992]). Of particular relevance is the practice of the Delaware courts, which (not surprisingly) frequently adjudicate claims alleging that corporate directors have 38 breached their fiduciary duties. In response to class-certification requests in such suits, “Delaware courts repeatedly have held that actions challenging the propriety of director conduct in carrying out corporate transactions are properly certifiable” as non-opt-out classes even when, as here, the class seeks “monetary damages in addition to declaratory or injunctive relief” (In re Celera Corp. Shareholder Litig., 59 A3d 418, 432-433 [Del 2012] [internal quotation marks omitted]).8 As the courts have recognized, “all members of the stockholder class are situated precisely similarly with respect to every issue of liability and damages” and “to 8 Although the court in Celera chose to give an objecting class member an opt-out right, citing “due process concerns” (59 A3d at 436), the case ultimately rested not on the Federal Constitution, but on the court’s “discretionary power to grant opt-out rights” (id. at 435). And the court’s conclusion that it was an abuse of discretion not to provide an opt-out right depend d on unique circumstances not present here (id. at 435-436). In Celera, the “class representative was ‘barely’ adequate” (id. at 436). That is not true in this case, where the trial court determined without reservation that the “proposed class representative will fairly and adequately protect the interests of the Settlement Class” (A812). Celera, moreover, involved a single objector who alone owned about 25% of the company’s stock (59 A3d at 426, 436), so there was no risk of a multiplicity of suits from requiring a right to opt out. Here, however, there is such a risk because the objectors, who together hold only 8% of On2’s stock, number in the hundreds (see supra note 2). Finally, in Celera, “the only claims realistically being settled at the time of the certification hearing nearly a year after the merger were for money damages” (59 A3d at 436). In this case, in contrast, the settlement involved equitable claims in addition to incidental damages, including a request for rescission of the merger (see Colt, 77 NY2d at 191 [request for rescission prevents the “conclusion that the merger converted the action into one for damages”]). Notably, Celera reaffirmed the “general rule” that courts may certify a non-opt-out class in actions seeking incidental damages, even as it found that “fairness and equity demand[ed]” opt-out rights given the “particular facts and circumstances” of that case (59 A3d at 435-436). This run-of-the-mill erger case falls within the general rule, not any exception to it. 39 litigate the matters separately would subject the def ndant to the risk of different standards of conduct with respect to the same action” (In re Mobile Communications, 1991 WL 1392, *15). Thus, due process requires only a “right to notification but not a right to opt out of the class” (Nottingham Partners, 564 A2d at 1101 [footnote omitted]; cf. Ortiz v Fibreboard Corp., 527 US 815, 834 [1999] [noting that a “classic” example of a class action properly certifiable under Federal Rule 23 (b) (1), which does not permit opt-outs, is an action by “shareholders to declare a dividend or otherwise to fix their rights” [internal quotation marks and alterations omitted]]). Recall that class actions challenging the On2 merger were filed days apart in both Delaware and New York and that, prior to reaching a settlement agreement, defendants had moved to dismiss or stay the New York action in preference to proceeding in Delaware. If the settlement had been pr sented to the Delaware courts for approval, there can be no doubt that out-of-state class members would not have been given a chance to opt out. As courts tside New York have consistently recognized, there can further be no doubt that this result would be consistent with due process. Indeed, the decision below is so contrary to other States’ analysis of the due process issue that it threa ens to chill the use of the class action device in New York, at least in merger cases. If New York courts will not certify nationwide non-opt-out class actions involving incidental damages, litigants 40 will likely choose to file suit in other States, where there will be a far greater chance of achieving a global settlement on behalf of a non-opt-out class. That non- opt-out class is likely to include New York residents. New York’s overprotection of out-of-state class members’ rights may therefore c me at a cost to New Yorkers and to this State’s own public policy in favor of class actions and settlements. * * * Even assuming the trial court and Appellate Division read Colt correctly, there is no reason for this Court to adhere to that decision’s erroneous interpretation of the federal Due Process Clause. Colt’s own reasoning demonstrates that due process does not require opt-out rights in class actions involving equitable relief and incidental damages. And that is precisely the conclusion reached by every other court to have considered the question. No other jurisdiction would require opt-out rights for the kind of merger-related class action at issue in this case; this Court should not leave New York as the sole outlier on this important constitutional question. CONCLUSION For all of the foregoing reasons, the Appellate Division's order affirming the trial court's refusal to approve the settlement on behalf of a non-opt-out class should be reversed. Respectfully submitted, HOGAN LOVELLS US LLP 7 Neal Kumaf Katyal Frederick Liu (Admitted Pro Hac Vice) Matthew A. Shapiro* Columbia Square 555 Thirteenth Street, NW Washington, D.C. 20004 Telephone: (202) 637-5600 Facsimile: (202) 637-5910 David Wertheimer 875 Third Avenue New York, NY 10022 Telephone: (212) 918-3000 Facsimile: (212) 918-3100 *Admitted only in New York; supervised by firm members July 7, 2015 Counsel for Defendants Appellants By: 41