Epstein v. MCA, Inc., Nos. 92-55632

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Writing for the CourtWILLIAM A. NORRIS
Citation50 F.3d 644
Parties, Fed. Sec. L. Rep. P 98,618, 31 Fed.R.Serv.3d 611 Lawrence EPSTEIN, et al., Plaintiffs, and Walter Minton, Plaintiff-Appellant, v. MCA, INC.; Matsushita Acquisition Corporation; Matsushita Electric Industrial Co., Ltd.; Matsushita Holding Corporation; Lew Wasserman; Sidney J. Sheinberg, Defendants-Appellees. Lawrence EPSTEIN; John Linder; Jane Rockford, as trustee of the Michael J. Rockford Trust; Maurice Karlin; Ruth Karlin; Beth Ann Karlin; Bert P. Karlin, Plaintiffs-Appellants, v. MCA, INC.; Matsushita Acquisition Corporation; Matsushita Electric Industrial Co., Ltd.; Matsushita Holding Corporation; Lew Wasserman; Sidney J. Sheinberg, Defendants-Appellees.
Docket NumberNos. 92-55632,92-55675
Decision Date27 February 1995

Page 644

50 F.3d 644
63 USLW 2540, Fed. Sec. L. Rep. P 98,618,
31 Fed.R.Serv.3d 611
Lawrence EPSTEIN, et al., Plaintiffs,
and
Walter Minton, Plaintiff-Appellant,
v.
MCA, INC.; Matsushita Acquisition Corporation; Matsushita
Electric Industrial Co., Ltd.; Matsushita Holding
Corporation; Lew Wasserman; Sidney J.
Sheinberg, Defendants-Appellees.
Lawrence EPSTEIN; John Linder; Jane Rockford, as trustee
of the Michael J. Rockford Trust; Maurice Karlin;
Ruth Karlin; Beth Ann Karlin; Bert P.
Karlin, Plaintiffs-Appellants,
v.
MCA, INC.; Matsushita Acquisition Corporation; Matsushita
Electric Industrial Co., Ltd.; Matsushita Holding
Corporation; Lew Wasserman; Sidney J.
Sheinberg, Defendants-Appellees.
Nos. 92-55632, 92-55675.
United States Court of Appeals,
Ninth Circuit.
Argued and Submitted Aug. 2, 1993.
Submission Vacated Aug. 13, 1993.
Reargued and Resubmitted Oct. 12, 1993.
Decided Feb. 27, 1995.

Page 647

Peter R. Dion-Kindem and Laurence M. Berman, Berman, Blanchard, Mausner & Kindem, Los Angeles, CA, for Minton, plaintiff-appellant.

Henry Paul Monaghan; Irving Malchman and Roger W. Kirby, Kaufman, Malchman, Kirby & Squire, New York City, for Epstein, plaintiffs-appellants.

Herbert M. Wachtell, Wachtell, Lipton, Rosen & Katz, New York City, for Wasserman and Sheinberg, defendants-appellees.

Barry R. Ostrager and Mary Kay Vyskocil, Simpson, Thacher & Bartlett, New York City, for Matsushita and MCA, defendants-appellees.

Appeals from the United States District Court for the Central District of California.

Before: NORRIS, WIGGINS, and O'SCANNLAIN, Circuit Judges.

WILLIAM A. NORRIS, Circuit Judge:

 TABLE OF CONTENTS
                 I. Private Right of Action under Section 14(d)(7) 649
                 II. The Wasserman Transaction 652
                 III. The Sheinberg Payment 657
                 IV. The Preclusive Effect of the Settlement of the Delaware Class 659
                 Action
                 A. The Delaware Settlement 659
                 B. The Full Faith and Credit Question 661
                 1. The Jurisdiction of State Courts to Release Exclusively 661
                 Federal Claims in a Class Settlement
                 2. The Disparity Between the State and Federal Claims 665
                 C. The Contract Bar Argument 666
                 D. Conclusion 668
                 V. Class Certification 668
                 VI. The Motion to Amend the Complaint 669
                 VII. Conclusion 669
                

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In 1990, Matsushita Electrical Co. Ltd. ("Matsushita") acquired MCA, Inc. ("MCA") for $6.1 billion. The acquisition was accomplished through a tender offer of $71 per share of MCA common stock. 1

Lew Wasserman, MCA's chairman and chief executive officer at the time, owned 4,953,927 shares of MCA common stock worth $351,728,817 at the tender price of $71 per share. His cost basis was 3cents per share. Rather than tender his shares at the tender offer price, Wasserman entered into a separate agreement with Matsushita, known as the "Capital Contribution and Loan Agreement," pursuant to which Wasserman exchanged his shares for preferred stock in a

Page 648

wholly-owned Matsushita subsidiary called "MEA Holdings." 2 Matsushita agreed to fund MEA Holdings by contributing 106% of the tender price multiplied by the number of MCA shares Wasserman exchanged. The MEA Holdings preferred stock Wasserman received pays a dividend of 8.75% annually, is secured by letters of credit, and is redeemable upon the death of either Wasserman or his wife, but in no event earlier than five years from the date of the exchange. Wasserman was 77 at the time. It is not disputed that the transaction was designed to be a tax-free exchange of Wasserman's MCA stock under Internal Revenue Code Sec. 351(a), 26 U.S.C. Sec. 351(a) (1994). 3

Sidney Sheinberg, MCA's chief operating officer at the time of Matsushita's tender offer, owned approximately 1,179,635 shares of MCA common stock. He tendered these shares pursuant to Matsushita's $71 per share offer and received in exchange consideration worth approximately $83,754,085. Two days after Matsushita accepted all tendered shares, Sheinberg received an additional $21 million in cash, ostensibly in exchange for unexercised MCA stock options.

These consolidated appeals arise out of actions brought in the United States District Court for the Central District of California by former MCA shareholders 4 who tendered their shares for the $71 tender price. They claim that Matsushita violated SEC Rule 14d-10, 17 C.F.R. Sec. 240.14d-10 (1994), by treating Wasserman and Sheinberg differently from other shareholders in the tender offer. Rule 14d-10, known as the "all-holder, best-price" rule, requires bidders to treat all shareholders on equal terms. 5

The district court denied plaintiffs' motion for summary judgment on their claim that Matsushita's agreement to pay Wasserman consideration that was different from the $71 per share tender offer violated Rule 14d-10, and later granted Matsushita's motion for summary judgment on this claim. 6 We reverse, instruct the district court to grant plaintiffs' motion for partial summary judgment, and remand for further proceedings to determine the amount of damages, if any, that plaintiffs are entitled to recover as a result of the Wasserman transaction.

The district court granted Matsushita's motion for summary judgment on all of plaintiffs' claims. As noted above, with respect to plaintiffs' claim that the Wasserman transaction violated Rule 14d-10, we reverse. With respect to plaintiffs' claim that the Sheinberg payment violated Rule 14d-10, we vacate and remand for further proceedings to determine whether the $21 million Sheinberg payment was in fact a premium paid to encourage Sheinberg to tender his shares. 7

Page 649

We also reverse the district court's orders denying the Epstein plaintiffs' motions for class certification and leave to amend their complaint.

During the pendency of these consolidated appeals, the Delaware Court of Chancery entered a judgment approving the settlement of a state class action that released all claims arising out of Matsushita's tender offer for MCA stock, including the Williams Act claims raised in the Epstein class action. Matsushita argues that the settlement of the Delaware class action precludes the federal claims raised in the Epstein action. We disagree and hold that the settlement of the Delaware class action does not preclude the Epstein class action.

I. Private Right of Action under Section 14(d)(7)

The SEC's statutory authority to promulgate Rule 14d-10 derives from sections 14(d)(6) and 14(d)(7) of the 1968 Williams Act Amendments to the Securities Exchange Act of 1934. 15 U.S.C. Sec. 78n(d)(6), (7) (1981). 8 Matsushita 9 makes the threshold argument that it cannot be sued by MCA shareholders for violating Rule 14d-10 because Congress did not intend sections 14(d)(6) and 14(d)(7) to be privately enforceable. 10 In advancing this argument, Matsushita asks us to create a conflict with the Second and Third Circuits, both of which have held that Congress intended to create a private right of action under section 14(d)(7). See Polaroid Corp. v. Disney, 862 F.2d 987, 996 (3d Cir.1988); Field v. Trump, 850 F.2d 938, 946 (2d Cir.1988), cert. denied, 489 U.S. 1012, 109 S.Ct. 1122, 103 L.Ed.2d 185 (1989); cf. Pryor v. United States Steel Corp., 794 F.2d 52, 57-58 (2d Cir.) (holding that section 14(d)(6) also contains a private right of action), cert. denied, 479 U.S. 954, 107 S.Ct. 445, 93 L.Ed.2d 393 (1986). We find the reasoning of the Second and Third Circuits to be persuasive.

Page 650

In Field and Pryor, the Second Circuit applied the traditional four-factor Cort v. Ash test in deciding whether, in enacting sections 14(d)(6) and 14(d)(7), "Congress intended to create ... by implication ... a private cause of action." Pryor, 794 F.2d at 57 (quoting Touche Ross & Co. v. Redington, 442 U.S. 560, 575, 99 S.Ct. 2479, 2488-89, 61 L.Ed.2d 82 (1979)). In holding that Congress did intend to create a private right of action the Second Circuit reasoned, first, that both 14(d)(6) and 14(d)(7) "identif[y] [their] beneficiaries and, unlike the bulk of federal securities regulation, confer[ ] a substantive right on those beneficiaries." Pryor, 794 F.2d at 57 (cited in Field, 850 F.2d at 946). Second, the court found that a private damages remedy was totally consistent with the statutory purpose of protecting injured investors and provided a particularly effective means of enforcing sections 14(d)(6) and 14(d)(7). Field, 850 F.2d at 946; Pryor, 794 F.2d at 56, 58. Finally, the Second Circuit noted that these claims are not those "traditionally relegated to state law." Field, 850 F.2d at 946; Pryor, 794 F.2d at 58.

In Polaroid, the Third Circuit relied on Pryor and Field, but added that the " 'contemporary legal context' informing what Congress perceived itself to be doing when it acted," supported an inference that Congress intended to create a private remedy for violations of section 14(d)(7). Polaroid, 862 F.2d at 995 (quoting Cannon v. Univ. of Chicago, 441 U.S. 677, 698-99, 99 S.Ct. 1946, 1958-59, 60 L.Ed.2d 560 (1979)). In 1968, when the Williams Act was enacted, various lower federal courts had construed section 10(b) of the 1934 Act as providing a private cause of action, and the Supreme Court, in J.I. Case v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964), had announced a liberal policy toward inferring private rights of action for securities law violations generally. See Polaroid, 862 F.2d at 995-96. Because Congress enacted the Williams Act in this context, "it is reasonable to conclude that Congress passed the Williams Act with an understanding that courts would construe the Act as creating private remedies that would enforce the provisions of the Act effectively." Id. at 996.

Matsushita argues that we should not follow Pryor, Field, and Polaroid because their rationale is inconsistent with our decision in In re Washington Pub. Power Supply Sys. Sec. Litig., 823 F.2d 1349 (9th Cir.1987) (en banc) (hereinafter "WPPSS" ). We reject this argument. In WPPSS, we held that section 17(a) of the Securities...

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36 practice notes
  • Shaw v. Toshiba America Information Systems, Inc., No. 1:99-CV-0120 (TH).
    • United States
    • United States District Courts. 5th Circuit. United States District Court of Eastern District Texas
    • January 28, 2000
    ...of absent class members, the court must assume a more active role than it typically plays in traditional litigation." Epstein v. MCA, 50 F.3d 644, 667 (9th Cir.1995). "[I]t is clear that the court [should] not give rubber-stamp approval [to the proposed settlement] ... To protect the intere......
  • Matsushita Elec. Industrial Co. v. Epstein, 941809
    • United States
    • United States Supreme Court
    • February 27, 1996
    ...case, is inapposite here, where the rendering court had subject-matter jurisdiction over the underlying suit and the defendants. P. 884. 50 F.3d 644 (C.A.9 1995), reversed and remanded. THOMAS, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and O'CONNOR, SCALIA, KENNEDY, ......
  • Epstein v. MCA, Inc., No. 92-55675
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • October 22, 1997
    ...v. Epstein, 516 U.S. 367, 116 S.Ct. 873, 134 L.Ed.2d 6 (1996) ("Matsushita "), the Court reversed our judgment in Epstein v. MCA, Inc., 50 F.3d 644 (9th Cir.1995) ("Epstein I "), and remanded "for proceedings consistent with this opinion." Matsushita, 516 U.S. at ----, 116 S.Ct. at The case......
  • Asbestos Litigation, In re, Nos. 95-40635
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • July 26, 1996
    ...v. Pleasure Hours, Inc. (In re Corrugated Container Antitrust Litig.), 643 F.2d 195, 221 & nn. 39-40 (5th Cir.1981); Epstein v. MCA, Inc., 50 F.3d 644, 661-64 (9th Cir.1995), rev'd on other grounds sub nom., Matsushita Elec. Indus. Co. v. Epstein, --- U.S. ----, 116 S.Ct. 873, 134 L.Ed.2d 6......
  • Request a trial to view additional results
33 cases
  • Shaw v. Toshiba America Information Systems, Inc., No. 1:99-CV-0120 (TH).
    • United States
    • United States District Courts. 5th Circuit. United States District Court of Eastern District Texas
    • January 28, 2000
    ...of absent class members, the court must assume a more active role than it typically plays in traditional litigation." Epstein v. MCA, 50 F.3d 644, 667 (9th Cir.1995). "[I]t is clear that the court [should] not give rubber-stamp approval [to the proposed settlement] ... To protect the intere......
  • Matsushita Elec. Industrial Co. v. Epstein, 941809
    • United States
    • United States Supreme Court
    • February 27, 1996
    ...case, is inapposite here, where the rendering court had subject-matter jurisdiction over the underlying suit and the defendants. P. 884. 50 F.3d 644 (C.A.9 1995), reversed and remanded. THOMAS, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and O'CONNOR, SCALIA, KENNEDY, ......
  • Epstein v. MCA, Inc., No. 92-55675
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • October 22, 1997
    ...v. Epstein, 516 U.S. 367, 116 S.Ct. 873, 134 L.Ed.2d 6 (1996) ("Matsushita "), the Court reversed our judgment in Epstein v. MCA, Inc., 50 F.3d 644 (9th Cir.1995) ("Epstein I "), and remanded "for proceedings consistent with this opinion." Matsushita, 516 U.S. at ----, 116 S.Ct. at The case......
  • Asbestos Litigation, In re, Nos. 95-40635
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • July 26, 1996
    ...v. Pleasure Hours, Inc. (In re Corrugated Container Antitrust Litig.), 643 F.2d 195, 221 & nn. 39-40 (5th Cir.1981); Epstein v. MCA, Inc., 50 F.3d 644, 661-64 (9th Cir.1995), rev'd on other grounds sub nom., Matsushita Elec. Indus. Co. v. Epstein, --- U.S. ----, 116 S.Ct. 873, 134 L.Ed.2d 6......
  • Request a trial to view additional results

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