Epstein v. MCA, Inc., 92-55675

• Decision Date: 22 October 1997
• Docket Number: No. 92-55675,92-55675
• Citation: 126 F.3d 1235
• Parties: Fed. Sec. L. Rep. P 99,551, 39 Fed.R.Serv.3d 554, 97 Cal. Daily Op. Serv. 8124, 97 Daily Journal D.A.R. 13,165, 97 Daily Journal D.A.R. 13,217 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.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1235

126 F.3d 1235

Fed. Sec. L. Rep. P 99,551, 39 Fed.R.Serv.3d 554,

97 Cal. Daily Op. Serv. 8124,

97 Daily Journal D.A.R. 13,165,

97 Daily Journal D.A.R. 13,217

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.

No. 92-55675.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Sept. 4, 1996.

Decided Oct. 22, 1997.

Henry Paul Monaghan, Harold Edgar, New York City; Irving Malchman, Roger W. Kirby, Peter S. Linden, Kaufman, Malchman, Kirby & Squire, New York City, for plaintiffs-appellants.

Alan B. Morrison, Brian Wolfman, Washington, DC, for amici curiae plaintiffs-appellants.

Barry R. Ostrager, Simpson, Thatcher & Bartlett, New York City; Eleanor M. Fox, New York City; Geoffrey C. Hazard, Jr., Philadelphia, Pennsylvania, for defendants-appellees.

Daniel J. Popeo, Richard A. Samp, Washington, DC, for amici curiae defendants-appellees.

On Remand from the United States Supreme Court.

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

Opinion by Judge WILLIAM A. NORRIS; Dissent by Judge O'SCANNLAIN, Circuit Judges.

WILLIAM A. NORRIS, Circuit Judge:

This case is before us on remand from the United States Supreme Court. In Matsushita Electric Industrial Co. 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 884.

The case is a class action brought by former MCA shareholders who surrendered their stock in response to a tender offer by Matsushita. In Epstein I, the named plaintiffs ("the Epstein plaintiffs") contended, inter alia, that Matsushita's tender offer violated the so-called "all-holder, best-price" rule of SEC Rule 14d-10 ¹ by paying a premium for the stock of MCA's chairman and chief executive officer, Lew Wasserman, and MCA's chief operating officer, Sidney Sheinberg. ² The district court awarded summary judgment to the defendants, and the Epstein plaintiffs appealed.

In Epstein I we reversed the summary judgment for Matsushita, holding that its agreement to purchase Mr. Wasserman's stock for consideration different from what it offered other shareholders violated Rule 14d-10, see Epstein I, 50 F.3d at 653-57, and that there was a material issue of fact as to whether a $21-million dollar payment to Mr. Sheinberg was legitimately made as incentive compensation for past services or was a premium for his stock paid in violation of Rule 14d-10. See id. at 657-59. We rejected Matushita's argument that there was no private right of action under § 14(d)(7) of the Williams Act, following the decisions of the Second and Third Circuits on that point. ³ See id. at 649-52. We also rejected Matsushita's argument that its purchase of Mr. Wasserman's stock could not have violated Rule 14d-10 because his stock was not exchanged until one hour after Matsushita accepted the tendered MCA shares for payment. See id. at 654-57. We also held that the district court had abused its discretion in refusing to certify the class because "[t]he claims of every tendering shareholder turn on identical facts and law--regardless of the identity or circumstances of the particular shareholder." Id. at 668. Finally, we affirmed the district court's dismissal of the "aiding and abetting" claims against MCA and Messrs. Wasserman and Sheinberg personally in light of the Epstein plaintiffs' concession on the issue. See id. at 665 n. 29.

None of these rulings on the merits of the Rule 14d-10 claims were disturbed by the Supreme Court in Matsushita. The Court reversed our judgment and remanded for further proceedings solely on the basis of the On remand, the Epstein plaintiffs press anew an argument that we found unnecessary to address in Epstein I: that we should withhold full faith and credit from the Delaware judgment because it was entered into in violation of the due process right of the absent class members to adequate representation at all times. We now turn to that question.

first question presented in Matsushita's petition for the writ of certiorari: "Whether a federal court can withhold full faith and credit from a state court final judgment approving a class action settlement simply because the settlement released exclusively federal claims." ⁴ Matsushita Electric Indus. Co. v. Epstein, 515 U.S. 1141, 115 S.Ct. 2576, 132 L.Ed.2d 826 (1995) (granting certiorari limited to Question 1 presented by the petition for writ of certiorari); see also Matsushita, 516 U.S. at ----, 116 S.Ct. at 884 (remand order).

I

Matsushita contends that we are barred from addressing the merits of the Epstein plaintiffs' claims of inadequate representation. Matsushita makes three arguments in support of this contention:

(1) The Supreme Court's decision in Matsushita did not leave the issue open on remand;

(2) The issue of the adequacy of representation was fully and fairly litigated in the Delaware Court of Chancery;

(3) The Epstein plaintiffs are estopped from raising the adequacy of their representation collaterally because they did not raise it by intervening in the Delaware proceeding.

A

In arguing that the "[t]he opinion of the Supreme Court leaves no issue open on remand," Appellees' Br. at 1, Matsushita either mischaracterizes or disregards the unambiguous statements in the record to the contrary:

1. Matsushita fails to cite the Court's order granting certiorari, which limited the question it would review to Question 1 in Matsushita's petition. See Matsushita Electric Industrial Co. v. Epstein, 515 U.S. 1141, 115 S.Ct. 2576, 132 L.Ed.2d 826 (1995); see also Matsushita, Pet. for Cert., at i ("1. Whether a federal court can withhold full faith and credit from a state court final judgment approving a class action settlement simply because the settlement includes a release of exclusively federal claims.").

2. Matsushita fails to include the first sentence of the Court's opinion which limited the question presented precisely the way Matsushita stated it in its petition for certiorari:

This case presents the question whether a federal court may withhold full faith and credit from a state-court judgment approving a class-action settlement simply because the settlement releases claims within the exclusive jurisdiction of the federal courts.

Matsushita, 516 U.S. at ---- - ----, 116 S.Ct. at 875-76.

3. Matsushita, although quoting various excerpts from the Court's opinion, fails to quote the following explicit statement by the Court that it did not address the due process claim:

We need not address the due process claim [of inadequate representation] ... because it is outside the scope of the question presented in this Court. See Yee v. Escondido, 503 U.S. 519, 533, 112 S.Ct. 1522, 1531, 118 L.Ed.2d 153 (1992). While it is true that a respondent may defend a judgment on alternative grounds, we generally do not address arguments that were not the basis for the decision below. See Peralta v. Heights Medical Center, Inc., 485 U.S. 80, 86, 108 S.Ct. 896, 899, 99 L.Ed.2d 75 (1988).

Id. at ----, n. 5, 116 S.Ct. at 880, n. 5.

4. Matsushita also fails to cite the explicit statement in Justice Ginsburg's separate Mindful that this is a court of final review and not first view, I do not address the merits of the Epstein plaintiffs' contentions [regarding the adequacy of representation], or Matsushita's counterargument that the issue of adequate representation was resolved by full and fair litigation in the Delaware Court of Chancery. These arguments remain open for airing on remand.

opinion that the due process question of adequate representation remained open on remand, a statement that went unchallenged by any member of the Court:

Id. at ----, 116 S.Ct. at 890 (Ginsburg, J., concurring in part and dissenting in part) (emphasis added).

5. Finally, in arguing that the due process question is not open on remand, Matsushita ignores its own assertions to the Court that the question was not before it for decision. In their brief, the Epstein plaintiffs invited the Court to address the adequacy of representation issue, notwithstanding that it was outside the scope of the sole question on which the Court had granted certiorari. See Matsushita Resp. Br. at 34-45. In its Reply Brief, Matsushita responded:

A. The Ninth Circuit Opinion is Not Predicated Upon Any Due Process Issue.

Respondents invite this Court to find constitutional infirmity in the Delaware proceedings based on alleged inadequate representation and judicial supervision. Resp. Br. at 34-45. As respondents concede, the Ninth Circuit's holding is not predicated on these fact-specific issues. Resp. Br. at 8. Accordingly, this Court should decline to address them.

Matsushita Reply Br. at 13.

Given this state of the record, we must agree with the Epstein plaintiffs that Matsushita's argument that the due process question is not open on remand is "inexplicable." Reply Br. at 4. Matsushita attaches no weight to the Supreme Court's clear disclaimer that "We need not address the due process claim," Matsushita, 516 U.S. at ----, n. 5, 116 S.Ct. at 880, n. 5., and all the other references in the record that reaffirm this disclaimer.

Instead, Matsushita attempts to get around the Court's unambiguous disclaimer. First, it seizes upon language in the Court's opinion concerning Delaware preclusion law and lifts it out of context. "State-court approval of the settlement would have the collateral effect of preventing class members from prosecuting their claims in federal court." Matsushita, 516 U.S. at ----, 116 S.Ct. at 879; accord ...