Matsushita Elec. Industrial Co. v. Epstein

Decision Date27 February 1996
Docket Number941809
Citation516 U.S. 367,116 S.Ct. 873,134 L.Ed.2d 6
PartiesMATSUSHITA ELECTRIC INDUSTRIAL CO., LTD., et al., Petitioners, v. Lawrence EPSTEIN et al
CourtU.S. Supreme Court

A tender offer resulting in petitioner Matsushita Electric Industrial Co.'s acquisition of MCA, Inc., a Delaware corporation, precipitated two lawsuits on behalf of MCA's stockholders. While the first, a Delaware class action based purely on state-law claims, was pending, the second suit was filed in a California federal court, alleging that Matsushita's tender offer violated certain Securities Exchange Commission Rules promulgated under the Securities Exchange Act of 1934 (Exchange Act). Section 27 of that Act confers exclusive jurisdiction upon the federal courts in such suits. Matsushita prevailed in the federal case, and while that judgment was on appeal, the parties to the state action reached a settlement, agreeing, inter alia, that class members who did not opt out of the class would waive all claims in connection with the tender offer, including those asserted in the California federal action. The Chancery Court approved the agreement, and the Delaware Supreme Court affirmed. Respondents are members of both the state and federal classes who did not opt out of the settlement class. In the instant case, the Ninth Circuit found that the Delaware judgment was not a bar to further prosecution of the federal action under the Full Faith and Credit Act, 28 U.S.C. § 1738, and fashioned a test limiting the preclusive force of a state-court settlement judgment to those claims that could "have been extinguished by the issue preclusive effect of an adjudication of the state claims."

Held: The Delaware settlement judgment is entitled to full faith and credit, notwithstanding the fact that it released claims within the exclusive jurisdiction of the federal courts. Pp. __-__.

(a) Section 1738—which directs federal courts to treat a state-court judgment with the same respect that it would receive in the rendering State's courts—is generally applicable in cases in which the state-court judgment incorporates a class-action settlement releasing claims solely within the federal courts' jurisdiction. The judgment of a state court in a class action is plainly the product of a "judicial proceeding" within the meaning of § 1738, and the fact that the judgment might bar litigation of exclusively federal claims does not necessarily make § 1738 inapplicable, Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 380, 105 S.Ct. 1327, 1331, 84 L.Ed.2d 274. Pp. __-__.

(b) Marrese provides the analytical framework for deciding whether the Delaware judgment precludes this exclusively federal action. A federal court must first determine whether the rendering State's law indicates that the claim would be barred from litigation in a court of that State; if so, the federal court must decide whether, as an exception to § 1738, it should refuse to give preclusive effect to the state-court judgment. P. 878.

(c) Delaware Supreme Court cases have provided rules regarding the preclusive force of class-action settlement agreements in subsequent state-court suits and have also spoken to the effect of such judgments in federal court, indicating that when the Chancery Court approves a global release of claims, its settlement judgment will preclude on-going or future federal court litigation of any released claims. Thus, it appears that a Delaware court would give this settlement judgment preclusive effect in a subsequent proceeding, notwithstanding the fact that respondents could not have pressed their Exchange Act claims in the Chancery Court. The release in the judgment specifically refers to this lawsuit, the State courts found the settlement fair and the class notice adequate, and respondents acknowledge that they did not opt out of the class. Pp. __-__.

(d) Because it appears that the judgment would be res judicata under Delaware law, this Court must proceed to the second step of the Marrese analysis and ask whether § 27 of the Exchange Act partially repealed § 1738. Any such modification must be implied, but this Court has seldom, if ever, held that a federal statute impliedly repealed § 1738. There is no suggestion in § 27 that Congress meant to contravene the common-law rules of preclusion or to repeal § 1738's express statutory requirement. Nor does § 27 evince any intent to prevent a state-court litigant from voluntarily releasing Exchange Act claims in judicially approved settlements. Assuming that § 27 is intended to serve at least the general purposes of achieving greater uniformity of construction and more effective and expert application of the Exchange Act, a state court threatens neither purpose when it upholds a settlement releasing Exchange Act claims. In addition, other provisions of the Exchange Act suggest that Congress did not intend to create an exception to § 1738 for suits alleging violations of the Act, and precedent supports the conclusion that the concerns underlying the grant of exclusive jurisdiction in § 27 are not undermined by state-court approval of settlements releasing Exchange Act claims. Even when exclusively federal claims are at stake, there is no universal right to litigate such claims in federal court. See, e.g., Allen v. McCurry, 449 U.S. 90, 105, 101 S.Ct. 411, 420, 66 L.Ed.2d 308. Pp. __-__.

(e) The subject-matter jurisdiction exception to full faith and credit, relied on by the Ninth Circuit in this 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, SOUTER, and BREYER, JJ., joined, in which STEVENS, J., joined as to Parts I, II-A, and II-C, and in which GINSBURG, J., joined in part. STEVENS, J., filed an opinion concurring in part and dissenting in part. GINSBURG, J., filed an opinion concurring in part and dissenting in part, in which STEVENS, J., joined, and in which SOUTER, J., joined as to Part II-B.

On Writ of Certiorari to the United States Court of Appeals for the Ninth Circuit.

Barry R. Ostrager, New York City, for petitioners.

Henry P. Monaghan, New York City, for respondents.

Justice THOMAS delivered the opinion of the Court.

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. The answer is no. Absent a partial repeal of the Full Faith and Credit Act, 28 U.S.C. § 1738, by another federal statute, a federal court must give the judgment the same effect that it would have in the courts of the State in which it was rendered.


In 1990, petitioner Matsushita Electric Industrial Co. made a tender offer for the common stock of MCA, Inc., a Delaware corporation. The tender offer not only resulted in Matsushita's acquisition of MCA, but also precipitated two lawsuits on behalf of the holders of MCA's common stock. First, a class action was filed in the Delaware Court of Chancery against MCA and its directors for breach of fiduciary duty in failing to maximize shareholder value. The complaint was later amended to state additional claims against MCA's directors for, inter alia, waste of corporate assets by exposing MCA to liability under the federal securities laws. In addition, Matsushita was added as a defendant and was accused of conspiring with MCA's directors to violate Delaware law. The Delaware suit was based purely on state-law claims.

While the state class action was pending, the instant suit was filed in Federal District Court in California. The complaint named Matsushita as a defendant an d alleged that Matsushita's tender offer violated Securities Exchange Commission (SEC) Rules 10b-3 and 14d-10.1 These Rules were created by the SEC pursuant to the 1968 Williams Act Amendments to the Securities Exchange Act of 1934 (Exchange Act), 48 Stat. 881, as amended, 15 U.S.C. § 78a et seq. Section 27 of the Exchange Act confers exclusive jurisdiction upon the federal courts for suits brought to enforce the Act or rules and regulations promulgated thereunder. See 15 U.S.C. § 78aa. The District Court declined to certify the class, entered summary judgment for Matsushita, and dismissed the case. The plaintiffs appealed to the Court of Appeals for the Ninth Circuit.

After the federal plaintiffs filed their notice of appeal but before the Ninth Circuit handed down a decision, the parties to the Delaware suit negotiated a settlement.2 In exchange for a global release of all claims arising out of the Matsushita-MCA acquisition, the defendants would deposit $2 million into a settlement fund to be distributed pro rata to the members of the class. As required by Delaware Chancery Rule 23, which is modeled on Federal Rule of Civil Procedure 23, the Chancery Court certified the class for purposes of settlement and approved a notice of the proposed settlement. The notice informed the class members of their right to request exclusion from the settlement class and to appear and present argument at a scheduled hearing to determine the fairness of the settlement. In particular, the notice stated that "[b]y filing a valid Request for Exclusion, a member of the Settlement Class will not be precluded by the Settlement from individually seeking to pursue the claims alleged in the . . . California Federal Actions, . . . or any other claim relating to the events at issue in the Delaware Actions." App. to Pet. for Cert. 96a. Two such notices were mailed to the class members and the notice was also published in the national edition of the Wall Street Journal. The Chancery Court then held a hearing. After argument from...

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