Matsushita Elec. Industrial Company v. Epstein

PETITIONER: Matsushita Elec. Industrial Company
RESPONDENT: Epstein
LOCATION: Denver Area Consortium

DOCKET NO.: 94-1809
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 516 US 367 (1996)
ARGUED: Nov 27, 1995
DECIDED: Feb 27, 1996

ADVOCATES:
Barry R. Ostrager - Argued the cause for the petitioners
Henry P. Monaghan - Argued the cause for the respondents

Facts of the case

In 1990, Matsushita Electric Industrial Co. made a tender offer for the common stock of MCA, Inc., a Delaware corporation, which resulted in Matsushita's acquisition of MCA. Subsequently, two lawsuits followed. First, a class action filed in Delaware, alleged that, among other things, Matsushita and MCA conspired violating Delaware law. The second suit, filed in federal court, alleged that Matsushita's tender offer violated certain Securities and Exchange Commission Rules promulgated under the Securities Exchange Act of 1934, which confers exclusive jurisdiction upon the federal courts in such suits. After Matsushita won the federal case, and while it was on appeal, the parties to the state action reached a settlement. The class-action settlement stated 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 federal action. As members of both state and federal plaintiff classes, who neither opted out of the settlement class nor appeared to contest the settlement or the representation of the class, pursued the federal appeal, Matsushita argued that the Delaware judgment was a bar to further prosecution under the Full Faith and Credit Act.

Question

May a federal court refuse to grant full faith and credit to a state-court judgment approving a class-action settlement simply because the settlement releases claims within the exclusive jurisdiction of the federal courts?

Media for Matsushita Elec. Industrial Company v. Epstein

Audio Transcription for Oral Argument - November 27, 1995 in Matsushita Elec. Industrial Company v. Epstein

Audio Transcription for Opinion Announcement - February 27, 1996 in Matsushita Elec. Industrial Company v. Epstein

William H. Rehnquist:

The opinions of the Court in two cases will be announced by Justice Thomas.

Clarence Thomas:

The first case I have to announce is Matsushita Electric Industrial Co. versus Epstein, No. 94-1809.

This case comes to us on writ of certiorari to the United States Court of Appeals for the Ninth Circuit.

Several years ago, petitioner made a tender offer for the common stock of MCA, Inc.

That tender offer resulted not only in petitioner’s acquisition of MCA but in two class action lawsuits against petitioner.

First, a lawsuit based on State law was filed on behalf of the MCA shareholder’s in the Delaware Court of Chancery.

While that suit was pending, this case was brought in Federal District Court in California.

Respondents asserted claims under the Securities and Exchange Act of 1934, claims that only Federal Courts may hear and decide.

While the Federal Case was on appeal in the Ninth Circuit, the parties to the Delaware State suit agreed to a settlement in exchange for release of all claims including the federal ones arising out of the tender offer.

Petitioner agreed to pay the class $2 million.

Respondents were members of both the State and federal plaintiff classes.

After receiving notice of the proposed Delaware settlement, and the right to act of that settlement, respondent took no action.

The Court of Chancery approved the settlement and entered the judgment incorporating its terms.

In the federal case, pending in the Court of Appeal, the petitioner raises a Delaware judgment as a defense under the Full Faith and Credit Act.

That Act requires that all courts give a State Court judgment the same effect that it will have in the courts of the state that entered the judgment.

The Court of Appeals rejected petitioner’s defense.

It held that the Full Faith and Credit Act did not apply because the Delaware Court had exceeded its jurisdiction by proving the relief of the exclusively Federal Claims.

In an opinion filed with the Clerk today, we reverse the judgment of the Court of Appeals and remand the case for further proceedings.

The Delaware judgment is entitled to Full Faith and Credit.

The fact that the Delaware suit was a class action and that its judgment might prevent the litigation of exclusively federal claim do not mean that the Full Faith and Credit Act is inapplicable.

We hold that the Act governs cases like this one in which a state claim or a State Court judgment incorporate a class action settlement that releases claims within the exclusive jurisdiction of the Federal Courts.

Our precedents under the Full Faith and Credit Act require us look to state law to see whether the judgment would prevent respondents from bringing claims related to the tender offer in the Delaware Court and, if so, whether there is an exception to the Full Faith and Credit Act for Exchange Act claims.

We think that a Delaware Court would give this judgment preclusive effect but we do note think that Congress meant to change the background rule of Full Faith and Credit when it gave Federal Courts sole jurisdiction or over Exchange Act claims.

Even though the settlement released exclusively federal claim, the Delaware Court did not act outside its jurisdiction in approving the settlement because the underlying suit was based purely on state law.

Justice Stevens has filed an opinion concurring in part and dissenting in part; Justice Ginsburg has filed an opinion concurring in part and dissenting in part in which Justice Stevens joins and in which justice Souter joins in part.