Law School Case Brief
Matsushita Elec. Indus. Co. v. Epstein - 516 U.S. 367, 116 S. Ct. 873 (1996)
The Full Faith and Credit Act, 28 U.S.C.S. § 1738, mandates that the judicial proceedings of any state shall have the same full faith and credit in every court within the United States as they have by law or usage in the courts of such state from which they are taken. The Act thus directs all courts to treat a state-court judgment with the same respect that it would receive in the courts of the rendering state. Federal courts may not employ their own rules in determining the effect of state judgments, but must accept the rules chosen by the state from which the judgment is taken.
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 and Exchange Commission Rules promulgated under the Securities Exchange Act of 1934 (Exchange Act). Section 27 of that Act conferred 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, 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 United States Court of Appeals for 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 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."
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?
On a writ of certiorari, the Supreme Court of the United States held that a federal court may not 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. Delaware courts would have given the settlement judgment preclusive effect in a subsequent proceeding. 27 of the Exchange, which confers exclusive jurisdiction upon the federal courts for suits arising under the Exchange Act, did not effect a partial repeal of the Full Faith and Credit Act. Because respondents, who were members of both state and federal plaintiff classes, neither opted out of the settlement nor appeared at a hearing to contest the settlement or class representation, they could not subsequently relitigate the claims barred by the state court settlement in a federal court. The Court further held that the Court of Chancery's settlement judgment was therefore entitled to full faith and credit, notwithstanding that the judgment released Exchange Act claims that were within the exclusive jurisdiction of the federal courts. The Court reversed and remanded the case.
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