MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD. v. EPSTEIN
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.
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?
Legal provision: 28 U.S.C. 1738
No. In a 7-2 opinion delivered by Justice Clarence Thomas, the Court held that, absent a partial repeal of the Full Faith and Credit Act 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. Writing for the court, Justice Thomas said the federal Full Faith and Credit Act "is generally applicable in cases in which the state-court judgment at issue incorporates a class-action settlement releasing claims solely within the jurisdiction of the federal courts." Justice John Paul Stevens penned an opinion concurring in part and dissenting in part. Justice Ruth Bader Ginsburg wrote a concurring and dissenting opinion, and was joined in part by Justice David H. Souter.
Argument of Barry R. Ostrager
Chief Justice Rehnquist: We'll hear argument now in Number 94-1809, Matsushita Electric Industrial Company v. Lawrence Epstein.
Mr. Ostrager, you may proceed.
Mr. Ostrager: Mr. Chief Justice and may it please the Court--
The issue in this case is whether the Ninth Circuit should have given a final judgment of the Delaware supreme court the same effect it would have been given in Delaware.
The Delaware judgment approved a class action settlement and incorporated a release of all claims arising out of the transaction at issue, including exclusively Federal claims.
This Court's decision in Marrese teaches that the Full Faith and Credit Act applies to all State court judgments, including State court judgments which have a preclusive effect on exclusively Federal claims.
Thus, we believe that section 1738 requires that a State court judgment incorporating a consensual release of exclusively Federal claims must be given full faith and credit.
The Ninth Circuit's decision does not cite Marrese at all, and ignores this Court's full faith and credit jurisprudence as reflected in this Court's decisions in Allen, Kremer, Migra, and Parsons Steel.
These cases all teach that if a State court judgment bars subsequent litigation under the law of the rendering court, that a Federal court must grant full faith and credit to that judgment--
Unknown Speaker: Subject to due process, though, is that not right?
No full faith and credit if there's been no due process in the rendition of the judgment.
Mr. Ostrager: --Yes, Your Honor, and in addition the Marrese test indicates that full faith and credit must be granted unless there is an express or implied repeal by the after enacted statute.
Unknown Speaker: So can you tell me how the due process adequate representation, which I think is the focal point of this case... how did the Delaware judgment satisfy the adequacy of representation essential to due process requirement?
Mr. Ostrager: The Delaware Rule 23 procedure, which is precisely the same as the Federal Rule 23 procedure, constituted a full and fair opportunity for the absent class members to contest the process which bound the class, and notice was sent to all class members which contained the outcome of the case.
Class members were told that a settlement had been reached and precisely what the class members were receiving and what they were giving up.
Each class member had the right to opt out.
Each class member had the right to appear and object.
This Court held in the Shutts case that failure to opt out constitutes consent to the jurisdiction--
Unknown Speaker: I'm still concerned--
Mr. Ostrager: --of the class action.
Unknown Speaker: --with the adequacy of the representation, because you said in your brief, I believe, that that was actually litigated and decided, and therefore would have issue preclusive effect, so can you describe... because I don't quite get from the briefs what was the record that was established on the adequacy of the representation.
I know there are these two boiler plate phrases in the chancery court's decision, but what was behind the determination that there was adequate representation of this class?
Mr. Ostrager: In this case, Your Honor, the objectors appeared and were heard.
The objectors had the opportunity to conduct discovery concerning the decision making process of the class representatives.
That appears in the record at Joint Appendix cites 255 and 256.
The objectors specifically raised the issue of the adequacy of representation.
The objectors contended that there was something collusive about the Delaware settlement.
That appears in the Joint Appendix at pages 242 to 244.
This is not a case where the--
Unknown Speaker: So what was the evidence... they made those charges, and then was there any kind of hearing on them?
Mr. Ostrager: --There was a hearing before the Delaware chancery court.
The objectors raised their arguments that there was inadequate representation.
They raised arguments--
Unknown Speaker: But whose burden is it to show adequacy of representation?
Is it the objectors' burden to show inadequate representation?
What was the showing made of the adequacy of this representation?
Mr. Ostrager: --In this case, the class in Delaware was represented by 12 class representatives--
Unknown Speaker: Were they named?
Mr. Ostrager: --named class representatives, and they were represented by 20 sets of lawyers.
Four sets of the lawyers were named as co lead counsel, and 16 sets of lawyers were named as part of a committee of the whole.
Unknown Speaker: What do you do with the problem that the chancery court judge initially said, I'm not even going to... I'm not going to accept this first settlement because there's nothing in it for the shareholders, there's only something in it for the lawyers?
Wouldn't that create a special necessity to show the adequacy of this same representation?
Mr. Ostrager: Your Honor, our position is that if this settlement had been presented to the Federal court, which had dismissed the Federal claims, and the state of the record was the same record which was considered by the Delaware chancery court and the court was looking at the settlement ex ante, and looking at the settlement at the time it was entered into, the same result would have been reached.
Our position is that the Delaware chancery court and all State courts are equally capable, as Federal courts are, in considering the fairness and adequacy of the settlement.
Unknown Speaker: So you say that any court, looking at the record that was made on the adequacy of representation here, would conclude on that record that the representation was adequate.
You agree with me, do you not, that it is the representatives' burden to show the adequacy and not the objectors' burden to show the inadequacy?
Mr. Ostrager: We believe that it is for the court before whom the case is pending, consistent with Rule 23 procedure, to make a determination concerning the adequacy of representation.
Unknown Speaker: Who has the burden under Rule 23?
Mr. Ostrager: I believe it would be the class representatives, and I believe it important to know that in this case, in which the adequacy of representation was actually litigated, the respondents in this case were not the type of sideline sitters who were referred to by Justice Stevens in his dissent in Martin v. Wilks.
Unknown Speaker: There was an appeal to the Delaware supreme court.
Was the adequacy of representation one of the grounds for appeal, because I... the judgment of the Delaware supreme court is simply of straight out affirmance.
It doesn't indicate what issues were raised.
Mr. Ostrager: Yes.
This was challenged on appeal, and I think it--
Unknown Speaker: Who appealed?
Mr. Ostrager: --The objectors appealed.
Unknown Speaker: Who are the objectors?
Mr. Ostrager: The objectors in this case were a Mr. Krupman and two relatives of Mr. Minton, and significantly, and this goes to the point I made about sideline sitters, significantly the respondents in this case prepared a draft objection which was utilized by the objectors in the Delaware fairness hearing.
That appears in the record at the Joint Appendix at pages 250 to 251.
So we have a situation where there was full litigation on the issue of adequacy of representation.
Many of the due process issues that are asserted here but which were not considered by the Ninth Circuit at all in its opinion, were raised in the Delaware chancery court.
Unknown Speaker: But the full litigation is still what I don't have a clear picture of, and you told me that there were objections, and then I didn't... I wasn't clear on how the representative met its burden of showing that, despite those objections, its representation was indeed adequate.
Mr. Ostrager: The--
Unknown Speaker: What was the evidence of that?
Mr. Ostrager: --The representatives presented to the Delaware chancery court a full record of the totality of circumstances that preceded the settlement.
Unknown Speaker: Where would I find... if I wanted to look for what evidence the chancery court considered in making that determination, where would I find it?
Mr. Ostrager: The hearing before the chancery court appears beginning at page 222 of the Joint Appendix.
Unknown Speaker: Just tell me everything that's relevant to the adequacy of the representation.
Mr. Ostrager: What is relevant to the adequacy of the representation is that these class members were represented by--
Unknown Speaker: No, I mean where do I find it, because I don't want to detain you any more, just so I can check on my own.
Everything... the record on which the chancery court made the determination that the representation was adequate, the full record.
Mr. Ostrager: --The full record includes the submissions by the class representatives of all the proceedings in the court, and among the places where these are found are at the Joint Appendix at 269, 270, 271, and those pages reference exhibits that were included in the submissions to the Delaware chancery court which reflected the entire history of the litigation before the Delaware chancery court and the entire history of the litigation in the Federal court.
Unknown Speaker: Was it after that record had been assembled and reviewed at the trial level that the trial judge made the remark that there was perhaps a whiff of collusion but that was not proof of it?
Mr. Ostrager: Yes, Your Honor.
Unknown Speaker: So he had seen all of that, and he seemed to put the burden of proof on the other side.
Mr. Ostrager: I believe that--
Unknown Speaker: And express a suspicion.
Mr. Ostrager: --I believe that the issue of suspicions abounding was raised.
These types of suspicions unfortunately exist in every class action.
Unknown Speaker: Yes, but I guess my point is, he both expressed suspicion and, if I understand his remark correctly, assumed that the burden of proving inadequate representation was on those who objected to it, isn't that... is that correct?
Mr. Ostrager: Your Honor, I believe that what the Delaware chancery court found was that the representatives were adequate, and that the settlement was fair and reasonable, and that the suggestions--
Unknown Speaker: Well--
Mr. Ostrager: --that there was something inappropriate about the representations were not--
Unknown Speaker: --Help me out.
I don't want to put--
Mr. Ostrager: --established--
Unknown Speaker: --I don't want to put words in your mouth, but as I recall his remark, which I don't... his statement, which I don't have in front of me, he said there was something, a whiff or suspicion or what not, of collusion, and then he went on to say, as I recall, that that, however, is not enough.
That does not prove that it occurred.
And doesn't that further statement suggest that he thought the burden of proof on the issue of adequacy was upon those who objected, not upon the class representatives?
Mr. Ostrager: --I don't believe that to be the case, Your Honor.
I believe that--
Unknown Speaker: Am I... tell me where I'm wrong on my factual assumptions.
Mr. Ostrager: --I believe that his conclusion was that the representatives were adequate and had fairly represented the class, and that any suggestion to the contrary was unfounded.
Unknown Speaker: Mr. Ostrager, on what authority do you base your statement to Justice Ginsburg that the burden of proof was on the class members to prove the adequacy?
Mr. Ostrager: Well, I believe that the concept of representative action is such that the court must make a finding in order to bind class members that representation is adequate.
That is implicit in both the Shutts case and the Eisen case.
Unknown Speaker: Did either of those cases talk about the burden of proof?
Mr. Ostrager: I don't believe they explicitly referenced the burden of proof.
I believe in this case we can meet that burden of proof and have demonstrated that this issue was fully and fairly litigated before the Delaware chancery court, and as to that issue, there should be issue preclusion.
Unknown Speaker: Is there any case authority for who has the burden of proof on the adequacy of representation?
Do you know of any cases that decide that question?
I cannot cite the Court to a specific case on that issue.
Can I ask you a slightly... the Delaware court finds that the representation is adequate, let's say that's affirmed on appeal in Delaware, and that notice was adequate, and all the constitutional requisites are complied with.
Then is that finding itself binding upon a later Federal court for full faith and credit purposes, or can a person who believes to the contrary come into Federal court and ask them to relitigate that on the ground that they weren't fair.
I, says this person who's never been heard of before, you see, never have been to Delaware, know nothing about this, don't read my mail, and I would like to now litigate in Federal court whether that was a constitutionally adequate protection of my rights because I wasn't even in Delaware and the representation was so terrible that, of course, it violated the Due Process Clause of the Constitution to take property from me.
How does that work?
Is me now, the imaginary me, bound by this finding as to the constitutional due process adequacy of the representation in Delaware by the decision of the Delaware court, or can the Ninth Circuit or the Federal Circuit relitigate all that?
Mr. Ostrager: I believe this Court answered that precise question head on in the Shutts case.
Unknown Speaker: In Shutts.
Mr. Ostrager: In Shutts the Court, discussing an opt out settlement... and we are dealing in this case with an opt out settlement.
Any class member who wanted to pursue a Federal claim in a Federal forum could have merely by executing the opt out form, and in the Shutts case--
Unknown Speaker: And they said, by the way, in Delaware, Breyer got that piece of paper, and I say in the Ninth Circuit, no, Breyer never even got it.
They sent it to the wrong address.
Now, is Breyer bound by that finding in Delaware, and Shutts says he is... it is.
Mr. Ostrager: --Under Mullane and under Eisen the notice that should go out has to be the best notice practicable.
Unknown Speaker: Yes, and they said that it was, but what I want to show is, not only is it not the best notice, it's horrible.
It all went to the North Pole.
Of course Breyer didn't get his notice.
Mr. Ostrager: I believe... I believe that you are bound.
I believe in this case the adequacy of notice is another issue that was specifically litigated--
Unknown Speaker: And Shutts--
Mr. Ostrager: --in the Delaware court.
Unknown Speaker: --is the case that says I'm bound.
Mr. Ostrager: Yes, and the Shutts case says that it is the rare absent class member whose claim is so important that he shouldn't be bound if he doesn't execute an opt out opportunity.
Unknown Speaker: Yes, because I never got it.
They sent it to the North Pole.
Mr. Ostrager: I believe if the... if the best notice practicable was used, then that is sufficient to bind absent class members.
Unknown Speaker: And I'm bound by the finding that it was the best notice practicable--
Mr. Ostrager: I believe that... even though--
Unknown Speaker: --I've never heard of this case before.
Mr. Ostrager: --I believe that is correct, Your Honor.
Unknown Speaker: Shutts says that.
Did the Ninth Circuit deal with these questions at all about adequacy of representation or due process?
Mr. Ostrager: No, it did not, Your Honor.
Unknown Speaker: Let me go back to Justice Breyer's question.
I suppose ultimately the justification for the conclusion that you press on him is that somehow there's got to be a way of managing class actions, and once in a while somebody's going to get hurt, possibly, but not hurt very much, and that's simply a price that we've got to pay.
One, I guess, objection to that line of argument is, is the argument that in fact when State courts are dealing with settlements of class actions which purport to cover exclusively Federal claims, they have no legal authority to authorize class representatives to make these ostensibly binding agreements with respect to the Federal claims at all.
What is your answer to that?
Mr. Ostrager: Other than the Ninth Circuit decision, we are aware of no decision in the Federal system which holds that a court cannot resolve consensually--
Unknown Speaker: Yes, but why shouldn't there be such a decision?
Mr. Ostrager: --There shouldn't be such a decision because in a long line of cases this Court has recognized the importance of finality in transactions and litigations.
If I may for one moment talk--
Unknown Speaker: May I ask you just... before you proceed on that line, we left one thing dangling, I think.
The question was, who has the burden, and you suggested to the Chief that that's not really clear.
As a matter of Delaware law, to say nothing of Rule 23(a)(4), isn't it absolutely clear since the Prezant case that the representative has that burden?
Mr. Ostrager: --We have accepted that burden, Your Honor.
Unknown Speaker: But doesn't... Justice O'Connor asked you for a case.
Doesn't that case, that State law case, subsequent to this decision, just stand out for making clear that there is a very strong burden on the representative to establish adequacy?
Mr. Ostrager: The Prezant case held specifically, I believe, that it is incumbent upon the reviewing court to make a finding of adequacy of representation, and I don't mean to quibble with Your Honor.
We are accepting the burden of proving that representation was adequate, and we believe it was met in this case.
And if I could come back a moment to the practical aspects of allowing the Ninth Circuit decision to stand, if a finding that a class action settlement is fair and is... and one which is entered with all due process can be the subject of collateral attack, it eliminates all finality with respect to the scores of other cases which are... have been concluded in the State court system and which involve a germ of a Federal claim.
It effectively forces all actions into Federal court, because it's impractical for any litigant to settle any case unless all claims arising out of a particular transaction, actual or potential, State or Federal, are concluded.
It allows class members to completely bypass the ordinary and regular State court class action procedures.
Unknown Speaker: Let me ask this about the power of the Delaware court to order release of the Federal claims.
Suppose the chancery court said, I think there's very little merit to this Federal claim, and therefore I am going to approve the settlement, I think this Federal claim is probably not destined to succeed, and in the course of his analysis, he makes a misstatement of Federal law.
Now, would his certification be reviewable on certiorari to this Court on the grounds that he made a mistake of Federal law?
Mr. Ostrager: Certainly, if anything that occurred in Delaware was violative of any Federal right, review would be available on certiorari after review in the Delaware supreme court, and--
Unknown Speaker: Do you think it would be reviewable if he didn't make an explicit statement but just made an assessment of the Federal claim that was arguably erroneous?
Mr. Ostrager: --I believe that Federal issues that are decided in a State court are properly reviewable on direct appeal to this Court pursuant to 1257 rather than collateral attack.
Unknown Speaker: Is an assessment of the likelihood of success of the Federal claim an issue of Federal law?
Mr. Ostrager: I believe that in this case, where the settlement court was looking at a situation where the Federal claims had previously been dismissed and was making an assessment of whether a settlement that was available to a class then and at that point in time is certainly something within the discretion of the State courts to resolve.
I might point out that--
Unknown Speaker: But you don't think that there was any Federal issue there for us to review, assuming that there had been a certiorari petition brought to us?
Mr. Ostrager: --I do not.
I do not.
I do not believe that any issue that arises in the context of a settlement impacts on Federal concerns.
There's no impact on the uniform enforcement of the Federal securities laws.
In this case, the opt out right assured the respondents of the right to pursue the Federal claims if they so chose.
The right to object enabled them... which was availed, enabled them to raise any Federal constitutional issues in this Court on direct review.
The SEC could have reviewed any Federal issues of consequence which arose out of this transaction wholly apart from the disposition of this case by settlement.
Indeed, in this case, the only Federal interest that was implicated by the settlement is the affirmative Federal interest in ensuring efficiency of settlements.
Unknown Speaker: Can you explain one thing about the way this case unfolded?
It was an initial determination that these State claims were weak at best, and that stayed at every stage.
When the chancery court said, the Federal... the State claims are of little or no value, there may be some Federal claim here, why did the class representative continue in the State forum when it appeared that the only viable claim was a Federal claim over which the State court had no jurisdiction?
Mr. Ostrager: I think we are dealing here with the proverbial fluid situation.
There was a State claim asserted.
The State claim certainly stated a claim upon which relief could be granted.
The State claim had issues in it which, if litigated--
Unknown Speaker: But you're a representative of a class, and the judge has just told you, I don't think these State claims are worth anything, maybe there's a Federal claim here, and that's the same judge you're going to be before.
The State claims didn't change.
They didn't become any stronger.
Mr. Ostrager: --The class representatives in this case most assuredly continued to monitor developments not only in the State case but in the Federal case as well, and there was ongoing discovery to which these class representatives had access, and they--
Unknown Speaker: Isn't there something strange, though, about a case being in State court when the only really viable issue is a Federal one?
Mr. Ostrager: --I don't believe that the only viable issue was a Federal issue, and I might point out that Matsushita didn't initiate an action in the Delaware chancery court.
Matsushita was sued by 12 people represented by 20 law firms in Delaware, and dealt with that case as it defended the Federal case.
Unknown Speaker: And probably could have gotten a dismissal if it asked for it on the State claims.
It didn't ask for it.
Mr. Ostrager: It was judgment of counsel that the Delaware claim stated a claim upon which could be granted.
With the permission of the Court, I would like to reserve the balance of my time for rebuttal.
Unknown Speaker: Very well, Mr. Ostrager.
Mr. Monaghan, we'll hear from you.
Argument of Henry P. Monaghan
Mr. Monaghan: Mr. Chief Justice, and may it please the Court--
My argument basically has two prongs.
First, I'd like to go into the issue of adequate representation and, secondly, I'd like to convince the Court that in fact, in view of the reply briefs, it's perfectly apparent that there's no Marrese issue involved at all in the case.
Unknown Speaker: Mr. Monaghan, the question presented in the petition for certiorari is 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 included a release of exclusively Federal claims.
Respondents phrase the question, did the court below err in refusing to give preclusive effect to a Delaware settlement and release to the extent that the Federal claims were factually and legally unrelated to any State law claims.
No question of due process or adequacy is raised in the petition.
You didn't cross petition.
This would be a totally alternate ground for affirmance.
Mr. Monaghan: Your Honor, two points.
I think first of all, we are respondents, and we can defend the judgment on any ground consistent with the record.
This point was the central point of our argument below.
Secondly, even if we were in the petitioner's point of view, are in that position, this question is fairly included within the petition.
The real question in the case... and they've reframed their question, incidentally, from their brief to their reply brief.
The real question is, did the Ninth Circuit disregard erroneously what happened in Delaware?
Unknown Speaker: Well, that certainly isn't the question... it's a much narrower question presented by the petition, whether the State court can release Federal claims as well as State claims.
Mr. Monaghan: It can't release those claims, Your Honor, if in doing so it would violate the Due Process Clause.
They conceded that.
Unknown Speaker: Well, that wasn't... the Ninth Circuit... the Ninth Circuit said they couldn't do it simply because State courts didn't have that authority.
Mr. Monaghan: The Ninth--
Unknown Speaker: And so I think, fairly understood, that was the question presented on certiorari.
Mr. Monaghan: --Well, I think... well, all I can say is, Your Honor, that whether or not that's the question that they presented on certiorari, there was countless case law in this Court that we can defend a judgment--
Unknown Speaker: Well--
Mr. Monaghan: --on any ground consistent with the record.
Unknown Speaker: --Mr. Monaghan, I think you're at some risk here today if you are unwilling to even argue the question on which cert was granted.
Mr. Monaghan: Oh, I'm--
Unknown Speaker: It's a question that I intend to deal with when I get to work on the case, and I would assume you'd want to deal with it here--
Mr. Monaghan: --I--
Unknown Speaker: --and not go off on some peripheral issues that aren't here.
Mr. Monaghan: --Well--
Unknown Speaker: I'm quite amazed.
Mr. Monaghan: --I will go exactly to the question--
Unknown Speaker: You know, the Ninth Circuit seemed to take the view that if it were an individual lawsuit in State court, and there is a settlement in State court and a judgment that disposes of a release of any Federal claim as well, that the Federal court later would give full faith and credit--
Mr. Monaghan: --Yes, Your Honor.
Unknown Speaker: --to that judgment, but the Ninth Circuit said it would not follow that rule or practice if it's a class action, and I thought we were here to determine whether that is correct or not.
Mr. Monaghan: I'm perfectly... I will turn exactly to that point, Your Honor.
The... there's a wide difference between an individual releasing a claim within the exclusive jurisdiction of the Federal court and a class representative that's happy to do so.
When the individual releases his claim, the State court judgment is not what effectuates the release.
The individual could release his claim sitting in his rocking chair.
The fact that he does so as part of a proceeding before... as part of a judgment, the judgment isn't what effectuates the release.
The judgment in the State court has one advantage.
It converts him from what would otherwise be a simple contract creditor into a judgment creditor which may give him affirmative rights under the State lien law.
But when an individual releases his claim, as this Court has recognized in the Mitsubishi case, he's a) under no obligation to pursue it at all, and he can release it outside the legal framework, and there's no reason to believe he can't authorize it inside the framework.
In this case, what happened is the class representative gets his authority solely by virtue of his appointment.
The complaint is organized entirely around State law claims.
We cannot understand how it is that the State court, which could not adjudicate the claims, could license a representative to go out, value those claims, badger the defendant, value them, and then authorize a release of those claims.
This is directly inconsistent with section 27.
If you will take a look--
Unknown Speaker: Why isn't the answer to this, if there is an answer, that that is what the courts of Delaware, at least, understand Delaware State law to be?
Why is Delaware... why is it constitutionally impossible for Delaware State law to grant this authority subject always to a due process attack?
Mr. Monaghan: --Because the Supremacy Clause forbids it.
Section 27 forbids it.
Unknown Speaker: Well, if there were a Federal statute that expressly provided that no State court or no State law system could authorize class representatives to make this kind of an agreement in a way that would be binding in the Federal court, I would see the argument, but Federal law seems to be silent on it.
Mr. Monaghan: Federal law is not silent on it in our view, Your Honor.
Section 27 provides for exclusive jurisdiction to enforce these claims in the courts of the United States.
If I can... and the question is, what does that mean?
Unknown Speaker: And what's the inconsistency there with a State law saying, you are authorized to settle these Federal claims?
Mr. Monaghan: The question analytically is whether a settlement in these circumstances amounts to an enforcement of the claim.
If you think about the structure of this case, you had nonexistent State law claims.
They were revived at the last hour in a hope to extinguish a substantial Federal appeal.
All that occurred here in the chancery court was a valuation of the worth of the Federal claims.
Unknown Speaker: Apart from this case, Mr. Monaghan, though, I take it to be your position... it's a rather broad position... that only a Federal court can approve a settlement of a class action that releases a claim over which the Federal courts would otherwise have exclusive jurisdiction.
Mr. Monaghan: --We are prepared to defend that position here.
We could adopt a narrower position, which is the Ninth Circuit's position, which the State court certainly can't do it with respect to claims which don't overlap, and there's no contention here that the claims overlap.
Unknown Speaker: But I take it from what you were just arguing that that is the terminal point that you're going to.
Mr. Monaghan: --I'm perfectly happy to reach that point, Your Honor.
That's the way to vindicate the congressional judgment.
Unknown Speaker: But then that would take all these class actions out of the State arena and leave them exclusively, if there's combined Federal and State claims and there's securities claims, antitrust claims over which there's exclusive jurisdiction, all of that has to be done in the Federal courts, not in the State courts.
Mr. Monaghan: There are a great many ways of coordinating... first of all, we should not exaggerate the significance of the problem.
There are no more than 300 securities class actions brought per year in the Federal court, 300.
There are presumably about 145 defendants being sued.
This information is collected in a recent article in the Columbia Law Review.
What would happen in those circumstances is that the State court... you could file simultaneous suits in both the State and Federal court.
You could file the suit in the Federal court alone.
If the argument ultimately is one of efficiency, I would say, Your Honor, you... it's... you shouldn't just focus on efficiency of litigation costs.
You ought to look at efficiency of outcomes.
If the State court cannot adjudicate the claims, it will systematically undervalue the Federal claims.
You can't be a good diplomat if you haven't got the power to wage war.
But I'd go a step further, and I would say this.
Even if the Court were convinced that this is an inefficient solution, this is the solution that expresses Congress' will, in our judgment.
Congress said enforcement is in the Federal... in the jurisdiction of the Federal courts.
If you will look at point 1 of their briefs, the heading of point 1--
Unknown Speaker: What page is it on, Mr. Monaghan?
Mr. Monaghan: --I'm sorry, Your Honor.
This is how they describe the question a grant of exclusively Federal jurisdiction to adjudicate claims.
This is not what the statute says, and they've underlined the word adjudicate.
We quote the statute on the opening page of our brief.
As a matter of fact, in the 70 pages of their brief, they never quote section 27.
You can't find it.
You can't find the text of it.
The... on the opening page of our brief, this is the statute, and my view is that I cannot understand how a court which cannot adjudicate claims somehow gets the authority to appoint a representative to do what Congress has forbidden the court to do.
Unknown Speaker: Suppose I have a divorce, and my divorce is in Delaware, and I give my wife the right to use the Malibu beach house as part of the settlement.
Mr. Monaghan: Mm hmm.
Unknown Speaker: I mean, can't I do that, and couldn't it be included in--
Mr. Monaghan: You've got personal--
Unknown Speaker: --the decree, and it all is in California, all this property.
Mr. Monaghan: --You've got personal jurisdiction over both of those defendants.
Unknown Speaker: Oh, but did... they don't have jurisdiction here over the parties.
Mr. Monaghan: They do not have... they have personal jurisdiction over the parties, but they do not have subject matter jurisdiction over the claims.
Unknown Speaker: And do they... all right.
My point is, I don't quite see... it seems to me you have three separate arguments.
The release argument I don't understand, because the word release is written right into the judgment.
We're talking about a judgment, not a contract.
I don't really understand the argument of... I mean, the Williams Act seems to be a separate argument.
The Williams Act... you have a lot of Federal statutes, like the antitrust statute and others, which are exclusive.
I mean, the State courts cannot approve any settlement that involves giving up any of these Federal claims?
I mean, why not?
They can approve my giving up my beach house.
They can approve my giving up all kinds of things in a settlement.
Why can't they approve my giving up a class action that's worth $300?
Mr. Monaghan: The beach house example is a case of intrastate Federal--
Unknown Speaker: I know there are conceptual--
Mr. Monaghan: --Right.
Unknown Speaker: --differences, but my point is simply--
Mr. Monaghan: When you're talking about--
Unknown Speaker: --but my point is simply that in settlements people give up all kinds of things--
Mr. Monaghan: --Individual--
Unknown Speaker: --that have nothing--
Mr. Monaghan: --Right.
Unknown Speaker: --to do with the case in front of the person.
Mr. Monaghan: That--
Unknown Speaker: Now, if, in fact, they can give up all kinds of things, including beach houses, including mineral rights somewhere, why, assuming the Due Process Clause is satisfied--
Mr. Monaghan: --Mm hmm.
Unknown Speaker: --can't they give up a class action right to some case, probably would never be broader, if it was it would be worth $300 to them?
I mean, I don't understand what in the law would allow you to give up thousands of things, like houses, et cetera, but you couldn't give up some kind of class action right that's not worth too much to you?
Mr. Monaghan: Your Honor, there's a fundamental difference between an individual giving up something and a class representative.
Unknown Speaker: Yes.
Yes, that's called the due process problem.
I'm leaving that out.
Mr. Monaghan: No, it's not the Due Process Clause.
No, Your Honor, it's not the Due Process Clause, with deference.
The Due Process Clause claim is involved, but if I'm an individual and I have an antitrust claim, and I have 10 State law claims against you, I can release them all by way of a general settlement.
It can be put into the decree in the State court, but the decree in the State court doesn't do anything with respect to releasing the Federal claim.
It's my contract release.
This is Newton v. Rumery, which we cite in our brief.
The judgment isn't what releases it.
It's the contract, the agreement that releases--
Unknown Speaker: Why?
Mr. Monaghan: --Because there are plenty of Federal claims, Your Honor, and we cite two cases, Dicey and Rumery, in which a release is effected without any kind of a judgment.
Unknown Speaker: Well, suppose in this hypothetical the contract says, this contract shall be enforceable only if it is entered into a judgment in the Federal court... in the State court?
Mr. Monaghan: That's a matter of State law.
Unknown Speaker: This is a part--
Mr. Monaghan: That's a condition on the contract.
That's a condition on the contract, but what is effecting your release from a Federal point of view is not the judgment, it is... although the person now becomes a judgment lienor, as I said, but what effects it is the fact that he made a contract.
He could make it... he could make that same contract without any reference to a court at all.
Unknown Speaker: --Of course that's--
--Mr. Monaghan, let's... I'm sorry.
Just exactly the point.
You're right on the point that was worrying me when I asked that.
This is the part I don't understand.
Of course you can exercise a release to a contract without a judgment, but why couldn't you also put it in a judgment, and if you also put it in a judgment, why wouldn't the Full Faith and Credit Clause require that judgment to bind other States?
Mr. Monaghan: If you put it in a judgment, you get the status of a judgment lienor, to start with, as a matter of State law, but if it's exclusively within the... if the claim is exclusively within the jurisdiction of the Federal court, there can be no claim preclusion.
Unknown Speaker: All right, let me ask you this question just to modify the example.
Let's assume you're right so far as the inadequacy of State law to in effect to effect the result that Justice Breyer is talking about, is there any bar to a rule of Federal common law in courts that do have exclusive jurisdictions... jurisdiction over these matters that says, we will in fact recognize State court judgments which purport to do this, subject always to collateral attack for due process, so that now we're depending not on the efficacy of State law and the full faith statute, we're adding an element of Federal common law that says, it's okay so long as we can look into it.
Mr. Monaghan: I think--
Unknown Speaker: Is there any bar to that?
Mr. Monaghan: --Yes.
I think Marrese disposed of that problem negatively.
That's exactly the argument... that's exactly what Judge Posner did in the Seventh Circuit in Marrese.
Unknown Speaker: Did he... he made the Federal common law argument.
Mr. Monaghan: He made exactly that argument.
He conceded that section 1738 would not bar the Federal claim.
He then decided to fashion a preclusion rule broader than the State preclusion rule, and the opinion of the Court in that case he was reversed on.
Unknown Speaker: Okay.
Mr. Monaghan: The... but I would say that in this case I think it's very important, Your Honor, with respect to class actions particularly, to understand that the State class representative gets his authority from the complaint and from the complaint only.
The complaint is organized only around State law claims.
If that's all he has by way of... all the State can give him, I don't understand how he suddenly bootstraps himself up in--
Unknown Speaker: May I ask a question--
--I still don't understand.
It seems to me that based on your answers to me and to Justice Breyer that it would be, if you prevail on this case, quite an abuse of authority and an exercise of authority in excess of jurisdiction for a State court ever to approve a release of a patent claim, of an antitrust claim, of any claim where there is exclusive Federal jurisdiction, even in a private action with a private contractor.
I don't see how the class action is any different--
Mr. Monaghan: --Oh, I'm sorry.
Unknown Speaker: --if the private individual puts in the contract that the contract is conditional upon approval and incorporation into a State court judgment.
Mr. Monaghan: Individuals can do this, Your Honor.
You have... if I... there's a... I have to come back again, and I don't want to sound like a broken record.
Individuals can do this as a matter of contract law.
That's settled, because they can do it outside court, they can do it inside the court.
Unknown Speaker: Well, they can't... an individual can't confer jurisdiction on a court that it doesn't have.
Mr. Monaghan: It's not conferring jurisdiction on the State court, Your Honor.
What it's doing is, it's making a contract with the defendant, and the State court is approving it.
Unknown Speaker: You're saying a court can recognize a contract but it cannot provide authority to a third party to make a contract.
That's where you're drawing the line.
Mr. Monaghan: The representative must... I'm sorry.
Unknown Speaker: Can State law authorize as a principle of agency someone to represent an individual and do this in an individual suit by virtue of State agency law?
Mr. Monaghan: Yes, Your Honor.
There are... a guardian ad litem, for example.
Unknown Speaker: Yes, so why can't it be done in the class action context under State law, and why isn't the remedy of those who object, such as your clients, simply opting out?
Why don't they opt out if they don't like it?
Mr. Monaghan: Well, if we opted out, there were two consequences of opting out.
First of all, our own individual claim would be not viable.
We couldn't have prosecuted that claim even if the defendants had admitted liability.
Secondly, and more importantly, we were in the--
Unknown Speaker: Why?
Why do you say that?
Mr. Monaghan: --They didn't have enough money.
Unknown Speaker: Why do you say that?
Mr. Monaghan: It cost money.
This man had only 1,000 shares.
The second... and very few securities litigants would be in a position who opted out.
This is one of the points that the Chief Justice made in Shutts about the desirability of class actions when you need people with very--
The second point, and more important point is, we couldn't opt out the class, the Federal class.
We were in the position of being fiduciaries.
In the Federal proceeding, vindicating a Federal claim, there are 500 docket entries in that case.
Contrary to what was suggested here, there were no litigation entries in that... in the Delaware case for a period of 18 months.
Unknown Speaker: When you say 500 entries, that's in the Ninth Circuit, what became the Ninth Circuit case?
Mr. Monaghan: Three hundred in the Ninth... 300 in the... 300... there are a total of 500 docket entries, 300 from the point at which the Delaware settlement was rejected by the chancellor in our appeal in the Ninth Circuit.
Unknown Speaker: That would have been the district court of California.
Mr. Monaghan: Prior to the district court, yes.
Unknown Speaker: Mr. Monaghan, why can a State court authorize a guardian to settle an individual claim arising under exclusively under Federal action but not a class?
Mr. Monaghan: --Well, the... in case I don't get enough time, the best treatment of that topic is in Restatement of Judgments, which is prepared by Delaware's... the reporter of which is their counsel.
The... there are various kinds of representative suits, and they're all described in section 7... in section 41 of the Restatement of Judgment, Seconds.
There are some representative suits that exist by virtue of an independent relationship.
If I were a trustee for you, I would have general authority to act for you and litigate.
Some other kinds of representatives are appointed by law.
The guardian ad litem is one situation.
Unknown Speaker: And the class representative is another.
Mr. Monaghan: --The class representative is another, and it's a... they all have their unique history.
They all have their unique dangers.
They all... no representative can bind on the basis of inadequate representation.
That's clear law.
But in the history of the class action case, the class representative would pose severe problems, because the class representative is... the guardian gets a general commission when he's appointed, take care of this person.
He may be a guardian only for the purposes of this suit, but it's, take care of this person, but he's a lot closer to the individual.
In the class action--
Unknown Speaker: May I interrupt you--
Mr. Monaghan: --Sure, yes.
Unknown Speaker: --and I apologize for this, but may I interrupt you on this?
I take it the answer to my question is not an answer that depends on Federal law, it is an answer which depends on a kind of a State agency law.
Mr. Monaghan: Yes, Your Honor, but the State agency law--
Unknown Speaker: Then the exclusiveness of the Federal jurisdiction over the underlying action has nothing to do ultimately--
Mr. Monaghan: --No, that--
Unknown Speaker: --with your position.
Mr. Monaghan: --No, Your Honor.
The... you initially start with the dimensions of the agency created by State law--
Unknown Speaker: Yes.
Mr. Monaghan: --but the question ultimately is what the State court could authorize the representative to do, and that representative--
Unknown Speaker: Well, let's assume the State, where it says, we can authorize as a matter of State law, the representative to bind this class, it's just like the guardian ad litem situation.
Assume that is State law.
What is the bar in Federal law, if Federal law would recognize it in the case of the guardian but not in the case of the class?
Mr. Monaghan: --Section 27 works differently with respect to class actions.
The class representative... the class representative is organized entirely around his complaint, State law claims.
A guardian ad litem, pursuing '34 act claims... let me put it this way.
The State could not authorize a guardian ad litem to bring a '34 act claim in the State court, couldn't authorize that, and therefore it can't authorize him to do it in the Federal court... I mean, in the State court... in... in... it can't authorize him to bring it in in the State court and it can't authorize him to settle it, in our point of view.
That's inconsistent with section 27.
What's happening here is--
Unknown Speaker: They why... then it could not authorize him to settle... a guardian to settle either.
Mr. Monaghan: --The guardian could not settle the claim in the State court, no.
Unknown Speaker: Okay.
What if the State court action is brought and there are... in the State by this guardian, and there are Federal claims but there are State claims as well, and district court, or the State superior court, whatever, says I can only deal with the State law claims.
The others, I agree with Mr. Monaghan, I don't have jurisdiction.
And then the parties reach a settlement, and they want to settle not only the State law claims but the Federal claims, execute general releases, just like so many people.
They can do that, I take it, can't they?
Mr. Monaghan: If they did that, and they wanted to make it effective, they would have to go into the Federal court to get the Federal court's approval, subject, of course, Your Honor--
Unknown Speaker: But there's been no--
Mr. Monaghan: --to the statute of limitations, which operates here to eliminate a lot of these problems.
Unknown Speaker: --So they couldn't even... even a general release wouldn't--
Mr. Monaghan: By an individual... I'm sorry.
Unknown Speaker: --By individuals.
Mr. Monaghan: A general release by an individual is fine.
Unknown Speaker: Or by a guardian ad litem.
Mr. Monaghan: The... by a guardian ad litem, yes.
Unknown Speaker: I thought your answer was that the guardian could not.
Mr. Monaghan: --The guardian couldn't release the Federal claim.
The guardian ad litem could not release the Federal claim... well, I don't know--
Unknown Speaker: Why not?
Mr. Monaghan: --about that, Your Honor.
That's a very hard question.
Unknown Speaker: But if the guardian can--
Mr. Monaghan: It's an individual, and an individual, it's a difficult question, yes.
Unknown Speaker: --But I... all right, let's assume for the sake of argument that the guardian can release the exclusively Federal claim.
If that's the answer, why can the class representative not do the same, because the guardian's authority comes from State law.
It receives some kind of Federal recognition.
The class representative's authority comes from State law.
Why should it not receive a parallel recognition?
Mr. Monaghan: Well, the guardian... bear in mind that you could not appoint a... New York... Delaware could not appoint a guardian to act in New York for us.
The question is, what can be lawfully... what can the State lawfully confer upon somebody who is... whose authority is constituted by law?
My basic position is they cannot authorize these persons to litigate cases in the Federal court.
That's not challenged.
There's no suggestion they can litigate.
What you can't litigate--
Unknown Speaker: In the State court.
Mr. Monaghan: --In the State court, I'm sorry.
Thank you, Your Honor... you can't... you cannot also release in the State court.
Unknown Speaker: Then that covers the guardian.
Mr. Monaghan: That covers the guardian, yes.
Unknown Speaker: So--
--That wasn't the Ninth Circuit's view of the matter, though, was it?
Mr. Monaghan: No, it was not, Your Honor.
The Ninth Circuit's view of the matter was, and it's a perfectly defensible view, was that the State court can release parallel or mirror image claims but not... and we certainly are not abandoning that position.
The Ninth Circuit's view has this advantage, Your Honor.
It results in the Federal claim not being systematically undervalued, because if you can't... if the State guardian can't affect a Securities Act claim in any way, he can't protect it, because he can't fight.
In the overlap cases, the mirror image cases where the State law and the State law are sort of a mirror image of one another, you could make the argument that the State representative, in settling, has got enough muscle to protect the underlying Federal claim.
Unknown Speaker: So if there were a State rule comparable to Rule 14(d)(10), then under--
Mr. Monaghan: Yes, that's right.
Unknown Speaker: --the Ninth Circuit view, you would lose.
Mr. Monaghan: You have to understand the reality of this, because... I know Your Honor is not disposed to the question of adequate representation, and I'm not going to press it.
I just want to say one thing about it, if you'll permit.
If you will... if you think it's before you, and I think it's before you, if you will look, the State judge made no inquiry into adequacy representation.
There wasn't... in the record, you will find the word adequate representation mentioned once in the judgment, no inquiry at all, because he didn't think it was relevant, and the reason he didn't think it was relevant, because he was the judge in the Prezant case.
The vice chancellor in this case thought that there was only one issue is this a good settlement?
If you look at his initial opinion, if you look at his subsequent opinion, if you look at the order of notice scheduling a hearing, there is no mention that there will be a challenge to the adequacy of representation.
He's the vice chancellor who was reversed in the Prezant case because he didn't think it was relevant.
Unknown Speaker: What about the argument that you should have come into Delaware to make that objection and not stayed out of it?
Mr. Monaghan: Had we gone into Delaware, our judgment was we could not adequately protect the class.
If we... for a number of reasons which I'll go into.
If we stayed out, relying on the Restatement of Judgments, among other things, we knew that we could make collaterally the attack on lack of adequate representation, due process, and... this addresses a point that may be of particular interest to Justice O'Connor... there would be no Marrese problem because, on page 26 of our brief, we point out that the Delaware court would permit a subject matter jurisdiction attack.
Unknown Speaker: How do you know that... how could you count on the fact that you'd collaterally attack the adequacy of the representation?
Mr. Monaghan: Because--
Unknown Speaker: Did you know in advance that this vice chancellor would not inquire into it?
Mr. Monaghan: --Yes, from his first opinion.
His first opinion--
Unknown Speaker: That's a pretty high risk--
Mr. Monaghan: --Nothing--
Unknown Speaker: --to guess that he would not inquire into it.
Mr. Monaghan: --Nothing, Your Honor, with respect to the risk that we would have undertaken had we gone into the Delaware court.
Unknown Speaker: Can you summarize in one sentence, say a properly constituted class representative in a State court where the proceedings are completely fair, so there's no due process--
Mr. Monaghan: Yes.
Unknown Speaker: --problem can bind the members of his class to give up State claims, maybe even to pay some money in an appropriate circumstance, but cannot bind those members to give up some kind of Federal claim because--
Mr. Monaghan: Because of section 27 of the--
Unknown Speaker: --So it's all the Williams Act.
In other words, unless we find a congressional intent there in section 27, you lose.
Mr. Monaghan: --Well, section 27 is not the Williams Act.
Unknown Speaker: I mean, Section 27, unless because of section--
Mr. Monaghan: --Right.
Unknown Speaker: --So that's what this turns on.
Mr. Monaghan: Because there is no difference between... in terms of the act between adjudicating the claim and releasing it.
Section 27 doesn't make that distinction.
Unknown Speaker: Mr. Monaghan, I'm a little puzzled.
Suppose somebody who's incompetent has a Federal claim against me.
Mr. Monaghan: Mm hmm.
Unknown Speaker: How do I get that Federal claim released?
Mr. Monaghan: He can... if he's appointed by the court, he could release the claim as a matter of contract.
Unknown Speaker: He's appointed by a State court... by a State court.
Mr. Monaghan: He's appointed by a State court, he releases as a matter of contract law.
Unknown Speaker: Oh, he can.
Mr. Monaghan: He can release as a matter... individuals can release as a matter of contract law.
Now, if he's appointed as a guardian for purposes of litigation, he can't litigate it, but if I was appointed your guardian, Justice Scalia, I could release all your Federal claims.
Unknown Speaker: Not an easy assignment.
Mr. Monaghan: But I would submit, Your Honor... and I respect your predisposition, but I would submit that the question of adequacy is before the Court.
Unknown Speaker: You're quite right, the respondent can urge affirmance on alternate grounds, but we rarely do it.
We generally want to decide the question on which we granted certiorari.
Mr. Monaghan: No further questions... thank you.
Unknown Speaker: Thank you, Mr. Monaghan.
Mr. Ostrager, you have 4 minutes remaining.
Rebuttal of Barry R. Ostrager
Mr. Ostrager: With respect to the Supremacy Clause argument advanced by respondents, we submit that the respondents have made a fatal concession to that argument in footnote 26 of their brief, in which respondents concede that individuals can release Federal claims in a State court proceeding, and a derivative action in a State court can release Federal claims.
That same concession is made by the Ninth Circuit in its opinion, and that appears in the petitioner's appendix at page 38 and footnote 32.
Manifestly, if Federal claims can be dismissed in the context of an individual action or in a derivative action, then there's no Federal supremacy issue here, and there's also no Federal preemption issue here.
Unknown Speaker: Mr. Ostrager, your knowledge of Delaware... under your knowledge of Delaware law, if the members purportedly represented here wanted to have this judgment reopened on the basis of the Delaware supreme court's full development in the Prezant case, would it be possible to make an application to reopen this judgment under Delaware law on--
Mr. Ostrager: Delaware law has the equivalent of Federal Rule 60, and so there could be such an application made.
I'd like, if I could, to address myself briefly to the issue of the implied or express repeal of 1738.
This Court held in Shearson v. McMahon that parties could contractually agree to have Federal securities laws arbitrated.
In the Mitsubishi case, this Court held that Federal antitrust claims could be arbitrated.
Since the Becher case in 1929, when Justice Holmes wrote that there can be issue preclusion that will terminate a Federal patent case on the basis of findings in a State court, it can't seriously be contended that what occurs in lawfully constituted State proceedings cannot impact and, indeed, determine Federal proceedings.
In Allen v. McCurry, this Court, in terms of interpreting section 1738, held
"Congress has specifically required all Federal courts to give preclusive effect to State court judgments whenever the courts of a State-- "
Unknown Speaker: --Yes, but supposing a State court had litigated the whole case, including the Federal claims over which it had no jurisdiction, and purported to enter a judgment on the Federal claim--
Mr. Ostrager: --If there had been an adjudication--
Unknown Speaker: --what would happen then?
Mr. Ostrager: --of Federal claims, that would violate the Supremacy Clause.
Then there would be a manifest incompatibility with section 1738, but in the context of a consensual settlement--
Unknown Speaker: But if the State court considered that point--
--Yes, I don't think--
--and came to the conclusion that it wasn't incompatible, and therefore we're going to render this judgment--
Mr. Ostrager: --I believe that in that--
Unknown Speaker: --Fully litigated, and a State court came to that conclusion.
Mr. Ostrager: --In that case, review would be available to this Court under 1257, and that error could have been corrected.
Unknown Speaker: It could have been collaterally attacked.
Mr. Ostrager: We believe it probably could have been collaterally attacked.
Unknown Speaker: I think if you litigate jurisdiction in the State court, the State court decides against you, you lose on the Sunshine v. Treinies, and some of those cases in the early forties.
Mr. Ostrager: Certainly, Mr. Chief Justice, under Underwriters National and Durfee v. Duke, there is a rule of jurisdictional finality.
Chief Justice Rehnquist: Thank you, Mr. Ostrager.
The case is submitted.
Unknown Speaker: The court is now adjourned until tomorrow at ten o'clock.
Argument of Speaker
Mr. Speaker: The opinions of the Court in two cases will be announced by Justice Thomas.
Argument of Justice Thomas
Mr. 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.