Matsushita Elec. Industrial Co. v. Epstein,
516 U.S. 367 (1996)

Annotate this Case
  • Syllabus  | 
  • Case





No. 94-1809. Argued November 27, 1995-Decided February 27, 1996

A tender offer resulting in petitioner Matsushita Electric Industrial Coo'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 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. 373-387.

(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 inap-


plicable, Marrese v. American Academy of Orthopaedic Surgeons, 470

(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. 375.

(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 ongoing 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.375-379.

(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. Pp.380-386.

Full Text of Opinion

Primary Holding

Exclusively federal claims in a class action that is pending in federal court can be released when the state claims from the same class action are settled.


After making a tender offer for MCA, a Delaware corporation, Matsushita Elec. Industrial Co. acquired it. The shareholders of MCA filed a class action against its directors in Delaware state court, arguing that they had not properly maximized shareholder value during the sale. Before this case had been heard, a claim arose in California federal court for alleged violations of the Williams Act. (Federal courts have exclusive jurisdiction to hear Williams Act claims under the Securities Exchange Act of 1934.)

During an appeal of the federal court's decision against certifying the class, the Delaware case ended in a settlement that included a release of all claims arising from the Matsushita-MCA acquisition. The approval of the settlement in the chancery court was contingent on the approval being affirmed in the Delaware Supreme Court. When Matsushita pointed out the existence of this settlement to the Ninth Circuit, which was reviewing the appeal of the federal case, the Ninth Circuit responded that the settlement of a case in state court did not resolve claims that were exclusively federal.



  • Clarence Thomas (Author)
  • William Hubbs Rehnquist
  • Sandra Day O'Connor
  • Antonin Scalia
  • Anthony M. Kennedy
  • David H. Souter
  • Stephen G. Breyer

Federal courts are required by the Full Faith and Credit Act to give the results of proceedings in a state court the effect that the laws of that state require. Under Delaware law, releasing all claims in a state court case precludes future litigation of those released claims in federal court, even though the state court would not have had jurisdiction over the federal claims. The exception to this rule arises if the state court lacked subject matter jurisdiction over the case that it heard. However, this was not the situation here because the state court had jurisdiction over the action brought there and would have recognized that approving the settlement would release the pending federal claims.

Concurrence/Dissent In Part

  • John Paul Stevens (Author)

Concurrence/Dissent In Part

  • Ruth Bader Ginsburg (Author)
  • John Paul Stevens
  • David H. Souter

Case Commentary

The Full Faith and Credit Act almost always applies to judgments in different court systems, unless there is a clear dissonance with another federal statute that cannot be harmonized with it. These situations of "implicit repeal" almost never happen.

Disclaimer: Justia Annotations is a forum for attorneys to summarize, comment on, and analyze case law published on our site. Justia makes no guarantees or warranties that the annotations are accurate or reflect the current state of law, and no annotation is intended to be, nor should it be construed as, legal advice. Contacting Justia or any attorney through this site, via web form, email, or otherwise, does not create an attorney-client relationship.

Disclaimer: Official Supreme Court case law is only found in the print version of the United States Reports. Justia case law is provided for general informational purposes only, and may not reflect current legal developments, verdicts or settlements. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or information linked to from this site. Please check official sources.