## Facts

- Matsushita Electric Industrial Co., Ltd. acquired MCA, Inc., a Delaware corporation, through a tender offer.
- MCA shareholders filed a Delaware Chancery Court class action asserting only state-law claims against MCA, its directors, and later Matsushita, arising from the acquisition.
- While the Delaware action was pending, shareholders also filed a federal class action in the Central District of California alleging violations of federal securities regulations under the Williams Act; those claims were within the Exchange Act’s exclusive federal jurisdiction.
- The federal district court granted summary judgment for Matsushita; the shareholders appealed to the Ninth Circuit.
- The parties reached a global settlement in the Delaware case in which non-opt-out class members agreed to release all claims connected to the acquisition, including the federal securities claims asserted in California.
- The Delaware Court of Chancery approved the settlement as fair and adequate; the Delaware Supreme Court affirmed.
- Shareholders who were members of both classes, and who did not opt out or contest the settlement in Delaware, continued to pursue the federal appeal.
- Matsushita asserted that the Delaware judgment barred the federal securities case under the Full Faith and Credit Act, 28 U.S.C. § 1738; the Ninth Circuit refused to give the Delaware judgment preclusive effect.

## Issues

1. Whether a federal court may deny full faith and credit to a state-court class-action settlement judgment because it releases claims within the exclusive jurisdiction of the federal courts.
2. Whether any provision of the Exchange Act (including its exclusive-jurisdiction clause) partially repeals or limits 28 U.S.C. § 1738 as applied to such a state judgment.
3. Whether the preclusive effect of the state settlement must be determined by the rendering state’s preclusion law rather than a federal court’s independently fashioned limitation.

## Decision

- The Supreme Court reversed the Ninth Circuit and held that the Delaware settlement judgment was entitled to full faith and credit in federal court.
- Federal courts must give a state-court judgment the same preclusive effect it would receive in the courts of the state that rendered it.
- The Exchange Act’s exclusive-jurisdiction provision did not partially repeal § 1738, so it did not justify withholding full faith and credit.
- The Ninth Circuit’s rule limiting preclusion to what could have been achieved through issue preclusion after adjudicating the state claims was rejected.
- The Court noted that concerns about absent class members and loss of federal rights are addressed through due process protections in the state proceeding (including adequacy of representation and opt-out rights), not by altering § 1738’s command.

## Legal Principles

- Under 28 U.S.C. § 1738, federal courts must apply the rendering state’s preclusion rules to state-court judgments, including class-action settlement judgments.
- A state-court settlement judgment may preclude later litigation of claims arising from the same transaction even if those claims fall within exclusive federal jurisdiction, unless a federal statute expressly or impliedly partially repeals § 1738.
- Exclusive federal jurisdiction over a category of claims does not, by itself, create an exception to full faith and credit for state-court judgments releasing those claims.
- Limits on binding absent class members principally arise from constitutional due process requirements (notice, opportunity to opt out where required, and adequate representation), not from a federal court-created restriction on state judgment preclusion.

## Conclusion

The Court held that a federal court must honor a Delaware class-action settlement judgment that released federal securities claims within exclusive federal jurisdiction because § 1738 requires giving the judgment the same preclusive effect Delaware courts would give it, and the Exchange Act did not displace that rule.


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