Enforcing Class Action Settlements: Can Federal Courts Refuse to Give Effect to State Court Class Settlements that Release Exclusively Federal Claims?

This article previews the issues and arguments in Matsushita Electric Industrial Co., Ltd. v. Epstein, on the Supreme Court’s 995-96 appellate docket. The primary issue before the Court focuses on whether a federal court refuse to give effect to a state-court approved class action settlement that releases exclusively federal claims?More than 90 percent of civil litigation is resolved through settlement, and most legal disputes never proceed to trial and a jury verdict. The judicial system favors private party settlements ― as long as they are not the product of duress, coercion, collusion, or other overreaching ― because settlements reduce litigation transaction costs and conserve judicial resources.In recent years, however, federal courts have focused increased attention on problems relating to settlement enforcement. In this case, the Supreme Court will analyze the very important question of whether class action litigants can use federal courts to attack and reopen a class action settlement approved by a state court, a settlement that includes a provision releasing exclusively federal claims.The Supreme Court's decision in Matsushita is immediately important in relation to the highly controversial and currently topical issues involved in aggregate litigation: shareholder derivative lawsuits and mass, personal injury class actions that typically have very large plaintiff classes. As the Matsushita case itself demonstrates, the resolution of mass class action litigation involves competing policy concerns. The first policy concern centers on the legal system's desire to encourage and assist private-party resolution of disputes outside the auspices of the court system. To the extent that parties may negotiate and resolve their grievances, both the parties and the courts are spared the often excessive cost and delay involved in litigating legal disputes. However, settlement agreements are viable only to the extent that the parties may rely on their finality and enforceability to avoid subsequent relitigation in other courts. On the other hand, the federal judicial system must give effect to the congressionally determined subject subject- matter jurisdiction of the federal courts. In addition, the federal judicial system has an interest ― particularly in representational litigation such as shareholder derivative suits or mass, personal injury class actions ― in seeing that such negotiated settlements are fair, adequate, and reasonable and do not deny class members their due process rights.The Matsushita case offers the Supreme Court the opportunity to revisit the complicated relationship between the full-faith-and-credit statute and congressionally mandated exclusive jurisdiction, a relationship that existing precedents have not resolved conclusively. In the end, it is likely that the Court will balance the values of the preclusion doctrine in the context of negotiated settlements, the interests of federalism and intersystem comity, and the needs of exclusive federal jurisdiction in order to resolve this important case.