Opinion ID: 692029
Heading Depth: 2
Heading Rank: 3

Heading: The Contract Bar Argument

Text: Matsushita argues that regardless of the technical res judicata effect of the Delaware judgment, the Epstein plaintiffs are barred from litigating their Williams Act claims in federal court as a matter of contract. As Matsushita puts it, just as an individual plaintiff may, as a part of a settlement in state court, agree to release exclusively federal claims, so, too, may a class give such a release as part of a judicially approved class settlement. Brief of Matsushita at 20. This attempt to equate class settlements with the settlement of traditional litigation by individual parties falls short. Matsushita is correct, of course, that individual plaintiffs may release whatever claims they choose in settling traditional non-class litigation, whether or not related to the claims asserted in the pleadings. Because court approval of ordinary settlements is not required, the amount and form of consideration a party is willing to give or receive to settle a case is a matter of judicial indifference. Whether the forum court has jurisdiction over the claims a party chooses to release in settling traditional litigation is irrelevant. See Green v. Ancora-Citronelle Corp., 577 F.2d 1380, 1383 (9th Cir.1978) (an individual litigant who releases exclusively federal claims as part of a settlement of a state action may not relitigate them in federal court). Indeed, general releases are commonly exchanged between individual litigants in settlements. However, the settlement of a class action is fundamentally different from the settlement of traditional litigation. 32 First, Matsushita is simply wrong to assert that a class may give a release as part of a settlement. A class is not an entity that has rights; the rights belong to the class members. But class members, unlike individual litigants in traditional lawsuits, are bound by the settlement even though they do not individually consent to its terms. Instead, consent is given by class representatives, who derive authority to represent members not by obtaining their consent, but by obtaining a court order designating them the representatives. Second, class members may only give a release as part of a judicially approved settlement. Class representatives lack the power to give a release of the class rights on their own, absent judicial approval of the release and entry of a judgment. National Super Spuds, 660 F.2d at 18 (quoting Haudek, The Settlement and Dismissal of Stockholders' Action--Part II: The Settlement, 23 Sw.L.J. 765, 773 (1969)). Because class actions do not require the active participation of class members, class settlements pose a danger not present in traditional litigation: that representative plaintiffs and their lawyers will endeavor to obtain a better settlement by sacrificing the claims of others at no cost to themselves. Id. at 19. For this reason, a court may not delegate to [class] counsel the performance of its [own] duty to protect the interests of absent class members. Plummer v. Chemical Bank, 668 F.2d 654, 659 n. 4 (2d Cir.1982). Instead, in order to protect the rights of absent class members, the court must assume a far more active role than it typically plays in traditional litigation. A class action, thus, is less an individual lawsuit than a quasi-administrative proceeding, conducted by the judge. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 809, 105 S.Ct. 2965, 2973, 86 L.Ed.2d 628 (1985). This notwithstanding, Matsushita argues that the failure of the Epstein plaintiffs to opt out of the class is sufficient reason to bind them contractually to the release of their federal claims. In Matsushita's view, the opportunity to opt out changes the essence of a class action settlement from an exercise of judicial power restrained by jurisdictional limits into an exercise of individual consent. This argument fails for two reasons. First, that the class members have a right to opt out does not diminish the extent to which a class action settlement is an exercise of judicial power. Regardless of whether class members are given opt-out rights, the court is still required to ensure that representation is adequate and that the settlement is fair to class members. See, e.g., Prezant v. Salton/Maxim Housewares, Inc., 636 A.2d 915 (Del.1994). The settlement of the class action is not an act of judicial mediation; it is an act of judicial power. Second, the consent purportedly given by class members in deciding not to opt out is hardly comparable to the consent given by individual plaintiffs in deciding to settle their own traditional lawsuits. Because opt-out rights are, as the Delaware Supreme Court has observed, infrequently utilized and usually economically impracticable, Prezant, 636 A.2d at 924, we would be blind to reality to think that any consent implied by class members in deciding not to opt out is comparable to the consent given by individual plaintiffs in settling their own lawsuits. In sum, we reject Matsushita's effort to equate class settlements with settlements of individual lawsuits. We believe that a state court cannot require passive class members to contractually release their exclusively federal claims in order to enjoy the benefits of a state class action, when the court has no jurisdictional power to dispose of those claims either directly or indirectly through the doctrine of issue preclusion. 33