Matsushita and Beyond: The Role of State Courts in Class Actions Involving Exclusive Federal Claims,

Abstract

In Matsushita Electric Industrial Co. v. Epstein, the Supreme Court held that a class action settlement approved by a state court is entitled to "full faith and credit," notwithstanding the fact that the settlement provides for a release of claims subject to the exclusive jurisdiction of federal courts. We analyze two questions raised by the opinion: when should state courts approve a settlement that provides for such a release; and when should such a settlement be subject to collateral attack in federal court. We argue that state class action settlements encompassing exclusive federal claims entail process deficiencies that go beyond those present in ordinary class action settlements: the bargaining power of the state class attorney with respect to the federal claims is impaired; the defendant's ability to engage in "plaintiff shopping" is increased; and the court may have less information to assess the fairness of a proposed settlement. State courts should therefore adopt a number of special precautions before approving such settlements. If state courts adopt such precautions, a decision to approve a settlement should not be subject to collateral attack. Collateral attack, however, should be permitted if the state court settlement structures do not provide for reasonable measures to guard against these process deficiencies and protect the federal interests at stake.

JEL Classification: K41