The Intersystem Class Settlement: Of Comity, Consent, and Collision
81 Pages Posted: 27 Sep 2012
Date Written: September 20, 1998
The class action area is one of substantial ferment. Mass torts and securities actions, in particular, have spurred innovation and reaction, generating, in turn, both applause and criticism. As the class action is used to achieve more ambitious aims, attention has focused on settlement and the manner in which it is reached. Judges and scholars have assessed and debated questions such as how to ensure that absent class members are adequately represented, especially when those members are truly passive as with a futures class. When is a settlement that offers class attorneys substantial fees but affords class members only noncash compensation fair, adequate, and reasonable? When, if ever, is a temporary settlement class-a class certified only for settlement purposes-appropriate?
A number of these issues and concerns converged in the United States Supreme Court's consideration of intersystem preclusion in Matsushita Electric Industrial Co. v. Epstein. In Epstein, the Court determined that 28 U.S.C. 1738 may require a federal court to accord preclusive effect to a state court judgment approving a class action settlement when that settlement releases defendants from liability with regard to all actions, including federal claims over which federal courts have exclusive jurisdiction, that arise out of the subject transaction. Given defendants' interest in global settlements, Epstein plainly has substantial implications for intersystem class actions involving exclusive federal claims. The significance of the Court's decision and analysis in Epstein, however, extends beyond the exclusive federal claim context. The decision underscores, again, the importance of a careful determination of adequate representation and raises questions regarding when and how mistakes in that regard can be corrected and whether due process can be effectively utilized as a check against collusion.
This Article contends that the Court's analysis failed to give sufficient consideration and weight to the exclusive federal nature of the subject claim or to the fact that the state action was a class action with the attendant risks and compromises that device entails. These failures led the Court to the wrong conclusion-that on the basis of 28 U.S.C. 1738, a state class settlement may bar litigation of an exclusive federal claim in federal court. This result undermines federal interests by mistakenly elevating comity over congressional intent, robs the concept of consent of any real meaning, and unnecessarily facilitates collusion. Although due process is offered as a counterbalance to the restrictions 28 U.S.C. 1738 imposes, due process does not purport to address the sovereignty concerns Epstein raises. Moreover, given the present uncertainty regarding the content of due process protections and their availability to class members, the Due Process Clause offers imperfect protection for absent class members.
The Article also outlines the implications Epstein has for class actions outside the exclusive federal claim context. In particular, it addresses comity issues raised in recent intersystem class actions and the possible appropriate role for collateral attack these issues suggest.
Keywords: class action, class action settlements, Matsushita v. Epstein, intersystem judgments, res judicata rated
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