Epstein v. MCA, Inc. (Epstein III)

A buyout triggered two simultaneous class actions against Matsushita Acquisition Corporation (Matsushita) (defendant) for the same alleged wrongs: one action in federal court and one action in state court. The state court approved a settlement that released all the class’s claims, state and federal, and the settlement became the final judgment in the state-court action. Matsushita then moved to dismiss the federal action, arguing that the releases in the state-court judgment precluded all the claims in the federal action. Lawrence Epstein and other class members in the federal action (plaintiffs) claimed that they had not received due process in the state action because the class counsel’s representation of their interests was inadequate. Epstein argued that the lack of due process meant that the state-court judgment was not binding on the absent class members and that their claims had not been released. In Epstein II, a Ninth Circuit panel decided that (1) absent class members could collaterally attack a state court’s class-action judgment in a federal action for alleged due-process violations, such as inadequate representation; and (2) Epstein and the other absent class members were not bound by the Delaware state court’s judgment and release of their federal claims because the members’ interests had not been adequately represented in that action, which violated the absent members’ rights to due process. However, Matsushita filed a petition for rehearing, and the Ninth Circuit agreed to rehear the matter.