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Matsushita Elec. Indus. Co., Ltd., et al. v. Epstein et al. (94-1809), 516 U.S. 367 (1996)
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NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D.C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.

SUPREME COURT OF THE UNITED STATES


No. 94-1809


MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD., et al., PETITIONERS v. LAWRENCE EPSTEIN et al.

on writ of certiorari to the united states court of appeals for the ninth circuit

[February 27, 1996]

Justice Thomas delivered the opinion of the Court.

In 1990, petitioner Matsushita Electric Industrial Co. made a tender offer for the common stock of MCA, Inc., a Delaware corporation. The tender offer not only resulted in Matsushita's acquisition of MCA, but also precipitated two lawsuits on behalf of the holders of MCA's common stock. First, a class action was filed in the Delaware Court of Chancery against MCA and its directors for breach of fiduciary duty in failing to maximize shareholder value. The complaint was later amended to state additional claims against MCA's directors for, inter alia, waste of corporate assets by exposing MCA to liability under the federal securities laws. In addition, Matsushita was added as a defendant and was accused of conspiring with MCA's directors to violate Delaware law. The Delaware suit was based purely on state law claims.

While the state class action was pending, the instant suit was filed in Federal District Court in California. The complaint named Matsushita as a defendant and alleged that Matsushita's tender offer violated Securities Exchange Commission (SEC) Rules 10b-3 and 14d-10. [n.1] These Rules were created by the SEC pursuant to the 1968 Williams Act Amendments to the Securities Exchange Act of 1934 (Exchange Act), 48 Stat. 881, as amended, 15 U.S.C. § 78a et seq. Section 27 of the Exchange Act confers exclusive jurisdiction upon the federal courts for suits brought to enforce the Act or rules and regulations promulgated thereunder. See 15 U.S.C. § 78aa. The District Court declined to certify the class, entered summary judgment for Matsushita, and dismissed the case. The plaintiffs appealed to the Court of Appeals for the Ninth Circuit.

After the federal plaintiffs filed their notice of appeal but before the Ninth Circuit handed down a decision, the parties to the Delaware suit negotiated a settlement. [n.2] In exchange for a global release of all claims arising out of the Matsushita MCA acquisition, the defendants would deposit $2 million into a settlement fund to be distributed pro rata to the members of the class. As required by Delaware Chancery Rule 23, which is modeled on Federal Rule of Civil Procedure 23, the Chancery Court certified the class for purposes of settlement and approved a notice of the proposed settlement. The notice informed the class members of their right to request exclusion from the settlement class and to appear and present argument at a scheduled hearing to determine the fairness of the settlement. In particular, the notice stated that "[b]y filing a valid Request for Exclusion, a member of the Settlement Class will not be precluded by the Settlement from individually seeking to pursue the claims alleged in the . . . California Federal Actions, . . . or any other claim relating to the events at issue in the Delaware Actions." App. to Pet. for Cert. 96a. Two such notices were mailed to the class members and the notice was also published in the national edition of the Wall Street Journal. The Chancery Court then held a hearing. After argument from several objectors, the Court found the class representation adequate and the settlement fair.

The order and final judgment of the Chancery Court incorporated the terms of the settlement agreement, providing:

All claims, rights and causes of action (state or federal, including but not limited to claims arising under the federal securities law, any rules or regulations promulgated thereunder, or otherwise), whether known or unknown that are, could have been or might in the future be asserted by any of the plaintiffs or any member of the Settlement Class (other than those who have validly requested exclusion therefrom), . . . in connection with or that arise now or hereafter out of the Merger Agreement, the Tender Offer, the Distribution Agreement, the Capital Contribution Agreement, the employee compensation arrangements, the Tender Agreements, the Initial Proposed Settlement, this Settlement . . . and including without limitation the claims asserted in the California Federal Actions . . . are hereby compromised, settled, released and discharged with prejudice by virtue of the proceedings herein and this Order and Final Judgment." In re MCA, Inc. Shareholders Litigation, C. A. No. 11740 (Feb. 22, 1993), reprinted in App. to Pet. for Cert. 74a-75a (emphasis added).

The judgment also stated that the notice met all the requirements of due process. The Delaware Supreme Court affirmed. In re MCA, Inc., Shareholders Litigation, 633 A. 2d 370 (1993) (judgment order).

Respondents were members of both the state and federal plaintiff classes. Following issuance of the notice of proposed settlement of the Delaware litigation, respondents neither opted out of the settlement class nor appeared at the hearing to contest the settlement or the representation of the class. On appeal in the Ninth Circuit, petitioner Matsushita invoked the Delaware judgment as a bar to further prosecution of that action under the Full Faith and Credit Act, 28 U.S.C. § 1738.

The Ninth Circuit rejected petitioner's argument, ruling that §1738 did not apply. Epstein v. MCA, Inc., 50 F. 3d 644, 661-666 (1995). Instead, the Court of Appeals fashioned a test under which the preclusive force of a state court settlement judgment is limited to those claims that "could . . . have been extinguished by the issue preclusive effect of an adjudication of the state claims." Id., at 665. The lower courts have taken varying approaches to determining the preclusive effect of a state court judgment, entered in a class or derivative action, that provides for the release of exclusively federal claims. [n.3] We granted certiorari to clarify this important area of federal law. 515 U. S. ___ (1995).

The Full Faith and Credit Act mandates that the "judicial proceedings" of any State "shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken." 28 U.S.C. § 1738. The Act thus directs all courts to treat a state court judgment with the same respect that it would receive in the courts of the rendering state. Federal courts may not "employ their own rules . . . in determining the effect of state judgments," but must "accept the rules chosen by the State from which the judgment is taken." Kremer v. Chemical Constr. Corp., 456 U.S. 461, 481-482 (1982). Because the Court of Appeals failed to follow the dictates of the Act, we reverse.

The state court judgment in this case differs in two respects from the judgments that we have previously considered in our cases under the Full Faith and Credit Act. As respondents and the Court of Appeals stressed, the judgment was the product of a class action and incorporated a settlement agreement releasing claims within the exclusive jurisdiction of the federal courts. Though respondents urge "the irrelevance of section 1738 to this litigation," Brief for Respondents 25, we do not think that either of these features exempts the judgment from the operation of §1738.

That the judgment at issue is the result of a class action, rather than a suit brought by an individual, does not undermine the initial applicability of §1738. The judgment of a state court in a class action is plainly the product of a "judicial proceeding" within the meaning of §1738. Cf. McDonald v. West Branch, 466 U.S. 284, 287-288 (1984) (holding that §1738 does not apply to arbitration awards because arbitration is not a "judicial proceeding"). Therefore, a judgment entered in a class action, like any other judgment entered in a state judicial proceeding, is presumptively entitled to full faith and credit under the express terms of the Act.

Further, §1738 is not irrelevant simply because the judgment in question might work to bar the litigation of exclusively federal claims. Our decision in Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373 (1985), made clear that where §1738 is raised as a defense in a subsequent suit, the fact that an allegedly precluded "claim is within the exclusive jurisdiction of the federal courts does not necessarily make §1738 inapplicable." Id., at 380 (emphasis added). In so holding, we relied primarily on Kremer v. Chemical Constr. Corp., supra, which held, without deciding whether Title VII claims are exclusively federal, that state court proceedings may be issue preclusive in Title VII suits in federal court. Kremer, we said, "implies that absent an exception to §1738, state law determines at least the . . . preclusive effect of a prior state judgment in a subsequent action involving a claim within the exclusive jurisdiction of the federal courts." Marrese, 470 U. S., at 381. Accordingly, we decided that "a state court judgment may in some circumstances have preclusive effect in a subsequent action within the exclusive jurisdiction of the federal courts." Id., at 380.

In Marrese, we discussed Nash County Board of Education v. Biltmore Co., 640 F. 2d 484 (CA4), cert. denied, 454 U.S. 878 (1981), a case that concerned a state court settlement judgment. In Nash, the question was whether the judgment, which approved the settlement of state antitrust claims, prevented the litigation of exclusively federal antitrust claims. See 470 U. S., at 382, n. 2. We suggested that the approach outlined in Marrese would also apply in cases like Nash that involve judgments upon settlement: that is, §1738 would control at the outset. See ibid. In accord with these precedents, we conclude that §1738 is generally applicable in cases in which the state court judgment at issue incorporates a class action settlement releasing claims solely within the jurisdiction of the federal courts.

Marrese provides the analytical framework for deciding whether the Delaware court's judgment precludes this exclusively federal action. When faced with a state court judgment relating to an exclusively federal claim, a federal court must first look to the law of the rendering State to ascertain the effect of the judgment. See id., at 381-382. If state law indicates that the particular claim or issue would be barred from litigation in a court of that state, then the federal court must next decide whether, "as an exception to §1738," it "should refuse to give preclusive effect to [the] state court judgment." Id., at 383. See also Migra v. Warren City School Dist. Bd. of Ed., 465 U.S. 75, 80 (1984) ("[I]n the absence of federal law modifying the operation of §1738, the preclusive effect in federal court of [a] state court judgment is determined by [state] law").

We observed in Marrese that the inquiry into state law would not always yield a direct answer. Usually, "a state court will not have occasion to address the specific question whether a state judgment has issue or claim preclusive effect in a later action that can be brought only in federal court." 470 U. S., at 381-382. Where a judicially approved settlement is under consideration, a federal court may consequently find guidance from general state law on the preclusive force of settlement judgments. See, e.g., id., at 382-383, n. 2 (observing in connection with Nash that "[North Carolina] law gives preclusive effect to consent judgment[s]"). Here, in addition to providing rules regarding the preclusive force of class action settlement judgments in subsequent suits in state court, the Delaware courts have also spoken to the particular effect of such judgments in federal court.

Delaware has traditionally treated the impact of settlement judgments on subsequent litigation in state court as a question of claim preclusion. Early cases suggested that Delaware courts would not afford claim preclusive effect to a settlement releasing claims that could not have been presented in the trial court. See Ezzes v. Ackerman, 234 A. 2d 444, 445-446 (Del. 1967) ("[A] judgment entered either after trial on the merits or upon an approved settlement is res judicata and bars subsequent suit on the same claim . . . . [T]he defense of res judicata . . . is available if the pleadings framing the issues in the first action would have permitted the raising of the issue sought to be raised in the second action, and if the facts were known or could have been known to the plaintiff in the second action at the time of the first action"). As the Court of Chancery has perceived, however, "the Ezzes inquiry [was] modified in regard to class actions," In re Union Square Associates Securities Litigation, C. A. No. 11028, 1993 WL 220528, *3 (June 16, 1993), by the Delaware Supreme Court's decision in Nottingham Partners v. Dana, 564 A. 2d 1089 (1989).

In Nottingham, a class action, the Delaware Supreme Court approved a settlement that released claims then pending in federal court. In approving that settlement, the Nottingham Court appears to have eliminated the Ezzes requirement that the claims could have been raised in the suit that produced the settlement, at least with respect to class actions:

" `[I]n order to achieve a comprehensive settlement that would prevent relitigation of settled questions at the core of a class action, a court may permit the release of a claim based on the identical factual predicate as that underlying the claims in the settled class action even though the claim was not presented and might not have been presentable in the class action.' " 564 A. 2d, at 1106 (quoting TBK Partners, Ltd. v. Western Union Corp., 675 F. 2d 456, 460 (CA2 1982)).

See Union Square, C. A. No. 11028, 1993 WL 220528, ___ (relying directly on Nottingham to hold that a Delaware court judgment settling a class action was res judicata and barred arbitration of duplicative claims that could not have been brought in the first suit). These cases indicate that even if, as here, a claim could not have been raised in the court that rendered the settlement judgment in a class action, a Delaware court would still find that the judgment bars subsequent pursuit of the claim.

The Delaware Supreme Court has further manifested its understanding that when the Court of Chancery approves a global release of claims, its settlement judgment should preclude on going or future federal court litigation of any released claims. In Nottingham, the Court stated that "[t]he validity of executing a general release in conjunction with the termination of litigation has long been recognized by the Delaware courts. More specifically, the Court of Chancery has a history of approving settlements that have implicitly or explicitly included a general release, which would also release federal claims." 564 A. 2d, at 1105 (citation omitted). Though the Delaware Supreme Court correctly recognized in Nottingham that it lacked actual authority to order the dismissal of any case pending in federal court, it asserted that state court approval of the settlement would have the collateral effect of preventing class members from prosecuting their claims in federal court. Perhaps the clearest statement of the Delaware Chancery Court's view on this matter was articulated in the suit preceding this one: "When a state court settlement of a class action releases all claims which arise out of the challenged transaction and is determined to be fair and to have met all due process requirements, the class members are bound by the release or the doctrine of issue preclusion. Class members cannot subsequently relitigate the claims barred by the settlement in a federal court." In re MCA, Inc. Shareholders Litigation, 598 A. 2d 687, 691 (1991). [n.4] We are aware of no Delaware case that suggests otherwise.

Given these statements of Delaware law, we think that a Delaware court would afford preclusive effect to the settlement judgment in this case, notwithstanding the fact that respondents could not have pressed their Exchange Act claims in the Court of Chancery. The claims are clearly within the scope of the release in the judgment, since the judgment specifically refers to this lawsuit. As required by Delaware Court of Chancery Rule 23, see Prezant v. De Angelis, 636 A. 2d 915, 920 (1994), the Court of Chancery found, and the Delaware Supreme Court affirmed, that the settlement was "fair, reasonable and adequate and in the best interests of the . . . Settlement class" and that notice to the class was "in full compliance with . . . the requirements of due process." In re MCA, Inc. Shareholders Litigation, C. A. No. 11740 (Feb. 22, 1993), reprinted in App. to Pet. for Cert. 73a, 74a. Cf. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985) (due process for class action plaintiffs requires "notice plus an opportunity to be heard and participate in the litigation"). The Court of Chancery "further determined that the plaintiffs[,]. . . as representatives of the Settlement Class, have fairly and adequately protected the interests of the Settlement Class." In re MCA, Inc. Shareholders Litigation, supra, reprinted in App. to Pet. for Cert. 73a. Cf. Phillips Petroleum Co., supra, at 812 (due process requires "that the named plaintiff at all times adequately represent the interests of the absent class members"). [n.5] Under Delaware Rule 23, as under Federal Rule of Civil Procedure 23, "[a]ll members of the class, whether of a plaintiff or a defendant class, are bound by the judgment entered in the action unless, in a Rule 23(b)(3) action, they make a timely election for exclusion." 2 H. Newberg, Class Actions §2755, p. 1224 (1977). See also Cooper v. Federal Reserve Bank of Richmond, 467 U.S. 867, 874 (1984) ("There is of course no dispute that under elementary principles of prior adjudication a judgment in a properly entertained class action is binding on class members in any subsequent litigation"). Respondents do not deny that, as shareholders of MCA's common stock, they were part of the plaintiff class and that they never opted out; they are bound, then, by the judgment. [n.6]

Because it appears that the settlement judgment would be res judicata under Delaware law, we proceed to the second step of the Marrese analysis and ask whether §27 of the Exchange Act, which confers exclusive jurisdiction upon the federal courts for suits arising under the Act, partially repealed §1738. Section 27 contains no express language regarding its relationship with §1738 or the preclusive effect of related state court proceedings. Thus, any modification of §1738 by §27 must be implied. In deciding whether §27 impliedly created an exception to §1738, the "general question is whether the concerns underlying a particular grant of exclusive jurisdiction justify a finding of an implied partial repeal of §1738." Marrese, 470 U. S., at 386. "Resolution of this question will depend on the particular federal statute as well as the nature of the claim or issue involved in the subsequent federal action. . . . [T]he primary consideration must be the intent of Congress." Ibid.

As an historical matter, we have seldom, if ever, held that a federal statute impliedly repealed §1738. See Parsons Steel, Inc. v. First Alabama Bank, 474 U.S. 518, 523-5245(1986) (Anti Injunction Act does not limit §1738); Migra v. Warren City School Dist. Bd. of Ed., 465 U.S. 75, 83-85 (1984) (§1983 does not limit claim preclusion under §1738); Kremer v. Chemical Constr. Corp., 456 U.S. 461, 468-476 (1982) (Title VII of the Civil Rights Act of 1964 does not limit §1738); Allen v. McCurry, 449 U.S. 90, 96-105 (1980) (§1983 does not limit issue preclusion under §1738). But cf. Brown v. Felsen, 442 U.S. 127, 138-139 (1979) (declining to give claim preclusive effect to prior state court debt collection proceeding in federal bankruptcy suit, without discussing §1738, state law or implied repeals). The rarity with which we have discovered implied repeals is due to the relatively stringent standard for such findings, namely, that there be an " `irreconcilable conflict' " between the two federal statutes at issue. Kremer v. Chemical Constr. Corp., supra, at 468 (quoting Radzanower v. Touche Ross & Co., 426 U.S. 148, 154 (1976)).

Section 27 provides that "[t]he district courts of the United States . . . shall have exclusive jurisdiction . . . of all suits in equity and actions at law brought to enforce any liability or duty created by this chapter or the rules and regulations thereunder." 15 U.S.C. § 78aa. There is no suggestion in §27 that Congress meant for plaintiffs with Exchange Act claims to have more than one day in court to challenge the legality of a securities transaction. Though the statute plainly mandates that suits alleging violations of the Exchange Act may be maintained only in federal court, nothing in the language of §27 "remotely expresses any congressional intent to contravene the common law rules of preclusion or to repeal the express statutory requirements of . . . 28 U.S.C. § 1738." Allen v. McCurry, supra, at 97-98.

Nor does §27 evince any intent to prevent litigants in state court--whether suing as individuals or as part of a class--from voluntarily releasing Exchange Act claims in judicially approved settlements. While §27 prohibits state courts from adjudicating claims arising under the Exchange Act, it does not prohibit state courts from approving the release of Exchange Act claims in the settlement of suits over which they have properly exercised jurisdiction, i.e., suits arising under state law or under federal law for which there is concurrent jurisdiction. In this case, for example, the Delaware action was not "brought to enforce" any rights or obligations under the Act. The Delaware court asserted judicial power over a complaint asserting purely state law causes of action [n.7] and, after the parties agreed to settle, certified the class and approved the settlement pursuant to the requirements of Delaware Rule of Chancery 23 and the Due Process Clause. Thus, the Delaware court never trespassed upon the exclusive territory of the federal courts, but merely approved the settlement of a common law suit pursuant to state and nonexclusive federal law. See Abramson v. Pennwood Investment Corp., 392 F. 2d 759, 762 (CA2 1968) ("Although the state court could not adjudicate the federal claim, it was within its powers over the corporation and the parties to approve the release of that claim as a condition of settlement of the state action"). While it is true that the state court assessed the general worth of the federal claims in determining the fairness of the settlement, such assessment does not amount to a judgment on the merits of the claims. See TBK Partners, Ltd. v. Western Union Corp., 675 F. 2d 456, 461 (CA2 1982) (" `Approval of a settlement does not call for findings of fact regarding the claims to be compromised. The court is concerned only with the likelihood of success or failure; the actual merits of the controversy are not to be determined' ") (quoting Haudek, The Settlement and Dismissal of Stockholders' Actions Part II: The Settlement, 23 Sw. L. J. 765, 809 (1969) (footnotes omitted)). The Delaware court never purported to resolve the merits of the Exchange Act claims in the course of appraising the settlement; indeed, it expressly disavowed that purpose. See In re MCA, Inc. Shareholders Litigation, C. A. No. 11740 (Feb. 16, 1993), reprinted in App. to Pet. for Cert. 68a ("In determining whether a settlement should be approved, a court should not try the merits of the underlying claims. This principle would seem to be especially appropriate where the underlying claims, like the federal claims here, are outside the jurisdiction of this Court" (citation omitted)).

The legislative history of the Exchange Act elucidates no specific purpose on the part of Congress in enacting §27. See Murphy v. Gallagher, 761 F. 2d 878, 885 (CA2 1985) (noting that the legislative history of the Exchange Act provides no readily apparent explanation for the provision of exclusive jurisdiction in §27) (citing 2 & 3 L. Loss, Securities Regulation 997, 2005 (2d ed. 1961)). We may presume, however, that Congress intended §27 to serve at least the general purposes underlying most grants of exclusive jurisdiction: "to achieve greater uniformity of construction and more effective and expert application of that law." Murphy v. Gallager, supra, at 885. When a state court upholds a settlement that releases claims under the Exchange Act, it threatens neither of these policies. There is no danger that state court judges who are not fully expert in federal securities law will say definitively what the Exchange Act means and enforce legal liabilities and duties thereunder. And the uniform construction of the Act is unaffected by a state court's approval of a proposed settlement because the state court does not adjudicate the Exchange Act claims but only evaluates the overall fairness of the settlement, generally by applying its own business judgment to the facts of the case. See, e.g., Polk v. Good, 507 A. 2d 531, 535 (Del. 1986).

Furthermore, other provisions of the Exchange Act suggest that Congress did not intend to create an exception to §1738 for suits alleging violations of the Act. Congress plainly contemplated the possibility of dual litigation in state and federal courts relating to securities transactions. See 15 U.S.C. § 78bb(a) (preserving "all other rights and remedies that may exist at law or in equity"). And all that Congress chose to say about the consequences of such litigation is that plaintiffs ought not obtain double recovery. See ibid. Congress said nothing to modify the background rule that where a state court judgment precedes that of a federal court, the federal court must give full faith and credit to the state court judgment. See Murphy v. Gallagher, supra, at 884.

Finally, precedent supports the conclusion that the concerns underlying the grant of exclusive jurisdiction in §27 are not undermined by state court approval of settlements releasing Exchange Act claims. We have held that state court proceedings may, in various ways, subsequently affect the litigation of exclusively federal claims without running afoul of the federal jurisdictional grant in question. In Becher v. Contoure Laboratories, Inc., 279 U.S. 388 (1929) (cited in Marrese, 470 U. S., at 381), we held that state court findings of fact were issue preclusive in federal patent suits. We did so with full recognition that "the logical conclusion from the establishing of [the state law] claim is that Becher's patent is void." 279 U. S., at 391. Becher reasoned that although "decrees validating or invalidating patents belong to the Courts of the United States," that "does not give sacrosanctity to facts that may be conclusive upon the question in issue." Ibid. Similarly, while binding legal determinations of rights and liabilities under the Exchange Act are for federal courts only, there is nothing sacred about the approval of settlements of suits arising under state law, even where the parties agree to release exclusively federal claims. See also Brown v. Felsen, 442 U. S., at 139, n. 10 (noting that "[i]f, in the course of adjudicating a state law question, a state court should determine factual issues using standards identical to those of §17, then collateral estoppel, in the absence of countervailing statutory policy, would bar relitigation of those issues in the bankruptcy court"); Pratt v. Paris Gas Light & Coke Co., 168 U.S. 255, 258 (1897) (when a state court has jurisdiction of the parties and the subject matter of the complaint, the state court may decide the validity of a patent when that issue is raised as a defense).

We have also held that Exchange Act claims may be resolved by arbitration rather than litigation in federal court. In Shearson/American Express Inc. v. McMahon, 482 U.S. 220 (1987), we found that parties to an arbitration agreement could waive the right to have their Exchange Act claims tried in federal court and agree to arbitrate the claims. Id., at 227-228. It follows that state court litigants ought also to be able to waive, or "release," the right to litigate Exchange Act claims in a federal forum as part of a settlement agreement. As Shearson/American Express Inc. demonstrates, a statute conferring exclusive federal jurisdiction for a certain class of claims does not necessarily require resolution of those claims in a federal court.

Taken together, these cases stand for the general proposition that even when exclusively federal claims are at stake, there is no "universal right to litigate a federal claim in a federal district court." Allen v. McCurry, 449 U. S., at 105. If class action plaintiffs wish to preserve absolutely their right to litigate exclusively federal claims in federal court, they should either opt out of the settlement class or object to the release of any exclusively federal claims. In fact, some of the plaintiffs in the Delaware class action requested exclusion from the settlement class. They are now proceeding in federal court with their federal claims, unimpeded by the Delaware judgment.

In the end, §§27 and 1738 "do not pose an either or proposition." Connecticut Nat. Bank v. Germain, 503 U.S. 249, 253 (1992). They can be reconciled by reading §1738 to mandate full faith and credit of state court judgments incorporating global settlements, provided the rendering court had jurisdiction over the underlying suit itself, and by reading §27 to prohibit state courts from exercising jurisdiction over suits arising under the Exchange Act. Cf. C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure §4470 pp. 688-689 (1981) ("[S]ettlement of state court litigation has been held to defeat a subsequent federal action if the settlement was intended to apply to claims in exclusive federal jurisdiction as well as other claims. . . . These rulings are surely correct"). Congress' intent to provide an exclusive federal forum for adjudication of suits to enforce the Exchange Act is clear enough. But we can find no suggestion in §27 that Congress meant to override the "principles of comity and repose embodied in §1738," Kremer v. Chemical Constr. Corp., 456 U. S., at 463, by allowing plaintiffs with Exchange Act claims to release those claims in state court and then litigate them in federal court. We conclude that the Delaware courts would give the settlement judgment preclusive effect in a subsequent proceeding and, further, that §27 did not effect a partial repeal of §1738.

The Court of Appeals did not engage in any analysis of Delaware law pursuant to §1738. Rather, the Court of Appeals declined to apply §1738 on the ground that where the rendering forum lacked jurisdiction over the subject matter or the parties, full faith and credit is not required. 50 F. 3d, at 661, 666. See Underwriters Nat. Assurance Co. v. North Carolina Life & Accident & Health Ins. Guaranty Assn., 455 U.S. 691, 704-705 (1982) (" `[A] judgment of a court in one State is conclusive upon the merits in a court in another State only if the court in the first State had power to pass on the merits--had jurisdiction, that is, to render the judgment' ") (quoting Durfee v. Duke, 375 U.S. 106, 110 (1963)). The Court of Appeals decided that the subject matter jurisdiction exception to full faith and credit applies to this case because the Delaware court acted outside the bounds of its own jurisdiction in approving the settlement, since the settlement released exclusively federal claims. See 50 F. 3d, at 661-662, and n. 25.

As explained above, the state court in this case clearly possessed jurisdiction over the subject matter of the underlying suit and over the defendants. Only if this were not so--for instance, if the complaint alleged violations of the Exchange Act and the Delaware court rendered a judgment on the merits of those claims--would the exception to §1738 for lack of subject matter jurisdiction apply. Where, as here, the rendering court in fact had subject matter jurisdiction, the subject matter jurisdiction exception to full faith and credit is simply inapposite. In such a case, the relevance of a federal statute that provides for exclusive federal jurisdiction is not to the state court's possession of jurisdiction per se, but to the existence of a partial repeal of §1738. [n.8]

* * *

The judgment of the Court of Appeals is reversed and remanded for proceedings consistent with this opinion.

It is so ordered.


Notes

1 We express no opinion in this case on the existence of a private cause of action under §§14(d)(6) and (7) of the Exchange Act, 15 U.S.C. §§ 78n(d)(6) and (7), the statutory authority for Rule 14d 10.

2 A previous settlement was rejected by the Court of Chancery as unfair to the class. See In re MCA, Inc. Shareholders Litigation, 598 A. 2d 687 (1991).

3 Compare the decision below with Grimes v. Vitalink Communications Corp., 17 F. 3d 1553 (CA3), cert. denied, 513 U. S. __ (1994); Nottingham Partners v. Trans Lux Corp., 925 F. 2d 29 (CA1 1991); and Abramson v. Pennwood Investment Corp., 392 F. 2d 759 (CA2 1968).

4 In fact, the Chancery Court rejected the first settlement, which contained no opt out provision, as unfair to the class precisely because it believed that the settlement would preclude the class from pursuing their exclusively federal claims in federal court. See In re MCA Inc. Shareholders Litigation, 598 A.2d 687, 692 (1991) ("[I]f this Court provides for the release of all the claims arising out of the challenged transaction, the claims which the Objectors have asserted in the federal suit will likely be forever barred").

5 A part from any discussion of Delaware law, respondents contend that the settlement proceedings did not satisfy due process because the class was inadequately represented. See Brief for Respondents 34-45. Respondents make this claim in spite of the Chancery Court's express ruling, following argument on the issue, that the class representatives fairly and adequately protected the interests of the class. Cf. Prezant v. De Angelis, 636 A.2d 915, 923 (Del. 1994) ("[The] constitutional requirement [of adequacy of representation] is embodied in [Delaware] Rule 23(a)(4), which requires that the named plaintiff `fairly and adequately protect the interests of the class' "). We need not address the due process claim, however, because it is outside the scope of the question presented in this Court. See Yee v. Escondido, 503 U.S. 519, 533 (1992). While it is true that a respondent may defend a judgment on alternative grounds, we generally do not address arguments that were not the basis for the decision below. See Peralta v. Heights Medical Center, Inc., 485 U.S. 80, 86 (1988).

6 Respondents argue that their failure to opt out of the settlement class does not constitute consent to the terms of the settlement under traditional contract principles. Brief for Respondents 16-25. Again, the issue raised by respondents--whether the settlement could bar this suit as a matter of contract law, as distinguished from §1738 law--is outside the scope of the question on which we granted certiorari. We note, however, that if a State chooses to approach the preclusive effect of a judgment embodying the terms of a settlement agreement as a question of pure contract law, a federal court must adhere to that approach under §1738. Kremer v. Chemical Constr. Corp., 456 U.S. 461, 481-482 (1982).

7 Though the plaintiff class premised one of its claims of fiduciary breach on the allegation that MCA wasted corporate assets by exposing the corporation to liability under the federal securities laws, the cause pled was nonetheless a state common law action for breach of fiduciary duty.

8 Kalb v. Feuerstein, 308 U.S. 433 (1940), is not to the contrary. In that case, the federal statute at issue expressly prohibited certain common law actions from being either instituted or maintained in state court. Id., at 440-441. Thus, by merely entertaining a common law foreclosure suit, over which it otherwise would have had jurisdiction, the state court violated the terms of the Act. That is not the situation here, where there is no contention that just by entertaining the class action the Delaware court acted in violation of federal law.